Shares of Vivus Inc fell sharply on Thursday afternoon after well-known short-seller Citron Research cast doubts on the drugmaker's ability to protect its weight-loss pill's patents.
Citron in a report on its website pointed out the possibility that Johnson & Johnson could challenge Vivus in court over patents that cover usage of anti-seizure drug topiramate -- one of the key ingredients in Vivus' freshly approved Qsymia.
The Citron report comes two days after U.S. health regulators approved Qsymia for use in obese and overweight adults who have at least one weight-related condition. The drug was expected to have the potential to bring in more than $1 billion in sales.
Citron is run by California-based investor and notable short-seller Andrew Left.
It also pointed to possible problems with another Vivus patent, with claims related to methods for treating disorders that include obesity "using sulfamates (including topiramate) in combination with psychostimulants (including phentermine)".
Qsymia's second important ingredient is phentermine. The brokerage points to possible copy-cat versions eating up Qsymia's market as the product is made of two key ingredients, which are already available in the market as generics.
Competitor Orexigen Therapeutics Inc's shares also fell 10 percent after the report went public. Orexigen's experimental drug, Contrave, is a combination of slow release versions of naltrexone and a mild psychostimulant, bupropion.
Orexigen is currently conducting a trial to study risks of heart complications from using Contrave.
Shares of Arena Pharmaceuticals Inc -- the first drugmaker to get a diet pill approved in 13 years -- were down 2 percent at $9.75 on the Nasdaq. Arena got the approval late last month.
Vivus shares, which had gained 10 percent in value a day after its diet pill was approved, fell 13 percent to a low of $25.15 in afternoon trading.
(Reporting by Vidya P L Nathan in Bangalore; Editing by Maju Samuel)