Stock Picks: VVUS Up, PALM Down (Market Movers)

Published Sept. 9, 2009 at 4:00 a.m.

Biotech firm’s drug sheds pounds, delights investors

Investors on Wednesday sought second and third helpings of Vivus (VVUS) shares after the biotech firm posted strong results in a pair of trials on its weight-loss drug. The stock soared 70% Wednesday morning after the Mountain View, Calif.-based firm said that trials of its obesity drug, Qnexa, yielded an average loss of 37 pounds in patients after 56 weeks of treatments.

Vivus’s President and CEO, Leland Wilson, said the company would apply for drug approval from the Food and Drug Administration by the end of the year and that the company would seek a major pharmaceutical partner.

"The weight loss observed with Qnexa in these two one-year, double-blind, randomized trials far exceeds the weight loss observed for other agents reported in literature," said Dr. Kishore Gadde, director of obesity clinical trials at Duke University and a lead investigator of the Qnexa studies.

Canaccord Adams analyst Adam Cutler wrote in a note that Qnexa's results so far had been especially encouraging because the drug had not shown severe psychological effects, a frequent drawback to obesity treatment drugs. Qnexa also worked well with diabetics, for whom obesity is often a complication.

Rodman and Renshaw analyst Elemer Piros on Thursday said he had initiated coverage of Vivus with a Market Outperform rating.

Bottom Line: Hold
This kind of stratospheric rise is the best outcome for a biotech stock, but it might be overbought in the moment. The drug still needs FDA approval, and prices may ebb a bit before a bigger partnership is forged. Trying to chase today’s gains is the wrong move.

Palm’s new phone disappoints

Investors sold off shares of Palm (PALM) because while the company’s new Pixi smartphone looks good, it doesn’t look as good as the Apple (AAPL) iPhone. Palm shares dropped as much as 6% in early trading, but rebounded slightly by midday.

Palm touted the full keyboard design and the thinness of the Pixi device, but analysts took a less enthusiastic view of the applications available on the Palm operating system. No price was set for the Pixi, which will be sold exclusively through Sprint Nextel (S). Analysts suggested the Pixi would be less expensive than Palm’s Pre smartphone. Palm said it would trim the price on the Pre from $199 to $149 after rebates and a two-year service agreement.

Developing an iPhone killer has become the central pursuit of mobile phone makers, but so far no competitor has managed to top Apple’s popular device. Many analysts expressed their doubts that the Pixi will top the iPhone, either. "If the (Palm) operating system is geared toward web-based applications, it may not be robust enough to accommodate the more sophisticated applications that are being written for the iPhone," Needham & Co. analyst Charles Wolf wrote in a note Wednesday. Credit Suisse analyst Deepak Sitarama cut his rating on Palm to Neutral from Outperform and cut his full-year forecast for fiscal 2010 to a loss of 20 cents a share from a loss of 10 cents a share.

However, Matthew Sheerin, an analyst at Thomas Weisel Partners, was more upbeat. He said that while the Pixi could cannibalize some Pre sales, it had design features that were appealing relative to the iPhone and the BlackBerry, Research in Motion's (RIMM) personal communications device line. But he warned Palm’s choice of network was a hindrance. "Sprint's significantly smaller customer base and lower [percentage] of smartphone sales puts Palm at an inherent disadvantage," Sheerin wrote Wednesday.

Bottom Line: Hold
The Pixi device itself is getting good reviews, but it's too early to tell what sales will be.

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