1 Weight-Loss Drug That Investors Forgot

You know Belviq and Qsymia and Contrave and Empatic, but do you recall the still most widely used weight-loss drug of all? It seems almost like ancient history now, but back in 1999 the Food and Drug Administration approved Roche's (NASDAQOTH: RHHBY  ) Xenical. 

Fast-forward to 2013. Many investors are excited about the prospects for a new weight-loss drug on the market from Arena Pharmaceuticals  (NASDAQ: ARNA  ) . Many are disappointed by the sluggish start for VIVUS' (NASDAQ: VVUS  ) Qsymia. And some are hopeful for potential drugs on the way from Orexigen Therapeutics (NASDAQ: OREX  ) .

Meanwhile, Xenical still reigns as the most-used obesity drug. Are there lessons to be learned from this weight-loss drug that investors likely forgot? Let's take a look.

The tortoise and the hare
Xenical quickly became one of Roche's top-selling drugs and "exceeded expectations by a substantial margin" in the U.S. after its launch. In 2001, sales for Xenical reached $600 million -- not bad, but not blockbuster status. Unfortunately, that also marked the peak for the drug. By 2004, sales were down to $464 million, and GlaxoSmithKline  (NYSE: GSK  ) bought the rights to sell the drug over-the-counter in the U.S. under the brand name Alli.

The lesson for today's investors is that of the old story about the tortoise and the hare. A quick start doesn't always win the race. That could be comforting for VIVUS investors. Qsymia sales in the first quarter totaled $4.1 million, well below analysts' expectations. This slow start added fuel to the fire for efforts by activist investor First Manhattan to replace VIVUS' management team.

Arena investors were excited about initial sales results for Belviq. That quick start is good news, but the real key for Arena will be to sustain solid sales. Remember: Xenical started out as a hare and morphed into a tortoise.

The real tortoise of today could be Orexigen. While Arena and VIVUS battle with their drugs already on the market, Orexigen's Contrave has yet to gain FDA approval. The company hopes to secure that go-ahead in 2014. If its large cardiovascular study goes well, Orexigen could be in position to succeed over the long run -- especially with its partnership with Takeda for commercialization of Contrave.

Market potential is still just potential
The number of obese individuals was high in the early years for Xenical. GlaxoSmithKline and Roche touted the market potential of 129 million Americans at risk for serious health concerns due to being obese or overweight. In 1999, analyst Rene Nordmann said that Xenical "will reach peak sales of up to $1 billion worldwide after five years." It didn't happen. 

GlaxoSmithKline put Alli (its non-prescription version of Xenical) up for sale in 2011 along with a block of other over-the-counter drugs, although the company delayed the sale due to manufacturing problems. Despite a big marketing push, sales disappointed to the point where Glaxo didn't even break out Alli sales beginning in 2010.

When Belviq gained FDA approval last year, some analysts pegged peak annual sales for the drug at $1 billion. In August, analyst Thomas Wei projected peak sales for Qsymia at $1.2 billion (although that estimate was well below Wei's initial projection of $3.6 billion in peak sales for the drug.)Analysts also think that Orexigen's Contrave could hit peak sales around $1 billion.

Deja vu? Maybe not. Times are different -- and so are the newer weight-loss drugs. However, the lesson from Xenical is still one to keep in mind: Market potential is still just potential.

Negatives add up
Perhaps the most important thing to learn from Xenical is that negatives add up. While the drug was proven to be effective in helping individuals lose weight, the side effects were and are absolutely yucky. 

Xenical works by preventing absorption of fat by the body. Unfortunately, that non-absorbed fat has to go somewhere. The drug's side effects include gas, diarrhea, intestinal cramping, and oily stools. These unpleasant aspects of taking Xenical contributed to its lack of sustained commercial success.

Today's group of weight-loss drugs have their own side effects. Patients taking Qsymia, for example, commonly experience numbness or tingling in parts of the body, dizziness, loss of taste or change in the way foods taste, insomnia, constipation, and dry mouth. Belviq's common side effects include headache, dizziness, fatigue, nausea, dry mouth, and constipation. Patients with diabetes also can experience low blood sugar, back pain, and cough. The biggest concern for Contrave is potential cardiovascular issues, which necessitated the study the company has under way.  

Negative effects of taking a drug can hurt its chances of becoming successful. That's not to say that side effects will derail Belviq, Contrave, or Qsymia. It's important, though, to not overlook these hurdles.

History rhymes
I like the old saying attributed to Mark Twain that "history doesn't repeat itself, but it does rhyme." Arena, Orexigen, and VIVUS aren't doomed to experience the same issues encountered by Xenical -- just as Xenical didn't have the same issues as Fen-Phen. However, the general lessons learned from the older drug still apply today. 

At this point, Arena appears to be on the better track to achieve its market potential and avoid missteps from Belviq's negatives. Like with the tortoise and the hare, though, only time will tell which company ultimately wins the race.

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