Seeking Alpha
Profile| Send Message|
( followers)

In recent years, it's been as difficult - if not harder - to get anti-obesity drugs to market as it is for the average American to shed excess pounds. That's why financial markets have been buzzing since February 22, when a panel of advisors to the Food and Drug Administration (FDA) voted 20-2 that the benefits of Qnexa, an anti-obesity drug developed by Vivus Inc. (NASDAQ:VVUS), outweigh its risks. The FDA will decide by April 17 whether or not to approve Qnexa. If it is approved, it will be the first weight-loss drug to be brought to market in the U.S. since 1999, when Xenical was approved.

Vivus is a biopharmaceutical company based in Mountain View, California, that was formed in 1991 and went public in 1994. Qnexa is its lead product. The company, which has 130 employees, also has medications for sleep apnea, diabetes, and erectile dysfunction in the development pipeline. In addition to obesity, Qnexa is being tested as a treatment for sleep apnea and diabetes as well. It is in phase-II studies for these uses. Within a week of the advisory panel's decision, the company's stock-currently trading at 21.33 (March 21), with a 52-week range of 6.00-25.14-shot up over 100 percent and its market value increased by $957 million to a current $1.89 Billion. If Qnexa receives FDA approval, annual sales of $5 billion are projected by 2020 according to some analysts.

The excitement about Qnexa has to do with the size of the diet-drug market in the U.S. and worldwide and the difficulty in getting FDA approval for these medications.

Big Market for Weight-Loss Drugs

If granted FDA approval, Qnexa would enter a market in which there is little competition, at least for the next few months. At present, Xenical (orlistat) is the only diet drug approved by the FDA for long-term use. Other companies have diet drugs in the FDA pipeline including Orexigen Therapeutics (NASDAQ:OREX), which is hoping for approval of Contrave in 2014, and Arena Pharmaceuticals (NASDAQ:ARNA), which is expecting a decision on lorcaserin in June of this year.

The market for these medications is significant. In the U.S. alone, according to figures from the Centers for Disease Control and Prevention (NASDAQ:CDC), one third of adults are obese, and two thirds are overweight. To be obese is to be massively overweight. The standard definition of obesity is a Body Mass Index of 30 or more.

According to the World Health Organization (WHO), obesity is a global epidemic. The WHO estimates that more than a billion people worldwide are overweight, including at least 300 million who are obese.

The population of the United States is now the third heaviest in the world, outweighed only by the people of the Pacific islands of American Samoa and Kiribati. In the 13 years since the FDA last gave its approval for a diet drug, American waistlines have expanded greatly. Today there are about 78 million obese adults in the U.S.-almost 20 million more than there were in 1999.

On its website, the CDC uses a series of color-coded maps of the U.S. that illustrate how rapidly America is become obese. In 1999, the map was a regional mix of dark blue states (15-19 percent of the population obese) and beige states (20-24 percent of the population obese). Six states were colored light blue (10-14 percent of their populations obese). Clicking through the maps year by year until 2010, you see blue states diminishing and orange (25-29 percent obesity) and red (30 percent or greater obesity) beginning to appear. By 2010, there are no states with less than 20 percent obesity, and the predominant colors on the map are orange and red.

Side Effects and the FDA

Given the size of the potential market for anti-obesity medication, it's natural to ask why there are not more prescription diet drugs available. The answer is simple: few pharmaceutical companies have been able to get through the FDA gauntlet. Every medication produces side effects in at least some users. FDA approval depends on the benefits of the drug being greater than its potential risks. Even after a drug is approved for sale, the FDA can request that it be taken off the market. That's what happened with two diet drugs-Meridia and Fen-Phen.

Meridia, a product of Abbott Laboratories (NYSE:ABT), won FDA approval in November 1997. Abbott withdrew Meridia from the U.S. market in October 2010 on the recommendation of an FDA safety advisory panel, which found that the drug could increase heart rate and blood pressure and was associated with an increased risk of heart attack and stroke. Marketing of the drug was also halted in Europe and other countries.

Meridia was one of the brand names for sibutramine, an oral anorexiant that works as an appetite suppressant by altering neurotransmitters in the brain. Developed by Knoll Pharmaceuticals (NYSE:KNL), sibutramine is classified in the U.S. as a Schedule IV controlled substance. In the 13 years that Meridia was available in the U.S., its popularity declined sharply from a high of 1.6 million prescriptions in 2001 to less than 300,000 in 2008. Fewer than 100,000 Americans were taking Meridia at the time it was withdrawn. The use of Merida is linked to 49 cardiovascular deaths.

Fen-Phen-a combination of fenfluramine and phentermine-is another appetite suppressant that was taken off the market. Fenfluramine was introduced as the weight-loss drug Pondimin in 1973. Because of its side effects, which included drowsiness and memory loss, its sales were mediocre. In 1992, an article in the Journal of Clinical Pharmacology reported on the dramatic weight loss achieved when fenfluramine was combined with the stimulant phentermine. That year, without FDA approval, doctors began prescribing the drug cocktail to overweight patients. Demand increased.

Servier, a French pharmaceutical company, formulated a version of fenfluramine called Redux. Despite data linking it to a fatal lung ailment, the FDA approved Redux in April 1996. That year, more than 18 million prescriptions were written for the drug cocktail, earning $300 million for American Home Products (NYSE:AHP), which marketed both drugs in the U.S. American Home Products was later renamed Wyeth, which is now part of Pfizer (NYSE:PFE). In September 1997, both Pondimin and Redux were taken off the market because they caused pulmonary hypertension and heart-valve problems. By 2003, Wyeth had paid $13 billion in legal claims related to the two drugs.

Currently the only anti-obesity drug with the FDA's blessing is orlistat-marketed by Roche (NYSE:ROG) as the prescription drug Xenical and by GlaxoSmithKline (NYSE:GSK) in a half-dose, over-the-counter version called Alli. Orlistat works differently from Meridia and Fen-Phen. It limits caloric intake by preventing fat from being absorbed in the intestinal tract. If someone taking the drug eats too much fat, the results include diarrhea, gas, and abdominal pain. By blocking the absorption of fat, orlistat also prevents the body from absorbing fat-soluble nutrients including vitamins A, D, E, K, and beta-carotene.

Those taking orlistat report modest weight loss (the majority of test subjects lost more than five percent of their initial weight). In addition to weight loss, orlistat provides a modest reduction in blood pressure and a reduction in the incidence of type-2 diabetes. Its negative side effects are mostly gastrointestinal such as oily, loose stools. The most serious are the possibility of severe liver injury and acute kidney injury.

Should Qnexa Be Approved?

If Vivus receives approval to market Qnexa, the company will clearly benefit. A recent article in Forbes questions whether users of the drug will benefit as well. And if so, for how long?

Like Fen-Phen, Qnexa is a combination of two already approved drugs: the epilepsy remedy topiramate and phentermine, an appetite suppressant. Phentermine was the part of the Fen-Phen cocktail that was not taken off the market. Vivus reports that two-thirds of subjects taking the top dose of Qnexa lost 10 percent or more of their body weight. The company also reports that the drug lowers users' blood pressure, blood lipids, and blood sugar. The primary side effects are dry mouth, constipation, and tingling in the fingers and toes.

Because topiramate and phentermine have been in use for many years, their adverse effects are well known. For topiramate, these include memory problems, psychomotor slowing, confusion, sleeplessness, depression, and suicidal thoughts. Phentermine is known to produce increased heart rate and blood pressure. There is speculation that the FDA may require additional studies of heart risk for Qnexa and all new diet drugs.

What does this mean for investors? Vivus is currently trading at 84 percent of its 52-week highpoint, but the possibility that the FDA will approve Qnexa in less than a month still makes the company a potential good opportunity. FDA approval for the diet drug would make the company an attractive takeover target, predicted to sell for $40 or more per share. Major pharmaceutical companies Johnson & Johnson (NYSE:JNJ), Merck & Co. (NYSE:MRK), and Bristol-Myers Squibb Co. (NYSE:BMY) could be potential suitors.

There is risk, however, with the Qnexa product. The primary downside is that Qnexa may not be approved for sale. Another risk is that, if Qnexa's side effects prove to be more serious over time than they now appear to be, Qnexa could join the ranks of obesity medications like Meridia, Pondimin, and Redux withdrawn from the market.

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

Source: Obesity And The FDA: Why Qnexa Is Generating Buzz