Vivus 3Q14 – Qsymia revenue totals $12.5 million, up from $11 million in 2Q14 and $6.4 million in 3Q13 – November 17, 2014

Vivus provided its 3Q14 financial update in a call led by CEO Mr. Seth Fischer on November 5. Below we include our top highlights from the call, (along with an honorable mention) followed by Q&A.    

1. Qsymia revenue totaled $12.5 million in 3Q14, up 14% sequentially from $11 million in 2Q14 and 97% year over year (YOY) from $6.4 million in 3Q13.

2. Management expressed confidence in an improving reimbursement environment for Qsymia, with third-party coverage increasing slightly to 38% in 3Q14 from  37% in 2Q14.

3. Management also highlighted a recently published Diabetes Care paper (Garvey et al., Diabetes Care 2014) demonstrating improvements in glycemic control and cardiometabolic parameters with Qsymia in patients with type 2 diabetes.

4. As mentioned in its 2Q14 update, Vivus has modified the design of Qsymia’s CVOT AQCLAIM to allow for European approval and is working to ensure that the planned interim analysis will not jeopardize the study’s integrity.

5. There were again no tangible updates on Qsymia’s partnering efforts as management noted that efforts are ongoing but did not provide further details on timing or structure.

Top Five Highlights

1. Qsymia revenues totaled $12.5 million in 3Q14, up 14% sequentially from $11 million in 2Q14 and 97% year over year (YOY) from $6.4 million in 3Q13. This 14% sequential increase is slightly lower than the rates seen in recent quarters (sequential growth was 21% in 2Q14 and 18% in 1Q14). While management acknowledged challenges in raising awareness of obesity treatment and historically low third party coverage of obesity drugs, they noted that they are encouraged by the improving reimbursement environment, increasing net revenue per prescription (excluding free trial offer prescriptions, revenue was $113/prescription in 3Q14, up from $102/prescription in 2Q14 and $79/prescription in 3Q13), and positive feedback about Qsymia from clinicians. 

• 140,000 Qsymia prescriptions were dispensed in 3Q14, up ~1.4% from the 138,000 prescriptions dispensed in 2Q14. The number of prescriptions increased 28% YOY from 109,000 in 3Q13. As with Arena/Eisai’s Belviq (lorcaserin), sequential sales growth for Qsymia was greater than script growth (~14% vs. ~1%, respectively). This divergence could be explained by a benefit from price (although a climb in price would be disappointing given how challenging patient access already is), as well as from factors such as stocking changes. However, the use of free/discount offers for appears to be growing as ~63% of 3Q14’s total prescriptions included such an offer, up from  61% in 2Q14 and 56% in 3Q13. According to management, market research has indicated that clinical experience (particularly in terms of efficacy), growing familiarity, and overall satisfaction with Qsymia have helped drive the drug’s steady prescription trends in recent quarters.
• Notably, Qsymia’s sequential growth rate of 14% is significantly lower than  the 70% growth rate for Belviq. Until 3Q14, sequential growth rates for both companies were relatively stable at 10%-20%. While the causes of this sudden growth disparity are difficult to identify, we are curious if more providers and patients are moving from Qsymia to generic phentermine as we have heard concerns at recent conferences about the high costs of Qsymia as well as providers’ comfort with using generic phentermine off-label – see our coverage of Obesity Week and Cleveland Clinic Obesity Summit for more detail. In addition, Eisai recently expanded its sales force to 600 reps in 2Q14 while Vivus’ sales force remains at 150 reps – therefore, Arena/Eisai may now be reaching out to significantly more providers than Vivus. See the tables below for more comparisons between the two companies in recent quarters.
• During Q&A, management suggested that the company may re-evaluate its sales force’s targeting strategy following the launch of Orexigen/Takeda’s Contrave (naltrexone/bupropion). Management argued that it is still too early to fully understand the impact of the Contrave launch but acknowledged Takeda’s capacity to reach prescriber audiences that Vivus cannot reach with its 150 reps. As a reminder, Takeda is targeting both frequent and infrequent prescribers of obesity medications while Vivus is focusing on the most active prescribers. Management explained that they will see whether targeting non-writers is effective and then evaluate whether it will be necessary to expand their sales force, though they expressed some confidence that the current sales force may have the capacity to reach this audience.

Table 1. Obesity Drug Revenue Comparison

Table 2. Estimated Market Share (by sales) – 3Q14 vs. 3Q13

2. Management expressed confidence in an improving reimbursement environment for Qsymia, with third-party coverage (excluding free trial offer prescriptions) slightly increasing to 38% in 3Q14 from 37% in 2Q14. Management acknowledged that Qsymia revenues have been partly hampered by historically low third party coverage and Medicare Part D exclusion but said that the company is encouraged by a generally improving reimbursement environment. Management also noted that the 38% coverage figure represents actual third-party payers paying for Qsymia, rather than estimates derived from external databases (like Fingertip Formulary’s calculation of a 67% commercial coverage rate for Qsymia). Stressing that payers typically evaluate whether to cover the entire obesity category rather than specific products, management claimed that Qsymia’s clinical data, pharmacoeconomic profile, and contracting offers position the drug well for continued improvement in reimbursement.

3. Management also highlighted a recently published Diabetes Care paper (Garvey et al., Diabetes Care 2014) demonstrating improvements in glycemic control and cardiometabolic parameters with Qsymia in patients with type 2 diabetes. The 56-week study (n=130) randomized participants to receive once-daily placebo or phentermine/topiramate 15 mg/92 mg, all in addition to lifestyle modifications. Findings showed that at week 56, the treatment arm experienced a mean A1c reduction of 1.6% compared to a mean reduction of 1.2% in the placebo group (from a mean baseline of 8.7%). Management pointed out that providers have reported type 2 diabetes and severe obesity as the primary factors prompting them to prescribe anti-obesity medications, inferring that such results could help increase the number of Qsymia prescriptions. We believe that we will see an increasing trend toward obesity drugs being used to treat type 2 diabetes in the coming years, as Belviq and Contrave have also demonstrated benefits in glycemic control in clinical trials; that said, we also believe there continues to be great concern on the payer front about the sheer potential exposure to covering drugs, who should have access, etc..

4. As mentioned in Vivus’ 2Q14 update, management explained that the company has modified the design of Qsymia’s CVOT AQCLAIM to allow for European approval and is working to ensure that the planned interim analysis will not jeopardize the study’s integrity (see our coverage of this summer’s FDA hearing on CVOT interim data disclosure for more on this issue). Vivus has submitted the modified protocol to the FDA and management again commented that they have received “helpful feedback” from both the EMA and FDA regarding the CVOT. In response, the company is ensuring that the trial’s interim analysis will uphold the study’s integrity and will continue to support the regulatory pathways in both the US (post-approval assurance of safety) and EU (pre-approval).

5. There were again no tangible updates on Qsymia’s partnering efforts as management continued to state that efforts are ongoing but did not provide further details on timing or structure. Management repeated that Vivus remains open to establishing commercial alliances for Qsymia on a global or regional basis if they create value for stockholders and promised to provide more information in the case of any material developments.

• As we mentioned in our 2Q14 coverage, the weak emphasis on partnering efforts continues a trend we have seen since the company’s 4Q13 call. The search for a partner may have become a lower priority for Vivus due to Qsymia’s weaker than expected commercialization. However, as we noted in our 1Q14 report, we believe that the ROI for a partner remains high since Qsymia works very well in some patients and addresses a massive unmet need.

Honorable Mention

• Although it was not addressed during the call, Vivus’ press release highlighted the company’s acquisition of topiramate-related patents from Janssen Pharmaceuticals in late August. This group of patents will cover uses of topiramate as monotherapy and in combination with other pharmaceutical agents (such as phentermine in Qsymia). With this deal, Janssen agreed to dismiss the August 22 patent lawsuit it filed against Vivus. We assume this patent deal with Janssen was expensive for Vivus, but was important to sign given the patents’ overlap with Qsymia’s indication.

Questions and Answers

Q: I was just wondering if you could repeat the percent of free goods for the quarter? And what was it for the second quarter?

A: 21% of the prescriptions this quarter represented a free good. It was 22% in 2Q14.

Q: In the press release, you guys say that Qsymia is top of mind in many conversations. I was wondering, how are you guys gauging that? Do you see any change over quarter-end? Or any changes since last quarter, since mid-year, or since beginning of the year?

A: So we have ongoing surveys in the market both with physicians and consumers. So we try to look at the concept of pharmacotherapy and how much that is increasing over time as well as how the name of Qsymia is increasing over time. And we do see that continuing to progress.

Even this year’s Obesity Week, compared to last year’s, we are seeing a lot more interest on the floor in our product with a lot more activity from registered nurses, nurse practitioners, bariatric surgeons, where they're becoming more attuned to the use of pharmacotherapy in their practice. And specifically very nice success stories with Qsymia in particular.

Q: Regarding the CVOT trial, are there any timeline updates you can provide on when we might actually get that started?

A: I don't really have a timeline update for the start. I can tell you that we've had to make sure that we have clear alignment between the European regulatory authorities and FDA. And clearly, going back to August 11, FDA's guidance on their advisory panel about the integrity of these trials, we want to absolutely ensure that everything we're doing to allow us to do an interim analysis with the European regulatory authorities is very clear. So that in no way do we ruin the integrity of the trial through that interim analysis. So that's really what we're making sure we ensure. There are a lot of learnings in the market, both on the good side as well as the bad side, and we want to make sure that we're all aligned on how we'll, in fact, do that.

Q: Can you help me with what seems like a disconnect between the fraction of your scripts that receives insurance coverage vs. this third-party metric that would suggest nearly twice the portion of patients should have coverage. Why is there such a difference there?

A: I believe that the numbers that you've heard is that 48% of people have access, meaning if they want the medication, they have access to it. The other number, which is purely coverage, and I define coverage as our actual prescriptions. So, Qsymia prescriptions actually paid for by a third party is 38%.

There are a lot of other numbers that are quoted by a lot of other people. And one of the main things that they're quoting which you can go get online and see for yourself is, in fact, Fingertip Formulary. But I prefer to really state the actual coverage we're seeing, which is about 38%. We also see on managed care right now that they're still struggling whether they're going to cover the category.

We don't see a huge difference in coverage between any of the current pharmacotherapies whatsoever. Some slight differences in tiers, whether they're Tier 3 or Tier 2, but even the majority of those are Tier 3 still and many with a prior authorization. So I want to be clear on the numbers, which I think I also stated earlier.

Q: Putting aside the cardiovascular outcome study that you will at some point start up, do you anticipate sufficient increases in scripts and average selling price and so forth to reach a cash flow breakeven point in the intermediate term? Can you comment on that?

A: Well, we're continuing to do everything we can to obviously increase our scripts with physicians and also to increase coverage with payers. We will start the CVOT trial and we know that does put on pressure. But we think that we're doing the right things by watching our costs, and at the same time, not getting in the way of increasing our prescriptions with our key physicians.

Q: To follow up on that cardiovascular outcome study, you indicated you wanted to make sure there was no chance of jeopardizing the overall study from an interim analysis. Do I interpret that correctly that you want an interim read that you could use to file in Europe, but you don't want those data to be publicly disclosed?

A: That is correct. We want to ensure that the company itself will not have exposures to the interim analysis. We want to make sure when that is in fact used for submission in Europe that there is no chance that the European authorities or anybody else can divulge that information, thereby breaking the blind on the trial. And as you know, this has happened recently to some other companies in this space and we want to ensure it doesn't happen here.

Q: So about 37% or 38% of the scripts are paid by insurance companies and without any financial assistance or simply by using the co-pay card. Is that correct?

A: So, 38% are paid for by third-party. They still may use a co-pay card, but it means that there is absolute insurance assistance in the payment. So co-pays can vary. We have a program that in fact, if the co-pay is above $50, that we will give assistance up to $125, so basically reducing the co-pay by $75. And then, if you're a cash patient, we will give you $75 off. We also have a Qsymia access program, which really helps patients get qualified for Qsymia. They call an 800 number to actually have the third party look at what their potential coverage is and give them assistance, whether it be prior authorization or actually qualifying them for assistance.

Q: I think about two quarters back, you were talking about trying to change the discount program and trying to raise the average standard price. Have we reached that goal yet, or we're still in the process for doing that?

A: No, as we just stated, we have improved our average selling price. Up to the end of the first quarter of this year, we had the Pay No More Than $75. That program ended at the end of Q1. Some of the coupon that might have been activated prior to that were being used through the end of May or June. And then at that time, we introduced the $75 off, if you would recall. And that $75 off discount program applies to all doses, as opposed to the Pay No More Than $75, which only applied to the mid-dose. So the change in the program is also that there was a limitation of three months of usage in our old discount program. Today with the $75 off, that discount card can be used up to 12 times by a patient.

Q: I understand you're trying to cut costs and trying to reduce cash burn. But you can only cut it so much. Have you thought about other ideas and maybe like in-licensing some complementary products that can help reduce the burn rate?

A: Yeah, we're looking at all options. I mean, that includes some of the ones that you just outlined, whether it be licensing other compounds. Obviously, we've got a very strong development group within the company who managed to get the approval of two drugs in the same calendar year. So we believe in them and we're always looking at other potential licensing compounds, as we've always stated partnerships and other creative ways to help the growth of the company.

Q: What are the pacing items for the initiation of the outcome study? The public comment period for the FDA's hearing on August 11 ended recently, so are you waiting for FDA to publish a white paper, or do you have to have a face-to-face meeting with them? What does the Gantt chart look like in terms of getting their buy-in on these issues that you've outlined with the interim analysis?

A: So obviously, we've been through the call or the Advisory Board to really ensure that we understand fully what they're looking for. We're also talking to our own Advisors to ensure that we are covering the issues that they outlined. Some of those very advisors at that board are involved with the trial itself. So we want to ensure that we understand what it means. There are still issues that we need clarification on. I am not sure that those will come directly from the FDA. I think the FDA is trying to be pretty clear that you need to really protect the integrity overall. So we're working with consultants. We're building the infrastructure, and we're making sure that there are clear walls so that that data does not get divulged in any way. And that takes a little bit of extra time that we did not anticipate. But the interim analysis is critical to that submission. So we want to make sure we do it right.

Q: At the end of this process, will you have to meet with them or have a phone call at least?

A: We have one final document that we'll end up having to submit to FDA. So no, I don't see any further meetings with FDA.

Q: Once you submit that, what's the turnaround time look like? Is it an open-ended situation or because this is a phase 4 requirement, you'd expect them to get back to you pretty quickly?

A: No. We would expect that once we're able to submit it, that we can start fairly quickly.

Q: Regarding the interim analysis, is this still going to be based around a 90 event less than hazard ratio of 2, consistent with FDA guidance?

A: Yes. Yes, absolutely.

Q: Is it being designed initially as a superiority study or as an interim – as a non-inferiority that you can then upsize depending on what's seen as the study progresses?

A: It's exactly how you just outlined. It's a decision-making trial. It will start as a non-inferiority trial with the idea that you have the option to power it up if you need to if you see signals of superiority.

Q: But if at that interim analysis, you meet this pre-specified hurdle, then there's the potential to re-file in Europe?

A: Yes, that's correct. That's our understanding from the feedback that we had from the SAWP in January.

Q: Have your cost estimates changed? Still maybe $180 million to $220 million?

A: Yeah. That's correct.

Q: Just lastly on fourth quarter, historically, it's been a tough one for obesity drugs. So in light of the flattish sales performance the last two quarters and you have Contrave on the market, potentially Saxenda coming soon, how confident are you that you can at least grow sales this quarter due to seasonality and competition and similarly first quarter next year?

A: It's interesting because to your point, it's a bit unprecedented. And we know that seasonality plays a role here. But I'm also feeling good that there's a lot more noise in the marketplace. And I don't know exactly how to read that yet, but I actually see it as a positive that we have, including our own, over 1,600 representatives talking about obesity in the marketplace, which doesn't even include the deployment of Saxenda yet. So I think that the noise could be a very positive thing, although we always do see a downturn around Thanksgiving and Christmas. We may see that. But I'm wondering how the market may be bolstered by additional noise into the marketplace. And I can't really predict that right now.

Q: I wanted to talk just a little bit more about this competitive noise and I was just curious near term, what kinds of impacts have you seen? Like how has the launch of Contrave affected your sales efforts? And what kinds of expansions do you expect for your sales efforts in 2015 in addition to a potential future partnership on that front?

A: So in terms of the additional noise in the marketplace, it's probably a little early for us to fully tell the impact of Contrave. They've only been out in the market for a few weeks now. And the good news is they're reaching audiences that we don't have the capability or made the decision to in fact reach at this point. So we have a very clear, targeted audience and these are the most productive anti-obesity pharmacologic writers in the market. And that's where we will remain focused.

If we see physicians that are coming on board and actually getting motivated to write, we still believe even with our current 150 sales reps, we have capacity to reach those physicians. And then over time, we will look at whether we need to expand to reach further and reach for the doctors that are writing in the category.

And then, the market is obviously being watched by people interested in the market and the uptake in the market and whether the market begins to expand. We've seen the market basically grow in mid-single digits. I'm hopeful that the market will expand and I believe, with all the noise which we haven't seen in this market forever, that it will expand.

-- by Melissa An, Emily Regier, and Kelly Close