Obesity Drug Competition at Last

We're finally going to get to put some numbers behind the obesity drug competition, with Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS (NASDAQ: VVUS  ) set to release second quarter earnings in the coming weeks.

A long time coming
VIVUS launched its obesity drug, Qsymia, back in September, but Arena -- despite having been approved first -- had to wait for the Drug Enforcement Agency to make a ruling about the potential abusiveness of its obesity drug, Belviq, before it could hit the pharmacy shelves.

It's a good thing they didn't launch at the same time because it wouldn't have been a fair fight since Qsymia had to be sold through mail-order pharmacies when it was launched. The FDA has since signed off on selling the drug though retail pharmacies, facilitating an increase in sales.

What to look for
Arena is scheduled to release earnings first on Thursday. The launch, facilitated by Arena's marketing partner Eisai, has slightly exceeded where Qsymia was at the same timepoint, but that's based on prescription data. It's hard to guess exactly how much Belviq Eisai is giving away through free samples to get patients to take the drug.

VIVUS hasn't scheduled a date for its earnings report, understandably since the company has been distracted by a proxy fight that resulted in a new CEO. When it does finally release earnings, don't expect any major changes. Qsymia became available in retail pharmacies in July, so there won't be any sales spike in the second quarter from the increased availability.

Instead, investors should keep a keen ear on what management says about how July progressed. Weekly prescription data makes it look like the increased availability is having a solid effect on the increased sales, but we'll have to see how that translated into higher sales.

Expectations in check
While both drugs have blockbuster potential, neither Belviq nor Qsymia is anywhere close to hitting the magic $1 billion level. VIVUS sold $4.1 million worth of Qsymia in the first quarter. Second-quarter sales will be higher, but even if they triple, it wouldn't be anything to get excited about.

Since Belviq didn't launch until June, there will only be one month's worth of sales in the second-quarter statement. Arena will have higher revenue this quarter and could even be profitable, but that's because of milestone payments that Eisai had to pay when the drug launched.

If you're going to buy Arena, VIVUS, or even Orexigen (NASDAQ: OREX  ) , which hasn't even gotten its obesity drug Contrave approved yet, you've got to be in it for the long term. With market caps around $1.5 billion, there's room to go a lot higher if they can reach their full potential. And Orexigen is even cheaper, although you're taking on additional risk because it still has to pass its safety trial and get FDA approval.

But it's going to take more than a quarter, or even a year, for any of the drugs to get to blockbuster status. Investors should focus on the companies' plans for growth rather than paltry second-quarter sales.

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Comments from our Foolish Readers

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  • Report this Comment On July 31, 2013, at 3:36 PM, marp11 wrote:

    no wonder youre called fools

    arna gets paid from eisai FULL PRICE,,no matter what eisai 'gives' away,,your research and bias is a joke,,,tell your masters,,,its over ARNA/BELVIQ is going to be more then a blockbuster,its going to be revolutionary to treat T2 DIABETES SMOKING DRINKING ASTHMA PAIN ECT ECT

  • Report this Comment On July 31, 2013, at 3:37 PM, marp11 wrote:

    AND WHO IS IN A RUSH TO MAKE HUGE RETURNS?? NOT ME ARNA 2 YEARS $100 PLUS

  • Report this Comment On July 31, 2013, at 4:14 PM, KELLERENCE wrote:

    Brian, how come you did not address the REMS that VVUS is still up against and the money that it is going to cost VVUS?

    Let be also known that VVUS Qysmia must be taken with birth control, or the result will be CLEFT LIP on the baby.

    BelviQ from ARNA does not have either problem.

    Your MF articles are quickly written and about useless.

  • Report this Comment On July 31, 2013, at 4:34 PM, GAZOKY3 wrote:

    "It's a good thing they didn't launch at the same time"...

    What a big face, Brian

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