Arena Faces A Convergence Of DEA And European Decisions

| About: Arena Pharmaceuticals, (ARNA)

More than 95 days have passed since the Drug Enforcement Agency's (NYSE:DEA) comment period ended for Arena's (NASDAQ:ARNA) new anti-obesity drug Belviq. On April 9, I outlined the possibilities for why the DEA was taking such an exceptionally long time to issue Belviq a final schedule. Of the seven possibilities, I thought it most likely that the extremely large number of letters to the DEA bogged them down. Among them were an unusual large number of anonymous negative comments claiming Belviq was dangerous and will be abused.

While it is unusual for a competitor to comment or oppose a new drug, the leading candidates for slowing the process were one or two lengthy attacks seemingly associated with people linked to Vivus (NASDAQ:VVUS). You can see the name of Vivus's Vice President of Clinical Development on a Word document's properties by downloading it. Although it's possible that an imposter tried to falsely implicate him, I would think they would have been more overt.

DEA Begins Working on Scheduling Belviq - Again

New evidence that the delay was due to the negative comments came on April 17 when the DEA re-posted the Food and Drug Administration's (FDA) recommendation for Belviq. It is no surprise that the recommendation is unchanged: Belviq should be placed in Schedule IV. Only two words changed and these concerned the chemical nature of Belviq (Figure 1).

Figure 1. Redacted Portion of FDA Recommendation for Belviq

Redacted FDA portion

It generally takes seven days between a DEA decision and publication in the Federal Register. While it may be less for other documents, I believe that the FDA document was sent to the Federal Register on April 10. A block of 2.4 million shares was purchased that day and could be related to a leak. It is possible that the DEA received the redacted version before April 10, but we can be fairly confident that the DEA has been working 11 or more days finalizing the schedule. I also think there is a high probability that the DEA will allow immediate marketing of Belviq due to the delay, because it was requested by Eisai (OTCPK:ESALY), and there are no regulatory issues that require handlers to apply for registration with DEA or surrendering the drugs.

The last delay in DEA scheduling occurred due to a hearing on Carisoprodol in December 2011. It took only three days between the administrative law judge's decision and publication of the final schedule in the Federal Register. It is unlikely Belviq will get such rapid results, but we do know that it has taken as little as 19 post-comment days to finalize Lunesta.

European Medical Association (EMA) Moving Ahead - Again?

The EMA's Committee for Medicinal Products for Human Use (OTCQB:CHMP) may be giving a recommendation for Belviq this week. The last time Belviq made it on the Pharmacovigilance Risk Assessment Committee's (OTCPK:PRAC) agenda for evaluation of Belviq's Risk Management Plan (NYSE:RMP), it was discussed during that month's CHMP meeting. After two months of absence, Belviq returned to the PRAC's agenda earlier this month. Since the CHMP meets this week, we may soon know whether Belviq will be marketed in Europe this year.

While negative assessments are often overcome in appeal or in another application, there may be reason to be optimistic about Belviq. In January, the CHMP issued Arena a second 180 day List of Outstanding Issues (LoOI) to which Arena responded. When a new drug is given a negative assessment, CHMP gives the company a chance to orally address the LoOI and it appears Arena was not asked to orally address concerns after they submitted their written response.

The latest EMA document mentioning Belviq: a scrambled spreadsheet of drugs posted on April 18, should not get anyone excited. On first glance, Belviq's presence and the EMA-rejected Qsymia's absence can lift the heart of an Arena long, but a careful examination reveals several EMA-banned drugs on the list.


Arena has been unable to move up in price despite an extremely fair, detailed, and bullish analysis by KLLJ Investments. Since my comparison showing Belviq is far more marketable than Qsymia, Arena's price has not moved despite substantial movement in the S&P, Vivus, and Orexigen's (NASDAQ:OREX). In contrast, and although Vivus' stock initially dropped, it has since risen 14%. This move appears to reflect shareholder hope that Vivus can do better now that the FDA agreed to allow Qsymia to be sold in "certified" brick-and-mortar pharmacies and due to an increase in the monthly number of prescriptions to 23,812 in March.

A CHMP recommendation for even a conditional approval would be a major event unlike any for Arena since Belviq was approved by the FDA. Belviq is not likely to sell as well on that side of the Atlantic, nor will it sell immediately, so do not expect a pop like we had with FDA approval. Since Arena shares dropped 26% after the CHMP issued Arena the LoOI, a pop of that magnitude would be a fair and conservative estimate of what we can expect with good news.

A negative CHMP assessment should have less of an impact on Arena since analysts and shareholders are less convinced than ever of a European approval. It will also be countered by DEA approval because sales matters most.

The pop associated with the issuance of a final schedule for Belviq by the DEA will be larger if Eisai is granted the waiver to immediately sell Belviq. I am not going to predict how big it will be since Arena is hunted by bears. Until we get data on prescriptions, the bears will do their best to keep the price down. Since bears are habitual creatures, they are unlikely to seek new prey even if initial data on prescriptions is good. It will take months before bears are thoroughly convinced that non-responder dropout rates are less than replacement rates or less than expected. If they bet wrong, shares will then make up for lost time.

Should we get positive news on both sides of the Atlantic, it may the first convergence of its kind and worth watching, if not participating.

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.

Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.

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