Weight loss drugs are back in the news with Arena Pharmaceuticals (NASDAQ: ARNA) finally winning Food and Drug Administration approval on Wednesday for lorcaserin, which will be sold under the name Belviq by Eisai Co. Ltd. (Pink Sheets: ESALY), a division of Arena.  The FDA has been very hesitant to approve any new weight loss therapies, with Arena’s victory marking the first effort in 13 years to garner the approval of the regulatory agency.  Belviq now joins Roche’s (OTCQX: RHHBY) Xenical as the only FDA-approved anti-obesity drugs on the market today.  With the new approval, and anticipated near term approval of Qnexa, a therapy being developed by Vivus (NASDAQ: VVUS) investors are taking the opportunity to focus on a few other companies, such as Orexigen Therapeutics (NASDAQ: OREX) and Athersys, Inc. (NASDAQ: ATHX), that each have innovative portfolios containing promising anti-obesity products that could represent the next wave of innovation.

The FDA has been very leery after the 1997 withdrawal of then-approved fen-phen (containing a combination of active ingredients fenfluramine and phentermine), which worked on the areas of the brain that regulate appetite and control metabolism.  Much like other obesity drugs, the problem with fen-phen was not efficacy; the drug worked great.  The main problem with obesity drugs has been the presence of serious side effects that typically far outweigh the clinical benefit.  In fen-phen’s case, the side effect was damage to users’ heart valves.  Other weight loss drugs have also had unattractive side effects.  Roche’s Xenical has never experienced widespread use because of only tepid weight loss, which is accompanied by unpleasant effects on the digestive system (think uncontrolled bowel movements).

At the time, it wasn’t well understood what actually caused the problem with fen-phen, but in the past decade an enormous amount of research has shed light on that issue – the cardiovascular problems arose because of “off target” activity at another receptor, and had nothing to do with the weight loss effect.  That research has opened the door for companies that can develop “selective” compounds that preserve the weight loss, but achieve fewer side effects, or even eliminate them.

Arena’s Belviq, which works on the brain by activating serotonin 2C in a manner that increases satiety (the sense of feeling full), faced tough scrutiny by the FDA and was even denied approval back in 2010, after FDA regulators had some unresolved questions regarding safety.  The drug shows reasonable selectivity, and modest weight loss as a result, but there is definitely room for improvement.  It took two years of additional work, but Arena was able to answer the questions with data that ultimately addressed the FDA’s concerns.

Diet drugs have always been hamstrung in the past with low sales volumes resulting from side effects and, in part, by the fact that people don’t use them for very long. Despite the majority of Belviq users in clinical trials only experiencing moderate weight loss, some analysts are targeting more than $1 billion in annual sales for the new pill.  Caution still is issued as the stock price for Arena has mushroomed about 800 percent in the last seven months as traders factored-in a possible approval for Belviq. The FDA has also required a post-approval long-term major adverse cardiovascular events (MACE) study be conducted by Arena to monitor any potential heart-related side effects.

Vivus is another company that many investors are hanging their hats on with Qnexa (phentermine/topiramate), a drug in development for obesity, type 2 Diabetes and obstructive sleep apnea.  Qnexa has also been previously rejected by the FDA over unresolved safety concerns, but in February an FDA advisory panel voted overwhelmingly for approval based on additional safety data. The FDA is expected to decide whether to approve Vivus’ diet drug by July 17, but the market is clearly expecting approval given the recent run up in the stock.  Results from phase 2 and 3 clinical data show that patients taking Qnexa experienced statistically significant weight loss, better glycemic control, and improvement in cardiovascular risk factors, when used in combination with a diet and lifestyle modification program.  If approved, Qnexa is expected to include significant warnings and a risk-management plan to deal with the potential risk of birth defects (potentially an increase in the risk for cleft palates) as well as Phase 4 studies to monitor any cardiovascular risks.

Coming in at a lower price point, but lagging behind in development, Orexigen plans to refile its application with additional safety data for its weight loss drug Contrave within two years.  Much like the other drugs, the FDA initially rejected Contrave over safety concerns.  Contrave is a proprietary combination of two well-established drugs, naltrexone (used in alcohol and opioid addition treatment) and bupropion (an antidepressant and smoking cessation medication), that are combined in a sustained release formulation.  Orexigen believes that bupropion helps initiate weight loss by stimulating the POMC neuron while naltrexone may sustain weight loss by preventing the body’s natural tendency to counteract efforts to lose weight.

In its Contrave Obesity Research, Orexigen evaluated the drug in four Phase III clinical trials, with all four trials meeting their co-primary endpoints as well as key secondary endpoints, showing a significant reduction in body weight, improvements in cardiovascular and metabolic risk factors and reductions in selected food craving measures.

The timeline for Orexigen and Contrave to be resubmitted to the FDA is questionable as the company is in the midst of a colossal, $100 million, 10,000 patient clinical trial with Japanese partner Takeda to appease the FDA on the heart safety risks of Contrave.  Orexigen is on the hook for the entire cost of the trial to prove that the increased pulse and blood pressure of patients during the trials are not creating unacceptable cardiovascular risks. It was these sorts of effects that inevitably led to the end of Abbott Lab’s (NYSE: ABT) obesity drug Meridia.

Sitting a bit further back in development, but perhaps representing the best long run opportunity of all is Athersys, Inc (NASDAQ: ATHX). As shown on the company’s website, results from preclinical studies demonstrate that its therapies, which work through the same mechanism as Arena’s drug, can achieve substantially better weight loss that either Belviq (Lorcaserin) or Qnexa in standard preclinical obesity models.  The company explains that it has mastered the “selectivity” challenge, and can achieve maximum weight loss without the side effects that have limited other efforts.

Given the stakes, that could make Athersys a very attractive partner (or target) for a large company that wants to become a leader in the obesity space – especially given it’s modest valuation (imagine what a safe version of fen-phen could be worth).  There appear to be some investors that agree, as the company has recently started making a strong move on unusually large volume, with recent insider buying as well.   However the market cap for Athersys is still relatively small, at only $50 million.  Interestingly, the company has several mid-stage clinical development programs in some areas that represent huge opportunities, like stroke, transplant support, and heart disease – so everything doesn’t  hinge on success in one area.  The company also has several partnerships already in place, including with Pfizer.

With the approval this week, Arena’s Belviq is the first drug that the company will bring to commercialization.  They have a $2.08 billion market cap.  Vivus received FDA-approval on STENDRA (avanafil) tablets for the treatment of erectile dysfunction in April, but their lead product is Qnexa.  VVUS has a $2.8 billion market cap.  Orexigen does not have a drug on the market and is still a minimum of two years from re-filing their New Drug Application for Contrave and it has a $372 million market cap.

There is no doubt that obesity represents an area of great medical need in the U.S. and across the world, which leaves an enormous marketing opportunity for lead biotechs in the space.

Critics and supporters have all chimed in on Arena and Belviq with some praising the approval by the FDA and others saying that it was a reckless move predicated on pressure to loosen the constraints on obesity drug approvals.  Consumer group Public Citizen has predicted that Belviq will be recalled eventually because of safety concerns.  According to the U.S. Dept. of Health and Human Services, approximately 300,000 deaths per year in the States are associated with obesity.  Echoing concerns about deaths and related diseases such as cardiovascular and diabetes stemming from obesity, Dr. Janet Woodcock, director of the drug evaluation center at the FDA, said in a statement recently, “Obesity threatens the overall well-being of patients and is a major public health concern.”

No matter how Belviq shakes out in the future, the FDA does seem committed to do what it can to bring new products to market while still placing a priority on safety.  This bodes well for companies in the obesity sector that are bringing novel therapies to the table that could represent safer and more effective options.  The discerning investor will complete their proper due diligence to evaluate market potential and comparisons to competitors to make educated decisions about where the true value rests for long investments with the greatest upside potential.