Pharmas Hope to Grow Fat With Obesity Drugs

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Pharmaceutical companies have had some recent lean years thanks to the patent cliff and other factors. But some pharma companies hope to grow fat with profits again soon. 

Their plan to do that? Jumping on the growing global trend of obesity. Pharmaceutical firms believe consumers are moving away from fad diets and look forward to a surge in sales from prescription medicines that promise to help consumers lose weight. 

In the United States alone, there is a need for something that can tackle the nation's problem with its citizens being overweight. According to the Centers for Disease Control and Prevention (CDC), more than two thirds of Americans are overweight and more than one third – 78 million U.S. adults – are considered to be obese. That percentage is forecast to climb to 42 percent by 2030. 

A study last year indicated that obesity accounts for $190 billion in annual medical costs, which is quite a burden on the U.S. healthcare system. The CDC estimate is that obesity costs the U.S. economy $147 billion annually in medical expenses.

Companies Looking to Fatten Up

Several drug companies are moving forward in the battle against Americans' expanding waistlines. One company, Vivus (NASDAQ: VVUS), launched its weight loss drug Qsymia last autumn. The company's president, Peter Tam, told the Financial Times “It's been a very challenged category, but there is a feeling we have to do something about obesity with the realization that it is a medical epidemic.” 

The last diet drug approved – Xenical from Switzerland's Roche Holding AG (NASDAQOTH: RHHBY) – was approved in 1999. The FDA has held to a very high standard for diet drug approvals since the withdrawal of “fen-phen” in 1997. That drug, created by Wyeth, was found to cause heart valve problems. This caused Wyeth, now part of Pfizer, to set aside reserves of $21 billion for legal bills and payments from lawsuits.  

But now apparently, the FDA agrees with Mr. Tam and is moving forward. Last year, it also approved another diet drug, Belviq, which will be launched very soon by Arena Pharmaceuticals (NASDAQ: ARNA). Arena's partner on Belviq is Japanese pharmaceutical company Eisai. 

A third company, Orexigen Therapeutics (NASDAQ: OREX), is preparing to submit its Contrave diet drug for FDA approval again after previous rejections. It also has a Japanese partner, Takeda Pharmaceutical 

But investors shouldn't worry about the prior FDA rejections. Qsymia and Belviq were also rejected by the FDA before receiving approval. Senior biotech analyst with Cowen, Simos Simeonidis, told the Financial Times “There has been a very significant and rather sudden shift in the views of the regulator (FDA) over the past year.”

Lingering Problems

The changing of the FDA's hard stance against diet drugs is good news for these companies. But several problems still remain. 

One is the limited effectiveness of these diet drugs. The weight loss impact of Qysmia and Belviq was found to be 10% and 6% respectively. Those results were under ideal conditions with tight medical supervision too. 

The second problem is bigger – the risk of side effects. Diet drugs have had history of unwanted side effects with fen-phen being the worst example. 

The current generation of diet drugs also has side effects. Roche's Xenical is also only moderately effective while producing unwanted side effects like oily stools. It is now sold over-the-counter as Alli by GSK, which has been trying to unload it for months now. But no buyers have stepped forward. 

Qysmia can cause birth defects. So Vivus had to agree to a tight monitoring program with the FDA in order to gain approval. 

But the more widespread the use of Qysmia and other diet drugs becomes (with usage perhaps not so closely monitored by physicians), the door opens wider for misuse of the drugs. Consumers may not only become disappointed by results, but litigious if side effects become apparent. 

That is likely one major factor keeping the stock price of company like Vivus near its 52-week low despite the approval from the FDA. 


tdalmoe 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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