Arena And Vivus Weaken On Poor Obesity Drug Prospects In Europe

| About: Vivus, Inc. (VVUS)

Responding to news that the company would withdraw its MAA (Marketing Authorization Application) for Belviq (lorcaserin) from the EMA, shares of Arena Pharmaceuticals (NASDAQ: ARNA) tanked by 9.2% last Friday, as investors questioned whether obesity drugs had a future in the EU market. Also adding to the anxiety amongst ARNA investors is the lack of DEA scheduling of Belviq as we approach the 1-year anniversary of the drug's FDA approval on June 27th, 2012.

Investors knew that European regulators were not as fond of this new generation of obesity drugs after Vivus (NASDAQ: VVUS) failed to attain approval for Qsymia (phentermine and topiramate ER) in late 2012, although it appears that a large number of Arena investors believed that the better-established safety profile of Belviq would lead to a successful MAA. It seems that Arena's correspondence with European regulators implied that there was little promise in Belviq's current application, since it'd be terrific for Belviq to launch into a large market that has no competition. Vivus investors, who are also concerned with Qsymia's eventual prospects in Europe, sent the company stock down 5.6%.

So for the time being, the door to the European market is closed. This means that one of the competitive arguments that Arena investors used against Vivus investors (access to the European market for obesity drugs) has been removed for the time being.

Qsymia has been on the US market for about eight months now, and sells a bit over four thousand prescriptions each week. It seems that the company averages about $130 per prescription, although Qsymia's promotional programs have surely inflated the prescription numbers (and deflated the revenues per unit) to some extent. Investors are hoping that Qsymia will continue to gain market share against generic phentermine pills and non-drug treatments (like weight-loss therapy), although the larger uptrend in Qsymia sales that we've seen since the drug launched in September 2012 has seen a major slowdown in the last month.

As noted in a recent note, we may see Qsymia sales juiced after the approval of an amendment that the company submitted in October 2012 for the drug's restrictive REMS, which only allowed the drug to be sold through certain mail order vendors. The amendment allows Qsymia to be offered at certified pharmacies (brick-and-mortar stores), which should help with the accessibility and even the medical/public perception of the drug to some extent.

The recent study on phentermine/topiramate that was published in the American Association of Clinical Endocrinologists reinforced the argument that the implied short-term risks that essentially killed Qsymia's chances at the European market were not all that apparent. Here is a data excerpt from the article:

Patients who lost at least 15% of baseline weight achieved almost a 9 mmHg decline in systolic pressure and close to a 6 mmHg drop in diastolic pressure (P <0.05 and P <0.001 respectively).

But even slight weight loss was associated with significant improvements in blood pressure.

<5% weight loss: -1.6 mm Hg, -2 mm Hg (P <0.05 and P <0.001)

5% to <10% weight loss: -4 mm Hg, -3.6 mm Hg (P <0.05) and P <0.001)

10% to <15% weight loss: -6.1 mm Hg, -3.6 mm Hg (P <0.05 and P <0.001)

Similarly, increases in HDL cholesterol varied by weight (P≤0.001 for all):

<5%: 1.9

5% to <10%: 7.8

10% to <15%: 10.7

≥15%: 24.3

There were also changes in non-HDL cholesterol and in triglycerides by weight (P=0.0016 and P≤0.0002):

<5%: -7.1, 4.6

5% to <10%: -7.7, -8.7

10% to <15%: -9.3, -17.1

≥15%: -13.1, -28.9

Although Qsymia's momentum in the US obesity market appears to be slowing down, studies like this help to build its overall profile as a primary-care drug that can be used in even slightly obese patients. Currently, Qsymia is FDA approved for use in patients that have a BMI of at least 30 (kg/m2) or a BMI of at least 27 (kg/m2) given the presence of at least one other weight-related issue like hypertension, type 2 diabetes, or dyslipidemia.

Vivus investors would argue that doctors are holding back on the phentermine and topiramate ER combination due to the long-term cardiovascular risk, which implies that the drug would have significant and unrealized market potential given that this could be fully established. Based on our estimates, the market potential should be as high as $2B - although this does not include the potential in any of the markets outside of the United States.

The Takeaway

It appears that both Belviq and Qsymia will not be introduced to the EU market for quite some time, which strengthens the case for VVUS versus ARNA to some extent. Qsymia, which has been on the US market since September 2012, has been sluggish recently although some expect sales to be ramped up on additional data that suggests that the drug's short-term cardiovascular risk profile is better than expected. Also aiding this is an amendment to the REMS that allows the drug to be sold at certain pharmacies that was recently approved and has not been reflected in Qsymia sales yet.

As mentioned, Arena reported Q1 earnings on May 3rd 2013. Vivus will be reporting earnings on Wednesday. Expect a reaction to the fully accurate sales data for Qsymia in Q1 2013, and reaction to the company's outlook for the rest of 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.