Fatter Wallet. Up 22%. Still Risky.

Arena Pharmaceuticals (Nasdaq: ARNA  ) set the bar for obesity-drug deals when it licensed lorcaserin to Eisai Pharmaceuticals in July. Orexigen Therapeutics (Nasdaq: OREX  ) seems to have figured that was good enough, smacking the bar solidly with its licensing deal with Takeda Pharmaceutical today.

Drug

Owner

Licenser

Upfront Payment

Milestone Payments

Percent of Sales to Owner

Contrave

Orexigen

Takeda

$50 million

"over $1 billion"

20%-35%

lorcaserin

Arena

Eisai

$50 million

$1.25 billion

31.5%-36.5%

Source: Company releases.

There are a couple of differences in the deals: Orexigen's deal covers the U.S., Canada and Mexico, while Arena's deal is limited to the U.S. The breakdown of who pays for clinical trials required by the Food and Drug Administration also differs. Both biotechs will manufacture their drugs, but Takeda will cover Orexigen's manufacturing costs, while those costs will be borne by Arena. Assuming a single-digit cost of goods sold, it looks like Arena has better terms on the low end of the payments, but worse at the highest sales tier when the percentage maxes out. Let's call it a draw.

It's pretty clear from both deals that Takeda and Eisai don't have much confidence that the drugs will get approved. Obesity is a fairly large market, and the companies are only willing to put $50 million on the line for drugs that have already been submitted to the FDA. By comparison, Allergan (NYSE: AGN  ) got $40 million from Bristol-Myers Squibb (NYSE: BMY  ) for its pain drug -- which hasn't even entered phase 2 development -- and a backup compound that's farther behind. Biogen Idec (Nasdaq: BIIB  ) invested $80 million in upfront and equity investments in privately held Knopp Neurosciences for its ALS drug that hasn't read out phase 3 results yet.

Whether the small drugmakers should have tried to get more upfront and lower milestone payments down the road or perhaps passed on the deals altogether, depends on whether the drugs get approved. Arena will face an FDA advisory panel on Sept. 16 with a decision coming around its PDUFA date of Oct. 22. Orexigen is a little farther behind with an advisory panel on Dec. 7 and Jan. 31, 2011, PDUFA date.

After VIVUS' (Nasdaq: VVUS  ) Qnexa was shot down at its FDA advisory panel, it's clear that Arena and Orexigen have an uphill battle in front of them.

Tom Jacobs recommends you buy this company before it gets sold. Literally.

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True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On September 02, 2010, at 4:11 PM, StormDamage wrote:

    Both deals sound pretty sweet to me...biopharma is tight with their $$$...they both could have waited until Q4. Why didn't they ?

    BTW, proofread your work in addition to spellcheck: "a little FURTHER behind" Or did you actually mean distance in miles or kms ?

  • Report this Comment On September 02, 2010, at 5:13 PM, judithjo wrote:

    Would someone please tell me whether to hold BMY? And whether to average down on PFE? I like the divs and have a nice profit in BMY and an equally nasty loss in PFE.

  • Report this Comment On September 02, 2010, at 5:15 PM, BioBat wrote:

    I've said it before and I'll say it again. VVUS was doomed from the start because safety issues were swirling over it's drug for a long time and they iddn't address them to the satisfaction of the FDA. This should have been obvious to anyone who's followed FDAs decisions over the past 5-10 years on chronic drugs but apparently everyone was asleep at the while. ARNA has none of that and while the efficacy of locaserin isn't as great as the others, the safety profile is spectacular. I think it's a slam dunk approval. OREX and contrave will face more scrutiny because it's a dual therapy but it doesn't carry the safety issues (however small) that plagued VVUS and Qnexa. I think it'll get approved as well.

    In regards to the $50m not being much spent by Takeda or Eisai. This isn't a takeover like Pfizer-Whyeth, it's one deal for one drug. $50m isn't no small sum to get in at the ground floor for a pre-approved drug, at least not in 2010. Both companies are trying to get in before either drug gets approved. In December Celgene paid $340m to buy out Gloucester AFTER istodax had been approved for lymphoma. You can bet if they had signed before approval, the deal probably would've been a lot south of $50m.

  • Report this Comment On September 02, 2010, at 8:17 PM, AlanPithy wrote:

    ARNA is the only company worth investing in the obesity space. VVUS' Qnexa is a dangerous combination pill. FDA already put a limit on the use of Phentermine. Adding Topamax to it doesn't make it safer it makes for two bad drugs taken at once. If FDA approves Qnexa they might as well approve Phentermine for long term monotherapy use, and if they did it would only benefit Lorcaserin in the end.

    OREX's Contrave had a significantly higher dropout rate in their trial than even the nasty VVUS drug had. It too is an obscene combination of drugs with side effects that are just not worth the price.

    Lorcaserin is the only one of the three to be a unique drug, not a combination of old off-patent drugs. It is designed specifically for obesity and it seems incredibly safe and quite effective.

    Those who complain it the "least effective" miss the point. It is actually very effective. 1/3 of the people who take it lose over 10% body weight. Yet, it is not fair to compare one drug efficacy to two-drug efficacy. Those drugs people claim are "more effective" won't get approval because they are dangerous combination pills, so it is hardly worth pointing out in the first place. Cocaine and crystal meth are more effective too.

    Furthermore, if you wanted to take more risks or needed more aggressive intervention you could always take Phentermine with Lorcaserin (LorcPhen). The LorcPhen combination would be very similar in concept to the old and very effective FenPhen but without the heart-valve problems associate with Fenfluramine. Both Fenfluramine and Lorcaserin are Serotonin uptake antagonists, except Lorcaserin is very selective and avoids receptors in the heart. So this LorcPhen combination actually makes a lot of sense from a marketing and clinical perspective. It is FenPhen without the problems associated with Fen. LorcPhen would also very similar in concept to Qnexa (TopoPhen) but without the nasty Topiramate side effects.

    If you do decide to take Phentermine with Lorcaserin, you can control the doses individually. Contrave and Qnexa don't let you adjust the individual doses. This is another reason why Lorcaserin is superior. ARNA will be rocking the obesity space just give it 18 months after approval this fall to prove LorcPhen's efficacy and safety, it will have 10, maybe 20 million users in all either Lorcaserin monotherapy, LorPhen combination therapy, or Lorcaserin for Diabetes.

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