Sector Snap: Obesity drug developers

Obesity drug developers may have trouble getting drugs reimbursed by private and government health plans, though physicians will likely be enthusiastic about the treatments, said Lazard Capital Markets.

Analyst Matthew Osborne, citing a survey, said 58 percent of payers believed that obesity is a lifestyle condition, while 42 percent considered it a medical condition. The survey was conducted by Chatham, N.J.-based Reimbursement Intelligence.

The survey comes less than a month after a double dose of failure from development programs at big drugmakers.

New York-based Pfizer Inc. and Paris-based Sanofi-Aventis ended development of weight loss drugs, citing the difficulty of gaining regulatory approval. Sanofi's Acomplia was already approved in Europe, but the company suspended sales.

New York-based Merck & Co., meanwhile, already had stopped development of its obesity drug Taranabant, saying the "overall profile" of the treatment wouldn't work.

Despite the failures, Wall Street still expects the obesity drug market to eventually breach $1 billion.

Though payers are skeptical, Osborne said, obesity physicians seem more enthusiastic about potential treatments.

He said bariatric specialists will likely combine Arena Pharmaceuticals Inc.'s developing lorcaserin with the appetite suppressant phentermine once lorcaserin is approved.

Still, he said, some may hesitate over safety concerns. According to the survey, only 13 percent of physicians are very likely to prescribe lorcaserin for obesity.

"Some primary care physicians may be reluctant due to potential medical malpractice should safety issues arise," he said in a note to investors.

Meanwhile, he said La Jolla, Calif.-based Orexigen Therapeutics Inc. is in the best development position among its obesity drug peers, with two compounds in clinical trials. The company is developing Contrave, which combines a drug called bupropion, used to treat depression and smoking, with naltrexone, which is used to fight alcoholism and opiate addiction. Also, it is developing Empatic, which combines bupropion with the seizure treatment zonisamide.

He said between 23 percent and 35 percent of bariatric physicians are very likely to prescribe Contrave, Empatic, or Vivus Inc.'s Qnexa.

Arena, Orexigen and Vivus could build a specialty sales force targeting, for example, the American Society of Bariatric Physicians, but they will likely need to find partners in order to build a large sales force to reach most patients.

Shares of Mountain View, Calif.-based Vivus rose 18 cents, or 3.8 percent, to $4.87 while shares of Orexigen fell 48 cents, or 8.9 percent, to $4.92. Meanwhile, shares of San Diego-based Arena rose 20 cents, or 7.3 percent, to $3.39 in afternoon trading.