The Flip Side of Drug Disasters
By Rob Fannon, editor, Phase 1 Investor
June 8, 2007

In 1996, a drug company called American Home Products (AHP) was on top of the world...

It had just launched a highly anticipated new diet drug, called Redux (chemical name: dexfenfluramine), and sales were soaring. Doctors were prescribing the drug at unprecedented levels – more than 20 million prescriptions were written in the first year.

Redux was prescribed alongside another popular diet drug on the market – phentermine. The two drugs, taken together, were helping patients shed unwanted pounds at unheard-of rates.

The popular drug combination came to be known as "fen-phen."

The AHP drug, the "fen" portion of the combo, became the main culprit behind one of the worst drug disasters in modern history...

Once hailed as the first-in-class breakthrough obesity drug, it was pulled off the market in 1997, only one year after its launch. A study by the Mayo Clinic reported defects in the heart valves of two dozen women taking fen-phen. Since then, 66 studies with similar findings have been reported to the FDA. Current estimates claim approximately 30% of the 6 million Americans who used the drug during its brief stint on the market may be at risk.

The problem was that the AHP scientists didn't predict how "well" Redux actually worked. It targeted a particular family of receptors in the brain that regulate appetite and satiety (the feeling of being full). However, in addition to these receptors, the drug had an unusually high affect on similar receptors in the heart.

This is what led to the safety debacle. The medicine got ahead of the science.

In 2002, American Home Products changed its name. Today, American Home Products is known as Wyeth (WYE) – a $64 billion, Fortune 500 pharmaceutical company.

Wyeth is still sorting out the fen-phen nightmare; it has set aside $21 billion to cover the expenses and damages from the 50,000 lawsuits that have been filed.

In the years since the fen-phen fallout, the science behind the deadly mess has become much clearer. The problematic receptor in the heart has been identified.

And here's where investors can make a fortune... huge gains in biotech aren't made with initial scientific discoveries. High returns are won when medicine and cutting-edge science align – meaning the science is so well understood that it can be applied to humans, not just lab rats. 

Right now, the second-generation obesity drug that works as the original "fen" drug was intended, without the side effects, is sailing through clinical trials – and the company developing the drug is one of Phase 1 Investor's top performers. Readers are up about 50% in a little less than a year. Yet, there's one critical piece of safety data due this summer that could provide readers another 50% bump practically overnight.

If the safety data looks clean – and I expect it will – this drug will be a very hot commodity... essentially, a must-have by Big Pharma. The company will get very favorable offers for partnership (or even a buyout). Either way, shareholders should make huge gains.

The company continues to hover around my recommended buy price. As I told readers last month, I believe it "should be at the core of every biotech portfolio."

Good investing,

Rob Fannon