Vivus Shares Rally on Hopes Obesity Drug Will Gain Approval Next Year

Vivus (VVUS) shares are soaring more than 25% in Friday trading after the company gave investors hope its diet pill, Qnexa, could be approved next year, even though the U.S. Food and Drug Administration rejected the obesity drug yesterday. The FDA has requested more safety data -- not another clinical trial -- leaving open the possibility of approval next year. For the unprofitable drugmaker, this could mean Qnexa sales of about $500 million by 2015.

The rejection was anticipated as the FDA has been tougher on such treatments after Wyeth's fen-phen fiasco in 1997, approving only one such drug since then. In addition, the agency recently asked Abbott (ABT) to withdraw its weight-loss drug Meridia, and rejected the diet drug lorcaserin from Vivus rival Arena (ARNA). In July, an FDA advisory panel voted 10-6 against approval of Qnexa.

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But while the FDA stated in its complete response letter to Arena that additional clinical studies may be required, the agency only asked Vivus to evaluate the potential effects of the drug on fetus development and create a plan to mitigate such risk in women with childbearing potential. In addition, the FDA asked the company to provide evidence that the elevation in heart rate associated with the once-daily pill does not increase the risk for major adverse cardiovascular events.

Finally, the FDA requested that the Mountain View, Calif.-based company formally submit results from the already completed one- and two-year studies.

Investors and analysts see the FDA's letter and requests more as potholes on the road to clearance, rather than the red light faced by Arena's lorcaserin, which is also seen as the least effective of the three competing drugs. Even the FDA advisory panel conceded that Qnexa resulted in significant weight loss. In its 56-week study, Qnexa helped severely obese people lose an average of nearly 15% of their body weight.

"We remain confident in the efficacy and safety profile of Qnexa demonstrated in the clinical development program," said Vivus CEO Leland Wilson, adding the company plans to respond within six weeks.

And even as the FDA continues its cautionary approach, public health officials stress the need for an even modestly effective weight-loss drug as Americans get fatter and obesity costs the U.S. as much as $147 billion annually in health care, according to a 2009 study from nonprofit RTI International and the Centers for Disease Control and Prevention.

Shares of Arena and Orexigen (OREX) also got a boost from the latest FDA response. Orexigen's Contrave faces an FDA advisory panel in December.