Biotech Showdown: Arena Pharmaceuticals vs. VIVUS Inc.

The obesity-drug space is turning out to be tough sledding for Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS (NASDAQ: VVUS  ) , with both of their respective FDA approved medications failing to meet market expectations in terms of prescription numbers. As a result, shares of Arena are down 39% since Belviq was approved in the U.S., and VIVUS's shares have now fallen 74% since Qsymia gained approval.

Looking ahead, the market should become even more competitive, as Orexigen Therapeutics and Novo Nordisk are both likely to launch their own obesity medications in late 2014. Put simply, investors need to think carefully about how competition may influence market dynamics, and whether the obesity space can support four approved medications.

With this in mind, here is a Foolish look at whether Arena or VIVUS is the better investment vehicle in the obesity drug space.

Breakdown of Arena
On the bright side of things, Arena is reasonably well capitalized, with around $230 million to $240 million in cash on hand. Moreover, the company is developing additional clinical candidates based on its GPCR platform, which was validated, at least partly, by Belviq's approval. Arena has also launched a number of clinical trials to expand Belviq's label for notable indications such as smoking cessation.

Regarding Belviq's current indication, investors can look forward to increased efforts by Arena's marketing partner Eisai (NASDAQOTH: ESALY  ) . Specifically, Eisai has now doubled the number of sales reps to 400, print advertising doubled last January, and a TV ad campaign will be launched soon. Belviq should also see international launches in countries like Brazil and Mexico later this year. Most importantly, Eisai has been successful at increasing patient coverage for Belviq from industry heavyweights like Aetna and CVS Caremark.

On the not-so-sunny side, Belviq is nowhere near Eisai's stated sales goal of $250 million in the first year. In fact, Belviq sales probably won't even hit half of that goal. 

Breakdown of VIVUS
VIVUS is in decent financial shape, with about $143 million in cash on hand. Yet investors should keep in mind that the company does have a $200 million in securities available for sale agreement in place, which is both good and bad. Namely, VIVUS has enough money and securities available for sale to keep the company afloat for an extended period, but the sale of such a large number of shares will put continued pressure on the company's share price.

Script trends for Qsymia have seen a slow uptick year over year, but the launch has been anemic, to put it mildly. Qsymia will probably not even break $50 million in sales this year, and even more disconcerting is that the instability in upper management has given analysts the impression that the company doesn't have a clearly defined marketing plan in place.

Contrasting this view, VIVUS's new CEO, Seth Fisher, recently gave investors some guidance by stating that a major focus this year will be gaining Medicare Part D coverage for Qsymia. His belief is that if Medicare Part D starts covering obesity medications, it could trigger broader insurance coverage in general.

Turning to VIVUS's other assets, the company has an approved erectile dysfunction drug called Stendra (avanafil is its generic name), but its commercial performance hasn't been material to the investing thesis so far. Newly signed marketing agreements with Auxilium Pharmaceuticals and Sanofi may change this situation, but a lot of work needs to be done before avanafil will gain significant market share. Finally, VIVUS doesn't have much in the way of a clinical pipeline, giving Arena the clear edge on that front. 

Foolish takeaway
A side-by-side comparison of Arena and VIVUS highlights some of the stark contrasts between the two companies. Arena is clearly more than just its flagship obesity drug Belviq, and it's been able to hold off dilutive funding by partnering. By contrast, VIVUS has had major instability in upper management since launching Qsymia, and dilution appears to be very likely.

The saving grace for VIVUS going forward might be the drug's superior efficacy, but this may not matter if VIVUS doesn't find a partner soon. With two new drugs likely to hit the market later this year, VIVUS might find itself too far behind in the commercialization game to catch up.

So, as things stand now, I think the decisive winner in this biotech showdown is Arena. 

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Read/Post Comments (11) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 20, 2014, at 8:43 PM, JustPassinThru wrote:

    Yet another slanted hit-article on Arena and Belviq. Belviq's sales have been rising approximately 10% week on week! Hardly "tough sledding". And yes, Vivus' product, a recombination of two generic drugs already available, is failing (as expected). Orex's product is also an attempt to market two drugs already available generically, and if approved (most likely also with a restrictive REMS) will make little impact in the market that Arena is steadily, patiently conquering. Jack Lief and his outstanding management team keep surprising the market with surprise announcements of international partnerships and marketing deals, new drug patents (almost weekly), and they ARE well funded with few operating expenses. Not too late for savvy investors to get shares that are expected to rise 10x within the next two years (at least). Arena is a rarity: the ship has left the dock and picking up steam, but it is still possible to get a seat on the sun deck! Cheers!

  • Report this Comment On February 21, 2014, at 10:21 AM, marp11 wrote:

    arna belviq eisai $50--$100 IN 12-18 MONTHS

    eom

  • Report this Comment On February 21, 2014, at 10:22 AM, marp11 wrote:

    motley fools i cant say it better fools

  • Report this Comment On February 21, 2014, at 10:22 AM, marp11 wrote:

    lets not forget the 66 MIILION SHORTS SHARES THAT MADE THE WRONG BET.

    they cannot cover

  • Report this Comment On February 21, 2014, at 10:35 AM, bmc007 wrote:

    Is this the turning point - when MF starts writing something that could be considered relatively positive about ARNA? Never thought I'd see the day.

  • Report this Comment On February 21, 2014, at 11:16 AM, marp11 wrote:

    NOT TILL OSMELLI DOES IT TOO..THEN THE hf's HAVE TURNED

  • Report this Comment On February 21, 2014, at 11:42 AM, sammievee wrote:

    "On the not-so-sunny side, Belviq is nowhere near Eisai's stated sales goal of $250 million in the first year. In fact, Belviq sales probably won't even hit half of that goal. "

    Where do you guys come up with this? You think because you make up this $250 "stated sales goal" it is anything more than something you just made up?

  • Report this Comment On February 21, 2014, at 1:15 PM, marp11 wrote:

    yup

  • Report this Comment On February 23, 2014, at 12:15 PM, Vanmusicblues wrote:

    Nope eiasi made up the goal.

  • Report this Comment On February 24, 2014, at 7:34 AM, phemale4ever wrote:

    Those at MF I've noticed favor ARNA over VVUS for past few years. I know what to expect when happening upon a MF article about these stocks. I have seen no mention of Vivus's Alzheimer drug just completed Phase II in trials. There's much to be said for a superior drug with high potential, momentum interrupted by hostile takeover notwithstanding. GO $VVUS!!!

  • Report this Comment On February 27, 2014, at 2:44 PM, marp11 wrote:

    Recently, however, there has been a revival of this market space, as a couple of companies have released drugs that challenge these limitations.

    The two drugs that will have the greatest impact on the size of the market are Victoza and Belviq.

    Victoza's advantage, in addition to its efficacy, lies largely in the fact that it is marketed for the treatment of type 2 diabetes by Novo Nordisk.

    Belviq's advantage lies in its novelty; unlike Vivus' Qsymia and the two drugs being developed by Orexigen, it is a novel molecular entity, rather than a combination of existing therapeutic options.

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