Why Arena Pharmaceuticals, Inc. Investors Should Remain Wary

About half of insured Americans now have access to Arena Pharmaceuticals' (NASDAQ: ARNA  ) anti-obesity drug Belviq thanks to deals with Aetna and more recently CVS Caremark. Despite crossing these important hurdles, investors should still be wary of an ongoing outcomes study and competition from Vivus  (NASDAQ: VVUS  ) and Orexigen Therapeutics (NASDAQ: OREX  ) . While the market for a safe and effective obesity drug is an exciting opportunity, let's take a look at what could still go wrong with this stock.

An important hurdle
When the FDA approved Belviq, over a year and a half ago, the agency required a long-term outcomes study that should monitor about 12,000 patients. The trial, expected to start last month, will monitor patients receiving Belviq or placebo for about 5 years. If an independent monitoring committee reports a statistically significant increase in either cardiovascular events or conversion to type 2 diabetes, it's game over for Belviq.

If Belviq can successfully complete this trial, you can bet its sales will pick up. Until then, I expect physicians that remember the dexfenfluramine debacle will likely hold back from prescribing Belviq to some extent. During a late stage trial, less than half of patients exhibited a loss of more than 5% of total body weight. I think that when physicians balance the benefits such as modest weight loss against the unknown likelihood of serious side effects, the scales are not likely tip in Arena's favor often.

An important distinction
There's good reason to be wary of side effects with Belviq. Both fenfluramine and dexfenfluramine act on the 5-HT receptor family, as does Belviq. About a year after the FDA approved dexfenfluramine, physicians began reporting heart valve damage and pulmonary hypertension among its users. The number of patients that showed these side effects was small enough to escape detection during pre-commercial stage trials, but large enough among the wider population to result in their removal from the market in 1997.

Turns out it was unintended stimulation of the 5-HT2A and 5-HT2B receptor subtypes present on both heart valves and pulmonary arteries that has since been attributed to fenfluramine's serious long-term side effects. Belviq acts more specifically on subtype 5-HT2C, which is found in the brain and associated with feelings related to appetite. As such, it should be safe, but physicians, and investors, still have very good reason to wait for more cardiac and diabetes outcome data.

How important is Belviq to Arena's future?
Beyond Belviq, Arena has four compounds in early to mid stage development. The most advanced is APD811 for the treatment of pulmonary arterial hypertension (PAH). Most therapies for the indication are injected or infused, but APD811 can be delivered orally. Also, its pharmacokinetic profile suggests a single pill daily might do the trick. The company expects to begin a phase 2 trial in the first half of this year.

Even if mid and late stage development of this PAH therapy goes as well as can be hoped, it is unlikely to reach the market before the Belviq outcomes study is finished. It seems Arena will be almost entirely dependant on Belviq revenue for the long term. The good news is that the company is fiscally responsible and has plenty of cash to keep the lights on while physicians slowly gain confidence with the drug.

ARNA Cash and ST Investments (Quarterly) Chart

ARNA Cash and ST Investments (Quarterly) data by YCharts

The competition
Qsymia from Vivus combines phentermine and topiramate. Both affect patients' perception of appetite and satiety, but act via a different mechanism than Belviq. Overall, Qsymia appears more effective than Belviq, both in terms of average amount of weight loss and percentage of patients exhibiting significant weight loss levels.

Qsymia won approval in the US in July 2012, less than a month after Belviq. But Vivus hasn't has nearly as much luck in the EU. In October 2012 and again in February 2013, the CHMP refused to to recommend its marketing approval due to safety concerns.

Moving up from behind is Orexigen Therapeutics and its obesity contender, Contrave. Like Qsymia, this is a combination of two previously approved drugs. But unlike Belviq and Qsymia, Contrave is not considered a controlled substance, a fact that physicians should appreciate, if it wins approval.

It looks like marketing of Contrave could begin sooner rather than later. Although the FDA took issue with a lack of sufficient safety data in early 2011, the agency seems to have softened its stance. Orexigen has been allowed to resubmit, and we should know if Belviq has another competitor in the U.S. market by June 2014.

Final take
Arena is looking at what will probably be a slow rollout, due to well deserved caution, and a slight, but real possibility of removal from the market if Belviq fails a 5 year outcomes trial. The company's four early stage compounds are much better than nothing, but for now practically everything hinges on that outcomes trial.

Regulatory concerns aside, competition in the U.S. from Vivus' Qsymia and potentially Orexigen's Contrave are likely to put a significant amount of pressure on sales. Terms of the partnership with Eisai will further limit the amount of profits available to Arena. To me, it seems the limited upside doesn't outweigh the potential losses.

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Read/Post Comments (11) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On February 14, 2014, at 8:10 PM, TheGazoo wrote:

    You have to be kidding..... right???

    Just another hit piece trying to save Wall Streets ass.

  • Report this Comment On February 15, 2014, at 12:22 AM, Foreeverlong wrote:

    This article is absolute nonsense! There is absolultely no basis for the points stated. Belviq will be an enormous success, and has many promising drugs in its pipeline. It is either a hit piece or the author is very misinformed.

  • Report this Comment On February 15, 2014, at 12:20 PM, 1yossi1 wrote:

    Dear Cory,

    Sorry but you are CLUELESS!

    1. Regarding cardiovascular events - We have data of 3 Phase III trials and about 8K patients.

    One of the studies was TWO years long!

    Another one checked T2DM patients taking also more drugs!

    There is NO Valvulopathy issue even according to the FDA!

    Do you really think Eisai would ask for ROW and pay another $60M if there was even a tiny risk?

    Do you really think that you know better than ARNA, Eisai, Ildong, CYB, TEVA, Wellington, BlackRock, Vanguard and the FDA?

    2. Regarding "less than half of patients exhibited a loss of more than 5% of total body weight" - please at-least read the label before writing such stupid things.

    ONLY Responders that lost 5% in just 12 weeks should continue taking the drug!

    What you wrote is totally irrelevant regarding Responders, and non-responders will stop after 3 months!

    3. Regarding balance the benefits and the risks - Do you understand the risks of remaining with BMI 35 ? ? ?

    4. Regarding APD811 and time to market of pipeline - Please check Intercept's market cap!

    It's $6.7B WITHOUT approved drug!

    ARNA has 5-6 potential blockbusters in pipeline!

    5. Regarding competition - Lorc/Phen will "kill" Qsymia AND Contrave!

    It is safer and more potent than both of them.

    Results in less than 6 months!

    6. Regarding slow rollout - TV ads will start April; you don't want to short ARNA by then!

    Let's see 65M short positions covering...

    Final take - CLUELESS was an understatement!

    BELVIQ is going to be a BB for sure, and ARNA is a VERY Strong BUY at the moment!

  • Report this Comment On February 15, 2014, at 5:32 PM, Yale1066 wrote:

    I am sorry.... this looks like a rehashed canned hit piece of an article from about a year and a half ago. There is nothing I repeat nothing in it of value. It's main purpose is to attempt to depress the pps and help out a those sad shorts. Any investor who has done their DD on Arena Pharma will read this "article" and shake their heads. I highly suggest go long soon or risk some serious short losses within twelve weeks.

  • Report this Comment On February 16, 2014, at 8:27 AM, marp11 wrote:

    add that 60 million milestone in your widdle bitty chart

  • Report this Comment On February 16, 2014, at 1:45 PM, earthunit wrote:

    I agree, this is so obviously a slanted article to help author's crony buddies that want the stock price kept down.

  • Report this Comment On February 17, 2014, at 5:39 AM, AlanPithy wrote:

    What a pathetic and disingenuous article. Investors should worry about a 5 year outcomes trial? The real purpose of that trial is to see if patients who stay the course on the drug will reduce their rates of diabetes and heart disease as a result of losing weight - it is not about "fenflouramine" type problems at all. As far a fenflouramine goes, doctors knew it was bad for the heart long before the advent of FenPhen but the weight loss results from combining them were so great people were willing to ignore it. The good thing is that Belviq was designed to avoid the heart receptors, AND combining it with Phentermine even in these early stages is already showing 15%-18% weight loss. Belviq with Phentermine is very likely going to be the next, safe version of FenPhen and by 2015 I believe this combination will start to catch fire. Belviq also helps diabetics keep their blood sugar in check. Those two markets alone could make this a $10+ billion market and that's just in the USA where there are 32 million diabetics and another 80 million obese. ARNA also just enrolled a smoking cessation trial. Since the drug is already approved for weight loss getting that expanded smoking cessation label could come quickly and add $3 a share in revenue. A lot of money, but only a small fraction of what it will bring in for weight loss and diabetes here and around the world. At $7 a share ARNA is probably the best buy in the market for those willing to hold for between 2-5 years to let it grow into its skin.

  • Report this Comment On February 17, 2014, at 10:17 AM, gazoo99 wrote:

    Here's An interesting comment from a doctor:

    A DOCTOR SPEAKS RE:BELVIQ SHORTS CAN PASS ON THIS

    PHYSICIAN: EIGHT REASONS IN FAVOR OF BELVIQ

    I am a physician, long practicing, experienced, well read in research literature, and it’s time we provide everyone with our thoughts. Here are EIGHT REASONS BELVIQ IS PREFERRED FIRST LINE.

    Everything else is media hype or misinformed HF/ MM, who could give a flip about real patients.

    The sacred Hippocratic Oath all we took upon med school graduation requires us to put our patent's welfare first, balancing risks vs. potential benefits for each.

    No one treatment plan fits all. After extensive review and debate among us, almost all of my local colleagues will start with BELVIQ. Why?

    1) PATIENT SAFETY: BELVIQ WINS. Belviq has no severe REMS unlike Q. There is no known teratogenic potential of cleft lip or palate defects, and no known risk of amphetamine related morbidity, such as heart attack, cardiac arrhythmias, or strokes.

    2) WEIGHT LOSS EFFICACY: EQUIVALENT. Belviq and Qsymia are roughly equivalent at 8% after 12 months in placebo adjusted studies with FDA approved lower Q dosage. Higher Q dosage was NOT approved. Please do not try to fool anyone unless you have really digested the real figures from BLOOM AND BLOSSOM.

    3) SIDE EFFECTS: BELVIQ WINS. BELVIQ confers on its users no feelings of nervousness or feeling “wired:” Our patients do not desire this feeling.

    4). PATIENT AND PRESCRIBER CONVENIENCE: BELVIQ WINS. Simple Rx, and get it filled at local pharmacy. Qsymia requires labwork, frequent patient visits to doctors, cardiac monitoring, blood pregnancy testing, which will have to be done monthly. Any physician who prescribes Q will have his or her schedule jammed up with Q surveillance, reducing physician availability to others who require evaluation. The patient will have to have their Rx filled at a mail order pharmacy.

    5) REDUCTION IN ORAL CONTRACEPTIVE EFFECTIVENESS: BELVIQ WINS. BELVIQ causes no reduction in contraceptive effectiveness. QSYMIA reduces birth control pill effectiveness due to its hepatic topirmamine metabolism. How many unintended pregnancies will occur with female teens taking their mother’s prescriptions? How many will choose to NOT to undergo abortion?

    6) DIABETIC BENEFITS: BELVIQ WINS. Due to its 0.9% reduction in hemoglobin a1C levels, and 27% reduction in fasting blood sugar levels, BELVIQ will likely become first line therapy in most Type II diabetics.

    7) MEDICO-LEGAL RISKS TO THE PRESCRIBER: BELVIQ WINS. QSYMIA IS TOO DANGEROUS TO BE FIRST LINE.

    8) COST TO PATIENT OR THEIR INSURANCE COMPANY: BELVIQ WINS. BELVIQ requires little follow up. On the other hand, someone will have to pay for QSYMIA’s labwork, frequent doctor visits, cardiac monitoring, blood pregnancy testing, and mail order postage many times a year. All this costs money. Qsymia will be MUCH MORE EXPENSIVE to take. Which medication will likely be an approved formulary medication in the future for managed care? It won’t be Qsymia I promise you.

    So there you have it…..BELVIQ IS THE CLEAR WINNER

  • Report this Comment On February 17, 2014, at 11:18 AM, StevenKan wrote:

    Surprisingly the knowledge for person publishing this article is far away the readers. I agree and on the same side with all readers' comments. No wonder it is called Motley Fool... a place to fool people?

  • Report this Comment On February 19, 2014, at 7:42 PM, RBRMD wrote:

    I will agree with one thing. I have prescribed Belviq to 300 patients. Only a third get at least 10 % weight loss. So have a hundred patients doing well on chronic Belviq. So conservative estimate for primary care for U.S. only 200000 scripts a week. Then the ones that take 1/2 of a 37.5 mg phenteramine with it average about 17% weight loss. Then there are a few other things: makes you stop smoking, Diabetes, other addictions, other countries, incredible pipeline.

    The pipeline potential is nothing short of amazing. I wonder if there will be 65 million shorts at pps $100. I wouldn't be surprised. Watching try to manipulate the price has become fun. They just can't let it go.

  • Report this Comment On March 03, 2014, at 1:07 AM, PhillyDan wrote:

    Cory, your article show clearly you have a problem reading. It also shows you are a moron of the highest order! You have stated several outright lies in your article, making you a liar of the highest order.

    You should be reported to the SEC and reported to your Mom and Dad for your wasting any money they gave to attend reading class.

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