Vivus: Why Options Traders are Betting on a Recovery Rally

11:05:51 AM EDT, Thursday, April 18, 2013 · by Brian L. Wilson / Bio-Wire

Vivus (NASDAQ: VVUS) has been one of the most disappointing post-FDA approval investments in recent history, although options traders seem to think that the stock is finally going to see some big relief. As reported yesterday by Schaeffer’s:

VIVUS, Inc. (NASDAQ:VVUS) was trending higher on Tuesday, after the Food and Drug Administration (FDA) granted the firm approval to sell its weight-loss drug, Qsymia, in retail pharmacies. As a result, bullish traders flooded the options pits yesterday, with roughly 24,000 calls crossing the tape during course of the session. This was almost seven times the norm, and more than triple the number of puts exchanged.”

Qsymia® (phentermine and topiramate extended-release), which is Vivus’ flagship drug, is the first FDA-approved drug for obesity in quite some time. Its sales growth had been hampered by FDA restrictions which only allowed the drug to be sold through special mail-order programs as part of the drug’s REMS. This was particularly important to prevent the use of the drug by pregnant women. From Vivus:

The purpose of the Qsymia REMS is to inform prescribers and females of reproductive potential about the:

  • Increased risk of congenital malformation, specifically orofacial clefts, in infants exposed to Qsymia during the first trimester of pregnancy

  • Importance of pregnancy prevention for females of reproductive potential receiving Qsymia

  • Need to discontinue Qsymia immediately if pregnancy occurs

An amendment to the REMS, which was submitted in October 2012 and finally accepted yesterday (4/17/2013) allows Qsymia to be sold at certified retail pharmacies. This means that patients can fill their prescriptions at brick-and-mortar stores, which is expected to boost sales quite significantly. This REMS amendment came right after a spike in Qsymia sales, which came in at 4,440 prescriptions in the latest week.

There is enough fundamental support for a much needed relief rally in VVUS shares, although investors should be especially careful with risky biotech stocks (like Vivus) during times of weakness in the stock market.

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