2 Biotech Approval Outcomes That Might Affect You

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

An FDA approval is the Holy Grail for biotechnology companies and their investors – but a successful launch is the most momentous in producing long-term gains. Thus, I am looking at two companies, both of which I expect to produce FDA approvals, but just one drug to create success in the open market.

Possible approval, but not commercially successful

MannKind Corporation (NASDAQ: MNKD) saw gains of more than 220% in 2013, but on Tuesday the stock opened lower with losses of 20%. If you’ve been a biotechnology investor for any period of time, then you know that this kind of volatility is an indication that data is just around the corner.

On Monday, MannKind announced that its Phase 3 trial for Affrezza, treatment for Type 1 and 2 diabetes, is complete. In regards to the product, there’s not much to report. It is insulin, but inhaled. The FDA has already denied it twice, but because MannKind has been given proper recommendations from the FDA, in trial design, I feel pretty confident that it will be approved.

Unfortunately, I don’t have any mind boggling data to present because this product is simply inhaled insulin. The trial has to prove that its insulin is better than other forms by using its delivery technology. Investors are encouraged because it has shown improved glycemic control and that it could target early stage Type 2 diabetes. This fact is the basis for the FDA approval, or why it most likely will be approved.

If approved, I don’t think MannKind can compete with the millions spent by Eli Lilly and Novo Nordisk on brand awareness. MannKind has debt of $330 million and an accumulated deficit of $2.1 billion. Thus, I don’t think it can compete even if approved in a highly competitive and highly crowded market. Therefore, I think its market cap of $2 billion is too high, and that it will eventually trade like Amarin Corporation following its launch as sales disappoint expectations.

The most successful in a promising industry

Orexigen Therapeutics’ (NASDAQ: OREX) weight loss drug Contrave was denied by the FDA back in 2011, and the company was ordered to complete a cardiovascular outcome study. The reason was because of questions regarding Contrave’s impact on the heart.

Once 87 major adverse cardiovascular events have been recorded, interim analysis will be conducted. If there are no heart issues, Contrave will be resubmitted to the FDA for a second look. This is expected to occur within the next five months.

The market for weight loss drugs has not been terrific so far. Both Arena Pharmaceuticals (NASDAQ: ARNA) and Vivus (NASDAQ: VVUS) have seen heavy stock losses as Belviq’s effectiveness comes into question and Qsymia’s safety is questioned. Contrave could be the best of both drugs, as it both reduces appetite and increases the metabolism with its active compounds, naltrexone SR (sustained release) and bupropion SR.

Arena Pharmaceuticals’ drug Belviq was the subject of criticism last week as Consumer Reports advised potential patients to “diet and exercise” rather than use the drug to lose weight. Over a year’s time, Belviq produces weight loss of just over 3% of body weight. To many, this is not effective, and combined with a partnership that only returns the company 30% of total sales and a $1.6 billion market cap, Arena looks pricey.

Vivus has been unable to pick up steam with Qsymia. It is a more effective drug, producing about 9% weight loss annually. However, the FDA has been extremely careful with its scheduling, as Vivus can not directly market the drug and most sales are from mail-order pharmacies.

Orexigen’s Contrave could be the winner by default, as it produces weight loss that is somewhere in the middle of Belviq and Qsymia, minus any adverse health risks (pending the cardiovascular study). Analysts expect revenue to reach $1 billion globally, which is considerably more than the revised expectations for either Arena or Vivus’ weight loss products. Considering that Orexigen is trading with a market cap of just $600 million, I find it highly likely that, with more promise, it could trade substantially higher following a successful study, as both Arena and Vivus trade with market caps above $1 billion with approved products.

Conclusion

I think that both MannKind and Orexigen have a legitimate chance of eventually producing FDA approved products. Both companies have already been through the FDA process in the past, but look more prepared for upcoming meetings.

I would like to see MannKind’s Affrezza be successful in the market – but, unfortunately, I think the competition is too stiff and that MannKind does not have the financial flexibility to market its product. Orexigen’s Contrave looks to have the strengths of both Belviq and Qsymia, without the weaknesses. Thus, I believe it could be the blockbuster that we’ve waited for in the weight loss industry.

Can VIVUS pick up its lagging sales and fend off the competition, or will Arena Pharmaceuticals reign supreme in the obesity space? If you're in the dark, grab copies of The Motley Fool's premium research reports on VIVUS and Arena Pharmaceuticals to stay up to date. Senior biotech analyst Brian Orelli gives investors the must-know information, including an in-depth look at the obesity market and reasons to buy and sell both stocks. Click now for an exclusive look at Arena and VIVUS -- complete with a full year of free updates -- today.


Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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