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What Meridia's Demise Means for Arena, VIVUS, and Orexigen

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I thought Meridia should stay on the market, as did half of an Food and Drug Administration advisory panel and the manufacturer, Abbott Labs (NYSE: ABT  ) . But we only have varying degrees of influence -- in my case, absolutely none -- over the FDA, which had its final say on Friday.

Pulling Meridia off the market -- technically, the FDA asked Abbott to remove the obesity drug, and it said Abbott agreed to -- isn't that big of a deal for Abbott. Meridia's sales were never super-exciting, and Abbott is so large that the lost sales won't have a major effect on Abbott's $33 billion in revenue. This is definitely not comparable to events involving Merck's (NYSE: MRK  ) Vioxx, GlaxoSmithKline's Avandia, or Biogen Idec (Nasdaq: BIIB  ) and Elan's (NYSE: ELN  ) Tysabri -- at least, not for Abbott.

The FDA's decision on Meridia should have investors in companies developing new obesity drugs -- VIVUS (Nasdaq: VVUS  ) , Arena Pharmaceuticals (Nasdaq: ARNA  ) , and Orexigen Therapeutics (Nasdaq: OREX  ) -- a little more worried. The agency erred on the side of caution when its panel of outside experts split. What do you think will happen to VIVUS' Qnexa and Arena's lorcaserin, for which both FDA advisory panels recommended against approval?

Orexigen's Contrave, which will be reviewed in December, might have an advantage in going last, but the FDA will still likely place a strong focus on safety. Considering that Contrave has side-effect issues of its own, there may be nothing the company can do to get past the safety-conscious agency.

Can any obesity drug win the FDA's approval? Sure -- a drug that causes weight loss that's 5 percentage points above placebo, and has side effects that are equivalent to diet and exercise. Anything below that insanely high standard is up for debate about its risk-reward profile. With the FDA leaning heavily toward minimizing risk, investors in the space need to be very careful.

Interested in keeping track of VIVUS, Arena, and Orexigen as their FDA decisions approach? Click their respective names to add them to My Watchlist, which will help you keep track of all our Foolish analysis on the sector.

Elan is a Motley Fool Rule Breakers pick. The Fool owns shares of GlaxoSmithKline, which is a Motley Fool Global Gains choice. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (5)

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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 October 11, 2010, at 4:27 PM, Imodelforartists wrote:

    Ahem, Language Police here Sherwood.

    Shouldn't that be ANTI OBESITY DRUG? NOT

    "Obesity Drug", since the drug was NOT for CREATING OBESITY..American do a great job of that on their own.

  • Report this Comment On October 12, 2010, at 11:19 AM, ArnaAnalysis wrote:

    According to FDA and world largest Broker, Arna will pass and FDA will approve this time. Arna is a strong BUY.

  • Report this Comment On October 13, 2010, at 12:32 PM, ArnaAnalysis wrote:

    Breaking New, FDA will approve ARNA drug. The price will be at $7 in next two weeks.

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