Another quarterly earnings report, another loss for Arena Pharmaceuticals (NASDAQ:ARNA). The obesity-drug maker lost $32 million in the fourth quarter, bringing up the total loss for the year to a little over $60 million.

Not that the magnitude of the loss matters much, the trajectory of the launch of Belviq is much more important.


First Quarter 2014

Second Quarter 2014

Third Quarter 2014

Fourth Quarter 2014

Belviq prescriptions





Quarter-over-quarter increase





Net sales (in millions)





Source: Area Pharmaceutical press releases.

Two obvious things stick out in the chart: a slowdown of quarter-over-quarter growth in the fourth quarter and relatively flat net sales despite a doubling of prescriptions from the first quarter to the fourth quarter.

Both are fairly easy to explain.

Turkey trumps pills
The obesity-drug market is one of the few drug markets that's seasonal and typically declines in the fourth quarter. Who wants to diet over the holidays? (Yes, you have to diet while on Belviq or one of the other obesity drugs to see reasonable weight loss; these aren't wonder drugs.)

Arena Pharmaceuticals claims the obesity-drug market contracted 4% between the third quarter and the fourth quarter, so a 4% increase in prescriptions sounds like a win to me.

You can give this stuff away
Part of the slow launch of Belviq has to do with the lack of insurance coverage for the drug. And when insurers cover the drug, it's often placed on the highest tier, requiring high copays. Many people may want to lose weight, but only a small percentage of them want to shell out $100 or more a month to do it.

To capture patients with insurance that doesn't cover Belviq and encourage patients that are covered by insurance to use the drug, Arena's marketing partner, Eisai, instituted a prescription savings card that allows cash-paying patients to only pay $75 per month and patients with insurance that covers Belviq to get $75 off each prescription after they pay the first $50 copay each month.

Add in samples and a program that allows patients to get their first 15 days for free, and gross to net adjustment increased to 47% last year. In other words, the average patient is only paying about half the list price of the drug. Given that's the average for the year and the flat sales throughout, the fourth quarter was presumably higher.

Unfortunately for Arena, its 31.5% manufacturing and royalty rate is based on the net sales, so those discounts hurt the revenue line. In the fourth quarter, Arena earned just $3.8 million off sales by Eisai.

Accelerating sales
Offering discounts now can work out in the long run if those cash-paying patients eventually have a higher price tag because their insurance starts covering Belviq.

Perhaps more importantly, the discounted sales now could turn into more prescriptions later if doctors see that patients lose some weight and don't experience any side effects. The other half of the slow start has to do with convincing doctors to use drugs to treat obesity after multiple drugs have been pulled off the market because of side effects not recognized during the clinical trials.

The launch of Orexigen's (NASDAQ:OREX) Contrave by its marketing partner Takeda and Novo Nordisk's (NYSE:NVO) Saxenda should help in that vein. Sure, some patients that would go on Belviq will end up on those drugs, but the sales people talking to doctors about treating obesity with drugs will have a positive effect on the obesity drug market as doctors open up to the idea of treating obesity with drugs.

If things go really well, we could even see a quarter-over-quarter increase in the fourth quarter of this year.