By
Timeless
Wealth
:
Shares of hopeful diet-pill makers Orexigen Therapeutics (
OREX
) and Arena Pharmaceuticals (
ARNA
) were buoyed by an expert panel that
voted
20 to 2 in favor of approving Vivus's (
VVUS
) Qnexa, an obesity drug that the Food & Drug Administration
((FDA)) had previously rejected over safety concerns. In 2010 the
FDA noted that Qnexa led to elevated heart rate, which could result
in cardiovascular complications. The FDA had also cited concerns
over a birth defect in women who became pregnant while taking the
weight-loss medicine.
Orexigen and Arena, neither of which have any beneficial
interest in Qnexa, opened trading on Wednesday higher by 22.4% and
16%, respectively. By the end of the session, Orexigen forfeited
about a third of its earlier gains; Arena closed in the red,
despite the large gap-up in the morning.
Trading post-morning euphoria was suggestive of a gross
overreaction by investors. Vivus, the maker of Qnexa, doubled in
trading on the panel vote news before succumbing to a lower close.
In the heat of the moment, the panel vote seemed to be a blessing
for a trio of diet-pill makers who had their dreams shattered in
years past. Adding to the perplexity of the situation, Roche's
(RHHBY.PK) Xenical was the last prescription weight-loss treatment
to be approved in the United States - where obesity afflicts 1 in 3
adults. That was in 1999; 13 years later it puts tremendous
pressure on the FDA to approve a new drug for such a widespread
healthcare problem.
The expert panel's vote on Qnexa was overwhelming considering
the panel advised the FDA not to approve Vivus' weight-loss pill on
a vote of 10-6 in 2010. While the panel does not speak for the FDA,
its voice as an independent review board carries weight, and the
FDA has been known to follow its recommendations. Interestingly,
the FDA rejected Orexigen's new drug application ((NDA)) even after
an expert panel voted 11-8 in favor of its drug, Contrave, in
2010.
The FDA is expected to make a decision on Vivus' NDA for Qnexa
on April 17. But other challenges lie ahead.
Vivus is conferring with the FDA how to avoid prescribing the
medicine to women who may become pregnant while taking Qnexa. The
company is also expecting to finalize the design of a trial in
response to the FDA's concerns over the drug's cardiovascular
side-effects. According to
Bloomberg
:
...[Vivus] has proposed a post-approval trial to assess Qnexa
in reducing major heart complications in obese, at-risk patients.
The trial would involve 11,300 patients and take four and a half
years.
The FDA asked Orexigen to run a similar study in response to
concerns that Contrave raised blood pressure and could lead to
undesirable cardiovascular events. The crucial difference, however,
is that Orexigen will have to run this trial before the FDA reviews
an NDA for the company's diet pill. That could put Orexigen years
behind Vivus and Qnexa.
Assuming Qnexa is approved by the FDA, Vivus will then face the
challenge of what Matthew Herper
believes
could be slow adoption of the weight-loss medication. Inevitably,
Qnexa's first-to-market advantage would weigh on Arena's and
Orexigen's abilities, respectively, to compete in the same segment
with Vivus. The FDA would also expect superior safety profiles
and/or differentiation in efficacy data if either of the two firms'
drugs were up for review, in a post-Qnexa approval scenario.
In anticipation of a decision from the FDA in mid-April, Vivus
remains a speculative issue, first given the uncertainty of a final
vote by the FDA (however 'likely' or 'unlikely' one believes a
particular outcome may be), and, second, the uncertainty of
post-approval success. Trading in Orexigen and Arena, however,
points to a gross misunderstanding of Qnexa's panel vote. While the
panel's decision to weigh Qnexa on a balance of risks to its
potential benefits suggests likelihood for a warmer reception than
in years past, Arena's morning gap-up rewarded all but its
investors. Excitement late on Wednesday and early on Thursday
created opportunities for investors to generate alpha by short
selling any of the three diet-pill hopefuls. All three issues ended
lower on the day. Savvy investors booked profits in Vivus; shorted
Arena, which retreated below its previous close, and shorted
Orexigen, which retreated but held onto most of its overnight
gains. Arena, which is second closest behind Qnexa in terms of
being reviewed by the FDA as a weight-loss remedy, showed weakness
and corrected accordingly. Orexigen held onto disproportionate
gains likely to be forfeited in the sessions ahead.
Disclosure:
I am short [[OREX]].
See also
Best Buy Goes Small To Ward Off Retail Fail
on seekingalpha.com