With Vivus' (VVUS) anti-obesity drug Qsymia having launched in September of 2012, and Arena's (ARNA) competitive solution Belviq set to launch next month there are many factors for investors to consider over the short and mid-term. One key item of consideration is off-label prescriptions.
An off-label prescription is a script written by a doctor that is not based on the FDA approval of that drug. A good example would be a doctor prescribing Arena's Belviq for controlling type II diabetes when in fact the drug is approved for anti-obesity.
Off-label prescriptions is not new. In fact, off-label prescriptions are written with great frequency. If a doctor feels that a certain drug will be helpful to a patient, even off-label, there is nothing to stop that doctor from pursuing that course of action. After all, a person's health is paramount.
Off-label prescriptions have had a lot of attention in recent years. While a doctor can certainly take the step to write a script off-label, a drug company is prohibited from marketing the drug for any use other than what the FDA approved. Using Arena's Belviq as an example again, it would be perfectly acceptable for a doctor to script Belviq to treat type II diabetes if that doctor felt that Belviq was the best solution for a patient's problem. It would not be legal for Arena (or marketing partner Eisai) to promote the fact that Belviq has good attributes for treating diabetes.
While writing prescriptions off-label is common, it is not without its issues. A doctor takes on more liability when they script off-label. A doctor must inform the patient that the drug is being scripted off-label, counsel the patient on why this treatment is best, and essentially be able to put forth a good argument that the off-label solution is better than the common practices of the profession. There will certainly be some that disagree with the fact that there is greater liability, but a simple Google search for "off-label prescriptions" will yield scads of documents, power-points, and professional papers on the subject. I encourage readers to take a look for themselves. While bringing an off-label suit may not be easy, there are costs to defend. Those costs would be an added liability to a doctor.
One key here is that we do want doctors to have the ability to write prescriptions off-label. Where issues arise is that drug companies can not promote the off-label use. Thus, we wind up with a drug gaining FDA approval on what may be a simpler use and less expensive studies when the intent all along could be an off label use. The drug company simply needs to dance the line of getting the word out there about other uses. Some big pharma companies have paid some hefty fines trying to dance that line.
Why Do Vivus Investors Need To Think About Off-Label?
Vivus has developed an anti-obesity drug called Qsymia. It is essentially the combination of two existing drugs that are already being prescribed off-label for weight loss. Where Qsymia is unique is that it has introduced a time release component the negates guesswork in the dosage of the two generic components as well as getting the dosage down to one simple pill taken once per day.
The two drugs that make up Qsymia are Phentramine and Topiramate. These are the drugs currently being scripted off-label. They can continue to be scripted off-label. The interesting thing here is that in theory, a doctor must now defend the use of these components off-label because there is now an FDA approved drug (Qsymia) that can be scripted for weight loss on-label. That defense can be pretty easy given that the practice of scripting the two components off-label has been in place for quite some time. The existence of an on-label solution presents another level of consideration for doctors. There is indeed less liability on a doctor scripting on-label rather than off. In theory, a patient scripted the off-label solution that develops a problem would likely sue the doctor and the drug maker. If that same patient had a problem with Qsymia, they may try to sue the doctor, but the case would quickly be passed on to the drug maker, as the doctor followed the guidelines and scripted on-label.
For Vivus, one issue is the length of time and data that has been amassed for off-label scripts. A patient already on the off-label script may well not want to change. The company has a better shot with new patients. That is because with a new patient the doctor would have to consider their own liability now that Qsymia is on the market.
Why Do Arena Investors Need To Worry About Off-Label If There Is No Generic Form Of Belviq?
With Arena things get a bit more complex and investors will have to think a little deeper. While it is true that there is no generic form of Belviq, the company still needs to contend with the fact that off label prescriptions of the generic components of Qsymia are already being widely used. That is the tip of the proverbial iceberg.
Now that Belviq is getting ready to launch, there is already excitement about creating a combination of Lorcacerin (Belviq) with Phentramine. For lack of a better term, investors have called this potential combination "BelPhen". Indeed, there is great potential for BelPhen. In theory it will be even more effective than Belviq alone. Arena developing such a drug is something exciting in the pipeline that could add potential value to the company as well as drive the price of the equity.
The issue here is that if doctors begin to script Belviq on-label and write a second script for Phentramine off-label, what is the impact on developing a true BelPhen? Think about that. What is more valuable to Arena? Stronger sales because a combination is created using off-label prescriptions or creating a new combo drug, conducting the testing, and gaining FDA approval?
What investors need to consider here is that there is potential that the stronger sales with the separate combination is more attractive. This could mean a company created and FDA approved BelPhen never reaches the market. It is too early to tell whether the company drug will be the best path vs. simply a more effective off-label combination that creates a larger market share because it is more effective. For investors, knowing these possibilities is important. Neither is necessarily bad for investors as yet. My suggestion at this point, to avoid investor confusion, would be to reserve the term "BelPhen" for the possible Arena project, and use the Term "Belviq and Phentramine" for the current situation where doctors script Belviq on-label and Phentramine off-label.
Another possible off-label event for Belviq is the treatment of Type II diabetes. Lorcacerin shows promise here, but as yet, like Belviq and Phentramine above, there is no FDA approval nor has there been very much progress in clinical trials.
Remember, Arena gives up a substantial chunk of NET revenue (about 66%) on Belviq to marketing partner Eisai. If Belviq gains traction as a treatment for Type II diabetes as a stand-alone, Eisai stands to benefit greatly. However, if Arena developed a new drug featuring Lorcacerin and another compound, it would be a unique drug that may give Arena more leverage in its dealings with Eisai. Simply stated, a new drug could bring a new and more favorable deal. Belviq being scripted off-label for treatment of Type II diabetes may increase sales of the existing Belviq from which Arena gets 33% of the NET and Eisai gets the rest, but a new drug may work even better and deliver more leverage.
Hopefully this article helps investors better understand some of the dynamics that investing in this sector bring about. There is possible benefit to off-label scripting as well as possible negatives. A savvy investor will consider all possibilities. In some situations Arena partner Eisai gains leverage, while in others it is Arena with the leverage. Remember, one of the biggest part of successful investing is underestimating the dynamics of the company as well as the street. If you think deeper than the street, you might just get the edge you need.
Off-label prescriptions is not just an issue for Vivus investors to consider. The issue of a doctor adding additional liability gets more complex the second Arena's Belviq hits the market. When that happens a doctor, in theory, will need to be able to justify why he is not scripting either Qsymia or Belviq instead of creating an off-label cocktail. The biggest player in the anti-obesity market right now remains off-label scripting of Phentramine and Topiramate. Both Vivus and Arena want to put a dent in that market. The ironic thing is that the investors in these two companies, which are often at odds with each other, are actually far more aligned than many may realize. This is exactly why the deeper thinkers have an advantage. The faster investors realize that this space has room for two or three drugs, the better off these investors will be. Neither drug is "massively" effective on everyone, and neither drug will be the ultimate solution.
As I have been stating for quite some time, the next catalyst for this sector is the sales of Arena's Belviq. These numbers are important to Arena, Vivus, and Orexigen (OREX) investors as they will tell us something about the size and scope of the prescription anti-obesity market. Stay Tuned.
Additional disclosure: I have no position in Orexigen or Vivus.