What is the Best Small Cap Obesity Drug Stock? ARNA, OREX, ETRM & VVUS

Small cap biotech Arena Pharmaceuticals, Inc (NASDAQ: ARNA) soared yesterday and last Friday on earnings as well as news that the company will expand its marketing and supply agreement with Japan based Eisai for its BELVIQ (lorcaserin HCl) obesity drug, meaning it might be time to take a closer look at other biotech stocks like Orexigen Therapeutics, Inc (NASDAQ: OREX), EnteroMedics Inc (NASDAQ: ETRM) and VIVUS, Inc (NASDAQ: VVUS) that are in the business of treating obesity. Specifically, Arena Pharmaceuticals announced an expanded agreement providing Eisai with exclusive commercialization rights for all countries worldwide (except for South Korea, Taiwan, Australia, Israel and New Zealand) for BELVIQ where Arena will receive an upfront payment of $60 million and is eligible to receive up to a total of $176.5 million in regulatory and development milestone payments - an increase of $123 million from the amount remaining available under the previous agreement. BELVIQ was approved in June 2012, but didn't reach the market until June 2013 due to logistical concerns like classification by the Drug Enforcement Administration. Its also approved for use in adults who are obese or who are overweight and who have at least one serious medical condition (e.g. diabetes or high cholesterol).

However, small cap Arena Pharmaceuticals is still down 41.2% since the start of the year (meaning recent investors have experienced more than just a weight loss), but its also up 45.6% over the past five years.

In case you have missed out on the recent gains with Arena Pharmaceuticals and given obesity rates in many western countries, here are the other small cap obesity drug or obesity treatment stocks that you might want to take a closer look at:

Orexigen Therapeutics, Inc. A biopharmaceutical company focused on the treatment of obesity, Orexigen Therapeutics' lead product candidate is Contrave which has completed Phase III clinical trials and for which a New Drug Application has been submitted and reviewed by the FDA. In addition, Orexigen Therapeutics has reached an agreement with the FDA on a Special Protocol Assessment (SPA) for the Light Study, the Contrave cardiovascular outcomes trial and the Company's other product candidate, Empatic, has completed Phase II clinical trials. Orexigen Therapeutics is actually scheduled to announce earnings this morning while on Monday, the company announced multiple Contrave® (naltrexone sustained release (SR)/bupropion SR) abstracts accepted for poster presentations and an oral presentation at this week's ObesityWeek meeting being held November 11-16 in Atlanta at the Georgia World Congress Center with the company scheduled for presentations on Thursday and Friday – meaning the stock could move in either direction for the rest of this week and into Monday. In addition and last week, Orexigen Therapeutics announced a commercial supply agreement with Sanofi to act as the company's contract manufacturer for Contrave for territories outside North America. However, its worth mentioning that Contrave awaits possible FDA approval by the fall of 2014 and this is the second attempt to get the drug approved as it initially failed to get approval in 2011 due to heart safety concern. In other words, there is still some long-term uncertainty with the stock. On Monday, Orexigen Therapeutics rose 1.2% to $5.05 (OREX has a 52 week trading range of $3.91 to $7.84 a share) for a market cap of $499.81 million plus the stock is down 3.81% since the start of the year and up 0.6% over the past five years.

EnteroMedics Inc. The developer of the VBLOC® vagal blocking therapy, a first-in-class weight loss treatment for obesity and related co-morbidities delivered by a pacemaker-like device called the Maestro® Rechargeable System, EnteroMedics's therapy is designed to control both hunger and fullness by blocking the primary nerve which regulates the digestive system. The VBLOC Therapy is designed to address the lifelong challenge of obesity. In early October, EnteroMedics issued a brief statement to say that the FDA panel meeting for its Maestro device is expected late in the fourth quarter or more likely in the first quarter of 2014. Canaccord then said that they believe a positive panel result is likely given the relative safety of the device, the lack of alternatives for obese patients and moderate weight loss. Hence, Canaccord raised its price target from $1.50 to $3 plus reiterated a "Buy" rating. Moreover, Roth Capital Partners analyst Chris Lewis said the review process is "on track" and that the FDA didn't put up any major obstacles to the Maestro system. However and while the Maestro system is approved in Europe and Australia, EnteroMedics tumbled in February after the company reported disappointing clinical trial results when it said that patients who were implanted with the device lost more weight than patients who received a sham device, but the weight loss totals were not as good as it had hoped. On Monday, EnteroMedics closed at $1.28 (ETRM has a 52 week trading range of $0.81 to $3.27 a share) for a market cap of $71.19 million plus the stock is down 54.3% since the start of the year and and down 85.8% over the past five years.

VIVUS, Inc. A biopharmaceutical company, VIVUS Inc is developing innovative, next-generation therapies to address unmet needs in obesity, diabetes, sleep apnea and sexual health for the US, European and other world markets. Specifically, VIVUS Inc's Qsymia is an FDA-approved prescription medicine that may help some obese adults or overweight adults who also have weight-related medical problems, to lose weight and keep the weight off. Last Wednesday, investors saw their investment in VIVUS Inc loose as much as 15% in weight after earnings showed that obesity drug Qsymia delivered just $6.4 million in sales and the company announced a 17% workforce reduction out side of sales. Wall Street was also disappointed with a higher than expected net loss. There is another problem for VIVUS Inc: While Qsymia has a weight-loss advantage over BELVIQ, the latter has a more favorable safety profile which might be the main reason sales are not meeting expectations. Nevertheless, VIVUS Inc did strengthened its balance sheet during the quarter by entering into partnerships with Auxilium and Menarini for commercialization of avanafil (STENDRA/SPEDRA) – an erectile dysfunction drug. On Monday, VIVUS Inc rose 5.70% to $9.09 (VVUS has a 52 week trading range of $8.00 to $15.62 a share) for a market cap of $916.75 million plus the stock is down 32.3% since the start of the year and up 64.7% over the past five years. 

 

Finally, here is a look at the performance of all four small cap obesity drug stocks:

As you can see from the above charts, investors have really been yo-yo dieting with obesity drug stocks plus there is some upcoming uncertainty with both Orexigen Therapeutics, Inc and EnteroMedics Inc – meaning you may want to give this speculative subsector either a pass or just some more scrutiny before jumping in.