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Diet Pill Scorecard: Vivus, Arena, Orexigen Still Chasing Market Approvals


Vivus faces an FDA panel next month and Arena expects to hear word on approval by midyear. 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 as it looked like it was about to win a three-way race to sell the first new diet pill in the US 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 rejected applications for those companies' weight-loss pills. Orexigen had the backing of a panel of experts advising the FDA and it looked like the company had defied the odds and was rounding the corner to approval. In rejecting the rival diet pills, the US 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 jumped 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 US clearance to sell its 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 February 22 panel will give investors a view of how much progress Vivus 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 excludes 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, it's market potential may be limited.

Meanwhile, Orexigen is the farthest away from a 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 US 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 US and that is leading 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 US 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 says 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.

Twitter: @brettchase

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