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This week is a critical time period for Vivus (NASDAQ:VVUS) investors, but it should also be interesting for Arena Pharmaceuticals (NASDAQ:ARNA) and Orexigen (NASDAQ:OREX) investors, as the three companies all have near term FDA panel reviews and PDUFA dates for their obesity drugs. Vivus’ New Drug Application (NDA) for their weight loss drug, Qnexa, is up for review by the Endocrinologic and Metabolic Drugs Advisory Committee of the U.S. Food and Drug Administration (FDA) on July 12 or July 13 (per Bloomberg reported by theflyonthewall.com). This review by outside advisory panelists will foreshadow the likelihood of FDA approval for Qnexa, as the FDA’s actions generally follow with the reviewers opinion. The target date for the FDA to complete its review of the Qnexa NDA is October 28, 2010.

Qnexa is a combination of two different generic drugs: Phentermine (formally marketed as Fastin and many other names) and Topiramate (formally marketed as Topamax). Phentermine is an appetite suppressant and stimulant similar to amphetamines. Topiramate is an anticonvulsant drug (designed to stop seizures) and is available in the U.S. in several different formulations generically. Phentermine has typically always been used as an appetite suppressant. Topiramate has been used to treat many different central nervous system (CNS) disorders, including seizure disorders such as epilepsy, biopolar disorder, tremors, obsessive compulsive disorders, behavioral obesity, drug, alcoholism, and smoking cessation.

With Qnexa, Vivus is seeking to create an effective weight loss drug that controls both the appetite (phentermine) and behavior (topiramate) that assist obese patients achieve successful weight loss as part of a diet and exercise regimen. Deservedly so, investors have seen huge potential in Qnexa, and were not disappointed whatsoever by the clinical trial results. In previously announced results from 3 large phase III trials which evaluated Qnexa in more than 4,500 patients, named EQUATE, EQUIP, and CONQUER. Much to investors delight, Qnexa met both its primary and secondary endpoints, demonstrating significant weight loss compared to placebo, and significant dose-related improvements in a variety of secondary endpoints including reductions in cardiovascular, inflammatory and metabolic risk factors.

The FDA benchmark required at least a 5% weight loss in one third of study subjects, and Qnexa far exceeded that; the results as summarized here are impressive. Compared to diet and exercise alone, obese dieters taking Qnexa demonstrated average weight loss of 5-7% for the low dose of Qnexa and 11-14% for the high dose (compared to 2% for placebo) after a year of treatment. For reference, the clinical trials using Orlistat (Xenical/Alli) as an example, the lower dose, over-the-counter form Alli showed 5% weight loss in about half the patients over one year; whereas about 70% of patients on Xenical (the same drug at a higher dose; prescription only) lost 3% within 3 months.

The efficacy of Qnexa has never been openly questioned. The benefits of Qnexa are not just about weight loss- it is about increasing the health of an unhealthy, obese population. In the Alli trials, orlistat reduced the incidence of type 2 diabetes in an obese population over four years [(6.2%) compared to placebo (9.0%)] Long- term use of orlistat also leads to a modest reduction in blood pressure (mean reductions of 2.5 and 1.9 mmHg in systolic and diastolic blood pressure respectively). In comparison, the 2500 patient CONQUER trial (the 1200 patient EQUIP trial was not powered enough to evaluate these secondary endpoints) Qnexa showed mean reductions of 6 mmHg in systolic blood pressure (none in diastolic).

Obviously, Qnexa far exceeds orlistat in these measures of weight loss and blood pressure. Qnexa also showed a reduction in hemoglobin A1c levels of 0.6% from 7.3% at baseline as compared to a reduction of 0.1% from 7.4% at baseline for the placebo patients (not evaluated in the Alli trials). Another endpoint is that Qnexa showed a two-fold reduction in triglyceride levels compared to placebo patients (not evaluated in the Alli trials. Overall, depression scores, quality of life including self esteem and general health significantly improved for patients on Qnexa compared to placebo (not evaluated in the Alli trials).

But the significance of this data is hard to weigh: Although hemoglobin hA1c is the standard for measuring long term glucose control, it is important to note that all patients in the control and treated groups were treated with type 2 diabetes medications, so this variable there that makes it harder to interpret. Regardless, where direct comparisons can be made, Qnexa is a superior in helping weight loss to orlistat. The primary and secondary efficacy endpoints evaluated show obviously improvement. As well, the dropout rates were far lower with Qnexa than orilistat.

However, Qnexa has gained significant criticism because one of its two ingredients, phentermine, has a dark history, due to the widely publicized deaths attributed to the use of Fen-phen, a diet drug combination of phenteramine and dexfenfluramine. The side effects of phenteramine are similar to the amphetamine based stimulants: tachycardia (increased heart rate) and elevated blood pressure; and associated palpitations, restlessness, and insomnia. Additionally, phentermine has the potential to cause psychological dependence. Fen-phen was pulled from the market and has since been used as a textbook case to galvanize the FDA’s seemingly unreasonable requests for safety data when new weight loss drugs come to market.

Weight loss drugs do have a long history of side effects, and certainly orlistat is not an exception. In June 2007, the FDA rejected Sanofi-Aventis' Acomplia saying that the drug's benefits did not outweigh its risks. In 2008, three drug companies pulled their weight loss drugs in clinical trials in response, citing a stringent regulatory environment: Solvay Pharmaceutical’s (now part of Abott) SLV319, Pfizer’s (NYSE:PFE) CP-945598, and Merck's Taranabant. Although already approved in the EU, in late 2008 Sanofi-Aventis withdrew Acomplia from the European markets based on post-marketing trials linking the drug to serious psychiatric disorders.

At the time of approval, the only apparent side effect for Xenical and Alli was loose stool; however this year the FDA released a warning citing severe liver toxicity. Alli was approved in 2007; since then FDA has come under constant criticism for allowing Alli to be approved over the counter. As a result, the FDA has decidedly become much more conservative on safety issues. The Xenical/Alli liver toxicity has only strengthened the FDA’s rigorous stance on safety.

So it is understandable the investors are nervous about the approval of a new weight loss drug. In particular, investors are worried about the phentermine in Qnexa. However, the safety issues with phentermine are well known from Fen-phen and Vivus was responsive in advance. Qnexa is using a lower dose of phentermine than Fen-phen. As part of the trials, Vivus completed a thorough QT prolongation (TQT) study evaluating subjects taking Qnexa. The study was completed with no signal for QT prolongation, leaving investors to debate if this was sufficient data to satisfy potential demands for safety data from the FDA.

However, last week Bloomberg reported (source: theflyonthewall.com) that Eric Colman, deputy director of the agency’s Division of Metabolism and Endocrinology Products said “The FDA does not need to revisit fen-phen’s risks when reviewing new diet drugs” . Investors took heart in this information, rallying VVUS stock almost 30% last week. But I think investors may be getting ahead of themselves. All this quote means, at face value, is that the FDA advisory panel will look at the Qnexa safety data as it is without any historical context (a good thing). This does not mean that they do not have concerns about Qnexa safety. Today, investors seem to be re-thinking this enthusiasm.

Apart from this, a host of safety issues with phentermine are seemingly not being considered by many investors: The contraindications for phentermine are lengthy. Besides not being able to be combined with dexfenfluramine (the Fen part of Fen-phen), it cannot be combined with the commonly used monoamine oxidase inhibitors (MAOIs) used to treat depression, as this causes severe headaches, high blood pressure, slow heart rate, elevated temperature, or possibly fatal lung problems, may be increased. It cannot be combined with hypertension drugs are it reduces their efficacy. Ironically, its use with carbonic anhydrase inhibitors such as its partner ingredient topiramate (others include acetazolamide, dichlorphenamide, methazolamide) limit its excretion, increasing its risks.

Investors are seemingly so concerned about phentermine that they are forgetting about the other half of Qnexa- topiramate. High dose Qnexa contains 15 mg phentermine IR and 92 mg of topiramate CR. Mid-dose Qnexa QD contains 7.5 mg phentermine IR and 46 mg topiramate (controlled release). Topiramate is an anticonvulsant/ anti- epileptic drug with a long list of side effects. Therapeutic doses of topiramate to treat epilepsy, bipolar disorder, and migraines produced significant cognitive deficits such as short term memory loss and word-finding difficulty. Other side efffects are paresthesia (numbness & tingling), upper respiratory tract infections, and GI problems such as diarrhea and nausea.

Orlistat and Qnexa seem to share these GI side effects; the most significant difference is the CNS effects. Cowen was very vocal about VVUS hiding this data early on (I agree that they have hidden this data): 2.6% and 2.1% of patients treated with full-dose Qnexa and low-dose Qnexa, respectively, dropped out of the studies due to cognitive side effects like "disturbance in attention" or "forgetfulness." Furthermore, according to date provided by Vivus here, 18% of patients taking the high dose of Qnexa and 12% taking the low dose dropped out of the study for CNS related effects; compared to 9% of placebo. Blurred vision, headache, and insomnia were the most common reason for dropout.

Similar CNS side-effects most frequently leading to discontinuation of therapy with therapeutic doses of topiramate to treat epilepsy or bipolar disorder were psychomotor slowing (4.1%), memory problems (3.3%), confusion (3.2%), and drowsiness (3.2%). These side effects are serious side effects and although tolerated by patients and the FDA to treat epilepsy or biopolar disorder, they may not be tolerated by patients and the FDA to treat obesity. Thus, the drop out rates of Qnexa patients due to CNS related adverse effects were similar to historic data of topiramate. Given the similarities, it seems likely topiramate is the culprit.

Finally, there is a host of less common, but life threatening side effects of topiramate: There is a metabolic acidosis side effect and increased risk of congenital malformation for topiramate as well. Toperimate is also known to prevent sweating and cause hypothermia. Contraindications for topiramate due to drug-drug interactions are lengthy: Topiramate decreases plasma-levels of estrogens (e.g. 'the pill') and digoxin. Use with acetazolamide) (Diamox) increases the risk of kidney stones. Use with carbamazepine (Tegretol, Biston, Calepsin, Carbatrol, Epitol, Equetro, Finlepsin, Sirtal, Stazepine, Telesmin, Teril, Timonil, Trimonil, Epimaz) which is can be used to treat ADHD makes topiramate ineffective; Topiramate may increase the plasma-levels of phenytoin, another anti- epileptic medication. Finally, Topiramate cannot be mixed with alcohol.

This really begs the question:

With so many contraindications and side effects of phentermine and topiramate, who can safely use Qnexa? There will be so many people likely excluded from its use:

  • The described side effects of “disturbance in attention" or "forgetfulness” with Qnexa which forced patients to drop out (which are likely related to the toperimate side effects of memory problems, confusion, and drowsiness).
  • Due to contraindications with topiramate, anyone taking medication for epilepsy, bipolar disorder, and certain ADHD medicines cannot use Qnexa without the risk of serious side effects.
  • Due to contraindications with phentermine, anyone using monoamine oxidase inhibitors (MAOIs) for depression or anyone taking blood pressure medications.
  • Due to drug-drug interactions, any woman taking “the pill” cannot use topiramate because it could make it ineffective; furthermore there is a reported risk that it can increase the chance birth defects.

This seemingly eliminates a large percentage of the population willing to take Qnexa.

Investors should ask themselves this question:

Given the FDA’s historic stance on the safety of weight loss drugs, and the long list of potential safety issues with phentermine and topiramate, is it likely that the FDA will allow its marketing?

To me, this seems very unlikely. I predict that the FDA will have serious concerns that will prevent marketing or at minimum restrict the use of Qnexa. It is likely that the FDA will ask for an extensive risk mitigation (REMS) strategy that will prevent its immediate approval. Obviously either of these outcomes will have a devastating effect on VVUS stock.

Qnexa is treating obesity; although as serious problem there are other medications and other alternatives that are medication free- whereas bipolar disorder and epilepsy have no medication free alternatives and the medicines all share similar side effects. Topiramate has significant safety issues and causes serious drug-drug interactions; using Qnexa will require a significant REMS strategy at best; at worst it will be flat out denied.

Certainly the FDA review panel of experts will deliberate these issues and may respond unfavorably. Most likely, I predict they will have a mixed review that will leave investors very nervous. Investors have not forgotten the recent FDA review panels’ favorable review for Horizant in treating Restless Leg Syndrome from Xenoport (NASDAQ:XNPT), which was rejected by the FDA later due to safety issues. As well, despite a favorable review for Intermune’s (NASDAQ:ITMN) pirfenidone, it also received and FDA rejection based on insufficient efficacy data.

Thus, for Qnexa, I am even more concerned about the FDA decision itself than even the panel review: Even if the panel gives a mixed favorable review, I wouldn’t take any comfort in anything less than a unanimous vote by the review panel. Even then, there is a good chance that the FDA will reject based on the above described contraindications and it and will require further evaluation of a REMS based on indication and safety issues. This will result in significant delays, and it will require a long process of communicating with the FDA to develop an approvable REMS strategy and another PDUFA date. In this scenario, Qnexa may eventually be approved with black box warnings and a comprehensive REMS to ensure that patients taking Qnexa are avoiding all the contraindications.

Given that last week the market was seemingly pricing in a better chance of Qnexa, the risk/reward for owning VVUS stock is not there for me. If anything, the risk/reward leans towards taking a short position. The call/put option plays here seem to expensive, as the in-the-money calls and puts are at such a high premium that VVUS stock will have to move in about 50% in either direction to cover the cost.

I expect a lot of volatility in VVUS stock this week as these developments play out- there is tremendous opportunity (and risk) for investors this week. Today’s action, with VVUS dipping down almost 10% at one point, only demonstrates the level of anxiety. My best guess based on the option prices and my intuition is that the review panel’s decision could move VVUS stock 50% in either direction, so if you are going to bet on Qnexa either direction be prepared for a significant move.

Investors should also consider the effects of any VVUS events could have on other companies developing obesity drugs. The outcome of the Qnexa panel review will have an impact on the trading of Orexigen (OREX) and Arena Pharmaceuticals (ARNA) obesity drugs up for review before the end of the year.

Orexigen's Contrave is a combination of the generic drugs Naltrexone and Bupropion, in a sustained release formulation. Bupropion is a widely-prescribed antidepressant and smoking cessation medication, while Naltrexone is a treatment for alcohol and opioid addiction. In clinical studies, participants who took Contrave lost between 9% to 15% of their body weight over a period of 1 year. The similarities to Qnexa in its principle, formulation are obvious. However, differing from Qnexa, naltrexone and bupropion are well studied serotonin reuptake inhibitor (5-HT2c agonists), both which have a limited side effect and a very favorable safety profile. Thus, Contrave is not likely to face the hurdles Qnexa is facing.

Arena Pharmaceuticals Lorcaserin is a novel single agent that represents the first in a new class of 5-HT2c receptor agonists. In clinical studies, after one-year of treatment with Lorcaserin, about two-thirds of patients achieved at least 5% weight loss and over one-third achieved at least 10% weight loss. On average, patients lost about 8% of their weight over a 1-year period following treatment with Lorcaserin. Lorcaserin has potential safety profile issue due to Lorcaserin potentially increasing the chance of cardiac fibrosis. Thus, Lorcaserin may have to face some of the hurdles Qnexa is facing; and is about half as effective as Qnexa.

Between these three drugs, Qnexa is perhaps the most effective but also by far the one facing the most potential safety concerns. A favorable review for Qnexa is logically likely to rally VVUS but also OREX and especially ARNA stocks as it would demonstrate the review panel’s willingness to endorse an effective weight loss drug even in the face of potential side effects.

An unfavorable Qnexa review is logically likely to cause a short term gut-response sell off in both of these stocks. However, a little further out I would expect ARNA not to recover (due to the safety concerns) but a rally in OREX could occur (due to its strong efficacy and very safe profile) as it demonstrates a continued concern over safety, and the elimination of its competitors.

The FDA is expected to make a final decision on Qnexa on October 28, 2010, Lorcaserin by October 22, 2010 and Contrave by January 31, 2011; the review panels should meet about 3 months before these dates.

Disclosure: No positions

Source: Vivus, Arena and Orexigen Investors All Worried About Qnexa FDA Panel Review