Can Investors Fatten Up On Weight Loss?

I would like to make one addition (or rather, an extended explanation) to part of this article. In it, I discuss Arena's lorcaserin and mention its somewhat dicey legacy. What I did not have time to adequately mention in the original is that there is a significant biochemical difference between lorcaserin and its predecessor fenfluramine. Fenfluramine caused serious cardiac side-effects because of its effects on type 2b and 2c receptors. Lorcaserin is active only with the 2c receptors and does not cause the same side-effects. 

That said, investors would be mistaken to believe that many (or even "most") physicians will do the perfunctory research necessary to understand that distinction. Consequently, there is a real risk of "guilt by mis-association". If Arena can get a strong marketing partner, one that can spend the time educating docs, it won't be a problem. But if Arena has to go it alone, they may be hampered in their efforts to really get docs to understand the difference and use the drug.  

You cannot read a major U.S. newspaper for more than a week before you will read something about the "obesity epidemic" in the country. To be fair, it is a serious problem with major ramifications on the health, productivity and economy of this country for years to come. But rather than fret about a problem with no clear solution, investors can do what they do best - figure out a way to make a buck off the situation. 

Diet, Exercise and SupportIn terms of non-medical intervention, there are two clear leaders in the U.S. obesity market - Weight Watchers (NYSE:WTW) and NutriSystem (Nasdaq:NTRI). Here is a classic good news / bad news dilemma for investors. Both of these companies have exceptional returns on capital, strong brand value, asset-light business models and huge addressable markets. Unfortunately, that is hardly a secret on the Street, and both stocks carry valuations that do not suggest ample appreciation potential. 


For the full column:
http://stocks.investopedia.com/stock-analysis/2010/Can-Investors-Fatten-Up-On-Weight-Loss-WTW-NTRI-GSK-ABT-VVUS-ARNA-OREX0622.aspx