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Birth Defect Worries Rock Vivus

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Investors are caught off guard by FDA concerns about a potential cleft lip side effect related to new diet drug Qnexa.

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New safety concerns are sending diet-pill maker Vivus' (VVUS) shares lower as investors see another roadblock for the company's experimental drug.

The Food and Drug Administration wants Vivus to provide data analyzing the incidence of cleft lip in children of women treated with topiramate for migraine headaches. Topiramate is one of two older drugs combined to create Vivus' experimental pill Qnexa. The other drug is the stimulant phentermine (also one half of the notorious fen phen diet pill cocktail).

Vivus' stock fell 16% to $8.75 in morning trading Friday. The stock traded above $13 at one point last year at the height of diet pill mania.

The FDA already rejected Vivus' bid to sell Qnexa in October but the company vowed to meet with the agency to address any concerns and resubmit an application for approval. The latest update is a shock to investors who figured Vivus was preparing to get its application refiled soon. Now the company says it must first determine the "feasibility" of analyzing existing databases of information on topiramate and birth defects.

"The timing of the planned resubmission of the Qnexa (application) will be determined after agreement with the FDA is reached on the feasibility assessment," the company said in a statement.

So there's an issue of cost and it brings up yet another safety issue -- the FDA was already concerned about the cardiovascular risk of using Qnexa. Vivus notes that during its initial studies of Qnexa, there were 15 women in the trials who had babies and none of the children had cleft lips. However, that's a very small sample.

"While that is encouraging, the sample size is insufficient to assuage the FDA," Leerink Swann analyst Steve Yoo says. He has a buy rating on the stock.

The FDA's cleft lip concerns appear to be related to two separate published reports out of the UK and North America in the last couple of years that linked the birth defects to topiramate, which also is used to treat seizures.

The setback comes after Vivus executives sounded rather bullish about their ability to resubmit a Qnexa application.

CEO Leland Wilson last month talked about "the continued progress Vivus is making in seeking US approval" and added: "We are confident in the data analyses we have compiled" to address safety concerns.

Diet drugs continue to be highly controversial as previously approved drugs have been linked to serious side effects and even deaths. Abbott Laboratories (ABT) pulled its drug Meridia last year. No new diet drug has been approved in the last decade.

Orexigen Therapeutics (OREX) hopes to be the exception and is awaiting word from the FDA this month to see if it will be able to launch its experimental drug Contrave. Shares of that company fell 1% to $8.91 in morning trading. Arena Pharmaceuticals (ARNA), the other diet-pill maker to be rejected by the FDA last year, fell 1% to $1.95.

One definite plus for Orexigen: A panel of FDA advisers recommended the agency approve the drug and require the company to conduct another safety study after the pill hits the market. Some analysts say the FDA may ask for more safety data before it agrees to approve the drug. A decision is expected by January 31.
No positions in stocks mentioned.
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