Wedbush’s note calls VIVUS as being one of the most attractive in the mid-cap biotech space.  The firm noted that the $775 million market cap is well below what it should be and could be for a drug that addresses such a large and virtually unmet need of treatment.  The company also still holds all of its own rights, and we’d throw in the note that this puts it among the potential pool of biotech acquisition candidates out there.

After Amgen Inc. (NASDAQ: AMGN) and Sonofi-Aventis (NYSE: SNY) are both reportedly out looking for target acquisitions, it is hard to leave VIVUS entirely off the list of potential buys.  The issue is that the FDA decision is still pending.

With Merck & Co. (NYSE: MRK) having a diabetes drug called Januvia, and with it targeting ‘diabetes and obesity’ it does leave room for speculation that it might want to add in an obesity drug for its pipeline.  That also leaves Orexigen Therapeutics, Inc. (NASDAQ: OREX) and then Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) as potential speculative ‘could-be’ targets in the obesity space, although Arena just partnered with Eisai in Japan just last week.

What is interesting is that this new class of drug candidates for obesity also help with issues such as diabetes, blood pressure, and other ailments that usually come along with years of obesity.

We saw calls from Schaeffer’s Investment Research and Market Intellisearch giving an options alert for VIVUS just yesterday.  VIVUS shares were under $10.00 yesterday, and the rally and options trading helped bring shares higher.  If anything, this seems like it may have been a telegraphed research call; but it is also a situation where you could tie a strong move in an up-market to any of the renewed interest in biotechs with potential blockbuster drugs or which may be acquired.

The stock was under $10.00 while this newest research piece was being compiled and the closing bell price yesterday was $10.67.  The stock traded as high as $11.15 today, and the 52-week range here is $5.55 to $13.68.

With shares down marginally in mid-day trading around $10.60, this is close enough for a call to double to make it count.

JON C. OGG

Arena Pharmacauticals, Inc. is a biopharm company which deals primarily with the creation and commercialization of drugs dealing with cardiovascular, central nervous system, inflammatory, and metabolic diseases.

The firm reported that reported that data from the pivotal BLOOM (Behavioral modification and Lorcaserin for Overweight and Obesity Management) Phase 3 trial demonstrate lorcaserin significantly increased excess weight loss, improved markers of cardiovascular risk and glycemic parameters, and was not associated with depression or suicidal ideation. Additional subgroup analyses showed that lorcaserin caused the greatest improvements in lipid profiles, glycemic parameters and other markers of cardiovascular risk in patients in the highest risk categories. The new data were presented at Obesity 2009, the 27th Annual Scientific Meeting of The Obesity Society.

Investors must be quite skeptical because shares trade at $4.59, up 5% today but still below their 52-week high of $7.42. It may be that investors are still put off by ARNA’s huge losses which were $38 million in the June quarter.

Douglas A. McIntyre

Leerwink Swann downgraded that stock.

According to AP, “the company’s latest trial results showed subjects didn’t lose as much weight on Lorcaserin as they did on the other two drugs. Arena said the results were still strong enough for approval, but shares tumbled more than 11% last Friday.”

Leerwink Swann view does not hold much water.

Douglas A. McIntyre

The news, however, is pushing the firms two competitor higher in early trading as they are perceived to benefit from ARNA’s failure. Vivus (VVUS) is trading up 7% to $11.35 on heavy volume. Orexigen (OREX) started the session higher by now trades a little below flat at $9.14

Douglas A. McIntyre

ARNA announced that it had positive, highly significant top-line results from the BLOSSOM (Behavioral modification and LOrcaserin Second Study for Obesity Management) trial. BLOSSOM confirms the results previously reported for the BLOOM (Behavioral modification and Lorcaserin for Overweight and Obesity Management) trial and completes the lorcaserin Phase 3 pivotal registration program of 7,190 patients evaluated for up to two years. Arena plans to submit a New Drug Application, or NDA, for lorcaserin to the US Food and Drug Administration, or FDA, in December.

In the one-year BLOSSOM trial, lorcaserin met all primary efficacy and safety endpoints. Patients achieved highly significant categorical and absolute weight loss. Lorcaserin was very well tolerated and was not associated with depression or suicidal ideation. The integrated echocardiographic data set from BLOSSOM and BLOOM rules out a risk of valvulopathy in lorcaserin patients according to criteria requested by the FDA. Treatment with lorcaserin also resulted in significant improvements as compared to placebo in multiple secondary endpoints associated with cardiovascular risk.

The AP saw things a little differently–”Arena Pharmaceuticals Inc. said on Friday that its obesity drug candidate lorcaserin succeeded in a clinical study, but the drug did not appear to be as effective as other treatments competitors have in development.”

Douglas A. McIntyre

Those taking Qnexa reduced their weight by up to 14.7% on average in one trial, and the drug also showed improvement in blood pressure and diabetes symptoms and risk factors.  Vivus’ second study showed an average weight loss of about 13.2%.

Those taking the placebo lost only about 2.5% of their weight in the first study and about 2.4% in the second study.  Vivus indicated that it will seek FDA approval by year end.

Vivus reported that the side effects included dry mouth, tingling, constipation, altered taste and insomnia. Some reported drug-related instances of depression and depressed mood and adverse events of moderate to severe nature were observed in less than 2% and were actually similar to that seen in the placebo group.  Unfortunately, these mood and depression instances are very common instances in those trying to lose significant weight.

There is an important aspect here, and that is that it puts two other drug companies in the hot seat.  Orexigen Therapeutics Inc. (NASDAQ: OREX) met its weight loss targets in late stage studies and it has previously given an early-2010 for when it seeks FDA approval.  Arena Pharmaceuticals Inc. (NASDAQ: ARNA) is also developing a weight loss treatment which it said earlier this year met endpoints.

This new study result has shares of VIVUS up over 50% to $10.60 in pre-market trading and at 9:50 AM EST there has already been 4.15 million shares trading hands.  More importantly, this takes the stock to highs of this entire decade now.

Orexigen Therapeutics is also up almost 4% at $8.50 on the news, while Arena Pharmaceuticals is up almost 7% at $4.94.

This and other studies in the war against diabetes and obesity was mentioned in a much broader and much larger piece including stocks: NVO, AMLN, LLY, MNKD, PFE, SPEX, VVUS, GNBT, BMY, AZN, ARNA, GERN, STEM, OREX, HDIX, PODD

JON C. OGG

According to the Journal of Health Affairs, the figure on obesity for Americans is a whopping $147 billion per year in total medical costs. This comes to 10% of all healthcare spending. The figure from the U.S. Centers for Disease Control was some $116 billion spent domestically on treating diabetes in 2007.  As this is a lengthy bit, we have not included some of the other treatments that have been in use or that were recently flagged because of reports of higher chances of cancer rates associated by the long-term use of these.

FDA & IMMEDIATE ACTION

There is a new diabetes hopeful that is supposed to be coming sooner rather than later.  Novo Nordisk (NYSE: NVO) reported a 21% gain in earnings in the last week and said that it expects the FDA to make a decision on its next-generation diabetes drug Victoza (liraglutide) in a matter of weeks. The company’s CFO and CEO both indicated that the Danish company does expects a positive response from the FDA and we heard a August to September expectation. Novo Nordisk has already launched Victoza in England, Germany and Denmark last month and expects to release it in other European Union countries throughout 2009 and into 2010.  The benefit is that this one doesn’t risk pushing blood glucose levels to counts which are dangerously low and it also helps users lose weight.  Novo Nordisk said it has priced Victoza competitively with Byetta from Amylin Pharmaceutical, Inc. (NASDAQ: AMLN) and Eli Lilly (NYSE: LLY).  After the earnings and after shares were still close to 52-week highs, we saw analyst downgrades on Friday for Novo Nordisk by both UBS and by J.P. Morgan.

The drug still expected the next big new release with Blockbuster potential is an inhalable insulin from MannKind Corp. (NASDAQ: MNKD).  Afresa is to be its name. Despite past woes of inhalable insulin, MannKind shares were hitting 52-week highs in June and its shares are still up 20% from three months ago.  A late-stage study showed that Afresa’s performance was similar to injectable insulin.  The company recently sold a 7.4 million shares secondary offering to raise cash for this launch, and its CEO took 1 million shares of the offering.  The thought was that MannKind would secure a partner for marketing and development, but the recent stock offering gives it more internal options ahead of what is believed to be a Spring-2010 FDA approval action.  Pfizer Inc (NYSE: PFE) has been thought of as a partner as it moved Exubera inhaled-insulin patients to MannKind’s experimental product. The two companies had been partners until Pfizer pulled Exubera from the market in 2007.

There is also a huge opportunity for the once per week dosing.  We are not yet convinced that this can be a universal next generation treatment, however this might be fine for many of the lower grade cases if you can refer to any diabetes cases as lower grade.  Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), Eli Lilly (NYSE: LLY) and Alkermes Inc. (NASDAQ: ALKS) have had a recent New Drug Application accepted by the FDA for review. Exenatide is an investigational sustained release medication for type 2 diabetes that would be injected once per week and is the active ingredient in BYETTA.  We are not alone in this thought, but Amylin is a company which many have thought would be acquired for years now when considering the link of diabetes and obesity.

VIVUS, Inc. (NASDAQ: VVUS) has a substantial shot here with Qnexa, its  Type 2 diabetes treatment through weight loss assistance.  The stock recently came off on worries of its risk factor language that may have to be disclosed, but it showed a 9.4% weight loss or over 20 pounds observed in patients.  The DM-230 study was a 56-week study assessing the impact of Qnexa on glycemic management in 130 obese patients.  The 10-site study was comprised of 90 females and 40 males with an average age of 50 who had Type 2 diabetes, and a majority of the patients had been diagnosed with diabetes for more the five years and were taking two or more oral diabetes medications.  In the phase II and phase III clinical trials, Qnexa demonstrated glycemic control, significant weight loss, and an improvement in cardiovascular risk factors.  VIVUS is also presenting data at a brokerage firm conference this coming Thursday.  The company’s market cap is still just under $500 million and its most recent balance sheet had north of $144 million in cash and equivalents with very little long term debt.

Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca (NYSE: AZN) have recently received FDA approval for Onglyza as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes. This Onglyza is a once-daily dipeptidyl peptidase-4 (DPP4) inhibitor that can be used in combination with commonly prescribed anti-diabetic medications or on a standalone basis as a monotherapy to significantly reduce glycosylated hemoglobin levels.

MORE OBESITY CANDIDATES COMING

Several biotechnology companies are working on the next wave of obesity candidates, as noted above in VIVUS’s Qnexa.  Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) has Lorcaserin, Orexigen Therapeutics, Inc. (NASDAQ: OREX) has Contrave, and Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) has pramlintide.  Orexigen’s Contrave has completed phase III trials and our time line for when the company will file for approval is in early 2010. The company is presenting data this Thursday at the Canaccord Adams Global Growth Conference.  VIVUS’s Qnexa is currently in two phase III programs with a new drug application expected around the middle of 2010.   Amylin’s pramlintide and metreleptin are currently in phase IIb.

We have the expectation that Arena will have a first-mover advantage with an NDA planned before the end of 2009.  Certainly, any delays or advances could change the status of the front-runner category leadership.  Arena’s near-term catalyst is the release of the phase III BLOSSOM data out in September 2009, which will be used as part of a supplemental NDA in late 2009 or into 2010.  This still leaves a year or more for final FDA action from now.  Arena shares surged in late-July after reporting that its obesity results met the three endpoints.

STEM CELLS

Stem Cell therapy offers a huge promise, but so far that looks to be years out and the promise is actually more of a hope for the time being.  Geron Corporation (NASDAQ: GERN) is in the research stage of using stem cells in evaluation of Type 1 diabetes.  The exact level of this study is not as far as along as some of its cancer and spinal studies, but this is one of the few stem cell companies that have dedicated part of their mission to diabetes.  StemCells Inc. (NASDAQ: STEM) also has a Pancreatic Program concentrating its efforts on Type-I diabetes.  Its goals are to identify, isolate, and culture pancreatic stem and progenitor cells, and to test their therapeutic potential.

While we at BioHealthInvestor would love to hold hope and promise for stem cells, we would not be hoping for stem cell treatments any time in the near future.  While some positive notions have been noted in the stem cell sector, the National Institute of Health noted, “Over the past several years, doctors have attempted to cure diabetes by injecting patients with pancreatic islet cells—the cells of the pancreas that secrete insulin and other hormones. However, the requirement for steroid immunosuppressant therapy to prevent rejection of the cells increases the metabolic demand on insulin-producing cells and eventually they may exhaust their capacity to produce insulin. The deleterious effect of steroids is greater for islet cell transplants than for whole-organ transplants. As a result, less than 8 percent of islet cell transplants performed before last year had been successful.”

SMALLER OR EMERGING PLAYS

Generex Biotechnology Corporation (NASDAQ: GNBT) is a small company with a $117 million market cap that is engaged in the research, development and commercialization of drug delivery systems and technologies.  The company’s liquid formulations allow drugs typically administered by injection to be absorbed into the body by the lining of the inner mouth using  its RapidMist(tm) device.  The company recently raised $5.65 million in a direct offering of common stock.  Its flagship product, oral insulin (Generex Oral-lyn) is available for sale in India, Lebanon, Algeria, and Ecuador for diabestes (I and II).  It is in Phase III clinical trials at several sites around the world.

Spherix Incorporated (NASDAQ: SPEX) has recently said that its preliminary Phase II compound Naturlose(R) (D-tagatose) diabetes drug candidate shows promise.  The company noted that it is currently running a Phase III clinical trial to study the use of Naturlose as a treatment for Type 2 diabetes.  A key issue for Spherix is that its $20+ million market cap is so small and it looks like it is not until early 2010 that the Phase 2 trial will end.  That puts late 2011 or early 2012 as a smooth transition date for any final launch, and we all know by now what the issues can be for micro-cap companies in this sector.  They often have to raise much more cash than is available, or they have to partner with a larger company and frequently have to end up giving away the farm.

Oramed Pharmaceuticals Inc. (OTCBB: ORMP) recently announced that its wholly owned Israeli subsidiary, Oramed Ltd., was given a government grant of approximately $828,000 from the Office of the Chief Scientist at the Ministry of Industry, Trade and Labor of Israel.  This may not seem huge on the surface, but such is usually the case for small emerging companies.  The grant is also subject to return upon conditions.  The OCS process selects its recipients on the financial strength of companies, innovative technology, and based on the chances of significantly improving existing products or a process.  Oramed is developmental and speculative, but it is seeking to revolutionize the treatment of diabetes through its patented orally ingestible insulin capsule currently in phase II clinical trials.

DIAGNOSTICS & TESTS

The earnings power, and potential earnings power, of some diagnostic companies and test equipment companies continues to remain high.

Home Diagnostics, Inc. (NASDAQ:HDIX) is not a drug company, but it shows how small companies in the sector tied to diabetes treatment can score a win.  The manufacturer and marketer of diabetes testing supplies recently sad that revenue for the second quarter was $32.7 million, a decrease of 2.1% from $33.4 million in the second quarter of 2008. But the company said that its retail channel sales were up 45.2%, driven by the continued national roll-out of the TRUEresult and TRUE2go blood glucose monitoring systems and the expanded product portfolio at Wal-Mart. It also noted that its mail service channel sales increased 9.7%, driven by the private label, no-coding blood glucose monitoring system recently launched with Liberty Medical and the initial launch of the TRUEbalance no-coding blood glucose system with several customers. The company said that the distribution channel sales fell by 17% as a result of fewer large stocking orders and the reduction to inventory days supply.  Its international sales fell by more than 20% due to lower sales in Latin America after its decision to limit its exposure in that region due to poor economic conditions.

Insulet Corporation (NASDAQ: PODD), the tubing-free insulin pump technology leader with its OmniPod(R) Insulin Management System, showed solid earnings.  Q2-2009 revenues rose by 97% from a year ago and up 17% sequentially to $14.6 million.  Its gross profit was $3.2 million but the operating loss was $16.4 million.  This is still a very small company, but it drove a record level of referrals and launched its second generation PDM.  Insulet now sees Q3-2009 revenues of $16.5 to $17.5 million and raised its full year 2009 revenue to a range of $58 to $65 million from a prior range of $55 to $65 million.  Unfortunately its operating losses will be wider.  Shares rose roughly 10% last week on the earnings news.

EXCLUSIONS

Obviously, there are many candidates out there.  Some companies are very broad and some have been long-standing treatments.  We wanted to do a quick hit on the up and coming issues that diabetes patients and investors could watch for in coming weeks and months.

Jon C. Ogg
August 10, 2009

MannKind Corporation (NASDAQ: MNKD) priced a secondary offering this morning of 7,400,000 shares of its common stock, and while the press release did not say what price the deal came at the syndicate group told us this went out at $7.35 per share.  Chairman, CEO, and principal stockholder Alfred E. Mann is purchasing 1,000,000 of these shares from the underwriters, which brought in over $54 million before fees and commissions.  MannKind shares are down 9.5% at $7.37.  Its 52-week trading range is $2.00 to $9.25.

Idenix Pharmaceuticals Inc. (NASDAQ: IDIX) priced a secondary offering this morning of 7,248,936 shares of common stock at $3.14 per share to clear roughly $22 million before fees and commissions.  Its shares are down over 14% at $3.15 today and its 52-week range is $1.86 to $10.10.

Inspire Pharmaceuticals, Inc. (NASDAQ: ISPH) priced a 22.2 million share secondary offering of common stock this morning at a price of $4.50 per share.  This raised close to $100 million.  Share are down 6% at $4.66 and the 52-week trading range is $1.68 to $5.80.

Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) on Tuesday priced its public offering of 19,000,000 shares of common stock at $1.75 per share; the company said net proceeds after fees and commissions was roughly $30.9 million.

Oncothyreon Inc. (Nasdaq: ONTY) announced on Tuesday that it had obtained commitments from several investors for $15 million in a direct offering.  The agreement was to purchase approximately 2.28 million shares of common stock and warrants to purchase approximately 684,000 shares of common stock for gross proceeds of approximately $15.0 million. The company noted that investors agreed to purchase the shares and warrants for $6.5775 per unit with each unit being one share of common stock and a warrant to purchase 0.30 shares of common stock and an exercise price of $6.5775 per share.

NovaBay Pharmaceuticals, Inc. (NYSE: NBY) filed this week with the SEC to offer up to $20,000,000 of any combination of common stock or preferred stock upon conversion of debt securities, common stock upon conversion of preferred stock, or common stock, preferred stock or debt securities upon the exercise of warrants.  It market cap is a mere $48 million.

Somaxon Pharmaceuticals, Inc. (NASDAQ: SOMX) filed this week to cover for the resale of up to 10,212,750 shares of common stock (roughly $23 million) from time to time for existing security holders and certain transferees of the selling security holders.  Roughly 5.1 million of these shares were issued in a private placement that closed on July 8, 2009; the additional 5.1 million shares are issuable upon a warrant exercise sold in the private placement which expire on July 8, 2016.  If sold, none of the proceeds go back to NovaBay.

Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) filed on Monday to allow the resale from time to time of up to 28,000,000 shares of common stock by the selling stockholders from a July private placement. We will not receive any of the proceeds from the sale of these shares. If sold, none of the proceeds go back to Arena.

OXiGENE, INC. (NASDAQ: OXGN) filed this week for the resale of up to 10,000,000 shares of common stock from time to time by Symphony ViDA Holdings LLC.  This was via an amendment dated as of July 2, 2009.  If sold, none of the proceeds go back to OXiGENE.

JON C. OGG
AUGGUST 5, 2009

Khorsand says that China was stocking the SciClone drug Zadaxin as a vaccine against swine flu. But essentially, it’s a one-time event that gave a boost to revenue in the second-quarter that won’t be sustained going forward.

The assumption that SciCone can maintain such a strong growth rate is misplaced, Khorsand says, setting up investors in the company for a disappointment.

Also of note, SciClone filed a shelf registration in May 2009. The company has not yet tapped it, but the risk that it will do so — and dilute the shares of existing holders in the process — increases along with the company’s stock price.

As noted in previous posts, an anecdotal market observation of BioHealthInvestor.com is that the market in recent months is seeing an increase in the number of stock offerings, especially among companies with the most at-risk balance sheets. A recent quantitative analysis at 247wallst.com may back up that observation. — Mike Tarsala

See related post on Arena Pharmaceuticals Inc. (Nasdaq: ARNA)