Weight Loss Stocks: ARNA, VVUS, and OREX Race to End the Obesity Epidemic

Obesity is considered the most serious health issue in the developed world. Along with growing waistlines also comes ballooning costs.

Across urbanized nations, the economic burden of obesity is estimated to be 10% of total health care costs, with projections continuing to grow as the obesity epidemic spreads.

For investors, that means weight loss stocks are poised to gain.

Here's why.

When it comes to obesity the statistics are staggering.

Currently 35.7% of U.S. adults, or more than one third, is obese. According to the Centers for Disease Control (CDC), that's a giant increase over just ten years ago.

In 2000, not a single U.S. state had an obesity rate of 30% or more. Today, 12 states have crossed that obesity threshold.

The costs attributed to obesity are estimated at $147 billion and rising.

Weight Loss Stocks: ARNA, VVUS and OREX

It is no wonder pharmaceutical companies are racing to fill the void and close the growing gap in treating this mounting epidemic.

Two leaders early in the game include Arena Pharmaceuticals Inc. (NASDAQ: ARNA) and Vivus Inc. (NASDAQ: VVUS) A third California-based company, Orexigen Therapeutics Inc. (NASDAQ: OREX), is also vying for Food and Drug Administration approval.

All three hope to bring to the market the first weight loss treatment in some 13 years.

But getting a nod from the government regulatory agency is not easy.

On March 29th, an FDA panel voted 17-6 to recommend that companies developing weight-loss therapies should conduct clinical trials to assess heart danger or review pre-approval human trial data on heart attacks and strokes.

The panel's aim is to help the agency update guidelines for bringing obesity treatments to market, according to an FDA spokesperson.

Despite the recommendation, Vivus and Arena are unlikely to be affected. According to FDA spokeswoman Erica Jefferson, "It's unlikely that the discussions over the past couple days will impact any existing applications."

The FDA is expected to rule on Vivus's drug Onexa by April 17. Meanwhile, Arena's treatment, lorcaserin, goes before the advisory panel May 10. The agency is expected to make a decision on lorcaserin by June 27.

Of the three, Orexigen is currently trailing for FDA approval.

In September, Orexigen agreed to conduct a two-year study of heart risks for its drug Contrave. The company has partnered with Takeda Pharmaceuticals of Osaka, Japan.

Weight Loss Stocks Work to Stem the Tide

Even still it has been a long road for all three of these weight loss stocks.

The FDA had previously rejected weight loss drugs from all of them, asking for more data on the safety risks.

The last obesity drug to gain FDA approval was Roche's Xencal in 1999. It was pulled from pharmacies 15 years ago when the fen-phen appetite-suppression drug was linked to heart valve abnormalities.

With FDA approval looming, investors' appetite for all three companies has been on the rise.

Vivus, which could get the first regulatory nod, also is involved in the development of drugs to treat sleep apnea, diabetes and men's sexual health. Its shares are up 134% year-to-date. The stock soared in late February after the FDA backed its weight loss drug Qnexa.

Arena also develops drugs for cardiovascular, central nervous system, inflammatory and metabolic diseases. Up 71% since January, Arena could be considered the most risky of the trio. Rumors have swirled that the company might abandon lorcaserin due to worries over cancer found in trial rats. It was the reason the FDA rejected lorcaserin in 2010.

Orexigen has been one of the best-performing biotech companies of 2012. OREX is up a whopping 138.5% since the start of the year.

However, Orexigen remains down 72% over the last five years. In early 2011, the stock sank when the FDA expressed concerns over its anti-obesity candidate. The company is burning through cash and will likely run dry by 2014.

It is too early to tell if the heft of weight loss stocks can fatten your portfolio.

But the potential for Vivus, Arena and Orexigen are huge given the giant worldwide obesity problem.

Developing a new drug that is effective and safe is a challenge, but now might be a good time to take a close look at these three biotech companies.

In the battle against obesity, weight loss stocks could be an investor's gain.

[Editor's Note: Weight loss stocks are just a small part of the brewing bull market in biotech stocks. In Bill Patalon's last report, he has identified three biotech-buyout candidates that are great "Buys" whether they get bought out or not.

All of them are quality companies focused on cancer treatments with the potential for a spring run-up. Whether it's as a near-term trade or a longer-term investment, we expect these stocks to surge.

And get this: One of those three new investment ideas has already hit Wall Street's radar screen.

To get the full report and these three recommendations, just click here.]

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