Vivus Inc saw its market value soar by nearly 80 percent on Thursday, as many investors bet that its drug Qnexa will become the first U.S.-approved weight loss pill in 13 years and overcome the safety concerns that have sunk its predecessors.
Weighing the drug's benefit against its potential long-term risk is a task fraught with anxiety for both regulators and investors. While many would like to see a medication available to address America's obesity epidemic, potential heart problems and other issues have them handicapping the odds.
Qnexa took a step closer to approval on Wednesday, when outside advisers to the U.S. Food and Drug Administration voted 20-to-2 in favor of approval.
They also recommended the company conduct a study to scrutinize even more closely any risk of heart problems. That study may be required after the drug is approved. Should the FDA ask for further data on heart risks before any approval, it would delay Qnexa's launch further.
Qnexa combines the stimulant phentermine with the epilepsy drug topiramate, sold under the brand name Topamax. It helped patients lose at least 10 percent of their weight after a year of treatment.
Weight-loss drugs have historically been plagued by safety issues dating back to 1997, when part of the diet drug cocktail known as "fen-phen" was pulled from the market after reports of fatal heart-valve problems. The diet pill Meridia was withdrawn from the U.S. market in 2010 after also being linked to heart problems.
Some investors see huge potential in Qnexa if it becomes a real treatment for obese Americans, who now comprise one-third of the population. Wednesday's action by the FDA panel has raised hopes that two competing weight-loss drugs will also be approved.
"This is one of the most dramatic developments in pharmacotherapy in a long time," said Samuel Isaly, managing partner at OrbiMed Advisors, which held 6 million Vivus shares as of Dec. 31, when it was the company's third-largest investor. "There have been advances in cancer, lupus, heart disease, but this ranks high in terms of dramatic events, and a lot of smart people are paying attention."
Other big investors in the stock as of the end of December were top holder Chilton Investment Company and QVT Financial.
Investors in Vivus have already been burned once after a previous FDA panel voted against the drug in July 2010, causing the shares to tumble as much as 60 percent to $4.90. The stock then made a steady climb back up to $10.55 as of Wednesday and then surged 78 percent on Thursday after the new recommendation by the FDA panel.
Some prominent FDA panel members recommended the study be conducted after approval.
"I think is a benefit-risk trade-off question," Dr. Sanjay Kaul, professor in the division of cardiology at Cedars Sinai Medical Center in Los Angeles, said during the panel discussion. "I would say that of all the obesity drugs, this drug has the highest efficacy in terms of weight loss. This shifts the balance more in favor of requiring a post-approval rather than pre-approval study."
However, if FDA ultimately decides to ask for the study before approval, Kaul said "it would not be unreasonable."
Vivus' Qnexa competes with Arena Pharmaceuticals Inc's lorcaserin and Orexigen Therapeutics Inc's Contrave.
Investors are likewise grappling with the risks against the potential reward.
"The stock broker targets (for Vivus' share price) are all over the map," Isaly said. "The range is $11 to $45, with the average being $27.25.
In the short term the risk is that the FDA overrides its panel, a relatively rare but not unheard-of event.
"Qnexa's near-term approvability can still be derailed by a negative CV (cardiovascular) panel in late March or by just an independent FDA conclusion," Jonathan Aschoff, an analyst at Brean Murray Carret & Co, said in a research note.
The nightmare long-term scenario for investors in Vivus would be for U.S. regulators to approve the drug, only for follow-up studies to reveal previously undetected safety problems that could restrict the drug's use, and possibly even lead to lawsuits.
In 2010, for example, the FDA announced it would significantly restrict the use of GlaxoSmithKline Plc's diabetes drug Avandia after post-approval reviews found the drug may have increased the risk of heart attack. Glaxo has had to contend with thousands of lawsuits related to the drug.
In general, investor sentiment has been improving toward the company. As of Jan. 31, about 17.5 percent of Vivus' shares were held "short" by investors betting the stock will fall. That was down from 18.9 percent in November and down from 24 percent last April.
"We see room for upside from current levels," said Simos Simeonidis, an analyst at Cowen and Co, in a research note. "However, this upside comes with execution and commercial risk."
Simeonidis said that assuming the drug is launched in the third quarter of this year, it could generate sales in the United States and Europe of $2.2 billion by 2019. He also said a big pharmaceutical company could buy Vivus outright.
FDA reviewers said patients taking Qnexa had more safety problems, including memory loss and higher heart rates, than those taking a placebo, though Vivus said there is no conclusive link between increased heart rate and heart health. The company also noted that the drug reduced blood pressure. High blood pressure can increase the risk of heart attack.
From a medical standpoint, the risk of cardiovascular problems from taking Qnexa are being weighed against the heart, and other health risks, such as diabetes, associated with obesity. But with such a history of failed weight loss drugs, regulators as well as investors, are wary.
Shares of Vivus, which is based in Mountain View, California, gained 77.5 percent to close at $18.73 on the Nasdaq, off an earlier high at $21.44.
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