Arena Pharmaceuticals, Inc. (ARNA), VIVUS, Inc. (VVUS): How You Should Play These Weight-Loss Drug Companies

Orexigen Therapeutics, Inc. (NASDAQ:OREX)’s product Contrave is believed to work better than Belviq, but not as well as Qsymia. Hence, it is a drug in the middle — but one that is expected to compete directly with Belviq in all retail pharmacies. Therefore, Orexigen investors believe that it could emerge as the winner in the space.

The problem is that Contrave is not yet approved. The company’s drug was effective in a large late-stage study, but the company was asked to conduct a cardiovascular study to judge the drug’s effect on the heart. If successful, Orexigen plans to resubmit the drug to the FDA in late 2013 or early 2014.

Will This Time Be Different?

Right now, the weight-loss drug market lies in shambles. Vivus is fighting with shareholder First Manhattan, who is attempting to replace the company’s entire board. Arena continues to market its drug, but sales are still soft.

Orexigen is trading at 40% of both VIVUS, Inc. (NASDAQ:VVUS) and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s market capitalization, and with its cardiovascular results near, I have to believe that large post-data gains could occur. If so, I urge investors to use recent history as a guide for playing Orexigen.

Right now, there are still risks as to whether or not Contrave will succeed in its study, and I believe the market is placing a high valuation on these uncertainties. Furthermore, stock performance from its potential competitors paint a gloomy picture, and with Contrave, there will be three products on the market.

My advice is to wait. The FDA does not have a history of being liberal, and approving two weight-loss products after more than a decade, and possibly one more this year, is a major step. When you see all that Arena and Vivus have had to endure, you must ask yourself how the FDA will schedule Contrave, if there will be any marketing restrictions, and how long it will take for Contrave to enter the market – if successful in its cardio study.

To me, these are too many questions, and I feel it serves as a good indication that you should use recent history as a guide of what may come.

The article How You Should Play These Weight-Loss Drug Companies originally appeared on Fool.com and is written by Sherrie Stone.

Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Sherrie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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