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For investors who are seeking shares in mid-sized health care companies that still have room to grow, Vivus (NASDAQ:VVUS) could be a risky but profitable investment. Its obesity drug, Qnexa, is moving through the FDA approval process and is currently in Phase 3 trials for its treatment of obesity.

In this article, I will discuss why I like Vivus' risks and Qnexa's earnings potential. I also compare some of the recent developments that are occurring at other biotech companies in order to show current FDA sentiment, approval rates, and share price reaction.

Fundamentals Behind Obesity

The obesity crisis in the United States seems to be worsening - and the desire to find support through a pill is very good news for pharmaceutical companies that are in the process of developing diet and obesity related drugs. With a prediction of over 40% of U.S. residents being considered obese by the year 2050, America has a serious weight problem - and the rest of the globe is moving in a similar direction.

Vivus focuses on developing therapies for addressing sleep apnea, male sexual health, and diabetes through Qnexa. This drug is also an obesity medication, and it is currently in Phase 2 for the clinical development for type 2 diabetes and obstructive sleep apnea treatment. The drug has also completed its Phase 3 trials for its obesity treatment - a market that is expected to reach over $3 billion annually by 2016.

Qnexa uses a controlled-release formulation of topiramate and low-dose phentermine that is designed to help in decreasing a user's appetite, with a corresponding increase in the feeling of being full. So far, Phase 3 studies such as CONQUER and EQUIP have shown that participants have attained significant weight loss of up to 10%.

In February 2012, a vote of 20-2 by the FDA Advisory panel for Vivus' diet drug Qnexa moved the company's shares up 100% in the near term, and up 9% to just under $25 on the day of the announcement. The FDA expects to render a formal decision on Qnexa only for obesity treatment by mid-July. Vivus has a 1-year projected earnings per share growth rate of over 155%, which hinges on Qnexa's formal approval by the FDA as an obesity treatment.

Obesity drugs are profitable. For example, as far back as 1996, diet drug Redux had sales of $132 million ($180 million adjusted for inflation) in its first year. And, in 1999, Xenical hit the market, with annual sales soon peaking at $600 million. Presently, Xenical is the only diet drug that is approved by the FDA for long-term use.

There are some risks, however, with obesity related drugs. For example, in September of 1997, Redux was withdrawn from the market because it was linked with the occurrence of heart value disease and primary pulmonary hypertension.

Today, people have more motivation than ever to do something to combat obesity. Coupled with worldwide sales of past obesity drugs such as Meridia and Xenical growing sales by between 60 and 100%, there appears to be a great deal of demand for such meds.

The Competitive Environment

Orexigen (NASDAQ:OREX), the developer of diet drug Contrave, has had positive share movement based on news that the FDA recommended the approval of the diet pill Lorcaserin, which is licensed by Arena (NASDAQ:ARNA).

Approval of Lorcaserin was originally stalled based on the U.S. Senate Committee on Appropriations citing the need for additional safety information. Arena's share price has doubled due to an 18-4 advisory committee recommendation for Locaserin - although it is important to note that FDA approval has not yet been formally given.

Alkermes (NASDAQ:ALKS) is focused on addressing disorders of the central nervous system such as addiction, depression, and schizophrenia. The firm has an array of roughly 20 drug products, such as Vivitrol, with additional candidates currently in the pipeline.

The company's recent FDA approval of its diabetes drug Bydureon helped its shares to rise nearly 5%. This being the case, similar upward movement is likely for Vivus upon Qnexa's official FDA approval.

Questcor (QCOR) could offer a similar story with its drugs that are focused on the treatment of nephritic syndrome, multiple sclerosis, and infantile spasms indications. For instance, the company's primary product, Acthar Gel, is approved for use with 19 different conditions, including rheumatoid arthritis and certain ophthalmic diseases.

Drug sales at Questcor nearly doubled between 2010 and 2011, with income up 100%. Future outlook is positive too, with earnings per share estimates for the second quarter of 2012 at $0.57, up from $0.22 for the same period last year.

The Bottom Line on Vivus

Today, people are much more aware of how excess weight can negatively affect most other areas of their life - and they are therefore seeking a quick fix in order to do something about it. Although Vivus shares are trading at just below $24 - far above their 52-week low - future predictions for Vivus are exceedingly positive.

While it is possible that the good news could already be priced into current share value, given its one year earnings per share growth rate that is in excess of 150%, along with the shares' 1-year target estimate of above $30, this stock is still a bargain, even at a share price in the mid $20's.

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

Source: Profit From 2 Obesity-Focused Biotech Stocks Now