The Biggest Loser in the Obesity Drug Market

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Even while Americans have started focusing on eating healthy and exercising, obesity remains a problem that effects more than one in three adults in the United States. Diet and exercise are usually a good start in a quest to lose weight and get healthy, but sometimes “Biggest Loser” type efforts just aren’t possible or even enough to prevent heart disease, stroke, and diabetes.

This is where prescription obesity drugs come in. In the 1990’s a drug called Fen-Phen, which effectively reduced body weight, saw prescription rates as high as 18 million a month. It was later found to have caused heart valve problems in nearly one-third of patients and was taken off the market. Recent developments in the pharmaceutical industry include a renewed focus on obesity drugs.

After years of research and development, the FDA has approved two new drugs for obesity treatment: Vivus’ (NASDAQ: VVUS) Qsymia, which started selling in September, and Arena Pharmaceutical’s (NASDAQ: ARNA) Belviq, which is expected to launch in the second quarter of 2013. However, I believe a third company, Orexigen Therapeutics (NASDAQ: OREX), will fare better than either company in the obesity drug market despite coming to market more than a year later.

Following the Scripts

Vivus is currently the only company out of the three with a drug on the market. When it received FDA approval for Qsymia last summer, the stock actually went down. It fell from a 52-week high of $31.21 in July down to $10 in November. The majority of disappointment has stemmed from low physician prescription rates.

While the rates have grown every month the drug has been on the market, they still remain disappointingly low. For the month of December, Vivus reported a prescription rate of 13,000, far from the 18 million a month level of Fen-Phen’s best days. In fact, shipments are so low that Brean Capital downgraded the stock to sell from hold on Thursday, stating the stock is overvalued.

Perhaps prescription rates will pick up as insurance providers such as Express Scripts (NASDAQ: ESRX) and Aetna (NYSE: AET) have agreed to cover obesity drugs. However, I feel as though physicians are more concerned over health risks associated with Qsymia and obesity drugs in general (a holdover from the Fen-Phen era).

A risk evaluation and mitigation strategy (REMS) report recently filed by Vivus shows major side effects of Qsymia include birth defects in pregnant women as well as increased heart-rate and metabolic acidosis. The REMS limits Qsymia to mail-order pharmacies, which severely cuts into the company’s total shipments. As a result, the door is open for Arena to do well with big pharmaceutical partners.

New Entrants in the Arena

Arena’s Belviq is expected to come to market in the first half of this year and is poised to outshine Qsymia’s tepid prescription rate. The company comes to market pre-approved by Aetna and Express Scripts and has a better distribution and marketing network than Vivus. What’s more, the company should be able to get approval for Belviq in Europe, something Vivus was unable to do with Qsymia.

While Arena might have a more successful launch of Belviq than Vivus had with Qsymia, I still believe it will be met with relatively luke-warm responses from physicians. However, Orexigen’s newest developments with its obesity drug, Contrave, ought to inspire more physicians to choose them over the competition.

For one, both Qsymia and Belviq are considered controlled substances by the DEA. By comparison, Contrave is made up of two substances, Naltrexone SR and Bupropion SR, neither of which are controlled substances and both of which have been on the market for many years. I believe it’s more probable physicians will choose the drug that is less likely to create an addiction and is easier for patients to get refilled, giving Contrave the upper hand.

Moreover, Orexigen expects the results from its cardiovascular safety study required for FDA approval to be extremely positive. The company expects to have complete results as early as the second quarter, allowing it to file for FDA approval in the second half of the year, speeding up its schedule for the time it takes to get Contrave to market. If results turn out better than Vivus and Arena, it will be another reason for doctors to choose Contrave.

Orexigen will also benefit from its partnership with Takeda Pharmaceutical. If Takeda puts its weight behind Contrave, it could easily commit more than the 200 sales reps the competition has at its disposal. In fact, some analysts say Takeda could commit as many as 1,000 sales reps, which will surely push prescription rates well above the tiny Qsymia rates at launch.

Cut the Fat

When it comes down to it, the obesity drug market is very likely headed toward becoming a multi-billion dollar behemoth. As people get bigger, so too will these obesity drug companies. I believe Orexigen is in the best position to take a large share of the growing market, as it will have a safer drug and a bigger marketing force.


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