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The Biggest New Drug in Medical History

By Rob Fannon, editor Phase 1 Investor
Friday, February 6, 2009

The promise of a "marijuana munchies" drug is officially dead...
 
French drugmaker Sanofi-Aventis believed it'd struck gold with its drug Acomplia. Acomplia curbed appetite by targeting the "cannaboid" receptors in the brain – the same signals that give marijuana smokers the munchies.
 
According to Sanofi, the drug helped patients shed pounds, quit smoking, lower cholesterol, and treat diabetes. Wall Street hailed it as the next wonder drug. Analysts predicted annual sales in excess of $5 billion, calling it the "blockbuster of blockbusters." One tiny problem – safety.
 
Shortly after the drug launched in Europe, reports of terrible side effects flooded in. Acomplia tended to cause psychiatric problems – including suicide, depression, anxiety, and sleep disorders – even in patients pre-screened for potential mental health issues.
 
According to one report, subjects experienced "delusional symptoms... psychotic behavior... and aggression," including a man who attempted to strangle his daughter and another case of spousal abuse.
 
So last fall, two years after its launch, European regulatory agencies yanked the drug off the market, stating the risks outweighed the benefits. Here in the U.S., the FDA squashed Acomplia's commercial prospects, denying its approval on two separate occasions.
 
Big Pharma competitors Merck and Pfizer each had similar drugs in large, late-stage clinical trials. After Acomplia went down in flames, both scrapped their testing programs.
 
The obesity market is one of the last great untapped markets for biotech. This is just the latest chapter in the drug industry's struggle to develop an effective weight-loss drug.
 
According to the Centers for Disease Control, two-thirds of Americans are overweight and 33% are "obese." Obesity kills 300,000 people in the U.S. every year. High blood pressure, coronary heart disease, stroke, diabetes, and arthritis – these medical nightmares can be traced to the added stress of carrying too many pounds around the waistline.
 
If one industry stands to gain from the "Swelling of America," it's the drug sector. At any one time, 70 million Americans are trying to lose weight and spending tens of billions of dollars in the process. Already, we spend $50 billion a year for over-the-counter weight-related treatments. Conservative estimates put the obesity-related prescription-drug market at $10 billion per year.
 
For decades, drugmakers like Sanofi have been trying to tap into that market. And right now, three biotech companies are deadlocked in a race to develop the industry's first obesity blockbuster.
 
The smallest of the three companies, $200 million market cap Orexigen (OREX), is wrapping up Phase III trials for its drug Contrave. San Diego-based biotech Arena Pharmaceuticals (ARNA) is working on Lorcaserin. And Vivus (VVUS) is racing to release data on its diet drug Qnexa.
 
With a market so big and completely untapped, there's plenty of room for all three drugs. But each company is aiming for the first-to-market advantage. The biggest winner could pull in as much as $5 billion or $10 billion a year.
 
All will report Phase III clinical trial data this year. If these companies release negative data, their shares will plummet 50% or more. But if the data are positive, the new drugs will hit the market in late 2009 or early 2010... and early shareholders will triple their money.
 
Good investing,
 
Rob Fannon




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Market Notes
Silver continues to quietly rebound... now at highest level since September.
 
Credit-card defaults hit record high... industry giant Capital One hits 12-year low.
 
Major apartment REITs Equity Residential and Essex Property tumble to new lows.
 
Terrible sign for small banks... KBW Bank Index ETF near a 52-week low.
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