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Can Arena's Obesity Handoff Create a Touchdown?

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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 idiots?
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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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2013, at 10:38 AM, marpieslice09 wrote:

    forget the 1.56 BILLION in milestones coming from Eisai???

    poor brian,,,,you and spencer and adam...youre all done.

    yer bore

  • Report this Comment On November 10, 2013, at 10:40 AM, marpieslice09 wrote:

    see Brian...ARNA make the pills for pennys,,SELLS the pills for DOLLARS to EISAI...AND THEN,...gets 1/3 of the milestones ect ect

    PLEASE I BEG YOU,,stay short,,,,its fun to watch the desparation setting in.

  • Report this Comment On November 10, 2013, at 10:42 AM, marpieslice09 wrote:

    AHHHH the ol sunday am bash...nice to see. i ws worried we wouldnt have any,,since SPENCER is missing since huge deal was announced,,,oh well

    RS/DRIVAL will be here soon,,,see ya monday at $6

  • Report this Comment On November 10, 2013, at 10:43 AM, marpieslice09 wrote:

    65,000 doctors at 100 scripts each =6.5 million scripts......then add bel phen 18 million like phen fen

    all in good time...and thats just the USA

  • Report this Comment On November 10, 2013, at 11:08 AM, marpieslice09 wrote:

    compliments on INVESTORS VILLAGE

    the Eisai deal is excellent. $60 million up front single handedly takes out the dilution issue. But, I think just as important are the following about this Eisai deal:

    1. Worldwide marketing infrastructure for Belviq;

    2. Eisai has more experience and name recognition in dealing with regulatory approvals;

    3. Synergies in research and development for BELVIQ life cycle;

    4. Single Brand marketing plan;

    5. Easier to manage 1 consolidated and comprehensive relationship;

    6. Gives Arena management more time to improve Wallstreet relationship;

    7. I bet their were some more discussions about marketing spending because the last agreement did not include any reference to DTC advertising. I know we have written Arena and Eisai about DTC TV advertising ASAP.

    8. I would rather sees sales growth accelerate than a 1 time payment of say 150 million. In general, Wallstreet and investors want the consistent and growing income stream. I mean Arena gets a good percentage of sales approx 31%. If Eisai had paid 150 million I think the 31% would have gone down significantly. If they can get to a Billion in sales say in two or three years then 31% of sales is better than the extra money, today, in the bank.

    9. Eisai now has a nearly worldwide responsibility and commitment for the drug. In other words, its success in the US will breed success in the other parts of the world. I think they will throw everything at making the first market BELVIQ available in (US) a success. It's much easier to sell in Europe when the US is a success etc.

    10. It will be a cost savings in the BELVIQ life cycle for Arena since Eisai will be doing most of the heavy lifting and product life cycle planning/expense. Needless to say, developing and managing a weight loss drug is very costly, which seems to be commensurate with the size of the potential market nearly 1 Billion people.

    I am more confident about Arena's success today than I was at any other time.

  • Report this Comment On November 10, 2013, at 9:35 PM, tar262weir333 wrote:

    Please stop these delusional articles. You can no longer even attempt to compare what Arena has accomplished thusfar with Belviq against the rest of their competitors. Arena has their ducks all in a neat row, while the others are either failing(vivus) or haven't even been approved and marketed. You can spin and mislead all you want. However, you are losing any hope of being read by investors in the future. You and MF are losing all credibility. This will be my first and last message on this forum.

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