Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Days after launching its obesity drug Qsymia in the U.S. last September, VIVUS (NASDAQ: VVUS ) revealed that the Committee for Medicinal Products for Human Use (CHMP) -- which essentially approves or denies drugs in the EU, much like the FDA in the U.S. -- wouldn't be giving its drug the green light. The official rejection that followed indicated that the regulatory agency had concerns over the drug's long-term risks on the cardiovascular and central nervous systems.
This evening, a VIVUS press release stated that the company's appeal for approval based on existing clinical trial data was also denied by the CHMP. It looks like Qsymia, which VIVUS aims to brand Qsiva in the EU, will need to be tested in a cardiovascular outcomes study before VIVUS can reapply. These trials can be both lengthy and costly, so we'll have to see how the company decides to proceed.
You say potato, I say potato...
If Qsymia was approved by the FDA, why doesn't it also win approval in Europe?
We can actually look at another drugmaker, Novo Nordisk (NYSE: NVO ) , to shed some light on this complex process. Novo's new diabetes drug Tresiba was actually approved in the EU and Japan, but rejected by the FDA last week. Why? Well, according to Novo Nordisk's press release "the FDA requests additional cardiovascular data from a dedicated cardiovascular outcomes trial" before the company can try to gain approval again.
This bizarre parallel to VIVUS' situation underscores an important lesson for biotech investors: An approval or rejection by the FDA doesn't always translate across the pond, because each organization has unique criteria and review processes. The FDA may believe that the benefits of a drug outweigh the risks, while the CHMP may take the opposite point of view.
What will the market think?
This is a very tough call to make. According to Yahoo! Finance, shares are down almost 3% in after-hours trading, but considering that VIVUS' stock tumbled a hefty 20% back in September when the company first revealed that an EU rejection was on the cards, I would wager that this decision is already baked into price.
VIVUS' chief competitor, Arena Pharmaceuticals (NASDAQ: ARNA ) , is also trying to persuade the CHMP that its obesity drug merits approval. The company's therapeutic Belviq is still under review, but Arena will have to respond to a list of outstanding questions that relate to the drug's risks, and we'll have to wait a few weeks to see whether it can win the much coveted stamp of approval in the EU.
Who will win the obesity drug market?
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.