The Obesity Drug Battle

by: Harlan Kessler

The obesity drugs market

Over the last many years, we have seen usage of these drugs climb early and then decline as patients become dissatisfied with the results or have concerns about safety. Xenical, manufactured by Roche (OTCQX:RHHBY) was the last major drug to be launched, and managed impressive numbers when it started selling in the U.S. Within weeks it was achieving 40,000 prescriptions every week for its first month. It was prescribed a total of 131,000 times; however, after the all time high of 57,695, sales started to decline. One reason was the efficacy, but another major reason was the side effects. You may also recall the successful drugs, Redux and Pondimin sold by American Home Products in the 1990s in combination with phentermine. They reached a peak of 12 million prescriptions over twelve months, but reports that the medication caused damage to the patient's heart valves eventually forced the manufacturer to withdraw the medications.

Belviq from Arena Pharmaceuticals (NASDAQ:ARNA)

Belviq, manufactured by Arena Pharmaceuticals and Vivus' (NASDAQ:VVUS) Qsymia were approved at approximately the same time, though Vivus beat Arena to the market. Belviq was launched in the United States on June 11th and has had a slow start, though it is still too early to predict the future. Belviq appears to be as effective as Xenical without its undesirable side effects because it works with the nervous system to reduce appetite. It was designed to copy the weight-loss results of Redux and Pondimin without causing damage to the patients' heart valves. Things are in favor for Belviq because Americans are becoming more obese and the American Medical Association has recommended that obesity should be categorized as a disease. However, Belviq is still not yet covered by many health insurance plans, so patients may have to pay out of their own pockets.

Qsymia from Vivus

Qsymia had the advantage of being able to launch months ahead of Belviq because it was a combination of two already approved drugs. As late as the third quarter of 2012, analysts were predicting fourth quarter sales of $25 million, however the actual figure came in at $2 million, well below estimates. Sales did double to just over $4 million in the first quarter of 2013, but analysts were forced to revise their sales expectations for the full year 2013 to half of their original estimates of $130 million to $165 million, and even these revised estimates now seem to be overly optimistic. The disappointing start for Qsymia sales has meant that a dissident shareholder, First Manhattan, now wants to replace the board of directors and management.

Contrave from Orexigen (NASDAQ:OREX)

Orexigen Therapeutics is unlikely to have its treatment approved and on the market before late in 2014, but the stock appears to be generating more interest at the present than either Arena or Vivus. The share price is up year-to-date compared to losses for the other two. Orexigen is presently conducting large cardiovascular studies, and interim results are expected in the third quarter of this year. If the study produces favorable results, FDA approval will be applied for at the end of 2013 or in early 2014. Contrave combines two already-approved medicines -- bupropion and naltrexone, and early trials have indicated it seems to be more effective than Arena's Belviq but less effective than Vivus' Qsymia. At the beginning of this year, Orexigen's market capitalization of $488 million was overshadowed by Arena ($2.1 billion) and Vivus ($1.5 billion), though this gap has since been reduced. Orexigen also has the advantage of having the best partner of the three companies in Takeda of Japan which has had a great deal of experience in marketing, particularly of metabolic drugs.

Xenical from Roche

Xenical is still a popular obesity drug, though sales have dropped from the peak of $600 million. In 2001, GlaxoSmithKline (NYSE:GSK) bought the rights to sell the drug over-the-counter in the United States and has now put it up for sale as unprofitable. Xenical prevents the absorption of fat by the body and the drug's side effects include gas, diarrhea and intestinal cramping. These unpleasant side effects have contributed to the commercial failure of the drug.

The bottom line

The most widely prescribed drug for obesity is still the generic Phentermine, which is effective, but the possible complications with heart valves has led it to be recommended by the FDA for short term use only. There is no doubt that an effective treatment for obesity with limited side effects would be a great commercial success, but we will have to wait to see who wins.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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