Arena Pharmaceuticals (ARNA) has hit a consumer watchdog snag in the launch week of the anti-obesity drug Belviq. Consumer Reports published an article on June 13th advising consumers to seek out other alternatives. The article, titled Weight-Loss Pill Belviq Is Now Available, But We Say Skip It is pretty short and to the point. It essentially takes the track that is assigned to most weight loss products in that a preferred method to lose weight is eating properly and getting regular exercise.
"We've long cautioned against taking quick-fix weight-loss drugs like Belviq, and Qsymia--that was also approved by the FDA last year--as well as supplements, because their benefits are usually minimal, and their adverse effects can be troublesome. Instead, skip the pills, and lose weight the safer, tried-and-true way--by eating less and exercising.".....Arena and Eisai have Belviq and Vivus (VVUS) has Qsymia.
The first thing that investors need to note is that this type of stance regarding weight loss products is actually very standard. Most doctors would indeed recommend a healthier and more conservative approach to weight loss. Thus, the fact that the doctors that consult to Consumer Reports took such a stance should not be a shock.
The next thing investors need to understand is that while this report may be negative toward weight loss products, there is still a substantial part of the population where the benefits offered by a drug like Belviq outweigh the risks. That is the target market for Belviq.
That being said, this report from Consumer Reports is not a positive for Arena or Belviq. Consumer Reports is a respected and reputable organization in the minds of most consumers. While some individuals may not agree with the article, there are many that will. As an investor, it is imperative that you understand this.
Within hours of the Consumer Reports article coming out, I began receiving emails. While my opinion is that it is best to let company representatives from Arena and Eisai (ESALY.PK) handle this issue, it is quite clear from the responses of passionate investors that the world of "vigilante investors" will once again take the stage. A similar phenomenon took place while the DEA was reviewing Belviq for scheduling. Ironically, if there is a lot of attention to the article in terms of comments, it may trigger even more publications that go deeper into the efficacy and safety concerns raised in the first.
For those that look at their investments from a less emotional perspective (which is most), there are a few things to look at:
- Eisai and Arena are doing their respective parts to get the word out in the media about Belviq, what it is, and the intended market.
- Eisai and Arena are doing their part to get the word out to doctors and insurance companies. Educating these two groups is an imperative part of the process. Not all doctors will be fans of a treatment like this, nor will all insurance companies.
- Arena and Eisai are a bit more hand tied when it comes to consumer interaction. However, this does not stop the company from reaching consumers through the web. By example, a tag line of "Why Belviq Might Be Right For You" touches on the personal side of the consumer and is engaging enough to get consumers to want to learn more.
- The equity will still respond to the initial channel checks, be they positive or negative. A Consumer Reports article will not cause the drug to be a failure in much the same way that a positive appearance on CBS by a doctor will not drive ultimate success. Company success is tied to sales traction over time because enough consumers are seeing positive results.
The key here is not to get too emotionally invested. Personally, I see potential with the drug but am not so tied to it that I cannot see the risks as well. I liked the stance taken by Arena and Eisai on launch day when the companies were interviewed on Bloomberg. They stated that Belviq is a drug that is designed for people that can commit to a proper diet and exercise program. There will always be bumps in the road. If a product is better than those bumps, it will prevail.
The last consideration I would like to leave you with is this. The Consumer Reports article will be used as a tool by active traders. Arena has a substantial pool of active traders. You can put your energy (long or short) on this one Consumer Reports article, or you can pay attention and watch for buying and selling opportunities. The sales results will set the bar on this equity. Not Consumer Reports, longs, shorts, or anything else.
Additional disclosure: I have no position in Vivus.