Seeking Alpha
Long/short equity, special situations, growth, momentum
Profile| Send Message|
( followers)  

With the surprise news of the FDA review panel's determination that the positive benefits of the obesity drug, Contrave, are significant enough to recommend approval, Orexigen Therapeutics (NASDAQ:OREX), maker of Contrave, soared.

Contrave is the first new obesity drug that a FDA panel has recommended in over a decade. In fact, just last October, Merida from Abbott Laboratories (NYSE:ABT) was withdrawn from the market after the FDA informed Abbott of its concerns with side effects. With only one prescription drug treating obesity still approved - prescription drug Xenical from Roche Pharmaceuticals or its OTC formulation Alli - the prospects looked bleak for new obesity drugs in general.

But OREX was not the only beneficiary of the panel's decision. The stocks of Vivus (NASDAQ:VVUS) and Arena Pharmaceuticals (NASDAQ:ARNA) also reacted strongly with the renewed hope that the companies' obesity drugs that had met with a negative decision from the FDA in October may have a chance for approval given more information from additional studies.

So why has the FDA review panel seemingly reconsidered the efficacy of Contrave given the risk?

Contrave is a drug that combines the already known and approved drugs naltrexone, used for painkiller and alcohol addiction, and bupropion, used for depression and breaking the smoking habit, into a one sustained-release dose. Although the weigh loss average was less than 5% (a benchmark for efficacy), another requirement was surpassed - 35% plus of patients experienced weight loss of 5% or more.

The safety profile showed there were risks associated with elevated blood pressure, but the most evident side effect was general nausea. Surprisingly for many observers, the panel acknowledged a need for a larger study on cardiac risk, but this focused study may be conducted after approval.

The FDA is not required to follow the panel's recommendation when the new drug application review is expected to be announced by Jan. 31, but it is not often that a panel's recommendation is ignored. With the qualifiers mentioned in the panel's decision, the final date for approval may slip as OREX and the FDA hash out the particulars for risk labeling and the required new study.

OREX's study showed that, after 56 weeks, two tablets of Contrave twice a day helped twice as many patients lose at least 5% of their weight versus the placebo. Patients on the drug also had higher pulse and blood pressure than patients on placebo - but they lost weight. The major side effect was nausea - a side effect of many already approved drugs. The panel strongly recommended that the FDA require a detailed study on the cardiac side effects, but after approval.

As for ARNA and VVUS, the new found optimism that perhaps the FDA is open to the prospect of approving their own obesity drugs (VVUS has Qnexa, which also was determined to have the potential for the drug to cause birth defects and elevated heart rate) that were denied approval in October has generated investor enthusiasm that can only be validated by their respective drug's approval by the FDA.

In other words, could the FDA decide that more detailed studies can be conducted on risks after approval for those two drugs? Arena Pharmaceuticals' obesity drug candidate, Lorcaserin, was informed by the FDA in October that more information was required regarding tumors that developed in rats that were taking the drug. ARNA and its partner, Tokyo-based Eisai Co, expect to meet with the FDA this month.

The market for obesity drugs is huge, with 68% of adults in the U.S. considered to be overweight, which affects risk of developing diabetes, high blood pressure, heart disease and certain cancers. Also, 34% of these overweight Americans are categorized as "obese." Industry analysts generally forecast potential sales of over $1 billion, with some analysts saying that two drugs in the space could see $1 billion for each drug.

Most analysts believe that VVUS's drug Qnexa has a renewed shot at getting approval if the FDA panel uses the same decision points as used with OREX's Contrave. After VVUS received the bad news in October, the company announced that it planned to respond within six weeks to the FDA’s request for more information about heart risks and birth defects linked to Qnexa and could result in a review that typically lasts for 60 to 180 days. A significant point for VVUS is that its studies indicated that Qnexa resulted in much greater weight loss than ARNA's Lorcaresin (4.2% vs. 10% for Qnexa) and OREX's Contrave (5% vs. Qnexa's 10%).

Despite Contrave not exhibiting the efficacy of Qnexa nor Lorcaserin's safety profile, OREX has a viable possibility of seeing its drug get approval soon. But with this news, two other companies that had already suffered bad news on their drugs now see a way to their own drugs' approval.

Source: Does Orexigen's Success at FDA Pave a Path for Other Obesity Drug Manufacturers?