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My Foolish colleague, Keith Speights, likened Arena Pharmaceuticals' (NASDAQ: ARNA ) expanding its marketing agreement with Eisai to a punt in a football game. I'd argue it's more like an undersized quarterback handing the ball to its much larger running back.
Never mind that the running back has so far been tackled for a loss despite having claimed it could run for a touchdown. Fortunately, the running back plans to put on some weight before the next big game.
Analogies to realities
There's no doubt Eisai is much more capable of selling its obesity drug Belviq than Arena is, especially in this expanded territory. Whether Eisai is the best company to sell Belviq is certainly debatable. In May, the Japanese pharma claimed that it could see $200 million in sales by the end of March 2014. So far, Eisai hasn't achieved a tenth of that.
It's understandable that sales would get off to a slow start. It's not like VIVUS (NASDAQ: VVUS ) has had much success with its obesity drug Qsymia. But you have to worry about a company that sets such high expectations not understanding the reality of the situation.
Eisai has said it plans to double down on its sales force, which should help accelerate sales. Although it's starting from such a small base -- just $5.4 million in the second quarter -- it's got a long ways to go.
A solid endorsement
Management said on the call that they had "numerous inquiries" about potential partners in the regions where Arena still had sole rights. Considering the deal terms, it certainly doesn't look like Arena just caved in to its big pharma partner.
Arena will receive $60 million up front, and could get up to a total of $176.5 million in regulatory and development milestone payments. And there's also an increase of $185 million in one-time payments that it's eligible to receive as sales reach certain thresholds.
Even with all those payments, Arena is still getting decent sales prices for the drug that's comparable to what it gets in the U.S. and the rest of the Americas covered under the previous deal. Unlike a typical royalty agreement, Arena manufactures Belviq, and then receives payments based on net sales.
To infinity and beyond
Having the same partner for a majority of the word makes it easier to develop additional products that contain Belviq. Eisai and Arena are planning on testing a combination product containing Belviq, and a generic obesity drug phentermine. A pilot study will start around the end of the year.
The companies are also exploring the opportunity to develop Belviq as a treatment for smoking cessation. While that might seem a little weird, one of the components of Orexigen's (NASDAQ: OREX ) obesity drug Contrave is used as a smoking cessation. It makes sense that something that would make you feel content would keep you from having cravings to eat, or smoke, or whatever else your vice might be.
Five companies have made major investments in the obesity space: Arena, Eisai, VIVUS, Orexigen, and its marketing partner, Takeda. While it's certainly possible that they're all idiots, I think they see the long-term potential of treating the disease, even if it's a battle in the short term.
Going back to the football analogy, if VIVUS can pull in a free agent and land a marketing partner of its own, we'll have yet another endorsement of the obesity market, and another big guy to push the drugs.
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