FDA rejects Vivus' fat pill sending shares down

Subway riders walk through the turnstiles while leaving the U.S. Open in New York September 4, 2007.

GAITHERSBURG, Maryland (Reuters) - The first new prescription weight-loss pill in more than a decade failed to win backing from U.S. health advisers, who said safety concerns about the drug outweighed its ability to help obese patients shed pounds.

Shares of Vivus Inc's sank 62 percent on Thursday after U.S. Food and Drug Administration advisers expressed concern the once-a-day pill could cause depression, memory-loss and potential birth defects if used among millions of overweight or obese Americans.

Their decision stunned investors, who had more than doubled the share price of the California biotech in the last year on hopes that safety woes would not keep the drug from market.

An FDA official was also surprised.

"When you listen to even the no votes, you got the sense that a lot of people, they weren't strongly against the drug," said Eric Colman, deputy director of FDA's division that oversees such drugs.

Shares of rival fat-pill hopefuls, Arena Pharmaceuticals Inc and Orexigen Therapeutics Inc, also sank after the vote.

Approving the drug would be "a huge public health experiment," said panelist Elaine Morrato of the University of Colorado, one of the 10 panelists who urged against FDA approval. Six others supported the drug, called Qnexa.

The FDA will weigh the vote before making its final decision and usually follows its panelists' advice.

The panel's rejection is a blow to Vivus, which has not had a U.S. product approved since 1996.

Cowen and Co analyst Ian Sanderson said it was possible for Vivus to eventually win U.S. approval, but it would first have to test it in as many as 10,000 patients, at a potential cost of $150 million.

"They'd need a partner," Sanderson said.

The California biotechnology company is seeking the FDA's green light with the hope of beating Arena and Orexigen's rival diet drugs to market.

It told FDA's outside experts that Qnexa helped many patients shed 35 to 40 pounds and that its risks were not major.

There is little doubt the drug works, panelists said, but potential side effects such as depression, memory loss, increased heart rate and birth defects were a top worry.

"This medication, in term of efficacy, is far superior than anything that's on the market. The concerns we have are with safety," said Dr. Abraham Thomas of Henry Ford Hospital in Detroit.

Panelists were also concerned since patients may take Qnexa for years, but Vivus' data only covered about 12 months.

Nearly 70 percent of people in the United States are overweight, and more than a third of them are obese, government statistics show.

"It's like instant willpower," said Erin Aycock, a clinical trial patient who lost 50 pounds on the drug but later regained most of it. "I would do anything to be back on this drug."

In a statement after the meeting, Vivus said the panel's vote was disappointing. The company had been expecting FDA's approval decision by October 28.

Vivus has said it expects data from a longer, 2-year study by the end of this quarter.

Shares of Arena closed down 8.4 percent after the vote, reversing earlier gains. Orexigen closed 10 percent lower. Vivus shares were halted during regular trading on Thursday but fell heavily as they reopened in after-hours trade.

Some analysts saw hope for Arena's candidate, lorcaserin, which tentatively faces FDA's advisers September 16 and has 2-year data. Orexigen's FDA panel is expected December 7.

(Additional reporting by Ransdell Pierson in New York and Deena Beasley in Los Angeles; Editing by John Wallace, Andre Grenon and Tim Dobbyn)