The FDA has two multi-billion dollar decisions to make this summer regarding obesity and weight loss treatments. The regulatory agency is expected to vote on a drug called lorcaserin on June 27th and another drug, Qnexa, on July 17th. Both drugs target the multi-billion dollar obesity and weight loss market. Most directly, the FDA's decisions will impact the two companies submitting the drug applications: Arena Pharmaceuticals (ARNA) and Vivus (VVUS), respectively. In addition, there are a few more companies that will be affected by these FDA decisions, and this article provides a deeper look into these investments.
It should come as no surprise that obesity is one of the leading healthcare problems in the U.S., contributing to a large variety of health problems and costing a significant amount of funds budgeted to Medicare and Medicaid. Between the years 1987 and 2002, the number of Americans suffering from obesity doubled while the cost of treating diseases associated with obesity almost tripled. Treatments for the disease have altogether created a $2 billion dollar industry of products and services such as diets, lifestyle changes and drugs.
Weight loss drugs have been proposed for decades, including the infamous Fen Phen, a drug designed to treat obesity but later found to cause serious heart-related side effects. For many years, the main obesity treatment has been Xenical, marketed by Roche (RHHBY.PK). Xenical has long enjoyed relatively few competitors. This summer, however, its dominance of the obesity industry is being challenged with two FDA decision dates on competing drug candidates.
While investors await these FDA decisions on Arena Pharmaceuticals and Vivus, here are some quick notes. Remember that almost no other sector in the stock market moves as much (and as quickly) in price as the biotechnology sector upon FDA decisions. A single FDA decision or drug trial can send stocks plunging or soaring in seconds. Here are some companies to watch ahead of the June 27th and July 17th FDA votes.
1. Arena Pharmaceuticals
Arena's advanced drug candidate is lorcaserin hydrochloride meant for weight management. Lorcaserin has completed two pivotal Phase III clinical trials for testing the drug's safety and efficacy in helping patients to deal with high weight or obesity. Lorcaserin is one of the first drugs in more than a decade to have a real shot at gaining final FDA approval. The reaction of the FDA and the company's success so far has legitimized Arena as a company that now commands a billion-dollar market capitalization and as one of the primary reasons for the frenzy of investor interest in weight loss this summer.
On May 10, 2012, the FDA's advisory committee voted 18-4 to recommend Arena's lorcaserin for approval. This announcement saw the company shares soar 74 percent higher, marking the company's biggest one-day rally since it first started trading publicly in July 2000. Given that the FDA usually votes in-line with advisory committee recommendations, approval for this obesity and weight loss treatment is highly likely and is already largely priced in Arena Pharmaceuticals' billion-dollar market capitalization and soaring stock price. Investors should be aware that a negative vote by the FDA would likely have an immediate, devastating impact on Arena.
The advisory committee to the FDA recommended in favor of lorcaserin because, in their view, the safety and efficacy of the drug outweighed its small risks for obese and overweight individuals. Note that in December 2009, Arena presented its first New Drug Application (NDA) for lorcaserin to the FDA, but the FDA denied the application. The company resubmitted its NDA in December 2011 after making changes, and in March 2012, the company received its final green light vote ahead of final FDA approval. However, the drug will not hit the markets until the FDA recommends it and defines labeling and packaging requirements. This decision will be announced on June 27th- a date to mark in your investment calendar.
Arena has patent of lorcaserin not only in the U.S. but also in most of European countries, which could continue until 2023. If the FDA approves the lorcaserin in June, Arena will grant exclusive marketing and distribution rights to a Japanese company, Esai. In Europe, the European Medicine Agency has accepted the marketing authorization. According to the original agreements, Arena would manufacture the diet pills in Switzerland. The finished products would then be sold to Esai for distribution and marketing. After U.S. approval, Arena would also have to seek applicable regulatory approvals to sell lorcaserin in foreign territories, but U.S. approval would be a significant vote of confidence for foreign regulators.
As mentioned above, approval of Arena's lorcaserin is not guaranteed. The company has faced several challenges in its quest for FDA approval, including stiff competition from Vivus and its diet drug, Qnexa (discussed below). The company has also received criticism of its late-stage trial results regarding only 3.3 percent of weight loss after one year instead of the desired 5 percent. Others have also claimed that the drug causes tumors in mice used for the study. However, the company has defended the drug saying the concentration of lorcaserin in human brain is significantly lower than the amount that was used in mice for testing purposes.
Vivus' weight loss drug Qnexa has completed Phase III clinical trials for obesity and Phase II clinical trials for diabetes and obstructive sleep apnea. The advisory committee originally turned down Vivus' Qnexa NDA in 2010. However, in February this year, the FDA gave the company the green light with its next-to-final decision. Prior to taking the drug to market, the company will have to wait for a final FDA determination on July 17. Vivus was hoping to beat its competitor Arena by launching the product in April. However, with the FDA pushing the review date to July, it loses the chance of establishing itself in the market ahead of its competitor (which receives its final determination in June).
Vivus' Qnexa is made of a combination of topiramate and phentermine. The combination of these compounds gives the drug a unique approach to weight loss versus other drugs. Topiramate acts on the nervous system as an antagonist to brain receptors. In shutting down the receptors, topiramate suppresses addiction and food cravings and, thus, decreasing overall food cravings. Phentermine, on the other hand, works to suppress appetite and works as a short-term obesity treatment.
According to studies, Qnexa reduces body weight by 5 percent in one year with an average weight loss of 9 percent after two years. This is according to research carried out on human patients. The drug's side effects include constipation, dryness of mouth, headache, tingling and respiratory tract infectio. However, these are considered common in other drugs and will not likely be grounds for FDA to deny its approval. The general analyst consensus is that Qnexa has a good chance of gaining final approval from the FDA (as is the consensus for Arena's lorcaserin).
3. GlaxoSmithKline (GSK)
GlaxoSmithKline is one of the leading manufacturers and distributors of drugs worldwide. The company sells orlistart as a treatment for obesity under the trade name Alli. GlaxoSmithKline introduced Alli as a treatment for weight loss in 2007. Alli is a lower-strength version of Xenical, which is made by the Swiss company Roche (discussed below). After Alli was linked to severe lung damage in 2010, Alli's sales crashed. Since then, GlaxoSmithKline announced its intentions to offload its less performing pharamaceutical products, including Alli. Currently, there are no potential buyers for the drug as companies view it as a sinking ship. Nevertheless, investors should be aware of GlaxoSmithKline's relationship to the weight loss market when considering the FDA decisions this summer.
4. ChromaDex (CDXC.OB)
ChromaDex is a smaller company involved in the manufacture of natural ingredients to the dietary supplement, pharmaceutical, cosmetic, food and beverage industries. Currently, the company has licensed patent rights to pterostilbine and resveritrol, compounds with USDA patents for various health benefits and endorsed by TV celebrity Dr. Oz. ChromaDex has historically only provided reference and testing services, but last year the company launched its own product line, Bluescience, containing its patented ingredient pterostilbine.
Pterostilbine can be used by individuals suffering from obesity for lowering lipid levels and reducing the risk of dyslipidemias associated with cardiovascular disease, although the company does not yet have regulatory approval to use the compound for the treatment of any disease. Pterostilbine is a blueberry fruit extract, as blueberries have long been known to promote the way the body processes fats and sugars. Blueberries' pterostilbine compound has a relatively long half-life inside the body -- 105 minutes with high cellular uptake because of its lipophilic nature -- which make it a more health-giving alternative to existing products on the market. ChromaDex has also licensed USDA and Cornell University patents for pterostilbine, allowing it to claim exclusivity for these positive effects on cognitive and cardiovascular health. ChromaDex has rolled out a single product line of its own design containing pterostilbine, while also selling the pure compound for use in other dietary supplement products created by third parties. Because natural products generally do not require the long-form FDA approval process, ChromaDex's pterostilbine is already used in the human nutrition industry and is actively generating revenue for the company.
Prior to the formal launch of its own product line scheduled for September 2010, ChromaDex held a soft launch in April 2010 wherein the key ingredient was incorporated into assorted products in the nutraceutical industry. During the formal launch a few months later, data from this soft launch prompted ChromaDex to include pterostilbine in all of its own products. Pterostilbine has received positive market acceptance so far and has no known side effects. It competes in the weight loss industry as a natural alternative to the big pharma treatments for obesity. Lastly, ChromaDex is expected to release data about its double-blind, placebo-controlled human study about the effects of its patent-licensed compounds, including pterostilbine, sometime in the next few weeks.
5. Roche (RHHBY.PK)
Roche is a Switzerland-based drug manufacturing company responsible for the production of orlistart. Roche sells orlistart as a pill under the name Xenical. Xenical is an approved obesity-treating pill prescribed to overweight or obese patients with official FDA approval since 1999. Roche's Xenical makes it the primary competitor of Arena and Vivus.
Xenical works by inhibiting the gastrointestinal secretion reducing the amount of digested calories, hence preventing the digestion of some fats. According to the manufacturing company, the drug is not absorbed into the blood stream and hence has no negative impact on internal organs. The company also claims that Xenical does not bring about drug habituation. On the negative side, users have criticized the drug's unimpressive weight loss in real-life use and it has also been linked to liver damage in 2010. This widely-publicized link has somewhat reduced Xenical's selling power and also serves as a deterrent to people who suffer from alcohol-related liver disease. Nevertheless, as FDA decisions for Arena and Vivus approach, traders will definitely want to keep Roche on their sympathy stock watch lists (as well as ChromaDex and GlaxoSmithKline) for alternative plays to the two FDA decisions.
It is time to get ready for two major FDA decisions on obesity drugs this summer, as well as human pterostilbine study data due to be released within a few weeks. Obesity is a major health concern across the world. Following the multi-year silence by the FDA for approving new dietary pills to treat the disease, this summer offers two multi-billion dollar decisions that will undoubtedly alter the weight loss market. Again, Arena's FDA decision is expected to be announced on June 27th, Vivus' decision is expected to be announced on July 17th, and ChromaDex has said that its pterostilbine human study would be released near the end of Q2 2012. When considering these dates, investors will want to keep all of the companies involved -- Arena, Vivus, GlaxoSmithKline, ChromaDex and Roche -- on their watch lists for sympathy stock movements, as all of these companies compete in the same market space.