Arena Pharmaceuticals' Management Presents at Credit Suisse 2012 Healthcare Conference (Transcript)

| About: Arena Pharmaceuticals, (ARNA)

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)

Credit Suisse 2012 Healthcare Conference Call

November 14, 2012 5:00 pm ET


Craig M. Audet – Senior Vice President-Operations and Head-Global Regulatory Affairs


Lee H. Kalowski – Credit Suisse Securities (NYSE:USA) LLC

Lee H. Kalowski – Credit Suisse Securities (USA) LLC

And now we have Arena here in the room, obviously to talk about the recent approval and imminent launch of BELVIQ, formerly known as lorcaserin for the treatment of obesity. Here to talk about BELVIQ and Arena is Craig Audet, the Senior Vice President of Operations and Head of Global Regulatory Affairs. Craig, why don’t you take it away?

Craig M. Audet

Thanks, Lee. Good afternoon everyone. So as we said, I’m here to talk a little bit about Arena Pharmaceuticals in our most recently approved product, BELVIQ. So let’s dig right into it. As you know, I will be making forward-looking statements today that involve a number of risks and uncertainties. So certain of these forward-looking statements will be based on information that’s in our SEC filings and you can look at the risks associated with in there.

So, who is Arena Pharmaceuticals, while we are a biopharmaceutical company established in 1997 on GPCR drug discovery engine. We look at four main therapeutic areas broadly focused, cardiovascular, CNS, inflammatory metabolic diseases. we have along with that discovery engine, integrated R&D and manufacturing capabilities and I’ll talk a little bit about those today. And I’m going to talk a little bit about our recently approved compound for weight management.

So, that’s who we are, but why are we positioned for long-term success. we see this basically a three pillar foundation. the BELVIQ approval that we recently received, the foundation that we’ve established to commercialize BELVIQ and future compounds that we have coming to our pipeline as well as the future of the company itself in terms of growth and our global reach.

So let’s talk a little bit about each of those. first of all, we have our FDA approval, first-in-class treatment for chronic weight management, product known as BELVIQ otherwise known as lorcaserin hydrochloride; I’m going to speak a little bit about it today in terms of the market opportunity and the molecule itself.

So let’s look at the market opportunity first. We have an opportunity here to address a global pandemic, an unmet medical need, there are no, a very few products out there to help address obesity above and beyond diet and exercise, and physicians are screaming for additional tools. this is one of those tools that they will use.

Approximately $115 million adults in the United States are overweight or obese. About one third of adults are obese, another third overweight. huge drain on the medical system about $150 billion a year, about 10% of our medical spending, but it’s not just the U.S., if you look globally about a half a billion people are considered obese, that’s just obese, that’s not even the overweight category.

So think about how much more you see, a large that number would get. So great market opportunity here, huge market opportunity. And so along comes BELVIQ, a new chemical entity for chronic weight management. It’s a novel single agent discovered and developed by Arena Pharmaceuticals in our lab in San Diego. it’s a selective serotonin 2C receptor agonist, so we target that 5-HT2C receptors specifically. It works by decreasing your hunger, so you feel less hungry and when you do eat, you eat less.

Our Phase III program almost 8,000 patients are really good patients sampled to establish that efficacy and that safety profile. It was the first prescription weight loss treatment approved by the FDA in 13 years, it’s a long time. It was a very difficult hurdle to get over, but we did do it, and we’re very proud of that. It’s indicated as an adjunct to diet and exercise for chronic weight management in adult patients with BMI of 30 or greater, or 27 or greater with at least one comorbid conditions. So the 30 or greater is the obese, the 27 or greater is the overweight.

Two limitations of use, safety and efficacy has not been established in concomitant use with other weight loss treatments and the effect on morbidity or mortality has not been established.

Eisai is targeting an early 2013 launch. Eisai is our partner in the United States and the Americas; I’ll talk a little bit about that coming up. They’re targeting a launch early 2013, that launch is based on our DEA scheduling. So very briefly, all compounds that are centrally acting have to have an abuse potential assessment, that abuse potential assessment is provided to the FDA at the time of the NDA submission. The NDA assesses that and assigns a recommendation in terms of DEA scheduling.

At the time of the approval, that recommendation will go to the DEA, and then the DEA has to scientifically assess that. They’ll publish a recommendation in the federal register for a 30-day common period. They’ll then assess any comments they get and then publish a final designation. So we’re in the process of the second phase. we have the NDA approval. we’re waiting for that DEA scheduling designation.

So that’s a little bit about BELVIQ. let’s talk a little bit about the foundation. the proactive foundation that the efforts that Arena put in place to make sure that BELVIQ would be commercially successful, and by the way, as I mentioned earlier, this not only applied to BELVIQ, but the elements that we’re putting in place, we can use over and over again with products that are coming to our pipeline.

So we have a Swiss manufacturing facility where we make BELVIQ. We have a well established marketing collaboration with Eisai Pharmaceuticals and global patent coverage. So that manufacturing infrastructure we established in 2008 by buying a manufacturing facility in Zofingen, Switzerland.

By manufacturing the product and selling the product to our partners, we control our costs, we control supply, and we control capacity. So we don’t have to rely on contract manufacturers. In addition, you may say well, why Switzerland, why not the United States, if this strategy to be in Switzerland allows us to have a 10-year tax holiday from certain taxes. So that increases our future cash flows.

In terms of collaborations, we have two so far. So we have one that we have for a while with Eisai. they have exclusive marketing and distribution rights in most of North and South America. So that is U.S., Canada and South America. we’ve also announced last week a partnership with Ildong Pharmaceutical in South Korea, it’s a very similar type of structure in terms of the deal both established marketers and know-how to market a drug in their territories.

So Eisai, let’s talk a little bit about Eisai first, they’re very focused on a successful launch of BELVIQ. They’re going to start out of the gate with about 200 experienced Aciphex medical representatives. These representatives are currently detailing Aciphex, if you’re not sure, and not familiar with this for gerd. So what we know is that about 70% of the patients that are treated for gerd are obese or overweight. so there’s a good overlap in the potential treatment there. These reps already have relationship with those docs, so they can walk in and start their conversation in the middle, rather than having to start a new and establish a relationship, build trust and then get the physician to write the script.

They’re going to initially target about 30,000 physicians and those physicians are going to be the endocrinologists, the cardiologists, obesity specialists, introitus and high value primary care who we feel will be prescribing BELVIQ out of the gate. They want a very slow, steady adoption. So they’re going to make sure that they’ve got the field force in place to do that with these 200 reps they’ve trained them, they’re ready to go. We’re just waiting for that scheduling. and they’ve also realigned that sales force to be in the areas of the country where you see those higher BMIs and where you see those higher prescribers. That would be area on the map in the darker colors.

Eisai is also very focused on expanding reimbursement. I’m sure you’ve heard a lot about this in the last few days. They have a three-pronged approach. They’re working with employers to get employees to understand the healthcare cost they have to deal with and the productivity decreases they see with overweight and obese employees. They’re also working with commercial payers. Right now about one-third of managed care lives have some obesity drug coverage. They are working to expand that with the commercial payers. And also, in terms of the government, they see that as a longer term strategy, but they are also working to try to change the Medicare and Medicaid [and] structure.

Now, one of the ways that they are doing this is they put together a very strong pharmacoeconomic model. What we’re trying to do here, folks, is not so BELVIQ as a weight-loss drug. We have to look at that cardiovascular metabolic cluster. We have to look at all of the factors that get better, all of those risks that get reduced when you loose weight. So the high blood pressure, the high lipids, the A1C and patients with type 2 diabetes or the fasting plasma glucose or impaired glucose tolerance in patients of moving that way.

So they put together a model to show how all those factors with BELVIQ, when you loose weight, move in the right direction. They put together a model that shows that these patients start to come off their diabetes medications, come off their hypertension medications, their lipidemia medications and hopefully will use the medical system less because of it. So strong argument for reimbursement.

The other thing that’s important to the reimbursement is that reassessment criteria having our label. So our dosing and administration section talks about a reassessment by the physician at 12 weeks. If the patient has lost about 5% at 12 weeks, they’re probably in the category known as the responder category. So they are probably going to move on to have a higher level of weight loss, and somebody who does not respond to the drug. As we know, not all patients respond to every single drug.

So when you see in our data in our completed populations about an 8% weight loss in our responded population about 11% or 12% weight loss depending on what study you’re looking at. So if we can tease out with this reassessment criteria, the patients that don’t respond, and only make sure the patients who do respond, get the cash run is much more attractive to people who are going to reimburse.

In terms of payment so far, we’ve received, Arena has received about $140 million in payments product to launch, that includes a $55 million upfront payment, and also a $20 million milestone payment we received for inclusion of our BLOOM-DM data in our package insert. That is data from our study in patients with type 2 diabetes.

We are also eligible for $65 million milestone following DEA scheduling. so once that happens, we get the $65 million. And we’re eligible to receive through our agreement up to an additional $54.5 million in regulatory and development milestone payments in the future.

In terms of how we work with the arrangement with Eisai, we sell, we manufacture that product in our Swiss plant, we sell it to Aci for between 31.5% and 36.5% sort of a sliding scale, and that’s based on net sales, U.S. net sales.

We’re also eligible to receive approximately $102 billion in purchase price adjustment payments. So let me give you an example on the third bullet there. the first purchase price adjustment comes at sales of about at $250 million that purchase price adjustment is about $25 million. the milestone payment is $30 million, and that’s on top of the $80 million we would get for sales of products.

So you’re looking about $135 million right there. And so as that plays out, as those milestone payments play out, we can receive a total of about $330 million, with Eisai’s annual net sales between $250 million and $1 billion. And there are additional milestones up to $2.5 billion.

In terms of cost sharing, Eisai is responsible for the cost of all marketing and sales in the United States or in the territories I should say. They’re also responsible for 90% of the cost of our cardiovascular outcomes trial that’s required by the FDA and 50% of the cost is required pediatric studies from the FDA.

Now let’s talk a little bit about our recent deal we announced in South Korea. Why South Korea you might ask? There’s a different strategy, we’re using based on the markets, there’s three different strategies based on the market of the territory that we’re dealing with. So in some territories, we’re going to file for regulatory approval. we’re going to take the product all the way through the regulatory approval, and then partner it.

We did that pretty much in the U.S., we’re working in that model in Europe. What we’re doing in other countries like South Korea that require real specialty that you need, someone who understands the regulatory system there, some of who speaks the language, understands the local culture and understands how to market in that local culture. And South Korea is a perfect example of that.

And then we have a third category of countries with longer lead times where it takes longer to get through the regulatory process. We will start that development process, that registration process with (inaudible) that off when we partner it.

So South Korea was a great opportunity for us. Ildong is a great company; they’ve been around for over 70 years. they’re one of the leading pharmaceutical companies in South Korea, and they’re among the top 15 pharmaceutical markets in the world. The most people think people in South Korea, everybody has been not necessarily to about one third of the entire population is classified as obese with the BMI over 25.

So with this arrangement we’ve received a $5 million upfront payment and we’re eligible for $3 million milestone payment upon approval by the Korea FDA. Ildong much like our arrangement with Eisai, Ildong is responsible for all the development costs in Korea. they’re responsible for the registration costs and are responsible for the sales and marketing costs, so limited liability on our part from that perspective. However, we do like with Eisai, we hold all development decisions. we’re responsible ultimately for the development. So we have the final stay there.

So we’ll sell the product to Ildong for between 35% and 45% of net sales in Korea. Patent coverage, very important, intellectual property is very important to Arena. we hold about, over 97% of the global patent coverage in the world composition of matter patents, includes U.S., Europe, Japan, Canada, China and the list goes on. Our first exploration is 2023 in most jurisdictions. in some jurisdictions, we’re looking at expanding that out to 2026 and beyond. So we have a long run way here.

So we believe that we’re uniquely positioned for success. We’ve got a new chemical entity for chronic weight management, a novel single agent. And we’ve got an established manufacturing infrastructure, collaborations with accomplished marketing organizations and we intend to expand those collaborations to other marketing organizations. We’ve got limited responsibility for the cost of development, which increases our bottom line and global patent coverage through 2023 and beyond.

So what about the future for Arena, what is the future hold? While that the FDA approval of BELVIQ really supports future growth of our company. So I’m going to talk a little bit about some of the points you see here on the slide.

First of all, it gives us an opportunity to expand our global reach. We filed our application in the EU with the European Medicines Agency in March of this year. We’ve received our 120-day assessment report earlier this year. We’ve responded to the questions in the 120-day assessment report. We expect the decision, so we expect our 180-day assessment report around the beginning of the year and a decision from the EMA from the CHMP I should say within the first half of 2013. The questions, the three major observations we’ve received from the EMA very much in line with the questions we’ve received from the FDA. so that’s a good sign for us, we were able to provide much of the information that additional analyses we’ve provided for the FDA during the review of our NDA to Europe to help answer the questions they had for us.

We also filed at Switzerland. they accepted our Swiss filing in July. We expect a decision from them, the timing is very similar to the EU, it’s a little bit behind. Eisai’s prioritizing applications for approval in Canada, Mexico and Brazil, they see those as the main three markets in the territory outside the U.S. and they’ll expand upon that once they got those filings in. And we hold the rest of the world. we are looking for or evaluating additional marketing and supply agreements in Europe, in Asia and in other territories around the world. So a very exciting time at Arena, a very busy time at Arena, and we’ve seen a lot of interests in our new product.

But it’s not just all about BELVIQ. we’re also advancing some of the candidates we have in our pipeline that we had to slow down a little bit as we focused on getting BELVIQ across the finished line. So you’ll see on this slide under metabolism, we’ve got BELVIQ approved in the U.S., we’re working on in the EU and we have other filings planned. But we’re also going to look at life cycle management for BELVIQ, and perhaps bring out some other products from that franchise. In cardiovascular, we have our 811 for pulmonary arterial hypertension, inflammation and autoimmune diseases 334 and 371 for pain. I’ll talk a little bit about some of these.

So in terms of BELVIQ and looking at the potential of BELVIQ beyond single agent weight loss, we are also evaluating BELVIQ in combination with other agents such as phentermine and metformin and we’re very excited about those possibilities. we’re looking at additional indications in the one that we’re targeting right now is smoking cessation. And we’re establishing development plans to explore those programs.

So our plan is to establish those development plans, put together the plan, the strategy, go and talk to the FDA, and get their input on those plans, and then we’ll move forward, much like we did for our complete response with the FDA, we walked in, we said here, let’s look at the issues, let’s look at how to address each of these issues, let’s take your feedback FDA, and then let’s deliver to you what you need in order to approve this drug. We’ll do the same things with these programs.

Very excited about our products for pulmonary arterial hypertension APD811, as you probably know, PAH progressive life-threatening disorder, once you diagnosed for this disease, you have an estimated five-year survival rate of about 57% pretty devastating disease. Current treatment, our process cycling receptor agonist have the standard of care, the issue tends to be the frequency of administration; they have to be administering either continuously or many times over the course of the day.

Intravenous subcutaneous or inhaled roots are the main right now. A lot of liver toxicity associated with some of the products in the market today.

So we’re looking at 811, it’s a non-prostacyclin agonist. We have the potential for once daily oral dosing about a 20 hour half life, really good peak to trough ratio. We’re in a Phase Ib Multiple Ascending Dose study right now, to look at the correct dose and potential titration for this product. We expect the results from this trial in the first quarter of 2013, and we’ll announce those when we get them.

Another product that we’re really excited about APD334 for autoimmune diseases and there is a plethora of diseases we can go after here. It has a very beneficial selectivity profile, for the S1P1 receptor. We think that we can with this product we can help to reduce the incidence of liver enzyme elevation as well as bradycardia that you see with some the current products in the market.

Again as a oral once a day treatment, we’re looking at multiple sclerosis, rheumatoid arthritis and other auto immune diseases. So we plan to initiate our Phase I trial in the first half of 2013.

Little bit about our corporate snap shot, as the timeline is down here, we have cash and cash equivalents as of September 30 about $165.8 million, so we’ve guided to end 2012 with approximately $165 million, that includes the $5 million upfront payment we got from Ildong, it includes the payment for a portion of the delivery launched supply to Eisai, but it does not include that $65 million milestone payment for at the time of DEA scheduling.

We’ve also prepaid all of our outstanding debt to Deerfield so that’s off the books now. So our upcoming milestones, you can look forward to, U.S. launch of BELVIQ, EU regulatory progress that we make, Swiss regulatory progress as well, the results from our 811 Phase Ib study, the initiation of our 334 trial, and potential additional collaborations as we evaluate partners across the globe.

In the end, for our long term vision, we think BELVIQ is going to be a very important treatment option as a single agent. Single agent that is going to benefit physicians and patients with its great efficacy and safety profile for chronic weight management. We’ve commercialized around the world through strategic collaborations, we are going to establish safe and effective treatments in combination of BELVIQ, in combination with other agents, as well as look at additional indications, we plan on successfully developing our pipeline as well and moving our products through the pipeline, so we can get some additional first-in-class and best-in-class treatments. But we’re doing this with a realization that profit is important. We want to be a profitable company and we’re going to do this with that in mind. So we need to strike that balance between pursuing these opportunities and managing expenses in light of BELVIQ revenues.

Thank you very much.

Question-and-Answer Session

[No Q&A session for this event]

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