Is Novo A Threat To Arena, Vivus, And Orexigen?

by: Spencer Osborne

For over a decade the prescription anti-obesity sector sat idle while the average weight of the population increased. Even with weight loss being a multi-billion dollar industry, pharmaceutical companies seemed hesitant to jump into a market that was plagued with memories of the Fe-Phen fiasco. That was then, this is now.

Last year Arena (NASDAQ:ARNA) became the first company to receive FDA approval for an anti-obesity medication, Belviq, in 13 years. The Arena approval was quickly followed by approval for Vivus' (NASDAQ:VVUS) Qsymia. Meanwhile Orexigen (NASDAQ:OREX) was hearing rumblings that perhaps its anti-obesity drug, Contrave, would have an easier path through the FDA process in trying to garner approval of its own.

Last week news headlines brought attention and focus on yet another anti-obesity player, Novo Nordisk and its drug Victoza. Novo (NYSE:NVO) has announced what appear to be very positive results and seems to be on pace to wrap up trials in the third quarter of this year and seek approval by year's end. This may add yet another player seeking its own share of the anti-obesity pie. Should sector investors worry? Yes. Should sector investors lose sleep? No.

Before moving forward there is a point of clarity to make. I say sector investors should worry not because I feel that Novo has any type of advantage. I say it because, as an investor, you have very real money on the table. It is always a good idea to worry about, or at a minimum, monitor, your money.

While investors in Arena, Vivus, and Orexigen cast barbs at each other and debate which investment or product is better, a fourth player has now entered the ring. There may still be more to come. A lot hinges on just how big the prescription anti-obesity market turns out to be. Thus far, Vivus' Qsymia has had modest sales. Arena is launching Belviq next week and that is where the immediate focus is.

Vivus and Arena do have some distinct advantages. They will be on the market and able to establish a patient base long before Orexigen and Novo can actually hit the market in an on label capacity. In addition, Vivus and Arena will have had time to build trust and relationships with doctors.

Here is the wrench in the works. We have seen a lot of debate about on-label vs. off-label uses of drugs. Arena investors, taking a bullish outlook, have argued that Belviq has great potential with diabetes, and even though it is not labeled as a diabetes treatment that the drug will be scripted off label as a treatment. This may be the case, but now the issue turns full circle. You see, Novo's Victoza already has FDA approval for Diabetes treatment. What the company is doing is taking an existing drug and conducting anti-obesity trials with it. Scripting off label can happen with anything. Think about that as you consider the sector, the drugs, and how they enter the market.

I have long maintained that there is plenty of room in the market for more than one player. The fact of the matter is that no one drug is a solution for every patient. Some may respond well to one drug and have a terrible experience with another. In fact, if true health is what we want to see, then we welcome more treatments to the market to ensure a greater chance of treating more people.

At this point all of these companies have an aspect of speculation in them. There can potentially be great reward if one drug seems to catch on with consumers, or if enough of the population decides that prescription meds are the solution to weight loss issues.

Regardless of how these drugs work, they are targeting the same pool. That pool happens to be quite substantial, but as yet is simply potential.

The key here for investors is not how many players are in this game. At least not yet. The key is determining the size and scope of the market. After that it is determining if the market can satisfy the number of players wanting into the game. While it is tempting to focus on the other players, the real focus needs to be on market size and market share. Do not worry about Novo just yet, but be aware that they are there and bring their own attributes to the game. Novo is already approved in the U.S. and Europe. It is simply working toward additional labeling. The market is getting interesting. Stay tuned.

Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Vivus, Orexigen, or Novo.