3 Bio-Pharmaceuticals You Can't Ignore
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The last year has been a stellar one for the biotechnology industry. The industry has easily outperformed the market, with all of its indices, including the Amex Biotechnology Index ETF (FBT), the SPDR S&P Biotech ETF (XBI) and iShares NASDAQ Biotechnology Index (IBB), giving returns of more than 20%. The entire industry is heavily dependent for growth on the approvals of the Food and Drug Administration (FDA). According to research by Bloomberg, this year the authority approved the most number of drug candidates in the last fifteen years. The FDA usually approves around 20-25 drugs every year, but this year an exceptional 39 drugs received the FDA nod.
A number of micro/small-cap bio-pharmaceutical companies have benefited from FDA approvals in the last couple of years, and amongst them are Arena Pharmaceuticals (NASDAQ: ARNA), Amarin (NASDAQ: AMRN) and Vivus (NASDAQ: VVUS). These companies have since seen depreciating stock prices due to their inability to convert promise into actual fundamental value. Despite investor backlash, I believe these stocks are worth following and still hold value for investors.
Amongst the 3 stocks under discussion today, Amarin is the safest and surest bet. The company has received FDA approval for its Triglyceride lowering drug Vascepa, but is still waiting for a decision on its NCE status. This decision has been the primary hindrance to a much anticipated acquisition of the company and has forced the company management to commercialize Vascepa. Amarin looks to upset GlaxoSmithKline’s Lovaza, which generates sales of approximately a billion dollars every year. What makes Vascepa exciting is the fact that unlike Lovaza, Vascepa also decreases LDL levels. The increase in LDL has been one of the primary reason physicians have been somewhat reluctant to prescribe Lovaza. With this restriction removed, the sales potential of Vascepa can be huge.
The large number of FDA approvals also included two obesity control drugs: Qsymia and Belviq. Qsymia has been approved for chronic weight management in addition to reduced calorie diet and exercise. The initial sales data for Qsymia has not been good, but recent reports show that Qsymia has started to gain some momentum. Company disclosures show that Qsymia sales have shown a growth of 68%, and there is a strong expectation that this growth might continue.
Recent research also indicates that use of Qsymia leads to improvements in blood pressure, triglycerides, and cholesterol of obese patients suffering from these issues. This can be another incentive for doctors who have been so far hesitant to prescribe Qsymia due to its after-effects. Despite these setbacks, there is little doubt that Vivus still has a lot of potential, especially considering the obesity epidemic in the United States.
Arena is a much safer bet as compared to Vivus due to less strict safety guidance by FDA. Initially the FDA asked for a DEA review into potential abuse of Belviq, but a recent ruling has put all such concerns to rest. According to the DEA, Belviq has been classified as a schedule IV drug, i.e. having a low risk of abuse. Therefore physicians are allowed to prescribe Belviq for a 3 month period through local pharmacies.
Unlike the dramatic fluctuations in the stock price of its rival Vivus, Arena's stock has fluctuated between $8 and $11 during the last six months. The trial results of Belviq show that it can reduce weight in the range of 10% to 11%, making it ideal for patients who do not want to undertake a lot of risk. It will also be easier for doctors to prescribe Belviq due to its less strict safety guidelines; therefore Arena is the safest obesity bet out there.
SmartEquity 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!