July 13, 2010 / 11:09 AM / 9 years ago

UPDATE 3-Shares of Vivus up on U.S. FDA review of diet drug

* Qnexa aims to be first prescription diet pill in decade

* FDA staff: Qnexa helps reduce weight, safety a concern

* Advisory panel to discuss Qnexa on Thursday

* Most analysts see positive U.S. review ahead

* Shares of Vivus, other diet pill makers soar (Revises first sentence, adds analyst comments, updates share prices)

By Susan Heavey

WASHINGTON, July 13 (Reuters) - The first potential new prescription weight-loss pill in more than a decade works, according to FDA staff who also flagged safety concerns that Wall Street deemed benign enough to bet the drug will ultimately hit pharmacy shelves.

The review from U.S. Food and Drug Administration staff on Tuesday, contained in documents released ahead of an FDA advisory panel meeting later this week, sent drugmaker Vivus’ (VVUS.O) shares up as much as 19.7 percent.

“The topics the FDA raised are in line with what we expected,” Leerink Swann analyst Steve Yoo told Reuters. He said “the likelihood of a positive panel vote has increased, which in turn increases the likelihood of approval.”

The potential market for Vivus' experimental Qnexa is huge. More than two-thirds of American adults are overweight or obese (link.reuters.com/vup37m) and other attempts at diet drugs have fizzled.

If Qnexa wins the FDA’s seal of approval, analysts estimate it could take in nearly $689 million in sales by 2014, according to consensus forecast data from Thomson Reuters. The biotech’s current market cap is $931.5 million.

Current prescription and over-the-counter weight-loss drugs took in just $381.5 million in 2009, according to IMS Health.

Vivus wants to market Qnexa for adults to use along with diet and exercise. FDA staff reviewers said Qnexa clearly helped people shed pounds but pointed to possible side-effect issues, such as the impact on heart rate, depression and pregnancy.

On Thursday, an FDA panel of outside experts will discuss the safety issues and offer advice on whether to approve Qnexa. The agency will then make the final approval decision, which Vivus expects by Oct. 28.

FDA usually, but not always, follows the advice of its expert panelists.

Whether the FDA ultimately approves the once-a-day pill could signal how the agency plans to assess the latest crop of obesity medicines after years of failed attempts and safety woes.

The FDA decision is also a clear test of the nearly 20-year-old biotech, which has seen its stock surge ahead of what could be a major product for the company since its only other U.S. drug was approved in 1996. Rivals are also eyeing the impact of Vivus’ review on their own pending diet drugs.

Anticipation has boosted shares of the Mountain View, California-based company. It has seen its shares more than double in the past year. Shortly before the close of trading on Tuesday, Vivus stock was up $1.88 or 17.7 percent at $12.53 on the Nasdaq, off an earlier high at $12.75.

It is unclear how much further the company’s shares could rise or where they could settle after the panel votes on Thursday. Analyst estimates for fair value ranged from $9 to $20.

JPMorgan analysts, echoing others, said the FDA staff’s assessment was “far more benign than most were expecting” and therefore was likely to boost Vivus shares.

ADJUSTING NOTORIOUS ‘FEN-PHEN’

Vivus is trying to improve on the notorious “fen-phen” diet drug by combining one of its ingredients — the appetite suppressant phentermine — with the anti-seizure drug topiramate. Fen-phen’s other ingredient, fenfluramine, was pulled from the market after being linked to serious heart valve problems.

All three doses of Qnexa were “efficacious for weight loss,” FDA staff reviewers said. But they added that there are five areas of safety concerns, including the effect on pregnant women and psychiatric side effects such as depression.

Attention span, memory and language problems as well as increased heart rate in Qnexa patients are also potential safety issues, the staff said in documents posted on the FDA's website (r.reuters.com/fuf37m). The potential for increased body acids was also a concern.

Analysts said they were not especially surprised or concerned about the safety issues. JPMorgan analysts downplayed the slight increase in heart rate, given the drug’s “significant improvements” of other related cardiovascular measures such as blood pressure.

But Favus Institutional Research LLC analyst Elliot Favus said the FDA’s documents were “just a laundry list of safety concerns,” adding that approval seemed unlikely.

FDA and its advisers’ action of Vivus’ drug could also signal what lies ahead for Arena Pharmaceuticals (ARNA.O) and Orexigen Therapeutics OREX.O, two other obesity pill makers that have rival products up for U.S. review later this year.

Arena shares were up 11 percent, while Orexigen were up about 20 percent.

Currently available prescription diet pills include Abbott Laboratories’ (ABT.N) Meridia, which carries warnings about high blood pressure and a risk of heart attack and stroke in some patients, and Roche Holding AG’s ROG.VX Xenical, which causes liver problems, uncontrolled bowel movements and gas.

Vivus’ ability to make its case to the FDA and its advisers is also a significant hurdle for the biotechnology company and its its chief executive officer, Leland Wilson.

Qnexa would be the second U.S. drug for the company. Its erectile dysfunction suppository Muse won clearance in 1996 and took in $15.8 million in net U.S. revenue in 2009.

Vivus is working on another ED drug known generically as avanafil as well as other potential products for diabetes and sleep apnea. (Reporting by Susan Heavey; additional reporting by Susan Kelly in Chicago; Editing by Lisa Von Ahn and Matthew Lewis)

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