Arena Pharmaceuticals CEO Presents at Wells Fargo Health Care Conference (Transcript)

Jun.19.13 | About: Arena Pharmaceuticals, (ARNA)

Arena Pharmaceuticals (NASDAQ:ARNA)

Wells Fargo Health Care Conference

June 19, 2013 14:25 ET

Executives

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

Cindy McGee - Vice President of Investor Relations & Alliance Management

Analysts

Matthew Andrews - Wells Fargo

Operator

Matthew Andrews - Wells Fargo

So good afternoon again. Thank you for sticking around; my name is Mathew Andrews I’m on the Biotechnology Equity Research Team here at Wells Fargo. Our next presenting company is Arena Pharmaceuticals, as may know located in San Diego, California and as you’re likely aware they recently received FDA approval for its novel agent for the treatment of obesity, Belviq which is partnered with Eisai and in addition following a DEA scheduling recently the drug was recently launched in the U.S. So tell us more about Belviq and Arena’s pipeline is Dr. Craig Audet, SVP Operations and Head of Global Regulatory Affairs.

Craig Audet

Thank you very much. And presentation slides. Thank you very much. Okay, so I will just start by if you can see myself I’m Craig Audet as you heard. I’m the Senior Vice President of Operations and Head of Global Regulatory Affairs and have been with the company for about two years now, came in little bit after the complete response and help the organization work through issues with the FDA and ultimately gain approval and the DA scheduling.

You don’t have the slides? These are the slides. So while he does that I’m going to try to do this from memory okay? Because I have done this once or twice before. I will start by telling you that I will be making forward-looking statements this afternoon, so I suggest that you check our risk factors on file with the SEC.

So I’m going to talk to you a little bit about Belviq in general and also about our pipeline. We have got an exciting pipeline that we put on hold for a little while, while we got Belviq across the finish line and now we’re restarting that engine.

So in terms of Belviq we did receive our final DEA scheduling and we launched the product on June 7th, so it's officially launched on June 7th, Eisai is our partner in most of North and South America, so they are launching the drug in which they are responsible for commercialization and marketing in the United States, 100% responsible. They started retailing the drug on June 7th and supplying pharmacies as well and so their goal is to have 20,000 pharmacies supplied by the 11th by June 11th and looks like they have met that goal. So the drug is a serotonin 2C agonist, it's a novel compound discovered and developed by Arena Pharmaceuticals specifically with weight loss in mind. It was over 7000 to 8000 patients in our clinical studies to show efficacy. It works by making you feel full so you don’t want to eat as much and when you do you feel fuller.

As I mentioned Eisai is our partner in the United States, so as our forward-looking statements. The indication is Chronic Weight Management and it's adjunct to diet and exercise, for patients who are obese or who are overweight with at least one weight related comorbidity. There are two limitations of use, one is that hasn’t studied well on weight loss drugs or whether other products and the second is that the cardiovascular outcomes has not yet been established. One of the great things is that recent for us is recently the American Academy of Clinical Endocrinologists put out new treatment guidelines for patients with diabetes and so those patients with diabetes were overweight and obese or obese and have a comorbidity. You can see that in that yellow circle, the cash run (ph) is in fact first line therapy now.

Also just as earlier than yesterday, the AMA recognized obesity as a disease, so there was some discussion about them recognizing it as some other type of condition, but they have recognized it actually as a disease. Now we think this is fantastic not on the expectations but also to help physicians recognize that obesity is multifactorial and is not just a lifestyle issue.

I mentioned our situation with Eisai, now although Eisai is responsible for commercialization in the United States, Arena is still manufactures the product. We have a manufacturing plant in Switzerland, we acquired in 2008 so this house does controls costs and controls supply and capacity in order to supply not only in the United States but rest of the world as we scale up to that and the great thing about this facility in Switzerland is we have a 10-year tax holiday from certain taxes, so it lowers the tax burden substantially. I mentioned that we did launch on the 7th, now the Eisai has a lot of experience launching products. They started with Aricept in a market for Alzheimer’s disease which basically was unknown and was able to turn that into a billion dollar drug with increasing sales every year (inaudible) that drug.

They have also done the same thing with Aciphex. They will have a sales force that is exclusively dedicated to detailing Belviq. About 200 representatives and the nice thing is that the sales force has a lot of experience representatives crew had sold (inaudible) in the past so they already have a relationship and overlap a lot of physicians we’re going to deal with Belviq. So that allows to start to conversation in the middle with physicians they already know and have trust that they are trying to build that trust from the beginning get in the door.

They will know out of pocket I’m sorry we know out of the gate that this is going to be made out of pocket, it's about 30% of managed care lines are covered in some way shape or form obesity but Eisai recognizes is that they have to expand that, so there are about 50 working specifically on this sort of experience in doing this, they did it for Alzheimer’s and they are going to do it for Belviq.

Their goal is to expand that 30 to 40 by the end of the first year, greater than 50 by the end of the second year and greater than 70 by the end of the third year. This is, so in the meantime as I mentioned this is merely going to be out of pocket what are they going to do to help patients be able to get this drug. This is the first page of their website, first weight loss drug approved the FDA 13 years and if you dig down to this website what you see is they are off of a 16 day pre-trial as well as studies (ph) card and so patients were made a prescription for that first 15 day pre-trial with a voucher with a clinical pharmacy in that trial.

They also will provide a service (ph) card for upto $75 off for the first 12 months per patient. So this is how that works, so if you had no insurance they will give you 75 towards your prescription. If you have insurance they will cover anything above $50 on your co-pay upto $75.

So if your co-pay is a $100 just say hypothetically you’re paid first 50, you’re paid the next 50. Although they are on the agreement we have with Eisai they have provided us 55 million in upfront payments, $20 million milestone for getting the diabetes data from the (inaudible) study in the package insert and then we just received a $65 million milestone this quarter for fitting the drug through the regulatory process and delivering large supply and through that regulatory process in this case then the FDA approval as well as the DEA scheduling.

So we manufacture that product into as an (inaudible) and we sell it to Eisai between 31.5 and 36.5 of U.S. net sales. And in addition to that we’re eligible to receive upto 1.2 billion in one time purchase price adjustments and I will give you a flavor for how that works in a minute.

We can also receive regulatory milestones for upto about 50 million so that line expansion is with that nature, and in terms of what we’re responsible for cost, all of the post marketing requirements the cardiovascular outcomes trial as well as certain pediatric studies, Eisai pays 90% of those Arena pays 10%.

So here is a little bit of an example for you to see how the value equation works out. So for you see in the top-left that 31.5 to 36.5 sales price and then we get purchase prices estimates as well on the right, at 250 million in net sales it's 25 million and that’s all to about 2.5 billion. So if you look at the bottom left as an example. So the selling price for at 31.5 at 250 million it's approximately 80 million, 78.75 million. Once we hit that 250 we get additional payments of a $30 million milestone and a $25 million adjustment for a total of 55 million.

So the total to Arena is just under 134 million at 250 million net sales. Some of the other things that we’re doing, we the Swissmedic has accepted our MAA filing and they are in the process of evaluating our filing, you might say well why you would file in Switzerland. Switzerland is really our manufacturing client; we think it's really important to file there. Eisai has recently submitted in Mexico. They are also working on applications in Canada and Brazil.

We have another licensing agreement with Ildong Pharmaceutical in South Korea and they are preparing to submit their application for approval is South Korea as well. We expect a potential approval end of 2014 and we’re looking at other marketing supply collaborations in all the other territories we own throughout the world.

Just a couple of words on patent coverage. We have a composition of another (ph) patents issued in all the major jurisdictions and these will cover us out to 2020-23. In the U.S. we filed for an extension to 2026 and we think that we can expand in another that patent like in another territories as well. So very long runway in terms of patent gives us a lot of time to get a steady consistent year-over-year increase in sales for Belviq.

So why doesn’t the realist (ph) believe that we’re well positioned for success? You can see the reasons right here up on the slide. We have got a new chemical entity, this is, isn't something that’s been on the market already. This is something brand new discovered and developed by Arena Pharmaceuticals; it's got an attractive efficacy and safety profile. We have an established manufacturing infrastructure, we have been manufacturing in that plant that we bought in 2008. We have collaborations with accomplished marketing organizations. This isn't Eisai first rodeo, they know what they are doing believe me and they have got an army of people behind to make sure it's a success.

We have limited responsibility for the cost of those post-marketing studies and for the cost of commercialization and shared reasonability with Eisai for future development and global patent life upto 2020-23 and beyond.

So as Jack would say this is a very exciting time for Arena, we’re in amidst of this launch or in the beginning of this launch and remains to be seen how things will go but we have a high hopes for Belviq. But it's not just Arena it's in just Belviq. Arena has an exciting pipeline as well that as I mentioned we put on whole for a little while as we got Belviq across the finish line, we’re reenergizing that pipeline now.

So you can see some of the things we have in there besides from what we call the Belviq franchise where we are looking at Belviq for additional indications perhaps (inaudible) or diabetes, we’re also looking at it in combination with other products we have mentioned phentermine, perhaps metformin and beyond.

But we have also got some other novel compounds. I would like to tell you about two of them APD811 for Pulmonary Arterial Hypertension and (inaudible). So 811 is for Pulmonary Arterial Hypertension. You may now know this but once you’re diagnosed with PAAH you’re five year survival, you’re estimated five year survival is about 57% it's pretty low. Current treatment and process cycling receptor agonist. The main issue with these they are either continuous administration or very, very frequent administration throughout the day. With 811 we have a compound that’s got a nice half-life about 20 hours so we’re looking at perhaps once or twice dosing here. So if we can have an equal or hopefully better efficacy profile than the current standard of treatment, with once a day dosing and a nice safety profile that’s a significant advancement intruding this disease. We’re in the process of running a multiple dose Phase I trial and healthy subjects and we expect that to report in the fall sometime.

Another product that we’re looking at is Temanogrel for Thrombotic Diseases, so Temanogrel works by the 2A receptor serotonin 2A receptor is an inverse agonist of that receptor and the way it works is by attaching to that receptor on platelets and reducing or limiting the platelet aggregation but it also has a secondary effect which is reversing serotonin mediated vessel constriction so works by two ways.

Arena has done a single and multiple dose study Phase I study, studies I should say and Ildong is actually licensed this compound from us after we did the Belviq deal with them they showed some interest in this and what they decided to do well take it in-house, they are going to do an additional Phase I study as well as a Phase 2A study for proof of concept which they will take 100% for and then we get that data back as well as the compound. So what they get out of is exclusive rights in South Korea and we get the rest of the world. So it's a very nice way for us to be able to advance our pipeline while have a big cash layout.

Quick word on our finances, the cash and cash equivalents as of March 31 is 136 million; this does not include the $65 million milestone payment we achieved this quarter that I mentioned to you. And so to summarize what’s our long term vision? Well we think that Belviq is going to be an important option as a single agent as a novel single agent that’s going to benefit physicians and patients as well, it gives physicians and patients that additional treatment option when (inaudible).

We plan to commercialize around the world with this product so right now as I said we have Ildong in South Korea, we have Eisai in North and South America and we’re looking at collaboration agreements with the rest of the world.

We’re also looking to establish Belviq as a say infected treated in combination with other agents as well and some look at additional indications. It's called the Belviq franchise; it's a great franchise opportunity potential there. We’re also very excited about being able to start our pipeline back up and get that engine working, running again. We’re looking at first best in class first in class, where possible treatments for a number of diseases and so we will keep you as we progress there we will keep you informed on that. And we want to do this in a profitable way, we want to do it in a way where we’re maximizing our value to shareholders and still advancing that pipeline at the same time.

So we’re going to make sure that we’re looking at our expenses in light of what we’re taking in terms of income from sales of Belviq. Thank you very much.

Question-and-Answer Session

Unidentified Analyst

First of all what’s the expectation on the sales can be captured or be financed or the other firms and I don’t know how (inaudible) prescription trends are developing vaccine.

Craig Audet

So before I answer that question I would like to introduce Cindy McGee who is our Vice President of Investor Relations and Alliance Management for Arena. So Cindy for (inaudible). In terms of prescription so IMS will probably be one of the most if not the most accurate gauge of what prescriptions look like, as far as we know that there will no blocking of prescriptions through IMS, everything is available through retail channels so that shouldn’t be an issue. I’m sorry I missed on the question.

Unidentified Analyst

How accurate will it be?

Craig Audet

How accurate yeah.

Unidentified Analyst

(Inaudible).

Craig Audet

It's difficult, it's sort of an apples and oranges situation between Belviq and (inaudible) is mail order pharmacy and some of that was blocked, it's hard to capture some of it well this will be all retail. So it will be right there n IMS so as accurate as IMS is the data for Belviq will be.

Unidentified Analyst

That speaks to I guess one of the differentiators with is there are questions (inaudible).

Craig Audet

So the way that this worked was we were we have got our final DEA scheduling June 7th became the end of the waiting period so that was the day that if I launched, that was the day they started detailing and that was the day they started stocking pharmacies with the goal of having as I said about 20,000 stock by the 11th. So we really don’t have any intel yet and take the good two weeks to get some IMS data. I can give you IMS so that you can kill me, I can give you IMS data for June 7th when really wasn’t in any pharmacy six prescriptions,

Unidentified Analyst

(Inaudible).

Craig Audet

What Eisai did was they used that time when the DEA scheduling was going on to get their reimbursement engine running to train their sales reps and their sales reps were calling on some physicians to talk about obesity not about Belviq but just about obesity and obesity as a disease state. They started to actually detail and talk about Belviq on the 7th.

Unidentified Analyst

(Inaudible).

Craig Audet

No comment.

Unidentified Analyst

(Inaudible).

Cindy McGee

You know I can fix it specifically but (inaudible) what they did say it's leading upto the launch was that when you launch into a market that’s primarily cash pay. You need to have these programs in place at launch to support the patients and not what you see here. So 15 days free and then upto $75 off each month for upto 12 months.

Craig Audet

And the great thing about this too is that and any of the patients who come to the website can opt into a Belviq program where they get updates on things in terms of diet, in terms of exercise, to help and motivate them because at the end of the day Eisai wants motivated patients. Those are the patients who are going to be successful on this product as we like to say this is not a magic bullet. This isn't taking it and wake up tomorrow and have dropped 25 pounds, this is a pharmaceutical that goes along with a change in lifestyle as well.

Unidentified Analyst

So the AMA recognizes this as a disease (inaudible). So beyond that and I would take efforts to try and educate people and then presumably this is one. What else needs to be done to create awareness? What other things we do to make awareness (inaudible) generate at least on the next six months where you’re not going to be on formulary with that it generate interest and conventional usage.

Craig Audet

I think one of the things as I mentioned that went a long way towards that end was the rest going out and before of the launch and talking about obesity and educating physicians in the disease state. We know that we’re going to have early adopters here. There are physicians here who are waiting for this drug mainly the obesity specialists who are just waiting for this drug to hit the market and we know that there were patients who had prescriptions in their hand before this up, but the idea or the concept or the great thing behind the AMA coming out and saying obesity is a disease it's not just a life-style choice. It's that hopefully those physicians who tend to be the later adopter’s sort of wait and seize might look at some of those patients who they have who are obese who they don’t want to have that conversation with. If the patient doesn’t bring it up the physician very often doesn’t want to have the conversation. I had a brother-in-law who was almost 400 pounds and he went to the doctor one day because he had high blood pressure and the doctor put him on something for his high blood pressure and I said to him did he say anything about your weight? He said no not a word.

So doctors don’t want to have that conversation because they are frustrated all right? They don’t have a lot of or at least in the past didn’t have a lot of treatment options, didn’t have a lot of ways to help the patients. Now they have an additional like and above and beyond that the association that they belong to us saying look this is a multifactorial disease it's not just this person wants to sit in front of the TV and eat potato chips all day, it's a very important factor. So that in and of itself will be huge education and we’re seeing it all over the news today.

Unidentified Analyst

(Inaudible).

Cindy McGee

So (inaudible) answer your question directly Matthew is, in addition to things like the AMA development we had yesterday we recently solved the ace treatment guideline being updated as Craig mentioned and so this is really important because it includes for a key physician target such as the Endocrinologist, it includes Belviq and their treatment guidelines, their treatment algorithm and what’s included in our label are the results from our BLOOM-DM study which was in obese and overweight patients with type 2 diabetes.

So we do have data on that included in the label so the rep can speak to when they meet with physicians and what that shows is patients with diabetes were able to reduce the rates that also improved their glycemic control very significantly. So you see almost a 1% drop on average in (inaudible) and reductions in fasting glucose about 27.7 so really robust data there.

In terms of evaluating diabetes for indication that is something that we’re discussing with Eisai in our life-cycle management strategies. We have outlined that Belviq in combination with phentermine is a priority for us as well as other indications potentially something like smoking cessation or diabetes. So we’re working through those stance now, collaborating with the FDA specifically on the Belviq phentermine combination and we continue to work through that with Eisai and look forward to providing more details in that regard.

Unidentified Analyst

(Inaudible).

Cindy McGee

Right so it starts this year with the availability, with the approval and availability.

Unidentified Analyst

(Inaudible).

Craig Audet

What we tend to say is typical pharmaceutical margins.

Cindy McGee

So we’re responsible.

Unidentified Analyst

(Inaudible).

Cindy McGee

Exactly so there are some fixed cost related to our manufacturing facilities since we own it, some fixed cost related to Belviq specifically and so those will be, it will depend on sales levels as a percentage of what the sales levels are.

Unidentified Analyst

And then just one more question as it relates differentiation versus other compounds on market and development can you speak to what some of those are? Sort of Belviq (inaudible).

Cindy McGee

Well I think Belviq is extremely differentiated because it's the first new chemical entity, so what exactly does that mean? It wasn’t available before Tuesday in pharmacies, it didn’t exist, it was internally discovered and developed at Arena to specifically target the receptor in your brain that helps regulate food intake. So you know we were at end of last week and we will be at ADA at this weekend and I think docs are excited about having a completely new option to treat their patients.

Other factors, it will be it’s already in your local pharmacy, completely retail launch no (inaudible) associated with this and no restrictions and no how Eisai can distribute it. We control our manufacturing process in the facility there, there is a top quality associated with that as we discuss and I think Eisai is a huge differentiating factor, the facts that we have an accomplished marketing organization behind this product to this is a huge priority for them. The Belviq sales force exclusively details Belviq and Mel (ph) and Mr. Naito who are the CEOs of Eisai in the U.S. and globally have said Belviq is probably one of their most important compounds in the history of the organization. So our interest with Eisai are very much aligned.

Craig Audet

And this isn't their first rodeo, I mean as I said they have done this before. So we don’t have to build the marketing organization, we don’t have to build the distribution chain. They have it all in place.

Cindy McGee

Thank you.

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