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Will Diet Pill Maker Orexigen Benefit From Vivus' Troubles?


Vivus shares dropped this week after the company reported weaker than expected sales of its weight loss drug. Orexigen's shares have potential to gain as it moves toward a potential US approval.

MINYANVILLE ORIGINAL It's been a rough week for diet pill maker Vivus (NASDAQ:VVUS). After disclosing Tuesday that early sales of its new weight-loss drug Qsymia is selling slower than expected and that challenges remain, the shares dropped significantly.

Even with a slight recovery, the shares are still down almost a quarter for the week, trading at $10.81 in late morning trading Friday. The stock is down by half in just the past three months. Vivus' drug was launched in September.

The Vivus news dinged the stocks of Vivus rivals Arena Pharmaceuticals (NASDAQ:ARNA) and Orexigen Therapeutics (NASDAQ:OREX) this week as investors figured these two companies would also struggle to sell their obesity treatments. Arena's drug Belviq is approved for sale in the US 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 large safety study to determine the cardiovascular risks of its diet pill contrave. Some trial results should be available next year.

After initially dropping, Arena shares rose 4% this week to $8.10 in morning trading Friday. The stock is up more than 300% this year. Orexigen is down 17% this week but up more than 170% for the year, trading at $4.35 Friday.

Vivus' early stumbles certainly raises 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 (PINK:TKPHF), also of Japan.

Success for Arena's Belviq isn't a slam dunk. In clinical trials, Qsymia appeared to be the more effective drug for losing weight -- 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. Arena's drug doesn't have such a limitation for use, though it does pose other safety risks. View the label here.

One analyst predicted this 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.

Twitter: @brettchase

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