The new generation of diet pills approved by the Food and Drug Administration have stumbled out of the gate. Specifically, Arena Pharmaceuticals' (ARNA) Belviq and VIVUS's (VVUS) Qsymia reported a combined 283,000 prescriptions in the third quarter, with total net revenue of only $29.3 million. Putting these metrics into context, the number of Americans currently estimated to be "obese" comes in at a staggering 104 million. Viewed this way, we can see that these two drugs combined have failed to come close to even capturing 1% of this vast and growing market.

While it's true that these two drugs were originally approved for a smaller portion of the total obesity market (i.e., severely obese patients or patients with other medical conditionals linked to obesity), it's not uncommon for doctors to prescribe medications off-label when they believe there will be a clinically meaningful benefit without undue risk. The numbers so far, though, strongly suggest that doctors aren't prescribing these medications to even a large proportion of severely obese patients. In short, these FDA approved diet pills haven't scratched the surface of their estimated target market.

During its third-quarter conference call, Arena's management acknowledged these difficulties but also highlighted three reasons Belviq could still go on to reach mega blockbuster status, despite its slower than expected launch. With that in mind, here's a deeper look at management's thoughts on the matter.

Reason No. 1
Kicking the call off, Arena CEO Jack Lief noted that prescriptions ticked higher by roughly 30% compared with the previous quarter, presumably reflecting the increased promotional efforts on the part of its marketing partner, Eisai. Perhaps most importantly, prescriptions topped 12,000 per week during the quarter for the first time, suggesting that the launch is finally picking up momentum.

Belviq prescriptions also reportedly came in higher than Qysmia's by 5,000 for the three-month period, according to IMS Health estimates. Quarter over quarter, Qsymia's scripts essentially came in flat, enabling Belviq to overcome the nearly 10-month head start and superior efficacy of its chief competitor. That said, Belviq would still need to continue this monstrous pace for another two years straight to finally capture a mere 1% of the estimated obesity market. 

Reason No. 2
Arena and Eisai are hoping they can gain a key label expansion for Belviq that could jump-start sales in a big way. Namely, the two companies are looking at a combination therapy of Belviq and phentermine to gain the advantage in terms of efficacy. Per the third-quarter conference call, management said a pilot study has now been completed, with no major safety signals being detected. Although we didn't learn much about the combo's effect on weight loss, the company believes there is enough evidence to continue the clinical testing process. 

Reason No. 3
Belviq's smoking-cessation indication also appears to be on track, with the company reporting promising mid-stage results during the quarter. Specifically, the drug met its primary endpoint of showing a trend toward users' quitting smoking compared with a placebo. We should learn within the next few weeks whether the two companies will push Belviq into a pivotal late-stage trial for smoking cessation or choose to perform another mid-stage trial.

Although Arena hasn't made a public estimate of this indication's value proposition so far, the current market is valued at roughly $1.2 billion. Given the clear need for safer and more effective treatments than Pfizer's Chantix and GlaxoSmithKline's Zyban, there is certainly a decently sized commercial opportunity to be gained with a smoking-cessation indication for Belviq. 

Arena may be a good buy for patient investors
While Arena's management has painted a rosy picture about Belviq's future, the truth is that this is still a company losing over $10 million a quarter, and there is little reason to believe this trend will change anytime soon. The good news is that Arena does have enough cash on hand -- $188 million -- to see it through the next two years without the need for dilution. Before then, we could see Belviq sales climb high enough to make the company cash flow-positive. Moreover, Belviq should be nearing regulatory decisions for these key label expansions I've discussed, assuming the clinical trials continue on their current trajectory. All told, I think Arena's shares are fairly valued here, making them worth a look by investors with a long-term horizon.