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The Weight Loss Drug Company Investors Need to Watch Out For

By Eric Ho - Dec 12, 2013 at 2:18PM

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Big names like GlaxoSmithKline, Arena, VIVUS, and Orexigen are probably well-known among obesity market watchers, but this less publicized company out of Massachusetts is poised to change the landscape in coming years.

The weight loss drug market has seen a flurry of activity in recent years as a growing number of companies vie to capture market share with their own potential billion dollar solutions of a rapidly growing global health concern.

As new products roll into a market that has lacked real results from existing solutions, a tremendous amount of discussion has been kicked up over the pros and cons of treatment approaches among a wide array of different drug products.

Recent introductions to the obesity market include Belviq, currently marketed by Arena Pharmaceuticals ( ARNA 3.89% ), and Qsymia, currently marketed by VIVUS ( VVUS ), both of which joined a market with a limited decent number of options.

Prior to their introduction, GlaxoSmithKline's ( GSK 0.71% ) Alli and a host of generic forms of drug workhorse phentermine were among the few viable options for patients for whom lifestyle changes and dieting were not producing healthier living and weight loss. Additionally, steadily progressing along the approval track is Orexigen Therapeutics' (NASDAQ: OREX) , which recently released promising clinical trial data concerning the safety of its drug Contrave.

This cast of companies and their respective products is nothing new to most obesity market watchers. However, investors should probably add one additional company that will likely affect the competitive landscape for some of the better known players.A company with recent positive Phase II results as well as plenty of cash to boot– namely, Massachusetts-based Zafgen and its targeted weight loss product beloranib.

Success under the radar
Unlike Arena Pharmaceuticals and VIVUS, the progress being made Zafgen has received considerably less publicity. The private company based out of Cambridge has undergone several rounds of funding, most recently completing a Series E round that net it more than $45 million in cash to keep its operations going.

Unlike most currently marketed weight loss drugs that work by changing brain chemistry to decrease food cravings or curb the satisfaction of eating, beloranib targets a specific protein that is involved in the body's natural ability to package and use fat. This difference in approach could potentially give beloranib an advantage over competitors.

Most importantly, Zafgen's phase 2 clinical trial results for beloranib showed promising potential for the little-known drug that takes after technology more commonly seen for treating targeted cancers.

Patients taking beloranib lost as much as an average of 10kg during the 12-week trial and, more interestingly, showed improvements in their cholesterol and reduction of food cravings after completing their course. Even more promising, none of the patients experienced any serious or dangerous side effects, with a limited portion suffering only mild nausea/vomiting and sleep disturbances.

Additionally, beloranib may be able to avoid scheduling as a controlled substance by the Drug Enforcement Agency. Big-name products like Qsymia, Belviq, and phentermine are all categorized as Schedule IV medications because of their effects on brain function. While Schedule IV drugs are generally recognized as having only low or limited abuse potential, the label still carries all sorts of regulatory strings that create hasslesome requirements in prescribing, storing, and monitoring the drugs.

A real contender in the wings
Despite a great deal of promising early data, it may be too soon to say whether Zafgen could displace some of its competitors that are a few years ahead in development and marketing. With its recent phase 2 trial results becoming public, the company likely has a few more years to go before it can achieve approval and begin marketing.

Weight loss results from its recent trial puts beloranib comfortably among its competitors Arena and VIVUS, but beloranib is currently administered as an injection not unlike insulin, and this may prove to be barrier later for its success.

However, against the highly competitive backdrop of the obesity market, Zafgen and beloranib could certainly make a splash and is worth a second look by any investors following the continuing weight loss battles.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Arena Pharmaceuticals, Inc. Stock Quote
Arena Pharmaceuticals, Inc.
$54.71 (3.89%) $2.05
VIVUS, Inc. Stock Quote
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$42.68 (0.71%) $0.30

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