Vivus, Arena Drugs Fail to Burn Americans' Prodigious Fat

Tickers in this article: ARNA VVUS

MOUNTAIN VIEW, Calif. ( TheStreet) -- Vivus (VVUS) can't convince enough fat Americans to try its weight-loss pill Qsymia despite spending a ton of cash on marketing and free drug giveaways. At its current burn rate, Vivus will need to raise more money no later than the second half of the year.

Shares of Vivus were down 12% to $10.96 in Tuesday trading.

The dismal $2 million in Qsymia sales reported by Vivus in the fourth quarter is a harbinger of doom for Arena Pharmaceuticals (ARNA) , which along with partner Eisai is expected to launch its weight-loss pill Belviq next month. Belviq barely manages to help patients lose any meaningful weight, but will cost significantly more than Qsymia.

Let's first tackle Vivus because the company turned in an ugly quarter Monday night. The $2 million in Qsymia sales was $1 million short of downgraded analyst consensus for the fourth quarter. How downgraded? Last fall, analysts on average were looking for more than $24 million in Qsymia sales during the December quarter.

Vivus spent more than $50 million in SG&A to generate those $2 million in Qsymia sales in the fourth quarter. Add in R&D costs and Vivus' total operating expenses topped $58 million. Cash and marketable securities fell by $61 million sequentially. Vivus ended last year with $213 million in the piggy bank and refused to offer any spending guidance for 2013 except to acknowledge that marketing expenses for Qsymia will remain high.

Even if Qsymia sales pick up, Vivus' current and expected rate of spending means there's less than a year's cash remaining.

For the four-week period ending on Feb. 15, Vivus shipped 17,383 Qsymia prescriptions, a 34% increase over the previous four-week period ended on Jan. 18. That sounds like encouraging script growth, except it's down from 68% growth in the four-week period between November and December last year. Vivus deserves a pass for the December holiday month -- no one wants to lose weight during Christmas -- and sure enough, the number of Qsymia scripts shipped was flat.

Bottom line: The rate of Qsymia script growth is falling despite the company offering freebies and other marketing inducements. Vivus continues to blame Qsymia's poor performance on the hassle of mail-order pharmacy requirements and believes sales will take off once patients can buy the drug at their neighborhood pharmacy. FDA's decision on liberalizing the drug's distribution restriction is expected in April. There's certainly some truth in this spin but Qsymia has a tremendously long way to go before sales reach a meaningful level. The idea that Qsymia might one day achieve blockbuster status or help Vivus generate a profit seems more fantasy than an achievable goal.

One more metric from Monday night's conference call I found interesting and disappointing simultaneously: Vivus said 27,000 unique patients have been prescribed Qsymia since the drug launched five months ago. A Qsymia script costs approximately $135 per month for the recommended middle dose, so under the most optimal circumstances (all 27,000 patients taking five months of Qsymia), best-case sales to date would have been roughly $18 million.