Shares of Vivus Inc rose nearly 88 percent on Thursday as investors bet that its experimental weight-loss drug, Qnexa, would be approved by U.S. regulators.
On Wednesday, a U.S. Food and Drug Administration advisory panel voted 20-to-2 in favor of approval, setting the stage for the FDA to potentially approve the first new weight-loss pill in 13 years and raising hopes that two competing drugs will also be approved.
"This is one of the most dramatic developments in pharmacotherapy in a long time," said Samuel Isaly, managing partner at OrbiMed Advisors, which held 6 million Vivus shares as of December 31. "There have been advances in cancer, lupus, heart disease, but this ranks high in terms of dramatic events, and a lot of smart people are paying attention."
Still, weighing the drug's benefit against its potential long-term risk is a task fraught with anxiety for both regulators and investors. Panelists agreed Vivus should conduct additional studies to assess potential heart problems, with some prominent panel members recommending additional studies be conducted after approval.
"I think is a benefit-risk trade-off question," Dr. Sanjay Kaul, professor in the division of cardiology at Cedars Sinai Medical Center in Los Angeles, said during the panel discussion. "I would say that of all the obesity drugs, this drug has the highest efficacy in terms of weight loss. This shifts the balance more in favor of requiring a post-approval rather than pre-approval study."
However, if FDA ultimately decides to ask for the study before approval, Kaul said "it would not be unreasonable."
Vivus' Qnexa competes with Arena Pharmaceuticals Inc's lorcaserin and Orexigen Therapeutics Inc's Contrave.
Investors are likewise trying handicap the risks against the potential reward.
"The stock broker targets (for Vivus' share price) are all over the map," Isaly said. "The range is $11 to $45, with the average being $27.25.
In the short term the risk is that the FDA overrides its panel, a relatively rare but not unheard of event.
"Qnexa's near-term approvability can still be derailed by a negative CV (cardiovascular) panel in late March or by just an independent FDA conclusion," Jonathan Aschoff, an analyst at Brean Murray Carret & Co, said in a research note.
The nightmare long-term scenario for investors in Vivus would be for U.S. regulators to approve the drug, only for follow-up studies to reveal previously undetected safety problems that could restrict the drug's use, and possibly even lead to lawsuits.
In 2010, for example, the FDA announced it would significantly restrict the use of GlaxoSmithKline Plc's diabetes drug Avandia after post-approval reviews found the drug may have increased the risk of heart attack. Glaxo has had to contend with thousands of lawsuits related to the drug.
Shares of Mountain View, California-based Vivus were up nearly 88 percent at $19.80 in midday trading on Nasdaq.
(Reporting by Toni Clarke; Additional reporting by Vidya P L Nathan in Bangalore; editing by John Wallace)