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Local biotechs hope to profit from war on fat

With obesity reaching epidemic proportions in much of the industrialized world, two San Diego companies are hoping to cash in with their weight-loss treatments.

On June 7, Arena Pharmaceuticals (Nasdaq: ARNA) is scheduled to launch its appetite-suppressing pill Belviq, which is projected to generate $250 million in sales during its first 10 months on the market, based on estimates from its Japanese marketer, Eisai Co.

Orexigen Therapeutics (Nasdaq: OREX) hopes to bring its treatment Contrave to market in the near future as well, once it clears a final round of testing required by the Food and Drug Administration. During the UBS Healthcare Conference in New York last week, Michael Narachi, Orexigen’s president and CEO, gave an upbeat assessment of the company’s future.

But the two companies will be facing stiff competition, not only from each other but also from other biotechs, led by the Bay Area's Vivus Inc. (Nasdaq: VVUS), which is already being sold through the mail and in specialty pharmacies, and Denmark’s Novo Nordisk, which hopes to revamp an existing diabetes pill and release it as an obesity treatment by late 2014 or early 2015.

The four companies — whose products concentrate on altering signals in the brain that control the appetite — are chasing a worldwide market could potentially be several hundred million people.

In 19 out of the 34 countries of the world’s leading industrialized economies, more than half the population is either overweight or obese. The U.S. leads the world in obesity, with 34 percent of the population rated as obese, followed by Mexico at 30 percent and New Zealand at 27 percent. Other countries in the top 10 include Australia, Canada, the United Kingdom and Ireland.

Because obesity often leads to heart disease, stroke, diabetes and high blood pressure, it is ranked just behind smoking as the second-leading cause of preventable death in the United States.

“We know [the obesity epidemic is] large, we know it's growing, we know it's not going away and there really aren't good strategies to deal with it, but I think you will see our thesis is that change is inevitable here and that [Orexigen’s treatment] is going to play an important role,” said Narachi.

Narachi told investors that in the latest round of trials, about half the people using its drug Contrave lost at least 5 percent of their body weight during the first 16 weeks of using it and lost an average of 11 percent by the end of a year. He estimated that under a structured, physician-directed program, the response rate would rise from about 50 percent to 70 percent, with an average first-year weight loss between 13 percent and 14 percent.

So far, there’s little consensus on Wall Street over who is going to take the lead in the war on fat.

Roberto Pedone, an independent trader who writes for TheStreet.com, last week listed Orexigen as “one of five stocks under $5 set to soar,” although he based his evaluation more on the trend of the company’s share price, which has risen 19 percent so far this year, than its ability to capture market share.

Mohsin Saeed, who covers pharmaceutical companies on the Motley Fool investment website, wrote that Arena is “the best candidate to succeed in the obesity industry,” based on its relatively early entry into the market and its marketing partnership with Eisai.

On the other hand, a stock analyst and investor from Enhydris Private Equity, said he is shorting Arena’s stock, or essentially betting that the price will go down, because he says its initial annual sales will be just a fraction of what most analysts predict

“I have yet to see a convincing argument as to why Belviq will buck the historical trend of anti-obesity drugs,” the investor wrote on the Seeking Alpha website last week. He did not detail what the “historical trend” was, but Vivus — the only firm selling a treatment on the market — underwent a period of very slow sales before slashing its prices.

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