Investing in the obesity drug market
Rob Fannon
Published : Wed 26 Jul, 2006
Over half UK adults are overweight. One in five is classified as obese.
And the numbers have been rising...
The problem triggers an increase in associated health problems such as diabetes, cancer and heart disease. Such was the stark warning to MPs recently from the Medical Research Council’s centre for nutrition.
In the US the problem is even more acute. But where there’s a health problem, the big pharmaceutical companies see an opportunity...
One-third of Americans are obese. Two-thirds are overweight. The World Health Organization estimates that there are 1 billion obese people throughout the world – one person out of every six.
Obesity leads to a host of medical maladies – high blood pressure, coronary heart disease, stroke, diabetes, and osteoarthritis. This short list of conditions represents the main artery of current blockbuster drug markets (those drugs logging more than $1 billion in annual sales).
Imagine getting a crack at a main source of all these problems – simple estimates peg the potential obesity-related drug market to be well over $10 billion per year! For investors in the pharmaceutical and biotech industry, there’s at least one reason to smile at the continued obesification of America. There’s a lot of opportunity in high BMIs (obesity is defined as a body mass index greater than 35).
With generic competition plaguing top-selling cholesterol and heart-disease drugs like Lipitor® ($11 billion annually for Pfizer), Zocor® ($5 billion annually for Merck), and Plavix® ($5 billion annually for both Sanofi-Aventis and Bristol-Myers Squibb) – Big Pharma is in a desperate search for the next blockbuster drug.
There are a few obesity drugs currently on the market but, thus far, none has emerged as the huge seller the industry seeks.
Xenical® by Roche Pharmaceuticals (ROG.VX) blocks fat absorption in the gut, but causes pretty severe gastrointestinal side effects. GlaxoSmithKline (NYSE: GSK) tried unsuccessfully to get regulatory approval to sell the drug over-the-counter in the United States.
Abbott Laboratories (NYSE: ABT) launched Meridia® with less than stellar sales because the drug could not be given to any patients with hypertension or heart problems – conditions afflicting practically every obese person.
The latest front-runner is Acomplia® by Sanofi-Aventis (NYSE: SNY). The drug blocks the cannabinoid receptor that reportedly gives marijuana smokers the "munchies," thereby decreasing food cravings and over-eating. Acomplia was once hailed as the next wonder drug, with possible uses in smoking cessation, diabetes, cholesterol, alcoholism, and obesity.
Acomplia received regulatory approval in Europe for obesity treatment, and is now in the midst of its first commercial launch. FDA approval was delayed, but is likely to come sometime this year. It is estimated that worldwide sales could be $5 billion, while others question the side-effect profile for the drug, citing nausea, depression, and high dropout numbers from the clinical trials. We’ll all be closely watching for early sales numbers from Acomplia’s launch to gauge prescribing habits for doctors treating obesity and related disorders.
One thing is for certain, competition in the obesity drug market will be fierce; it’s highly likely there will be more than one winner.
Presently, there are approximately 10 drugs in clinical trials with at least another 100 candidates in the discovery stage.
There’s plenty to play for here in a market that is big in every way.
Good investing,
Rob Fannon
for The Daily Reckoning
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