Diet pill makers to benefit from rival's woes?
Vivus shares dropped after it reported weaker-than-expected sales of its weight loss drug.
The past week has been rough for diet pill maker Vivus (VVUS). After disclosing that early sales of its new weight-loss drug Qsymia are slower than expected and that challenges remain, shares dropped significantly.
Even with a slight recovery, the shares still slumped by nearly a quarter for the week, closing at $10.84 Friday. The stock is down by half in just the past three months. Vivus' drug was launched in September.
The Vivus news dinged rival stocks Arena Pharmaceuticals (ARNA) and Orexigen Therapeutics (OREX) as investors figured they would also struggle to sell their obesity treatments. Arena's drug Belviq is approved for sale in the U.S. but is being held up as the Drug Enforcement Agency decides how to schedule the pill. (The feds fear Belviq may be abused as it caused euphoria in some patients tested in clinical trials.) Orexigen is in the midst of a large safety study to determine the cardiovascular risks of its diet pill Contrave. Some of the trial results should be available next year.
After initially dropping, Arena shares rose 4% last week to close at $8.36 Friday. The stock is up more than 300% this year. Orexigen was down 17% last week but up more than 170% for the year, closing at $4.35 Friday.
Vivus' early stumbles certainly raise questions about Qsymia's market potential and has once-bullish analysts cutting their sales forecasts. With at least one rival product coming to market soon, things aren't going to get any easier for Vivus.
"Is obesity a real and a big enough space that can accommodate multiple big drugs?" Cowen & Co. analyst Simos Simeonidis asks.
Simeonidis estimates Qsymia will reach $1 billion in sales by 2019. That's a reduction from his earlier projection of $1.6 billion, and Simeonidis says he only sees the drug becoming a big seller if Vivus finds a large pharmaceutical company partner to help market it. Unlike Arena and Orexigen, Vivus doesn't have a selling partner. Arena is partnered with Japanese drug maker Eisai, and Orexigen has a pact with Takeda Pharmaceutical (TKPHF), also of Japan.
Success for Arena's Belviq isn't a slam dunk. In clinical trials, Qsymia appeared to be the more effective of the three in weight loss -- though it should be noted that there are no head-to-head comparisons. Qsymia has the potential for birth defects, which limits its use among women. Women of childbearing age would need to use birth control if they take the drug. Arena's drug doesn't have such a limitation for use, though it does pose other safety risks.
One analyst predicted last week that Orexigen may ultimately be the winner of the diet pill wars. There is a big market in treating obesity and the problem isn't demand for diet pills -- it's marketing strategy and execution that's holding Vivus back, Leerink Swann analyst Marko Kozul says.
Kozul says Vivus' problems may be good for Orexigen's shares.
"Sophistication in management strategy and capitalizing on runner-up market status could begin to allow Orexigen shares to trade more independently and above the cycle of its peers," Kozul says in a note. He recommends buying Orexigen shares and sets a $12 price target on the stock.
Kozul expects interim analysis from Orexigen's safety study in the second quarter of 2013. He predicts a 2015 approval for contrave but says the drug may get clearance quicker, depending on results of the trial.
With Takeda's muscle, Contrave can be marketed more aggressively and the companies may benefit from watching Vivus' missteps, the analyst adds.
More From Minyanville
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Plus, after much ado, Softbank is oh-so-close to acquiring Sprint.
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.