Contrary to what may have been expected, the market reaction to the news has been tepid at best. Contrave, if approved, would join Qsymia from Vivus (NASDAQ:VVUS) and Belviq from Arena (NASDAQ:ARNA) in the U.S. market. Belviq and Qsymia were approved in the summer of 2012. Qsymia went onto the market in the Fall of 2012, while Belviq hit shelves in the summer of 2013.
Contrave did not fare well in its first FDA application, which led to additional studies. It was because of positive results in Orexigen's Light Study that the company felt confident enough to re-submit an application for Contrave. The Light Study was designed around the information that the FDA would need to consider the drug.
While the development is very positive for Orexigen, the equity side of the equation is another matter. With Arena and Vivus, there was a certain excitement about the potential of a first prescription anti-obesity treatment in over a decade. With about 33% of the U.S. population classified as obese, and another 33% classified as overweight, the potential market was staggering. The anticipation of the anti-obesity space, and thus the expectations placed on companies with viable solutions was pegged to that sizable market.
What has transpired since the launch of Qsymia and Belviq has been a slow but steady sales climb that has fallen well below what might have been initially expected. Now, sales of Qsymia and Belviq do not dictate whether or not Contrave will sell, but the sales figures of these other drugs do give an indication of what the marketplace is doing. In friendly terms, the story thus far has been modest growth.
In looking at the sector however, there has been indication that insurance is slowly turning around on covering prescription anti-obesity treatments. When Qsymia and Belviq launched, about 30% of covered lives had an anti-obesity benefit. That number is currently at about 40%, and could reach 50% by mid 2014. A new year may well bring a new attitude on anti-obesity coverage by insurance companies. If that is indeed the case, then Orexigen, Vivus, and Arena all stand to benefit (assuming Contrave garners approval).
An FDA application is a process. The market understands that. Obesity treatment being accepted by consumers is a process and the market has a better handle on that as well. Essentially, the Orexigen story will not likely see the pre-approval boost that Vivus and Arena saw because the segment is better understood now. That being said, Orexigen may well benefit from sector positive news on insurance, sales acceleration, etc. In my opinion, investors will have ample opportunity to get in on the action without feeling a pressure to jump in immediately. Stay Tuned!
Additional disclosure: I have no position in Orexigen or Vivus