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Vivus Gets An Encouraging “No”
In a reversal of a recent trend, the FDA actually gave a glimmer of hope to a biotech company and its shareholders. Although almost everyone was counting on the FDA's rejection of Vivus's (Nasdaq:VVUS) obesity drug candidate Qnexa, the FDA left the window open wider than many people expected. With what amounts to an "encouraging rejection", there may yet again be reason to hope that at least one new obesity drug can make it to market in the foreseeable future.
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More Analysis, Please
When the FDA rejects a drug, it sends companies what is called a "complete response letter" (or CRL) outlining the agency's objections and indicating the sort of deficiencies that the company must correct before the FDA will reconsider approval. In some cases, the FDA requires new full-scale clinical trials, while other times the agency simply wants the results of trials already underway or new kinds of data analysis. (For related reading, check out FDA To Obesity Drugs: Drop Dead.)
The biggest fear for Vivus investors was that the agency would demand another full-blown Phase 3 study - a requirement that would have cost tens of millions of dollars and take potentially two years to complete. Luckily, that did not happen.
The FDA has instead asked the company to assess the heart risks of Qnexa on the basis of the data they already have, submit results from a recently completed two-year study, and provide guidance on mitigating the potential risk of birth defects for pregnant women taking the drug.
All things considered, Vivus got off light relative to Arena Pharmaceuticals (Nasdaq:ARNA) and that company's recently received CRL for its weight loss candidate lorcaserin. In comparison, Arena will have a much harder time satisfying the FDA's safety information demands and the prospects of new studies here seems greater. (For more, see Measuring The Medicine Makers.)
Where To Now?
If those FDA demands sound reasonable, they are. The birth defect risk assessment and management should not be too problematic, especially as drugs with serious dangers in this regard have been approved for much less serious conditions (Roche's Accutane comes to mind). What's more, submitting the two-year Sequel data is no big deal at all.
The heart risk data is where things could get a little sticky again. If the company is lucky, it will be able to satisfy the FDA without additional trials. But if the FDA does not find the data satisfactory and convincing, it will likely demand a full-scale safety study. Unfortunately, that demand will not come until after another submission and PDUFA cycle and that would push out approval by years - the FDA recently pulled something similar with a highly anticipated diabetes drug being developed by Lilly (NYSE:LLY).
Vivus Lives Again
This relatively favorable CRL does improve the odds that Qnexa may someday reach the market, but it does not improve the odds to the point where approval is "likely". Moreover, even if Qnexa does get FDA approval, it seems more likely now that there will be tight controls and restrictions that will cut into the drug's sales prospects. Still, that would be a success where others like Abbott (NYSE:ABT) and Sanofi-aventis (NYSE:SNY) have failed. (For more, see Stocks On Drugs: What It Takes To Get High)
The Bottom Line
Shareholders can look for Vivus to respond to these FDA issues and hopefully compile a resubmission that does not require new studies. While Vivus never did partner this drug, it is an open question as to whether a party would jump in now and take the risk (as opposed to paying up for distribution rights after approval, should that happen). In any case, there is more hope here now than before and very risk-tolerant investors may want to take a chance that Qnexa can somehow still find its way to market. (For more, see Can Investors Fatten Up On Weight Loss?)
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IN PICTURES: 9 Simple Investing Ratios You Need To Know
More Analysis, Please
When the FDA rejects a drug, it sends companies what is called a "complete response letter" (or CRL) outlining the agency's objections and indicating the sort of deficiencies that the company must correct before the FDA will reconsider approval. In some cases, the FDA requires new full-scale clinical trials, while other times the agency simply wants the results of trials already underway or new kinds of data analysis. (For related reading, check out FDA To Obesity Drugs: Drop Dead.)
The biggest fear for Vivus investors was that the agency would demand another full-blown Phase 3 study - a requirement that would have cost tens of millions of dollars and take potentially two years to complete. Luckily, that did not happen.
The FDA has instead asked the company to assess the heart risks of Qnexa on the basis of the data they already have, submit results from a recently completed two-year study, and provide guidance on mitigating the potential risk of birth defects for pregnant women taking the drug.
All things considered, Vivus got off light relative to Arena Pharmaceuticals (Nasdaq:ARNA) and that company's recently received CRL for its weight loss candidate lorcaserin. In comparison, Arena will have a much harder time satisfying the FDA's safety information demands and the prospects of new studies here seems greater. (For more, see Measuring The Medicine Makers.)
If those FDA demands sound reasonable, they are. The birth defect risk assessment and management should not be too problematic, especially as drugs with serious dangers in this regard have been approved for much less serious conditions (Roche's Accutane comes to mind). What's more, submitting the two-year Sequel data is no big deal at all.
The heart risk data is where things could get a little sticky again. If the company is lucky, it will be able to satisfy the FDA without additional trials. But if the FDA does not find the data satisfactory and convincing, it will likely demand a full-scale safety study. Unfortunately, that demand will not come until after another submission and PDUFA cycle and that would push out approval by years - the FDA recently pulled something similar with a highly anticipated diabetes drug being developed by Lilly (NYSE:LLY).
Vivus Lives Again
This relatively favorable CRL does improve the odds that Qnexa may someday reach the market, but it does not improve the odds to the point where approval is "likely". Moreover, even if Qnexa does get FDA approval, it seems more likely now that there will be tight controls and restrictions that will cut into the drug's sales prospects. Still, that would be a success where others like Abbott (NYSE:ABT) and Sanofi-aventis (NYSE:SNY) have failed. (For more, see Stocks On Drugs: What It Takes To Get High)
The Bottom Line
Shareholders can look for Vivus to respond to these FDA issues and hopefully compile a resubmission that does not require new studies. While Vivus never did partner this drug, it is an open question as to whether a party would jump in now and take the risk (as opposed to paying up for distribution rights after approval, should that happen). In any case, there is more hope here now than before and very risk-tolerant investors may want to take a chance that Qnexa can somehow still find its way to market. (For more, see Can Investors Fatten Up On Weight Loss?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Stephen D. Simpson, CFA
Stephen D. Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.
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