Arena Pharmaceuticals (NASDAQ:ARNA) and Eisai announced this month that their obesity drug Belviq has broader coverage from insurance plans run by pharmacy benefits manager CVS Caremark (NYSE:CVS). And health-insurer Aetna (NYSE:AET) is also making Belviq available as part of its weight-loss program available for self-insured plans. Arena and Eisai estimate that Belviq is now covered by more than 50% of insured commercial lives, up from 30% last June.
Without a doubt this is good news for Arena and Eisai. Belviq isn't that expensive -- compared to, say, a cancer drug -- but there can still be a bit of a sticker shock when patients go to the pharmacy, and realize that the drug isn't covered by their insurance.
Paying full price is also a deterrent for staying on the drug if the pounds aren't shedding as quickly as hoped. Having to pay just the co-pay can result in a few more months of staying on the medication, which might result in enough weight loss to justify continuing further.
The increasing insurance coverage of Belviq is arguably good news for VIVUS (NASDAQ:VVUS) and Orexigen (NASDAQ:OREX), as well, because it's unlikely an insurer would cover one obesity drug without covering the others. Last month, VIVUS said that its obesity drug, Qsymia, was covered by about 43% of commercial lives as of the end of last year. Orexigen should have an easier time signing up insurers after its drug, Contrave, is approved later this year, considering all the leg work that VIVUS and Eisai have done convincing insurers that obesity is less of a cosmetic issue -- typically why it hasn't been covered -- and more of a medical issue.
While gaining insurance coverage is important, the co-pay tier is also an important factor influencing whether patients start and stay on the drugs. VIVUS said that a majority of the prescriptions for Qsymia are in tier 3, which typically come with a co-pay of $50 or more. If the company can convince insurers to cover Qsymia as a tier 2, which is usually only a $20 to $30 co-pay, it should make it easier to sell the drug. VIVUS' deal with Aetna is at the tier-2 level, so the company seems to be making some progress.
About those "non-commercial" lives
Gaining expanded insurance coverage is vital to the obesity drugs gaining traction, but the figures that Arena and VIVUS give are for "commercial lives," because non-commercial lives -- those covered by government programs -- generally aren't allowed by law.
Last June, a bill was introduced into the House and Senate that would remove the Medicare Part D exclusion of obesity medications. That's 50 million or so people who could gain coverage with a vote and the swipe of a pen.
The bill has bipartisan support, and would seem to be a long-term cost savings for the country: Paying now for obesity drugs can save money down the line for diabetes and cardiovascular treatments. But the bill seems to be stuck in congress. The fight over Obamacare can't be helping the situation.
If you're going to own VIVUS, Arena, and Orexigen, I think you need to have a long-term perspective. There's no doubt there's a lot of potential, considering the large number of Americans who are obese; but changing the treatment practices and insurance coverage will continue to be an uphill battle for some time to come.
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Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.