VIVUS (Nasdaq: VVUS) will start bringing in revenue from its obesity drug Qnexa three months later than it could have, but it appears the drug is likely to get approved.
Yesterday VIVUS said the FDA delayed a decision on Qnexa by three months because the company turned in a Risk Evaluation and Mitigation Strategy, or REMS, within three months of the decision date. The Prescription Drug User Fee Act gives the agency the right to delay the decision by three months to review the additional information.
It seems reasonable to assume that the REMS is the only major issue at this point. If there were other problems in addition to the late submission, the FDA would probably have just rejected the drug next week (as it once did with MAP Pharmaceuticals (Nasdaq: MAPP), which had manufacturing issues in addition to usability data that didn't get reviewed in time.
But that's just an assumption -- and you know what they say about those. It's not like the FDA came out and said an approval was imminent. While FDA delays usually foreshadow approvals, there are a few examples of a delay preceding a rejection. The decision on Merck's multiple sclerosis drug cladribine was delayed and eventually came out negative. It also happened to XenoPort (Nasdaq: XNPT) and GlaxoSmithKline's (NYSE: GSK) restless leg syndrome drug, Horizant.
Interestingly, Qnexa's delay to July 17 pushes the Qnexa decision beyond Arena Pharmaceuticals' (Nasdaq: ARNA) advisory panel for its obesity drug lorcaserin on May 10 and agency decision on June 27. If you assume the FDA was going approve Qnexa, the delay is likely a negative for Arena. Given the unknowns with lorcaserin's cancer risk, the lack of precedent will make it easier for the committee of outside experts to throw up their arms and just say there's too much unknown risk to justify approval.
While I think Qnexa will get approved, I don't see much reason to buy at this level. VIVUS has shot up to a $2 billion market cap, much higher than it was before the FDA made its first decision in 2010. There's room to go higher if you assume Qnexa shouldn't have too much trouble becoming a blockbuster in a few years, but the risk isn't zero and there's a lot of room to fall if the FDA makes a surprise rejection.
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