Arena Pharmaceuticals, Inc. (ARNA), VIVUS, Inc. (VVUS): Payday on the Way for America’s New Epidemic Disease?

How much is one word worth?

If that word is “disease,” it could be billions of dollars. The American Medical Association, or AMA, recently decided to categorize obesity as a disease. Almost 37% of adults in the U.S. and around 17% of children are obese, prompting many to refer to the condition as an epidemic.

If obesity gains acceptance as a disease, it could open the doors for significant new spending on treatments. Is a payday on the way for some companies helping to fight America’s new epidemic disease?

Echo effect
Before we get ahead of ourselves, keep in mind that the AMA’s decision doesn’t mean much on its own. No insurance company or governmental agency is obligated to begin paying for additional treatments just because the AMA now calls obesity a disease.

However, as the largest organization in the nation representing physicians, the AMA carries considerable weight (no pun intended). Already, other influential parties are echoing the decision made by the AMA.

For example, Sens. Tom Carper and Lisa Murkowski and Reps. Bill Cassidy and Ron Kind jointly wrote an op-ed piece in the New York Times commending the AMA’s action. The legislators have introduced a bill in both chambers of Congress to allow Medicare to reimburse for obesity drugs and promote intensive behavioral counseling for obesity. This bill is bipartisan. Carper and Cassidy are Democrats, while Murkowski and Kind are Republicans.

Money on the way?
The AMA’s move could kick off a change in the way insurance companies reimburse for obesity treatments. If that happens, it should particularly benefit pharmaceutical companies that make FDA-approved weight-loss drugs.

How did Wall Street react to the potential good news for these companies? Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s shares climbed 7% since the AMA decision. However, VIVUS, Inc. (NASDAQ:VVUS)’ stock is down by nearly the same percentage. It’s not that the classification of obesity as a disease is a bad thing for VIVUS, Inc. (NASDAQ:VVUS). Investors are probably more concerned about the impact of head-to-head competition with Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s Belviq.

The check’s not in the mail
It stands to reason that if insurance companies are pressured to pay out more money for obesity treatments, their profits could suffer.