The obesity market was one of the most attractive sectors a year ago, and the shares of companies developing anti-obesity drugs were the pharmaceutical sector’s hottest properties. However, it looks like investors hugely overvalued the market for anti-obesity drugs, resulting in tepid performance of these stocks.
Only one company, VIVUS, Inc. (NASDAQ:VVUS) has been able to market its drug. However, VIVUS, Inc. (NASDAQ:VVUS)’ drug, Qsymia, was approved with a long list of restrictions from the FDA. As a result, the company was not able to properly market its drug, which led to less-than-impressive earnings. VIVUS, Inc. (NASDAQ:VVUS) only reported $2 million in revenues for last year’s fourth quarter.
VIVUS, Inc. (NASDAQ:VVUS)’s stock has taken a nosedive since it hit $30 per share after the approval of its anti-obesity drug. At the moment, the stock is trading around $12. So has the stock bottomed out? I think so.
One of the biggest stumbling blocks for the company was restrictions on the marketing of the drug. Qsymia was only available through mail orders, which resulted in lower sales. However, recently, the FDA has relaxed restrictions on the marketing of Qsymia, which should allow the company to bring in higher sales in the future. Now the drug is also available through certified pharmacies.
Another hurdle in the way of higher sales is the high cost of the treatment. Obesity drugs are not entirely covered through insurance; as a result, high out-of-pocket expenses deter patients from adopting this treatment. The company is trying to solve this issue by offering free trial periods, as well as increasing the insurance coverage for the drug. However, the issue still remains, and it’s not likely to be solved in the near future, since the market for obesity drugs is still at a development stage. It will take some time for the company to convince insurers of the definitive advantage of this treatment compared to others.
Going forward, investors should expect a substantial increase in sales due to the relaxation in restrictions, which gives the company more options to market the drug. As a result, the stock price is likely to move higher in the next four to six months, giving a solid base for investors to initiate a position.
Another Player Entering the Market?
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was the first company to get an anti-obesity drug (Belviq) approved in over a decade. However, it has not been able to launch its drug due to some regulatory issues. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s drug had to go through DEA scheduling, which has resulted in the delay of the launch. However, the final decision from DEA should be coming any day now, and the company should be able to market its drug with its partner, Eisai. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s stock has also lingered around $8 since the approval of the drug, and analysts have been reducing their price targets.