Arena Pharmaceuticals (NASDAQ:ARNA) announced its second-quarter earnings after the bell last Wednesday and proceeded to fall the next four trading days, resulting in a 16% drop.

The company reported $4.3 million in net product sales of its only marketed drug, Belviq, a 35% decline from the first quarter when the company booked $6.6 million in net sales. While the quarter-over-quarter decline looks horrible, it's not nearly as bad as it appears.

Here's how the sales break out between the two quarters:

Source

First Quarter 2015 (in millions)

Second Quarter 2015 (in millions)

U.S. Sales

$4

$3.8

South Korea sales

$2.2

$0.4

Vouchers in U.S.

$0.2

$0.1

Total

$6.6

$4.3

Source: company conference calls

As you can see, the biggest drop came from South Korea sales, but Arena's partner Ildong launched Belviq in South Korea in the first quarter, so the $2.2 million includes stocking; a drop in revenue from South Korea in the second quarter is to be expected. Ildong estimated there were "approximately 12,770" one-month prescriptions in just over five weeks in the first quarter, compared to "more than 29,000" in the full second quarter. If you do the rough math -- and it has to be rough given the qualifiers on the numbers -- it looks like prescriptions probably didn't grow all that much in the second quarter, but they certainly didn't fall as much as Arena's revenue from that source would suggest.

Sales in the U.S. dropped a little, but that appears to be due to changes in wholesaler inventory. Arena receives its proportion of sales when Arena's U.S. partner, Eisai, ships Belviq to the wholesaler. Belviq prescriptions in the U.S. were up 8.6% year over year. If Eisai was discounting Belviq more in the second quarter than in the first quarter, that would explain why prescriptions and sales went in opposite directions, but gross to net discounts actually decreased from 58% in the first quarter to 53% in the second quarter.

The revenue from vouchers going down is a plus and a minus. Arena doesn't collect as much from Eisai for the free product it gives away through vouchers. But, in theory, those vouchers for free product should turn into paying customers down the line. Since the first quarter includes people starting New Year's resolutions, it shouldn't be too surprising that voucher redemptions might slip in the second quarter.

It's still not paying the bills
Whether it's $4.3 million or $6.6 million, Arena needs more revenue from its partners to cover the bills: General and administrative expenses were $8.8 million in the second quarter and then there was $24.2 million in research and development expenses, which is only going to increase as Arena pushes its pipeline of drugs further into the clinic.

The most immediate boost could come from a once-daily version, dubbed Belviq XR, the application for which should be submitted to the FDA by the end of the year. Orexigen's Contrave is titrated up to two tablets in the morning and at night, so being able to advertise an easier dosing regimen could certainly help.

There's also potential to sell Belviq in the EU. Regulators across the pond told Arena that more work would need to be done before Belviq could be approved in the EU, so the company withdrew its application in 2013. Arena and Eisai are working with regulators on resubmitting the application with plans for a meeting later this year. There's also potential to get Belviq approved in Mexico, Brazil, Taiwan, and Israel, but obviously the EU is a much larger opportunity.

Arena and Eisai have investigated using Belviq as a treatment to help people stop smoking, but haven't decided whether to continue with phase 3 trials after reporting lackluster phase 2 data. The duo is currently doing more market research to determine if it's worth proceeding.

The biggest opportunity could come from combining Belviq with phentermine, the part of the fen-phen combination that stayed on the market. Belviq targets the same receptor as fenfluramine -- the fen in fen-phen -- but doesn't have the same off-target effects that caused the heart valve problems with fenfluramine.

Combining Belviq with phentermine should result in more weight loss than either individually, but Arena and Eisai are still working with the FDA to determine the requirements to gain FDA approval for the combination. Arena has stated that if the FDA requires a large clinical program the size of the trials required to get Belviq approved, the companies likely won't pursue the combination treatment.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.