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Weekly Contrarian: VIVUS, Inc. (VVUS) Uncertainty Doesn't Spook Bulls

Analysts remain enamored with VVUS, despite Qsymia struggles and a proxy fight

by 7/3/2013 10:40 AM
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At the end of the first quarter, Qsymia, the weight-loss drug developed by VIVUS, Inc. (NASDAQ:VVUS), had been prescribed by just 15,000 doctors to 40,000 patients. Although the company says that number is on the rise, the drug "is having a hard time winning even a tiny slice" of the huge weight-loss market, "despite an apparent need," notes this New York Times article.

Most notably, the pill is facing a "lack of insurance reimbursement, modest weight loss, safety concerns, the troubled history of diet drugs," and doctors' unwillingness to prescribe a pill as opposed to a diet-and-exercise regimen. What's more, VVUS' largest shareholder, First Manhattan, criticized the launch of the drug, and is now on a mission to shake up the board. In fact, ahead of a key shareholder meeting on July 15, First Manhattan yesterday nominated a former AstraZeneca plc (ADR) (NYSE:AZN) senior executive to the CEO spot.

Contrarian Perspective

As the article notes, VVUS has shed more than half its value since trading near $29 the day after Qsymia was approved last July, with the stock last seen around $12.46. Rebound attempts have stalled in the $14-$16 neighborhood, courtesy of the equity's 50-week and 80-week moving averages. More recently, VVUS has underperformed the broader S&P 500 Index (SPX) by roughly 12 percentage points during the past month.

Nevertheless, five out of 11 analysts maintain "buy" or better endorsements. Plus, the consensus 12-month price target of $17.50 represents expected upside of 40% from VVUS' current price, and stands in territory not explored since late October. Should VIVUS, Inc. (NASDAQ:VVUS) continue to struggle on and off the charts, a round of downgrades and/or price-target cuts could exacerbate selling pressure on the drug maker.

Meanwhile, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.38 indicates that calls comfortably outnumber puts among options expiring within three months. Even more telling, this ratio registers in the 29th percentile of its annual range, implying that near-term options traders are more call-heavy than usual. An unwinding of optimism in the options pits could also weigh on VVUS.

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