Key Takeaways From Arena's Third-Quarter Update

Shares of Arena Pharmaceuticals (NASDAQ: ARNA  ) soared last Friday after the company announced an amended marketing agreement with Eisai for the company's obesity drug Belviq. This expanded marketing agreement gives Eisai exclusive commercialization rights for Belviq in all countries except South Korea, Taiwan, Australia, and New Zealand.

Per the agreement, Arena will receive $60 million in upfront payments, up to $176.5 million in regulatory and development milestone payments, and $1.56 billion in one-time purchase price adjustment agreements in the newly covered territories.

This expanded deal couldn't come at a better time for Arena investors. To date, Belviq's U.S. launch has been slow by industry standards, with Arena only generating $1.7 million in revenue from the drug in the third quarter. Orexigen Therapeutics (NASDAQ: OREX  ) is also hot on Arena's heels in the development of its competing obesity drug Contrave, with possible approvals coming next year in both the U.S. and Europe.

Perhaps the only good news on the commercial front for Arena of late has been VIVUS'  (NASDAQ: VVUS  ) problematic launch of Qsymia. Since last July, First Manhattan has essentially taken over the board of directors in an attempt to turn the company around and improve Qsymia sales. Even so, this turnaround effort has resulted in three different CEOs in less than two months, making it hard for VIVUS to implement its new marketing strategy for Qsymia.

Looking past the expanded marketing agreement
I believe Foolish investors should look past the newly minted marketing deal with Eisai, and dig a bit deeper into Arena's recent conference call. While the marketing agreement made headlines, the conference call contained a number of important tidbits that investors should pay attention to going forward.

Key takeaways from the conference call
First off, Arena management noted that more than 10,000 doctors have now prescribed Belviq, showing that Eisai's education efforts are paying dividends. As further proof that doctors and patients are taking interest in the drug, management pointed out that traffic to Belviq's website is increasing at a steady rate.

Another key takeaway that got lost in the excitement of the amended marketing agreement is that major private insurers are starting to include Belviq in their coverage. Insurance coverage for obesity meds has long been a problem in the industry. So this apparent change of heart should help boost Belviq sales going forward.

On the clinical front, management noted that an initial fixed dose pilot study with phentermine has been completed, and a larger pilot study for the Belviq-phentermine combo will be performed soon. Arena also completed studies on the long-awaited once-daily, extended-release formulation of Belviq, and mid-stage trials to expand Belviq's label for diabetes and smoking cessation are in the works. Finally, management also championed the significant progress of their other early stage clinical candidates, with multiple mid-stage trials planned for early 2014.

A Fool's outlook
So, while the amended marketing agreement is certainly important, the recent conference call shows there are a number of reasons to keep a close watch on Arena. I find it particularly interesting that CEO Jack Lief explicitly stated that the company choose Eisai as a global marketing partner because he believes Eisai gives Arena the best chance of expanding Belviq's label.

With sales of both Belviq and Qsymia struggling to gain traction in the obesity sector, an expanded label may be crucial to Belviq's commercial success. And potential competition from Contrave next year won't help the situation.

What's my outlook on Arena? I personally think it's best to stand on the sidelines for now. I want to see how Eisai's continued education efforts play out at upcoming medical and investor conferences before making a call. With the CEO even sounding like he believes the real value of Belviq lies in expanding the label, it might take a while for the drug's true value to be unlocked. I plan to keep Arena on my radar as the plan to expand Belviq's label unfolds.

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Read/Post Comments (4) | Recommend This Article (5)

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 14, 2013, at 10:17 AM, Ubetcha wrote:

    You say the Belviq launch is slow by industry standards yet you provide no data to support that position. Since you use "industry" as your measure, collecting a sample size of say the most recent 300 drugs would provide a clearer picture of industry standard launches. Do you have those data? If so, please provide.

    Thank you.

  • Report this Comment On November 14, 2013, at 12:31 PM, marp11 wrote:

    facts to support your statement...no?

    i see

  • Report this Comment On November 15, 2013, at 12:22 AM, nickl5 wrote:

    You missed the #1 key takeaway

    Eisai began marketing and distributing Arena’s weight-loss drug lorcaserin HCL (Belviq) in the United States about five months ago under terms of their previous agreement, which covered North and South America. The expanded agreement, Lief says, establishes a broader platform with Esai to evaluate other potential uses of locaserin.

    Lief says, “First up in our priority list is to start a study looking at [the use of lorcaserin] in smoking cessation.”

    Independent preclinical studies conducted by two academic centers indicate that lorcaserin could be effective in helping smokers to quit. Under the terms of their expanded marketing and supply agreement, Eisai and Arena plan to initiate a Phase 2 clinical trial in the first half of 2014 to evaluate lorcaserin for smoking cessation. “If we’re correct, this opens up a very large market that is very poorly addressed,” Lief says.

    In the United States, an estimated 43.8 million people, or about 19 percent of all people 18 and older, smoke cigarettes, according to the U.S. Centers for Disease Control. In China, press reports indicate there are more than 300 million smokers. Arena’s Lief estimates that 80 percent of the smokers in China are men.

  • Report this Comment On November 15, 2013, at 12:37 AM, biogemfinder wrote:

    The key takeaway???

    You are still a fool and still bashing arena. You think the pps is still not low enough for you to consider buying it? I suppose once the word gets out and script takes off, you will be more than willing to buy arena shares? I got it now!

    MF, SA, and a whole host of other hacks have been on the agenda to discredit and minimize arena and its novel drug Belviq without understanding what it is. Yes the roll out hasn;t exactly been super..but it has only been 4 months? What do you think will happen since the efficacy appears to be better than in clinical trials, drugs.com and other sites have Belviq reviews far better than the competitor, insurance coverage is going to more than 50% by the beginning of 2014, and now there are 400 reps knocking on Dr offices ..when do you think will be time to jump in?

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