The Virtue of Moderation

Problem: Americans are big and fat.

We also are a pragmatic people who worship expediency — hence the popularity of using pills to treat health problems like high blood pressure and high cholesterol. That pill fixation also applies to weight control, of course, and the companies behind those pills offer some great opportunities for investors.

These firms are not without their issues — many of the most promising obesity-control drugs await federal approval, for instance — and investments in them should be undertaken carefully.

A Heavy Situation

That we, as a nation, are fat is not in doubt. The New York Times reported that 64.5 percent of U.S. adults are overweight, ironically (or maybe not) publishing the finding two days before Thanksgiving last year.

Our courts sit on fat, so to speak, permitting lawsuits against McDonald's for failing to warn about the fat content of burgers and fries. (Who knew?) Extremely obese people are eschewing diet for surgery, and this year 60,000 of them will undergo bariatric procedures to seal off their stomachs.

To some, thin seems a function of fashion, but as the Department of Health makes clear, it is also a matter of health: 300,000 deaths each year are “associated” with weight problems, and the Surgeon General has characterized our obesity troubles as being of “epidemic proportions.”

Not surprisingly then, diet products and weight-loss drugs are popular fare, sucking up $33 billion per annum, even though approved drugs register side effects ranging from diarrhea to irregular heartbeats. But even after the $33 billion check has been cut, creating an easy-to-swallow thin pill is seen as a lucrative prospect by the drug industry.

According to the Obesity Research Network, 94 drug companies are sending their researchers to gene labs to search for skinny. Why gene labs? Because scientists are getting better at reading the genetic signals sent among the body's digestive system, its fat stores and the brain centers that control metabolism. The hope is to develop a pill to modify those signals and, as The Times puts it, “give people something dieters crave: the feeling of fullness.” A number of hormones affect hunger. One is ghrelin (which shouts “I'm hungry”) and is short term; another is PYY (which delivers the opposite message, cautioning, “I'm full”) and is medium term; a third, leptin, increases metabolic rate and decreases appetite, and is long term.

Tweaking the System

As you might have guessed, the body's system for regulating weight is complex. When levels of one hormone rise, the whole system shifts, sometimes perversely. A perfected PYY pill, for instance, might help people shed weight, but it also could lower leptin and raise ghrelin levels, thereby making subjects hungrier.

Tricky business, this fooling nature, but a lot of companies are game to try. Leptin research helped biotech firm Regeneron introduce Axokine, which, like leptin, works by docking at cell receptors in the hypothalamus, the brain area active in controlling appetite. More so than leptin, Axokine makes people feel full. Currently in late-stage trials, Axokine suffered a setback last year, when it was disclosed many trial subjects developed drug antibodies, despite the success of 11 percent of subjects in losing over 10 percent of body weight in one year. As a result, the company's stock was clobbered. Regeneron now is trying to develop a test that will tease out positive responders in advance, and, given a practicable test, Axokine might well gain approval.

The only other anti-obesity drug in late-stage trials is Rimonabant, a medication developed by French drug firm Sanofi-Synthelabo. Rimonabant is based on an intriguing idea: If marijuana gives people the munchies, an anti-marijuana compound should function like an inverse high and block the brain receptors that stimulate hunger. (It turns out those receptors are involved in more than food cravings, for recent trials have shown Rimonabant to be also effective in helping subjects stop smoking, while upping the body's ability to process sugar and fat.) Given that obesity and smoking send about 800,000 Americans to an early grave each year, the drug's potential is huge. Unfortunately, the drug also causes nausea, a side effect which prompted a 15 percent dropout rate among high-dose patients in the trial. Notwithstanding, Sanofi-Synthelabo will attempt to demonstrate the drug's effectiveness in further trials and hopes to file for drug approval by 2005.

Bleeding Edge

Nastech and Amylin are companies further behind in their obesity trials. Nastech, a small-cap British biotech firm, is developing a drug that keys to the hormone PYY and fools the brain into believing a half-empty stomach is full. Trial subjects given PYY through a nasal spray, then offered a huge buffet meal end up consuming about one-third fewer calories. In the most recent trial, PYY-treated subjects, although blinded, stated they were less hungry and had a greater feeling of fullness, compared to placebo. In February 2004, Nastech began further trials to find the optimal dosing sequence for PYY and to determine whether PYY should be taken once, twice or three times a day to achieve “optimal calorie reduction.”

Last, Amylin. Amylin is a biotech company working with Eli Lilly to develop a diabetes treatment called Exenatide, which regulates glucose levels and also seems to slow digestion and suppress hunger. What's interesting is the drug's key ingredient is a hormone found in the saliva of the Gila monster. Why is that interesting? Because the Gila monster, Amylin notes, “can consume its entire yearly energy budget in three or four meals.” Now that's a diet!

So there it is: four companies, four potential thin pills. Keep in mind that development risk is higher for remedies in early-stage trials like Nastech's spray and Amylin's Exenatide. That said, late-stage products like Axokine and Rimonabant trigger broad effects, with Axokine provoking an immune response and Rimonabant, sometimes, anxiety.

Caveat emptor: No drug discussed here is certain to be approved, and all the brilliant lab work in the world is unlikely to produce an all-purpose thin pill. As the writer Susan Orenstein notes, the anti-starvation hardwiring of the body may mean that obesity pills will have to be given as cocktails. Given this likelihood, investors should diversify, since no single thin pill will likely prove just what the doctor ordered.

Fat Companies