Everyone knows that America is Fat and getting Fatter. In fact, the whole world is following in our footsteps. In the 2007-2008 National Health and Nutrition Examination Survey, it was found that a whopping (no pun intended) 68% of adults in the United States are Overweight! There are over 215M overweight Chinese with 1 in 10 now suffering from Type II diabetes as a result, according to a recent New England Journal of Medicine study. The root cause of the world’s obesity problem can be debated, and still it. Fast foods, processed foods, sugar, overeating and sedentary lifestyles are some of the most common factors cited. Obesity is primarily a Westernized problem, without debate. It is rare in non-industrialized nations and was rare in our own country even 50 years ago. Why can’t everyone just eat the right foods and say away from the bad foods? Studies have shown that if you eat a lot of carbohydrates or sugar, you can actually crave more carbohydrates or sugar. This leads to not only eating the wrong types of calories but overeating the wrong types of calories. If the Obesity epidemic could be solved by willpower alone, we wouldn’t have a problem. Until the FDA steps up to the plate to put the correct nutrition guidelines in place, until the fast food industry decides to stop serving processed, sugar-fortified, salt-covered and fat-filled foods or until everyone is educated and understands the root causes of obesity, we’ll continue to have a problem. Obesity has even become a matter of national security with 27% of Americans aged 17-24 too overweight to join the military. Annual healthcare costs for treating obesity related diseases cost us over $147Billion dollars a year, with no signs of slowing down any time soon. It could be argued that the epidemic of obesity from the last 20 years is the root cause of our exploding healthcare costs.
The Overweight and Obese need more than just willpower to help in their fight. Biotech has tried for decades to deliver an effective and safe obesity treatment to no avail. The road is littered with the corpses of failed attempts to bring an obesity treatment for the masses. We all know about the Fen-Phen debacle and how that turned out for Wyeth (now a part of PFE.) Most recently Meridia (NYSE:ABT) has come under fire for potentially causing cardiovascular issues. Indeed the most prescribed drug to combat obesity is still Phentermine, a 50 year old stimulant whose method of action has never been completely explained (a schedule 4 controlled substance,) which garners 8 out of every 10 prescriptions written for Obesity according to Decision Resources. Although Phentermine is effective, it can only be taken for short periods of time and is accompanied with a number of side effects including a bad taste in your mouth, reduced sex drive, constipation, difficulty sleeping, dizziness and nervousness. Phentermine users often lose significant weight over the first few weeks / months and then the weight gradually returns over time as they stop treatment. An effective Obesity therapy will need to be taken for years, perhaps a lifetime for some patients in order to keep the weight off, which has been one of main challenges for finding a therapy that works for the long haul.
If the pharmaceutical industry can come up with an obesity treatment that is Safe, Tolerable with good Efficacy, that can be taken long term, it could become a First line treatment for more than 33% of Americans, 20% of Europeans and 25% of the Chinese. That is a lot of extra BMI weight! This is the biggest unmet need in all of healthcare worldwide. As we have seen with Phentermine, Efficacy is the simplest goal to achieve of all three criteria for a weight loss drug; Safety and Tolerability are the difficult ones. According to Decision Resources, 88% of all Weight Loss Prescriptions are written by Primary Care Physicians and Internists. They are the medical front line for obesity and the key to ensuring successful acceptance of a weight loss therapy. In order for a PCP to write a prescription for a weight loss drug it must be proven to be very safe and well tolerated as opposed to having just good efficacy. If it was just efficacy, Phentermine would be a $10B a year compound worldwide.
Those who have researched Biotechs working to bring a new (or well-used) Obesity drug to market know that there are three baby Bios attempting to realize the obesity treatment dream, Vivus (VVUS,) Orexigen Therapeutics (NASDAQ:OREX) and Arena Pharmaceuticals (ARNA.) So which one of these stands the best chance to become a First Line Therapy for a significant portion of the patient population given the trifecta of Safety, Tolerability and Efficacy? Let’s take a look.
Vivus’ Qnexa: On the surface, Qnexa looks to be the most promising upcoming Obesity treatment. Qnexa is a combination of 2 generic compounds, Phentermine – which I have discussed, and Topiramate (brand name Topamax) developed by Ortho-McNeil (NYSE:JNJ) as an anticonvulsant for epilepsy and for the prevention of migraines. I have listed some of the side effects of Phentermine and Topiramate has its own laundry list of side effects. Topiramate’s side effects include paresthesia (numbness & tingling,) diarrhea, nausea, anorexia, memory problems, psychomotor slowing, memory problems, fatigue and confusion. VVUS claims that the Qnexa combination of Phentermine and Topiramate, in slow release formulation, somehow counteract each other’s side effects but they have never been able to explain the method of action, which I find troublesome. Qnexa’s most common side effects include paresthesia, dry mouth and altered taste and almost 1 in 5 patients dropped out due to side effects. JNJ performed trials of Topamax as a weight loss drugs and cancelled the program because of the side effects. In fact, it should concern VVUS stockholders that JNJ owns the patent for Topiramate for weight loss, which VVUS has not licensed. JNJ (in the same dose as Qnexa) showed Topamax causes neurocognitive slowing and in a 2007 GSK Phase IV study Topamax also showed cognitive effects. However, VVUS says that there are ‘no clinically relevant effects’ with Qnexa? I’m not sure how that is the case but perhaps VVUS will be able to explain it to the Advisory Committee they were called to for July 15th. Yes, less than 30 days after the FDA accepted the NDA for Qnexa, they were put on the July 15th Risk panel. Keep in mind both of the drugs that make up Qnexa are generics so the FDA must certainly have questions about the method of action and the risk vs. benefit of Qnexa. From the VVUS 2009 10-K, “we believe that the regulatory review of NDAs for drug candidates intended for widespread use by a large proportion of the general population is becoming increasingly focused on safety. In this regard, it is likely that some of our investigational product candidates, including Qnexa and avanafil, will be subject to increased scrutiny to show adequate safety than would investigational product candidates for more acute or life-threatening diseases.” I would certainly agree with VVUS on that statement! Since Qnexa is a formulation of 2 generics, the patent protection is weak at best. In fact, VVUS didn’t even invent the combination. They borrowed the idea from a physician who was prescribing Phentermine and Topiramate together with good success. You can find reference to this in their 10-K as well, “Earlier studies with Qnexa were completed using a twice-a-day dose. The twice-a-day dose and timing of the administration of the active ingredients was determined by the inventor through the treatment of patients in his private practice.” In fact, I’m not sure VVUS has invented any new compound. VVUS has 3 products in the Pipelline, Qnexa (combination of generics,) Avanafil for Erectile dysfunction (licensed from Mitsubishi Tanabe Pharma,) and Luramist for hypoactive sexual disorder (licensed from Acrux.) Finally, it should be distressing to know that Leland Wilson, VVUS’ CEO, sold $2M worth of his stock shortly after Phase III results were released for Qnexa, if I was a confident CEO, I would hold all of my stock for approval. Enough about the issues with Qnexa. Clearly, it does not meet the guidelines of super-clean Safety and Tolerability to become a First Line Therapy for the Masses. VVUS states that they expect the label for Qnexa, if approved, to contain a listing of all of the side effects of both Phentermine and Topiramate, which is a very long list. If it is approved by the FDA (and that is a big IF,) then they will certainly garner some market share of the overall obesity marketshare, but I feel it will be a small one. It will be difficult to have Payers pay for a combination of readily available generics and Qnexa will face stiff competition from enterprising generic manufacturers. As VVUS phrases it in their 10-K, “Our investigational product candidate, Qnexa, is a combination of drugs approved individually by the FDA that are commercially available and marketed by other companies. As a result, our product may be subject to substitution with individual drugs contained in the Qnexa formulation and immediate competition.” So much for Qnexa being a First Line Treatment.
Orexigen Therapeutic’s Contrave: Like Qnexa, Contrave is a combination of 2 generic drugs bupropion (Wellbutrin) and naltrexone. Bubropion is an antidepressant with a laundry list of side effects including weight loss (it is a side effect and not specially designed for weight loss ironically enough,) dry mouth, constipation, headaches, nausea, dizziness, sweating, tremors, insomnia, appetite loss, blurred vision, rapid heart rate, confusion and hostility. Naltrexone is primarily used in the management of alcohol dependence and opinoid dependence with side effects including anxiety, appetite loss, chills, constipation, delayed ejaculation, diarrhea, dizziness, drowsiness, feeling down, headache, increased energy, increased thirst, irritability, joint and muscle pain, low energy, nausea, nervousness, sleeplessness, stomach pain and vomiting. Boy, these sound like a marriage made in heaven for a weight loss drug for everyone! Maybe this explains why 22% of their subjects dropped out due to adverse effects? OREX filed for their NDA on April 1st and then less than 2 weeks later figured out that 50% of the patient’s loss more than 5% of their body weight rather than the 56% submitted with their NDA. They will need to file an amendment to their NDA but will face the same regulatory hurdles for approval given the safety records of the compounds that make up Contrave. Clearly Contrave doesn’t meet the guideline of Safe and Tolerable for a First Line Obesity Therapy. No, Contrave won’t be a First Line Treatment for Obesity either. Man, this is getting depressing.
Arena Pharmaceutical’s Lorcaserin: How about instead of combining drugs where weight loss is a side effect in order to create a new Obesity treatment, you actually discover something and create a new composition of matter to treat the problem? What a novel and unique idea! That is exactly what Arena did to create Lorcaserin. Well not exactly, they did use the Fen-Phen disaster as inspiration. Fen-Phen, once hailed as a ‘miracle drug’ worked through a non-specific serotonin receptor combined with the stimulant phentermine. Fen-Phen stimulated the 5HT2c receptor found in the hypothalamus to have dramatic impact towards weight loss but oops, it also targeted the 5HT2b receptor found in the heart to cause heart valve damage in some patients. Not good and it cost Wyeth between $14B-$21B in lawsuits and legal fees. Ouch.
What Arena was able to create is the very first in a new class of selective serotonin 2c receptor agonists to effect feeding behavior and satiety without effecting 5HT2b in the heart. The resulting compound, Lorcaserin, is a Safe, Tolerable and Effective obesity treatment. Arena has excellent patent protection with a Composition of Matter patents in 95% of the world until at least 2023. To demonstrate the selective nature of Lorcaserin, ARNA undertook one of the largest echo monitoring studies ever done including more then 7,000 patients, clearly demonstrating that there is no increased risk of cardiac valvulopathy. Safety – Check.
So Lorcaserin is Safe, what about the tolerability? We have already demonstrated that the components that make up Qnexa and Contrave have pages upon pages of side effects making them very unlikely to be used as a First Line Therapy, what about Lorcaserin? Surely it must also have a number of unwanted side effects making it useless for long term obesity treatment. Perhaps tingling on your skin, impotence, nausea, constipation or even an increased risk of suicidal thoughts? Amazingly, after studies over 2 years across more than 7,000 patients, the only adverse effect that exceeded placebo by more than 5% was a mild headache. Only 7% of patients dropped out due to side effects, which was about the same as placebo and far less than the 18% that dropped out of Qnexa studies and 22% for Contrave. Yes, a transitional mild headache that would go away with Tylenol was the only adverse effect significantly more than placebo. In fact, Tylenol may have more side effects than Lorcaserin. Arena proactively conducted an abuse liability study as well showing a very low risk of abuse. Studies showed patients on Lorcaserin experienced a better quality of life with rates of depression, anxiety and suicidal ideation similar to placebo. I should also point out that Topiramate has been associated with higher risks of suicidal thoughts and VVUS acknowledges in their 10-K that they “anticipate that the label for Qnexa, if approved, will contain the similar suicidality warnings to those contained in the topiramate label.” Not so for Lorcaserin. Tolerability – Check
So if Lorcaserin is Safe and Tolerable, surely it can’t be effective! Let’s see: 75% of patients experienced greater than 5% weight loss, 33% achieved at least 10% weight loss and the top quartile of patients lost an average of 35lbs. On average, patients loss 8% or 17lbs and loss 31% of their excess BMI weight. In addition, Lorcaserin patients achieved significant secondary benefits towards overall health through reductions in cholesterol levels, fasting glucose, HbA1c, blood pressure and heart rate. The key to a great study is to witness a significant improvement within the placebo population. If placebo patients are supposed to watch what they eat and exercise, then you would expect them to lose weight. In the BLOOM study for Lorcaserin, 32.1% of the placebo patients loss greater than 5% of their body weight and 66.4% of Lorcaserin patients loss more than 5% of their body weight. One of the FDA guidelines for approval of an obesity treatment are that patients must lose ‘approximately’ double the placebo of 5% body weight loss, which BLOOM clearly does. However, to be approved, you must have one study with a supporting study. In the 2nd Phase III study for Lorcaserin, BLOSSOM, 34.9% of patients loss more than 5% of their body weight and 63.2% on Lorcaserin loss more than 5%, which is ‘approximately’ double, clearly supporting the BLOOM results. What is more impressive is looking at the figures of patients losing more than 10% of their body weight. In BLOOM, only 13.6% of patients loss more than 10% in the placebo arm and an impressive 36.2% of patients on Lorcaserin loss more than 10% of body weight. To have such a high percentage of placebo patients losing weight shows how well conducted the study was done. I still don’t understand why the mean weight loss in the VVUS Qnexa study was a paltry 1.6% of body weight with the patients instructed to cut caloric intake by 500 cal / day plus exercise. Just cutting out a soda a day would give you more than 1.6% weight loss. Perhaps another question the Advisory Committee will ask? There is yet a third study underway for Lorcaserin called BLOOM-DM for Diabetes patients. It is important to note that only 4% of obesity prescriptions are currently written by endocrinologists, most likely because of the lack of a Safe and Tolerable therapy to be used by diabetics. This study will be released later on in the year and the results will be filed as a supplemental to the current NDA. If the results of that study show that Type II diabetics can experience safe weight loss, improved fasting glucose and lower HbA1c (all secondary endpoints achieved in BLOOM AND BLOSSOM,) then you can bet that Payers will cover it. That opens up Lorcaserin as a potentially covered treatment for the 17M Type II diabetics in the US-alone. Efficacy – Check
With the trifecta of Safety, Tolerability and Efficacy, Lorcaserin is poised (if approved) to become a First Line Treatment for the masses. So what would that market look like and where is the partnership with a Big Pharma? Jack Lief, Arena’s CEO, has stated on numerous occasions that the goal is to partner Lorcaserin with a Global Big Pharma partner. In fact, last year the stated goal was to partner by ‘mid-2010.’ More recently, he has backed off of a time commitment stating that it would be ‘inappropriate’ to speculate on timing. You can bet that Big Pharma is all over this given Lorcaserin’s Composition of Matter patent protection and mix if efficacy, safety and tolerability as a First Line Obesity Treatment. I don’t understand why a Big Pharma would want to partner with either VVUS or OREX given the generic composition of their drugs and the questionable safety profile. I haven’t seen very many BP deals for generic combination drugs, in fact, I don’t know of any but perhaps there have been. What BP does like is Composition of Matter patents for new compounds, which is what Lorcaserin is. Also keep in mind that since Lorcaserin is a selective compound targeting 5H2Tc, that is will likely be combined with Phentermine off-label by some prescribers as a safe version of Fen-Phen. Lorcaserin hasn’t done studies on humans combined with Phentermine but they do have reference to animal tests in their patents that show pretty impressive efficacy, well above Lorcaserin as a single-agent and most likely more potent than Qnexa without the adverse effects of Topiramate. However, most people just need to lose 5-10% of their weight to have a dramatic improvement to their overall health so Lorcaserin as a single agent is fine. It is only the morbidly obese that may need more. For them, I can foresee a prescriber writing Lorcaserin with Phentermine for some number of weeks and then moving to just Lorcaserin for a long term therapy. Big Pharma understand this and I’m sure they are adding those scenarios into their revenue models. Arena’s list of discovery’s and associated patent portfolio is impressive. Ocean Tomo’s 300 Patent Index ranks the value of Arena’s Intellectual Property at 136, higher than the ratings of Amylin (AMLN,) Vertex (NASDAQ:VRTX) or Johnson and Johnson (JNJ.) I believe ARNA will partner Lorcaserin by mid-year and almost certainly by their October 22nd PDUFA date.
Lorcaserin Market Potential: ARNA owns their own manufacturing plant ready to manufacturer Lorcaserin with a capacity of 3 Billion pills. Each patient will take 2 pills a day or 730 pills a year. ARNA hasn’t publically disclosed pricing but have let investors to believe that the pills might be priced between $1.50-$2 a pill, which would provide a current capacity of $4.5B - $6B a year for Lorcaserin. Each patient should be worth $1,095 - $1,460. Unfortunately, at full capacity, Arena could only handle about 4.1M patients! As a first line therapy, the market is much greater than 4.1M patients I can ensure you. Type II diabetics alone make up 17M patients in the US that need a Safe and Tolerable, first line obesity treatment and there another 100M+ overweight or obese American’s that need help to lose weight before they become Type II. Less than a 5% market penetration in the US would bring Arena to full production capacity. Throw in just as many overweight people throughout the EU and 215M overweight Chinese and you can imagine that Arena will need to increase capacity in the next few years. So why is Arena trading at $3.30? I don’t know but I remember when both Human Genome Sciences (HGSI) and Dendreon (NASDAQ:DNDN) were both less than that, it wasn’t that long ago!
Upcoming Catalysts for ARNA: The following are expected catalysts for ARNA in 2010 that could have a significant positive impact to the stock.
1) Peer Review Journal Publications. BLOOM results have been under peer review for at least 4 months now and ARNA has indicated that a peer review journal publication(s) will be released within the next couple of months.
2) VVUS July 15th Review Panel. If VVUS does in fact have a problem getting through the Endocrinologic and Metabolic Drugs Advisory Committee on July 15th, then it could have a very positive impact to ARNA. As of today, Lorcaserin has not been asked to appear on an Advisory Committee, even though the NDA was filed a week prior to the NDA for Qnexa. There is a subsequent Endocrinologic and Metabolic Drugs Advisory Committee scheduled for September 15-16 that Lorcaserin may be put on. ARNA has not been notified as of yet that they will need to participate on that panel, but I’m sure they would welcome the opportunity. Given the Safety and Tolerability profile for Lorcaserin is so clean, they may in fact not be asked to appear on a panel. In fact, ARNA doesn’t even know what would be put into a REMS program for Lorcaserin because there are basically no adverse effects to monitor.
3) Partnership. As I have discussed, ARNA has had a target of partnering Lorcaserin by ‘mid-2010.’ It is possible ARNA still meets that original goal and a surprise partnership with a Big Pharma happens at any time. I feel Johnson & Johnson or Takeda are good candidates but that is pure speculation on my part.
4) Milestone Payments: Arena is collaborating with Ortho-McNeil-Janssen on compounds for treatment of Type II Diabetes by targeting GPR119. The Phase I trials for the APD597 compound was very positive and Ortho-McNeil-Janssen has until November 2011 to exercise their right to proceed to Phase II trials. If they do decide to move forward, this would lead to a significant milestone payment to Arena.
Given the prospects for Lorcaserin, upcoming catalysts for stock appreciation, the lack of viable competition for first line treatment status, pending partnership and overall Intellectual Property ARNA owns, ARNA could be the most undervalued stock in all of biotech. It is a cliché to constantly hear references to the ‘next HGSI’ or the ‘next DNDN.’ Will ARNA fit that bill? I don’t know but time will tell. I believe it could be much bigger than either of those given a Safe First Line Obesity Treatment is the biggest unmet need in all of healthcare. My Article on Lorcaserin Valuation goes into more detail of the revenue potential as a First Line Therapy for the Overweight and Obese.
Disclosure: Long ARNA.
Disclosure: Long ARNA