Arena Pharmaceuticals, Inc. Down for No Reason

Arena Pharmaceuticals (NASDAQ: ARNA  ) ended down 3.8% Friday after announcing earnings on Thursday night that included a rather paltry $2.3 million in revenue from sales of its obesity drug Belviq.

The sales don't seem to justify the downturn. We've known about the fourth-quarter sales since Arena's marketing partner Eisai issued earnings earlier this month.

I haven't exactly been a short-term Arena bull, but it seems like things are going about as good as could be expected.

  • Eisai appears dedicated to growing sales, doubling the sales force and running television commercials in the second quarter.
  • Private insurance coverage for Belviq has reached 50%, and Eisai is shooting for 75% coverage by March 2015.
  • There are plans to test Belviq as a smoking cessation drug, and it's already in a pilot study in combination with phentermine for weight loss.
  • Belviq is under regulatory review in five more countries: Switzerland, Mexico, Canada, Brazil, and South Korea.

What more could investors hope for? Oh yeah, decent net sales so the 31.5% that Arena collects from Eisai on net sales of Belviq amounts to something reasonable enough to cover Arena's expenses. Operating expenses in the fourth quarter were still more than four times revenue, even including reimbursement of clinical trial costs from Eisai.

While Belviq's sales numbers aren't anywhere near its potential -- only 2% of overweight and obese patients are using prescription weight loss products such as Belviq or VIVUS' (NASDAQ: VVUS  ) Qsymia -- they're not particularly surprising. Convincing doctors to prescribe the drugs, and patients to pay for them, is going to take time. VIVUS only recorded $7.7 million in Qsymia sales in the fourth quarter.

I didn't hear anything on the conference call that would decrease the long-term potential of Belviq or Arena's pipeline. As best as I can tell, today's downturn is simply because investors were hoping for a more upbeat report on the prospects for the company.

While investors are right to focus on Belviq -- where expectations will determine near-term valuations -- they shouldn't forget about Arena's pipeline, consisting of four different molecules in or ready for clinical trials. The compounds are all in early-stage trials, but Arena's valuation in the long term could be determined as much by its pipeline as the sales potential of Belviq.

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Read/Post Comments (7) | Recommend This Article (5)

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  • Report this Comment On March 01, 2014, at 6:10 AM, 1yossi1 wrote:

    Brian,

    "Down for No Reason" - Stupidity is not a good reason IYO?

    :)

  • Report this Comment On March 01, 2014, at 12:08 PM, Laudrey wrote:

    Very positive article and glad to see that Brian has left the dark side.

  • Report this Comment On March 01, 2014, at 5:23 PM, biogemfinder wrote:

    Have to admit - Brian finally you seem to have dug a little deeper - talking about ARNA's pipeline and why this is undervalued and why it appears to be manipultaed.

    As the ECC states, there is really no numerical guidance as to the future sales revenues for Belviq except that we all know it will be more than double or even triple from 2013!

    And belbiq sales for Q4 and all of 2013 were already dosclosed and discounted by the marekt many times so to see the pps drop because of the same #s reiterated is astounding..or actually it the MM (market manipulation).

    Kudos on not not saying Belviq is not efficacious and that Contrave will be the answer to obesity problems..the fact is Contrave, like Qsymia is a mix of two generic drugs which have been and are being prescribed already, without a single pill that combines them. In other words they are novels entities. Belviq is the only novel drug with much better safety profile and with he ability to combine with diabetes drugs, and phentermine which will likley increase the efficacy much higher.

    Yes, the sales hasn't taken the parabolic growth we all wished, but still its growing and if you look at q over q its nothing to sneeze at and has seen tremendous growth. If you compare to qsymia, Belviq started higher and growth has been better. While Qsymia has been stuck at 10K range belviq will pass that milstone in March or early April. With TV ads it could reach 20K by the end of q2. At 20K scripts per weeks, we are talking 200M gross sales per year, but higher number is possible by year end.

    And we are not considering additional sales from other countries and deal signing for the few countries that does not fall under EISAi agreements. Filing in EU, approvals in canada, mexico, brazil, taiwan, s korea are all catalysts that will drive sales and pps in 2014!

  • Report this Comment On March 01, 2014, at 5:42 PM, PAW57 wrote:

    Accurate, balanced assessment. Nice to see one of these once in awhile. I think there's hope for all of us.

  • Report this Comment On March 01, 2014, at 6:16 PM, foolfafa wrote:

    Arena also owns a 4% stake worth $50 million in a Taiwanness biotech company named Taigen.

  • Report this Comment On March 03, 2014, at 2:00 AM, biogemfinder wrote:

    I am quoting Yossi from YMB who quated the transcript from earlings call:

    yossi_m1 • Feb 28, 2014 9:34 AM Flag

    Interesting quotations from Earnings Call Transcript

    “I am also excited that we and our collaborators will combination our expertise to investigate new indications, formulations, and combination, and importantly, do so in a shared expense arrangement”.

    “If successful in our clinical development, we could have four new chemical entities ready for, or in Phase II clinical trial. As we deliver proof of concept, I expect investors will further appreciate our non-BELVIQ program this year”.

    “I also expect other pharmaceutical companies will increasingly be interested in our pipeline, and note our strong track record in securing agreements with collaborators such as Eli Lilly, Merck, Ortho-McNeil, and of course more recently, Eisai, Ildong, and CY Biotech”.

    “Lastly, we ended 2013 in a strong financial position that will support our efforts to improve health by bringing innovative medicines to patients”.

    “I’m happy to report that as of mid-February, approximately 22,000 physicians have prescribed BELVIQ”.

    “Coverage for BELVIQ is now estimated by Eisai to be greater than 50% of people who are commercially insured”.

    “Beyond the U.S. market, BELVIQ is currently under regulatory review for marketing approval in Switzerland, Mexico, Canada, Brazil, and South Korea”.

    “in the United States, over 40 million adults smoke, resulting in approximately 480,000 premature deaths and $193 billion in direct healthcare expenditures and productivity losses per year. However, smoking is a global issue. In China alone, approximately 350 million people smoke, and worldwide, smoking results in over 5 million deaths per year”.

    “We look forward to strategically advancing our pipeline, which includes APD811, Temanogrel, APD334, and APD371”.

    “Cash, cash equivalents, and short term investments increased to $221.9 million at December 31, 2013”. Less

  • Report this Comment On March 03, 2014, at 4:22 AM, 1yossi1 wrote:

    “As we’ve previously reported, we have an equity investment in TaiGen that we received as part of a collaboration with TaiGen.

    At December 31, 2013, such investment was recorded as no value. In January, TaiGen completed an initial public offering and as such, we will begin to record its value on our financial statements”.

    “We have eight active development stage programs and many of these program expenses are shared with our collaborators”.

    “Remember that the issues that we have with the E.U. are very similar to what we saw with the FDA, and that did not include any cardiovascular risk”.

    “Right now, of the total number of overweight and obese patients out there, only about 2% are using prescription weight loss products. So the potential of the market to expand is incredible”.

    May I add few points:

    1. Some indications, such as acute pain, needs very short trials!

    It can move forward very quickly!

    You may approve it first very quickly for short terms use (let’s say two weeks), and then approve it for chronic pain treatment.

    2. PAH oral treatment will go “Fast track” regarding FDA approval (and no DEA).

    Although “small” market - revenues per patient per year could be $120K-$160K (unlike BELVIQ’s $2K-$2.4K).

    3. Some indications get HUGE value BEFORE approval – e.g. please see:

    http://finance.yahoo.com/echarts?s=ICPT+Interactive#symbol=i...

    4. Smoking cessation phase II study is a very short study (only 12 weeks)!

    5. Did I mention TaiGen?

    Let’s buy some CHEAP stocks from Lee K’s followers (did he call Lorc/Met “narcotic” ? ? ?)! ;)

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