Editor's Note: The article below was updated to clarify that Saxenda is a 3 mg dose of liraglutide, as compared to Victoza (1.2/1.8 mg dose).
A heavier population has significantly increased concerns over obesity's impact on global health, resulting in a flurry of drug development activity and FDA approval of weight loss pills.
Arena Pharmaceuticals (ARNA +0.00%) and Orexigen's (NASDAQ: OREX) novel anti-obesity pills are among three drugs that the FDA has approved for use alongside diet and exercise to promote weight loss. However, both of these drugs may struggle to capture market share if a competing treatment from Novo Nordisk (NVO +0.21%) wins approval in October.
First, a bit of background
Almost 90% of those with diabetes are overweight, and that has industry watchers expecting that the globe's expanding waistline will increase the number of people with diabetes from 366 million to 552 million by 2030. That's a mind-boggling number, especially when you consider that the entire population of the United States totals 314 million people.
The surge in diabetes is expected to be driven by new cases of type 2 diabetes, which typically develop as people get older. According to the American Diabetes Association, or ADA, seniors account for almost 40% of all diabetes in the United States. However, it won't just be ageing baby boomers in America that are increasingly diagnosed with the disease. Economic expansion in emerging markets will be responsible, too. That's because weight tends to increase as emerging markets develop.
Growth in the number of diabetes cases is likely to have a big, negative impact on healthcare spending, particularly in the United States. The ADA estimates that the U.S. spent $176 billion on direct medical care for diabetics in 2012. Include economic costs associated with the disease, such as missed days at work, and the figure climbs to $245 billion, up a staggering 41% from 2007.
Source: Centers for Disease Control.
Dangerous trends
There are as many as 79 million Americans with pre-diabetes, or symptoms that will likely lead to a full-fledged diabetes diagnosis if left untreated.
To put that in perspective, consider that roughly 21 million Americans are currently diagnosed with diabetes (another 8 million are undiagnosed). That means the pre-diabetes population is nearly four times bigger than the diagnosed diabetes patient population.
That's a staggering revelation that suggests that if healthcare officials hope to curb the likely avalanche in diabetes spending, they'll need to aggressively target new solutions.
Falling short
The sheer size of the problem seems to suggest Arena would have a willing market for its anti-obesity drug Belviq. But so far, that market hasn't materialized. Belviq sales totaled just $10 million in the second quarter for Arena's distribution partner, Eisai, resulting in royalty payments of just $3.5 million to Arena.
That's a far, far cry from the $2 billion to $3 billion some analysts were bandying about prior to the drug's approval, and it must be disappointing to Eisai given that it's hired 600 people to market the drug, and as of December, had paid Arena $181 million in milestone payments since partnering on the pill.
Eisai and Arena may take solace in knowing that results for another weight loss drug, Qsymia, haven't been much better. Vivus won FDA approval for Qsymia in 2012, yet Vivus reported just $11 million in Qysmia sales during the second quarter.
However, lackluster sales for these two drugs is likely sobering news to Orexigen, which just landed FDA approval for Contrave, its weight loss pill, this week.
Source: Novo Nordisk
More competition is coming
Orexigen hopes that Takeda, its partner on Contrave and Asia's biggest drugmaker, has more success. However, Takeda may find that's an uphill battle, especially if they end up having to battle Novo Nordisk for market share, too.
An FDA advisory panel met this week to discuss a higher-dose (3 mg) version of Novo Nordisk's multibillion-dollar diabetes drug liraglutide, and they found that the drug appears to be effective in treating obesity.
Importantly, while their have been a few questions regarding liraglutide's safety in the past, the FDA advisory committee was far friendlier to Novo than previous advisory panel meetings had been for Arena, Vivus, and Orexigen. All three of those drugs failed to win over regulators the first time they were filed for approval, but the panel voted 14 to 1 in favor of approving liraglutide for weight loss.
If the FDA follows the advisory panels' recommendation and approves liraglutide, which would be sold under the brand name Saxenda when prescribed for obesity, then Novo could dominate the indication, because Novo is the market leader in diabetes treatment and a lower-dose version of liraglutide (1.2 mg and 1.8 mg) is already widely used, with more than 3.3 million patient years of exposure since its approval in 2010.
Debating value
Although sales of Arena and Vivus weight loss pills have failed to impress, analysts are still pinning fairly high hopes on Orexigen's Contrave. For example, a Wells Fargo analyst thinks Contrave could one day pull in sales of more than $600 million a year.
If that estimate proves correct, it would seem Orexigen's shares may be pretty cheap. After all, its market cap is just $646 million.
However, before investors rush to buy, they should consider that sales projections are notoriously off the mark and targets likely reflect expected reimbursement from insurers and government programs, something that isn't a given. Belviq and Qsymia, for example, still aren't covered by Medicare or Medicaid, and of the roughly 50% of insurance plans that do cover them, they often fall into the most expensive tier of drug formularies. If reimbursement remains a risk for Arena, Vivus, and Orexigen's pills, it could give Saxenda a bigger advantage.
