Spencer Osborne's  Instablog

In a previous article I took what I would term as a very simple look at Arena (ARNA) and Vivus (VVUS) from an approval, use, and investment standpoint. One key element I discussed in the piece was that the battle between the two companies could hinge on marketing. A commenter P Man honed in on that and I felt it was definitely a worthy follow-up to the piece.

P Man stated:

"I think the best thing both VVUS and ARNA can do is to NOT run negative campaigns against each other. What needs to be marketed here is not necessarily one drug versus the other, but the 'idea of taking a weight loss pill is a good idea'. There are an estimated 500 million obese people on this planet which is more than enough for 2 companies to support. If only 1 in 20 take the jump from just diet and exercise to diet and exercise and pharmaceutical help, that's 25 million prescriptions. In other words, a $50 billion industry (using the standard $2000/yr per script figure).

Whether that's split 50-50, 60-40, 70-30 or even 80-20, who cares? Each company will make a fortune.

However, if they spend all their money trashing how dangerous or ineffective the other one is, the take home message to the consumer will only be: these drugs either don't work or are too risky to try. Hence, 1 in 20 becomes 1 in 100 or 1 in 500 or even worse.

The product here is the idea of taking a weight loss drug. VVUS and ARNA just need to sell that. Everything else will take care of itself."

Kudos to P Man for seeing the bigger picture and bigger potential of the issue at hand. My hat is off to you. In my first piece I spoke of my experience with satellite radio provider Sirius XM (SIRI). As an early adopter of that product I saw first hand the damages that over competitiveness can bring.

The founder of satellite radio, Martine Rothblat appealed strenuously to the FCC to allow satellite radio to develop as a single company. Early on in my writing about the subject I had indicated that the two company approach actually served to harm Sirius and XM rather than help it. Automakers were forced to take sides and choose one company over another. Had there been an interoperable radio, or one service the adoption of satellite radio in the auto sector would have been much shorter, leading to profits much sooner, and perhaps avoiding the calamity that ultimately became a merger and near bankruptcy.

P Man sees the bigger picture and let's hope that Arena and Vivus see it as well. There is indeed plenty of room in the marketplace for more than one weight loss drug. The key is getting the marketplace to accept the concept of a weight loss pill.

That being said, we live in a competitive society, and there will indeed be natural competition between these drug companies as well as those that invest in them. In learning my lessons from the past, I started looking at these companies and see what I feel is an advantage in one over the other. That does not mean that both can not have success and even a big chunk of market share. In comparison, Coke has a market share lead over Pepsi, but both could be great investments.

What I see here is a different dynamic than we had in satellite radio. Getting a drug first to market can carry a massive advantage. In my mind it appears that Arena has the lead here. Getting a drug to market that can tackle weight as well as Type 2 Diabetes is another big positive that I see in Arena and its Belviq product.

Marketing will indeed be a huge factor in this. How often do you see an advertisement prompting you to ask your doctor about one drug or another? Pharmaceutical companies have gone way beyond sending representatives out in the field to meet with doctors. They are appealing directly to consumers. An effective campaign can be the difference between moderate success and overwhelming success.

While this may sound callous, investors are in the market to make money. Betting on one company over another as they race to get something to market is part of the game. Yes, I know that the health and well being of the public is an issue, but that is a moral consideration each investor has to deal with as they make the decision of whether or not to even invest.

From the narrow standpoint of Arena's Belviq vs. Vivus's Qsymia, I see Belviq as carrying the investment advantage:

• I think Arena's Belviq has an easier path to market and will gain EU approval more quickly setting the stage for another run. With a three week lead in the FDA process and less restrictions, Belviq has extreme potential to have an easier trip through the EU process.
• I see Belviq's benefits on Type 2 diabetes giving it another marketing advantage that many have yet to focus on providing yet another path to consumer use.
• I see Arena as having had a full haircut in share price after the run-up on the FDA approval of Belviq. Support has been found and the stage is setting up for another run.
• Once approvals are gained I see Belviq as having in the enviable position of being first to market. This can carry a distinct advantage, in particular if it is marketed strongly to potential end users.

Let us hope that the marketing can stay with a focus on each respective product and not get into mud slinging.

Disclosure: I am long SIRI, ARNA.