Seeking Alpha
Growth, value, special situations, momentum
Profile| Send Message|
( followers)  

We now have sales data for the first 18 weeks of Belviq sales. Belviq is the anti-obesity medicine brought to market by Arena Pharmaceuticals (NASDAQ:ARNA), and marketed by Eisai (OTCPK:ESALY). This week Belviq sales, according to unadjusted IMS Health data came in just below the 4,000 barrier again and slightly down 1% from last week. New prescriptions, according to IMS Health were down 2%.

Last week I discussed the dynamic of the script numbers vs. expectations. With flat scripts, we are now seeing the reaction to the data as flat. Just three weeks ago, flat script numbers would have brought with it a downward move. The difference now is that analysts have adjusted expectations. Earlier this week, in an article about the confirmation of the bigger sales force for Belviq, I noted that the shift in expectations and the correlating action could be revealing a bottom for the equity. The action today, flat stock action with flat scripts would seem to confirm that a bottom of sorts has formed.

This week, even though we have not received any real guidance for Arena or Eisai, I have removed the $150 million tracking line from the chart. That line had represented launch sales goals established by Eisai. It has, for quite some time, been clear that the goal would not be reached. I maintained the line because it did illustrate the original goal, and expectation level. With expectations clearly demonstrating that they are much more grounded, it is time to take that down. It is still my stance that Arena and Eisai owe investors some form of guidance on sales sooner rather than later.

The charts now reflect the initial analysts expectation line in yellow, my model in green, $150 million in sales by the end of June of 2014 in red, adjusted IMS Health numbers in orange, and adjusted Symphony Health numbers in pale green. Typically I list several qualifiers with respect to this chart. Rather than cloud this article, readers can find qualifiers on my Instablog here.

Belviq Sales - Week 18
(Click to enlarge)

As stated, this week the IMS scripts came in at just below 4,000. This represents modest week-over-week decline, and falls short of delivering a "wow factor". In contrast it is not delivering an "Oh No" factor either. That being said, the "wow factor" is now getting more realistic, so the equity can be more stable. Three weeks ago it would have taken a 20% rise to deliver a wow. Now, I feel that a 10% rise in week over week is the "wow" threshold. As stated in the qualifiers, I adjust the weekly number up by 30%. My adjusted IMS script number is 5,164.

I have been cautioning readers with regard to flatter sales vs. expectations that were high. The good news is that the sales action now appears to align with stock action much more closely. In other words, it does not take a massive sales improvement to deliver a positive trend in the stock price.

The 30-week chart below outlines the overall pace and projected paths through the end of 2013. The current pace for script sales is pointing toward about $30 million in gross sales to consumers by the end of this year. It would take roughly $68 million in gross sales to garner Arena the $10+ million in revenue analysts were looking for in establishing $12 per share valuation targets. Pooling analysts models together, the new expectation is between $5 million and $6 million in "royalty revenue" to Arena with about an $8 price target. As you can see, we are pacing below the original territory and above my territory.

Belviq Sales Tracking - 30 Week Chart
(Click to enlarge)

Investors need to remember that Arena is paid based on net sales, not gross sales. My analysis is that, based on a $199.50 per bottle gross sales figure, it would take about $35 million in gross sales to achieve $5.5 million in sales revenue to Arena. I apply a $100 per bottle net figure to the number of scripts sold to calculate a running total on theoretical revenue to Arena. Investors should note that Arena and Eisai recognize revenue when the wholesaler buys the drug, not the consumer. The data in this chart is reflective of consumer purchases of Belviq.

This week scripts were down 1% from last week by IMS. Essentially scripts were flat. The pace of sales is demonstrating that it will be a difficult challenge to get 2013 sales figures to the levels that the more bullish analysts had outlined near launch, and why we saw adjustments from analysts. This does not mean that higher sales cannot be accomplished.

I want to reiterate that investors need to remember that there is an active traders dynamic to Arena and weekly scripts as well as sales pace play a major role here. When script numbers are low, the equity will suffer. What we are seeing is that it will take some doing to get scripts substantially higher in the weeks ahead. Getting to 5,000 (unadjusted) is likely a month and a half away at minimum. There is longer term potential that still exists, but it is reliant on getting insurance coverage and direct to consumer advertising ramping up. With DTC ads now beginning, the insurance issue is a big one. There will likely be additional sales force increases dedicated to Belviq, but that will happen at the tail end of the year.

We are still early in the sales process, and refills are going to become another important item to consider. I will be addressing refills in another article. Earlier this week, in an Instablog I noted that refill data will have a few weeks of challenges yet. If you did not catch that piece, it is worth a read.

Summary

· Weekly IMS numbers are down 1% week over week

· Current unadjusted IMS sales are at 56,200

· Current 30% adjusted IMS numbers are at 73,060.

· Estimated YTD gross sales (to consumers) is $14,575,470*

· Estimated YTD net sales (to consumers) is $7,306,000*

· Estimated YTD Arena share (from sales to consumers) $2,301,390*

*Arena is not using sales to consumers to book revenue. It is using sales to the wholesaler to account for revenue. Eisai books sales to wholesalers as well. Weekly scripts are tied to actual consumer sales, thus the translation in revenue modeling.

Source: Arena's Belviq Sales Flat - Equity Holds