Memorandum

Vivus’ Qsymia launches at ~$5 per day for recommended dose; drug is available via mail order through Walgreens, CVS, and Kaiser – September 17, 2012

Executive Highlights

  • Vivus has just announced the launch of Qsymia. The recommended dose is priced at about $5 per day. This is in line with market expectations and about half the price of Januvia, Victoza, and Bydureon.
  • Qsymia is available via certified mail order through Walgreens, CVS, and Kaiser Permanente.

In a one-sentence 8-K filed with the SEC yesterday, Vivus announced “the US market availability of Qsymia.” Qsymia’s (phentermine/topiramate ER) recommended dose (7.5 mg/46 mg) will be priced to patients at ~$5 per day, in line with market expectations and about half the cost of Bydureon, Victoza, and Januvia (though more than commercial weight loss programs like Weight Watchers). We conservatively estimate that Vivus will need to reach 4.2 million patients (or 4% of the 111 million Americans within the label) in order for Qsymia to be a blockbuster (assumptions noted below – and this is just an estimate!). As a reminder, Vivus expects that ~70% of the market at launch will be cash pay, though the company has a gradual reimbursement strategy: 1) progressive plans and employers that pay the rider to cover Qsymia; 2) tier three formulary coverage from big payers; 3) lobbying the government to repeal the Medicare Part D exclusion for weight loss drugs. Certainly the inclusion of Kaiser at launch means a great deal and should capture the attention of other payers.

As recently as its 2Q12 earnings call (see http://bit.ly/RhFEP1), Vivus guided for a 4Q12 launch, so this news comes slightly earlier than expected. The launch is also quite timely, occurring just two days prior to The Obesity Society’s 30th Annual Meeting in San Antonio. As TOS 2012’s only “Platinum Plus” level sponsor, Vivus will unquestionably be out in full force with a product theater, an exhibit hall booth, support of a CME event, and advertising galore. Vivus has 150 sales reps handling the launch, and encouragingly, over 80% have experience in the cardiometabolic field (many through prior positions at companies like Takeda, Sanofi, Novartis, and BMS). Reps with cardiometabolic experience will certainly be an asset as Vivus begins marketing to obesity prescribers, and more broadly, PCPs. Of course, we expect patient demand will be very strong from the get-go, so the reps will be focusing on appropriate use and encouraging physicians to participate in the healthcare provider training program through the REMS. In our view, one danger for Vivus is that Qsymia receives the type of high profile media attention that positions the drug as a cure for obesity or a magic weight loss bullet – this will be a challenge as Vivus positions Qsymia as a treatment for obesity, a medical condition rather than a lifestyle flaw.

Qsymia will be distributed via certified mail order through Walgreens, CVS, and Kaiser Permanente and the drug’s price will vary somewhat depending on where it is purchased. Vivus’ ability to get Kaiser on board so early is particularly notable in our view, as it could signal future potential for coverage by the very influential and cost-focused insurer. As a reminder, Kaiser often supplies members with a drug and observes its cost-effectiveness before making a coverage decision; this bodes well for Qsymia assuming the impressive co-morbidity and (pre)diabetes data from trials holds up in the real world. Vivus will also submit a request for a REMS modification to the FDA this month that would allow the drug to be more broadly distributed in select retail pharmacies, as requested by the FDA in their approval letter for Qsymia. This would represent a significant opportunity to expand Qsymia’s distribution considering that mail order only accounts for 25-30% of all the prescriptions written in the US. On the international front, the date for Qsymia’s CHMP oral hearing has been set in Europe and results are expected in October.

  • Qsymia will be priced at $135.62 per month (wholesale price) for the recommended mid-dose (about $5 per day including shipping costs) and $183.87 per month (~$6.15 per day) for the high dose. The initial titration dose will be priced at $120 per month (~$4 per day) and the mid-to-high titration dose will cost $162.72 per month (~$5.40 per day). As we understand it, Vivus arrived at the pricing through patient-focused, willingness-to-pay market research. We assume the conclusion from this research was that ~$5 per day is a key walkaway point for many patients. Since approval, Vivus has reiterated its expectation that approximately 70% of the prescriptions at launch will be cash pay. We expect many patients will have sticker shock and not be interested in paying out of pocket for Qsymia, though a sizeable proportion of the market – especially highly motivated patients – will be more than willing to pay the ~$1,600 per year.

  • Vivus’ pricing for Qsymia compares favorably to branded obesity and diabetes therapies, though it is more expensive than commercial weight loss alternatives currently in the marketplace.

Therapy

Approximate Retail Price at Walgreens

Qsymia recommended dose (7.5 mg/46 mg)

$5.17 per day

Januvia (50 mg)

$9.23 per day

Bydureon

$15.28 per day

Victoza (1.2 mg)

$11.53 per day

Alli (orlistat 60 mg)

$1.37 per day

Weight Watchers Monthly Pass

$1.43

Jenny Craig Premium Success 1-year program

$0.98

  • Kaiser Permanente, CVS, and Walgreens are currently listed as the certified home delivery pharmacies for Qsymia. It bodes well for Vivus that Kaiser is one of the lead pharmacies, as it suggests that the insurer may be considering covering Qsymia. Kaiser is making Qsymia available to eligible patients within its network of nine million members and will then monitor its cost-effectiveness. Based on this data, Kaiser will make a decision on covering Qsymia. More pharmacies are expected to offer Qsymia in the future; during its 2Q12 earnings call Vivus said they were in the final stages of contracting with Express Scripts and Walmart.

  • The price a patient pays for Qsymia will vary depending upon the pharmacy they purchase it from. A pharmacy’s sales strategy will dictate the amount it marks the drug up. Some may barely markup a drug (~1%-5%) and focus on selling large quantities (for example Costco [which is not selling Qsymia at this time] is known for being extremely inexpensive) while other pharmacies instead have large markups (~20%). Walgreens, for example, is selling a 30-day supply of the main dose for $154.99, a 14% markup. It is possible that pharmacies may undercut one another in an attempt to make more sales, thereby lowering the price most Qsymia patients will be paying. Mail order pharmacies are very efficient and competitive.

  • To achieve blockbuster status of $1 billion in yearly sales, Vivus would need to hit~1-4% of the 111 million patients that fall within its label. We would caution that the following back of the envelope calculations are based on a number of assumptions and this depends a great deal on persistence, which is very difficult to call at this point. First, we assume that Vivus will record an average net revenue of $4 per day for Qsymia (i.e., after retailer markups). This equates to ~80% margin off the recommended dose price of $5 per day. The three cases outlined below differ in the length of time patients are on the therapy and the estimated adherence rate. As we understand it, a range of four to six months is the typical persistency for chronic medications. The estimated adherence rates are based on Claxton et al., Clin Ther 2001 and Osterberg et al., NEJM 2005. Additionally, we think Qsymia’s adherence could be higher than those for other medications as results will be directly noticeable for patients (i.e., weight lost, unlike blood pressure dropping or cholesterol improving).

 

Net Qsymia Revenue to Vivus

Duration of therapy on Qsymia

Estimated Adherence Rate*

Total Net Revenue

Patients Needed to Achieve Blockbuster Status

Conservative Case

$4 per day per patient

120 days

(4 months)

50%

$240 per patient

4.2 million

(4% of patients within label)

Average Case

$4 per day per patient

180 days (6 months)

65%

$468 per patient

2.1 million (2% of patients within label)

Optimistic Case

$4 per day per patient

365 days

(12 months)

80%

$1,168 per patient

856,000

(0.8% of

patients within label)

  • In addition to a sales management team, Vivus has a sales force of 150 reps. Though few of these individuals have experience with obesity – not surprising considering the dearth of anti-obesity medications in the recent past – impressively over 80% have experience in the cardiometabolic field. As Vivus mentioned in their call following the FDA approval of Qsymia (see http://www.closeconcerns.com/knowledgebase/r/3d9cbce6) it has been fortunate in the timing of this hiring because many pharmaceutical and biotech companies have been downsizing. In particular, management said they have hired many reps who used to work at Takeda, Sanofi, Novartis, and BMS. For a small company like Vivus, having such experienced reps will be very important as they work to market and capitalize on Qsymia’s broad label. Interestingly, Vivus has set a goal for reps to ensure that their prescribing physicians have completed the healthcare provider training program under the REMS, and we assume they will be incenting their reps accordingly. This is another example of Vivus’ dedication to ensuring that physicians are educated on proper use of Qsymia and that they are prescribing it for the right patients.

  • Vivus has ratcheted up physician-focused advertising in recent weeks – the goal has been awareness building and appropriate patient selection and drug use. Vivus was on the back page of last week’s New England Journal of Medicine and recently sent out 120,000 healthcare provider awareness letters. As we understand it, pre-launch awareness fromphysicians is polling at ~80%. The initial physician marketing has focused on 1) obesity treaters;co-morbidity treaters; and 3) topiramate subscribers (in case they were using it off label).

  • Vivus will have strong presence at a number of meetings this fall – TOS this week, the American Academy of Family Physicians (AAFP), and meetings focused on nurse practitioners, bariatric clinicians, osteopaths, and other specialties. Vivus is the only “Platinum Plus” sponsor at TOS and has provided sponsorship for an unopposed Friday night CME event, as well as an early morning product theater, an exhibit hall booth, and five abstracts. Additionally, the TOS final program features a “Sponsored by Vivus” logo on the front cover and a one-page Qsymia advertisement as the last page.

  • Just before Qsymia was launched, over 10,000 patients had signed up on the drug’s website to receive more information about it. This number should increase substantially with the launch, especially with the wave of media attention that will result. Still, considering the massive potential market for this drug (111 million Americans are within Qsymia’s label), 10,000 seems rather small even pre-launch.

  • Vivus might consider performing an unbranded advocacy campaign to increase societal awareness that obesity is a medical (not a cosmetic) condition, and that some people need an anti-obesity medication. We hope that Vivus does undertake such a campaign in partnership with a patient advocacy group. It would also be great to see other companies that would benefit from an increased understanding that obesity is a medical issue (such as Eisai, Arena, and Orexigen, to name only a few) either partner with Vivus or do the same independently. Obesity is far too critical of a condition (both medically and financially) to have society – including payers and policy makers – mistakenly viewing it as mainly a cosmetic issue. As a reminder, Vivus has decided to not perform direct-to-consumer advertising within the first 12-18 months after launch.

  • Management said the company will likely first see coverage under plans where employers take the riders, then probably obtain standard coverage from insurers, and finally gain reimbursement from Medicare Part D. Vivus is using a multi-pronged approach to expand reimbursement for Qsymia from both private and public payers. Notably, management said that the “holy grail” for these groups is the prevention of diabetes, and that preventing diabetes “spells savings in the minds of payers and employers.”

    • Employers: Vivus has held two employer advisory boards during which it found that employers are looking for a new option for treating obesity within their workforce. Thus, Vivus is working with employers and employer health coalitions to have them pay the rider to provide Qsymia to their employees. Vivus also hopes that these groups will begin pressuring their insurance companies to include Qsymia in their standard coverage.

    • Insurers: Only 30% of prescriptions for weight-management drugs are currently reimbursed by private payers. Management believes that payers are reconsidering what obesity means, and are now viewing it as medical condition that needs to be treated. Though confident in their ability to gain coverage Vivus did admit that many people are dubious they will be able to substantially change the reimbursement landscape.

    • Medicare Part D: There is a federal statute that excludes all pharmacological agents for weight loss from Medicare Part D’s formulary. Vivus is working to get this policy changed and stated that politicians recognize that obesity is a problem. However, given the slow pace of change in the federal government, management acknowledged that this is more of a long-term goal. We think co-morbidity data would be very useful in this regard althoughthere is certainly resistance to paying for anything that in the short-term increases spending.

  • As we understand it Vivus is submitting a REMS modification proposal this month to allow Qsymia to be distributed more broadly by select of retail pharmacies. Notably, the FDA requested this proposal in Qsymia’s approval letter. The FDA does not have a clear timeline for responding to REMS modification requests.

-- by Adam Brown, Hannah Deming, and Kelly Close