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Don’t Buy Orexigen on Diet Pill Hopes

Arena Pharmaceuticals and VIVUS haven't exactly set a bullish tone for OREX

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A Lukewarm Diet-Pill Market

Although Belviq and Qsymia were deemed to be surefire winners before either was approved in mid-2012, neither has been especially impressive. Even after Belviq got past its nagging Drug Enforcement Agency hurdle in May, it failed to take off. (Belviq has the potential to be abused, and therefore needed to be classified by the agency before it hit the market).

Sales of Belviq only totaled $4.8 million in Q3, while Qsymia’s revenue in the third quarter — after being on the market for more than a year — was a measly $6.4 million. That’s a far cry from the $12 million the pros were expecting from Qsymia, and nowhere near the annual sales of $1 billion some pros are expecting by 2019.

Belviq also has a long way to go before reaching the annual sales level of more than $400 million that some analysts had predicted for 2015.

Fans and supporters say these companies need time to develop sales momentum, and that’s basically true. These are exceedingly slow starts, however, and they suggest the opportunity may be far weaker than first assumed.

The hangup is, by and large, a stigma that has stuck with the diet pill industry since the fen-phen fiasco of 1997. That particular drug was eventually determined to cause heart problems, leading to a class action lawsuit that ended up costing billions of dollars worth of damage settlements.

Though it was fen-phen’s makers and not the prescribing doctors that ended up paying the direct price, doctors can still be found to be guilty by association in the court of public opinion. Physicians are understandably not in a hurry to take on that kind of risk again, particularly when better diets and more exercise remain (in general) a more effective approach to weight-loss.

Arena and Vivus both climbed on hype and hope … all the way up to an actual FDA approval. However, once hope became reality and each company won the approval it was seeking, reality set in. Both companies’ current stock price is well beneath the values seen at the time of their respective drugs’ approvals.

Technically safe or not, Contrave isn’t apt to be viewed as significantly different than its existing competition. You may not want to get married to Orexigen on hopes that it’ll be an exception to the industry’s norm so far. The stock is already down 5% today, and even if it does climb back up in anticipation of approval, it’s likely to plunge afterward.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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