Qnexa has Brighter Prospects than Contrave, Lorcaserin
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
(Author's Note: This article contained outdated share price information. It has been corrected.)
Vivus' (NASDAQ: VVUS) Qnexa is squarely aimed at the rising obesity rate in both the US and Europe. With an estimated 149 million people in the U.S. overweight or obese, there is no question this is an underserved market for a drug. The international market possibilities stand at an equally impressive number, with 50% of the population in Europe alone currently estimated to be overweight. This translates into a potential target market in the tens of millions. Based on health, body mass and financial characteristics, likely one-third of the 149 million, or approximately 50 million obese people would be good candidates for the drug in the U.S. alone.
Vivus announced the successful clinical trial data last winter, subsequently submitting it for the next step in the FDA approval process. The FDA Panel review for recommendation yielded a 20-2 vote in favor of the drug. The stock price has responded reasonably well. After the announcement of the successful clinical trials, it rose to the $10 to $11 per share range, which is in line with the usual 13% to 27% movement reported in studies on the impact of a successful clinical trial on stock prices.
The Lingering Effects of Fen-Phen
While health related food, programs and theories have given rise to any number of highly profitable, short and long term fads, "diet drugs" come with a murky history and an "approach with caution" sign for investors.
These are prescription drugs. They require FDA approval and acceptance by the physician community. It has been 13 years since a "diet drug" was approved by the FDA. The last one was Xenical, manufactured by GlaxoSmithKline (NYSE: GSK) under the trademark name ALI in the USA, and by Roche for the International market. However, it's seen as being part of a very low-calorie diet coupled with a closely monitored health regimen. It's not nearly as appealing as the much easier, and "yet-just-as-effective", implied promise by the current generation of diet drug hopefuls.
The reason for the 13 year gap in the approval of a diet drug, as well as the caution on the part of investors in Qnexa, is due to one of the chemical components actually being used in Qnexa. It's the powerful appetite suppressant, phentermine, also present in the well-publicized, diet drug more commonly known as Fen-Phen. Never receiving official FDA approval as a combined drug, Fen-Phen was prescribed as an "off label" use for weight control, and created a storm of controversy when it was linked to major heart valve problems in patients. The FDA requested that its manufacturer, American Home Products, first acquired by Wyeth and then integrated into Pfizer (NYSE: PFE), voluntarily remove it from the market in September of 1997. Over 6 million people took Fen-Phen, which indicates the strength of the potential market. The downside of rushing to get on the bandwagon and invest: the estimated cost to Wyeth to settle the Fen-Phen claims was $21 billion.
While the "Phen" (phentermine) component in Fen-Phen was not identified as the culprit of the heart valve problem in patients, it was not exonerated either. Both the FDA and the physician community have long memories, and the investment market remained cautious.
Qnexa Receives FDA Panel Recommendation, But Full Vote is Delayed
Even with the clinical hesitation over another disastrous, diet drug, when the FDA Panel met in February, 2012, it recommended Qnexa for approval to the full, FDA Board. With that decision by the FDA Panel, the stock jumped 98% to the $20 per share range, and is now hovering at $24 per share. With a major indication of full FDA approval, the investment community reacted accordingly. The final approval vote from the FDA has been delayed until next month, as it has requested additional data by Vivus, specifically aimed at heart studies. Given the history of the FDA and diet drugs, this is not surprising.
Two Competing Drugs to Qnexa
Two competitors are hot on the heels of Qnexa. Contrave, also aimed at obesity and diabetes, is manufactured by Orexigen Therapeutics(NASDAQ: OREX) and Lorcaserin, with the same target market, is the drug being developed by Arena Pharmaceuticals (NASDAQ: ARNA). Currently, neither drug has FDA, approval. Lorcaserin received a vote of 18-4 from its panel in favor of approval.
Lorcaserin will be the next diet drug application in front of the FDA for approval. Right now, the company's stock is $9.36 per share.
In the meantime, it's battling an image issue after TheStreet's Adam Feuerstein called Lorcaserin a "placebo," which triggered a class action lawsuit by a group of investors. This highlights the dangers of those whom are likely not knowledgeable about the science behind these drugs and their ability to comment on them.
While Contrave must seek new FDA approval for the domestic market, portions of the overseas market might not be as robust for the combined drug because of specific approval-related rules. There are areas of the international market that will allow a generic of the combination of two, previously approved drugs. That instant generic competition has the potential of dampening the overseas sales of Contrave. Right now, likely the best bet for a breakout drug in the diet pill market is Vivus' Qnexa.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline and Pfizer. 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.