On the morning of May 8th, the Food & Drug Administration (FDA) will release the briefing documents for the May 10th Advisory Committee (AdCom) meeting to discuss the risk and benefit profile of Arena Pharmacueticals' (ARNA) new drug, Lorqess (lorcaserin hydrochloride). There are good arguments that can be made for both a bear and bull case on the approvability of Lorqess and these will take center stage on Thursday.
Given that the market capitalization of Arena is half of what it was going into the 2010 AdCom to review the drug coupled with a high short-interest, most believe Arena will again receive a negative vote by panel members and a subsequent Complete Response Letter (CRL) to follow on June 27th.
The biggest question among investors watching the obesity space is, has the sentiment changed within the FDA to indicate they are ready to approve the first new treatment for obesity since the approval of Orlistat in 1999? Since Vivus' (VVUS) Qnexa recently received a 3-month delay for their PDUFA decision, we still don't know. I've read many articles that claim the 3-month delay for Qnexa practically guarantees approval. As biotech investors know, nothing is ever guaranteed, so I'm still cautious.
All this delay means is that the FDA hasn't been able to finalize the label, how and when to complete a cardiovascular outcome trail and what is likely becoming a very difficult Risk Evaluation and Mitigation Strategy to minimize pregnancy exposure to women of child-bearing age. If this was a no-brainer for approval, it would have been approved already given the drug has been under FDA review for approval since 2010 and is a combination of existing generics. This delay gives us little insight into whether or not it is ready to approve any new obesity drug.
We do know that FDA Commissioner Margaret Hamburg, in a speech given at the New England Healthcare Institute on April 26th, recognizes that obesity is a disease with an unmet need for treatment:
Disease conditions such as obesity and Alzeimer's, are taking a growing toll, profoundly affecting American families, and measurably adding to our health care costs and our national debt.
We also know that the U.S. Senate Committee on Appropriations had instructed the FDA to provide back a report by the end of March 2012 on the steps the agency will take to support novel treatments for obesity. In this report the Committee noted that the "lack of obesity medications is a significant unmet medical need" and that they were "concerned with the absence of novel medicines to treat obesity." It is worth noting that the only novel medicine under review by the FDA and the only one that will be up for approval anytime in the next several years in Lorqess.
Given the comments coming out of FDA leadership, the Congressional and societal pressures and the recent shift in behaviors from the agency - I do believe the sentiment has shifted and the FDA is ready to approve new therapies. So the question becomes, will they approve both Qnexa and Lorqess? This week will be key to answer that question and there is no credible way to handicap this decision. The question will be has Arena made the agency comfortable enough that there are no risks to the drug and is there clear therapeutic benefit to those who respond to the drug? I covered the risk vs. benefits in recent articles, including this one along with my September 2011 article, when the stock was trading at $1.25 and has subsequently doubled.
Lorqess does in fact meet one of the two necessary criteria for approval and this shouldn't be up for debate. These are either / or endpoints to meet so based on efficacy, it meets the criteria for approval. So then it becomes a question of analyzing the risks. This week's AdCom will focus on the CRL items from 2010 - mainly, is there a cancer risk associated with the drug? There were no concerns from the last CRL of valvulopathy although I believe that will still be a major discussion point this go around.
I believe the re-adjuctication of Arena's pre-clinical data that demonstrate at least a 24X margin of safety (there was no accepted safety margin determined by FDA reviewer's in 2010 - which led to great uncertainty within the panel) will be enough here. The benefits to diabetics is clear and impressive, which should be well-received by the panel's endocrinologists and at least 5 obesity experts who will be present.
If Arena does a good job of alleviating concerns around risk, provides forward looking post-monitoring plans for monitoring CV-outcomes and focuses on responder analysis - you could see a similar vote to Qnexa's 20-2 vote to approve. If there is any uncertainty left around valvulopathy potential or cancer potential, then the vote will be negative, or mixed at best. That is what it comes down to in my opinion and we won't know until the vote is cast Thursday afternoon.
The FDA is now articulating that obesity is a disease, something that wasn't readily apparent 2 years ago. Whether or not obesity is actually a disease is a debate that won't end here. The fact is that 200 years ago, obesity was rare. Now 1/3 of America is obese and another 1/3 is almost there, so what has changed? We have 20M+ type II diabetics where the root cause is obesity and there are another 50M Americans just a few HbA1c numbers from joining them.
Obesity is caused when the body stores excess glucose as fat and pretty soon, your body mass index shows at least 30% of your weight is stored fat. You have excess glucose when you eat too much sugar and too many carbohydrates that are quickly converted to sugar by the metabolic system. The cure to obesity is to not eat sugar and to not eat non-naturally occurring carbohydrates (breads & pastas instead of fruits and vegetables.) If only it where that easy. The addiction to consume such foods is hard to control and one that may require pharmaceutical intervention to break the addiction.
Researchers have determined that sugar is even more addictive than cocaine. So one could hypothesize that those that have problems fighting obesity could also be those who have an affinity to being more susceptible to becoming addicted to drugs such as cocaine or nicotine. Ironically, Lorqess in pre-clinical trials has been found to also help rodents beat nicotine addiction which makes sense given its method of action for creating satiety.
So should sugar be regulated by the FDA like a drug? Perhaps, but I don't think the $1.5T food-industry would ever let that happen given we can't even get a tax on sugary beverages passed and Congress can call pizza & french fries vegetables. Conventional dieting has told the public to eat "low fat" which has trained Americans to focus on eating too many processed carbohydrates like pasta, rice & breads rather than clean meats, vegetables, fruits, nuts & berries. So until the FDA is going to put warning labels on the side of Coca-Cola or McDonald's french fries stating that these foods may cause an increased risk of obesity, type II diabetes and cancer - we are going to need new tools for physicians to use to treat this pandemic.
I believe the FDA recognizes that the unmet medical need for a safe and novel treatment for obesity is now a national priority. I think the Advisory Committee will be comfortable with at least a 24X margin of safety for cancer, they will agree with the 2010 FDA statistician findings that there is no risk of valvulopathy, they will appreciate the importance a HbA1c reduction of .9 could have for pre-diabetics and will focus more on completer analysis as opposed to ITT-LOCF.
I'll be at the panel in person on May 10th and I'm looking forward to a productive debate. However, how the panel will vote is anyone's guess and ARNA remains a risky and volatile investment. I believe the short-term down-side risk of loss to be about 50% and the upside to be at least 100% based on Thursday's vote.
Keep in mind, Arena has two shots on goal this year as Europe could provide their decision if Lorqess will be marketed there towards the end of the year. As always, perform your own due diligence and only expose yourself to a tolerable amount of risk.
Disclosure: I am long ARNA.
