Many articles have been written in SeekingAlpha on Vivus (VVUS), Arena (ARNA) and other companies that have developed drugs for obesity. The articles go something like this: the number of obese people in the US is a, of which the number seeking drugs is b, and assuming drug c gets percentage d of the market, its sales will be e, giving it a revenue of f, and taking into account the floating shares, market value of g, and share price of h. Assuming the company gets bought out at a premium of i, the potential gain is j. Put in your favorite values for a through j and voila, you have another article.
One factor not taken into account into such analysis is that these drugs are prescription drugs. Which means that a physician has to prescribe it. So, what percentage of physicians would actually prescribe these drugs? In order to answer that, I conducted a survey amongst my fellow physicians. I picked Vivus's Qsymia since it has the strongest efficacy, but also the most safety issues. It also has a "generic equivalent" in topiramate (made by Supernus) and phenteramine.
I asked 50 of my fellow physicians (mostly Family Practice, Internal Medicine, and 2 neurologists and 2 cardiologists) if they would:
- Prescribe any drug for obesity at all, and if so
- Prescribe Qsymia, or
- Prescribe the generic equivalents, topiramate and phenteramine, if patients requested it.
- 80% of physicians (40 out of 50) said they would not prescribe ANY weight loss drug. Some statements were:
"Just because the FDA approved it does not mean I prescribe it. I just don't think they are safe enough"
"For the weight loss they induce, the risks are just not worth it"
"I don't think the efficacy is that great. The FDA may have approved it, but that doesn't mean jack to me"
Asked if they were concerned that patients may move to other physicians who were more willing to prescribe, the non-prescribers were blasé. A dearth of patients was hardly an issue for them.
- Of the 20% of physicians (10 out of 50) who would be willing to prescribe Qsymia, 90% ( 9 out of 10) said they would stick to the FDA approved version and not give generics. Only one physician said he would be willing to prescribe the generics, but was not sure about it. Some statements were:
"The legal implications of giving generics is too much. The FDA approved Qsymia, not two drugs given individually. I won't take the legal risk of giving the drugs separately"
"Why would I write two prescriptions instead of one? I barely have the time to get my work done, and each little extra task had better be worth it"
"It is not just weight loss, but also effect on lipids. That makes it worth considering"
- Physicians are not sold on obesity drugs, and companies have their work cut out for them. They will need to raise and deploy a sales force. This means more expense, and less profits. It also means companies that have alliances with larger Pharma companies with sales force will do better.
- Vivus does not have as much to fear from generics as some have made out.
- Perhaps the best time to buy these companies would be after a quarter or two of sales to see how well they are doing. Remember the lessons from HGSI's Benlysta and Dendreon's Provenge where the reality did not meet expectation, and the stocks responded accordingly.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.