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Vivus still has good upside potential

|Includes:ARNA, OREX, Vivus, Inc. (VVUS)

In the past few days, obesity drug Qnexa being developed by Vivus, Inc. (NASDAQ:VVUS) drew quite some attention from mass media. The recent Qnexa Phase III data showed both high efficacy and good safety. There is an important aspect here, and that is that it puts two other drug companies in the hot seat. Orexigen Therapeutics Inc. (NASDAQ: OREX) met its weight loss targets in late stage studies and it has previously given an early-2010 for when it seeks FDA approval.  Arena Pharmaceuticals Inc. (NASDAQ: ARNA) is also developing a weight loss treatment which will release phase III data soon. Vivus share price still has good upside potential, several incoming catalysts are now on the horizon :

1. Four conference presentations in September.
2. Arena will release phase III data for its obesity drug by the end of September.
3. Rumor of partnership/buyout.
4. Institutes are loading now, and  the daytraders will eventually get out.
5. More analysts upgrade is almost a sure thing.
6. Another drug Vivus is developing-Avanafil should get its phase III data out this fall. Any good news out of that trial will increase the value of VVUS.

A recent study carried out in part by the U.S. Centers for Disease Control and Prevention found that obesity-related diseases account for nearly 10 percent of all medical spending in the United States, or an estimated $147 billion a year. A new diet drug in the U.S. will have a market that might be worth $10 billion annually for a safe therapy that helps patients lose 10 percent of their weight in a year, said Needham & Co. Analyst Mark Monane. Global obesity levels, linked to rising rates of diabetes and heart disease, will swell 75 percent to 700 million people by 2015, according to the World Health Organization.

The studies included more than 3,750 patients taking a mix of three doses and placebo. Patients taking Qnexa, on average, reduced their weight by up to 14.7 percent in one trial, while the drug also prompted improvement in blood pressure and diabetes risk factors.

A second year-long trial of 2,487 obese patients with concomitant conditions such as diabetes, showed those who took Qnexa had an average weight loss of 30 pounds, or 13.2 percent of body weight, compared with a percentage weight loss of 2.4 percent for the placebo group.

Patients who took a lower dose of the drug lost 24 pounds, or 10.5 percent of their body weight.

In both studies, patients taking placebo lost less than 3 percent of their weight.

Vivus said the results support the company's plan to ask for Food and Drug Administration approval by the end of 2009. That could put the company's application ahead of a key competitor, Orexigen Therapeutics Inc.'s Contrave.

Side effects in the Qnexa trials is very mild,which included dry mouth, tingling, constipation, altered taste and insomnia. Reported drug-related instances of depression and depressed mood adverse events of a moderate to severe nature were less than 2 percent and were similar among patients in the Qnexa and placebo groups, while monthly assessments showed no signal for suicidal risk.

JMP Securities has estimated that Qnexa, for which Vivus has said it would seek U.S. Regulatory approval later this year, could have worldwide sales of $1.5 billion in 2015.

The results are among the strongest ever seen in an obesity drug trial and came without the serious side effects seen in other obesity products such as Acomplia, an obesity drug developed by Sanofi-Aventis SA which never reached the U.S. market because it caused mental problems.

The results will form the basis of a marketing application with U.S. regulators later this year.

Analysts expect the drug to be a "blockbuster," meaning it will generate annual sales of more than $1 billion.

"The weight loss is much more impressive than that seen with other drugs now on the market or in development," said Adam Cutler, an analyst at Canaccord Adams. "I think it's safe to call this the best."

The marketed diet drugs Xenical and Meridia cut body weight by 4 percent to 5 percent, while products being developed by Arena Pharmaceuticals Inc (ARNA) and Orexigen Therapeutics Inc (OREX) produce only moderately "high-single digit" weight loss, he said.

"I think this is a game-changer," said Leland Wilson, the company's chief executive, in an interview. "This will change the way people look at obesity, the way payers pay for it, and we think it will have a major impact on health."

Positing a hypothetical example of what patients might expect from Qnexa, Vivus said a typical 51-year-old female weighing 250 pounds would lose 37 pounds, reduce her blood pressure and risk for diabetes, increase good cholesterol 21 percent and reduce bad cholesterol 18 percent.

In clinical terms, that means the average risk of having a major heart event within the next 10 years drops from 27 percent to 7 percent, Vivus said.

Wilson said the company plans to begin immediate partnership discussions with big pharmaceuticals companies and given the huge potential patient population -- more than a third of Americans are obese -- he expects to negotiate a "state of the art deal."

"We've had high interest from pharmaceutical companies, but we were all waiting for these results," he said. "Now serious negotiations can begin." Wilson is optimistic that Qnexa's strong data will capture the industry's attention. Although Vivus is looking for a sales partner, larger companies may be more interested in buying the company outright, a situation that is familiar to Wilson.

Disclosure: Long VVUS from mid April, 2009.