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The Deal: Vivus Could Get a Bitter Dose at Shareholder Meeting

NEW YORK ( The Deal) -- Come Monday, July 15, shareholders of drugmaker Vivus (VVUS - Get Report) should know who is in charge at the Mountain View, Calif.-based company. But the question that remains today is whether that leadership will include current management or a new slate of directors nominated by activist investor First Manhattan Corp. and led by industry veteran Tony Zook.

All this over a weight-loss drug.

New York-based FMC owns 9.9% of outstanding shares in Vivus, an investment FMC pegs at $139 million. The investment management company has been calling for change since March, nine months after Vivus got the Food and Drug Administration's nod to market its weight-loss drug Qsymia in the U.S.

Vivus' management and FMC both have compelling arguments. The FDA approval in July 2012 came after years of trouble with diet drugs either never gaining approval or turning out to have safety problems post-market. Both drugs in Qsymia's fixed-dose combination -- phentermine and topiramate -- have been used individually for years without major safety issues.

Investors and analysts rejoiced and Qsymia was projected to quickly hit the $1 billion blockbuster mark.

That didn't happen. The FDA had put a fly in the ointment, a restriction on sales suggested by its advisory panel to reduce risk. "No one realized how severe that restriction was, but we certainly do now," Vivus CEO Leland Wilson said Wednesday at the JMP Securities Healthcare Conference in New York City.

Because of restrictions from risk evaluation and mitigation strategies, or REMS, the drug was available from only four mail-order pharmacy outlets.

"It was the first time that system had ever been implemented in the pharmaceutical industry," Wilson said. "Doctors weren't familiar with it. Patients weren't familiar with it. And the mail-order houses themselves were not familiar with this process. So it created many, many problems."

FMC said the results of those problems is that Vivus stock lost $1.9 billion in value in the roughly eight months between the time Qsymia was approved and March, when FMC began calling for a complete change in the board.

FMC's problem with Vivus management is that it let too much time pass while Qsymia struggled. "Qsymia is by far the most effective weight loss agent ever developed," the investment firm claimed.

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