Buy VVUS, ARNA, and OREX

Vivus Inc (VVUS), Arena Pharmaceuticals (ARNA), and Orexigen Therapeutics, Inc (OREX) are all working towards FDA approval of new obesity/weight loss drugs.  I believe that all 3 drugs will become blockbusters within the next two years.

VVUS current market cap  of 931MM and closed at $11.52 a share on 7/9/2010.
ARNA current market cap of 393MM and closed at $3.88 a share on 7/9/2010.
OREX current market cap of 193MM and closed at $4.17 a share on 7/9/2010.

According to the FDA guidance, obesity drugs should reduce total body weight by at least 5% in one year.

VVUS has first mover advantage,  meeting with an FDA advisory committee on July 15th, 2010 for their obesity drug Qnexa.  The positive: Qnexa has the highest weight loss of the group at 14.7%.  The negative: Qnexa also had the largest drop out rates (did not complete the study).  While the completion rate was only 59% for those patients taking the high dose, the patients who completed the placebo was only 47%.  While there were some minor side effects, my speculation as for the high drop out rate is from Phentermine.  Qnexa is a combination of two drugs, Phentermine and Topiramate, which are both currently on the market as separate drugs.

Phentermine was one part of the now infamous Fen-Phen drug (the other drug was Fenfluramine).  Fen-Phen was voluntarily recalled in 1997 due to potentially fatal heart valve problems.  Phentermine, which was first FDA approved in 1959, had no safety issues until used as part of Fen-Phen.

During this time, Phentermine (as a stand alone drug) was not asked to be taken off the market. Phentermine did not interact with Fenfluramine in a way that made Fenfluramine more dangerous, Fenfluramine was dangerous by itself.  This is why Pentermine was not taken off the market and is still prescribed today.

ARNA will be meeting with an FDA advisory committee on September 16, 2010 for their obesity drug Lorcaserin.  The positive: Lorcaserin had the least amount of side effects.  The negative: Lorcaserin  had the least amount of weight loss at 5.0%, just barely meeting the FDA guidelines of efficiany.  On July 1st, ARNA signed a deal with Eisai, a large pharmaceutical company (3.7B in sales in the U.S), believing that Lorcaserin will ultimately be approved. Eisai will be able to help guide ARNA through the FDA approval process. 

OREX will be meeting with an FDA advisory committee on December 7, 2010 for their obesity drug Contrave.  The positive: Contrave had weight loss of between 5% and 10% and the drug was also studied for the effect on Type II diabetes.  The negative: Contrave could be the last drug approved.  ARNA has publicly stated that they are now studying the effect on Type 2 diabetes, while VVUS (although not publicly stated) are sure to be studying for Type II diabetes as well.  

Ultimately, I recommend buying all 3 stocks in equal portions as I believe all three drugs are approved.  I think all 3 drugs can be big winners.

For more information please see the following links

A good overview of all 3 drugs and results
http://finance.yahoo.com/news/FDA-to-review-first-of-3-new-apf-3053966258.html?x=0&.v=1

VVUS press release concerning Phase III studies
http://ir.vivus.com/releasedetail.cfm?ReleaseID=407933

Chump1 is currently long all 3 stocks ahead of the FDA advisory panel for VVUS Qnexa drug.