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Investors Are Feasting On Obesity-Drug Stocks

6 December 2013 in Trading Ideas

Congratulations, United States. You’re no longer the fattest country in the Western Hemisphere.

Mexico, hang in there.

But let’s face it – even though Mexico has now topped the US with a 32.8% adult obesity rate, to the 31.8% rate here in the US1, Mexico’s total population is less than 40% of the US’ 317 million people.

In that sense, the scales still tip (too) heavily toward US soil.

And so, too, does the industry that’s attempting to answer the demand for help in battling against obesity and related health issues, whether it’s diabetes care or more direct weight management systems.

Many of these publicly traded companies are collected in our Fighting Fat motif, which just happens to be up 8.8% in the past month. It’s also gained 20.9% so far in 2013.

The S&P 500 is up 1.0% in the past month and has increased 24.5% this year.

If you’re thinking the anti-fat rally is just a recipe for a seasonal early play on this sector ahead of the New Year resolutions, that doesn’t appear to be it.

 

Rather, amid this current broader desire by investors to be anything but risk-averse, stocks of obesity-drug makers have recently been flying on the promise that sales will start to dovetail with the demand of physicians and patients to fight the obesity epidemic.

As the Wall Street Journal noted, sales of obesity drugs made by Arena Pharmaceuticals and Vivus (which, together with Orexigen Therapeutics make up 15% of the Fighting Fat motif), have disappointed investors since their approval by the Food and Drug Administration in the summer of 2012. According to the Journal, many physicians are either unaware of the drugs or are skeptical of their long-term efficacy and safety.

However, recent year-end developments have investors taking notice:

  • Arena Pharmaceuticals shares have jumped 56% in the past month, largely sparked by an expanded marketing deal for its Belviq weight-loss drug the company announced early last month that netted it an upfront payment of $60 million as well as the possibility of $176.5 million depending on regulatory and development milestones.2
  • Orexigen said early last week that it would seek regulatory approval for its Contrave anti-obesity treatment after interim study results showed the drug didn’t dramatically increase patients’ risks of suffering a heart attack or other adverse events. The study was conducted at the request of the FDA, which had rejected Contrave in 2011. Now, FDA approval could come as soon as next June. Orexigen shares have jumped more than 26% in the past month.3
  • Vivus’ stock got a boost in early October after Cowen analyst Simos Simeonidis upgraded the shares in the wake of a study conducted by he and his team of 100 physicians – 50 primary care and 50 obesity specialists — who said that Vivus’ Qsymia showed the strongest efficacy of any of the weight-loss drugs, and could eventually lead the market.4 Likely due in part to the strong performance of Arena and Orexigen, Vivus shares are up 18% since Nov. 11.

Of course, sales growth of these drugs will need to deliver on the kernels of hope contained in the highlights above, probably sooner rather than later.

Fortunately for investors in this or just about any other sector, patience seems to be in ample supply at the moment.

1CBSNews.com, “Mexico takes title of ‘most obese’ from America,” cbsnews.com, July 8, 2013, http://www.cbsnews.com/news/mexico-takes-title-of-most-obese-from-america/, (accessed Dec. 3, 2013).
2Associated Press, “Arena adds to gains on new Belviq marketing deal,” Nov. 11, 2013, http://finance.yahoo.com/news/arena-adds-gains-belviq-marketing-174649603.html, (accessed Dec. 3, 2013).
3Joseph Walker, “Orexigen to Seek FDA Approval for Weight Loss Drug Contrave,” WSJ.com, Nov. 25, 2013.
4Amy Reeves, “Obesity Drug Stocks Jump as Cowen Gets Bullish, Investors’ Business Daily, Oct. 3, 2013, http://news.investors.com/technology/100313-673631-vvus-orex-stocks-up-on-cowen-notes.htm, (accessed Dec. 3, 2013).

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