Merck Can't Fight the Munchies

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After lackluster results in a phase 3 trial, Merck (NYSE: MRK) has decided that it's just not very high on its anti-obesity compound anymore.

The drug, taranabant, inhibits the cannabinoid receptors in the brain. Stimulating those receptors -- by smoking marijuana, for instance -- gives you the munchies, but blocking them does just the opposite: You lose your desire to eat. Great theory, but, like Sanofi-Aventis' (NYSE: SNY) Acomplia/Zimulti, the drug also caused psychiatric problems, including anxiety and depression, especially at the higher dose, which helped patients shed more pounds. So Merck is pulling the plug on taranabant.

Obesity treatments are in a potentially lucrative market, but given the high risks -- witness Wyeth's (NYSE: WYE) Fen-phen -- pharmaceutical companies seem to be running scared. Just this week, Pfizer (NYSE: PFE) decided to ditch any further plans to develop drugs that treat obesity.

So who's left? Abbott Laboratories' (NYSE: ABT) sells a prescription drug called Meridia, but it's never been much of a hot seller, presumably because patients in clinical trials were able to shed just 10-15 pounds more than patients not taking the drug. GlaxoSmithKline (NYSE: GSK) sells a drug called alli over the counter, but it hasn't really taken off -- it managed just $36 million in sales last quarter. I wonder whether the potential side effects like "gas with oily spotting" -- eww! -- might have something to do with the lackluster sales.

There's huge potential for a company to come in and take over the market with an effective drug that has few side effects. Arena's (Nasdaq: ARNA) Lorcaserin and VIVUS' Qnexa are the front runners, with both drugs in phase 3 trials right now. The companies' small market caps tell the story, though: Investors are just as worried about obesity drugs being successful as big pharma is.

Bottom line? Tread lightly, Fools. It doesn't get much more high risk/high reward than obesity-drug development.

More Foolishness on potentially lucrative markets:

• The gaming industry usually does well in hard times.
• Health care looks good -- we're not getting any younger, you know.
• You can still make money in a bear market.