Cheaper Obesity Drugs Available (for Half of Some Americans)

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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.

Long-term thinking
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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Read/Post Comments (4) | Recommend This Article (1)

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 24, 2014, at 5:09 PM, marp11 wrote:

    osmelli youre flailing

    you can do a better bash then this

    im sorry,,orex? what is the obesity drug they have on the market?

    oh none....

    see ya at ARNA $25 soon

  • Report this Comment On February 24, 2014, at 6:38 PM, bhuston wrote:

    Don't you mean if Orexigen is approved, not when? Why do you assume that Orexigen's approval is a forgone conclusion?

  • Report this Comment On February 25, 2014, at 10:24 AM, marp11 wrote:

    1/2 of some fat americans

    hmmm thats like 50 million scrips aweel potential

    ill take .01% of that

  • Report this Comment On February 27, 2014, at 2:12 PM, marp11 wrote:

    Obesity Therapy Market to Reach $8.4 billion by 2022

    Due to the launches of several novel drugs during the next decade, the obesity market will increase from $407m in 2012 to $8.4 billion by 2022, at a Compound Annual Growth Rate (CAGR) of 35.3%, forecasts research and consulting firm The authors.

    The US, Canada and Japan will have the largest obesity therapy sales by 2022, with shares of $5.3 billion, $702m and $484m, respectively.

    The obesity space has seen little activity in the past decade due to a pharmacological history of modest efficacy, poor tolerability with dangerous side effects, and limited healthcare coverage, which have all contributed to the commercial failure of anti-obesity drugs.

    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.

    With the changing tide of opinion on the treatment of obesity and the upcoming launches of new drugs and devices, we anticipate that the prescribing of obesity therapies will increase over the next 10 years, boosting the market size, Wong says.

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Brian Orelli

Dr. Orelli is a Senior Biotech Specialist. He has written about biotech, pharmaceutical, and medical device companies for The Motley Fool since 2007.

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