Arena Slides on Wider Q1 Loss, Misses Ests - Analyst Blog

Arena Pharmaceuticals, Inc. ARNA fell 6.3% after the company reported a net loss per share of 12 cents in the first quarter of 2014, missing the Zacks Consensus Estimate of earnings of 10 cents. Arena had incurred a narrower loss of 9 cents in the year-ago quarter.

Arena Pharma recorded first quarter revenues of $2.9 million benefiting from revenues recorded for its obesity drug, Belviq. However, revenues were way below the Zacks Consensus Estimate of $8 million. The company did not recognize any revenues in the first quarter of 2013.

First quarter 2014 research and development (R&D) and general and administrative (G&A) expenses were up 49.8% to $21.0 million and 10.8% to $8.0 million, respectively.

Belviq Update

Arena Pharma recorded Belviq sales of $2.9 million (including $0.2 million from the 15-day free trial voucher redemption). Arena Pharma is working on expanding the market reach of Belviq. The company is collaborating with Eisai Co., Ltd. (ESALY) for the drug.

Eisai recorded net product sales of $8.4 million for Belviq in the first quarter of 2014. Total prescriptions for Belviq increased 31% from the preceding quarter to approximately 77,000.

Arena Pharma and Eisai are leaving no stone unturned to make the drug a success. Eisai plans to add 200 representatives to the existing sales force of approximately 400 for Belviq. Meanwhile, Eisai estimates that Belviq coverage in the U.S. has improved. The company estimates that the commercially insured population with coverage for Belviq has crossed 60%.

Arena Pharma and Eisai are evaluating Belviq for additional indications. The companies are evaluating Belviq for smoking cessation (a phase II study initiated) as well as weight management in combination with phentermine (a 12-week pilot study, enrollment completed). Additionally, the companies are also studying Belviq's effects on diabetes and cardiovascular outcomes (CAMELLIA study). Arena Pharma also plans to initiate a study evaluating Belviq 20 mg extended release tablets in children in the third quarter of 2014. Results from the study will be released in the second quarter of 2015.

Arena Pharma's pipeline includes several candidates including APD811 (pulmonary arterial hypertension, planning to initiate phase II study in mid 2014), APD334 (autoimmune diseases, preparing to initiate phase I multiple-ascending dose study), temanogreal (thrombotic diseases, phase I) and APD371 (pain, phase I). Arena Pharma has collaborated with Ildong Pharmaceutical Co., Ltd. for the development of temanogreal.

Our Take

We are disappointed with Arena Pharma missing estimates squarely. Although Belviq sales were lukewarm in the quarter, we believe that the company will benefit from the promotional efforts undertaken by Eisai. Arena Pharma's growth is highly dependent on Belviq, the company's sole marketed product. The product represents significant revenue potential and its successful commercialization should drive a company of Arena Pharma's size to profitability.

We are positive on the beefed up sales force for Belviq. We believe it can boost sales by promoting the drug to more physicians. Increased awareness should help Belviq sales to gain momentum.

Currently available therapies for obesity include VIVUS Inc.'s VVUS Qsymia, launched in Sep 2012.

Arena Pharma currently carries a Zacks Rank #3 (Hold). Some better ranked stocks in the health care sector include Gilead Sciences Inc. GILD carrying a Zacks Rank #1 (Strong Buy).