Has This Obesity-Drug Maker Gained Too Much Weight?

Shares of VIVUS (Nasdaq: VVUS  ) hit a 52-week high yesterday. Let's take a look at how it got here to find out whether there are still clear skies ahead.

How it got here
The long road to FDA approval finally made its way to VIVUS' door yesterday. Its anti-obesity drug, now named Qsymia, passed its tests and will now enter into direct competition with Arena Pharmaceuticals' (Nasdaq: ARNA  ) Belviq. Investors brushed off worries over the drug's dangerous side effects -- particularly its tendency to cause birth defects -- and chose instead to look at the upside.

Although VIVUS has gained a lot in the past year, it's actually on the low end of obesity-drug stock megapops. Orexigen Therapeutics (Nasdaq: OREX  ) has soundly outperformed VIVUS in the past year, despite being forced to drag out its trials for Contrave at least through next year to counter the FDA's cardiovascular concerns. Arena has been one of the best-performing stocks in the entire market this year, and with only two-thirds of VIVUS' market cap, it might have further still to go.

VVUS Total Return Price Chart

VVUS Total Return Price data by YCharts

Investors have been expecting Qsymia's approval since February, and the one-day megapop that followed the FDA advisory committee's positive recommendation has been responsible for much of the stock's 52-week gains. Can those gains be maintained, or will investors start looking to trim their gains? Let's take a look at a few possibilities.

What you need to know
Anti-obesity drugs and quick-slim compounds have been a chemical holy grail for decades, but a truly effective and riskless solution has proven elusive. Remember Olestra? How about GlaxoSmithKline's alli? If you do, it's probably because of the singularly unpleasant side effects both shared.

Qsymia, thankfully, doesn't appear to have those particular drawbacks. A combination of Johnson & Johnson's (NYSE: JNJ  ) Topamax, which lost patent protection in 2009, and phentermine -- primarily known as half of the infamous fen-phen weight-loss combination -- Qsymia instead has a benefit-risk profile that combines the characteristics of both drugs. That means users risk heart issues as well as birth defects.

Heart problems aren't exclusive to this drug. Abbott Labs' (NYSE: ABT  ) Meridia was eventually brought down over cardiovascular concerns, Orexigen's Contrave is already in the thick of that issue, and Belviq's heart-valve data is far from flawless. In the long run, such issues might undermine this entire class of drugs, but for now the benefits far outweigh the risks in investors' minds.

Analysts have given Qsymia a $1.2 billion annual revenue target for 2016, compared to the $1.5 billion Belviq might pull in at its peak, according to Barclays. That still makes Arena's gains look firmer than VIVUS', since profit margins would grant VIVUS a higher hypothetical P/E ratio if their market caps stayed the same.

What's next?
Can VIVUS keep growing? Will Qsymia become a blockbuster? The American lifestyle is not a healthy one, and demand for get-thin-quick schemes is immense. Few obese people, however, are willing to suffer embarrassing or life-threatening side effects just to lose a small amount of weight. The cost of the drugs and the potential for insurance coverage will also factor heavily into the success of any prescription treatment.

Qsymia may also have a tougher time gaining physician buy-in than Arena's new compound, as its formulation simply combines two existing off-patent drugs.

The Motley Fool's CAPS community isn't sure that VIVUS can be a long-term winner. Our members have given the stock a two-star rating, with 73% expecting it to keep growing.

Interested in tracking this stock as it continues on its path? Add VIVUS to your Watchlist now, for all the news we Fools can find, delivered to your inbox as it happens. If you're looking to profit off of other large binary events at the hands of the government, The Motley Fool has a report for you: "These Stocks Could Skyrocket After the 2012 Presidential Election." It's got the inside scoop on a few companies waiting for Uncle Sam's support to take off. The best part? It's free! Click here to read our free report.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Johnson & Johnson and Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (5) | Recommend This Article (6)

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 July 20, 2012, at 1:59 PM, supergrom wrote:

    Both my parents have used Qsymia in the past to help with their wieght. They both swear by it and have recommended it to other family memebers. With the wieght loss came other desired effects that related to cholesterol and blood pressure. Both parents are much more active now that they have been able to shed a few pounds. My mom had tried lots of other things in the past (crazy diets, surgery, etc) and this is the only thing that has really provided results that have lasted (she first got on Qsymia 7 yrs ago). Im a believer of the drug however not sure of its future and at what price to buy shares now that it has been approved.

  • Report this Comment On July 20, 2012, at 3:49 PM, Dietdoc wrote:

    The obesity drugs are gaining popularity in India and China where there are Millions

    Of well to do obese who would rather try Orexigen's Contrave and Arena's Lorcaserin and

    Qsymia rather than Undergo Gastric Bypass surgery or exercise.

    Not treating Obesity also has side effects such as Heart attack,stroke and cancer.

  • Report this Comment On July 20, 2012, at 9:24 PM, bobleelaw wrote:

    I wonder about VVUS, I was looking at secform4 and see that insiders sold over 7 million dollars worth of stock on 7/18/12, the day before it took a real beating.

    I am reading these right? a recent approval for what is being called a blockbuster drug company and they sell this soon?

    And, coincidentally a day before an article that slams their company history and questions their patents comes out?

    Any feedback on this would be appreciated, I may be just falling into conspiracy theory mode here :)

  • Report this Comment On July 21, 2012, at 3:04 PM, mincasa wrote:


    You are correct! I have always windered the same thing, and I made a comment on a SA article, about that same fact..there is something realy starnge in the VVUS case..I smell, FDA bribes and WS scam..I have never had a gut feeling about something and failed..VVUS drug Qsymia is a new found game that started few years back, and now coming to an end,,.dangerous drugs like this one, will never last in the market and they always end up in from of a judge!

  • Report this Comment On July 22, 2012, at 8:33 AM, bmc007 wrote:

    IMO, Qsymia is a ticking time bomb. Do your own research to find out why. There is a lot of info out there already about it (good and bad) but enough so that you can make an educated decision if you take the time.

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