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Vivus Could Rocket on Success of Qnexa

April 13, 2012 | About:
Vivus (NASDAQ:VVUS) announced in early April that the FDA had deferred a decision on whether to approve the company's anti-obesity treatment, Qnexa, by a period of three months to mid-July. The extension was announced after the company, at the request of the FDA, submitted a risk evaluation and mitigation strategy. The advisers voted in late February in favor of the drug but raised concerns that the drug may have the potential to contribute to birth defects and heart disease. The strategy was based on discussions with the regulators in order to address these concerns. The company said that the extension was a standard procedure to allow time for a full review to be conducted.

Qnexa is a combination of phentermine which is an appetite suppressant and topiramate which is used to treat seizures and migraine. Clinical trials had reported that the drug caused increased heart rates in patients. Vivus is competing with Arena Pharmaceuticals (NASDAQ:ARNA) and Orexigen Therapeutics (NASDAQ:OREX) in a race to be the first to bring a weight-loss medication to market for 13 years. The Vivus stock price dropped by just over 8% in extended trading.

Obesity has now assumed the proportions of a major global medical problem. It is important that about 72 million people in the United States alone are classified as obese and the number is growing at an alarming rate. This is due to increasingly sedentary lifestyles and inadequate attention to diet and exercise. The CDC has seriously suggested that obesity should be classified as an epidemic. No one can ignore the correlation between weight control, diet and exercise, but the facts are that the stresses and strains of daily life mean that many Americans are simply unable to concentrate on these aspects. As a result, many Americans are turning both to prescription and over-the-counter medication in order to counter weight problems.

I would like to point out that Qnexa was rejected by the FDA in 2010 on certain health considerations and the company has spent time in gathering data about potential health risks and has resubmitted the drug for approval. Judging by the fact that an FDA advisory committee has, in February, voted 20 to 2 to allow the drug to be marketed even though they had expressed certain health concerns. I must admit that this makes the chances for FDA approval look pretty good, especially if the new strategy submitted by the company adequately addresses the health concerns. If Qnexa is approved, it would be the first anti-obesity drug on the market since Xenical, manufactured by Roche, was approved in 1999.

As is the case with many new drugs these days, the FDA is now increasingly concerned with the possibility of the enhanced risks of cardiovascular disease to patients. You may recall that Bydureon an anti-diabetes drug manufactured by Amylin Pharmaceuticals (AMLN) only obtained FDA approval after they had carried out extensive studies on the risk of cardiovascular disease. It seems increasingly likely that Vivus may have to present extensive cardiovascular studies to bolster its case.

One of its major competitors, Arena Pharmaceuticals, which is trying to release its own anti-obesity drug, Lorquess (lorcaserin) has had to cope with heightened FDA scrutiny about the risks of cardiovascular disease. Another competitor, Orexigen Therapeutics, which is developing an anti-obesity drug called Contrave, has recently submitted to the FDA a study about the risk of cardiovascular disease.

From the biotech investment point of view, I think it quite likely that a successful anti-obesity drug could be a real blockbuster because of the size of the problem and the potential market. In fact, there may well be room for more than one new drug. If people have a convenient medication to tackle the problem, it is going to be popular because people will simply not want to go through the ultimate drudgery of a proper diet and fitness regime. You could make investment bets on other obesity-related products such as for supplement or exercise equipment but the returns will be nowhere near what a successful drug can provide.

One of the essential elements of the success of a biotech company is the product development pipeline because a number of potentially successful drugs under development could spread out the investing risk while multiplying the prospects of success. Ideally you would like to have a company that has a number of different products under development, all of which are aimed at potentially lucrative market segments. Because of the uncertainties of FDA approval and the time and money involved in the process, a number of products stand more chance of being successful than a single product.

Let us now consider Vivus’s prospects, especially if you already have a stake and are wondering whether to hold on.

Vivus currently has two products in the development pipeline, both of which are aimed at medical issues that are likely to become increasingly widespread. As we have seen, Qnexa is the major drug under development and because of the FDA advisory committee vote. Investors should be upbeat about the prospects of approval, especially if the cardiovascular disease problem is properly addressed. It is extremely unlikely that obesity as a problem is going to get any better in the future and a successful medication is almost guaranteed to provide attractive returns.

In addition, however, Vivus has a drug under development known as Avanafil that is intended to be used in the treatment of erectile dysfunction. Though it appears that every biotech and pharmaceutical company is looking on medications to treat erectile dysfunction, this is likely to be a rapidly expanding market as the baby boomer generation reaches senior citizen status.

Everything considered, Vivus definitely looks like a worthwhile investment prospect, and I would recommend a hold if you already have an investment here.

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