FDA Approval: End of Arena, VIVUS Running Out of Adrenaline?

The celebrations must be over. That was fast. Arena Pharmaceuticals (NASDAQ:ARNA) and VIVUS Inc. (NASDAQ:VVUS), the two companies that have recently gained FDA approval for their weight-loss drugs – the first such drugs approved by the FDA this millennium – were celebrating their wins.

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)

But investors, apparently, haven’t seen much to celebrate, as the two company’s stocks have suffered in the days since the approvals were announced, and both company’s stocks were tumbling again Tuesday. At midday, Arena’s stock was down nearly 7 percent to $8.70 a share, while  VIVUS Inc was off 4.5 percent to $21.25.

The real question is, why are these stocks down so much today of all days? Both companies already released their earnings reports days ago, and the FDA approvals came earlier this month. This article explored a comparison between the two drugs and their parent companies to try to give some clues.

Well, it seems to be mystery, though some theories are floating. Once article discussing Arena Pharmaceuticals announced that the company was transferring its U.S. Belviq application to Eisai, essentially washing its hands of marketing and regulatory issues involving Belviq. What is interesting is that this transfer didn’t apply to the rest of the world. However, to basically “hand off” the regulatory and marketing aspects of Belviq to another company seems to have dampened investor spirit in Arena, since Belviq is the first drug by Arena Pharmaceuticals approved for use and sale in the U.S. This partnership is certain to limit the amount of revenue Arena is to get from Belviq sales, which could be affecting investors’ opinions about the company.

With the case of VIVUS Inc, some of its news is old. Citron Research published a paper a couple weeks ago saying that Vivus stock is overvalued because of some patent-protection issues involving its weight-loss drug, Qsymia (also called Qnexa). This recent article goes into detail about the patent issue, saying the report is legally misleading and wore, inaccurate. But why is the stock falling instead of rising? If the patent issues are not credible, and Vivus has no partnership agreements that could limit its profits when Qsymia hits the market, why would this company suffer?

The one working theory might be the risk involved with these companies moving their drugs to market at a time when Pfizer’s patent on its popular cholesterol drug Lipitor has expired. With that expiration (as reported in Pfizer’s earnings report Tuesday morning), the market may soon fill up with generic alternatives to that popular drug, which likely means more competition in the marketplace for both Belviq and Qsymia. With that risk, along with all the money the companies invested into their drugs, investors perhaps think the companies will be hard-pressed to sell the drugs at the price-point they would need.