Vivus (VVUS) is a company focused on obesity drugs. Its lead candidate, Qnexa, aims to curb obesity in patients with an extended release capsule containing 2 FDA-approved compounds (phentermine and topiramate).
Phentermine is a psychostimulant (that works in a similar fashion to drugs like Adderall) decreases patients' appetites, while topiramate is an anticonvulsant mediation used to control seizures. Topiramate also controls receptors associated with hunger, which make it ideal to induce weight loss in patients. The company is now waiting for a complete response letter to Qnexa's NDA, which was submitted on October 17, 2011 (and delayed for three months, making the PDUFA action date July 17, 2012).
If you remember, Qnexa had a painful FDA rejection in October of 2010. An advisory panel voted against approval as early as July 2010, which sent the stock plummeting over 50% (so the rejection was not a surprise and had been priced in). Within the complete response letter, the FDA cited ambiguity in the safety evaluations of Qnexa regarding birth defects, memory loss, and depression. In addition, the elevations in patient heart rate brought up concerns of adverse cardiovascular events. The fact that Qnexa was only studied in patients over the course of a year brought up even more concerns, since patients would be expected to take the drug over much longer time frames.
Now in 2012, as another FDA decision looms on the horizon, investors must ask themselves whether or not Qnexa has addressed the primary safety concerns of the drug. The results of the SEQUEL trials, which evaluated 676 overweight patients, were encouraging. The Qnexa group experienced a ~10% sustained decrease in weight, and had substantially lower chances of diabetes progression. In addition, despite the cardiovascular effects of Qnexa, the weight loss actually decreased need for heart medications in the Qnexa group relative to the placebo group.
In February 2012, an advisory committee voted 20-2 in favor of Qnexa's approval. Citing a lack of alternative obesity treatments, the panel appeared heavily in favor of approval contingent upon favorable outcomes in the proposed post-approval REMS (Risk Evaluation and Mitigation Strategy) studies. These studies will aim to further evaluate risks associated with cardiovascular events, and the tricky realm of birth defects.
Investors have pushed the market cap of Vivus to over $2.6 billion on the heels of Qnexa alone, but the stock is poised for additional gains given an FDA approval. The stigma associated with Qnexa is that it is intended as a weight-loss drug. The FDA has had a notorious history of rejecting these types of drugs, and the disastrous outcome of fenfluramine/phentermine (an obesity drug developed by American Home Products in the '90s) still burns in its memory. "Fen-phen" was shown to induce pulmonary hypertension and heart valve problems in select patients, and the drug was withdrawn. Adding more to the costs were legal damages, which were estimated at $13 billion. Things got so bad that the company had to change its name to Wyeth (which was later bought by Pfizer).
The fact that the phentermine compound is shared by Qnexa and fenfluramine/phentermine should raise a few eyebrows, and I think there is a small chance that we might see a surprise rejection on the grounds that the existing safety studies are still not thorough enough to bring the drug to market.
Naturally, another rejection will send shares plummeting, perhaps 60% or more. There is simply too much built-up tension associated with Qnexa for this FDA decision to go wrong, and the favorable outcome from the FDA panel only adds to the potential for disappointment. About 15% of floated shares are bet against the stock (essentially a bet on another FDA rejection). The short-squeeze potential is quite enormous due to this.
Another bright side (for Qnexa) is that the rival weight-loss drug Lorcaserin, developed by Arena Pharmaceuticals (ARNA) was just approved (on June 27, 2012). This does increase the odds of an FDA approval for Qnexa despite the history of the weight loss drug market.