A Breakthrough for Obesity?

Despite growing awareness of America’s addiction to overeating, the average waistline keeps expanding. According to data from the Centers for Disease Control and Prevention, more than 35 percent of Americans are now considered obese. And complications from obesity–ranging from heart disease to cancer and diabetes–are killing us at a disturbing pace.

In fact, when taking all its related diseases into account, obesity is the second leading cause of death in the US, killing about 300,000 Americans each year. It’s also an expensive condition, racking up an estimated $147 billion in medical costs in 2008 (year for which the most recent data were available).

Arena Pharmaceuticals’ (NSDQ: ARNA) Belviq is the first obesity drug approved by the Food and Drug Administration (FDA) in 13 years.

The drug works by activating the brain’s receptors for serotonin, a neurotransmitter that in addition to helping control mood also causes feelings of satisfaction and being “full.” Belviq is designed to trigger the serotonin receptors specifically tied to appetite.

Patients who took Belviq in clinical trials lost between 3 percent and 4 percent more weight than those receiving placebos and, after two years, nearly half of patients lost at least 5 percent of their body weight.

However, numerous weight-loss drugs have been tied to serious health complications over the years, such as heart damage caused by fen-phen and Meridia. While Belviq has been shown to have similar potential to damage the heart, studies conducted by Arena demonstrated that such an outcome is extremely unlikely at the low doses at which the drug would typically be prescribed.

Despite having received FDA approval, Belviq still isn’t widely available because the Drug Enforcement Administration (DEA) has yet to classify it. Every medication available in the US is “scheduled” by the DEA based on its potential for abuse. Drugs with no potential for abuse aren’t scheduled, those that have very low potential for abuse are classified as Schedule V, and those with the highest risk are Schedule I.

At present, the DEA is considering the fact that the drug has been reported to cause side effects such as euphoria and hallucinations. As a result, an advisory panel has recommended a Schedule III classification, but a final ruling is still pending while Arena and the DEA work out the details.

Since the news of Belviq’s approval, Arena’s stock has been trading in a range of $8 to $10 per share, as investors wait for the drug to actually hit the market. At this point, we can expect the drug to launch sometime this quarter and, once that occurs, there should be a bounce in share price. There will be even more upside momentum if sales results are strong in the coming quarters.

Granted, there’s no guarantee that sales will be robust. After Belviq was approved last year, another weight-loss medication called Qsymia, made by Vivus (NSDQ: VVUS), was approved by the FDA and launched almost immediately. Since then, sales of Qsymia have been sluggish, and investors are worried Belviq could see similar results.

But comparing the two drugs is like comparing apples to oranges.

While Belviq operates by using pathways similar to antidepressants, which are already widely available and have proved generally safe, Qsymia combines topiramate with phentermine.

Topiramate is normally used as an anti-seizure drug and migraine treatment, but it has also been shown to increase feelings of “fullness” and make food less appetizing. Phentermine is an appetite-suppressant that has been shown to increase blood concentrations of the hunger-regulating hormone leptin.

The topiramate used in Qsymia has previously been linked to birth defects, such as cleft lip and palate in newborns. And in clinical trials, patients who took Qsymia commonly exhibited side effects including increased heart rate and metabolic acidosis, which can cause hyperventilation, fatigue, and an extreme aversion to food.

So while Qsymia is generally safe, its potential side effects are more serious and persistent than those caused by Belviq. Though I don’t want to downplay the potential risks associated with Belviq, its current bureaucratic hang-up with the DEA has more to do with the growing problem of prescription drug abuse than actual safety concerns.

Once Belviq enters the market, I believe it has real blockbuster potential. In addition to medical costs associated with obesity, it is estimated that Americans are spending close to $20 billion per year on weight-related products, most of which demonstrate little to no efficacy. Since Belviq actually works, it could change the face of the weight-loss market.

Additionally, US health insurance giant Aetna (NYSE: AET) has already added the drug to its formulary, providing coverage for Belviq in advance of its launch. That’s largely thanks to the fact that the drug has been proved safe and obesity costs insurance companies billions of dollars each year. If insurers encourage doctors to use a drug that succeeds in helping patients lose weight, they will save billions of dollars on treating heart disease and diabetes alone.

Although Belviq isn’t a done deal yet and there’s the possibility of additional volatility ahead for Arena’s share price, the stock is still a great long-term bet for investors.