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Sometimes you need to look at where you've been to understand where you're going. And I believe this is particularly true for investors in obesity drugmakers like Arena Pharmaceuticals, Inc. (NASDAQ: ARNA ) , Orexigen Therapeutics, Inc. (NASDAQ: OREX ) , and VIVUS, Inc. (NASDAQ: VVUS ) .
Unless you have been hiding under a rock, you know there is a lively and ongoing debate about each of these companies' respective obesity medications, in terms of their regulatory and commercial futures. While Arena's Belviq and VIVUS's Qsymia gained approval with the U.S. Food and Drug Administration, or FDA, over a year ago, neither drug has lived up to its billing sales-wise.
Complicating the matter further, Orexigen's Contrave is also widely expected to gain approval in the U.S. next year, and its potential effect on the marketplace is unknown. This third player could help develop the ailing obesity drug market, or it could push out its competitors altogether. Simply put, only time will tell.
Wall Street has nonetheless been resolute in its steadfast belief that none of these current medications have blockbuster potential. And with an estimated 36% of adults in the U.S. now qualifying as potential consumers of these drugs, Wall Street's view has baffled the retail crowd.
To understand Wall Street's outlook, I think it's best to take a deep look at the past and look ahead to the future of obesity medications.
A brief history
You might think Wall Street's downtrodden view of obesity drugs stems from the well-publicized problems associated with fenfluramine, rimonabant, and perhaps even sibutramine. In short, these three drugs all had nasty, and even life-threatening, side-effects that led to their failure. But this view would be incomplete.
The truth is that obesity medications have a history of serious adverse effects that extends well over a hundred years. In 1893, for example, doctors experimented with thyroid pills to treat obesity, resulting in numerous cases of hyperthyroidism. In 1936, the medical community thought amphetamines might do the trick. Although they were excellent at producing weight loss, they turned out to be wildly addictive.
Undeterred, the success of amphetamines at treating obesity beget the so-called Rainbow pill in 1967. The Rainbow pill is a mixture of amphetamines, thyroid hormone, barbiturates, among other naughty ingredients. Although hindsight is 20/20, it's not surprising that the primary side-effect of the Rainbow pill is death.
After the Rainbow pill debacle, doctors avoided pharmaceuticals altogether and started recommending very low-calorie diets for the treatment of obesity. This treatment consisted of consuming between 300 calories to 500 calories per day. And not surprisingly, the unwanted side-effect was, well, death.
The future of obesity medications?
NeuroSearch is a small Danish biopharma developing tesofensine for the treatment of obesity. Tesofensine is an anti-convulsant that exhibited severe weight loss as an unexpected side effect when the drug was being investigated as a treatment for Parkinson's and Alzheimer's diseases. After failing to show much benefit for patients suffering from central nervous system disorders, NeuroSearch decided to explore the drug's potential as a treatment for obesity.
To date, the drug has completed a handful of mid-stage trials with the results being nothing short of impressive. So far, tesofensine appears to have a similar safety profile as the currently approved cadre of obesity medications, yet it produces twice as much placebo-adjusted weight loss than VIVUS's Qsymia. As a refresher, Qsymia produces the highest level of weight loss, whereas Belviq and Contrave are tied for second.
Despite these impressive clinical results, you may never see this drug get approved. Because of the rigorous safety requirements for obesity medications, the pivotal late-stage trials for these drugs tend to have enormous price tags. Such an expensive trial is most likely out of the reach of NeuroSearch's capabilities. So it would be up to a well-funded partner to pick up the development torch.
Foolish final thoughts
With experts predicting that a safe and effective obesity medication could generate sales topping $4 billion a year, nearly every big pharma, from Amgen to Pfizer, has attempted to develop a drug at some point. Nonetheless, the big players have now decided that the regulatory and commercial headaches are simply not worth the effort.
And this is why Wall Street is so overtly negative on the current generation of obesity drugmakers. In short, this sentiment has been fomented by dozens of failed drugs over the last hundred plus years. So while pharma companies may continue to chase the dream of a blockbuster obesity medication, it's far from a certainty that one will come to pass.
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