The Paradox of Obesity Drugs

Investors in the current generation of anti-obesity drugs have a seeming paradox on their hands. Namely, the potential market for these drugs is supposed to be more than 100 million people in the United States alone, but sales of both Arena Pharmaceuticals' (NASDAQ: ARNA  ) and VIVUS' Qsymia (NASDAQ: VVUS  ) are miles away from even cracking the top 100 selling drugs.

Specifically, Arena's Belviq had net sales of $5.4 million in the third quarter, whereas VIVUS' Qsymia only earned $11.1 million in revenue. To put these numbers into context, the worst selling drug on the top 100 list, Shire's Adderall, saw sales topping $170 million in the third quarter. Qsymia sales would thus need to grow an astounding 1,500% from current levels to even scratch the bottom of this list.

Although it's still way too early for investors to panic over these tepid sales numbers, the mismatch between the potential market size and market penetration is certainly notable. In theory, the global obesity market is so big that it should be able to support multiple blockbuster drugs. So, what gives?

Why are obesity drugs not selling like hotcakes?
The answer to this question seems to be getting more doctors comfortable prescribing medication for the treatment of obesity. A common theme ran through the recent earnings calls among Arena, Orexigen Therapeutics (NASDAQ: OREX  ) , and VIVUS. In particular, all three companies stated that they believe that educating doctors about the rewards compared to the potential risks of their drugs are key to improving sales. But that's not all. Educating insurance companies about the importance of providing coverage for obesity is also a major hurdle in the marketplace.

Not surprisingly, all three companies are mounting education campaigns to deal with this issue. For instance, Arena's marketing partner Eisai is doubling the number of pharma reps and pushing out new high profile ads, and Orexigen's partner Takeda Pharmaceutical is committing significant resources to education programs upon the potential launch of Contrave next year.

According to Orexigen's President Michael Narachi, the obesity market is in "desperate need of development," and his sentiment seems to be shared among all three companies. Indeed, VIVUS is currently seeking a marketing partner for Qsymia that can bolster the company's own education and marketing efforts.

Why is education key to improving sales?
Again, the answer is simple. Anti-obesity medications have had a mixed record on the market. Fen-phen, Ephedrine, and Merida were all pulled from the marketplace because of adverse cardiovascular events that emerged soon after their commercial launches. And Sanofi's Acomplia didn't even remain on the European market two years before being pulled because of dangerous psychological effects. In other words, doctors view the risks of anti-obesity meds as outweighing their potential rewards.

The path forward is becoming clear. Each of these drugmakers must work on changing this common perception, if they are to unlock the massive potential of the obesity market.

Is having 3 obesity medications on the market a bad thing?
Normally, it would be a bad thing to have three new drugs for a single indication hit the marketplace within two years of each other. Obesity medications are a different story, however.

Because of the significant education effort required to change the perception of anti-obesity meds in general, three companies working independently could create an important synergy in the marketplace. Backing this claim, Arena's CEO Jack Lief and Orexigen's President Michael Narachi said as much in their recent earnings calls.

Oddly enough, Orexigen is in some ways in an enviable position by being behind Arena and VIVUS in launching an anti-obesity drug. By being two years behind its competitors, Orexigen has allowed Arena and VIVUS to do all of the heavy lifting in terms of altering the obesity med paradigm. To take advantage of their position, Orexigen and marketing partner Takeda are planning on rolling out a dramatically higher level of marketing resources than their competitors, if Contrave is indeed approved in the coming year.

My take is that the longer these obesity meds can stay on the market without major adverse events, the better in terms of their commercial potential. And the potential synergy created by concurrent marketing efforts could go a long way to resolving this paradox.

Investing in the anti-obesity market thus requires patience because this perception problem isn't going to go away overnight. But the wait could pay off in a big way for investors with a long-term outlook.

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  • Report this Comment On November 25, 2013, at 1:45 PM, marp11 wrote:

    try try a little bit harder

    tryyyyy just a little bit harder

    ARNA up 50% in 9 days

    shorts are toast

    you keep tryyyyyying

    just a little bit harder

    call adam call spencer call orelli

    but tryyyyy

  • Report this Comment On November 25, 2013, at 1:48 PM, marp11 wrote:

    orex needs secondary pronto no money

    vvus out of money

    ARNA 268 MILLION IN CASH

    NO DEBT EISAI PAYS ALL MARKETING

    WORLDWIDE PARTNERS

    1.56 BILLION COMING FROM EISAI

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