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Investing in biopharma stocks can bring great rewards and commensurate risks. This sector is full of stocks that have soared and ones that have plunged, in some cases only to rise again. When investing in this sector, it makes sense to consider companies with "blockbuster" potential. A blockbuster is typically defined as a drug that achieves $1 billion or more in annual revenues.

There are many drugs that have achieved this level of sales, but below we will focus mostly on the potential for obesity drugs. That is because this is an emerging growth opportunity with blockbuster potential. Global Industry Analysts, Inc., estimates that the obesity drug market will "reach $10.3 billion by 2017, driven by increasing prevalence of obesity and introduction of novel drugs, currently in pipeline." Because of this large and untapped market, it makes sense to review some of the potential players in obesity treatments. For risk-averse investors, one of these stocks is a major biopharma company that already has a few blockbuster drugs, profits, and a dividend, but also has a partnership deal on a potential obesity drug. The rest are higher-risk, but also have much more reward potential. Here are the stocks to consider:

AstraZeneca PLC (AZN) is a leading biopharmaceutical company which targets treatments for cardiovascular, respiratory, inflammation, autoimmune, oncology, infection and other diseases. It is a large company with revenues of roughly $28 billion in 2012, and around 51,700 employees worldwide. This stock has been trending higher and it could continue to do so for a number of reasons.

This company has a number of top-selling products which include: "Atacand" for hypertension and heart failure, with revenues of about $1 billion in 2012. "Crestor" for cholesterol, with revenues of around $6.25 billion in 2012. "Seloken/Toprol-XL" for hypertension, heart failure and angina, with sales of $918 million in 2012. "Nexium" for acid-reflux, with sales of about $3.94 billion in 2012. "Synagis" for RSV, which is a respiratory infection in infants, bringing in about $1 billion in revenues for 2012. This shows that this company already has a number of drugs that have reached "blockbuster" status. This partial listing of AstraZeneca's product line shows that this company has a proven track record on developing blockbuster drugs.

Like many major pharmaceutical companies, AstraZeneca has experienced patent expiration challenges however, it has increased focus on developing treatments that could become the next blockbuster. It has numerous potential products in the pipeline for cardiovascular, oncology, respiratory and other areas. It also has some key partnerships with high-potential biotech companies. For example, it has an agreement with Palatin Technologies (PTN) to develop the use of "Melanocortin 4 Receptors" to treat obesity. Under the agreement, AstraZeneca has responsibility for the drug's commercialization, discovery and development costs and it is scheduled to pay Palatin up to $145 million in milestone payments as the progress continues on this obesity drug candidate. (It has already made an upfront payment of $10 million and $12 million in milestone payments.)

Obesity is a huge market opportunity and positive data could be rewarding for shareholders of both companies. Palatin is also developing "Bremelanotide" for the treatment of female sexual dysfunction or "FSD" which has seen positive Phase 2 data and phase 3 trials could be starting in 2013. Analysts at Roth Capital Partners have set a $6 price target for Palatin Technologies, which shows the potential, if the obesity and "FSD" drugs go well for Palatin and AstraZeneca. The analyst at Roth Capital appears bullish in general, on the collaboration the two companies enjoy. One article details the price target and bullish outlook for both of these pipeline candidates from the Roth Capital analyst, and it states:

"Beyond FSD, Palatin's partner AstraZeneca remains committed to the collaborative program in obesity, with compounds in various stages of preclinical development as advanced as toxicology testing, ready to enter the clinic, Mr. Pantginis said."

Astrazeneca is a solid way to play the upside in drug development with the reduced risks that come with a diversified product portfolio. While it may not have the same upside reward as some of the other stocks here, it could be a steady growth company. It also has a strong balance sheet with $7.78 billion in cash and about $10.31 billion in debt. Analysts expect the company to earn about $5.38 in 2013 and $5.20 for 2014. This puts the price to earnings ratio at only 10 times earnings which is significantly below the average of 16 times for the S&P 500 Index (SPY). It also offers investors a dividend yield of roughly 7% which makes it appealing for income investors. This is a lower risk way to have upside from pipeline candidates that treat obesity and others with blockbuster potential, while having the security of a very diversified product portfolio and a generous yield.

Vivus, Inc., (VVUS) has a FDA approved obesity drug called "Qsymia" which is already on the market. Qsymia is a combination drugs which serves as an adjunct to a reduced-calorie diet and increased physical activity for adult weight management. Vivus also has "Stendra" which is a phosphodiesterase 5 or "PDE5" inhibitor for the treatment of erectile dysfunction which is also FDA approved and on the market. Both of these drugs have significant revenue potential and this company also has interesting candidates in the pipeline.

Vivus has a couple of candidates in phase 2 clinical development programs in progress that target diabetes, and sleep apnea. Obstructive sleep apnea or "OSA" is a sleep-related breathing disorder that leads to frequent pauses in breathing. Around 18 million Americans are estimated to have OSA and globally the problem is much larger. OSA has been linked to a number of cardiovascular and metabolic diseases including hypertension, diabetes, stroke, congestive heart failure and other problems. Since there are no approved pharmacologic treatments for OSA, this candidate has significant potential.

Diabetes is another disease which impacts millions of people worldwide. This occurs when the body does not produce or properly use insulin which is needed to convert sugar and starches into energy. Current studies suggest that about 23.6 people in the United States, or 7.8% of the population is afflicted, and that there are nearly 250 million diabetics worldwide. This gives Vivus yet another potential drug candidate with blockbuster potential.

Vivus has a strong balance sheet with nearly $215 million in cash and no debt. So far, revenues have been limited since "Qsymia" was only launched in the U.S. in September, 2012. Some investors are concerned with the level of sales reached so far. Sometimes drugs do not reach revenue estimates that analysts expect and this can create downside risks for investors. However, sales could ramp up quickly since Vivus announced an agreement in December 2012, with Express Scripts (ESRX). This agreement added Qsymia as a standard benefit option to the Express Scripts "National Formulary". Furthermore, the company recently announced that due to an amendment and modification to the "Risk Evaluation and Mitigation Strategy" or "REMS", Qsymia can now also be distributed through certified retail pharmacies and that should boost sales.

The company posted losses of $139.9 million, or $1.42 per share for 2012, and that is a significant risk factor for investors to consider. However, analysts expect revenues to grow rapidly from about $81 million in 2013 to around $222 million in 2014 and that could eventually lead to profits. Earlier this year, analysts at MLV and Company reiterated a buy rating on Vivus shares and set a $21 price target. With Vivus shares currently trading at around $11, this could lead to nearly double if the stock hits $21.

Arena Pharmaceuticals (ARNA) is a biopharmaceutical company focusing on the discovery and development of drugs for weight management, cardiovascular issues, inflammation and other diseases. Arena has an obesity drug called "Belviq" which received FDA approval in June 2012. The FDA has recommended Belviq for scheduling by the Drug Enforcement Administration. Belviq will be available after scheduling is effective. Belviq is also currently under review for marketing approval in the European Union and Switzerland, and in it plans to seek approval in other countries.

Arena has granted exclusive Belviq marketing and distribution rights to Eisai Inc. for most of North and South America, and to Ildong Pharmaceutical Co., Ltd., for South Korea. Arena plans additional collaborations to commercialize Belviq in other countries. Since Belviq is still waiting for marketing approval, Arena is still reporting losses and this is a risk factor to consider. However, Arena does have a solid balance sheet with about $156 million in cash and around $74.4 million in debt. Revenues are expected to jump from about $28 million in 2012 to over $100 million in 2013. Analysts expect the company to post near break-even results in 2013 and it could eventually turn profitable as Belviq is approved in more countries in the next couple of years.

Arena is a great story because it shows how much opportunity investing in biotech can generate, especially while buying shares when other investors have either given up or become impatient. Buying little-known or out of favor biotech stocks can generate life-changing returns and that is what happened with Arena. Back in late 2011, Arena shares were trading for around $1 as investors seemingly had little hope as Arena had encountered some setbacks with their obesity drug. However, the company persevered and investors who bought the stock at that time saw it surge to nearly $12 when the FDA approved the drug in mid-2012. The stock is now trading for about $8 and it seems some investors have become more cautious on how much revenue this drug will generate once it fully launches. However, one well-written Seeking Alpha article is decidedly bullish and sees further upside potential.

Orexigen Therapeutics, Inc. (OREX) is another biopharmaceutical company that is focused on obesity. It has a developed "Contrave", which has completed Phase III clinical trials. It has filed a New Drug Application or "NDA" with the FDA for this product. Just as Palatin Technologies and AstraZeneca is working to develop an obesity treatment by focusing on melanocortin 4 receptors, Orexigen offers a similar approach and its website states:

"Two basic opposing neuronal populations work through the melanocortin 4 receptor (MC-4) in concert to maintain the body's weight at a constant level. Activation of the proopiomelanocortin or POMC neurons reduces appetite and increases energy output. Activation of the neuropeptide Y/Agouti-Related Peptide (NPY/AgRP) neurons increases hunger and conserves energy when energy reserves, stored as fat, are low.

Orexigen's product candidates, Contrave® and Empatic™ reflect the Company's understanding of how the brain appears to regulate appetite and metabolism, as well as the mechanisms that come into play to limit weight loss over time."

Orexigen had only about $3.5 million in revenues in 2012 and it has been reporting losses which adds to the downside risks. However a very strong balance sheet helps to mitigate some risks, it has about $137.4 million in cash and no debt. Analysts expect revenues to jump from about $3.5 million to around $41 million in 2014. That could help improve results as the company is expected to lose $1.04 per share in 2013 and see losses reduced in 2014 to about 33 cents per share. In late 2012, this stock was trading at about $4 and has since jumped over 50% to a recent $6.23 per share. With a market capitalization of around $576 million, a lot of good news is priced in for now and downside risks remain significant due to limited revenues, continued losses and a limited pipeline. However, this stock is worth considering on pullbacks for the longer-term upside potential it offers.

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Source: These Obesity Stock Plays Could Offer 'Blockbuster' Drug Potential