Diet pill scorecard: Race is still on for FDA approval
Orexigen, once the leading candidate to reach market, expects two more years of safety testing.
A year ago, diet pill maker Orexigen Therapeutics (OREX) was riding high. It looked like the company was about to win a three-way race to sell the first new diet pill in the U.S. in more than a decade.
Orexigen's closest rivals, Vivus (VVUS) and Arena Pharmaceuticals (ARNA), were already knocked out (at least temporarily) as the Food and Drug Administration had rejected applications for their weight-loss pills. Orexigen had the backing of a panel of experts advising the FDA. It looked like the company had defied the odds and was rounding the corner to approval. In rejecting the rival diet pills, the U.S. agency stated strong concerns about the safety of the products.
So when the FDA rejected Orexigen's drug Contrave in early February last year, investors fled and the company's stock lost almost three-quarters of its value.
Now Orexigen finds itself again in position to watch its two rivals try to win U.S. clearance to sell their pills, while it works toward its own market approval.
Arena announced this week that the FDA is reconsidering approval of the company's diet drug lorcaserin. The company is expected to receive a decision from the FDA by late June. Last week, the company said it submitted additional research to the agency, including data related to drug testing on rats and cancer. The rat research came to symbolize Arena’s missteps last year. The company initially didn't disclose to investors that early rat testing raised questions about tumors found in the animals.
All three of the diet pill companies were questioned by government experts in all-day FDA panel hearings in 2010, a vetting process used by the agency. Orexigen was the only company to receive a positive vote in favor of approval. Next month, Vivus will face another advisory panel for its weight-loss drug Qnexa. That Feb. 22 panel will give investors a view of how much progress Vivus has made in moving closer to approval. An FDA decision on clearance of the drug is expected by April 17.
One undeniable negative for Vivus was highlighted this week when the FDA said the company should strike a restriction on the drug's proposed label that would exclude all women of child-bearing age. One of the FDA's major concerns over Qnexa is the risk of birth defects (see Birth Defect Worries Rock Vivus). Though it's a puzzling move by the FDA, the company said it shouldn't be a sign that there won't be a restriction. Even if Vivus is approved, its market potential may be limited.
Meanwhile, Orexigen is the farthest away from potential approval as it will spend this year and next conducting further studies on the cardiovascular risks associated with the drug Contrave. Orexigen says it hopes for U.S. approval by 2014.
Shares of all three companies have bounced up and down over the past few months. Vivus shares showed the most positive trend, rising 46% in the past three months to $12.23 at Thursday's close. Arena is up 11% in that period, closing at $1.66 Thursday. The stock has been falling over the past couple of weeks. Even with a recent run, Orexigen is down 9% over the last three months. It rose 9% to $2.02 on Thursday. With a $1 billion market cap, Vivus is the largest of the three diet drug companies. Arena has a market value of about $240 million, while Orexigen is just under $100 million.
As for which stock has the most upside, that's a good question. Even if any one of these drugs is approved -- a big if -- there are questions about market potential. The companies argue that obesity is a serious problem in the U.S. and is linked to a host of other medical conditions, including heart disease and diabetes. But label restrictions and lack of insurance coverage may weigh down revenue expectations. Diet drugs in the U.S. have a dubious history as the fen phen debacle of the '90s and Abbott Laboratories (ABT) withdrawal of Meridia in 2010 clearly illustrate.
In a recent note, Leerink Swann analyst Joshua Schimmer recommended buying Orexigen and set a 12-month price target of $5. He says he thinks the drug will be approved and may eventually produce $1 billion in yearly sales. However, the analyst noted that there are a number of questions about a diet drug's success.
"There is clearly an epidemic of obesity in the United States," Schimmer said in a note last week. "However, there is little precedent off of which to base commercial expectations for Contrave."
Another Leerink Swann analyst, Steve Yoo, recently expressed some concern about Vivus and Arena's chances of winning approval for their diet drugs. He rates both stocks a "hold." Concerns about the safety issues around Vivus' Qnexa, he says, may earn the drug a negative recommendation from the FDA panel next month.
More from Minyanville:
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Momentum stocks have taken a beating over the last few weeks so tech investors will be looking for positive news out of Netflix earnings after the close on Monday.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.