Might be a rerun...
Stock of the Day (Archive) (Online Investor)
May 18, 1998
Vivus: Life After Viagra?
May 18, 1998 - The company has recently been sued, watched its share price get decimated, and seen a new competitor introduce a pill that successfully treats impotence with few side effects.
The lawsuit, which is now being treated as a class action, was prompted by shareholders who believe the company manipulated share prices by issuing bullish statements that made things appear better than they actually were during the second half of 1997. Things, in fact, were anything but better. Shareholders point to December 10, 1997, as proof that things were actually not going well at all. On that day, the company announced it would miss fourth quarter revenue goals by as much as 25 percent; as a result the company's share price, which stood as high as $21.50 on the day the company issued its revenue warning, fell nearly 30 percent, to $13 and change. Since then, shares have retreated even further, resting at its current price of $10. Once upon a time, shares of Vivus traded as high as $41.88.
Unfortunately, things may not be a whole lot better going forward.
Pfizer Inc., the pharmaceutical behemoth, recently launched Viagra, an impotence drug that's taken orally. Response during the drug's first month on the market has been overwhelming. According to Scott-Levin, a prescription drug audit service, patients obtained 570,000 new prescriptions for Pfizer's Viagra in April, the most prescriptions ever for a drug in the U.S. during its first month on the market. For the month of May it's been much the same.
Still, according to Vivus fans, Viagra's success doesn't mean that Vivus is washed up. While Vivus' chief product, Muse, which stands for Medicated Urethral System for Erection, is not taken orally, but instead requires a person to release a medicated pellet up the urethra, by plunging an inch-long inserter into it -- a process that scares many men away -- supporters of Vivus say that Viagra's success may bring some people who suffer from erectile dysfunction out of the woodwork. They contend, in fact, that since not all people seeking treatment for the first time will be able to benefit from Viagra, Vivus could benefit nicely.
A research report issued on April 23 by Cruttenden Roth Inc. analyst Wole M. Fayemi laid out the argument for being bullish on the stock. "We estimate that Viagra is likely to be effective in less than 50 percent of all erectile dysfunction patients," said Fayemi. "Thus, a large percentage of patients who fail on Viagra are likely to progress to Muse."
Additionally, while Viagra works well on mild and psychologically related cases of erectile dysfunction, says Fayemi, it's only marginally effective with moderate to severe conditions. Muse on the other hand has been shown to work across the board. Once men with moderate to severe problems realize that Viagra isn't the answer, "more of them will ultimately migrate toward Muse," said Fayemi. The analyst raised his rating from "neutral" to "strong buy."
Fayemi may very well be correct in the long run, but expect most men to continue resisting treatments that require something to be inserted into the urethra; ditto for treatments that require a man to prick his penis with a needle. As one doctor explained the other night on the "Nova" program, "The Truth About Impotence," it's not something that most men consider an optional treatment: "When I bring it up to them, most men are a blur going out the door." It looks like the doctor may have hit Vivus' problem right on the head (yikes!). Whether it be needles (which other Vivus competitors use) or a plastic applicator -- the Muse way -- that someone sticks into an orifice, one thing is certain: Men have not embraced either option in a big way.
With no oral option available to men before Viagra hit the market, it's no wonder that of the 30 million men that experts believe suffer from erectile dysfunction, only 5 to 10 percent seek treatment. That said, it's easy to understand why Vivus is hoping that more men will seek treatment as a result of Viagra's success. Since only 1.5 to 3 million men are now seeking treatment, there's plenty of opportunity to capture some of that pent-up demand for an erectile dysfunction solution.
It's apparent by Vivus' most recent financial results that it needs to get something going. Revenue gains, which looked promising for most of 1997, have started to flatten out. Disappointing revenues during the fourth quarter of 1997, were followed by weaker-than-expected revenues during the first quarter of 1998. The company also reported a loss of $2.4 million during its first quarter -- the first quarterly loss in five quarters -- compared with a $9.6 million gain in the year-ago period.
So Vivus, a pioneer in the field of erectile dysfunction, now finds itself playing an unfamiliar role as bottom feeder, snapping up the crumbs that Viagra leaves behind. Investors, who seem to be buying the bullish idea bandied about by those who are promoting the "Viagra won't work on everyone, thus driving patients to Vivus" idea, have driven Vivus' share price up in recent weeks.
We'll just have to see how the theory plays out. During Viagra's first month of business, it captured 95 percent of all new prescriptions. Muse, by the same token, garnered just 4 percent. The key going forward will be to keep an eye on the monthly figures. If Muse prescriptions begin to inch up steadily over the next several months, there could be something to it. If, however, the month of April proves to be a trend, Vivus' share price of $10 could become a familiar one. |
