Vivus Inc. (VVUS): After 13 years of waiting, will obese people see a new drug tomorrow?

Vivus's experimental obesity drug will get a second chance at getting the nod form FDA panelists tomorrow (2/22). For the company, the first try was a disaster. Not only did the panelists voted against (10 No vs. 6 Yes) recommending Qnexa for approval, the FDA went on to send the company back to the drawing board by issuing a CRL (complete response letter), requesting for long term studies to demonstrate sufficient data to support the drug's safety. Based on this request, Vivus extended its original 56-week CONQUER study to a 108-week follow up trial, which the company named SEQUEL.

In December of 2011, the company published the findings from this trial in the American Journal of Clinical Nutrition (AJCN). The summary of the results is as follows:

• Patients treated with Qnexa had significant, sustained weight loss compared to those in the placebo group over two years.
• Average weight loss at week 108 was -9.3% and -10.5%, respectively, for the mid- and top-dose as compared to -1.8% for the placebo group (least-squares mean ITT-LOCF).
• Qnexa patients had improved cardiovascular and metabolic risk factors and a decrease in the need for associated medications in comparison with the placebo group.
• Placebo patients had a three times greater likelihood to progress to type 2 diabetes compared to subjects receiving top-dose Qnexa and a two times greater likelihood than patients on mid-dose Qnexa.
• Qnexa therapy was well tolerated, with no new adverse events observed in the second year of study.
• The most common side effects were upper respiratory infection, constipation, tingling, sinus infection, dry mouth and runny nose.
• There were no drug-related serious adverse events reported. The completion rate in SEQUEL was approximately 83% for both Qnexa doses and 86% for the placebo group. Discontinuations due to adverse events were 4.5% and 4.4% for the mid- and top-dose, respectively, and 3.1% for the placebo group.

Trading Roadmap 
Similar to many traders, I think the outcome of tomorrow's panel will be a coin toss. Below are my reasons for voting for and against recommending Qnexa for approval:

FDATracker.com has predicted negative panel vote taking into account the past voting history of the members that will be serving on the panel tomorrow. As a result, VVUS dropped more than 11% below $10.7 as of 11:22 a.m. PT.

Personally, after reading VVUS' most recent publication of the SEQUEL study in AJCN, I was quite impressed with the data and thought Qnexa may have a reasonable chance of getting past the panelists this time around. However, one thing, in addition to safety concerns, that worried me was the increase in body weight in the top dose arm toward the end of the study (bottom curve - triangle).

Am J Clin Nutr 2012;95:297-308.

It is hard to explain why this had occurred, despite that fact that patients were kept on the same treatment regimen and dose throughout the 2-year period. In other words, it is difficult to predict whether the trend toward "loss of efficacy" would continue had the trial been extended longer. This may potentially be a deal breaker for Vivus in my mind. Finally, there's always the "exercise over drug" mentality that doctors have for treating obesity, a significant barrier that continues to lower the benefit/risk ratio.  

So what will I do? Well, because of the risky nature in investing in either side (i.e., call vs. put), I may regrettably sit this one out. However, this is not to say that there isn't an opportunity to profit from the panel. If vote is positive, the "slide" strategy will come in handy (i.e., purchasing put for cheap in anticipation of a share price as hype weans). If vote is negative, purchasing cheap calls may be a great strategy as the PDUFA is not far away (2012/04/17) and a quick "hike" is likely.

As always, good luck and feel free to follow me on Twitter (@MichaelJuan01) for trading updates.