Arena Pharmaceuticals (ARNA) announced today that the company had a Q2 profit of $40,100,000. A profit was expected because the company had received a $65 million milestone payment from marketing partner Eisai. The $40 million in profit delivered $0.18 per share, higher than expectations of between $0.12 and $0.15. The audio feed of the call is available here.
The call was, as anticipated, very much about the bigger picture and broader story for Arena, its anti-obesity drug Belviq, and the pipeline. Arena has $178.9 million in cash on hand, more than enough to fund operations for several quarters to come. Expenses reported by the company in the latest quarter were $29 million. Arena did note that about 12,500 Belviq prescriptions had been sold between launch and July 19. That number coincides almost exactly with the IMS Health data (unadjusted) released on a weekly basis, and is below the Symphony Health sales data.
Arena booked $1.3 million in revenue attributable to Belviq and, in the process, likely put to rest a few lingering accounting issues that have had some investors scratching their heads. As I have stated many times, the first is that the company receives its payment based on 31.5% of net sales, and that the samples would come off of the gross numbers and be a component of the deductions that would bring about a net number. There was a lot of chatter about Arena receiving a manufacturing payment as well as a royalty. The deal clearly states that the payment per bottle is the greater of the manufacturing cost or the 31.5%. The second is that Arena is going to book sales when they happen at the wholesale level. For investors, this can make it difficult to grasp what the average revenue per script is, and therefore difficult to gauge how sales are driving a particular quarter.
One benefit of the way the company is booking revenue is that we see more revenue early on for the balance sheet. A drawback is that it takes investors longer to see how good sales traction is on the Street. Think of it this way: If a store orders 10 widgets, the manufacturer of widgets books sales of 10. The manufacturer will not get another order until the shelves are down to their last widget.
With regard to research and development, the company had a few announcements. Arena completed dosing in a study to evaluate the safety, tolerability, and pharmacokinetic properties of Belviq and phentermine when administered in combination. In addition, Arena agreed on plans with Eisai to initiate a 12-week pilot study to evaluate the co-administration of Belviq and phentermine. This is an interesting development in that the concept would be co-administration of two drugs, rather than a combination pill (though this is still in the early stages). If that is the ultimate path of the oft-discussed "BelPhen," the companies would not really realize any revenue from the phentermine component of the two pill combo.
Competitor Vivus (VVUS) uses phentermine in Qsymia (combined with topiramate in one pill) and holds patents on time release attributes of its combo drug. The study of Belviq and phentermine is well worth going through, as it can potentially lead to a greater responder rate, thereby generating more Belviq sales. The more responders the company has, the more revenue it can generate. The company did state that it is seeing a responder rate (for Belviq) that is better than was experienced in trials. Other R&D developments include:
- Completed dosing in a Phase I multiple-dose clinical trial of APD811, an oral drug candidate intended for the treatment of pulmonary arterial hypertension. Arena expects to announce results from the Phase I program this quarter.
- Completed dosing in a Phase I clinical trial of APD334, an oral drug candidate intended for the treatment of autoimmune diseases. Preliminary results show a reduction in blood lymphocyte count, the desired benefit, and a slowing of heart rate, an undesirable adverse event seen with other drugs targeting the sphingosine 1-phosphate subtype 1 (S1P1) receptor. Further evaluation of the data is ongoing.
Overall, the quarter was essentially what was expected from a financial perspective, but did not give very much flavor on the sales -- or anticipated sales -- of Belviq. Much of the valuation of this company currently hinges on how successful Belviq can be. It will not be until the next quarterly update that analysts and investors can begin to really drill down into some numbers. Stay tuned.