It's official: Arena's (ARNA) Belviq wins the race to be the first effective, safe and non-addictive obesity drug. Thursday the Drug Enforcement Agency provided Arena and its investors the long-awaited news that Belviq would be a schedule IV drug. The DEA wrote the following: "The Drug Enforcement Administration (DEA) proposes placing the substance lorcaserin, including its salts, isomers, and salts of isomers whenever the existence of such salts, isomers, and salts of isomers is possible, into Schedule IV of the Controlled Substances Act (CSA)." This is great news for obese people who want easy access to Belviq and for investors who want to ensure that Arena provides easy access to Belviq.
DEA's designation of Belviq as a schedule IV means that the DEA believes Belviq is no more addictive than many cough syrups - seriously. Some cough syrups (with codeine) are a schedule IV drug as well. For perspective sake, marijuana and heroin are schedule I, which according to the DEA means that they are highly addictive and likely to be abused by their users. Schedule II include morphine and cocaine. Schedule III includes things like anabolic steroids and Vicodin, and schedule IV includes the above-mentioned drugs. When Belviq's ease of access is compared to Vivus' (VVUS) Qsymia, Belviq is almost over-the-counter. Sorry Vivus, you're losing.
After having the first obesity drug, Qsymia, to be approved in over 13 years, Vivus found that the Risk Evaluation and Mitigation Strategies (REMS) that it had to capitulate to in order to get approval is also making it impossible for it to sell its drug. One example of this onerous REMS is limiting the use of Qsymia to patients outside their reproductive years (i.e., women ages 16 to 45 - also known as Qsymia's primary customer). More importantly, Vivus still has not resolved the side effects of increased risk for birth defect, heart rate and increased blood pressure. In fact as a result of these shortcomings, high-out-of pocket cost, and insurance companies' skepticism about Qsymia, sales have been anemic. Projections are that Qsymia won't even sell $25 million for Q4 2012. Furthermore, Lazard and other analysts have cut Qsymia sales forecast from about $200 million to $80 million for FY2013.
In regards to the other obesity drug, Orexigen Therapeutics' (OREX) Contrave, it is at least a year away before it comes back to the FDA for approval. Like Qsymia during clinical trials, Contrave raised heart rates and blood pressure. These symptoms are signs for increased risks of heart attack, stroke, and other cardiovascular problems. Although during trials, the Contrave group did not have an increased rate of actual heart attacks or strokes when compared against the placebo group, the FDA concluded that the trials were too short and too small to definitely conclude if Contrave does indeed increase heart attacks and strokes. Therefore despite Contrave getting a positive advisory committee recommendation, the FDA ordered Orexigen to conduct long term and large scale study to determine Contrave's true risks. This effectively puts Contrave in the back burner for the next few years in term of the obesity drug race. In fact, it's not even worth talking about now. That leaves Belviq as the last drug standing.
During clinical trial, the biggest concern for Belviq was tumors in rats. However, it was never seen in humans and the tumors in rats were determined to be the result of hormonal imbalances that are exclusive to rats. In other words, Belviq is relatively safe. More importantly, it also means that it will be the best all around weight loss drug on the market. Belviq, unlike Qsymia and Contrave is also a novel drug that has not been tested in combination with other drugs such as phentermine. Once approved, Arena can quickly move to see if there are additional weight loss benefits when it is combined with other drugs, including phentermine. If the combination does improve efficacy, not only would this improve Belviq's existing market value, but it would also extend Arena's patent for at least another 10 years.
With all this said, I can't say how the markets will react to the DEA news. However, over the last year, Arena has been an incredibly volatile stock. Share prices have swung dramatically in short periods of time. Therefore given this history of fluctuation, I believe that at least in the short term, Arena is a very good bet for a spike. In the long term, it may also be the first billion-dollar obesity drug. You can't beat safe and effective with little risk for abuse or addiction. I believe doctors, patients, and investors will love this drug. I look forward to a nice short-term return.
Disclosure: I am long ARNA.