Medifast, Inc. (NYSE: MED) and Vivus, Inc. (NASDAQ: VVUS) Benefit from Growing American Obesity Epidemic

Medifast, Inc. (NYSE: MED) and Vivus, Inc. (NASDAQ: VVUS) Benefit from Growing American Obesity Epidemic

Americans are fat and getting fatter by the minute. According to statistics from the Center for Disease Control and Prevention, 74 percent of men and 65 percent of women in the United States were either overweight or obese in 2010. These frightening statistics suggest that close to seven out of every ten Americans are overweight. As health officials issue warnings about the consequences of obesity, companies that specialize in weight loss are watching revenues rise substantially.

A good example is Medifast, Inc. (NYSE: MED). In the third quarter of fiscal 2012, the company beat analysts’ estimates on several counts, including EPS which came in at $0.42. Analysts had earlier pegged an estimate in the range of $0.37 to $0.40.Although the guidance for Q4 2012 detailed a lower EPS estimate of $0.23 to $0.25; revenue is expected to grow 18 percent year-over-year. In addition, most of its segment performed reasonably well.

Broader Market Conditions Will Boost Sales

Looking at the food and beverage industry, it is clearly evident that America’s weight issue affected the market. Beverage heavyweight The Coca-Cola Company (NYSE: KO) can attest to this. In its most recent earnings report, the company avowed its stand on healthier beverage options. Company CEO Muhtar Kent, highlighted the inroads made by Honest Tea and Simply Orange, two of Coca-Cola’s pro-health products. In another attempt to position itself well relative to its competitors, the beverage titan also launched pro-fitness adverts that promote exercise and selective calorie intake. Another company that has had to adjust to the weight issue is McDonald’s Corporation (NYSE: MCD). The giant hamburger chain added calorie intake information to its menus late last year. The approaches taken by these two leading companies with regard to weight management demonstrate the degree to which this hot button issue has gained priority.

Vivus, Inc. (NASDAQ: VVUS), one of Medifast’s close competitors, recently received a much anticipated nod from the FDA in relation to its Qsymia obesity pill. To sweeten the pot, Qysmia will be covered by Express Scripts (NASDAQ: ESRX), the largest U.S. pharmacy benefits manager. The FDA is very stringent on approval of weight control pills. Most of these pills usually come with side effects and as such, it takes a lot of testing by the FDA for a weight control pill to land on the shelves of pharmacies. Although the FDA deems Qysmia to be safe, public reaction will ultimately present the final and most challenging test for Vivus. As it is, most consumers are more inclined toward multilevel marketing (the package offered by Medifast). Consumers prefer a plan where they can eat the right foods and lose weight without medication.