Arena Pharmaceuticals (NASDAQ:ARNA) fell by 5% yesterday after reporting misses on both its loss per share and revenue. Moreover, shares fell yet another 6% today as the market digested the news.
Turning to the particulars, Arena reported a net loss per share of $25.3 million, or $0.12 per share, compared to a consensus of $0.10. Revenue for the first quarter came in at $6.8 million, with $2.9 million coming from net product sales of its flagship anti-obesity medication Belviq. By contrast, Wall Street had Arena's first-quarter revenue pegged at $7.98 million, meaning that Arena missed on revenue estimates by 14.7%. In sum, there is good reason for Arena's drop following its earnings release. That said, Arena's earnings release and subsequent conference call contained some rays of hope that might help soften the blow moving forward.
Silver linings and a hope for a better tomorrow?
The first bit of news Arena investors should find some solace in is that Belviq sales grew by a healthy 31% quarter over quarter. Although it still fell short of Wall Street's expectations, that's decent quarter-over-quarter growth by any standard. Looking ahead, Arena's marketing partner Eisai (NASDAQOTH:ESALY) is hoping to build on this momentum by adding another 200 sales representatives by July 2014, bringing the total inside the U.S. to 600. Eisai's stated goal is to be able to reach out to 90,000 doctors with this expanded sales force. The recent launch of television ads directly targeting patients should also help sales moving forward.
Another bright spot is that Arena and Eisai reported that insurance coverage for Belviq has now reached 60% of insured Americans. If you recall, there was almost no insurance coverage for obesity drugs when Arena's and VIVUS' (NASDAQ:VVUS) respective drugs were first launched. So, this is stellar progress on the insurance front and it's worth noting that this milestone was achieved in under a year post-launch. Put simply, Eisai's educational efforts are clearly paying dividends, albeit slowly.
Finally, we learned that Eisai has now filed for marketing authorization for Belviq in Brazil, triggering a $0.5 million milestone payment to Arena. Belviq's expansion into ex-U.S. territories is therefore starting to gain momentum as well.
The market is clearly displeased, or at a minimum impatient, with the pace of Belviq's uptake into the obesity marketplace. Complicating matters, Belviq is also losing out to its rival Qsymia in terms of quarterly prescriptions, although Qsymia has been on the market longer. Even so, it's worth noting that Belviq's 77,000 prescriptions estimated for the first quarter of 2014 were surpassed a year ago by Qsymia, which is tough to explain given that VIVUS lacks a marketing partner.
Viewed in this light, the 31% surge in Belviq prescriptions doesn't look so impressive and it has a long way to go before being considered a commercially successful drug. As I've mentioned previously, my belief is that Belviq's true potential likely lies outside of the problem-laden obesity market. In particular, I think Belviq's smoking cessation indication could unlock significant latent value for the drug. On that note, we did hear on yesterday's call that Belviq's mid-stage smoking cessation trial is now under way. Given that the smoking cessation market is badly in need of alternative therapeutics, you should keep a close watch on this trial as it progresses. It could turn out to be a game changer for Belviq in the long run.
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