Obesity Drug Demand Still Low

You've got to spend money to make money.

VIVUS (NASDAQ: VVUS  ) has the first part down. During the first quarter, the company spent $44.7 million on selling, general, and administrative expenses to sell its obesity drug Qsymia.

The making money part hasn't come to fruition yet. VIVUS only generated $4.1 million in revenue during the quarter. Sales took a hit because VIVUS is offering free trials and reduced-cost medications for patients; if everyone was paying full price, sales would have been 40% higher or so.

Even with a 40% bump -- assuming everyone was willing to pay full price -- Qsymia sales are nowhere near blockbuster status. Demand is so low, the company had to write off $5.8 million worth of inventory that expired.

As Eisai and Arena Pharmaceuticals (NASDAQ: ARNA  ) begin to market their competing obesity drug Belviq, it'll be interesting to see if they eat into each others' sales or if they're able to use the increased promotion to drive the overall demand for obesity drugs higher. I'm inclined to guess the latter.

Despite the low demand, there was one interesting number VIVUS shared during the conference call: Qsymia has been prescribed by nearly 15,000 doctors, a 79% increase over the number at the end of the fourth quarter. At least doctors are increasingly willing to give it a try.

Unfortunately "a try" is pretty much all they're interested in at this point. The company said more than 23,000 patients started on the drug in the first quarter. That's about 1.5 patients per doctor.

Sure, there were a lot of prescribers added this quarter, but even if you assume that the approximately 6,600 new prescribers this quarter only prescribed the drug to one patient, then the approximately 8,400 doctors that had experience with the drug before the quarter began prescribed the drug to just two patients during the quarter.

There are a few reasons doctors haven't flocked to prescribe Qsymia in large numbers:

One bitten, twice shy. It's not particularly surprising that doctors might be a little tentative about prescribing an obesity drug, considering how previous obesity drugs have fared. Wyeth's fen-phen, Abbott Labs' (NYSE: ABT  ) Meridia, and Sanofi's (NYSE: SNY  ) Acomplia were all pulled off the shelves after side effects were discovered. Meridia's heart issues were uncovered in a post-marketing clinical trial. Acomplia never made it to market in the U.S., and European regulators pulled it off the market after real-world usage showed less efficacy and more-common psychiatric side effects.

It costs what? There are probably some patients not taking the drug simply because of the cost. Only one third of patients with insurance have coverage for Qsymia, and many of those are at the Tier 3 level, where copays are higher, typically $50 to $100. VIVUS is shooting for having 50% coverage of people on private insurance by end of the year, which should help with sticker shock, as have the free trials and discount drugs for those not covered by insurance.

Not for sale (here). When Qsymia launched last year, the Food and Drug Administration limited its sales to mail-order pharmacies. While it's arguably more convenient to get drugs delivered to your doorstep, ordering through a mail-order pharmacy requires more initial effort than purchasing drugs at a local pharmacy. Fortunately last month, the FDA told VIVUS it could start selling Qsymia in retail pharmacies, which will begin by mid-July.

VIVUS has spent lots of money jumping over hurdles to make the drug more appealing to patients. And it plans to spend more launching a direct-to-consumer print and digital media campaign. With any luck, VIVUS will be able to find a partner to help pay for the investment. It certainly isn't cheap, and there aren't any guarantees of making it back.

Who will win the obesity drug market?
Can VIVUS pick up its lagging sales and fend off the competition, or will Arena Pharmaceuticals reign supreme in the obesity space? If you're in the dark, grab copies of The Motley Fool's premium research reports on VIVUS and Arena Pharmaceuticals to stay up to date. Senior biotech analyst Brian Orelli gives investors the must-know information, including an in-depth look at the obesity market and reasons to buy and sell both stocks. Click now for an exclusive look at Arena and VIVUS -- complete with a full year of free updates -- today.