UPDATE 3-Shares of Vivus up on U.S. FDA review of diet drug

* Qnexa aims to be first prescription diet pill in decade

* FDA staff: Qnexa helps reduce weight, safety a concern

* Advisory panel to discuss Qnexa on Thursday

* Most analysts see positive U.S. review ahead

* Shares of Vivus, other diet pill makers soar
(Revises first sentence, adds analyst comments, updates share
prices)

By Susan Heavey

WASHINGTON, July 13 (BestGrowthStock) – The first potential new
prescription weight-loss pill in more than a decade works,
according to FDA staff who also flagged safety concerns that
Wall Street deemed benign enough to bet the drug will
ultimately hit pharmacy shelves.

The review from U.S. Food and Drug Administration staff on
Tuesday, contained in documents released ahead of an FDA
advisory panel meeting later this week, sent drugmaker Vivus’
(VVUS.O: ) shares up as much as 19.7 percent.

“The topics the FDA raised are in line with what we
expected,” Leerink Swann analyst Steve Yoo told Reuters. He
said “the likelihood of a positive panel vote has increased,
which in turn increases the likelihood of approval.”

The potential market for Vivus’ experimental Qnexa is huge.
More than two-thirds of American adults are overweight or obese
(http://link.reuters.com/vup37m) and other attempts at diet
drugs have fizzled.

If Qnexa wins the FDA’s seal of approval, analysts estimate
it could take in nearly $689 million in sales by 2014,
according to consensus forecast data from Thomson Reuters. The
biotech’s current market cap is $931.5 million.

Current prescription and over-the-counter weight-loss drugs
took in just $381.5 million in 2009, according to IMS Health.

Vivus wants to market Qnexa for adults to use along with
diet and exercise. FDA staff reviewers said Qnexa clearly
helped people shed pounds but pointed to possible side-effect
issues, such as the impact on heart rate, depression and
pregnancy.

On Thursday, an FDA panel of outside experts will discuss
the safety issues and offer advice on whether to approve Qnexa.
The agency will then make the final approval decision, which
Vivus expects by Oct. 28.

FDA usually, but not always, follows the advice of its
expert panelists.

Whether the FDA ultimately approves the once-a-day pill
could signal how the agency plans to assess the latest crop of
obesity medicines after years of failed attempts and safety
woes.

The FDA decision is also a clear test of the nearly
20-year-old biotech, which has seen its stock surge ahead of
what could be a major product for the company since its only
other U.S. drug was approved in 1996. Rivals are also eyeing
the impact of Vivus’ review on their own pending diet drugs.

Anticipation has boosted shares of the Mountain View,
California-based company. It has seen its shares more than
double in the past year. Shortly before the close of trading on
Tuesday, Vivus stock was up $1.88 or 17.7 percent at $12.53 on
the Nasdaq, off an earlier high at $12.75.

It is unclear how much further the company’s shares could
rise or where they could settle after the panel votes on
Thursday. Analyst estimates for fair value ranged from $9 to
$20.

JPMorgan analysts, echoing others, said the FDA staff’s
assessment was “far more benign than most were expecting” and
therefore was likely to boost Vivus shares.

ADJUSTING NOTORIOUS ‘FEN-PHEN’

Vivus is trying to improve on the notorious “fen-phen” diet
drug by combining one of its ingredients — the appetite
suppressant phentermine — with the anti-seizure drug
topiramate. Fen-phen’s other ingredient, fenfluramine, was
pulled from the market after being linked to serious heart
valve problems.

All three doses of Qnexa were “efficacious for weight
loss,” FDA staff reviewers said. But they added that there are
five areas of safety concerns, including the effect on pregnant
women and psychiatric side effects such as depression.

Attention span, memory and language problems as well as
increased heart rate in Qnexa patients are also potential
safety issues, the staff said in documents posted on the FDA’s
website (http://r.reuters.com/fuf37m). The potential for
increased body acids was also a concern.

Analysts said they were not especially surprised or
concerned about the safety issues. JPMorgan analysts downplayed
the slight increase in heart rate, given the drug’s
“significant improvements” of other related cardiovascular
measures such as blood pressure.

But Favus Institutional Research LLC analyst Elliot Favus
said the FDA’s documents were “just a laundry list of safety
concerns,” adding that approval seemed unlikely.

FDA and its advisers’ action of Vivus’ drug could also
signal what lies ahead for Arena Pharmaceuticals (ARNA.O: ) and
Orexigen Therapeutics (OREX.O: ), two other obesity pill makers
that have rival products up for U.S. review later this year.

Arena shares were up 11 percent, while Orexigen were up
about 20 percent.

Currently available prescription diet pills include Abbott
Laboratories’ (ABT.N: ) Meridia, which carries warnings about
high blood pressure and a risk of heart attack and stroke in
some patients, and Roche Holding AG’s (ROG.VX: ) Xenical, which
causes liver problems, uncontrolled bowel movements and gas.

Vivus’ ability to make its case to the FDA and its advisers
is also a significant hurdle for the biotechnology company and
its its chief executive officer, Leland Wilson.

Qnexa would be the second U.S. drug for the company. Its
erectile dysfunction suppository Muse won clearance in 1996 and
took in $15.8 million in net U.S. revenue in 2009.

Vivus is working on another ED drug known generically as
avanafil as well as other potential products for diabetes and
sleep apnea.
(Reporting by Susan Heavey; additional reporting by Susan
Kelly in Chicago; Editing by Lisa Von Ahn and Matthew Lewis)

UPDATE 3-Shares of Vivus up on U.S. FDA review of diet drug