VVUS: Debt Reduced by ~$50 Million

By John Vandermosten, CFA

NASDAQ:VVUS

Vivus, Inc. (NASDAQ:VVUS) announced the pay down of $48.6 million of its senior secured notes due 2024. The securities were yielding 10.375% and their early retirement is expected to save Vivus $10.5 million over the term of the loan. Vivus has held substantial cash on its balance sheet and now that they are close to operating free cash flow breakeven, holding additional cash reserves is not warranted. The $110 million of original issuance of which this is a part was completed in June 2018 with proceeds used to acquire the Pancreaze assets and pay down other debt.

We still anticipate a financing in the early part of 2020 to repay the $181 million in convertible senior notes due May 2020. Below we provide the graphic from the latest Vivus presentation that maps the steps from 2Q:19 debt levels to May 2020 debt levels.

Exhibit I – Debt Bridge June 2019 to May 20201

Vivus wants to hold off on refinancing as long as reasonably possible as it prefers to minimize the time paying interest on both the new and old debt. The company is also on a strong trajectory with its revenues and expects to show higher profits as it progresses through the turnaround. The improved operating financial position should help them secure a more competitive financing rate. However, we note that Vivus will assume interest rate risk given the historically low levels of rates and risk perception right now. We anticipate that the company will target March or April for a debt raise to satisfy the convertible senior notes that are coming due.

Vivus also announced two management departures along with the debt news. Ken Suh, President and Scott Oehrlein, COO will leave at the end of the month following the acquisition and transition of Pancreaze. The company does not plan to replace their positions.

Vivus provided additional favorable news earlier today with the announcement of Qsymia’s Marketing Authorization Application (MAA) acceptance by six individual state European regulatory agencies. Qsymia will not pursue the centralized procedure for Qsymia sales in Europe, but will rather focus on states that have historically been more supportive of the weight loss therapy. Initial indications are that the process will take nine to twelve months and there will be a response by 2H:20. If the outcome is favorable, we anticipate three to six months to negotiating pricing and then first sales. Pricing is anticipated to be a 20 to 30% discount to US pricing. This will establish a beachhead in Europe which can then be leveraged for further penetration into all member states in the years following.

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1. Source: Vivus September 2019 Corporate Presentation

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