Arena Pharma Could Be on the Verge of Collapse

Editors' Note: This article has been disputed and the author has responded to the dispute. We asked the disputant to submit an article outlining their position. Here's the disputant's response.

I wrote in March about locaserin, Arena Pharmaceutical's (ARNA) serotonin ligand for obesity. Their clinical data had come out, and things (at least to me) didn't look good. They didn't quite make the minimum threshold for efficacy, and the FDA isn't in a mood to take a flyer on things that don't quite work.

Well, according to Ruthanne Roussel at Obesity Investor, the company looks like it could be running out of cash. So far, at any rate, no partner is appearing. Obesity has always been a tough area to work in, and this economic environment isn't making it any easier for the smaller companies to survive. Arena's done some interesting work over the years, and I'd hate to see them collapse. But it sure looks like a possible outcome at this point...

Update: note that not everyone agrees with my take here. On the other hand, others are even more harsh. . . we'll see what comes out in the end. And as always, since I've said nothing about having a position in Arena's stock, that means that I have none.

Comments

[J. Napodano:]

Arena exited the first quarter with $70 million in cash on hand. Based on my financial model, this is enough cash to fund operations until very early in 2010. Plus, the company has real estate investments worth up at least $50 million it can monetize through a sale / lease-back, and early-stage molecules, including a phase I candidate for thrombosis, it can partner if necessary to raise additional capital. Arena also has collaborative programs with J&J, Merck, and Taisho. That being said, a partnership for lorcaserin is likely after the BLOSSOM data in September 2009. Saying the company is on the verge of collapse is completely misleading and irresponsible.

May 18 04:54 PM

[Beacon:]

Absolutely irresponsible journalism to come out with a statement such as that without facts relating to the whole story. You wrote nothing of the cost saving measures that Arena has taken, mentioned nothing about property that can be sold or lease-back for cash, nothing of the line of credit that is available (if needed, which it's not). Your appraisal of Arena ("at least to me") wreaks of heavy hitting with a low-ball attitude. Lorcaserin DID meet FDA guidelines for safety ( just not to YOUR satisfaction). And to cite Ms. Roussel as a source for Arena "...runninig out of cash", there is nothing in your short diatribe that cites specifics as to why she (or you) would write something of this maginitude. That would be the equivalent of me to say that "... according to my sources, someone has a hand in Derek Lowe's pocket and needs Arena's stock price to drop so those shorting the stock can manipulate their way to more cash"! Also, as far as "no partner is appearing" ... have you not followed what CEO Jack Lief has been quoted as saying that companies have been doing their due diligence and a partnership could be in the offing? As a former high school coach, I would refer to your writing as "bush league" ... since I am no longer coaching, I'll just refer to your writing as a "hack".

May 18 05:19 PM

[PhillyDan:]

You should be sued for libel for this dishonest reporting. Lorcaserin did indeed pass the FDA's threshold for efficacy. To remind your brain once again, there are two criterion that are an "either or" for passing the efficacy threshold. Lorcaserin passed the threshold of having 47.5% of the study population lose greater than 5% of their body weight vs. 20.3% of the placebo group thus meeting the FDA guidelines for efficacy. In addition, and just as important, Lorcaserin more than satisfied the FDA guidelines for safety and tolerability. I noticed you decided to leave that out of your malicious and incorrect reporting.

I listened to the recent conference call and maybe my math is incorrect but I thought they had 85 million in cash (15 million from equity financing deal added to 70M Jason indicates, which they still have $35M available to tap if needed). As Jason indicates they can get at least $50M, maybe $60M from the sale/leasebacks. I too believe that they will have one or more partnership deals in place by October of this year.

I would love to see Arena sue you for libel, but they have more important items on their plate like getting likely approval from the FDA for Lorcaserin.

May 18 06:24 PM

[gloriason:]

Pathetic bash job on Arena. Are there any REAL journalists out there anymore or just hacks like this guy? At least do some research before you post this junk!

May 18 10:31 PM

[Hagi:]

If so then how you explain latest insider buying ? :

2009-05-14 2009-05-14 20:20:39 ARENA PHARMACEUTICALS INC ARNA White Christine Anna director 2,200 $2.73 $6,006.00 20,000 view
P 2009-05-14 2009-05-14 20:20:39 ARENA PHARMACEUTICALS INC ARNA White Christine Anna director 7,800 $2.73 $21,286.20 17,800 view
P 2009-05-14 2009-05-14 20:20:39 ARENA PHARMACEUTICALS INC ARNA White Christine Anna director 10,000 $2.62 $26,200.00 10,000 view
P 2009-05-14 2009-05-14 20:19:23 ARENA PHARMACEUTICALS INC ARNA HIXSON HARRY F JR director 60,000 $2.67 $160,440.00 90,000 view
P 2009-05-14 2009-05-14 20:18:34 ARENA PHARMACEUTICALS INC ARNA WOODS RANDALL E director 1,000 $2.75 $2,750.00 1,000 view
P 2009-05-14 2009-05-14 20:15:07 ARENA PHARMACEUTICALS INC ARNA BICE SCOTT H director 3,800 $2.67 $10,146.00 4,900 view
P 2009-05-14 2009-05-14 20:14:08 ARENA PHARMACEUTICALS INC ARNA BELCHER DONALD D director 35,000 $2.62 $91,700.00 50,000 view
P 2009-05-14 2009-05-14 20:08:41 ARENA PHARMACEUTICALS INC ARNA LAFORCE JAMES director 200 $2.74 $548.00 13,500 view
P 2009-05-14 2009-05-14 20:08:41 ARENA PHARMACEUTICALS INC ARNA LAFORCE JAMES director 3,300 $2.74 $9,040.35 13,300 view

May 19 05:29 AM

[tejas:]

The article's author should respond to the replies which have refuted his key points and used verifiable sources as refutation. Seeking Alpha should respond to the messages here as they are risking their integrity/reputation of their product by allowing poorly researched factless articles to be posted as credible journalism.

Finally the SEC should take a look at the author based on his inflammatory headline and see if any improper dealings have gone on. This article is akin to the message board postings of years ago that were found to be fraudulent

May 19 10:04 AM

[Stock_doc:]

Sounds like a desparate short try to bash a stock so he can cover. All I can say is you'd better cover soon while you still can before the imminent short squeeze when lorcaserin gets FDA approval.

May 19 11:39 AM

[mikeinb:]

Derek Lowe has stooped way too low to publish this piece of unsubstantiated junk. SEC should investigate such morons who get away with such misleading and, perhaps, self-serving opinions under the disguise of journalism.

May 19 12:14 PM

[ebbel1:]

I hope the author realizes from the previous comments that hiding behind the cover of an 'opinion' is not a legitimate alternative to verifiable research and supporting facts. Sensationalism is irresponsible. Fortunately, your audience is smart enough to know these truths and see through your veil. So much so they even question / speculate on your possible motives.
The shame should lie not just with the author, but also with the editor who knew better than to allow publication but approved it none-the-less. Seeking Alpha has taken a huge dive in credibility in my eyes. Heretofore I had trusted what was written here as responsible. I HOPE THE PUBLISHER READS THESE COMMENTS.

May 19 12:43 PM

[IguanaBio fan:]

guys, a little too harsh...Derek, we got your back ;)

www.iguanabio.com/more.../

May 19 03:48 PM

[User 386350:]

You have got to be kidding me?! How did you get this job?

May 19 06:47 PM

[dual cit:]

He's about as smart as he is good looking

May 20 12:02 AM

[Michael Murphy:]

"They didn't quite make the minimum threshold for efficacy"
Derek - You MUST immediately document that statement or retract it, or as a fellow Seeking Alpha writer I will report you to the editorial board.

May 20 02:12 AM

[Michael Murphy:]

I have sent the following email to contact-editorial (at) seekingalpha.com, which is how you dispute an article and get a retraction or correction:

Subject: Disputing an article for material inaccuracy

1) The article's headline, date of publication and URL (web link)
Arena Pharma Could Be on the Verge of Collapse

Published May 18, 2009
URL: seekingalpha.com/artic...

2) Your own full name and phone number

Michael Murphy

3A) The precise concern you have regarding the article - quote the section(s) you dispute:

"They didn't quite make the minimum threshold for efficacy"

Please note that Derek has said this before, and I corrected him then. The drug, lorcaserin, had to meet one OR the other of the FDA standards, NOT both. Derek knows that. Repeating his error is inexplicable and very damaging.


3B) Support your own position with specific sources. Include a URL for your sources, if one exists.

From the Arena Q1 earnings conference call on May 11, pdf attached, emphasis added:

New Weight Management Drugs
• Let me be clear about what the FDA efficacy criteria are for approving new weight management drugs
• The FDA draft guidance document for Developing Products for Weight Management dated February 2007 provides specific recommendations regarding the development of drugs for
this indication
• The guidance document contains two alternate efficacy benchmarks
o The guidance provides that a product can be considered effective for weight management, if after one year of treatment, using an intent-to-treat last observation carry-forward analysis, either of the following occur
Active Product and Placebo-Treated Groups
• One, the difference in mean weight loss between active product and placebo-treated groups is at least 5% and the difference is statistically significant [lorcaserin did not meet this benchmark - MM]
o Or the proportion of patients who lose greater than or equal to 5% of baseline body weight in the active group is at least 35%, is approximately double the proportion in the placebo-treated group and the difference between the groups is statistically
significant [lorcaserin did meet this benchmark - MM]
• Despite the clear language in the FDA guidance, there still seems to be confusion among some investors and even more so in the media regarding whether a drug must meet both of these criteria to be approved
o I cannot emphasize too strongly that a product for weight management must achieve only one of these two alternate FDA efficacy benchmarks for approval
o And notably, marketed drugs do not satisfy both benchmarks

May 20 11:52 AM

[JiuJitsu Fi...:]

I totally disagree with the author of this article. Jason, it is nice to read a positive comment from someone who is involved in the industry. It is the media and author's like the one who wrote this article that are dragging America and American businesses into the abyss. Derek Love you should be ashamed of yourself because you don't know what you are talking about. You are only speculating on the unknown. Why don't you educate yourself on the facts and write an article that is news worthy. Your article only attempts to create panic and gloom. In my opinion you "position" in Arena stock s to drive it down. You must have stock positions in Orexigen or Vivus. Derek let me help you interpret what the FDA requires....oh wait you won't get it!!! Let me make it simple I want you to go to the dictionary and familiarize yourself with the following two words either and or. Once you conceptualize and are able to differentiate between these two words I would then take the time to enhance your education.


On May 18 04:54 PM Jason Napodano, CFA, Sr. Biotechnology Analyst at Zacks Investment Research wrote:

> Arena exited the first quarter with $70 million in cash on hand.
> Based on my financial model, this is enough cash to fund operations
> until very early in 2010. Plus, the company has real estate investments
> worth up at least $50 million it can monetize through a sale / lease-back,
> and early-stage molecules, including a phase I candidate for thrombosis,
> it can partner if necessary to raise additional capital. Arena also
> has collaborative programs with J&J, Merck, and Taisho. That
> being said, a partnership for lorcaserin is likely after the BLOSSOM
> data in September 2009. Saying the company is on the verge of collapse
> is completely misleading and irresponsible.

May 20 01:32 PM

[PhillyDan:]

Derek: The reason we are harsh is because when you say "on the verge of collapse" that is very harsh language in itself. When you say that Lorcaserin did not meet the FDA requirement for minimum efficacy then that is a bold-faced lie.

I admit that I have a significant long position in Arena and have accumulated that position over the last 3+ years. I for one will not stand by and let you make inaccurate statements and come to ignorant conclusions. I applaud wholeheartedly Mr. Murphy's efforts to get you to apologize for your misguided statements and report on the facts. Certainly, you are entitled to your opinion about Arena's future but you are not entitled to make up your own facts in coming to that opinion.

May 20 05:15 PM

[dakyne:]

Derek, it is your career as a financial journalist that is on the verge of collapse. lol! You should learn to read before you write.

May 20 06:52 PM

[scorpiomachine:]

Mr ANALYST,
Let me tell you what I do think about you and other ANALYSTs
You should know DNDN, so I remember guys like you who were bashing, and where are they now?
You know, shut up and go back to your hole.
Long live Arena !!!!!

May 21 08:41 AM

[polar40:]

I am impressed by the knowledge and analysis of the Seeking-Alpha readers. Not easy to fool you.

Long ARNA.

May 21 06:13 PM

[dakyne:]

I told you his career as a financial analyst would be brief. Mr. Lowe, you've been p'owned! I'm going to give you the benefit of the doubt--which would you prefer? Are you ignorant or corrupt?

May 24 12:02 AM