The obesity stocks are perhaps some of the most discussed and followed stocks in the entire biotechnology sector. The two drugs to receive FDA approval so far are Qsymia from VIVUS, Inc. (NASDAQ:VVUS) and Belviq from Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) Pharmaceuticals . The third competitor, Orexigen Therapeutics, Inc. (NASDAQ:OREX) is still trying to get the FDA to sign off on their obesity treatment Contrave. The drug is undergoing more tests to determine its cardiovascular effects on a large test group. Once Contrave does get FDA approval, the rally in Orexigen Therapeutics, Inc. (NASDAQ:OREX) can be huge, however investors will also be a little cautious considering the post-approval decline of VIVUS, Inc. (NASDAQ:VVUS) and Arena.
The Decline
Shares of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) and VIVUS, Inc. (NASDAQ:VVUS) have depreciated significantly since the FDA granted approval to the two treatments. There are three primary reasons behind this post-approval price depreciation. The biggest reason behind any post-approval decline is the profit taking of long term investors. VIVUS, Inc. (NASDAQ:VVUS) has also suffered due to the poor market performance of Qsymia, which has shown slim sales despite huge expectations from the market. The company recently reduced the price of the drug and also introduced a free trial system that could help increase consumer interest. The retention rates of consumers after the trial period have been pretty impressive.
The third reason has been the unexpectedly poor feedback from European regulatory bodies. Investors of both drugs were expecting their products to receive European approval, but any such acceptance is still largely elusive. Despite these issues, investors still believe in these products, and both companies have market capitalizations in excess of $1 billion.
Belviq Launch
Investors have been waiting for a Belviq launch for quite a while now, but DEA scheduling is still elusive. Otherwise Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is all set to launch Belviq, and the company is partnering up with Esai, which gives this partner a significant share of any future Arena revenues. It is almost 100 days since the DEA application, and the market expects that a decision will be made by the month’s end. On the other hand the European Medical Association (EMA) might give a decision on Belviq during the week’s meeting. If these two approvals come through we will see a mammoth rally in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s stock price.
Pipeline Strength
The key to all biopharmaceutical companies is the strength of their respective pipelines. Even if there are approved candidates available in the market, having a strong pipeline reduces the reliance on a single product and thus reduces the risk for investors. If we compare VIVUS, Inc. (NASDAQ:VVUS) and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), the latter has the better pipeline.
The company has five candidates in the pipeline out of which Belviq has already received FDA approval. In addition to Belviq, three candidates have already entered Phase 1 clinical trials. The candidate APD334 has recently entered Phase 1 trials and could have a sales potential of up to $500 million. On the other hand VIVUS, Inc. (NASDAQ:VVUS) is conducting research on Qsymia for sleep apnea and diabetes.
Bottom line
Arena is a top pick for the obesity sector due to its safer profile and better sales channel. The company is trying to reduce investor risk by taking on other drugs, which could reduce company reliance on Belviq. According to company disclosures it has initiated Phase 1 Clinical Trials of APD334 for autoimmune diseases; this will make Arena a competitor of Novartis’s Gilenya, which has annual sales potential of approx. $500 million.
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) has already applied for Belviq approval in Mexico, which has an even higher obesity rate than the United States. There are some very exciting catalysts approaching for Arena investors, and the stock price could significantly appreciate on any positive news. The company is already trading at reasonable valuations, so there is limited downside at these levels.
The article Exciting Catalysts Approaching for This Bet originally appeared on Fool.com.
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