Short selling targets: Vivus (VVUS) and Orexigen (OREX)

I want to quickly point out two short selling/put option purchasing opportunities.  Although, significant intraday drop in share price had already taken place, I believe there's still room to the downside.  

VVUS jumped 16.3% following announcement of 2-year follow-up clinical trial data, showing patients experiencing reduced blood pressure from VVUS' experimental obesity drug.  Intraday drop already amounted to 10% and there's more room to drop.  Apr $7 put options surged 218% from the falling stock off of today's peak.  Read more about Vivus announcement.  

Orexigen, a direct competitor of Vivus in the diet pill arena, also soared 22% following announcement of follow-up clinical trial data, showing patients benefiting from sustained weight loss of >10% for more than two years.  Intraday drop already added to 6.6% and more share dumping is expected in the next few days.  Apr $3 put options surged as high as 300% from the falling stock off of today's peak.  Read more about OREX press release.  

Orexigen (OREX) - chubby gains from Orexigen's rejected diet pills

On Tues Feb. 1, Orexigen was faced with a train wreck as FDA rejected their high anticipated anti-obesity drug, Contrave.  The stock (OREX) took an immediately hit, opening with a 75% haircut.  Readers who took advantage of the advice given in several of my previous posts (1,2,3) enjoyed a large reward from their put options.  Take Feb $9 put options as an example, the price spiked from $1.75 to $6.50 after Contrave's rejection by the FDA, representing an incredible 371% surge overnight (meanwhile call options, used to hedge the puts, of course slid from $1.70 to $.0.05)!  If you had followed the call/put options combos suggested here, you would have enjoyed the following gains:  

Options combo #1 (low risk/reward)

Options combo #2 (medium risk/reward)

Options combo #3 (high risk/reward)

Congrats to those who held their put options through the major decision!!!

Orexigen (OREX) - failed diet pill brings FAT profit! Contrave's PDUFA, are you in yet?!

As mentioned in my previous blog entry, Orexigen is booked to hear from the FDA concerning its diet pill's approval on Monday Jan. 31, 2011.  To avoid early announcement by the agency (like what happened with Mannkind), investors are recommended to get in on the trade today or tomorrow (Friday at the latest).  I've devised 3 call/put options combos for readers based on individual's risk tolerance level.  Again, obesity is not directly life threatening and terminal like cancer and has many more options, including diet management and exercise, which are risk-free and proven effective.  As a result, to warrant a green light, any new weight loss drug must demonstrate an outstanding efficacy and safety profile, which Orexigen's Contrave does not possess.

Pick your combo now and see if the failure of this diet pill will leave behind a trail of fat greasy profit.

Orexigen (OREX) - call/put options choices for upcoming FDA PDUFA action date for Contrave

Contrave will likely be REJECTED

The FDA is expected to release the final decision on Monday Jan. 31, 2011 regarding the marketing clearance of Orexigen's late-stage diet pill, Contrave (combination of bupropion and naltrexone).  If passed, Contrave will be the first FDA-approved weight loss drug in more than a decade.  Based on the limited effectiveness of Contrave in cutting body weight compared to the placebo ('sugar pill') in addition to the adverse effects found associated with the new medicine in the clinical trials, I maintain my belief that the HIGH risk-to-benefit ratio does not warrant an approval from the agency.  The FDA's request for extra birth defect information on Friday from Orexigen's close competitor, Vivus, concerning the company's investigational diet drug, Qnexa, sent Vivus' shares down more than 16%, dragging down Orexigen's shares along the way.  It is difficult to imagine that the drug regulator will let ANY weight loss pills pass easily at this moment!

Low to high risk call/put options combo

I came up with 3 call/put options combo that can be used based on the individual's comfort level toward risk.  Essentially, we would purchase BOTH call and the put options and, depending on FDA's announcement, there will be 3 different outcomes.

1) Low risk (low return) --> 8% loss vs. 28% gain

2) Medium risk (medium return) --> 44% loss vs. 64% gain

3) High risk (high return) --> 80% loss vs. 100% gain

I didn't specify the price of the call/put options because the % change will be similar more or less regardless of the options price.  The exact price will depend on the timing of purchase.  If you are risk-adversed, then go with combo #1.  However, the information that Contrave is likely to be rejected may substantially 'lower' the risk of combo #3, thereby making it the best choice?  

Note:  FDA may release the announcement anytime between now and Monday Jan. 31, 2011, and therefore one should consider purchasing these options some time around this coming Wednesday Jan. 26, 2011.  

Orexigen (OREX) - FDA to rule on Orexigen's Contrave on Jan. 31, 2011 (yet another rejection?!)

Next one up

Orexigen (OREX) is the next company on the radar.  Scheduled to hear from the FDA in just 6 trading sessions (Mon, Jan 31, 2011) regarding its weight control medicine, Contrave, Orexigen is a prime target for rapid returns.

Trading map

With a HUGE catalyst ahead, expect a mini surge (anywhere from 3-7% in the share price) from now to Jan 31, 2011.  Why not a greater increase?  Well, from the beginning of this year up until last week, the stock had run up approx. 24% before retracting to its current level (roughly down 12% from the peak of $10.03 on Jan 12, 2011).  The is due to investors taking some profit from the run-up.  However, this dip creates a perfect opportunity for OREX to climb again before FDA's announcement.

What to do exactly?

1) Look to purchase Februrary $9 call options ($1.40) immediately, wait for it to rise, and SELL them by FRIDAY Jan 28.  You do NOT want to hang on to these as I anticipate a rejection from the agency.

2) Meanwhile, look to purchase Februry $9 or $10 put options (whichever possible depending on how high the stock runs by next week).  If and when Orexigen receives a complete response letter from FDA, the stock will crash and put options would shoot through the roof.  

To know more about Orexigen and Contrave, see previous blog entries on 155% surge upon FDA Advisory panel recommendation and 138% return on put options in 2 days.    

Vivus Inc. (VVUS) - unfinished battle for Qnexa

Vivus surged on Friday despite FDA's issuance of a complete response letter (CRL) to the company's experimental obesity drug, Qnexa.

The reasons for the substantial spike in Vivus' share price are the following:

1) Vivus' follow-up data package, ready to be submitted in 6 weeks (no lengthy additional trials needed)

2) FDA's seemingly 'neutral' stance on the possibility of approving a new diet pill (based on their response to Arena's angry investors)

3) Renewed investor confidence/interest after Arena's failure to obtain FDA's approval (potentially 'larger' market share for Vivus)

4) Qnexa's impressive efficacy in inducing weight loss (12-15% compared to placebo)

5) Qnexa's additional efficacy in diabetes
6) Qnexa's relatively mild side effects (non-tumor associated, unlike Arena's Lorcaserin)

Based on their interpretation of the CRL, JP Morgan upgraded VVUS from neutral to overweight and shifted the price target up from $13 to $16.  

Orexigen Therapeutics (OREX) - light volume behind rising share price (strong buying interest??)

While a drastic jump in Orexigen Therapeutics' stock (OREX) was not seen (due to many factors) after OREX's close competitor, Arena Pharmaceuticals (ARNA), received a negative review by FDA's advisory panel of the company's obesity drug candidate, a 'modest' gain of > 7% was sufficient to support the idea that investors have not completely given up on the company.  What's more interesting is the light trading volume behind the climbing share price, signifying a strong interest in the stock and a potential run in the near term.  Could encouraging 'insider information' have leaked to a small group of people to prompt the buying momentum?!?!  Perhaps.  Investors should be cautious, however, about hanging on to the stock too long as ARNA and VVUS' PDUFA dates quickly approach (rejections may cause OREX to swing dramatically in either direction.  *OREX was recommended post ARNA's 70% tumble after hours on Sept. 17, 2010*

Arena Pharmaceuticals (ARNA) - FDA advisory panel meeting aftermath

Panel Vote
As expected, the FDA once again dished out a curve ball at the advisory meeting to a seemingly promising drug.  In total, out of 14 medical experts, 9 voted yes and 5 voted no for recommendation of Arena Pharmaceuticals' weight management drug, Lorcaserin.  This is yet another disappointing ending to a biotech firm seeking to break into the billion-dollar industry of weight control, following Vivus Inc.'s failure two months ago with its candidate, Qnexa, which was recommended against due to a number of safety concerns.

Sunken stock
The outcome sent ARNA stock crashing down, amassing a total of over 70% slash since the release of panel meeting notes.  This speaks to the power of biotech trading, which can turn heaven into hell in a matter of days.  So, what now?  Arena Pharmaceuticals' shares, once more than tripled in a month and a half, are now flattened by once hopeful investors.

Now what?!
After what we've seen with VVUS and ARNA, is this the end of the pursuit of the almighty FDA-approved diet pill?  Well, not so fast.  Just a reminder, information forwarded from the advisory panel to the FDA does not necessarily have to be followed by the drug regulator.  In other words, the FDA may come out and approve either one (or both) of VVUS' and ARNA's candidates despite the negative recommendation.  While the likelihood of that is slim, it is certainly not zero.  Keeping this in mind, one might choose the option of picking up cheap shares of both of these companies (especially ARNA) in hopes to see an incredible bounce back in the future, as near as Oct 28, 2010 for VVUS and Oct 22, 2010 for ARNA (PDUFAs).  VVUS has already recovered ~12% from the post-panel trough and there's still room to climb before the PDUFA.  Similarly, ARNA may follow suit and rebound from the horrific sell-off, presenting a way to make back some cash for head spinning investors.

A thin string of hope

As mentioned, selected medical experts will be assessing the marketability of Orexigenics Therapeutics' (OREX) diet therapy, Contrave, on Dec 17, 2010.  This will be an interesting timing as the industry will have seen the outcome of the FDA's final call on VVUS and ARNA's drugs.  Approved or rejected, the news will dramatically dictate OREX's fate and time will only tell which of these three companies will come out on top in this battle over the massive obesity market.  Fascinatingly, post release of panelmeeting notes/announcement of ARNA's panel result, OREX has already made an incredible 45% run in three trading sessions.  

At the moment, OREX is sitting just above the $6 mark.  Will it climb higher?  I certainly think so.  Look at ARNA.  After negative review of VVUS' Qnexa by the FDA, ARNA's shares surged ~86% in two weeks.
 
Are we going to see the same for OREX in the following two weeks?  We shall see!

Arena Pharmaceuticals (ARNA) - stock sinks in early trading post release of FDA's lukewarm comment on efficacy and safety

Concerns about drug safety again was at the centre of FDA's advisory panel opinion.  On top of that, the agency considers the 3% weight loss over the placebo group, shown in the Arena's late human trial, as being marginally efficacious compared to the FDA's 5% bench mark for weight control drugs.  The release of the meeting notes led to a 37% crash in ARNA during early trading.  Though seemingly hopeless, it may be time to load up on ARNA's close competitor, Orexigen Therapeutics(OREX), next one up in front experts from the FDA with its weight management drug, Contrave.  Alternatively, it may be a great time to pick up some beaten down ARNA shares in midst of overreaction later in the day depending on the extent of pessimism.

Arena Pharmaceuticals (ARNA) - Sept 16 panel weighing in on obesity market

Arena Pharmaceuticals is up next in front of picky FDA advisory committee with its potential weight loss blockbuster, Lorcaserin.  This will be a spotlight event as Arena's strong rival, Vivus Inc. (VVUS), failed to gain confidence within the advisory members last month with it's obesity drug candidate, Qnexa.

Recent dip in Arena's stock presents a great late entry for those wanting to play the last last minute run-up before  the panel gathering next THUR (Sept 16).  This will be a lightening fast trade as I never hold my position past the actual catalyst event.  My current buy target is $6.65.  While this is ambitious given ARNA's recent movement between ~$6.60 and ~$7.30, I feel like the only way to gain from the stock last minute is to be aggressive on low entry, which will produce positive return on any catalyst-driven spikes.

VVUS Qnexa disapproved by FDA committee

FDA Panel Vote
Results from the highly anticipated advisory panel are finally out: 6 YES vs. 10 No for recommendation of the approval of Qnexa, VVUS' experimental obesity drug. After all, safety still trumps efficacy when it comes to introducing new drugs to patients. The 10-12% weight loss offered by Qnexa no longer weighs favorably in the face of potential cardiovascular risks. VVUS' share price bled an excruciating 56% in after market trading as frightened share holders dump their ownership of the company.

Trading Strategy
The way to capitalize on biotech catalysts is to get in early before a significant date (e.g. FDA panel, PDUFA, clinical results, major presentations...etc.) and exit just before the actual event. VVUS' story is a prime example of the unpredictability of the FDA's decision and the outcome of an NDA. If timed right, however, a majority of investors can still pocket a handsome return despite negative FDA/advisory committee remarks. In the case of VVUS, investors could still have gained a potential earning of as much as 42% in a 2-week window just prior to the panel meeting (July 1 - 14). Do REMEMBER though, it is always much much less risk-laden to exit BEFORE the date of interest as advised in a previous post to avoid getting burned on bad news.

So, now that the excitement about Qnexa is over, let's move on the next players in line. Stay tuned!

VVUS FDA panel meeting notes

Often times before a panel meeting (no later than 48 hours before the scheduled time), the FDA would prepare and release background material including comments on the examination of clinical trial data by a carefully chosen group of physicians. From this, a general sense of whether the drug being scrutinized would receive a solid recommendation from the medical experts for marketing approval can be extracted. Thus, working forward from the programmed meeting date of July 15, by the end of tomorrow the meeting notes should be available and the share price will undoubtedly reflect and amplify the experts' judgment. Keep alert throughout the day and check the FDA advisory calendar for any updates. Unfortunately, by the time the information becomes available to the 'general public' the stock price would have moved considerably already, so decide what you want to do FAST - whether you want to buy, sell, short the stock or trade options. VVUS' panel meeting with the FDA has been one of the most highly anticipated events in the past a year due to the unique indication (i.e. weight loss) that the drug intends to target. I am personally excited about this meeting, the outcome of which will set the tone for the upcoming assessment of another two potential weight loss medications by Arena Pharmaceuticals (ARNA) and Orexigen Therapeutics (OREX).

VVUS up 22.45% this week ahead of FDA panel

VVUS - FDA advisory panel in 10 days!!!

The clock is ticking. The FDA's advisory panel will gather on Thursday July 15 to offer independent expert opinions on Vivus' (VVUS) investigational obesity drug, Qnexa. As discussed in my previous post, subjects taking Qnexa achieved an average weight loss of 14.7% (37 lbs) in two major phase III trials lasting 56 weeks involving 3,750 patients. While concerns about the potential side effects of Qnexa may present a barrier, VVUS is confident that the low doses of the drug combination (Phentermine/topiramate) delivered by Qnexa will drastically minimize possible negative effects previously associated with these two individual drugs by themselves.

Competitors
Qnexa currently has two competitors in late stage development. The first is Lorcaserin from Arena Pharmaceuticals (ARNA) and the second is Contrave from Orexigen (OREX). Patients prescribed Lorcaserin and Contrave in phase III studies lost an average of 5.8% and 7% body weight, respectively.

Panel meeting for Lorcaserin - Sept 16, 2010
PDUFA date for Lorcaserin - Oct. 22, 2010

Panel meeting for Contrave - Dec. 7, 2010
PDUFA date for Contrave - Jan. 31, 2011


FDA's Cutoff
The FDA has two alternate efficacy benchmarks in its most recent draft guidance. A weight-management product can be regarded as effective if after one year of treatment:
1) The proportion of subjects who lose greater than or equal to 5% of baseline body weight in the active-product group is at least 35%, is approximately double the proportion in the placebo-treated group
2) The difference between groups is statistically significant.

Strategy
Data from Qnexa's studies certainly support the advancement of VVUS' diet pills based on the above guidelines. However, it is now up to the physicians to decide whether the benefits outweigh the potential risks of the drug. We will find out about this next week. Given past experiences with FDA's panels, it is quite likely that they will meet ~2 to 3 days ahead of schedule. Since share prices tend to fluctuate dramatically on the panelists' votes, it would be less risky to exit by July 13.

Vivus Inc. (VVUS) took an unexpected dive today - great entry point?

What happened?


Shares of Vivus experienced an unexpected ~8% loss today after Lazard Ltd's analyst William Tanner downgraded shares of Vivus to "hold" from "buy," citing the risk of an unfavorable panel review taking place on July 15, 2010. The change in opinion arose out of concerns about the potential side effects, such as minor memory impairment and cardiovascular risk, previously linked to topiramate (Topamax) and phentermine, the two constituents of VVUS's weight loss drug candidate. The company has already addressed this issue by quoting results from clinical trials which showed that Qnexa, at low doses, actually improved some risk factors for heart disease, including decreasing blood pressure, bad cholesterol and triglycerides. At higher doses, Qnexa was associated with increased heart rate.

Entry point?
Basically, little has changed since the release of final phase, pivotal trial data which demonstrated a promising outlook for Qnexa and generated lots of excitement in the medical community. The drop in VVUS share price may have simply been a short term reaction to an analyst's opinion. Vivus is still a solid firm with 1 product (MUSE) on the market, 1 in Phase III, and 2 in Phase II development in addition to Qnexa. Besides the opinion of a few, many remain hopeful to see Qnexa become an FDA-approved weight loss medication on pharmacy shelf. The commercialization of Qnexa will contribute to cutting down many risk factors correlated with obesity, and hopefully alleviate the costs of treatment associated cardiovascular diseases/stroke, diabetes, and cancer.


The fall in VVUS shares may represent a discount for investors to ride the surge before the July 15 FDA panel.

Open: 11.37
High: 11.65
Low: 10.84
Close: 10.95
Volume: 11,750,800
Avg vol: 4,414,060

Disclosure: Long VVUS

Vivus Inc. (VVUS) - a short 'weight' to a fat market

VIVUS Inc. (VVUS) is a biopharmaceutical company developing innovative, next-generation therapies to address unmet needs in obesity, diabetes and sexual health. The company's lead product in clinical development, Qnexa, has recently completed phase 3 clinical trials for the treatment of obesity. Qnexa is also in phase 2 clinical development for the treatment of type 2 diabetes

Catalyst
FDA Advisory Panel Meeting - July 15, 2010
PDUFA Date - October 28, 2010


What is Qnexa?
Qnexa is a once-daily, combination drug (phentermine 15 mg immediate-release + topiramate 92 mg controlled-release) in Phase 3 clinical development for weight loss in obese patients and improving blood sugar control in diabetics. Phentermine is the most widely prescribed prescription weight loss drug which is available in generic forms and has a database of 1.8 million patient years of usage.

Topiramate is better known as Topamax, which has 5.8 million patient years of use and was originally developed as a seizure drug and is also used for the prevention of migraine headaches. While both components of Qnexa will be available in generic forms, topiramate is not indicated for weight loss and the dosages being evaluated in clinical trials would make dosing difficult using the two drugs individually.

Vivus holds composition of matter and method of use patents for Qnexa as a combination treatment for obesity in the unique dosage forms that were investigated in several Phase III pivotal trials last year.

Clinical Trial Results

Stage: Phase III pivotal
Trial name: EQUIP (OB-302), CONQUER (OB-303)
Trial length: 56 weeks
Total # patients: > 3,750 across 93 sites
Summary: The EQUIP and CONQUER studies met all primary endpoints by demonstrating statistically significant weight loss with all three doses of Qnexa, as compared to placebo. Patients taking Qnexa also achieved significant improvements in cardiovascular and metabolic risk factors including blood pressure, lipid levels, and type 2 diabetes.

EQUIP
-> Wt loss: 37 lbs (14.7%) and 18 lbs with full-dose Qnexa and low-dose Qnexa, respectively vs. 6 lbs in the placebo group
-> 60% of the full-dose Qnexa patients who completed the study lost at least 10% of their baseline weight
-> 43% of the full-dose Qnexa patients who completed the study lost at least 15% of their baseline weight
-> Patients treated with full-dose Qnexa had significant improvements in blood pressure, triglycerides and cholesterol

CONQUER
-> Wt loss: 30 lbs and 24 lbs with full-dose Qnexa and mid-dose Qnexa,
respectively, vs. 6 lbs in the placebo group
-> Reduction in hemoglobin A1c levels of 0.6% from 7.3% at baseline as
compared to a reduction of 0.1% from 7.4% at baseline for the
placebo patients (p<0.0001) -> 39% of the full-dose Qnexa patients who completed the study lost at
least 15% of their baseline weight

Data extracted from VVUS press release