Arena Faces Europe's Obesity Opportunity


You can't find a hotter topic in health care than obesity. From its impact on public health and quality of life to its long-term costs to advanced economies, rising obesity rates across the world are one of the most polarizing trends for the future. It's no surprise then that Arena Pharmaceuticals and VIVUS -- rivals squaring off with their FDA-approved obesity drugs Belviq and Qsymia, respectively -- capture the hearts and opinions of investors everywhere.

While the FDA has been happy to welcome Belviq and Qsymia to the market, Europe hasn't been so kind. The European Medicines Agency's Committee for Medicinal Products for Human Use, or CHMP, rejected VIVUS' appeal for approval last month and has also raised questions this year about Belviq's approval. While Arena's European fate hasn't been decided yet, what are these companies missing out on if Europe rejects both obesity drugs? Let's go inside the obesity crisis across the Atlantic to see just how damaging a rejection could be.

Lower obesity rates, but no less a crisis
It's easy to point to the U.S. as the capital of the obesity revolution, but Europe's not at all skinny by comparison. The U.K.'s Academy of Medical Royal Colleges has raised concerns that Britain's obesity crisis could soon become "unresolvable," and rates are on the rise across the continent.

According to the World Health Organization, between 2% an 8% of all health care costs can be attributed to obesity in Europe, depending on country and region. That's considerably less than the U.S., where 17% of all health care costs come back to obesity; then again, European obesity rates are considerably less than in America.

15% of French citizens were obese as of 2012, according to a study sponsored by ObEpi-Roche -- while Romania reported obesity rates of just 8% in women and 7.6% in men. The U.K. reported the top obesity rate among European women at 24%, while Malta reported the highest male rate at 22%. Both are still considerably less than the U.S.'s astronomical 35.7% adult obesity rate in 2012, as measured by the CDC.

That's not to say that obesity drug companies like Arena don't have an opportunity in Europe. Obesity rates have been rising fast -- France's 2012 statistic included a 35% increase in obesity in 18 to 24 year-olds in just the prior three years. By comparison, only 11.2% of French citizens were obese in 2008; total obesity rates for the nation climbed almost 34% between 2008 and 2012. Europe's problem is growing fast, but America's obesity crisis still tops the charts among advanced economies.

However, with health care budgets under attack in Europe due to the continent's ongoing fiscal crisis, Europe's ability to pay for obesity drugs is under fire.

Budgets under fire
France's 2012 obesity study showed that poorer people had a higher likelihood of being obese than their wealthier counterparts. While Arena's Belviq isn't a very expensive drug by pharmaceutical standards -- the company set its wholesale price in the U.S. at $200 for a one-month supply -- the poor in Europe can hardly afford yet another bill as the Eurozone struggles to remain intact.

That crisis has forced health care spending down across the continent. European health care spending dipped 0.6% in 2010, the first decline since 1975. Nations hit the worst by the economic crisis showed the biggest losses; Greece's spending per person fell 6.7%, while Ireland's spending plunged 7.9%. If that trend continues, especially since Europe doesn't look like it's escaping from the storm clouds of austerity any time soon, Arena could find its opportunity lessened by the impact of the recession.

Still, Europe has plenty of incentives to do something about its growing crisis. With obesity rates and spending outgrowing both total health care spending and the increase of doctors, many cash-strapped nations will have to cut back in other health care areas to attend to their obese populations in the future. Paying for a weight-loss drug is a lot easier than scaling back already strained health care budgets even further.

What's at stake for Arena?
Of course, all these statistics can't help when obesity drugs haven't had a great history recently in Europe. A couple of approvals and subsequent withdrawals of medications haven't helped European sentiment over obesity medications, and Arena's Belviq is trying to break into a market that hasn't been forgiving to these drugs lately.

Sanofi's Rimonabant had shown significant weight loss, but after the FDA rejected the drug, Sanofi agreed to suspend Rimonabant in 2008 after the European Medicines Agency brought up questions over its safety. The EMEA later pulled Rimonabant in early 2009. Before that, European regulators pulled the marketing license for Abbott Labs' Sibutramine back in 2010 regarding concerns about heart attacks and strokes related to the medication. Sibutramine had similarly shown significant average weight loss in patients, but safety concerns knocked it out of Europe's good graces.

Qsymia's seemingly out of the picture in Europe now, but Belviq's sterling safety record should protect it from the same concerns that sank Sibutramine and Rimonabant across the Atlantic.

But what kind of opportunity is Arena staring at in terms of dollars? France's 15% obesity rate indicates a total of 9.8 million obese French. Snagging even 2% of that number, or 196,000 patients, would bring in more than $39 million per month in sales at Belviq's $200 per month wholesale price -- and that's just France! 2% of the entire obese French population is optimistic at best, but the sheer scope of Europe's obesity crisis underscores what's at stake for Arena.

All of the lofty estimates depend on Arena's success in landing European approval. While no one knows for sure whether regulators will clear Belviq for launch across the Atlantic, what is clear is that the European obesity market is no less attractive than America's despite its lower overall obesity rates. With such a massive crisis like this affecting all ages and impacting straining health care budgets so severely, Arena and its shareholders are looking at a potential gold mine no matter which side of the Atlantic you look at.

Are there any reasons left to own Arena?
With Belviq's FDA approval now a distant memory, investors are scrambling to decide whether to buy or sell Arena. In the Fool's premium research report, senior biotech analyst Brian Orelli takes you through a comprehensive look at this contentious stock, including its massive opportunity, potential pitfalls, and key reasons to both buy and sell. To find out more about Arena click here to access your report today.

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