samedi 7 décembre 2013

Arena Eyes Additional Opportunity With Belviq

When it comes to Arena Pharmaceuticals (ARNA), the most popular topic of discussion is the anti-obesity drug Belviq. The drug garnered U.S. approval in June of 2012 and launched in the U.S. In June of 2013. Sales of the drug have been slow but steady, and while progress is being made, the reality that Belviq was not going to be an "out-of-the-gate" blockbuster carried an impact on the equity, sending it down into the $4s. Since then, the equity has recovered to the $6s and can be poised for some more realistic expectation levels now.


While indeed obesity is the focus, there are other possibilities with Belviq that are encouraging. Arena covered some important factors in an investor conference with analyst Edward Tenthoff.


Smoking cessation, type 2 diabetes in overweight individuals, and expansion into other territories is something that can add potential value to this drug, can increase sales, and can drive revenue as the Belviq story evolves.


Expansion Into Other Territories


In my opinion the biggest single factor that this opportunity presents is the expanded agreement with marketing partner Eisai (OTCPK:ESALY). The original deal with Eisai was for the United States. That deal was then expanded to include North and South America. Now the deal encompasses the entire globe with the exception of South Korea, Taiwan, Austrailia and New Zealand.


Deals such as the one with Eisai are more than simple marketing deals. They involve further studies, funding for those studies, and strategy about expansion and the pace of that expansion. By getting to what is essentially one partner for the globe, several layers of corporate politics can be removed from the equation. In addition, as a global partner, Eisai can now have some latitude in how the global strategy works without worry that some other Arena partner is doing things this way or that way.


Applications are currently filed in Switzerland, Canada and Mexico. An application in Brazil is anticipated at any time. The strategy in reapplication in Europe can now be developed, as well as looking into studies for other indications.


Smoking Cessation


Belviq is not labeled for this condition, but has shown promise on this front, as well as other addictions. With a global partner in Eisai, the pathway for getting approvals in places such as Europe may improve. Eisai is a much more willing partner in exploring other indications now because it can profit from them in almost any country. While Belviq did not fare well in its initial European application, perhaps something like smoking cessation can be a pathway. One of the big stumbling blocks that the drug faced as an obesity treatment was the risk vs. reward dynamic. While obesity and the health issues that surround it are well known, the strategy of how to combat it is still an enigma of sorts. In contrast, the health risks from smoking are extremely well known and well documented. The risk vs. reward dynamic with Belviq as a smoking cessation agent could be better digested by some countries. In the U.S., sales of smoking cessation products is over $1 billion per year. Prescription drugs designed to stop smoking are a pretty big business.


Thus, as a standalone product, the ability to offer a treatment to stop smoking is a big market. The added benefit of perhaps using that as a pathway to get approvals in other countries is valuable as well. As a novel product, the longer Belviq is on the market maintaining a good safety profile, the more the risk side of the equation is understood. This could help garner more and more approvals in faster succession.


Type 2 Diabetes


The Belviq label already includes a segment about Type 2 diabetes. This important fact allows the 400 Eisai reps to discuss this indication as they meet with doctors. Yes, doctors can prescribe off label, but unless a doctor has the knowledge of other benefits, they may not even consider such a treatment. Because Belviq is labeled as it is, the Eisai sales reps are armed with another prong to approach doctors with. Studies have already been done, and there are many reports of patients trying to lose weight, seeing benefit on the diabetes front as well. This could lead to more and more doctors getting to a pill solution for controlling Type 2 diabetes rather than an injection. While most that do have to inject have little problem with it, a pill may well be a preferred solution for many. In addition, the side effect profile of Belviq may be more attractive than other diabetes treatments.


The diabetes market is big, but it is also very competitive. It may not be an easy market to crack, but the potential that exists here is worth exploration by not only the company, but by those considering investing into this equity.


Pipeline


While the possibilities that surround Belviq are a value by themselves, Arena is not without more in the pipeline. In addition to the "other indications" pipeline for Belviq, the company has ADP811, a drug that is promising on pulmonary arterial hypertension (PAH), and APD334 which is being studied for various autoimmune diseases.


Summary


In the near term, the challenges with an Arena investment are that the drug is, so far, only approved in the United States, sales are gradual, and insurance companies do not seem to be bending over backwards to cover prescription anti-obesity products. In addition, Belviq may not be the first player in Europe. Vivus (VVUS), with its drug Qsymia, is speaking about trying to apply again, but the bigger EU threat is likely Orexigen (OREX) with Contrave, which is already under application there.


On the positive side, partner Eisai has expanded its marketing force, now is motivated by a globgal deal, and advertising is just getting going. Belviq is already under application in a few additional territories, and Eisai can be instrumental in expanding that process now. In addition, the first half of the year is the more robust time period for weight loss initiatives, and a new year may bring about some positive developments in the insurance sector.


Essentially Arena may have a tough close to 2013 in terms of sales, but has what appears to be a decent wind at its back as 2014 comes into play. The equity will likely have some volatility until weekly sales show the types of improvements that a bigger salesforce and advertising deliver. A month and a half ago I called a bottom on Arena with the equity at about $4.40. It did dip down slightly from there, but since has been on an upward trajectory. If you grabbed my bottom, you are up a healthy 40% to 50% at this point. Arena may still be a buy, but I think time favors the investor here. Watch for opportunities between now and early January.


Source: Arena Eyes Additional Opportunity With Belviq


Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)



Additional disclosure: I have no position in Eisai, Vivus, or Orexigen


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