It's not often you see good news for one company send its competitors up by double digits. But that's exactly what we're seeing in the obesity space today after the Food and Drug Administration released advisory committee documents for VIVUS' (Nasdaq: VVUS) obesity drug Qnexa.
Arena Pharmaceuticals (Nasdaq: ARNA) and Orexigen Therapeutics (Nasdaq: OREX) are benefiting from VIVUS' good fortunes because they also have advisory panel meetings scheduled before the end of the year. There was a lot of risk going into the meeting that the FDA might not approve any of the drugs.
There still is, in fact.
While there's nothing new in the documents to suggest the FDA will definitely reject Qnexa -- and that's the reason the stock is up more than 17% -- the risk still remains. Johnson & Johnson's (NYSE: JNJ) migraine and epilepsy drug Topomax makes up half of the active ingredients in Qnexa. The drug has some nasty side effects that were seen in some, albeit a small number, of the patients taking Qnexa. Heart complications in patients taking Qnexa were also cited by the FDA. In total, the agency is worried about five separate side-effect issues, including suicide and heart-related issues.
Predicting what the FDA will do is difficult because the risk-benefit analysis isn't simple. Obesity isn't an immediately life-threatening illness like cancer or even epilepsy, and there's already a relatively safe treatment: diet and exercise. Clearly there's still a need for a drug to help shed the pounds, but side effects can't be ignored, especially after Wyeth's fen-phen was pulled from the market. The FDA refused to approve sanofi-aventis' (NYSE: SNY) Acomplia, and Merck (NYSE: MRK) and Pfizer (NYSE: PFE) stopped development of their obesity drugs because of potential side-effect issues.
When the advisory committee meets Thursday, I think it's likely to recommend approval of Qnexa, and we'll see another jump in all three stocks. But remember, the FDA has the final say, and Arena's and Orexigen's drugs have separate risk-benefit issues of their own. Investors should be very cautious not to assume the companies have an easy layup from here.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation. Johnson & Johnson is an Income Investor recommendation, and Motley Fool Options recommended buying calls on the stock. The Fool has a disclosure policy.