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Fat Loss Pills - How to Profit from America's $20 Billion Waistline War

Companies / BioTech Apr 03, 2015 - 04:27 PM GMT

By: Money_Morning


Ernie Tremblay writes: Weight loss is a $20 billion per year industry. Yet, it seems the more we spend on shedding pounds, the more pounds we have to shed. Today, two-thirds of adults and one-third of children in the U.S. are overweight or obese, and the numbers are climbing.

With a growing market of that magnitude and so much money changing hands, it's no wonder investors' eyes light up when they hear the words "new obesity drug."

But if you want to find the "gold in those hills," that is, to invest in a stock that will really pay off, you have to know where to look.

Because if you stake a claim in the wrong place, you may lose more weight from your wallet than your waistline…

Two Stocks: A Cautionary Tale

Back in 2012, the U.S. Food and Drug Administration (FDA) broke a 13-year dry spell and approved two new bariatric (weight loss) drugs for commercialization in the United States: Belviq (lorcaserin hydrochloride), manufactured by Arena Pharmaceuticals Inc. (Nasdaq: ARNA), and Qsymia (phentermine and topiramate extended-release), manufactured by VIVUS Inc. (Nasdaq: VVUS).

With these drugs, along with diet and exercise, a patient could expect to lose from 5% to 8% of their body weight over time.

In the run-up and subsequent FDA approval, VIVUS' shares nearly tripled, rising from about $10 the previous January to nearly $30 in July, a month after Qysimia's approval. Arena did even better, with shares rocketing from about $1.60 in January to a high of $11.81 in July – a profit of more than 600%.

But just one year later, after drug sales had failed to hit the high numbers everyone had expected, VIVIS stock fell back to the $13 range, and Arena to $8. The bottom didn't exactly fall out, but the numbers were clearly going in the wrong direction.

Obviously, physicians weren't prescribing the meds in anything like the volume everyone expected. A boost was in order, and the American Medical Association (AMA) tried to come to the rescue by declaring it recognized obesity as a disease requiring medical intervention, both for treatment and prevention.

Unfortunately, the boost didn't help.

Today, share value for VIVUS stands at about $2.43, and Arena stock is going for about $4.46.

So, what happened?

Important Considerations for Every New Drug

The most fundamental and important consideration to consider when investing in a small research and development company with a new drug is obvious: Its lead drug must be safe and effective.

A long and arduous regulatory gauntlet, including animal studies, clinical trials, and various stages of FDA review, is dedicated to establishing exactly those two criteria.

When a drug reaches commercialization stage, however, a different set of dynamics takes over: Doctors must be willing to prescribe it, and in most cases, insurance companies must be willing to cover it.

And for weight loss drugs, there lies the rub. Before Qsymia and Belviq, every drug in use for weight loss, whether approved or used off-label, had eventually been pulled off the drugstore shelves by the FDA because of onerous or even dangerous side effects.

Perhaps the most infamous of these cases involved a drug combination referred to as Fen-Phen, which contained two drugs, fenfluramine and phentermine, which together caused a deadly condition called pulmonary hypertension, as well as heart valve problems, in some patients who used them.

The lesson wasn't lost on physicians – or the FDA. For the agency's part, it refused to approve a new bariatric drug for well over a decade. As far as doctors were concerned, medications came with a risk they simply weren't interested in exposing their patients to, especially for long-term use.

So when Qsymia and Belviq became available, doctors were understandably skeptical and cautious. They had been burned before.

And then there was the problem of insurance coverage. In short, most plans wouldn't cover this type of drug.

To a lot of people, that policy didn't make sense. According to the Centers for Disease Control and Prevention (CDC), obesity came with a whole host of risks for serious, often life-threatening, health problems including:

  • Coronary heart disease, stroke, and high blood pressure
  • Type-2 diabetes
  • Cancers, such as endometrial, breast, and colon cancer
  • High total cholesterol or high levels of triglycerides
  • Liver and gallbladder disease
  • Sleep apnea and respiratory problems
  • Degeneration of cartilage and underlying bone within a joint (osteoarthritis)
  • Reproductive health complications, such as infertility
  • Mental health conditions

You would think a little preventive medicine where obesity is concerned would save insurance companies a ton of money, but for the time being, many, if not most, of them are digging in their heels.

The resultant cost to patients averages about $2,400 per year. A 25-year-old person dealing with obesity could easily be looking at a lifetime expenditure of $120,000 or more. Understandably, they're resistant to paying – especially when the media insists on labeling obesity as a self-control problem, not a medical one.

For patients who still want a bariatric drug but at a bargain basement price, they can still get phentermine, which turned out to be the safe half of the Fen-Phen combination, for a few dollars a month.

For investors, these factors have resulted in lackluster returns for VIVUS and Arena. Docs don't want – and don't know how – to prescribe the drugs, insurance carriers don't want to cover them, and patients don't want to pay out of pocket.

I should mention that Novo Nordisk A/S (NYSE ADR: NVO) also had an injectable weight management drug, Saxenda, approved in December. But given the average patient's aversion to injection, I wouldn't be surprised to see Novo Nordisk do even less business with its drug than the other two firms did with theirs.

So for investors, it looks as if weight loss drugs have turned out to be fool's gold.

Except that isn't the end of the story…

The Segment's Best Profit Play Right Now

Last September, a company called Orexigen Therapeutics Inc. (Nasdaq: OREX) received approval for its weight loss drug, Contrave, which combines two drugs already on the market, bupropion (Wellbutrin), an antidepressant, and naltrexone, a drug used to treat addiction.

At the time, Contrave seemed to aggravate high blood pressure and resting heart rate, so the FDA approval came with a requirement that the label preclude use if the patient has uncontrolled high blood pressure, and it recommends that the patient tell the prescribing doctor if he or she has heart disease, high blood pressure, or a history of stroke or blood clots.

There was also a request for a post-approval study to identify any increased risk for heart disease in patients taking Contrave.

And then came the big surprise…

Interim results from the study actually showed a 30% reduction in heart attacks, a 37% reduction in strokes, and 74% reduction in heart-related deaths. Not only that, but the health improvements occurred independently of weight loss.

Positive effects like these are unheard of for any heart medication.

Of course, interim results are just that: data showing drug effects part-way through a study. The FDA has warned that these numbers don't yet firmly establish a cardio-protective effect for Contrave.

But if they hold up, there is no doctor who would balk at effecting substantial cardiovascular health improvement in his patients, while helping them keep their weight under control. And it's unlikely that any insurance company wouldn't put the drug on its formulary (the list of drugs it covers).

Orexigen currently has a market cap of about $950 million. Over the past two months, share value has risen by more than 50%, and they currently sell in the $7.50 to $7.90 range.

If the final data bears out the interim results, we could be looking at the real gold in the weight loss hills – one of the biggest medical blockbusters of all time.

Source :

Money Morning/The Money Map Report

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