Vivus Inc. (VVUS), Arena Pharmaceutical Inc.'s (ARNA) principal competitor, has recently lowered the price of its anti-obesity drug Qsymia. Investors are worried that this may result in some sort of a price war; however, I believe this will not have an effect on Belviq's future. In the quick study below, let me present my case.
- Qsymia received Federal Approval with Risk Evaluation and Mitigation Strategies (REMS), i.e. it limits the use of Qsymia to patients outside their reproductive years (women under age 16, above age 45), which is a major consumer target segment. Belviq does not have any REM restrictions, hence it will be available at all pharmacies. And hence will be considered as a more safer option.
- In 2010, Arena foresaw the potential of the the product and entered into an agreement with Eisai Company Limited (GM:ESALF) to market and distribute the product in the U.S. Under the expanded agreement, Arena is eligible to receive increased payments based upon Eisai's net sales in the United States and expanded North and South American territories. Further, Arena will receive an upfront payment and is eligible to receive regulatory and development milestone payments - $5.0 million upon receiving a DEA designation and another $60 million upon Belviq's launch. Also, it will receive another upfront payment of $5.0 million from the company's November 2012 agreement with Ildong, which will sell the product in South Korea. Arena's CFO has suggested that the first $1.0 billion in total sales could trigger royalties in excess of $300 million.
- The next question arises, will the industry require two such drugs and the answer would be why not. The industry is big enough to support two competitors and given that Belviq is known as a safer drug, chances of success are higher. This also means that a lowering of Qsymia's price may not have much impact on Belviq, given their contrasting risk-profile and Belviq's potentially broader target market.
- Belviq faces intense competition on the most important front, that is pricing. Vivus has already resorted to discounting after experiencing a tepid response to its Qsymia price tag. But as mentioned earlier Belviq may gain on the safety factor. Currently Qsymia sells at $160 per bottle (60-days supply) while Belviq will be sold at $225 and $250 per bottle (60-days supply).
- A pending concern is the insurance coverage. Insurance coverage is still not clear and many consumers still bear the cost of the product. As per Michael Miller, chief commercial officer at Vivus, 1 out of 5 prescriptions are covered and hence the average co-pay is ~$50 to $60.
- Further, the drug still has to be approved by European authorities, which seems doubtful. Qsymia has failed to get the necessary approvals due to potential cardiovascular risks that the drug might pose.
Arena's FY12 results:
- FY12 revenues increased to $27.6 million from $12.7 million in FY11 mainly due to the inclusion of $20.0 million milestone payment from Eisai.
- Research and development expenses decreased 8% due to decreases in internal research and development manufacturing costs related to the Swiss manufacturing facility and decreased personnel costs. General and administrative expenses increased 38% due to higher share-based compensation and salary.
- Net loss was $88.3 million vs. $111.5 million in FY11.
- For FY13, Arena expects revenues of $65 million in milestone payments from Eisai following the DEA's final scheduling of BELVIQ, ~$6 million from amortization of upfront payments from existing collaborations, ~$3 million from manufacturing services from Siegfried, and $1.5 million from additional regulatory milestone payments from Eisai. Arena expects Research and development expenses of ~$70 million to $78 million and general and administrative expenses of ~$28 million to $34 million.
- Based on Vivus February 2013 data - total Qsymia dispensed prescriptions were 17,400; let us assume that Arena sells at least 17,400 scrips @ $200 per scrip, it would earn revenues of $3 million. Assuming the above payments and Belviq sales of ~$3million, Arena's sales will increase to $106 million with a lower operating loss of $5 million.
Belviq gains mainly on the safety factor and that it will be available at all pharmacies. Only time will tell as to whether Belviq will be accepted by the consumers and physicians. If it receives acceptance, Arena stock price is expected to benefit but if it receives a low response, just like Qsymia, the stock price will suffer. Arena is already trading at $8.53 37% below its 52 week high of $13.5.
In my opinion, investors should look at Arena purely from a speculative perspective until such time that the company reports Belviq's sales. However, to answer my original question, Qsymia's lower prices will not have an adverse impact on Belviq.