If Arena's Lorcaserin Is Approved, Buy Vivus

Jun.26.12 | About: Arena Pharmaceuticals, (ARNA)

There are conflicting messages coming out of recent FDA advisory panels. On March 29, 2012, an Endocrinologic and Metabolic Drugs Advisory Committee voted to require cardiovascular outcome trials (CVOT) using major cardiovascular events (OTCPK:MACE) as the primary endpoint. But on May 10, 2012, another Endocrinologic and Metabolic Drugs Advisory voted 18-4-1 in favor of approval of Arena's (NASDAQ:ARNA) obesity drug, Lorcaserin (briefing document for that meeting). The dynamics of the panelists views on the first committee addressing cardiovascular safety of obesity drugs (March 29, 2012) are interesting. The vote was 17-6 in favor of requiring CVOTs for obesity drug approval.

A prominent cardiologist, who was on both committees, voted for CVOTs in the first meeting and against approval of Lorcaserin at the second meeting. With the shortcomings in cardiovascular safety of both Meridia, produced by Abbott Laboratories (NYSE:ABT) and the combination drug Fen-Phen, many feel obesity drugs need to be held to the same high safety standard as diabetes drugs for FDA approval. On the other hand, a minority opinion on the first panel felt that CVOTs would hamper obesity drug development and should not be required if there was not a signal indicating a safety problem. They also note that cardiovascular risk may be somewhat arbitrary, because a drug could have other significant risks (cancer, psychiatric, etc.). Why focus on just one risk?

However, requiring CVOTs with MACE as the primary endpoint is similar to guidelines for diabetes drug development, which were put in place after use of rosiglitazone (Avandia), produced by GlaxoSmithKline (NYSE:GSK), was correlated with increased myocardial infarction and stroke incidence. This arose after approval. The messages from these FDA panels are conflicting and there does not seem to be much public information about whether the FDA will require CVOTs for approval of Lorcaserin. But according to BloombergBisinessWeek, a spokesperson for the FDA, Erica Jefferson, said that Vivus and Arena are unlikely to be affected by the FDA Obesity Panel. So, is it a non-issue? Maybe not. A CVOT has been recommended by the FDA advisory panel for Qnexa, another obesity drug being developed by Vivus (NASDAQ:VVUS). And Vivus has indicated it will do a post-market CVOT for Qnexa.

The political climate for obesity drug approval has changed in response to the obesity epidemic. There's both public pressure from healthcare groups and notably increasing external pressure on the FDA by the U.S. Congress to enhance obesity drug development. From the Committee Reports, 112th Congress (2011-2012), Senate Report 112-073:

Obesity Therapeutics- The Committee is concerned with the absence of novel medicines to treat obesity, the second leading cause of preventable deaths in the United States and a disease linked to cancer, high blood pressure, heart disease, diabetes, and stroke. With only diet, exercise, and gastric surgery as options, the lack of obesity medications is a significant unmet medical need. The Committee directs FDA to report by March 30, 2012 on the steps it will take to support the development of new treatments for obesity, including the use of its Risk Evaluation and Mitigation Strategy and other post-marketing authorities, to mitigate risk and ensure rigorous post-market scrutiny while increasing access to novel medications.

Is this pressure enough to not require a CVOT for Lorcaserin?

Clinically, is there enough evidence to indicate a CVOT is not necessary for Lorcaserin? The answer is probably, "yes", in that there is no signal for cardiovascular risk, and "no", cardiovascular risk has not been tested adequately using trials with MACE as the primary outcome.

What evidence is there that Lorcaserin is safe enough? From the FDA briefing document, it is noted that Lorcaserin was correlated with improvement of most risk factors such as blood pressure, lipid profiles, and glycemia. Also form the FDA briefing document, the information using MACE as the outcome was limited. "In a separate exploratory analysis, six (0.2%) Lorcaserin 10 mg BID and two (0.1%) placebo patients had adverse events of cardiovascular death, non-fatal myocardial infarction, or non-fatal stroke. Because of the exploratory nature of these analyses, formal statistical testing was not conducted. Of note, the sponsor contracted with physicians from the Brigham and Women's Hospital (Boston, Massachusetts) for a blinded post-hoc adjudication of 11 death, cardiovascular ischemic events, and cerebrovascular events from the BLOOM and BLOSSOM trials. In these two trials, the Lorcaserin 10 mg BID group had five such events, Lorcaserin 10 mg QD had no events, and placebo had six events. There was one event in the second year of the BLOOM trial in a patient re-randomized from Lorcaserin 10 mg BID to placebo. BLOOM-DM did not have its cardiovascular events adjudicated in this post-hoc process."

As noted earlier, one of the influential panelists, a cardiologist, was on both committees and voted for requiring CVOTs for obesity drug approval and against approval of Lorcaserin. So, one can argue there is not a "signal" of cardiovascular risk with Lorcaserin. But, testing whether Lorcaserin does or does not have significant cardiovascular risk, which would be picked up in a trial with MACE as the primary endpoint, has not been done.

However, there did not seem to be a requirement for a CVOT in the complete response letter to Arena from the FDA. Many have expressed that it is improbable that this will be an issue raised now by the FDA. More suggest a post-market CVOT requirement would be more likely. The scheduled decision date for Lorcaserin is June 27, 2012. Qnexa, being developed by Vivus, is up for potential approval in July, 2012. The advisory panel for Qnexa did recommend approval, but also that a post-market CVOT trial be performed. Vivus, according to the briefing document, also has plans for both surveillance and a CVOT:

VIVUS is currently exploring the feasibility of conducting an active surveillance safety study through a health maintenance organization to monitor for the occurrence of pregnancies and pregnancy outcomes in WOCBP as well as major adverse cardiovascular events (OTCPK:MACE) in men and women using QNEXA in the post-approval setting...

VIVUS also plans to conduct a post-approval superiority cardiovascular outcome trial (CVOT) to evaluate the effect of long-term treatment with QNEXA on the incidence of nonfatal MI, nonfatal stroke, or cardiovascular death and other relevant efficacy and safety endpoints in obese subjects with cardiovascular disease or cardiovascular disease risk factors.

On the other hand, Orexigen (NASDAQ:OREX) is conducting a CVOT at the request of the FDA on its obesity drug, Contrave, before drug approval. There was, however, data indicating increased heart rate and blood pressure with Contrave, which could be a "signal" of potential cardiovascular risk. The interim data should be available in 2014 and lead to a potential resubmission for Contrave.

Will approval of Lorcaserin require a cardiovascular outcomes trial (CVOT) either before approval or post-market? Clearly, it appears Vivus would do a post market CVOT on Qnexa if approved. Based on the predicted capital outlays of Orexigen to continue Contrave development, a post-market CVOT trial would lie significantly upward of $150 million, which would delay profitability into 2015. To date, actual approved obesity drug revenues have been closer to $300 million rather than the much hyped "blockbuster" billion dollar plus market for Lorcaserin. From a Form 8-K, 90% of the post-development expense would be Eisai’s responsibility, “With respect to the United States, if the FDA requires development work following approval of the lorcaserin NDA, Eisai will bear 90% and Arena GmbH will bear 10% of the expenses for such work, except that the parties will share equally the costs of certain pediatric or adolescent studies”. Still, given the predicted market size for Lorcaserin, it would suggest if Lorcaserin is approved that shares of Arena may not appreciate significantly above $10 per share in this interim period. As for Eisai (and Arena), the costs of the trial would likely exceed profits from initial sales of Lorcaserin.

With regard to Vivus, the argument is a little bit different because the revenues could be greater for Qnexa. Qnexa, after all, is more effective than Lorcaserin and there is evidence that patients are more likely to continue taking an obesity drug that is working for them. If Qnexa were approved, Vivus may indeed become profitable more quickly than Arena. Perhaps that is why it is also trading at twice the market capitalization of Arena. But if Lorcaserin is approved, then the requirement for a pre-approval CVOT for Qnexa seems very remote. Vivus is better positioned financially, both in current capitalization and potential Qnexa revenue, than Arena to afford a post-market CVOT. Approval of Arena's Lorcaserin would signal a buying opportunity for Vivus.

Disclosure: I am long ARNA.

Additional disclosure: and may initiate a long position in VVUS over the next 72 hours.