Should You Buy Into the Anti-Obesity Drug Craze?
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The American Journal of Preventive Medicine thinks that by 2030, 42 percent of U.S. adults could be obese, which would add approximately $550 billion to healthcare costs. The Centers for Disease Control and Prevention (CDC) earlier this year reported that 35.7 percent of U.S. adults and 16.9 percent of children (age 2 to 19) are obese. Two anti-obesity drugs were approved by the FDA in 2012 -- Belviq from Arena Pharmaceuticals (NASDAQ: ARNA) and Qsymia from Vivus (NASDAQ: VVUS).
Arena's earlier-stage programs included APD811, an internally discovered, orally available agonist of the prostacyclin receptor intended for the treatment of pulmonary arterial hypertension. Belviq (lorcaserin HCl), Arena's internally discovered anti-obesity drug, was approved by the U.S. Food and Drug Administration in June 2012, and is under review for regulatory approval in additional territories. Belviq is believed to decrease food consumption and promote satiety by selectively activating serotonin 2C receptors in the brain. Activation of these receptors may mean that a person eats less but feels full after eating smaller quantities of food.
The FDA has asked Arena to conduct six post-market follow up studies, including a long-term study of whether Belviq increases risks of stroke and heart valve problems. Their caution is understandable because an anti-obesity drug works on the manipulation of pathways that control body weight and this can have long-term effects on cardiovascular health as well as other metabolic systems. This means that drug developers have to set high standards with regard to the safety of such drugs. According to some experts, Belviq is likely to have problems with approval by EMA's Committee for Medicinal Products for Human Use in the near future because they are not going to blindly follow the lead of the FDA. The company has disclosed that the EMA was also concerned with the drop in the rate of studies and coagulopathy (clotting disorder and bleeding disorder) as well.
Arena's future is riding on the success of Belviq and clearly, there is a lot to be done, even after the receipt of FDA approval, to attain commercial success. The anti-obesity treatment market is huge, and there is plenty of room for two other even three successful players. Moreover, anti-obesity drugs are not magic pills. They need to be supplemented with a proper program of diet and exercise. I believe that there is no need to rush into an investment in Arena's stock right now. Investors should wait for more concrete indications about the prospects of Belviq before making an investment.
Vivus' Qsymia was the second anti-obesity drug to be approved by the FDA, but the first to hit the market. For the three months ended Sept. 30, 2012, Vivus reported a net loss of $40.4 million, or $0.40 per share, as compared to a loss of $8.6 million, or $0.10 per share, for the same period last year. The increase in net loss is primarily attributable to increased selling, general and administrative expenses related to pre-commercialization and commercialization activities for Qsymia. Analysts had expected Vivus' newly launched weight-loss treatment Qsymia to be a success and, in fact Bloomberg health-care analyst Andrew Berens predicted that the drug could generate as much as $1 billion per year by 2016. However, time has passed since Vivus launched the Qsymia diet pill, and there are few signs showing that the drug will become the blockbuster some had predicted. I would not recommend buying Vivus right now and advise that you should wait until there are more positive indications before considering an investment.
Further down the road, there could be competition from Orexigen's (NASDAQ: OREX) Contrave, which seems to have effects between Belviq and Qsymia, and the side effect profile falls somewhere between the two as well. The FDA delayed the approval of Contrave because concerns about cardio vascular complications and asked for an outcomes trial that measures heart attacks, strokes, and the like. The company has adequate funding, but I recommend that you watch for further developments in the anti-obesity drug market before making a move on this stock.
Roche Holding's (NASDAQOTH: RHHBY) Xenical has been on the market for years, though it has not sold well because of unpleasant side effects from the consumption of fatty foods. However, this is a small part of the company's overall product portfolio, and its success or failure should have little or no effect on the fortunes of the company.
Roche Holding AG reported a 7% increase in sales of its pharmaceutical products for the first nine months of 2012, driven by demand for its cancer drugs. The world's biggest producer of cancer-fighting drugs said its pharmaceutical division's sales over the three quarters rose to $28.08 billion. The company has seen solid growth in its top three cancer drugs - MabThera/Rituxan, Herceptin and Avastin, which account for 52% of the division's sales.
Roche benefits from having strong sellers whose patents will not expire soon, unlike many of its major competitors with patent cliff problems seeking the next blockbuster Roche also said the strong growth in the third quarter was helped by the launch of its new breast cancer medicine, Perjeta, in the United States and Europe while it benefited by the weakening of the Swiss franc against the dollar and yen.
Roche is one of the few pharmaceutical majors which is posting sales growth and should be very high up on your list of healthcare stocks in which to invest.
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