By Glen S. Woods
Roughly 300,000 people die each year due to obesity related complications. Two-thirds of the population of the U.S. is overweight, and one-third is considered obese. Obesity is no longer a U.S. problem, but a worldwide epidemic. In the United Kingdom 57% of the people are overweight and 25% are considered obese. There are an estimated 500 million adults worldwide that are obese. The medical costs associated with obesity runs roughly $147 billion annually and, sadly, about 300,000 people die each year of obesity-related complications.
Those numbers are staggering, and the medical community has taken note; pharmaceutical companies have developed new drugs to battle the epidemic. Two biopharmaceutical companies in particular are on the forefront, each with a drug that can help in the battle of obesity. Both had been risky investments, but the drugs worked through clinical trials. Now that the FDA has approved both of the drugs, these two companies may have the next blockbusters.
In June of 2011 Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) became the first company in 13 years to gain approval from the FDA in for its obesity drug, Belviq. The approval is specifically for obese adults with a body mass index (BMI) above 30, and for overweight adults with a minimum BMI of 27 that also suffer from at least one weight-related medical condition including high blood pressure, type 2 diabetes, or high cholesterol. Belviq is similar to fenfluramine (the “fen” in the fen-phen), the appetite-suppression drug combination, which was linked to heart valve abnormalities and was pulled from use 15 years ago. But there are differences: Fenfluramine stimulated serotonin activity indiscriminately, including serotonin receptors on the heart valves, while Belviq acts on just one serotonin receptor found almost exclusively in the central nervous system, specifically targeting serotonin receptors associated with hunger.
Though Belviq has received FDA approval, the drug has not yet been approved for sale as the company is still waiting for regulators to make a decision about the status. The Drug Enforcement Administration is proposing that Belviq be classified as a Schedule IV controlled substance, which means it has a relatively low potential for abuse. Once final, Belviq will be made available by prescription and will be manufactured by Arena at its Swiss facility, and marketed and distributed in the U.S. by Eisai Inc., the U.S. pharmaceutical subsidiary of Tokyo-based Eisai Co., Ltd. (PINK:ESALF). To gear up for the approval to sell Belviq, Arena has hired about 200 sales reps and 50 specialists that work with insurance companies over reimbursement plans.
Arena is also waiting to hear if Belviq will receive approval by the European Medical Association, and has disclosed a 180-day list of questions raised by European regulators, which has raised some serious questions that will need to be addressed, including tumors in rats, valvulopathy, and psychiatric events. Jefferies & Co. analyst, Thomas Wei, sees that Arena shares will be volatile because investors don’t think Belviq will be approved in the EU, and they have taken a dim view about the sales potential of Belviq by itself. Analyst Alan Carr at Needham and Company, expects a final decision from the EU sometime in April. Mr. Carr also estimates sales of Belviq in the U.S. to total $83.1 million for the year.
Arena has a market cap of $1.82 billion, and has seen its stock rise 360% year over year. Company revenues for the fourth quarter 2012 were $1.9 million compared to $2.1 million in the fourth quarter of 2011. Research and development expenses were $13.9 million in the fourth quarter of 2012 up from $13.1 million in the fourth quarter of 2011. But those number really don’t matter; what matters now is if Belviq will be able to produce close to the the sales that investors and analysts estimate, and whether or not Belviq will be approved for sale in the EU. Arena closed on Tuesday March 5th at $8.54 per share.
Vivus Inc. (NASDAQ:VVUS), based in Mountain View, California, gained approval for its obesity drug, Qsymia, from the FDA in July. And like Arena’s Belviq, Qsymia is for people who are obese and at-risk, with a body mass index greater than 27, who also suffer from weight-related conditions like hypertension, type 2 diabetes, and high cholesterol. However, in clinical trials patients who took Qsymia experienced a more dramatic weight loss than those who took Belviq. Qsymia patients went from an average 227 pounds down to 204 pounds, while Belviq patients averaged a weight dropped from 220 to 207. But on the negative side, some patients in the Qsymia clinical trial suffered an increased heart rate and metabolic acidosis, which can lead to hyperventilation, fatigue, and anorexia. Qsymia is a combination of two drugs—phentermine (the “phen” in the fen-phen) and topiramate. Phentermine is an appetite suppressant, while topiramate is a seizure medication. Concerns have been raised about birth defects because topiramate, in previous clinical trials, has shown a risk of about five birth defects for every 1,000 pregnancies.
Unlike Belviq, Qsymia is already available in the U.S. market, but was rejected twice by The European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP), due to concerns about the long-term effects on the heart and nervous system. Before CHMP will reconsider approval, Vivus must conduct a cardiovascular trial to show Qsymia is safe. While Qsymia has had lackluster sales to date, the company is testing the drug for other indications, and has two separate phase II trials—one to treat sleep apnea and the other to treat diabetes.
The company has another drug on the market that has the potential to give a rise to the stock, Stendra, approved for erectile dysfunction (ED). While Stendra joins the crowded field of Pfizer’s (NYSE:PFE) Viagra, Eli Lilly’s (NYSE:LLY) Cialis, and Bayer’s (PINK:BAYRY) Levitra, Stendra appears to have less side effects than its competitors and is quicker to take effect, roughly 15 minutes after ingesting. Though analysts don’t see it as a threat to the “big three”, they do see annual sales reaching $300 million, which would be helpful for the company’s bottom line.
Vivus has a market cap of $1.01 billion. Last year the company’s stock skyrocketed to over $31 per share after Qsymia’s approval, but the reality of lackluster sales, due to stricter safety guidelines, have helped drive the stock back down to lows it has not seen since December of 2011. Year to date the stock is down over 25% closing on Tuesday March 5th at $10.15. The company posted a fourth quarter loss of $56.7 million up from a loss of $11.5 million a year earlier, citing the higher costs of sales, and general and administrative expenses as the reason. For 2012 Vivus posted a loss of $139.9 million on sales of $2.01 million. But like Arena, its drugs have not been on the market long and the real question is not past performances, but how sales will perform in the future.
Conclusion
I believe both Belviq and Qsymia have an uphill battle due in part to the negative press of earlier weight loss drugs such as fen-phen. I also think the hype of both products having the potential of being billion- dollar drugs has already filtered through the stock price, and the market has lowered its expectations and has settled into a more logical trading range. Belviq is a safer product than Qsymia, but less effective. However, Arena will only receive a minority of the revenue from Belviq sales in the U.S. due to its agreement with Eisai; Vivus does not have that encumbrance.
Though I think both companies will benefit financially in the future with its weight loss drugs, I do have to give the edge to Vivus due to its stock now selling at a more realistic price and having two drugs currently on the market. Another reason I like Vivus is that to take its product to the next level I think it will need a large pharmaceutical company as a partner, which is why there has been chatter of a buyout by one of those larger companies that would be looking for a potential blockbuster drug to add to their inventory.
