It had been thirteen years since the FDA approved a new weight-loss drug before Arena Pharmaceuticals (ARNA) received the nod of approval a few weeks ago for Belviq, but it was barely thirteen minutes before the next such approval came. Vivus, Inc. (VVUS) just announced that it received approval for Qsymia, its own version of a once-daily weight-loss pill, making the weight-loss sector a very hot one right now.
Both Arena and Vivus have been huge and rapid gainers this year, as the general investor sentiment surrounding both new drug approval requests was that the FDA would approve. The positive sentiment before the formal decision was announced is most likely a primary factor as to why neither company experienced any significant share price increases in conjunction with their respective approvals.
Vivus, after having dropped to as low as under $21 on Tuesday, closed the day down by eight percent with an even further drop during after hours trading. It's likely that the approval decision was largely priced in before the announcement, leaving many of the catalyst traders with the opportunity to move on in search of another quick mover, but it's also likely that the drop can be attributed to what's become a sector trend over the past couple of years. This phenomena not only allows the traders to take profits -- because more often than not the real run takes place after Phase III data is announced and/or during the weeks and months leading into the expected FDA decision, not after it -- but it also allows new investors to buy into much more of a 'sure thing' for discounted prices, compared to where shares were trading.
Playing an expected catalyst, such as an FDA decision, is still highly speculative, regardless of how positive the sentiment becomes. The game changes a bit when the approval decision is already known, because at that point the only speculative nature of the investment is how much revenue can the product rake in and how quickly it can do it. While that's a risky proposition sometimes, too, as Dendreon proved, it's a lot safer of a bet knowing that a product is already approved and ready for commercialization than it is to bank on the wishy-washy and unpredictable nature of the FDA.
As such, many small biotechs and developing pharma companies tend to see their share prices drop after receiving positive approval decisions nowadays. For examples of such see BioDelivery Sciences (BDSI) and Avanir (AVNR), both of which experienced immediate post-approval drops. Human Genome Sciences (HGSI) and Dendreon (DNDN) are also fine examples of how quickly and significantly a drop can occur when a potential blockbuster fails to quickly gain traction in the market upon approval.
The hype surrounding both Arena's and Vivus' product potential is huge, given the ever-increasing obesity problem in the United States. Should these products only rake in a small portion of the weight-loss market, that includes multiples of supplements and other 'fad' offerings, then success could be huge for these guys. That said, the problem with the weight-loss market is that many products eventually turn into 'just another fad' as consumers realize that there is no miracle cure for obesity. No pill is going to miraculously make it all ok, and no pill should replace healthy dieting and exercise. In today's society, however, where people want everything done for them while putting out the least amount of effort, the belief is that the pill alone will do the trick and when it doesn't, well then it gets tossed to the side in order to make room for the next fad.
The danger for both Belviq and Qsymia, in my opinion, is the potential for longevity. I believe that consumers will become disappointed when the pounds don't shed off at the rate they were expecting from a prescription medication and that can hurt future sales. On the other hand, I may be off base in my train of thought - because, after all, I had faith enough in people to believe that the overweight populations of America would eventually catch on to the fact that there is no replacement for healthy living and exercise, with the possible augmentation of a 'workout assist' product, such as the pre-workout Celsius beverage from Celsius Holdings (CELH.OB) that provides a natural energy boost to enhance the effects of a workout.
Instead, people buy the hype of 'miracle pills' in place of effort and exercise. So far I've been let down and ARNA and VVUS are sitting on multi-billion dollar market caps, so these guys are onto something and are capitalizing greatly.
As I noted earlier this week, maybe next the fad will be a miracle pill that treats laziness. Since these weight loss pills effect the area of the brain that makes people want to eat, how about a drug that effects the portion of the brain that makes them want to sit on the couch all day eating Doritos and slurping Big Gulps?
These two companies are proven big winners and may have a whole lot of market potential left, but I think there's a better cure for obesity out there than either of these offerings - it's called Gold's Gym.
Also worth watching in the healthcare sector:
Investors who may have missed the massive price run of Sunshine Heart (SSH) over the past couple of weeks may have another chance. Sunshine shares moved from lows of $2.50 barely weeks ago to as high as seventeen dollars-plus on news of the development and potential for the imminent commercialization of the company's implantable medical device, the C-Pulse Heart Assist system that has proven to not only halt the progression of heart failure in early studies, but to reverse the effects as well. Sunshine is planning to commence US trials later this year, while trials in Canada are already ongoing and an application for CE Mark approval in Europe has already been filed. A share price pullback has materialized just as quickly as the run did previously, hence the 'second chance' to take a look at this company.
Another company with huge potential currently experiencing a pullback in MRI Interventions (MRIC.OB). Like Sunshine Heart, MRI Interventions is taking advantage of the trend towards less-invasive medical procedures - that translates into less expensive, also - and has developed a medical device that enables medical professionals to more-accurately and less-intrusively conduct procedures on the heart and brain that were previously known to be highly-intrusive, more time consuming - and therefore more expensive.
Volume and price started rolling heavily with MRIC earlier this month and late last on some positive updates on the partnership front - Tocagen announced that it would use MRIC's device in conjunction with an ongoing clinical trial - a spark that ignited a price run to five bucks from under two dollars. Shares have since pulled back from their recent highs and may again be trading at attractive prices for investors looking towards the long term.
For additional details, note this previous article.
The price gains are for the most part over for Human Genome Sciences since shares are now trading relatively in line with the valuation of the GlaxoSmithKline (GSK) deal, but the company is still making PR headlines as every law firm between Rockville, MD and Mars is seeking investors to partake in a class action suit against management for accepting an offer that - allegedly - does not fully value the potential of the company. With the gains already there for the taking, at least for those that were along for the double in price when the bid was announced, investors should stand clear and move on, in my opinion.
Disclosure: I am long CELH.OB.
Additional disclosure: I may initiate long positions in MRIC.OB and SSH within the next 72 hours.