Bearish investors of Arena (ARNA) argue that its new antiobesity drug Belviq failed to explode into an empty niche awaiting new antiobesity drugs and can tell that after a few weeks of sales it is a failure. Bulls argue that we have insufficient data to assess the situation. I also argue that the most recent weeks showing 24%-52% growth (343% since the first week) indicates bears expect too much. At the current growth rate and a meager $150 per script, we can expect more than $1 Billion in sales after a year.
Furthermore, we are not correctly analyzing the situation and ignoring simply human behavior that will explain why growth is not even greater. Here I attempt to deduce answers that might otherwise remain hidden and unpredicted until quarterly reports. It may take months before we can realistically estimate annual sales for Belviq, but we can examine its potential and the problems Eisai (OTC:ESALY) currently faces marketing it. Whatever problems Belviq faces, Arena seems to be paying the full price since Eisai is up about 11% whereas Arena is down 19% since Belviq's launch.
Belviq Scripts Growth Is Greater Than Commonly Believed
When results fail to meet expectations, I seek fundamental flaws in my assumptions. When the Street sunk Arena 9% following the second week of prescription data, analysts, pundits and investors thought scripts failed to grow. I discovered they erred by miscalculating how scripts are generated by emphasizing pharmacies over doctors. While my analysis failed to lift Arena's shares back to where they may belong, future investors may use my method to prevent the market from similarly trashing companies releasing new drugs.
Symphony Health Solutions claims their prescription database is our nation's best. It captures 82% of the weekly activity whereas IMS captures 73%. It is my understanding that much of the missed data is due to chains like Wal-Mart (WMT) that do not sell script data to third parties.
Like my prior analysis, I adjust the data to better estimate the actual number of prescriptions. Contrary to claims by TheStreet.com's Senior Biotech Correspondent, my adjustments do not falsely portray the data. Percent growth remains unaffected by the adjustment since all data is treated the same as children learn when they are taught math.
Over Fourth of July holiday, many pharmacies remained open whereas doctors took vacations. I assign five doctor workdays per week except for the holiday week that I assign three workdays. My results show that doctors wrote 53% more Belviq prescriptions per day during the holiday week than they did the previous week (see figure and table below).
Possibilities for Why The Number of Initial Scripts Were Less Than Predicted?
I previously suggested multiple scenarios for Belviq and suggested a low initial rate of prescriptions might be about 30,000 prescriptions per month based on 75% of the doctors contacted by sales reps prescribing Belviq to two patients in the first month. We currently sit at about 10,322 scripts for the month. Since we have 10 Federal holidays per year, the average month has about 20.8 doctor workdays (excluding other absences). We currently have data for 18 days and we will have 23 days when Symphony releases its data on July 19.
I should have expected fewer scripts since the doctors I contacted were generally unaware of Belviq and Qsymia. Arena also warned investors that Eisai planned a slow rollout to ensure doctors select proper patients. I also attribute the difference between results and expectations to a few major factors that should disappear with time.
Doctors face patients who schedule appointments weeks in advance for various ailments and before doctors were detailed by sales reps. Even if visits obliquely concern obesity, doctors are unlikely to prescribe two drugs that may have overlapping effects when they want to see the effects of Belviq by itself. If investors are lucky, doctors wrote two scripts and told patients to wait a month before trying Belviq. Other doctors may have been treating patients wanting Belviq but currently finishing a cycle of medicine.
Doctors also have bad habits that may be difficult to change absent repeat visits from sales reps. Forty-four percent of Canadian doctors did not even consider antiobesity drugs when treating obesity and most of the prescriptions issued (39%) were because patients requested a drug.
Few potential patients are sufficiently aware of Belviq or Qsymia to visit doctors and ask for them. Social media may eventually increase awareness. It may also help counter negative press (e.g., Consumer Reports, discussed here and here; also see the Huffington Post). Yet, I suspect just a tiny fraction of potential patients are aware of the significant weight loss and antidiabetic benefits that await responders. This is in part due to the spam and disinformation from authors and commentators who refuse to acknowledge that in the real world, doctors will discontinue non-responders (patients losing less than 5% of their weight in the first 12 weeks) so that only "responders" will remain for longer periods. Thus, the average real-world patient on Belviq after 12 weeks differs significantly from the average trial-patient (the average of both trial responders and trial non-responders who may or may not have completed the trials).
Sales Rep Limitations
If sales reps give pitches similar to those of doctors during the Belviq launch webcast on July 10, it is no wonder why we did not see 30,000 scripts in the first month. It was very informative discussion, but it focused on the average trial-weight loss instead of responder weight loss. We are in the real world now and no longer doing research. Thus, they should have mentioned the meta-analysis showing how an estimated 36% to 50% of real-world patients on Belviq for a year (responders) may lose more than 10% of their weight depending on whether they are diabetic or not. If we cannot get researchers to mention the strongest data, it will take considerably more time before doctors get enough feedback from patients to realize they are underestimating Belviq's potential.
Pharmaceutical Sales Life Cycle Shows Belviq Has Yet To Enter Its Growth Phase
Since weekly scripts are up 340% since the first week, I am reluctant to expect more. Instead, we may see single-digit weekly growth in coming months. We can also expect episodic events resulting in good and bad weeks. The bad weeks may be temporary since Belviq is in the "introduction" phase of growth according to Tata Consultancy Services (see figure below). However, investors must be aware that for some drugs, sales fall flat or they are withdrawn before they get to the growth phase.
Belviq is a Fundamentally Strong Drug
Since my multifactor comparison of Belviq and Vivus' (VVUS) Qsymia little has changed. Patients can now purchase Qsymia in some stores. Qsymia has also benefited from media coverage of Belviq's launch. I do not believe this will alter Belviq's competitive advantage for the reasons stated in my article and because doctors are still time-limited and must still deal with Qsymia's REMS.
Belviq will be doctor's drug of choice due to its safety profile, mild side effects, and excellent efficacy (for those who respond to it). While not marketed as an antidiabetic drug, it has anti-diabetic properties that help both prediabetic and diabetic patients reduce their reliance on antidiabetic drugs that are harmful and may even cause cancer. Thus, we may find that doctors will chose to leave patients on Belviq even if they lose minimal amounts of weight as long as it reduces patient reliance on insulin and DPP-IV drugs.
Scripts are growing by 24% to 83% per week, most recently by 54%. At that rate, sales of Belviq will exceed $1 Billion at $150 per script. I do not expect that, yet I also did not expect good results would trash Arena's shares on false and misleading misinformation experts should have known. Yet, not one analyst announced that the selloff was unjustified, was based on erroneous analysis. Perhaps the selloff had nothing to do with the scripts.
Bearish investors are wrong to believe that a lack of direct competition means Belviq and Qsymia will never occupy that empty niche. Yet it will only happen if we remove the disinformation rampant in the media.
Furthermore, until there are advertisements, few members of the public will be aware of new antiobesity drugs or seek them. Thus, most of the scripts were probably from doctors visited by sales reps. Since Eisai still has many doctors to visit, we should expect prescription rates to increase for some time. I think we can safely expect 3,000 scripts written for the week ending July 12.
In the meantime, Arena trades near its 1-year low leaving new investors with far more upside than downside potential. Only time will tell.