The increasing rate of diseases caused by obesity has increased investor and consumer interest in the obesity sector. 2013 was an important year for anti-obesity drugs with Qsymia's and Belviq's market launch. However, the market response to the drugs was not as warm due to high costs and lack of insurance coverage. I believe this is all about to change in 2014 with ObamaCare and the market launch of Contrave.
The following are some important points from this article:
- The anti-obesity drug industry will grow beyond $2.5 billion by the end of this decade.
- The insurance coverage of Qsymia and Belviq under ObamaCare will radically transform the fortunes of both drugs.
- Contrave has garnered much less investor interest due to lukewarm market reception of Qsymia and Belviq but is the best placed to lead this industry.
- Investors should expect some big-Pharma players to step into the anti-obesity drug industry, especially companies working on diabetes treatments such as Novo Nordisk.
- Companies working on developing devices to assist obese patients will also gain prominence, EntroMedics is a notable name in this regard.
- The debate over ObamaCare has increased awareness about America's healthcare expenditure which should eventually result in more political awareness about obesity, one of the major causes of a number of diseases.
Obesity has slowly taken the form of an epidemic, and has been labeled as a disease by the American Medical Association (AMA). The United States has seen a sharp increase in obesity with a 27.2% increase in 2013 alone, compared to 26.2% in 2012, according to Gallup-Healthways.
Obesity is usually calculated through the body mass index (BMI), using the weight and height of the person. A BMI of 30 or above is considered to be obese. Obesity doesn't only impact the appearance of the person, but it is also a major health risk. An obese person is more susceptible to health risks like high blood pressure (HPB), high blood cholesterol, Type 2 diabetes, coronary heart disease or coronary artery disease, osteoarthritis, stroke, cancer, sleep apnea, gallbladder disease and hypertension. A recent study from Brazil has revealed that obesity may have a hand in disturbing bone growth in teens.
Obesity is usually considered to be treatable by controlling the diet and exercising, however it may not entirely be that simple, here is where the obesity drugs come into play. Since gaining the epidemic status in 1997 by the World Health Organization, obesity has become the focus of many pharmaceutical companies who are working day in and day out to develop drugs that can curtail the increase and cure the ones already suffering. Several notable drugs that hit the market include Orlistat, Belviq, Reductil, Acomplia, and Qsymia among others. Among these drugs Reductil and Acomplia have been withdrawn from the market owing to their severe side effects - cardiovascular and psychiatric respectively. However, Orlistat (Xenical) of Roche is being marketed but has a relatively lower percentage of weight loss caused.
The increase in the obesity rates and the current one third of the Americans falling in the obese category, presents a lucrative market, with an opportunity to make big bucks. However, in the past the drugs targeting obesity have not garnered a blockbuster status and have had more side-effects then benefits. The reason for the lower sales of the drugs is not only side effects, but also the fact that most of the people prefer to diet or do nothing, instead of spending hundreds of dollars every month for weight loss pills.
Currently, the obesity drug industry is witnessing a sluggish growth, since there are few players and limited approved drugs in the market. Additionally, the pipeline candidates for obesity are also few and far between. However, there is increased interest by the companies who are already developing diabetes drugs as these drugs commonly cause weight loss. Hence, over the period of the next few years we will be seeing more and more companies entering this industry and increasing competition for existing players.
The three major players in the obesity drug industry are Arena Pharmaceuticals (ARNA), VIVUS Inc. (VVUS), and Orexigen Therapeutics (OREX). Arena and Vivus have FDA-approved obesity drugs, viz. Qsymia and Belviq; while Orexigen is in the process of bringing its drug Contrave into the market, which expectedly has more potential than the other two drugs, with lower side effects. The companies and their products are discussed as:
1. Arena Pharmaceuticals
Arena is a biopharmaceutical company engaged in the discovery, development, and commercialization of drugs targeting G protein-coupled receptors for central nervous system, cardiovascular, metabolic and inflammatory diseases. The company has an approved drug Belviq, for chronic weight management in adults.
The company has a marketing and supply agreement with Eisai for Belviq. Under the agreement Eisai has the right to market and distribute the drug not only in U.S. but quite recently also in other countries worldwide, notably E.U., China and Japan. However, South Korea, Australia, Israel, New Zealand and Taiwan are excluded. This agreement aims at expanding the market for Belviq. Arena Pharmaceuticals will receive milestone payments from Eisai up to $176.5 million.
Belviq targets a hunger control receptor in the brain to help feel satisfied by less food. The drug, in combination with a reduced calorie diet and physical activity, results in weight loss of 5% approximately. Belviq was rejected by the FDA panel in 2010 due to safety concerns, regarding heart-valves. It was later approved on the plea that the benefits outweigh the risks and that the company will monitor the drug for safety and efficacy.
2. Vivus Inc.
Vivus Inc. is a biopharmaceutical company focused on developing therapies for unmet medical needs in sleep apnea, obesity, sexual health and diabetes. The company has two approved drugs in the market, Qsymia for obesity and Stendra for ED. The company witnessed an increase in the product sales of Qsymia in the third quarter earnings, despite being substantially lower than estimates and having to compete with Belviq.
Qsymia was approved in mid-July of 2012 by FDA, for treating obesity as a supplement with increased physical activity and reduced calorie diet. The drug is used for adults with a BMI of 30 kg/m2 or higher - considered obese, or with a BMI of 27 kg/m2 or above - considered overweight. There must be at least one obesity-related medical condition to use the drug, which include type-2 diabetes, high cholesterol or high blood pressure. The drug is however, frowned upon by doctors due to its lack of safety and adverse effects including dizziness, insomnia, dry mouth, constipation and paraesthesia. Additionally, the drug cannot be used in pregnancy, in patients with hyperthyroidism, glaucoma, or those having hypersensitivity to any inactive ingredient of Qsymia. The drug has the ability to produce a placebo adjusted weight loss of about 5% within 28 weeks of its use, as seen in its trials, and a weight loss of up to 10% with increased doses.
Qsymia was originally available only through certified pharmacies and mail order until April of this year, as restricted by the FDA. It is also being studied for other indications including sleep apnea and diabetes.
3. Orexigen Therapeutics Inc.
Orexigen is a biopharmaceutical company focused on developing pharmaceutical drugs for treating obesity. It currently has two candidates in its pipeline, Contrave in the cardiovascular outcome trial, and completed phase II trial of Empatic. The company has collaborated with Takeda Pharmaceutical Company for developing and commercializing Contrave in U.S., Mexico and Canada.
Contrave is under development for the treatment of obesity. It targets the brain receptors that lead to appetite reduction, control cravings, improved control over eating behaviors and increased metabolism. The drug was denied FDA approval in 2011, with the demand to conduct a long term study demonstrating that the drug doesn't increase the chances of a heart attack. Contrave is being studied in a Light study to assess the risks of adverse cardiovascular instances in obese and overweight subjects using the drug. The company expects a decision from the European Medicines Agency in the second half of 2014, for the marketing authorization application submitted by Orexigen. It also expects a decision from the FDA next year, on the resubmitted NDA for Contrave.
The trial studies of Contrave demonstrated positive results with up to 25 pounds of weight loss in the subjects, and they were able to keep it off for almost one year. The cholesterol levels and blood sugar controls were also noticeably improved in the patients, along with a small waistline. The side effects from the drug usage were not severe and it was well tolerated. The most frequent negative effects included constipation, nausea, vomiting, headache, dizziness, insomnia, diarrhea and dry mouth.
The Big Catalyst
ObamaCare, the American health care reform plan, has increased the importance of healthcare, by mandating that Americans need to have health insurance or they will be fined. This plan leads to increased healthcare interest, which consequently impacts the sales of the drugs for prescription. The obesity drugs Belviq and Qsymia are also covered under the healthcare plan, and the insurers tout it as a mandatory medication for weight reduction. This would have a major impact on the sales, as otherwise people suffering from obesity steer clear of such high-priced therapies, but may find them attractive if they are covered under insurance. Additionally, they may ultimately be forced to get insured, since starting January 1st 2014; obese employees will be facing a 30% penalty of their health plan. This will further incentivize the obese population to lose their weight, thus increasing the prospects of the weight loss pills.
The plan to cover the drugs under insurance does indeed sound very encouraging and may help in increasing the sales of the drugs, which were otherwise average. I believe the plan does have some negative impacts as well on the obesity companies. A few of them are outlined below:
1. Price Check - The companies will not be able to charge prices that they deem fit, and will be under scrutiny from the regulators. This would potentially lead to a limit on the prices, which in turn would negatively impact the sales revenue of the company.
2. Delay in Reimbursements - Another concern for the financial status of the company will be any possible delays in the reimbursements from the sale of drugs. This delay will have a direct impact on the revenues, and thus the operations.
The obesity drug industry is an industry where a lot of money can be made owing to the large population of America suffering from it. It's estimated that by 2019 the obesity drug market will reach a whopping $2.6 million as compared to $750 million in 2012, an almost 20.7% compound annual growth rate (CAGR). The growth can be attributed to the recent approval of Qsymia, and its effects on obesity; however its ability to prove itself safe is the major challenge. According to research, by 2030 the adult obesity rate in U.S. will be 50%, which presents a major market. The disease must be controlled, as it is associated with serious health risks, with more than 25 million Americans suffering from Type 2 diabetes, 68 million from hypertension, 27 million from chronic heart disease and 795,000 people suffer from a stroke every year. Additionally, one in three cancer deaths every year are found to be related to poor nutrition, obesity or physical inactivity. Furthermore, it is also estimated that by 2030 the costs associated with obesity related diseases will increase approximately by $48-$66 billion each year, almost 16-18% of U.S. health expenditures. On the bright side, if only 5% of the obese BMI range is reduced millions of people would be able to avoid these obesity related diseases.
Companies able to develop obesity drugs without adverse effects have major potential in the industry. The previous marketed drugs, over an extended historical period, have been withdrawn from the market owing to their side effects. This has caused skepticism regarding the newly developed drugs.
Currently, there is little competition in the obesity drug arena and it has an opportunity for new companies to make their place, but they will have to face a series of challenges. A few of these include existing competition in the market, high regulations owing to the previous failures of drugs, slow growth in the industry, stigmatized drugs due to pessimism associated, and expenditure behavior of the patients.
A major entrant expected in the industry, with an obesity drug, is Nova Nordisk (NVO), a company focused on diabetes treatment. The diabetes trials, liraglutide, of the company showed increased weight loss, which prompted the company to enter the obesity market.
The pharmaceutical companies and the doctors remain apprehensive regarding the anti-obesity drugs because of the history of failed drugs due to adverse effects. However, the market potential for obesity is huge and pharma companies are aware of this potential. Those drugs that are able to demonstrate long term safety, and better results with lower doses will be the winner in the future. Furthermore, if the existing drugs being sold - Qsymia and Belviq - show positive data regarding the safety and efficacy study, it will have a huge impact on the future of the industry and may even beat analysts' estimates regarding the growth potential of the industry.
The approval and commercialization of Contrave is a major event in the obesity drug industry going into 2014, as it has the possibility of demonstrating better safety and effectiveness. Following the positive cardiovascular outcome trial and the subsequent approval of the MAA in Europe, the drug has the potential to remove the stigma regarding prescribing anti-obesity drugs, and open up new avenues for the industry.
Another aspect to note is that a few companies are developing obesity devices that allow the patients to live life normally, while these devices work their magic. One company excelling in developing this device is EnteroMedics (ETRM) with its Maestro Rechargeable System, which is implanted through a minimally invasive laparoscopic procedure. The pace-maker like device uses electrodes to block the signaling of the vagus nerves, resulting in feelings of fullness and energy. EntroMedics's Maestro Rechargeable System has benefits over the obesity drugs, as the patient doesn't have to remember taking pills and can effectively continue their normal lifestyle.
Assessing the prospects of the obesity drug industry, I can conclude that the industry has time to grow into an extremely profitable industry and investors should not be discouraged by the initial setbacks. I believe 2014 is the year the obesity industry will break out and gain investor and consumer interest. The current estimates and analysts also remain optimistic as to the future of the industry, but it will take its time to get there, since a lot of effort is required to change the mindset of the people as well as to develop safer treatments and Belviq and Qsymia are definitely a step in the right direction. Additionally, the 30% penalty on obese employees is another factor, which will force the people to take up weight loss efforts, which will in turn boost the industry prospects.