So, what issue could First Manhattan have with a board and management team that have successfully developed 4 products through FDA approval and which, in First Manhattan's own words, oversaw a development team that created the single most effective obesity therapeutic? Well, according to First Manhattan materials, it is concerned about the company’s commercial strategy in light of the failed Qsymia launch, which has led to a 65% decline in Vivus stock price, or a $2 billion loss in stockholder value over the past eight months. The stock has a 52-week high of $31.21, a 52-week low of $9.86 and closed today at $13.69.
Some say that the approximately 6-month period since Qsymia was launched is not enough time to evaluate whether it has been a failure, and that First Manhattan is looking to control the board to ensure that the company’s future direction aligns with First Manhattan’s interest. Whether or not that is a long-term or short-term interest has been the subject of much debate.
To the defense of the current board and management, as they have frequently pointed out in their own proxy materials, the initial launch of Qsymia was substantially restricted by the FDA-mandated mail-order only distribution. In April 2013, the FDA modified its approval to allow distribution through pharmacies and the company was just recently allowed to engage in direct to consumer advertising, both of which should significantly help the drug re-launch effort. The company also points out that during the last three months investors have committed more than $350 million to the company.
First Manhattan first became a stockholder in 2008, when the company was enrolling its clinical trials for Qsymia. Today, it owns approximately 9% of the outstanding shares.
This proxy battle is a good reminder to boards and management to regularly monitor shareholder relations, to consider proactively addressing reasons for any perceived shortfall and to anticipate questions and challenges regarding the company’s business. Boards and management need to carefully review their investor presentations and other public disclosures in this regard. In addition, as board composition and executive compensation (which falls in the board’s bucket of responsibility) are increasingly evaluated and scrutinized, these areas should also be proactively assessed and evaluated.