The cost of developing an obesity drug looks like it's going up substantially. You can blame it on fen-phen and Abbott Labs' (NYSE: ABT) Meridia, which were both pulled from the market because of their potential to cause heart problems.
Yesterday a Food and Drug Administration advisory panel voted 17 to 6 recommending that obesity drugs that don't have a signal suggesting that they cause detrimental heart problems should still be required to have large clinical trials run to determine their cardiovascular risk.
The FDA doesn't have to go along with its advisors, but I think it's a foregone conclusion that the agency will follow the advice of the outside experts on this one. The agency would look like idiots if they went against the panel's advice as soon as some drug is discovered to cause heart problems post-approval.
The only saving grace for drugmakers is that most panelists seem to believe it will be sufficient to carry out the studies after the drug is approved. At least companies will have revenue coming in while they wait to see if their drugs can stay on the market.
That's especially good news for VIVUS (Nasdaq: VVUS) and Arena Pharmaceuticals (Nasdaq: ARNA), whose drugs, Qnexa and lorcaserin, respectively, are currently under review. The regulations the FDA comes up with probably won't be available until after it makes its ruling on the two drugs, but even if the panelists' comments are in the back of the FDA reviewers' heads, they shouldn't trip up the approval -- at least in terms of cardiovascular risk.
Orexigen's (Nasdaq: OREX) Contrave is a special case because a heart signal was seen in the phase 3 trials; the heart trial previously hashed out with the FDA will need to show a lack of increased cardiovascular risk before the drug is approved.
Diabetes drugs already have a requirement to show that they're not increasing cardiovascular risk -- their fall guy is GlaxoSmithKline's (NYSE: GSK) Avandia. It isn't clear exactly how much obesity drugs can make since the only one on the market, Roche's Xenical, has a side effect profile that limits sales. But the potential for both classes of drugs seems similar enough; if diabetes drugs are able to make the added cost work, I'm sure an obesity drug with decent efficacy and safety can, too.
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