Don't let it get away!
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In a large 10,000-patient study, the obesity drug apparently increased the chance of a cardiovascular-related event, like heart attacks or strokes. The Food and Drug Administration said it's looking further into the issue, but didn't make any formal recommendation on Friday.
Will it affect sales of Meridia? I doubt it. According to Abbott, most of the patients in the study had cardiovascular issues already, and it appears that Meridia may be exacerbating the problem. Plus, the drug already has a warning that it shouldn't be used in patients with a history of cardiovascular disease, and it's not clear how the cardiovascular side effects would affect patients with a healthier heart.
Besides, a decrease in sales probably wouldn't have an effect on Abbott anyway -- the company doesn't even break out sales of Meridia, presumably because they're too low to bother.
On a larger scope, the FDA warning highlights the challenge that Arena Pharmaceuticals (Nasdaq: ARNA ) , VIVUS (Nasdaq: VVUS ) , and Orexigen Therapeutics (Nasdaq: OREX ) are going to have getting their obesity drugs past the FDA.
The problem here is that there is already a very good treatment for obesity: diet and exercise. Except for the occasional shin splint, turf toe, and irritability from eating salad for the seventh time this week, the side effects are fairly mild.
Now some will argue -- rightfully so, in my opinion -- that diet and exercise aren't being used, and we need drugs to make it easier to shed the pounds, even if they come with a higher safety risk than diet and exercise. Unfortunately, the FDA may not see it that way.
While the drugs, especially VIVUS' Qnexa, clearly work, investors need to be aware that approval isn't a regulatory slam dunk. It's hard to prove that side effects don't exist, and the FDA is likely to remain extremely cautious in approving new obesity drugs.
Side effects are the reason why big pharmaceutical companies such as sanofi-aventis (NYSE: SNY ) , Pfizer (NYSE: PFE ) , and Merck (NYSE: MRK ) dropped development of their obesity drugs, and they're the reason investors should be careful when investing in this space.
Drug development may be risky, but investing in it can earn you the highest possible returns.