Is obesity over? VIVUS (Nasdaq: VVUS) investors hope the company's FDA approval signals an era of slimmer waistlines. But the market seems to think this small drugmaker is trying to peddle a prescription-only Olestra. That compound also looked like a slam dunk until the, ahem, side effects became apparent. Since Qsymia's approval on July 17, the high-flying stock has been brought down to earth somewhat, dragging Arena Pharmaceuticals (Nasdaq: ARNA), maker of competing weight-loss drug Belviq, along with it:
VVUS Total Return Price data by YCharts
Will Qsymia be the blockbuster investors hope? That will depend on a few critical factors, which we may not fully understand for some time. Let's examine three important issues VIVUS has to handle in order for it to justify the market's high hopes.
1: Are Qsymia's benefits worth the risks?
This is a question that dogs every potential fat-killing substance, both consumer-based and pharmaceutical. Thus far, nothing's managed to justify its hype. Olestra was a commercial flop. GlaxoSmithKline's (Nasdaq: GSK) alli was supposed to be a home-run over-the-counter weight-loss drug, but it has similar gastrointestinal issues as Olestra, which is kind of a deal-breaker for anyone who prefers to maintain control of their bodily functions.
Qsymia, Belviq, and Orexigen Theraputics' (Nasdaq: OREX) Contrave have different problems. Contrave is still in trials due to cardiovascular concerns, and the FDA has placed tight restrictions on both Arena and VIVUS' drugs. Millions of people want to lose weight, but the list of failed drugs is long and frightening. It's easy to imagine a small sample of adverse reactions causing medical professionals to reject it entirely, as happened with fen-phen in the '90s. Additionally, Qsymia's female users must avoid pregnancy at all costs because of birth defect risks.
2: Can VIVUS make this work on its own?
The FDA's restrictions on Qsymia limit the drug to mail-order pharmacies. That's hardly a surefire path to irrelevance, but it does make things more difficult. VIVUS also lacks any marketing muscle, which puts it at a disadvantage against Belviq and the Arena-Eisai partnership that will promote it. Additionally, VIVUS doesn't have the known manufacturing capabilities to produce significant quantities of Qsymia.
A small one-drug biotech company with no manufacturing partners, no distribution and marketing partners, and significant competition from biotechs that have lined up one or both of these important deals makes VIVUS' an uphill climb. But the final issue may be the most devastating.
3: Is Qsymia worth prescribing instead of the alternative(s)?
Qsymia is the combination of two existing drugs. That's it, really. A doctor might prescribe Qsymia, or he might choose instead to issue two prescriptions for the off-patent drugs topamirate (formerly Topamax) and phentermine, which you might recognize as half of the phen-fen tag team that went down in flames years ago. Both drugs can be prescribed now in generic form, so there may be little impetus for physicians to offer a higher-priced combination.
Notorious short-seller Citron Research has brought up the point that Qsymia's patent may be challenged, but the more obvious risk is that doctors and patients will simply use the two component drugs instead, or otherwise try Belviq due to its lack of known potential for birth defects.
All weight-loss drugs carry risks, which is why it's so important to stay on top of any news and analysis regarding your chosen biotechs. For investors looking at Arena Pharmaceuticals, we've created a premium research service to track its progress. Subscribers gain access to a comprehensive report as well as a full year's worth of detailed updates, so what are you waiting for? Get your research started now.
