3 Drug Companies That Want to Lose
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There are three pharmaceutical companies that have achieved over 200% increases this year but are hoping to encourage losses. No, it’s not a riddle: Arena (NASDAQ: ARNA), Vivus (NASDAQ: VVUS), and Orexigen Therapeutics (NASDAQ: OREX) are all competing in the reemerging obesity drug market.
Investors are optimistic about this new batch of drugs. ARNA’s Belviq, which received FDA approval in June, was the first long-term weight loss treatment approved in over a decade. VVUS’ Qsymia received approval rights on Belviq’s heels. Investor optimism is still cautious because this new wave of medications follows notorious pharmacological disasters, such as Meridia, the weight loss pill from Abbott Labs that was pulled from the market in 2010 due to cardiac event risks.
ARNA and VVUS have already approved drugs that should hit the market later this year or in early 2013. OREX has two weight loss medications (the Phase III Contrave and Phase II Empatic) that won’t begin to hit the market until 2014, at the earliest. Yet OREX is often mentioned in the same breath as the other two companies.
That’s because the first one out of the gate won’t necessarily be the winner. The already approved medications include prescribing information that advises patients to move on to another form of treatment if a certain weight loss percentage hasn’t been achieved within 12 weeks. If Belviq makes it to the market more than two months before Qsymia (or vice versa), a segment of patients that aren’t seeing proper results could be ready to move on to the next medication. Patients would have more than enough time to unsuccessfully try both medications well before OREX’s Contrave became available.
Of the two drugs already approved, Qsymia proved to have greater efficacy in clinical trials. But the drug also carries a pregnancy restriction that forces women who could be pregnant (read: are menstruating and sexually active) have to undergo a pregnancy test prior to Qsymia dosage and continue pregnancy tests monthly while treatment is active. That requirement may convince some women to avoid Qsymia in favor of Belviq.
Sizing Up the Bottom Lines
ARNA is currently sitting with the best financial position considering it counts Eisai Co. as its distribution partner. The company recently reported its second quarter with revenues of $21.98 million, up from $3.26 million year-over-year and besting analyst estimates of $10.04 million. That boost was partially due to a payment from Eisai related to Belviq. Revenues had fallen consecutively for the prior three quarters. Net losses amounted to $22.1 million ($0.12 per share), lower than the $22.9 million ($0.16 per share) from the prior year.
VVUS doesn’t have a big pharma partner for Qsymia, aligning instead with mail order and sales organizations, and reported no revenues in its own recently reported quarter, due to not having any current drugs on the market. It does have soaring general expenses thanks to the drug’s pre-launch, amounting to $15.4 million, up a mighty 190%. Cash, and cash equivalents (CCE) stand at $310.4 million, compared to the $333.4 million at the end of the first quarter. Net losses were wider at $24.0 million ($0.24 per share) than the $16.2 million ($0.20 per share) from the prior year. Analysts had predicted losses of $0.23 per share.
OREX still has full rights to Empatic but has teamed with Takeda Pharmaceuticals for Contrave marketing. Second quarter revenues were $857,000, compared to analyst predictions of $900,000, and flat year-over-year. Losses were $16.7 million ($0.25 per share) compared to $7.6 million ($0.16 per share) from the prior year. Operating expenses were $17.6 million, up from $8.3 million year-over-year due to the research and development costs associated with the FDA-required cardiovascular outcome trial for Contrave. CCE stood at $126.2 million.
Future Revenues
The potential revenues for the companies depend on the efficacy of the drugs and the pricing. The official prices haven’t been announced but ARNA CEO Jack Lief told CNBC that Belviq would cost about as much as a venti latte in a New York Starbucks. Using $4 as the “latte in NY” price, that would amount to $8 a day, $240 a month, and nearly $3,000 per year for Belviq treatment. Vivus president Peter Tam suggested that Qsymia would cost about the same as a diabetes pill, which the New York Times pegged at about $6 per pill.
The companies share a pricing issue in that insurance companies will likely take some time in deciding whether these new drugs will be covered. Drawing in a wide audience without insurance coverage may require customer discount programs to be implemented.
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