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Why This Obesity Drug Is the Sector's Best Bet

Thursday - 5/23/2013, 4:51pm  ET

The obesity drug space is becoming increasingly complex and hard to predict. After months of waiting patiently, Arena Pharmaceuticals  finally got a DEA schedule for its star drug Belviq in May, which could clear up the primary obstacle to Belviq’s availability for sale in the United States. Investors are now wondering when, exactly, Belviq might launch, and what impact its debut could have on major obesity players' valuations.

DEA Scheduling

Belviq will become the second obesity bet to be launched in the market within a year. Vivus’s  Qsymia is already available  through mail order and specialty pharmacies. The only key player still waiting for an FDA approval is Orexigen  with its candidate Contrave. 

After approval, the FDA asked for a DEA review to assess Belviq's abuse potential. This review took much longer than anticipated, delaying the drug's launch. According to the DEA, the primary ingredient of Belviq, lorcaserin, can have a hallucinogenic effect if users take dosages higher than the ones needed for weight loss.

The Drug Enforcement Administration has finally given Belviq a Schedule IV classification -- its second-most-restrictive, on a scale from one to five. Still, this classification is positive news for Arena investors, who greeted the news by driving Arena's shares 8% higher.

A schedule IV classification marks Belviq as having a low potential for abuse, which  will ensure its availability in local pharmacies. A primary reason behind Qsymia's poor initial sales was its restriction to mail-order pharmacies only. 

Belviq Launch

Arena will be able to start marketing the drug sometime around June 8, since the ruling takes effect 30 days after its publication. Compared to its competitor Vivus, Arena has taken a less risky approach to the launch of Belviq. While Vivus is flying solo for the launch of Qsymia, Arena is partnering with Tokyo-based Eisai for Belviq’s commercialization in the United States.

Despite a favorable schedule, Belviq will still have some restrictions on its storage and distribution. Any Belviq prescription cannot be filled more than five times before being renewed by a doctor, and all prescriptions automatically expire after six months.

Competitive landscape

Vivus remains Arena's only real competitor in obesity treatments, because the third obesity pill, Contrave, is still undergoing extensive cardiovascular trials. The initial sales data for Qsymia was pretty disappointing, but Vivus has since then used massive discounts and other innovative sales tactics to drive up demand.

The ‘Get Started’ program offers 14 days of free Qsymia to prospective clients. The ‘Save Now’ program allows users to buy the first 30 days of drug for a low price of $75. The investing community is hoping that Qsymia sales will improve due to the recent removal of its distribution restriction. Where it was once only available via mail order, patients can now also get the drug through specialty pharmacies.

The sales data of Qsymia and Belviq will give Orexigen a better assessment of Contrave's commercialization obstacles. The drug has failed to receive the FDA approval and is still undergoing an extensive cardiovascular trial. The governing body asked for a reassessment of Contrave's impact on patients' hearts, and the cardiovascular risks it might pose.

The bottom line

Belviq's approval will be a major catalyst for all three leading players in the industry. Its better safety profile makes it the best candidate to succeed in the obesity industry, and solid sales data could seriously move its parent company's share price. Arena will enjoy Eisai's experience in marketing the drug to U.S. patients, and extensive distribution thanks to its favorable DEA review. This is a perfect opportunity for investors to look closer at Arena; its shares could keep appreciating as we move closer to the launch date. 

This article was originally published as Why This Obesity Drug Is the Sector's Best Beton

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