by Travis Johnson, Stock Gumshoe | June 18, 2012 11:33 am
The good folks over at the Money Map Press are selling memberships in their “Passport Club” this week, and your impetus for signing up is that they will reveal their top-secret obesity drug that they think will be approved in about a week.
The Passport Club, by the way, is one of those “lifetime” offers that most of the big publishing houses (or at least, most of the ones that are affiliated with Agora) promote every now and then — you pay a big up-front fee ($4,750 in this case) and then get all (or almost all) of their newsletters for life, with no further charge except maybe $100 or so per year for “maintenance” and, for those who still mail, mailing costs.
(Here at Stock Gumshoe we also offer up a lifetime subscription option — we call it the “platinum” Irregulars membership because the credit card companies we use get antsy when we use words like “lifetime,” which, in our case, means you get to be a paid member for as long as Stock Gumshoe exists. And who could imagine a world where Stock Gumshoe doesn’t exist? Of course, our option is only $200, and we don’t charge you any kind of “maintenance fee” — after all, this being the internet age, the 100th member doesn’t really cost us any more than the 99th.)
But I digress…. we were about to make you filthy rich, right? Or at least, find out which stock it is that the Money Map folks think will gild your lily. Here’s how they get our attention:
“For 15 Years Doctors Have Been Pleading, Unsuccessfully, With the FDA to Approve a Drug to Fight a Disease That, According to the World Health Organization, Affects as Many as 100 million Americans… and One Billion People Worldwide.
“On June 27th, They Could Finally Get It…
Paving the Way For What Some Experts Say Could Be The ‘Best Selling Drug in Prescription Medicine History'”
So yes, that “best selling drug in prescription medicine history” bit is not from me … and perhaps it’s not even from Money Map’s own lips, it’s from “some experts.”
But still, they say the decision is expected from the FDA on June 27 and it could be a massively popular drug, so that’s a near-term catalyst and just the kind of thing that can cause abrupt spurts in a stock, which means it’s just the kind of action that causes Scrooge McDuck dreams among investors and, therefore, makes for ad copy that undoubtedly sells newsletters very well.
What is this all about?
Well, they do reveal after a few pages of blather that it is an obesity drug — and you don’t need me (or five pages of charts and graphs) to tell you that obesity is probably the largest and most expensive health problem facing the United States, or that much of the world is likely following in our increasingly deep footprints on that path.
The teased upshot from the Money Mappers is that a third of Americans are potential customers for this drug, and perhaps as many as a billion people globally, numbers which would make Lipitor blush (Lipitor is in decline now thanks to the loss of its patent, but had about 15 years of sales that peaked at over $6 billion a year in just the U.S., the kind of numbers that every pharmaceutical executive mumbles about in his dreams).
Here are a few of the details from the teaser:
“Based on what we’ve found, we believe one drug in particular will break a long string of FDA denials and be approved on June 27th of this year – just a few days from now.
“When it happens, we expect the stock price of the tiny pharmaceutical company that developed this drug to jump substantially, handing you a very real opportunity to double or triple your investment in a matter of hours or days.
“There’s also significant long-term potential here, too.
“Right now, this company boasts a market cap of barely $1.5 billion – about 150th the size of drug giants Johnson & Johnson and Pfizer.
“Now, imagine you’ve just created a drug that 100 million people not only need… but have been waiting almost a decade to get their hands on…
“A drug doctors can’t wait to be able to prescribe to needy patients…
“This is why a number of experts believe it has all the makings of the next “super drug.”
“Even if the annual dosage price for this drug is just $1,250 per year (Lipitor cost north of $2,000 per year when Pfizer held an exclusive patent)… and if only one-tenth of the potential market uses the drug…
“That’s the potential for more than $12 billion in sales for just a single year – nearly $4 billion more than Lipitor’s average annual sales the past three years.”
And, as it’s the FDA and the Money Map folks undoubtedly have some lawyers on speed dial, they do include this disclaimer:
“… can we tell you for certain this will all unfold as we’re predicting, and on the date we’re anticipating?
“No, we can’t.
“As anyone in the drug development business will tell you, the FDA is notoriously unpredictable when it comes to drug approval.
“And even though we have very good reason to believe approval for at least one drug that treats this disease is a ‘slam dunk’ – the FDA has been particularly tough on similar drugs in the past.”
So … they “believe” it’s a slam dunk, but every once in a while the ball catches the rim and comes bouncing right out if you try to slam it too hard. Now that I would know, being not particularly gifted in the jumping department.
Why do they think that the FDA will approve the drug this time around? Well, it seems to be an argument of both efficacy and physician pressure … here’s how they describe it in the ad:
“For the better part of two decades now, they’ve been pressuring the Food and Drug Administration (FDA) – the group that vets the safety and effectiveness of newly developed drugs and grants marketing approval and conditions – to please, please approve any drug that can help curb it.
“And they’re frustrated that every drug that’s come before it that shows promise in dealing with disease has been denied.
“In fact, last year the American Society of Bariatric Physicians took the unprecedented step of publicly questioning the FDA for its refusal to approve what looked to be a series of promising drugs – saying the non-approval ‘handcuffs physicians’ who treat the disease.
“‘I was definitely disappointed,’ said ASBP president Dr. Larry Richardson. ‘This was the third drug the FDA has turned down in the last year or so, for one reason or another.’
“One doctor even called the FDA’s consideration of these drugs “unbalanced” compared to other drugs in terms of weighing the risk/reward factors.
“But today, doctors have good reason to believe their long wait will be over. Millions of Americans sick with the ailment are hopeful, too.
“Right now, there are two drugs up for approval in the coming weeks. And after examining the data from all Phase 3 studies, both received sought after “recommendations for approval” from the FDA’s highly influential Endocrinologic and Metabolic Drugs Advisory Committee.
“While the FDA is not bound to follow the Advisory Committee’s recommendations, they typically do. And the “yes” votes were overwhelming: 18 to 4 (and one abstention) for one drug… while the other drug being considered earned a 20-2 approval.
“Experts assume the panel recommended FDA approval of the drug based on two things:
- the favorable safety findings; and
- the fact that the drugs seemed to work.
“In one double-blind test involving 3,100 people with the disease, over half of them showed significant improvement – while those taking the placebo only fared half as well.”
So that’s the basic premise — which makes sense given the risk-averse nature of the FDA these days. The FDA can easily feel pressured to approve a drug that might save the lives of folks with late-stage lung cancer, for example, since side effects won’t matter much and the drug won’t reach hundreds of millions of people with unforeseen consequences. But for a non-acute “disease” like obesity, which won’t kill anyone overnight, you can easily see the qualms. It could easily be prescribed to millions of people in the first month who, will in need of weight loss, are not actually sick … which gives a great opportunity for any rare side effects to come out that might not have revealed themselves in the few thousand test patients in clinical trials, and they’d then be blamed for a drug that killed people quickly while treating a condition that kills very, very, very slowly and uncertainly.
The big picture argument for helping with the obesity epidemic is a clear one even if the wisdom of a drug-based “cure” is arguable for the bulk of the sufferers, but the risk aversion is greater than with drugs that have more acute life-saving demand in the fight against cancer or heart disease or whatever. So that’s the backdrop, and it has indeed led to many high-profile obesity drugs either being rejected or being told by the FDA to “go back to the clinic, try it on a few thousand more people, and come back in a couple years.”
So the Money Map folks note that there are two drugs in the pipeline for decisions coming inver the very near future, and that the first one is the better bet, with good efficacy and safety performance. Here’s how they hint out the last few details:
“Using the first drug that’s up for approval – the one our research suggests will the first to market and the No. 1 choice of doctors given its more favorable safety rating – overweight study subjects lost 5% of their body weight while on the drug….
“… people who kept taking the pill over the course of the study period kept the weight off – another key factor in the approval process….
“… aside from some headaches and reported dizziness, side effects were minor – according to a study published in the New England Journal of Medicine.
“That’s significant, because many past weight-loss pills have wreaked havoc on heart valve function.”
And that’s about all we see in the way of clues — but it’s plenty. Toss it all into the Thinkolator, and we find that this is our old friend … Arena Pharmaceuticals (ARNA), which was the subject of a bit of a newsletter showdown back in 2009, when they had an obesity drug that was on the verge of receiving happy news from the FDA.
Or not, as the case turned out. And yes, it was the same drug — lorcaserin — that caused ARNA’s previous bouts of stock market elevation, all of which have proved short-lived so far.
And yes, this falls in the category of, “would have been a better idea two weeks ago” — they got the positive vote from the FDA panel, sometimes called the “second to last step” of approval (though the FDA has certainly sometimes turned down drugs that were endorsed by these expert panels, and it was an 18-4 vote so it doesn’t have the extra weight of unanimity). That FDA panel vote led to the stock spiking to about $6 in May (it had been down around $2-3 before that), and it has been cruising upward in recent weeks and is now over $9. So I think we can assume that there’s a good bit of optimism built into the share price.
There’s also some precedence for the stock cratering after disappointing news from the FDA — in 2009 and 2010 it rode FDA anticipation up to $7 or so, then fell by 60-80% on bad news. 2011 was quiet as they gathered more clinical data, but now we’ve seen the optimism build to a crescendo again.
And though there is some risk profile at least whispered about with this stock — like a cancer risk with high levels of lorcaserin in mice, which the company claims is a result of massively higher levels than would result from regular use in humans — it does seem like the safety profile is making investors comfortable again. Whether that safety level is enough for the FDA to approve a drug that, on average, helps patients to lose and keep off something like 3-5% of their body weight, well, that’s the big question. And I can’t answer it.
But there is a catalyst looming on June 27 that will very likely be a huge event for the stock — if the news from the FDA is negative in any way, the stock should crater, and even with the optimism built in by a tripling in the stock price I’d assume that a real approval would still allow the stock to soar higher … after all, this has the potential of being the very definition of a blockbuster drug. I bet we’ll continue to see a lot of options traded on ARNA, as we have each time FDA decisions have been in the offing, but I have absolutely no idea which way it will go. The contrarian bet has gotten fairly inexpensive, as you can buy puts on ARNA for a loss of more than 50% at a decent price (about 50 cents for a $5 put, meaning you can profit if the stock drops by more than 50%), so that also might be a reasonable way to buy some downside insurance if you do decide to try to ride the stock on a positive decision.
Just to be clear, you can’t count on “stop loss” orders to protect yourself from events like the FDA decision, because any impact from the decision is likely to come extremely quickly — if word comes after the market close you could easily see the stock open 80% lower or 100% higher (I’m just making up those numbers, by the way) on June 28th, so the illusion of “protection” from a 15% stop loss doesn’t mean anything because such an order can’t catch a stock whose perceived value changes dramatically in one moment.
The other stock that’s on the verge of an FDA decision, and which has also gotten a favorable advisory panel vote, is Qnexa from Vivus (VVUS) — that decision is expected on July 17, and the advisory panel was even slightly more in favor for that one (20-2 vs 18-4). Vivus is substantially larger, about $2.6 billion market capitalization versus ARNA’s $1.6 billion, and has had a pretty similar ride over the last few years as the drug moved through the approval process in fits and starts, though it has been a bit less volatile — and Qnexa is also in Phase II trials for both diabetes and sleep apnea.
I don’t know whether these drugs will be approved, but the markets are certainly telling us that the odds are in their favor and the overwhelmingly massive size of the addressable market for these drugs means that even rash optimism among investors could possibly be rewarded if either of these drugs gets the expected green light. That said, if you do decide that the odds of approval have improved and either lorcaserin on June 27 or Qnexa in July 17 is worth your gamble, do take a quick look at the five-year charts of both ARNA and VVUS to get a quick sense of what the downside can be if you’re wrong. Just in case.
And, of course, tell us what you think — that little comment box at the bottom isn’t just for show, you know.
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