DEA Recommendation Provides Positive Momentum for Belviq

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

Arena's (NASDAQ: ARNA) Belviq has become the first effective, safe and non-addictive obesity drug. According to a report from the Drug Enforcement Administration (DEA), Belviq should be classified as a Schedule IV drug, which means it has a low risk for abuse. The DEA's drug classification is required before a drug can be sold. This is great news for obese people who want easy access to Belviq. This is also great news for investors who want to see the commercial success of Belviq. 

Arena's February 2013 commercial launch of Belviq is around the corner. Its partner Eisai is moving aggressively to prepare for its own role. The schedule IV classification allows physicians to prescribe Belviq to patients through local pharmacies for a three-month supply. Eisai argued that exceptional circumstances exist related to the obesity epidemic, and that a final order should be granted at the end of the notice period (Jan. 18). This final order will likely be granted, and Belviq will likely be available in local pharmacies in the first week of February 2013. Eisai already has a sales force in place which will market to physicians and educate them about this revolutionary weight management treatment.

Eisai has confirmed that Belviq is being loaded into drug store databases at major pharmacies in preparation for distribution. Major group and individual health insurance plans have already begun to cover Belviq, with Aetna and Blue Cross also planning coverage. Arena's CEO Jack Lief has hinted that Belviq will be priced under $4 a day for the two-pill daily dose. European approval is expected in early 2013. Arena has not yet finalized a partner in Europe as it will be in a better position to negotiate after this approval has been received. 

Competition

Vivus' (NASDAQ: VVUS) Qsymia, which is the major competitor, is the first anti-obesity drug to be approved in over 13 years. But Vivus had to accept Risk Evaluation and Mitigation Strategies (REMS) to gain FDA approval, which makes it very difficult to sell the drug. REMS limits the use of Qsymia to patients outside their reproductive years (women under age 16, above age 45), which is a major consumer target segment.

In addition to the REMS limits on the use of Qsymia, Vivus has still not solved the problem of increased risk for conditions such as birth defects and blood pressure. Sales have been weak because of this problem and the skepticism of the insurance companies about this treatment. Analysts expect sales of around $25 million for the fourth quarter of 2012, but have reduced forecasts for 2013 from $200 million to around $80 million.

Orexigen Therapeutics' (NASDAQ: OREX) obesity drug, Contrave, is at least one year away from going back to the FDA for approval. Like Qsymia, during clinical trials, Contrave had adverse effects on heart rates and blood pressure, which increase the likelihood of heart attacks, strokes, and other cardiovascular problems. Despite these findings, the FDA concluded that the trials were too short and the sample size was too small to provide definitive conclusions. The FDA has ordered Orexigen to conduct a long term, large scale study to resolve the problem. Contrave is not going to provide competition for the next few years in the obesity drug market. This leaves Belviq as the last major contender in the potentially huge anti-obesity treatment business.

Conclusion

The market is underestimating the potential of Arena and Eisai to make Belviq a commercial success. Arena is currently trading around $9, which is well below its 52-week high of $13.50. Arena has plenty of cash ($165.77 million) and no debt, as well as well as a strong partner in Eisai.

Belviq has not yet been tested in combination with other drugs such as phentermine. Arena can now quickly investigate the possibility of additional weight loss benefits when combined with other drugs. If any combination improves effectiveness, it would extend Arena's patent for at least another 10 years while adding commercial value.

Arena can try new Belviq combinations without the immediate pressure of competition. European approval will act as an immediate price catalyst in early 2013. Investors looking for exposure in the biotech space should consider buying Arena Pharmaceuticals. 


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