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Arena Vs. Vivus- A Big Decision

|Includes:Arena Pharmaceuticals, Inc. (ARNA), VVUS

How would you play the market once Lorcaserin and Qnexa get FDA approval? Lorcaserin is up for approval on the 27th of this month and Qnexa is up for approval July 17th. They are two obesity drugs set to hit a multibillion dollar market at the end of this year. Lorcaserin is on track to be approved first without any delay like Qnexa. The reason for the delay in Qnexa is because Vivus was asked over a year to provide a REMS to the FDA but they only submitted two weeks prior to approval not giving the FDA enough time to sort through it. Arena was never asked to do any REMS and they have been working closely with the FDA the past two years to satisfy any concerns they might have. If the FDA has any concern with Lorcaserin, they would have addressed it by now. Upon approval, I would go long on Arena (NASDAQ:ARNA), the maker of Lorcaserin since it is the safer of the two and short Vivus (NASDAQ:VVUS), the maker of Qnexa. Why would I say such a thing when Qnexa has a higher efficacy for weight loss than its competitor Lorcaserin? Well, there are many issues with Qnexa that do not look as great in the real world as opposed to on paper.

1. Side effect- The biggest concern for the FDA is the birth defect associated with Qnexa. This is the reason for the 3 months delay given by the FDA so they can sort through the REMS submitted by Vivus. Due to this side effect, Qnexa cannot be prescribed to women of child bearing age. Lorcaserin on the other hand can be prescribed to anyone since it does not have any negative side effect. This will give more revenue to Arena and less revenue to Vivus.

2. Benefit vs. Risk- Supporters of Qnexa will argue that Lorcaserin has low efficacy for weight loss and thus, physicians will have to prescribe Qnexa once patients do not lose the weight. This is going to be a costly mistake. Don't forget, Lorcaserin is a novel drug and Qnexa is a combination of two drugs. Combination always have better efficacy. Doctors like my brother and I will never prescribe Qnexa or any other drugs with serious side effect when there is an alternative with less risk. No doctors in their right mind will risk getting sued. Physicians will prescribe Phentermine, one of the two drugs in Qnexa, on top of Lorcaserin to give a bigger punch if needed without the negative risk. This will reduce the amount of revenue from the left over population even more.

3. Insurance coverage- Insurance will pay for Lorcaserin since it's a novel drug with benefits that can save them more money in the long run. However, insurance will probably not cover for Qnexa since it is a combination of two generic drugs. They will have the doctors prescribe the two generics instead. This will deter patients from taking Qnexa and go with Lorcaserin.

Remember how Dendreon's Provenge was approved and the stock shot up to $50/share based on its benefit on paper. Well, after miserable sales due to the high cost of treatment, the stock dropped to $6/share. Don't let the benefit on paper fool you when it comes to the real world. Do your own due diligence on these two drugs and see how they will generate revenue since that will dictate the price of the stock.

This is just for entertainment and not a recommendation to buy or short any stocks. Never invest more than you can afford to lose. I am long ARNA.

Disclosure: I am long ARNA.

Stocks: ARNA, VVUS