Safety Concerns May Sink Both Vivus and Its Obesity Drug Qnexa

Last Updated Jul 21, 2010 1:03 PM EDT

Vivus (VVUS) swung for the fences -- and missed -- as an FDA advisory board voted against recommending its anti-obesity drug Qnexa for approval, basing their decision largely on an absence of long-term safety data. Does the small biotech have the financial resources to survive regulatory delays -- or is it game over?

At March 31, the company had net-cash available of about $170 million, according to its first-quarter 2010 earnings filing with the SEC -- more than ample coverage for previously estimated cash-burn of $95 million for full-year. Or, so it would seem.

As a general rule, amounts of near-term cash payments (upfront fees and milestones) parallel development timelines: Vivus was prepared to carry commercialization risk up to its PDUFA date (of October 28, 2010) in return for higher overall licensing terms (payments plus royalty rates) from big pharma.

So confident was management in the efficacy of Qnexa across a range of overweight or obese patients (with or without co-morbid conditions, from diabetes to hypertension) -- average weight loss of 14.7 percent (37 lbs) in pooled analysis -- they deferred entering into any clinical and marketing partnership(s) until after the July 15 meeting of the FDA's Endocrinologic and Metabolic Drugs Advisory Committee.

Management lost that bet. Although acknowledging an unmet need in obesity treatment, members voted 10 -6 against approval, voicing concerns about Qnexa's risk of birth defects, increases in adverse psychiatric events, and a dearth of long-term data on cardiovascular outcomes (more than 56 weeks).
One must verify or expel his doubts, and convert them into the certainty of "yes" or "no." ~ Scottish essayist Thomas Carlyle
Dispelling all doubts on Qnexa's safety could prove problematic. For example, even a multi-faceted approach to pregnancy prevention -- such as requiring two methods of birth control -- couldn't prevent pregnancies: 13 Qnexa-treated women gave birth (thankfully, without incident).
Qnexa is a fixed dose combination of two compounds that have been on the market for many years -- phentermine, an appetite suppressant indicated for short-term weight-loss, and topiramate, an epilepsy-seizure medication (thought to affect fat metabolism). Both drugs, however, have a checkered history with respect to adverse events -- as clearly articulated in clinical briefing documents sent to all committee members, and available online at the FDA's home-page.

The FDA graveyard is littered with remains from once-promising, prescription weight-loss drugs. It has been more than a decade since the FDA had endorsed a new obesity medicine:
  • In May 2010, U.S. regulators required GlaxoSmithKline's (GSK) over-the-counter weight-loss pill Alli and Roche Holding AG's prescription drug Xenical (orlistat) to carry new labeling that warned of reported cases of serious liver injury.
  • In July 2007, an FDA panel unanimously voted against approval of the weight-loss drug rimonabant, citing concerns over psychiatric side effects, notably anxiety and depression, and "insufficient" long-term safety data -- sound uncomfortably familiar? French drug maker Sanofi-Aventis (SNY), which had been marketing the drug at that time in Europe under the branded name Acomplia, subsequently withdrew its application to sell the diet drug in the United States (proposed brand name Zimulti).
Nonetheless, Vivus management received the panel's close decision with a "poker-faced" response -- declaring in its prepared statement:
The vote from the Endocrinologic and Metabolic Drugs Advisory Committee is a recommendation. The FDA will take the Committee's recommendation into consideration during its review of the current application and will make a determination. The FDA may or may not follow the Committee's recommendation.
Not lost on stunned investors, however, was that FDA precedent is to usually follow advisory member's consensus vote. After the announcement, Vivus shed some $572.3 million in equity value, or 60 percent, in trading last Thursday.

Vivus wagered the bank on Qnexa -- not just as a weight-loss drug, but as potential treatments for sleep apnea and diabetes, too. Failure as an anti-obesity drug would probably depress prospects for other indications -- especially as adjunctive use in glycemic control: in December 2008, regulators implemented new guidelines for all type-2 diabetes compounds, with specific safety assessments focused on cardiovascular outcomes, such as stroke and heart attacks.

The company's other promising investigational drug, a treatment for erectile dysfunction, a PDE-5 Inhibitor called avanafil -- think a faster-acting Viagra - won't have late-stage clinical trial results to present before 2012. If desperate, management could tap this compound as a source of cash, either through the sale of royalty rights or a collaborative deal (with up front monies).

In the here and now, Vivus could run through its $170 million in poker chips fairly quickly. Notwithstanding an acknowledged need for new weight-loss drugs, long-term safety considerations remain paramount in the eyes of panel members. Acting chair Dr Kenneth D Burman (Washington Hospital Center, Washington, DC) said he hoped that his "no" vote would prompt further discussion with the FDA, according to theheart.org's columnist Fran Lowry.

Burman also said that one year was not long enough to allow him to recommend approval with confidence:
This medication will be used for a much longer time frame in a much wider population, and it is difficult to extrapolate the potential adverse effects to this larger population.
Anticipated cash burn of $95 million this year was based on a specious calculation -- no new clinical testing with Qnexa. Chief executive Leland Wilson told analysts following the July 15 advisory meeting that the closeness of the vote supports his belief that two-year safety data, which will be readied prior to its October PDUFA deadline, could sway the risk-benefit profile in Qnexa's favor.
If this passenger pigeon is lucky, the FDA might defer calls for a large cardiovascular outcomes trial until after approval. In my opinion, however, CEO Wilson's optimism ignores -- once again -- a glaring deficiency in the existing meta-analyses:
  • The highest dose resulted in more adverse events, including side effects severe enough to influence patient dropout rates. Unfortunately, baseline demographics show a majority of the patients enrolled in the Qnexa trials took the highest dose (15/92 - mg). Ergo, with little patient data on low (3.75/23 - mg) and middle-dose (7.5/46 - mg) treated-patients, the FDA could required a costly new clinical trial focused on the lower two-doses before it issued an approvable letter.
Recurring cash flow is currently limited to sales of MUSE (alprostadil) pellets -- a urethral suppository for erectile dysfunction (enough said). First-quarter product revenue was a whopping $1.6 million. Adding insult to injury, one of three key patents expires this month.

Prior to its regulatory stumble, analysts had forecasted peak-sales -- just for weight-loss therapy -- in the range of $850 million to $1.2 billion for Qnexa, likely out to mid-decade.

Though the company has the liquidity to hang on until its October 28 dance with the FDA, unless it can demonstrate improved safety, Vivus will be just another "phat" pharma wannabe.
  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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