Obese people received some very good health-related news in recent days -- as did shareholders of a company that is trying to help them get better. The Food and Drug Administration has just approved broader use of Allergan's
Until now, the Lap-Band was only approved for patients suffering from obesity-related health problems if they had body-mass indexes of 35 or higher. But the FDA reduced that figure to 30, which should come as good news not just to potential patients but also to Allergan investors. Those with no obesity-related health problems still must have a BMI of 40 or more.
What's at stake
The Lap-Band is an inflatable silicone ring designed to be inserted surgically through a tiny incision and placed at the top portion of the stomach to reduce stomach capacity. Allergan estimates that 26 million additional people will qualify to use the device under the new FDA guidelines, a big increase from the 15 million to 18 million that met the former standard. How's that for a catalyst?
Although Allergan may have happy times ahead, other companies may have to bear the brunt of the FDA's approval. With more people eligible for Lap-Band surgery, drugmakers that produce drugs to combat obesity and its effects have a real fight on their hands.
Competition knocking on the door
The prescription anti-obesity drug market is projected to more than double by 2016. But with the Lap-Band now more broadly available, some of that growth may be in danger. In addition, if obesity becomes less of a problem, diseases that are often linked to obesity, such as high blood pressure, cardiovascular disease, diabetes, and osteoarthritis, might well also see decreased demand.
That means the bad news goes beyond companies such as Arena Pharmaceuticals
Clearly, this is a huge and growing business. But once people opt for a surgery, they may not require medication for conditions related to obesity, which is a pretty undesirable situation for pharmaceutical companies. In addition to drugmakers, weight-loss companies Weight Watchers International
If people are resorting to other means of shedding excess weight, it indicates some degree of competition for companies that sell products intended to achieve a similar end result. But there is room to grow for all these companies, especially if surgery is largely limited to those who suffer from specific obesity-related medical conditions.
Although the companies I have mentioned above could lose out on a section of their customers to Allergan, any drop in their sales isn't likely to happen overnight. However, a potential decline in the customer base is a matter of concern for any business. The best defense might be a strong offense by entering the market themselves or developing rival products to Allergan's surgical answer.
Susmita Chatterjee does not own shares of any of the companies mentioned in the article. Pfizer and Weight Watchers International are Motley Fool Inside Value picks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.