There's no delicate way to put this: Arena Pharmaceuticals
I have no problem with Eisai as a choice; the company sells Aricept with Pfizer
The measly $50 million milestone payment makes it pretty clear that Eisai is as worried about a potential approval as the rest of us. If the drug is approved, Arena is still only due "up to" $90 million. My guess is the "up to" implies that the milestone payment goes down if lorcaserin isn't approved on the first go-round. Obesity is easily a multibillion-dollar market, with drugs like Abbott Labs'
What's it giving up? Arena has to pay the cost for manufacturing the drug, and will then capture a percentage of Eisai's net sales, which starts at 31.5% and steps up to a maximum of 36.5% on the portion of annual net sales above $750 million. Assuming a manufacturing cost in the low single digits, Arena will recognize about a little more than a quarter of net sales. By contrast, Gilead Sciences
There are one-time payments worth a total $1.2 billion, triggered when annual sales reach a certain level. Arena wasn't specific about exactly how the one-time payments break out, except to say that the first one occurs when annual sales reach $250 million, and the last one happens if annual sales hit $2.5 billion. The total payments are $300 million for as much as $1 billion in sales, so it's fairly back-end weighted.
Investors seem to share my feelings for the uninspiring deal. Shares went up 15% yesterday, but that's pretty much an artifact of the low market cap that Arena has now. The company gained an extra $50 million in cash, and its market cap went up by about the same amount.
We'll have to see whether VIVUS
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a Motley Fool Inside Value pick. The Fool owns shares of GlaxoSmithKline and has a disclosure policy.