As Door Closes On Vivus It Swings Wide Open For Arena

REZA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Vivus (NASDAQ: VVUS) announced today that the company's weight loss drug, Qsymia will likely be rejected by the European Medicines Agency committee. This news couldn't have come at a worse time for Vivus as it is participating in the Obesity Society's 30th Annual Scientific Meeting and word around this rejection could circulate among American doctors like wild fire.

Many believe FDA should not have approved Qsymia due to safety concerns and many believe at the very least FDA should have made pregnancy tests mandatory due to dangers around birth defect which is not the only safety concern with Qsymia.

I have heard of doctors holding a strong stance that they would never prescribe Qsymia due to safety concerns. Apparently European regulators agree with these doctors and are not going to allow Qsymia to be sold in Europe.

Vivus has indicated that it would appeal the decision but it seems like an uphill battle. Today's news likely hurts Qsymia's chances of approvals in other regions as well.

A European rejection of Qsymia takes out a large chunk of the global obesity market away from Vivus and hands it to Arena Pharmaceuticals (NASDAQ: ARNA) whose chance of getting approval in Europe is very good given the excellent safety profile of Belviq and its strong efficacy.

Completers in the bloom and blossom studies lost an average of 8% of body weight; responders lost between 11% and 12% of body weight in a year. The top 25% of weight losers lost an average of 35 pounds in one year. It's comical to hear some analysts and journalists call this "marginal" efficacy. There's nothing marginal about these amazing numbers. Here are powerful testimonials from two patients (patient1 , patient2) who were part of the Belviq clinical trails. Both lost greater than 18% of their body weight after one year on Belviq without any side effects.

Arena will file answers to the EMA's 120-day questions next quarter with approval expected sometimes in first half of 2013.

This news also does not bode so well for Orexigen Therapeutics (NASDAQ: OREX) whose drug, Contrave doesn't have as good of a safety profile as Arena's Belviq.

Both VVUS and OREX were down today while ARNA was up 3.14% on above average volume. Vivus was down 11.47% at almost 4.5 times average volume.

SAFETY SAFETY SAFETY

Thumbs down to Qsymia in Europe puts the Eisai sales team at a stronger competitive advantage over Qsymia. Eisai has a top-notch sales team which has experience selling a blockbuster drug. Telling doctors that Qsymia was rejected in Europe due to safety concerns will not bode well to a physician community which is very safety conscious.

Speaking about safety, reading the Qsymia label is like watching a horror movie. It talks about the patient having to immediately stop the drug if a certain condition occurs (e.g. pregnancy) and then it talks about not immediately stopping the drug - that it should be tapered. No wonder some doctors are so adamantly against prescribing Qsymia and much prefer Belviq which has an excellent safety profile with the most common side effect being a transient mild headache.

THE ONLY GAME ON THE CONTINENT

For Arena, the most important aspect of this news is that the company will be able to ink an even better deal with a European partner now that Belviq appears to be the only game on... the continent.

Arena has indicated a strong level of interest from potential partners in Europe and other territories. This is one of the many catalysts which will move the stock which in my opinion is grossly under-valued and flooded with artificial supply (around 43 Million shorted shares) and an institutional interest which I think will want to at least double in the months ahead. This is an explosive combination with two strong streams of demand meeting a shortage of supply as retail investors who are holding 69% of the float don't seem to want to let it go at these prices no matter how many analysts, journalists, investment bankers and brokers tell us to sell by initiating or changing coverage with ridiculous, low-ball price targets.

IRON TIGHT RETAIL HANDS

I know several large retail investors, some holding in excess of a million shares, who are absolutely determined to keep their shares until ARNA reaches fair value which many of them believe is at least triple the current price.

Some sell-side analysts have been consistently wrong about Arena and their bashing of Arena and pumping of Vivus and Orexigen is almost comical to read based upon their apparently clueless yet manipulative commentary.

Imagine if Arena had a news item similar to what was released by Vivus about the anticipated EMA rejection of Qsymia. The same analysts would be all over it. The best saying on this subject is "doctors write prescriptions not analysts". In this extremely important obesity market retail investors have beat professional high-paid analysts hands-down. Maybe some sell-side analysts should be called "paid shills of hedge funds" instead.

"DO AS I DO, NOT AS I SAY"

Despite all the pumping of Vivus and Orexigen, and all the bashing of Arena, institutions have been quietly accumulating ARNA more than they have either VVUS or OREX. Wall Street’s motto should be “Do As I Do, Not As I Say”. I'd rather do as Jack Lief, President and CEO of Arena has done: not sell a single share since co-founding the company.

Dig Deeper

When it comes to do-or-die businesses, the biotech industry takes the cake. Arena Pharmaceuticals is one recent success story in the industry after gaining FDA approval for its innovative obesity drug. While the future looks bright for Arena, there are still plenty of obstacles ahead. In The Fool’s brand new premium research report on Arena Pharmaceuticals, they walk investors through the must know opportunities and threats facing the company. Since key news can develop quickly, they're also including a full year of updates for those who sign up. Click here now to learn more.


The views expressed above are only opinions and are NOT investment advice and are NOT medical advice. Please always do your own research. I am long ARNA and have no positions in the other stocks mentioned above. To find out more about my interests please visit www.rezamusic.com . If you like to join my private mailing list send an email to (info -- at -- rezamusic -- dot -- com).

The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure