Approval of Orexigen’s NB32 Further Threatens Obesity Drug Market Print E-mail
By Brian Wilson - Lead Contributor   
Tuesday, 27 May 2014 07:32

Last week, we discussed the broken prospects of Arena (ARNA) and Vivus (VVUS) – the companies that developed the two FDA-approved obesity drugs on the market today (Belviq and Qsymia).

About two years after FDA approval, neither of these drug are making money for their parent companies, and it seems very possible that Arena’s marketing partner Eisai will abandon the obesity drug market if sales do not pick up. Vivus, which has decided to handle its own drug launch, has been unable to gain traction in the market without significant financial loss.

 

Making things worse for Arena and Vivus is the upcoming introduction of a competing drug by Orexigen (OREX) called NB32 (aka “Contrave”).  While NB32 was initially rejected by the FDA in January 2011 due to cardiovascular risk concerns, it appears to be ready for an FDA approval based on the safety data that have been gathered in the last three years from the LIGHT study. This enormous trial is expected to enroll a total of 10,400 patients,

Although the light study is currently being used to support the safety profile of NB32, its true payoff comes with its ability to support indication expansion for NB32 into type 2 diabetes. Because diabetes is a much more structured and “recognized” therapeutic market, analysts seem to expect great things from Orexigen if NB32 can make the jump from obesity to diabetes.

But for the time being, the attention in centered around NB32 and the upcoming PDUFA date of June 10, 2014. Approval of NB32 would bring an unhealthy amount of competition in the obesity drug space that could make it very difficult – if not impossible – for Arena/Vivus to turn a profit. NB32 may also find it difficult to launch a new drug into a saturated and highly competitive obesity drug market.

We are especially concerned with Vivus due to its highly inefficient self-marketing strategy, which is heavily reliant on free promotions that cut directly into the bottom line. High patient turnover and lingering skepticism over the drug’s cardiovascular safety profile have also affected the drug’s momentum in the medical community. The data suggest that primary care physicians are still looking to push exercise and dieting regimens over pills for overweight patients, even if the pills have proven their efficacy in large clinical trials. This aversion to Qsymia (and generic phentermine) makes even more sense when you consider that many of these patients are at high risk for heart attacks. No primary care physician wants to worry about drug-induced heart attacks.

Biotech investors have also been devaluing Vivus due to the lack of a backup plan for Qsymia in the event that it continues to be a commercial failure.  Shares of VVUS are down 49% for the year, largely due to the poor growth and earnings posted by the company in recent months.

Orexigen, realizing the difficulty of launching a primary care drug without a larger pharmaceutical company, made an arrangement with Takeda Pharmaceuticals for the upcoming US launch. According to the company’s statements, Takeda has assembled a team of 900 employees to market NB32 after approval, and seems confident that it can push the drug harder and faster than Eisai and Vivus. Orexigen is also close to submitting materials needed for approval in the EU, which increases the likelihood of an ex-US partnership before the end of this year.

Although we may not share Takeda’s enthusiasm for the prospects of NB32, we do see an opportunity for a PDUFA catalyst trade based on the June 10th 2014 date. Shares of OREX have dropped significantly since March due to a big pullback in biotech and it seems that the stock has finally bottomed out. 

OREX does not like to drop below $5.00/share, and we see the potential for this stock to run back up into the $6-7 range before (or right after) the PDUFA based on the more-than-likely chance of FDA approval. Traders were extremely optimistic on ARNA and VVUS after these stocks had FDA approvals, and we see similar enthusiasm for OREX despite the unimpressive performance of the first two prescription obesity drugs.




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