Obesity Stock Plays That Stand Out From the Crowd
When it comes to diseases that kill, obesity probably doesn’t spring to mind ahead of a disease like cancer, but a closer look shows that obesity takes more lives than one might think. Since the expansive list of diseases and conditions that can accompany obesity, people should pay greater heed to the significant role it plays as a drain on the economy, and investors should be performing their due diligence on some companies entrenched in therapeutics that can make a difference in obesity and co-morbidities. Obesity has been pegged to deadly conditions, including, but not limited to, heart disease, stroke, nonalcoholic fatty liver disease, type 2 diabetes, and certain types of cancer.
The Weight-Loss Pill Solution
Americans need to lose weight to lower risks of an early death or chronic health problems that can be both debilitating and expensive to deal with. Sadly, even with health initiatives encouraging weight loss, the nation is not trimming down. The U.S. Food and Drug Administration has finally approved weight-loss drugs again after 13 years of rejecting drug candidates because of fear of severe side effects, including death, associated with fat-busting drugs approved in the 1990s. In June, the FDA approved Arena Pharmaceutical’s (NASDAQ:ARNA) Belviq for obese adults, nearly two years after initially refusing to approve the drug. Three months later, the agency approved Qsymia, an anti-obesity drug manufactured by Vivus Inc. (NASDAQ:VVUS).
Sales of either drug are not impressing Wall Street, falling well short of expectations. Arena’s marketing partner Eisai Co. reported $4.8 million in Belviq sales during the third-quarter, which translated to about $2 million net for Arena. Analysts were expecting Arena’s revenue from sales in excess of $5 million. The good news for Belviq is that Eisai has committed to double its sales force for the drug to 400 representatives, while some reimbursement hurdles are being crossed and more health plans are providing coverage. Vivus is in a different position after a nasty proxy battle and management changes followed the company’s decision to go it alone in marketing Qsymia. Vivus (and its shareholders) put itself in this pickle, perhaps thinking that big pharma would come looking for a lucrative partnering opportunity upon FDA approval of Qsymia.
This hasn’t happened yet — and instead the company dug itself into a hole by hiring its own sales force, which delivered $6.4 million in revenue during the third quarter. Now Vivus says that it is laying off 20 employees (17 percent of its staff) as it looks to cut costs and explore other marketing possibilities for Qsymia. Vivus should be able to right the ship with Qsymia, but it is going to take time, especially if it can’t ink a deal to share the profits with another firm with more resources to promote sales. Both Arena and Vivus could soon be facing a third player in the space as Orexigen Therapeutics (NASDAQ:OREX) recently disclosed that it has completed extra research, requested by the FDA, to again file its New Drug Application seeking approval of weight-loss drug Contrave.
Orexigen has partnered with Japanese pharmaceutical giant Takeda Pharmaceuticals to market Contrave and hopes to capitalize on paths partially blazed by its rivals. Orexigen can’t get the cart in front of the horse as FDA clearance is, at best, still many months away, but it does have Takeda’s promise to use 2,000 sales reps to push the drug to doctors treating obesity should the FDA give the green light. Data also suggests that Contrave, a mix of bupropion and naltrexone, may be more effective than Belviq, and perhaps comparable to Qsymia in weght loss, which has the company in a decent position heading into 2014. However, each of the drugs has potential safety issues and limitations regarding tolerability that could limit patient enthusiasm and use. The truth is, a best-in-class weight loss drug has not yet been developed.
To date, sales of Belviq and Qsymia have fizzled by most accounts and there is no assurance that a large market for weight-loss drugs will ever materialize. This leaves the challenge and potentially a large payday for companies that can develop safer and more effective drugs, or alternatively, innovative therapies to treat the co-morbidities that inevitably accompany obesity.
Some Companies Deserving Close Attention
Bristol-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) got a big vote of confidence this month for their new diabetes drug when the advisory panel to the FDA voted 13 to 1 to recommend approval of dapagliflozin, nearly two years after it was initially rejected on safety concerns related to cancer and heart problems. Dapagliflozin is currently marketed under the trade name Forxiga for the treatment of Type 2 diabetes patients as an adjunct to diet and exercise in 38 countries, including the European Union and Australia, but FDA approval will give the companies entry in the U.S. markets where roughly 26 million people have diabetes.
The companies’ resubmission of the NDA includes data from new studies evaluating the drug in approximately 6,000 patients in 24 clinical trials. The patient population covered a broad spectrum of diabetes patients, including patients with a history of cardiovascular disease, obesity, hypertension and more. The advisory panel noted associated side effects, but agreed that the benefits far outweigh the risks. Dapagliflozin is a selective and reversible inhibitor of sodium-glucose cotransporter 2 (SGLT2) that works independently of insulin to help remove excess glucose from the body. Dapagliflozin acts by blocking the kidneys from reabsorbing blood sugar (thus putting it back in the bloodstream), so the sugar can then be removed from the body through urine.
What makes dapagliflozin worthy of the watch is the fact that SGLT2 inhibitors are the new kids on the block in diabetes care and competing with proven alternatives, such as Merck’s (NYSE: MRK) Januvia, and old faithfuls, like metformin. Johnson & Johnson (NYSE:JNJ) actually beat Bristol and AstraZeneca to the U.S. market with the April approval of their SGLT2 inhibitor Invokana for diabetes patients, but in some ways that can be helpful with a new class of drugs because it blazes a path with doctors to familiarize with the drug and sets reimbursement principles. Eli Lilly (NYSE:LLY) is also aiming to compete with an NDA filed for its SGLT2 inhibitor, empagliflozin, earlier this year, so investors will be closely watching across the board for acceptance of these drugs in the lucrative diabetes care market.
Galectin Therapeutics (NASDAQ:GALT) is focused on developing new drugs for fibrosis and cancer through its carbohydrate technology targeting galectin proteins, which are known to be key mediators of biologic and pathologic function. While, as mentioned above, cancer is linked to obesity, for this purpose the focus will be on fibrosis — or scarring of organs — an area where Galectin faces very limited competition in an area of great unmet medical need.
It’s important to understand that heart disease can be treated and that even the most dreaded form of cancer can be eradicated from the body, but once an organ is scarred, there is little to nothing that can be done, short of a transplant. Led by CEO Dr. Peter Traber, the former Chief Medical Officer at GlaxoSmithKline (NYSE:GSK), Galectin is aiming to inhibit the galectin-3 protein with its drug GR-MD-02 to treat scarring of the liver, with possible expansion to other vital organs, such as the lungs or kidneys.
The company has received a Fast Track designation from the FDA for GR-MD-02, a novel drug candidate that commenced clinical trials in July for the treatment of patients with nonalcoholic steatohepatis with advanced hepatic fibrosis. Five of eight patients in the first cohort have been infused with GR-MD-02 to date with no serious adverse events reported. The small handful of companies addressing NASH, including Gilead Sciences (NASDAQ:GILD), are targeting the disease at a very early stage when there is a build-up of fat and inflammation in the liver, but it is still impossible to discern which patients will progress to advanced stages of NASH or cirrhosis. Galectin is tackling the latter stage of the disease based upon preclinical research that showed GR-MD-02 could not only reduce inflammation, but reverse the fibrotic condition and cirrhosis, a therapeutic benefit that could complete reshape the current landscape of fibrosis care.
Investors will be attentive to Galectin disclosing some data from the first-in-man study of its kind early in 2014. Given its uniqueness, GR-MD-02 could also be a candidate for other FDA programs to further expedite its development, designations that have proven fruitful to accelerate the regulatory pathway for Gilead’s hepatitis C drug Sovaldi.
Athersys (NASDAQ:ATHX) is in a completely different space than Bristol-Myers Squibb, AstraZeneca and Galectin, as it has established itself as a leader in the burgeoning regenerative medicine industry. For starters, the company has developed a compelling small molecule 5HT2c agonist program for obesity and other indications that could overcome the fundamental limitations of the other approaches that have been approved by the FDA or that are in late stage development. Preclinical studies show that compounds developed at Athersys have a much better selectivity profile, which translates to a better safety profile than Belviq or Qsymia, while also achieving better weight loss. The next step will be to validate those results clinically, which Athersys is likely to do through a partnership.
Interestingly, Athersys has other programs in mid-stage clinical development that are much closer to clinical results. In addition to the 5HT2c program, the company is developing MultiStem, an off-the-shelf, adult-derived, allogeneic cell platform for a bevy of indications, including inflammatory, immune, neurological, and cardiovascular conditions. The company will have data from a Phase 2 program partnered with Pfizer (NYSE:PFE) to treat Inflammatory Bowel Disease in early 2014, but for this exercise, however, the focus will be on ischemic stroke.
Industry-wide, efforts to develop new treatments for ischemic stroke have stagnated over the past decade, since for most approaches patients need to undergo almost immediate therapy to achieve any benefits, something Athersys believes it is well-positioned to change with MultiStem. Currently, the only FDA-approved drug for stroke is the anti-clotting factor tPA (developed by Genentech), but it must be administered within four hours of the onset of the stroke, which for most patients is impractical or even impossible. The primary purpose of tPA is to remove the clot by breaking it down, but treatment outside of the four-hour window is prohibited as it could lead to bleeding in the brain, which could create serious or even life threatening complications.
Athersys, which was recently recognized by Deloitte as one of the fastest growing companies, has shown in pre-clinical research that MultiStem can be administered days after the ischemic stroke to deliver durable improvements in recovery. MultiStem is not a thrombolytic “clot-dissolver,” as tPA is. Rather, these potent stem cells bring with them reparative effects achieved through multiple mechanisms of action, such as promoting tissue repair and formation of new blood vessels where they are needed. At the same time, healthy tissues are protected from neurological damage that is normally responsible for the detrimental and long lasting or permanent physical effects of a stroke.
The company is in the midst of a 136-patient, double-blind, placebo-controlled Phase II trial in leading stroke centers in the U.S. and Europe for patients that have suffered an ischemic stroke. Data to date is building a strong safety profile, with MultiStem being well tolerated in all doses. Based upon continued enrollment, Athersys is expecting to provide results from the study in 2014. Positive data could cut a path for accelerated processes for MultiStem as a novel therapeutic for stroke patients who currently have extremely limited options. Interest in the regenerative medicine area is being further fueled by the recent announcement in Japan of the creation of a new accelerated approval pathway specifically created for regenerative medicine therapies. This new framework could dramatically shorten the clinical testing process and speed commercial development of new products, having a substantial impact on value creation for investors in the process.
Wall Street Sees the Opportunity
Companies, like AstraZeneca and J&J, pursuing SGLT2-inhibitors for diabetes care have seen share price appreciation on development and approval, but Wall Street generally treats blue chips a bit differently as they are looking for sales figures on the new class of drugs as the heavyweights slug it out for market share. Small caps like Galectin and Athersys have seen a rise in valuation in 2013, even though each is in only in mid-stage clinical trials. Wall Street is embracing the opportunity because of the uniqueness and scalability of each company in their respective fields. These companies are addressing conditions with tremendous market potential, supported in part by the U.S.’s obesity problem that is growing, not going away. Perhaps more importantly, the targets of initial focus are part of platform technologies that can grow vertically and horizontally. This makes them attractive growth candidates for partnerships with big pharma, representing the Holy Grail of accelerated share appreciation.
Health care investors need not be reminded that the biotech sector and Russell 2000 have grossly outperformed the S&P 500 this year, and that big pharmas have chopped R&D in favor of acquisitions of mid- to late-stage companies with novel technologies and drug candidates. When it comes to obesity, the few companies directly entrenched in the business should certainly be the subject of due diligence. At the same time, investors should be examining other companies that show potential in treating the many conditions arising from obesity.
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