There was a lot of excitement when the Food and Drug Administration approved the first obesity drug in more than a decade. Investors were looking forward to the launch of Belviq, Arena Pharmaceuticals' (ARNA) obesity drug. However, the initial sales of the drug have disappointed the investors in a big way, and the stock has taken a substantial hit. Since the start of July, the stock has fallen more than 17% -- at the same time, the NASDAQ biotechnology index has gone up by about 6%. Sales of Belviq can make or break Arena as it is the company's only marketed drug at the moment -- slight disappointment regarding sales can result in a big dip in the stock.
Expanded marketing agreement
Arena has a marketing agreement in place with Eisai for North America, which the company has now decided to expand to most countries worldwide. The decision is extremely encouraging in my opinion. Arena's strength is research and development, and expanding the agreement will allow the company to focus on its core strength. Also, Eisai has vast experience in marketing drugs, which should allow for a better marketing and sales effort worldwide. According to the agreement, Arena will receive $60 million upfront and up to a total of $176.5 in regulatory and development milestone payments. These milestone payments will go a long way in strengthening the cash position of the company. Arena will get 27.5% of Belviq sales in Japan, Europe, and China, and it goes up to 30.75% based on different levels of sales in other territories. According to the new agreement, Arena will receive up to 35% of Belviq sales in Europe, China, and Japan if the sales exceed $500 million, and 36.5% and 35.75% if the sales exceed $750 million in the U.S. and other territories, respectively.
Trend in sales
If we look at the sales growth of Belviq, the numbers have not been extremely disappointing -- the main reason for all the doom and gloom is the unrealistic expectations attached to the drug. Since its approval, there has been considerable hype and emotional enthusiasm attached to Belviq. Arena investors have been expecting crazy numbers in terms of sales. The same sentiment has been echoed by the market -- here's where the problem is: Analysts put unrealistic sales targets for the drug.
Arena reported revenues of $3.6 million for the third quarter including about $2 million in revenues from Belviq. The net loss for the quarter stood at $17.2 million, or $0.08 per share. The biggest expense for the company is research and development ($14.6 million) -- as I mentioned above, the core strength of the company is R&D, which results in the biggest expense for Arena. General and administrative expenses stood at $7.8 million. Moreover, total cash and cash equivalents stood at $180.7 million (excluding $60 million in upfront payment from Eisai). There is some encouraging news for Arena as Eisai announced that the coverage for Belviq is increasing and a good number of insurers are now ready to pay for the drug. As a result, we might see substantial improvement in sales over the next few quarters.
Reasons for dismal numbers
Some of the reasons for low sales numbers are lack of insurance coverage and lack of education about the product. Out-of-pocket cost of obesity drugs is a major deterrent and contributes toward low sales. Although a number of insurers have added the drug to the list, there are still many insurers left that still do not cover the drug. An increase in insurance coverage should boost sales in the coming months. Furthermore, physicians and patients lack awareness; Arena is planning on doubling the sales force in order to increase the awareness among physicians. These efforts should also allow the company to increase sales in the coming quarter. Finally, keep in mind that Belviq is only launched in the U.S.; there are still a lot of geographical areas that will be covered in the near future, and net sales should see a boost.
How are the other players performing?
VIVUS (VVUS) posted third-quarter results last Tuesday -- the good news in the earnings announcement was 35% sequential increase in the prescriptions for Qsymia, VIVUS' obesity drug. However, the net sales for the company showed only 15% growth sequentially. As I mentioned above, the lack of insurance coverage is a big hurdle for these companies -- in order to attract the patients, these companies are giving out free trials. It is the main reason for a mismatch between the growth in prescriptions and actual sales. VIVUS shipped free trials for 26% of the new prescriptions, and 56% offered some kind of discount. The net sales of Qsymia were only $11.1 million -- these low sales numbers are forcing the company to cut costs, and it is going to cut 17% of its workforce.
Orexigen (NASDAQ: OREX) has completed clinical trials for Contrave, its anti-obesity drug. At the moment, Orexigen is evaluating Contrave in the Light Study, a cardiovascular outcomes trial to rule out excess cardiovascular risk in overweight and obese patients receiving Contrave. Orexigen does not have a drug in the market, and the company is completely focused on the obesity segment. The other drugs in the pipeline are also related to obesity. Due to the lack of sales data, it is difficult to compare Orexigen with Arena or VIVUS; however, Orexigen might be well served by entering the market late. There may be increased insurance coverage and better awareness in the market when Orexigen launches its drug, which could certainly help its sales.
Summary
Sales of Belviq have been disappointing up until now -- however, the disappointment has mainly come from the factors out of the control of the company. With increased insurance coverage and awareness, sales of the drug should start to slowly ramp up.
