Arena Investors: You Need More Than a Blockbuster

Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS  (NASDAQ: VVUS  ) are the epitome of water-cooler stocks. Every American knows that our country is dealing with an obesity epidemic, so what could be more of a "sure thing" stock than companies behind weight management pills that are clinically proven to work? If it sounds to good to be true, it's because it is.

In the following video, health care bureau chief Brenton Flynn provides a brief overview for those who are new to the Arena Pharmaceuticals story. Specifically, he discusses why a partnership that Arena entered into means that its drug, Belviq, needs to become much more than a blockbuster drug to provide shareholders with the profits they're looking for.

Are there any reasons left to own Arena?
With Belviq's FDA approval now a distant memory, investors are scrambling to decide whether to buy or sell Arena. In the Fool's premium research report, senior biotech analyst Brian Orelli takes you through a comprehensive look at this contentious stock, including its massive opportunity, potential pitfalls, and key reasons to both buy and sell. To find out more about Arena -- and get a full year of updates -- click here to access your report today.


Read/Post Comments (17) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On February 12, 2013, at 3:52 PM, dvb6000 wrote:

    There are two pieces of information that you have not shed light on that potential investors should be made aware of. First, the Arna's agreement with Esai covers the majority of the costs to maket Belviq whereas Vivus must itself cover these costs. One can assume that this is a wash w/r to the bottom line. Secondly, Vivus' Quisymia launch has been pitiful due to the restrictive distribution that was placed on it by the FDA. Belviq has no such limitations and, in fact, should do extremely well at launch given Esai's distribution muscle.

  • Report this Comment On February 12, 2013, at 5:53 PM, SamFreedom wrote:

    Yeah, this isn't the first huge miss by the resident "health care bureau chief" (oooooh, sounds so impressive like Grand Dragon). It almost seems as if he has a vendetta against those who think they know better about Arena.

    Meanwhile, institutional holdings grow and the price is at $8.60 up from $1.+

    Pay more attention to the comment section.

  • Report this Comment On February 12, 2013, at 7:42 PM, billcatedit wrote:

    Who is paying for Vivus' expensive post marketing studies? Vivus - more than they will ever see in sales!

  • Report this Comment On February 12, 2013, at 9:06 PM, mrmarkaallen wrote:

    Show me another partnership deal that is better than the one ARNA struck with EISA. I know you won't respond because there is no other deal that I have seen that carries with it over a billion in milestone payments, 90% of post approval costs carried by the partner, over 34% of net sales, up front cash and a 65 million payment due when the DEA gets off their keister. What are you guys smoking? Another hit piece from the shorts who will soon pay a heavy price for their misguided investment here.

  • Report this Comment On February 12, 2013, at 11:02 PM, clawmann wrote:

    Just plain stupid.

  • Report this Comment On February 13, 2013, at 3:18 AM, ReasonableRisk wrote:

    Belviq will cause a paradigm shift that is difficult for most to understand. While it was good that you caution new investors about ARNA, I believe the cause for the warning was misplaced since investors greatest concern should be is its crazy price movements that defy logic and seemingly dictated by groups that short whenever a catalyst allows them to confuse and inject fear into investors. In fact, Belviq's story is essentially simple and centers on safety, efficacy, and potential market for Belviq in its present and future forms, but it is muddled by those with interests in existing and developing anti-obesity drugs. Here, I hope I help case some light on the potential market for Belviq.

    To determine if a drug will be a blockbuster, one must consider the market, prior sales, what limited or inflated prior sales, and how markets will react to a new drug with unique characteristics.

    I believe that based on the prior and existing anti-obesity drug sales and due to the adverse side effects of existing and past drugs, Belviq will capture a large proportion of the existing market and expand the market to levels not seen since the Fen-Phen craze.

    In considering sales, one must remember that neither the drugs nor the sales figures can be directly correlated. Each drug has different efficacies, side effects and every dollar of profit taken from a generic drug will result in many dollars of profit for the prescription drug). Thus, in attempting to estimate Belviq sales based on past sales of other drugs, one will underestimate potential sales (also, the figures are not corrected for inflation).

    Past and present market:

    The sales of the benchmark, Fen-Phen, peaked at $5.6 billion in 1994 (http://www.klinespecter.com/dps-dietdrugs1.htm ) although I've seen claims that it never exceeded a billion dollars (because it was a generic drug at the time of the craze; phentermine was marketed since 1959). However, Fen-Phen was not safe and litigation resulted in a about $3.9 billion in settlements.

    In 2009 the anti-obesity drug market was $1.1-1.4 billion and GlobalData estimated it would nearly triple to reach $3.1 billion by 2016. By 2010, despite increasing obesity levels, GlobalData reduced its estimate to $2 billion by 2017, if companies can deliver safer and more effective drugs. But, efficacy and safety or efficacy and minimal side effects were always negatively correlated.

    Like Fen-Phen, sales for other drugs are complicated by side negative effects and/or were banned.

    In 2009, Xenical and Meridia together represented about $938 million (two-thirds of the prescription anti-obesity market in terms of revenues). However, sibutramine, the key ingredient in Meridia was banned in the UK and France in 2010. Xenical (orlistat) lost its U.S. patent in 2009 its sales were limited by the awful side effects, such as fecal incontinence, flatulence, diarrhea, all magnified by fat in the diet.

    Much of the existing anti-obesity market consists of over-the-counter drugs unlikely to be recommended by a physician to patients (who have likely tried them) when a safer alternative is now available (Belviq) and which acts on reducing food intake.

    Belivq

    The market needs a drug that may help patients lose a moderate amount of weight without the side effects. Belviq should take market share from the less safe drugs and those with nasty side effects and should expand the market to those who previously gave up or scared away by existing drugs. ARNA will also increase its market by increasing the efficacy of its drugs and directly competing against VVUS. Today, ARNA announced (without any mention in the press) that it intends to begin testing a combination of Belviq and phentermine in the second half of 2013. This will be useful to those who are not at risk to phentermine's side effects or discontinued from Belviq in its present form. I also suspect ARNA, unlike VVUS, will secure an agreement from the patent-holder of phentermine before marketing the combination to avoid future litigation.

    I must note, that the press and those commenting on articles, consistently claim distort the efficacy of Belviq by including patients that doctors are to discontinue (anyone losing less than 5% of their weight within 12 weeks). By removing those patients, the average weight loss is much greater for those who respond well to Belviq in its present form.

  • Report this Comment On February 13, 2013, at 3:33 AM, beatlesforever wrote:

    Another low point for Motley Fool by letting this shill spread baseless FUD to help whomever is pulling his strings. That was one bad piece of journalism which chose to ignore so many factors. Shame!

  • Report this Comment On February 13, 2013, at 8:51 AM, CER4040 wrote:

    To be honest I think it's rather sophomoric of you to call Arena a "water cooler stock." Trying to snub them and make them seem less valid as a company. Regardless, Arena management has done right by shareholders and partnered with big pharma to shoulder the costs for marketing and post marketing safety studies not to mention the milestone payments they are receiving. I believe they will get 65M on the completion of scheduling. Furthermore Arena has a pipeline that is unmatched by VVUS and they are testing other combinations with their leading drug Belviq. Water cooler stock? More like single malt scotch if you are a shareholder.

  • Report this Comment On February 13, 2013, at 9:22 AM, earthunit wrote:

    You guys at MF are building up a LOT of bad karma!

  • Report this Comment On February 13, 2013, at 9:43 AM, SamFreedom wrote:

    Motley Fool,

    Brenton isn't just one of your typical hack authors. He is your "health care bureau chief", so do us ALL a fair and get on this horrible hatchet job he is doing on a company and stock in which many people are investing significant money. It's not right.

    His article is, imho, trash.

  • Report this Comment On February 13, 2013, at 10:24 AM, Geezwad wrote:

    Health Care Bureau Chief --I wish I could be one when I grow up.

  • Report this Comment On February 13, 2013, at 10:39 AM, biogemfinder wrote:

    Really? More than a blockbuster?? Do you still think you have any credibility left to even write anything re arena??

  • Report this Comment On February 13, 2013, at 10:57 AM, rreddyraj wrote:

    The article is completely misleading. Arena stuck a better deal with Eisai … never seen a single deal better that Arena’s in last decade of my investing experience. The author claims, Belviq has to be more than a “Blockbuster” to justify current market cap of ~1.8 billion … it’s a joke.

  • Report this Comment On February 13, 2013, at 6:51 PM, bonhead wrote:

    you have been bad mouthing Arena .You have posted this add Yesterday and today .Are you shorting this stock Arena .Yes you are .Its shame how you make your living by been untruthful .Could you be honest and tell us you have no desire to own Arena. .Do you do day trading .Do you own stock .Why are you giving advice about arena 2 Days in A row .The point I am trying to make is your lier

  • Report this Comment On February 13, 2013, at 7:08 PM, bonhead wrote:

    There was another A hole like you who badmouth Arena .When it was Trading little over two dollar last summer .An Idiot like you by the name Adam Fuente wrote artcale about Arena .Just 2 days before the Approval .He said quot .They will never be approve .this stock is junk .There is no way FDA will approve this stock and went on and on .The stock tumble from $2.20 to $1.70 .People got scare Including me sold all my share. Two days later Arena was Approve .Now you are trying to re peat the same lie

  • Report this Comment On February 13, 2013, at 7:16 PM, jwburke wrote:

    One biotech to watch that is still cheap is Adamis Pharmaceuticals (symbol ADMP). www.adamispharmaceuticals.com

    Adamis has a strong management team headed by Dennis Carlo from Immune Reponse days, several products that are close to generating revenues, and an incredible pipeline of drugs with great potential. I think ADMP is an easy triple this year with even greater returns in the next few years. Definitely worth a look IMO.

  • Report this Comment On February 15, 2013, at 10:44 AM, yourfriend49 wrote:

    WHO THE TUCK IS ASKING YOU DUMBO WHAT WE NEED..WE NOW WHAT WE ARE DOING..WHY DONT STOP MAKING FOOL OUT OF YOURSELF IN MARKET..

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