Opportunity In The Weight Loss Drug Market

by: Jessica King Holden

This year the FDA is set to review three anti-obesity drugs which were previously rejected in 2010. The general pulse of the medical community is tentative in regards to possible approval for any of the three. As apparent from the tone of industry insider articles such as those in Cardiology Today, the medical community, though desirous of a breakthrough, is skeptical not of efficacy, but of safety. It has been 13 years since the approval of the last on-market weight loss drug, Roche's (OTCQX:RHHBY) more innocuous Xenical, approved in 1999.

Getting It Right This Time

It seems that the market and the FDA are ready for an effective and safe weight loss drug. GlaskoSmithKlein's (NYSE:GSK) 2011 announcement that it was dumping its OTC Xenical-related medication Alli to create revenue for R&D widened interest in prescription weight loss drugs. Orlistat, the active ingredient in Xenical and Alli, operates to reduce the absorption of fats in the digestive system. This mechanism is far less scrutinized by FDA safety considerations than those currently up for approval. Some may also argue orlistat is also potentially less effective as well. Effectiveness may be the easy part, which each of the three contending drugs up for FDA approval in 2012 showing weight loss statistically over placebo rates. The safety aspect is under seemingly more scrutiny than other drugs as the consumer market though hungry is skeptical of side effects.

Another Fen-phen/Redux (fenfluramine/phentermine combination drug) litigation as Wyeth saw in the early 1990's would be a certain set-back for the push for an effective and safe medication. The drug was withdrawn from the market in 1997 when issues with pulmonary hypertension and valvular heart disease showed prevalence in women with a history of taking the drug. An estimated $13 billion in restitution was incurred.

In 2010, Abbott Labs (NYSE:ABT) recalled its weight loss drug Meridia (subutramine) on cardiovascular concerns. A regulatory commission found that the drug, approved in 1997, increased probability of a "serious heart event" by 16%. The pharmacological action of Meridia works as a neurotransmitter reuptake inhibitor influencing appetite. In 2009, Meridia netted Abbott approximately $300 million in sales and another $80 million prior to it pulling it from the market in 2010.

Considering the estimated costs of obesity on the US economy, estimated by the CDC to reach nearly $150 billion a year, medical professional understand the weight of impact of a safe and successful anti-obesity drug. Still concerns over safety in light of the reality that many still hold that obesity can be controlled with diet and exercise make FDA approval even stickier. The road to a new prescription weight loss drug will likely be rocky, but which drug wins the recent race will pave the way for others to cash in. While the temporary victor will receive a great financial boon that investors can capitalize on, there is plenty of room in the market for any drug maker that can hang in with set-backs and long clinical trials.

Two Options in the Market

Both Vivus (NASDAQ:VVUS) and Orexigen Therapeutics (NASDAQ:OREX) offer weight loss drugs which may be marketed in the near future. Each company attempted FDA approval for their drugs in 2010 and each were rejected based on safety concerns. In addition to rejection linking the companies, another commonality is the inclusion of a combination of currently approved FDA psychoactive medications. Each also has the primary scrutiny of cardiovascular side effects as factors cited in the denials. Each however offers a different option based on risk and market cap.

Is Qnexa the Next Major Weight Loss Drug?

Vivus' drug Qnexa combines phentermine with topiramate (brand name Topamax). Topiramate is an FDA approved anti-convulsive drug from the Ortho-McNeil subsidiary of Johnson & Johnson (NYSE:JNJ) which has been prescribed off-label for weight loss in recent years. The exact mechanism of topiramate is unknown, though it is believed to act neurologically on sodium ion channels and GABA receptors to reduce appetite and obsessive compulsion behaviors associated with binge eating. Ortho-McNeil was fined in 2010 by the FDA for suggestion its drug for psychiatric treatment without clinical trial support. Phentermine, once marred by association with Phen-Fen, is a psycho-stimulant which has had FDA approval since 1959. The drug works on neurotransmitters within the brain and also outside the brain to release adrenaline and epinephrine to break down fat.

Cardiovascular concerns are associated with this ingredient including rapid heartbeat and increased blood pressure. Other concerns are related to birth defects possible due to topiramate, including cleft palate. News coming on February 22, when an FDA advisory panel meets to discuss the drug, will be a barometer of the agency's feeling toward the drug going forward.

Analysts have suggested

sales, if approved, could reach $450 million per year, though many doubt the drug will reach approval by the April 17 date as hoped as of late 2011. It has been suggested addition heart related studies may be requested by the FDA prior to further consideration later in the year.

Click to enlarge.

Vivus' stock rose over 7% Friday, totaling a greater than 40% increase over 52 weeks. VVUS is a good long option to consider in a portfolio looking to cash in on this type of drug maker. It is working to diversify and gain approval for Qnexa for treatment of diabetes and sleep apnea as well. The $1 billion market cap company may bring even nicer long gains as it has additional anti-obesity and erectile dysfunction in its pipeline.

Contrave Gains Confidence

Orexigen Therapeutics, Inc.'s Contrave, the company's product, combines bupropion and naltrexone, two FDA approved medications for depression and addiction alike. Bupropion is commonly prescribed as GSK's Wellbutrin and Alkermes (NASDAQ:ALKS) Vivitrol, commonly prescribed for alcohol addiction. The ingredients act primarily on the brain's neurotransmitters to reduce addictive actions and act as an opioid receptor antagonist. With less of the stimulant properties of Qnexa, the cardiovascular side effect outlook is more positive.

In September 2011, OREX announced plans for a large cardiovascular clinical study. It offered that it felt confident that by 2014 its 2 year study would show limited cardiovascular risk and Contrave would reach FDA approval. Stocks jumped on this news and, with some volatility, have maintained those gains into 2012.

Potential financial gains for a small company like the $164 million market cap OREX could be enormous, as predictions for sales are estimated at over $1 billion. The inherent risks of investing in a small company as this however do make a position in the company more of a gamble. Near its 52 week high, OREX is gaining strength and may be worth a look if your portfolio is not risk-averse.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.