Health and Healthcare

The Obesity Drug Stock Rally Has Started (OREX, ARNA, VVUS, BAC)

Back in December, we took an in-depth look at what has become a crowded race in the obesity drug market. As we pointed out then, the race has become a battle of not only who has the drug with the highest degree of efficacy, but also which has the highest safety level for the patient. With only one drug currently on the market, and all three of the companies we highlighted trading higher, we thought it might be a good time to review the obesity drug companies.

We focused our December 18 article, “Is There a Winner in the Crowded Obesity Drug Market?” on Orexigen Therapeutics Inc. (NASDAQ: OREX). Trading the day of the story at $5.27, the stock closed yesterday at $6.61, a 25% gain in less than a month. On January 7, Orexigen announced positive progress with the U.S. Food and Drug Administration (FDA) on a faster path for resubmission of their obesity drug Contrave.

“We are pleased that our continuing discussions with the FDA have resulted in a proposal by DMEP which expedites resubmission while also allowing the Agency the time it needs to review the Contrave NDA resubmission,” said Michael Narachi, CEO of Orexigen. “2013 promises to be a pivotal year for Orexigen,” Narachi continued. “We expect to receive cardiovascular data from the Light Study, to file for approval in the U.S. and Europe, and to provide additional information about Contrave’s real world potential with the Ignite Study.”

If the Contrave data can prove that cardiovascular risk is within a tolerable range, a 2014 launch with partner Takeda Pharmaceutical is within reason. Bank of America Merrill Lynch covers the stock and has a $10 price target, and the street view is $11.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) received a proposed DEA schedule IV designation (modest potential for dependency) in December and is awaiting final designation in coming months. The company believes a second quarter 2013 launch for their obesity drug Belviq is likely. On the day of our story, Arena’s stock closed at $9.47. It closed yesterday at $10.81, a 14.15% increase. With a street consensus target of $9.50 and a large following in the short seller community (29.3% of the float was short as of 12/31), Arena seems very dependent on that second-quarter launch.

Vivus Inc. (NASDAQ: VVUS) is the only one of the three companies with an obesity drug on the market. Following the FDA approval of their drug Qsymia last summer, the stock got destroyed. Trading from an intraday high of $31.21 in July, the stock bottomed at $10 in mid November. The basic disappointment came from extremely tepid initial physician prescriptions. While the scripts have grown sequentially since the drug’s introduction, they are still very low. In fact, they only reported 13,000 for the month of December. Vivus closed at $13.18 the day of our story. Closing yesterday at $14.61 made for a 10.85% gain, or nearly 40% from the November lows. The consensus price target is $25. But to get there Wall St, must see positive prescription growth in the coming months.

The bottom line for investors is that the obesity drug market is expected to be in the billions of dollars. As we pointed out in December, the Orex drug will not be a scheduled controlled substance like the competitors’ drugs. Nor does it contain phentermine, one of the compounds that was in fen-phen, the dangerous obesity drug of the 1990s. With all three companies racing for the coveted prize of most prescribed and safest, the road may be rocky, but the rally may have begun.

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