Vivus Up 73% on Successful Trials for Obesity Drug

• Ian Wyatt
• On 5:30 pm EDT, Wednesday September 9, 2009

Stocks traded higher for most of the day with the major indices retreating during mid-afternoon trading and putting a point on the day with an uptick in the last hour of trading.

 

In late day trading traders were in part reacting to a new report from the U.S. Federal Reserve reporting that all but one of the Fed's 12 regions indicating that economic activity had stabilized. The one outlier was the St. Louis region reporting that the pace of decline was moderating, but there was still a decline in activity. 

 

The Dow closed at 9,547, up almost 50 points; the Nasdaq finished at 2,060, up 22 points; and the S&P 500 ended the day at 1,033, up 8 points.

 

The Russell 2000, a composite of the top 2,000 small capitalization stocks and a leading indicator of market recovery, finished up 10 points at 587.

 

Advances lead declines by a ratio of about 2 to 1 across the major markets.

 

Small-cap leaders trading over 1 million shares today include Vivus (Nasdaq:VVUS) up 73% on news that the Phase III clinical trials for its obesity drug Qnexa was effective in lowering the weight of patient in the trials. The firm has indicated that it plans to file for U.S. regulatory approval before year's end and is currently seeking a marketing partner.

 

Patients in the recent round of testing reported an average weight loss of 13.2% of body weight, compared to a loss of only 2.4% of body weight from patients in a placebo group.

 

Data from the U.S. Centers for Disease control shows that obesity-related diseases, such as heart disease and diabetes, account for nearly 10% of medical spending the United States. Given the rising rates of obesity in the United States analysts predict that once approved, Qnexa should generate annual sales over more the $1 billion.

 

Other small-cap stocks showing leadership include Candela Corporation (Nasdaq:CLZR), up 39%; Delta Petroleum (Nasdaq:DPTR), up 35%; and Hi-Tech Pharmacal (Nasdaq:HITK), up 24% after reporting first-quarter profits rose fivefold, mostly on stronger than expected sales from generic drugs.

 

*****The U.S. dollar has been crushed over the last couple of days. It's now trading at a 52-week low. For perspective, the U.S. dollar is worth about $1.45 to one euro. At its strongest, it took only 90 cents to buy a euro. Of course, the weakest the dollar has been against the euro came in the wake of Bear Stearns failure, when it hit $1.60 to one euro. You can really the dramatic devaluation of the dollar against the euro since inception, and most recently again since last fall.

That high also coincided with oil's highs of $147 a barrel in the summer of 2008. It's somewhat interesting that oil has moved only slightly higher over the last few days. We've seen nothing like the run from 2008. It's probably safe to assume that oil is trading more on U.S. dollar weakness than economic expectations.

 

What does that mean for oil stocks? Well, that's a good question. And the answer probably has to be framed in the context of the U.S. dollar. It's highly unlikely that interest rates will rise in the U.S. until the economy is on firmer ground. In that case, we can also assume that demand for oil will have risen ahead of any rise in interest rates. That suggests to me that the demand scenario will replace the dollar scenario as the catalyst for oil prices.

 

In other words, it's hard to imagine a significant weakening of oil prices. Unless, of course, the global economy enters recession again…

 

*****Come to think of it, it's difficult to imagine a significant weakening for any commodity. But energy remains one of the most compelling. I recently recommended a top natural gas company to my Top Stock Insights readers. Natural gas prices are extremely low due to demand destruction and the fact that the amount of natural gas reserves in established fields keeps rising.

 

While there may be more near-term weakness for natural gas prices, the long-term scenario appears iron-clad: natural gas prices will move higher.

 

If you want to discover the stock I'm recommending to Top Stock Insights readers and how it fits into my Managed America them, click HERE.

 

*****On August 13, I mentioned a couple biotech/pharma stocks that had caught TradeMaster Jason Cimpl's eye. He targeted one in particular for a 21% gain - Jazz Pharmaceutical (NasdaqGM:JAZZ - News).

 

Jazz Pharmaceuticals closed at $6.83 on August 13. Today, it hit a high of $11.88 and is trading around $10.70 at mid-day. That's a minimum 56% gain if you picked it up.

Buzz up!