The obesity industry is new on the stock block, but it has already become one of the most followed industries in our market. The two major competitors VIVUS, Inc. (NASDAQ:VVUS) and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) have both received FDA approval for their drugs. Orexigen Therapeutics, Inc. (NASDAQ:OREX) is still trying to get approval for its obesity treatment Contrave. VIVUS, Inc. (NASDAQ:VVUS) has already launched its obesity pill Qsymia into the US market. The launch of Arena’s Belviq was initially delayed as the company had to wait for a DEA review of the abuse potential of Belviq. It has partnered with Eisai to launch the drug in America; while this reduces a lot of risk on the part of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), it reduces margins as well, as the company has to pay 33% from all wholesale collections to Eisai.
Earnings
Arena not only let investors down by not announcing concrete information on Belviq launch, but also missed the Street’s earnings expectations. The Street was expecting Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) to post quarterly EPS of $-0.03, but the company missed expectations and posted earnings of $-0.10. This was the third time in the last four quarters that Arena has failed to live up to expectations. However, at this stage the earnings for the company are irrelevant as the stock is moving on Belviq news. Although the stock has recovered, the company will have to provide solid information on the drug launch.
European Approval
In more bad news for Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) investors, the market is becoming more pessimistic on European approval of its obesity treatment. According to a couple of research firms, the chances of Belviq approval in Europe are now pretty slim. Needham and Oppenheimer have both suggested to their investors that the tough regulatory environment in Europe will likely result in rejection for Belviq. The competing drug Qsymia has already failed to receive approval in Europe due to potential cardiovascular risks that the drug might pose.
VIVUS, Inc. (NASDAQ:VVUS) has been asked by the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) to perform an additional pre-approval cardiovascular outcomes trial for Qsvia (Qsymia). Although both drugs have a different mechanism and safety profile, with Qsymia more risky, the lack of approval does set a bad precedent for Belviq. The analysts have also said that even if Belviq is approved in Europe the reimbursement rates will be pretty low, which will impact the valuations of Arena.
Bottom Line
The company has failed to meet Street’s earnings expectations or provide any solid information on the launch of Belviq. The real worry for investors should be the increasing pessimism of analysts on the approval of Belviq in Europe. The launch has been delayed but will happen sooner than later, and any news regarding this launch will push up the stock price of Arena. Despite this temporary bad news, I still believe Arena is a strong buy. In my opinion the obesity market is big enough for more than one player. Qsymia, Contrave and Belviq can all become blockbuster drugs and make a lot of money for the investors of their respective companies.
The article Is the Wait Over? originally appeared on Fool.com and is written by Mohsin Saeed.
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