Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)

Q12013 Earnings Call

May 02, 2013 5:15 pm ET

Executives

Cindy McGee - Vice President of Investor Relations & Alliance Management

Jack Lief - Chairman of the Board, President, Chief Executive Officer

Robert Hoffman - Chief Financial Officer, Principal Financial Officer, Vice President - Finance, Principal Accounting Officer

Bill Shanahan - Senior Vice President, Chief Medical Officer

Craig Audet - Senior Vice President, Operations and Head of Global Regulatory Affairs

Analysts

Marko Kozul - Leerink Swann

Steve Byrne - Bank of America

Ted Tenthoff - Piper Jaffray

Lee Kalowski - Credit Suisse

Cory Kasimov - JPMorgan

Jim Birchenough - BMO Capital Markets

Thomas Wei - Jefferies

Operator

Welcome, ladies and gentlemen and welcome to the Arena Pharmaceuticals first quarter 2013 financial results call. This call is being recorded. At this time, for opening remarks and introductions, I would like to the turn the call over to Arena's Vice President of Investor Relations and Alliance Management, Ms. Cindy McGee.

Ms. McGee, please go ahead.

Cindy McGee

Thank you. Welcome and thank you for joining us. On today's call, we will provide a corporate update and review our first quarter financial results.

Prepared remarks will be provided by Jack Lief, our President and Chief Executive Officer, Craig Audet, our Senior Vice President of Operations and Head of Global Regulatory Affairs, and Robert Hoffman, our Chief Financial Officer. Dominic Behan, our Chief Scientific Officer, and Bill Shanahan, our Chief Medical Officer are also available to address your questions.

During this conference call, we will make forward-looking and other statements about our vision, views, goals, plans, expectations and future activities and events, including statements about BELVIQ and our drug candidate, including with regard to efficacy, safety, research and development, regulatory status and plan, commercialization and potential, regulatory agencies, current and future collaborations and other statements that are not historical facts. Such statements may include the words plan, will, expect, believe, may, could, would or similar words.

You are cautioned to not place undue reliance on these forward-looking statements, which are only predictions and reflect the company’s beliefs, expectations and assumptions based on currently available information and speak only as of the time they are made. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995.

Risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements include, the regulatory process and decision, the timing, results, uncertainty and cost and research and development, manufacturing and commercialization, data and other information related to drug and drug candidates may not be as expected, favorable or sufficient for further development or commercialization, actually the results related to our current collaboration and our entry into additional collaboration, and other risks identified in our SEC reports. For a discussion of these and other factors, please refer to the risk factors in our SEC filings.

I will now turn the call over to Jack.

Jack Lief

Thank you for joining us this afternoon. As we will review today, we continue to look forward to BELVIQ's U.S. launch. We and our collaborators are working to commercialize BELVIQ in additional territories and we are advancing our pipeline of novel drug candidates.

BELVIQ's U.S. launch will be handled by Eisai following the completion of the DEA scheduling. Although, we are disappointed in how long it's taking the DEA to complete the scheduling, Eisai has used this additional time to hold their launch readiness and to further pursue their reimbursement strategies. We and Eisai are ready to go and once the scheduling designation is effective, BELVIQ will be available by prescription in retail pharmacies in the United States.

Three recent developments support this upcoming launch. First is the American Association of Clinical Endocrinologists, Comprehensive Diabetes Management Algorithm, including its reference to BELVIQ. Just recently published document provides treatment guidelines for endocrinologists and specifically addresses the care patients who are overweight or obese. We believe that the mention of BELVIQ in this model will increase awareness amongst physician, impact use and support the expansion of reimbursement.

It is important to note that BELVIQ's prescribing information includes the compelling results from our BLOOM-DM trial, which evaluated overweight and obese patients with type II diabetes. Second, is the campaigns' and obesity's report, the long-term return of obesity prevention policies. This study illustrates that the current 10-year scoring [score] for estimating the cost of savings at federal health legislation actually misses billions of dollars in potential long-term return from effective obesity prevention policies. The study recommend that the congressional budget office develop the capacity to estimate the cost of these policies over a 75-year horizon, because longer term scoring would more accurately reflect cost and savings. And third, its cost in America's [health] on bending the obesity cost curve in California.

So this report concludes that reducing the average deal line in California by 5% could lead to healthcare savings of more than $28 billion in 10 years and $81 billion in 20 years. We commend these organizations for their important efforts to improve treatment and access for patients. Aces Annual Congress is taking place over the next few days. We look forward to a variety of upcoming medical needs including ECO, ENDO and ADA which have accepted BELVIQ related abstracts for presentation. We anticipate productive scientific exchange at these events.

Craig will now provide a regulatory update, including with regard to our EU application for BELVIQ and Robert will review our financials. I will then discuss our pipeline of novel drug candidates. Craig?

Craig Audet

Thanks, Jack. We and Eisai continue to look forward to the final scheduling of BELVIQ. The DEA has not provided an update on its timing and we, like many of you, remain hopeful that finalization is eminent. I would like to update you on our BELVIQ post marketing development activities in the U.S. and our global BELVIQ registration strategy which we are implementing in parallel with ongoing partnering discussions.

I am pleased to announce that we have made progress on our plans to evaluate BELVIQ in combination with phentermine. We have agreed on a development proposal with Eisai and we have provided this strategy to the FDA in advance of a meeting that is scheduled with the agency later this quarter. Once we receive the FDA's feedback and include any required modifications, we will provide with an update on this program's status.

Beyond the United States, we have filed applications for the approval of BELVIQ in the European Union and Switzerland and Eisai is filed in Mexico. We also expect near-term filings in Canada, Brazil and South Korea.

With respect to the European Union, we have provided our written response to the day 180 list of outstanding issues and we participated in a recent oral explanation. Following these efforts, the CHMP's view is that certain major objections remain outstanding that preclude a recommendation for BELVIQ approval at this time. We do not believe we can resolve the major objections related to the result of non-clinical studies prior to the CHMP's issuance of its final opinion.

We have therefore decided to withdraw the MAA and are evaluating the best approach for submitting at a later date. Withdrawal was a common strategic approach utilized by companies in similar situations. We are currently in the process of evaluating our options and when the CHMP provides us with its final review we will update you as appropriate.

We believe that BELVIQ can be an important treatment option for overweight and obese patients in Europe and we will continue to pursue approval in Europe as part of our global registration strategy.

With respect to Switzerland, we have responded to the Swissmedic's initial assessment regarding the BELVIQ MAA and we look forward to receiving the agency's feedback around mid-year. In addition, Eisai and Ildong have made progress on registering BELVIQ in their respective territories. Eisai has submitted an application for marketing approval in Mexico and plans to do the same in Canada and Brazil later this year. Ildong has filed a clinical trial application for BELVIQ in South Korea and plans to initiate a pharmacokinetics study this month. We continue to work with regulatory agencies, Eisai and Ildong to bring BELVIQ to patients who need help in managing their weight.

Robert will now provide a financial update.

Robert Hoffman

Thanks, Craig. I will focus my comments and highlight the financial performance for the quarter ended March 31, 2013, compared to the quarter ended March 31, 2012. I also refer you to today’s news results release. For the following financial results, 2013 will refer to the quarter ended March 31, 2013 and 2012 will refer to the quarter ended March 31, 2012.

We recorded revenues of $2.4 million for 2013, compared to revenues of $2.2 million for 2012. 2013 revenues included $500,000 milestone payment upon Eisai's filing for regulatory approval of BELVIQ in Mexico.

Research and development expenses for 2013 decreased to $14 million from $14.5 million for 2012. R&D expenses for 2013 included $700,000 in non-cash share-based compensation expense compared to $200,000 for 2012.

General and administrative expenses totaled $7.3 million for 2013 compared to $6.4 million for 2012. The increase is primarily attributable to increases in salary and personnel cost and legal, patent and auditing fees.

G&A expenses for 2013 included $1 million in non-cash share based compensation expense, compared to $1.2 million for 2012.

We recorded a non-cash gain of $3.9 million in 2013, primarily related to the revaluation of common stock warrants that are classified as derivative liabilities. This loss is primarily due to the increase in our stock price over 2013.

Our net loss eligible to common stockholders decreased to $18.9 million for 2013, compared to $29.4 million for 2012. Cash and cash equivalents totaled $136.3 million at March 31, 2013, compared to $156.1 million at December 31, 2012. At March 31, 2013, we had approximately $217.7 million shares of common stock outstanding.

I'll now turn the call back over to Jack.

Jack Lief

Thanks, Robert. Beyond our BELVIQ activities, we remain committed to addressing additional unmet medical needs. To this end, we are leveraging our validated R&D approach to continue to build and advance our pipeline of innovative drug candidates. With regard to the APD811, we have initiated dosing in an additional cohort as part of the Phase 1 clinical trial program.

APD811 is an orally available agonist of the prostacyclin receptor and intended for the treatment of pulmonary arterial hypertension or PAH. The ongoing Phase 1 program is evaluating for safety, tolerability, pharmacokinetics and optimal titration schedule of multiple ascending oral doses of APD811.

This additional cohort is intended to optimize the dosing regimen prior potentially initiating Phase 2 trial. We expect results from this Phase 1 program in the third quarter. In addition, we recently initiated a Phase 1 trial APD334 an oral compound that is designed to selectively target the S1P1 receptor for the treatment of a number of oral diseases such as multiple sclerosis, rheumatoid arthritis and psoriasis. We expect results from this trial in the fall.

The development of Temanogrel is also continuing to our agreement with Ildong. Temanogrel is internally discovered inverse agonist of the serotonin 2A receptor intended for the treatment of thrombotic diseases. Under this agreement, Ildong will fund and conduct the next two planned clinical trials in this program. An additional Phase I trial in healthy volunteers, and a Phase 2A proof-of-concept trial in patients Ildong plans to initiate development in the second half of this year.

Here, at Arena, our initiatives deliver new, best-in-class treatments to physicians and patients. BELVIQ is the first product resulting from our vision to discover novel medicines that selectively target GPCRs. In closing, we thank you for your support of our effort and look forward to keeping you informed on our progress.

We will now open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Marko Kozul of Leerink Swann. Sir, you may begin.

Marko Kozul - Leerink Swann

Good afternoon. So, maybe just a quick first one the E.U. withdrawal, can you give us a little more color on this decision to withdraw BELVIQ E.U. regulatory process. You mentioned certain outstanding objections. Can you give us some color on these objections and whether you believe addressing them might require additional clinical studies?

Craig Audet

Hi. Marko. It's Craig. At this point, we believe that it's more appropriate to get that final report that we are waiting for from the CHMP, to see how they characterize their concerns before we go into details, so that's the point we are at right now.

Marko Kozul - Leerink Swann

Okay. Thanks. Maybe just a quick on reimbursement. Do you have any updates on your progress or your size on the reimbursement front. We seem to be seeing a fair amount of building of momentum on reimbursement and if any updates you have would be helpful. Thanks.

Craig Audet

Yes, good question. Reimbursement, obviously, was significant problem in the past in this category. Eisai has been working very actively. They have got 50 reimbursement specialists internally. They have said that about a third of patients covered lives are currently included in insurance and expect that to increase to 50% and up to 70% for years.

Marko Kozul - Leerink Swann

And if I may, can I get a quick one in on your S1P1 receptor modulator. You mentioned this is in a Phase 1 study. When might we see data and how do you see this compound differentiated from some of the other candidates that are out there? Thanks.

Jack Lief

I am going to let Bill answer that question.

Bill Shanahan

So we expect data in the fall on this and well, we hope to differentiate it, as we are highly selective for S1P1 and hope we can avoid heart block and bradycardia. We have not observed this on our animal models and hope this will translate into humans.

Operator

Okay, our next question comes from Steve Byrne of Bank of America. Sir, you may begin.

Steve Byrne - Bank of America

Hi, Craig. Can you comment on what countries would rely on European approval as part of their regulatory process are there regions that rely on a combination of a U.S. and EU approval?

Craig Audet

Sure, Steve. The word rely is a little strong. There are countries that key off of certain other country's approvals. Any of the countries that will key off of another approval looks for a major health approval. So it could be FDA. It could be EU. Although they will always do their own, usually do their own independent review. So at this point we don’t have any direct concerns about other countries rejecting BELVIQ because we are a little soft in the EU. However, the whole reason for the withdrawal is our strategic approach to make sure that we can get back in, in Europe and continue the discussions with the EMA.

Steve Byrne - Bank of America

Regarding the DEA, are you having an ongoing dialogue with them?

Craig Audet

Well, as the NDA holder, Eisai is responsible for that direct dialogue and they are having discussions with them over the scheduling.

Steve Byrne - Bank of America

Then on the potential for combo studies. Are you considering combo studies with either metformin or olanzapine?

Jack Lief

We are considering all of those countdowns but as Craig said, the first set of studies will involve the phentermine combo which we have a meeting with FDA scheduled right now and certainly for olanzapine or possibly metformin, I think olanzapine might be higher up on the list. We are still working on that.

Operator

Okay, we have a question from Ted Tenthoff with Piper Jaffray. Sir?

Ted Tenthoff - Piper Jaffray

Thanks for the update and thanks for the additional color on the process in Europe. I had two quick question, if I may. A little bit of housekeeping here. First, when I look at the P&L breakout, I see that you recognize some cost of goods sold in the quarter. But I didn’t see a commensurate sales line. I know that in the past you have recognized cost of manufacturing services. So I am curious what those cost of goods sold represent?

Then also I wanted to know the $500,000 or the milestone that you got from Eisai for the Mexican submission, was that recognized in this first quarter or is that coming in the second quarter? Thanks.

Jack Lief

Those are really quick questions, Ted. So, Robert?

Robert Hoffman

Hi, Ted. So, boy, you did your work on the P&L quite quickly. So in terms of that product that cost of product there, when you have no manufacturing facility which we did actually in March related to BELVIQ. The cost to run the facility basically is expensive cost of good in that period, so that amount it was nearly cost. It was expense to cost of goods sold there. Then in terms of the milestone payments, that was all recognized in the first quarter.

Ted Tenthoff - Piper Jaffray

So, just to make sure I understand that, the cost of goods sold were BELVIQ expenses in the Swiss facility that didn't have a offset sales line to recognize against? Correct?

Craig Audet

Correct.

Ted Tenthoff - Piper Jaffray

Okay. Awesome. Thank you so much. Looking forward to DEA scheduling hopefully coming soon.

Operator

Okay. I am showing a question from Lee Kalowski with Credit Suisse. Sir, you may begin.

Lee Kalowski - Credit Suisse

Great. Thanks for taking my question. Craig, maybe just a follow-up, you had mentioned that withdrawing application would change things as far as your ability to resubmit. Can you talk a little bit about how that exactly works logistically, and as far as getting feedback from the agency? Does withdrawing change the feedback you would get and what we'll be able to see?

Craig Audet

The process itself is pretty straightforward. We withdraw. They accept that withdrawal. The EMEA will publish show information on withdrawal on their website once the CHMP does accept that. In terms of additional information, it does allow us to go back to, if we choose to go back in ask for scientific advice on the best purchase forward with the CHMP.

Lee Kalowski - Credit Suisse

Okay. Is there any status update as far as the CVOT is concerned?

Craig Audet

At this point, with the CVOT, we are in the final prose of working out the details with the FDA. It's taken a little bit longer than expected and the FDA has granted us a little bit of an extension on that to finalize.

Lee Kalowski - Credit Suisse

Okay. Maybe one last question. Actually, Jack, you had mentioned that with the DEA taking little bit longer than it's given Eisai a little bit of additional time for prelaunch marketing. Is there any additional details you can share about what they might be doing in this timeframe?

Jack Lief

Really hard to get specific on that for competitive reasons, Lee, but we are aware of a lot of work going on at Eisai right now, so we will just have to stay tuned upon the launch.

Lee Kalowski - Credit Suisse

Okay. Thanks.

Operator

Our next question comes from Cory Kasimov with JPMorgan.

Cory Kasimov - JPMorgan

Good afternoon, guys. Thanks for taking the questions. On the topic of the CVOT, based on your and [with] Europe, based on your dialogue with the CHMP, have they given you any indication that they would like to see data or at least interim data from cardiovascular study prior to approving BELVIQ? Then I have a follow-up.

Craig Audet

Sure, Cory. It's difficult for us to have, as you can imagine this is still an ongoing regulatory application hasn't closed out yet. So, it's difficult to first to get into the details of the decisions we've had with the CHMP, but we can update you perhaps that withdrawal is finalized and the CHMP has issued their final report.

Cory Kasimov - JPMorgan

Then I'll ask another question. I don't know if you could answer or not, but realizing it is Eisai's responsibility for the NDA, do they provide your march or any insight into these discussions with the DEA and what's potentially holding up the scheduling?

Craig Audet

They do actually have great communications. It's a great partnership, great communications with Eisai. So, we are aware of what they are doing with the DEA when they do it and they usually promise with the results of those.

Cory Kasimov - JPMorgan

Okay. It's just something you can't share obviously?

Craig Audet

Correct. We don't want to speak on behalf of Eisai.

Cory Kasimov - JPMorgan

I can appreciate that. Okay. Then lastly, on the reimbursement topic again, I am just wondering how much you believe Eisai is able to leverage some of the recent progress that's been announced for Qsymia in terms of signing up some of the larger payers. Is that something that can be piggybacked on for BELVIQ?

Craig Audet

Yes. Greatly leveraged.

Cory Kasimov - JPMorgan

Okay. Perfect. Thank you.

Operator

Our next question comes from Alan Carr with Needham & Company.

Unidentified Analyst

Hi. This is actually (Inaudible) for Alan. Thanks for taking my question. I am going to ask some more question about the decision regarding the E.U. reading the 8-K that just came up after conjunction, you say that the resulted to non-clinical studies prior to the time the agency would issue the final opinion? Can we infer from that that this has to the (inaudible) studies maybe when they are done for the FDA?

Jack Lief

Well, the records of the non-clinical studies, that’s really what we won't be able to resolve. We just don’t have the time to resolve it before the CHMP issues their final opinion and final report. So that’s really why you see the non-clinical reference in the 8-K. At this point, we again don’t want to talk about or try to characterize what we think the EMA is going to state for their specific issues. We don’t really anticipate anything beyond the issues we saw in the day 180 assessment report.

Unidentified Analyst

Okay, and just piggyback off of (inaudible)' last question. Clearly, there has been some benefits gained from what (inaudible) is doing in terms of payers. Is there anything else that you could comment on that you are Eisai might have learned what's going on in the last few months to that end for (inaudible) launch?

Jack Lief

Phil, keep in mind that Eisai has a lot of experience in the reimbursement front. They had a $2 billion drug for Alzheimer's disease in Aricept and Aciphex. It continues to sell relatively well even though its up against huge amount of generic competition. So I suspect that Eisai has a lot that we are going to be able to teach once DEA has completed.

Operator

I am showing a question from Jim Birchenough with BMO Capital.

Jim Birchenough - BMO Capital Markets

Hi, guys. So just a few questions. Just on the phentermine study. Are there any details you can provide in terms of how big a study or studies that would be follow-up time and timelines for data and would valve assessment be required? Then I have got a couple of follow-ups.

Jack Lief

Hi, Jim. Right now what we are doing is, we have this meeting planned with the FDA later this quarter. We really want to get the results, have that discussions with the FDA before we give any details because they may change between now and the end of that meeting. So once we get to the end of that meeting, then we can give you a little bit more detail on what that development program looks like. So we are getting there.

Jim Birchenough - BMO Capital Markets

Just on maybe just moving to the pipeline then. Just on the S1P1 drug. Have you done per channel assays and looked at the QT profiles of the drug that might be one area of differentiation?

Craig Audet

Yes. We have looked and we don’t pick up the signal there. So again we are hopeful that we are going to have a good cardiovascular profile when we get into with this human studies. So just stay tuned.

Jim Birchenough - BMO Capital Markets

And is the selectivity profile of that drug such that you wouldn’t expect any pulmonary or liver effects and could you comment on the half life or whether it’s a shorter half life than (inaudible)?

Jack Lief

Well, about your (inaudible) half life in humans, so we don’t know what it is. We hope it has the potential for expected could be once-a-day drug. So we just really need a way to see how this clinical trial runs out.

Craig Audet

Based on animal data, it will have significantly shorter half life, once-a-day.

Jack Lief

Oh, yes. In terms of that, we fully anticipate shorter than the 200 hour half life. So we expect it to be more like a traditional drug.

Jim Birchenough - BMO Capital Markets

Final question. I will jump back on the queue. In pulmonary hypertension, is there any pharmacodynamic endpoints that you are looking at that might bear out the thesis that an oral modulator will work in terms of possible side effects?

Jack Lief

Not in our Phase 1 study. That will await Phase 2 but we are obviously seeing the typical IT agonist adverse event profiles that are associated with IT agonists. So we believe we are seeing pharmacology.

Operator

I am seeing our next question from Thomas Wei of Jefferies.

Thomas Wei - Jefferies

Hi, thanks. So just on the phentermine combination study with BELVIQ. I guess I am curious why not just start SAT study right away. A short term dosing study to figure out what the right doses of the two are? Because, presumably no matter what the pathway is that you agree upon with the agency, it all has to start with that same basic study.

Craig Audet

Yes. Thomas, it's Craig. Again, we really want to work with the FDA on this. We don't want to just jump into something that is not going to benefit us in the long run or may not benefit us in a long run, or may get FDA to go down a different path in terms of development program, so we've really laid something out that we feel is pretty robust and we really want to get their advise on it and counsel before we go forward.

Robert Hoffman

The idea here is to partner with the FDA as opposed to just present them with a series of protocols and keep our fingers crossed, so we definitely want to work with the FDA on this.

Thomas Wei - Jefferies

I guess, just to [double] here. Does it speak to some risk, so that maybe the bars that the FDA would lay out would be too high and that one of the reasons why you wouldn't start it right away is just because you may not pursue the combination at all?

Robert Hoffman

We don't know what the FDA is going to say specifically. We don't think that there is any issues, but you never know and that's purpose of the reading, but the good news is that the scheduled reading and stay tuned we will appropriately report.

Thomas Wei - Jefferies

Then just on the cardiovascular outcome study and then finalization of those negotiations. Is that finalization contingent at all on this meeting with the agency on the combination?

Craig Audet

No. It is not.

Thomas Wei - Jefferies

Thanks very much.

Operator

I am showing no further questions. I would like to now turn the conference back over to Cindy McGee. Ma'am?

Cindy McGee

Great. Thank you. Thanks for joining us today. We appreciate your questions and we are planning to be at a number of medical meetings and investor conferences coming up, and we look forward to seeing many of you there.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Arena Pharmaceuticals' CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts