Arena's Belviq Refills Week 19

| About: Arena Pharmaceuticals, (ARNA)

As the launch of Arena's (NASDAQ:ARNA) Belviq continues, there are a few dynamics investors will want to watch. One is sales growth and the other is product traction. Sales growth is relatively easy to monitor no matter how you measure. The key is seeing consistent growth over time with the given parameters. When it comes to product traction we need to open our minds a bit. The data is not so simple to analyze. For example, traction could relate to price, efficacy, or the knowledge level of consumers and doctors. In the end, we want to see traction at the front end sales combined with traction in the trailing refills.

I have long stated that the data is not the driver, but rather a measuring stick against expectations. By example, 10% growth is great if you are expecting 6%. In contrast, it is terrible if you are expecting 20%. With Belviq the initial expectations were quite high. If you have been invested for the last year, you are well aware of this. The equity has come way off of a high of over $13 and currently trades in the $4's. In the last few weeks, we have seen the expectations come down substantially. This has allowed the equity to form a bottom. This will also shift what is viewed as bearish, neutral, or bullish in terms of sales traction.

In the chart below, you will note that there are three categories being tracked. The Raw Refill Growth tracks whether or not refills are growing week over week. We want to see growth here. This week that growth was about 5%. I termed that growth as neutral. The more realistic expectations that have set have caused an adjustment in the sentiment. A month ago that 5% figure would have been perceived as bearish.

Belviq Refill Analysis

The second category is Refills vs. Overall Sales for the week. Looking at this from the front end, the lower number is the better. A low number here can indicate that new scripts in the pipeline demonstrated a very favorable growth number. This week that percentage was about 18%. This is lower than the previous week and trending in the correct direction. I have categorized this as neutral. I would consider 15% or lower bullish now.

The third category is the refills vs. the possible refills. To arrive at this number, I consider a free trial and a 3 month supply (4 refill periods). While it is true some people may be on the pill longer than three months, it is also true that some may never try the pill again after the free trial. The key here is not the methodology but rather the trend that the same methodology illustrates. This week the category delivered 6% again. The trend is still moving up, and this week the numbers were a stone's throw away from being 7%. Had the refill periods this week not included the Labor Day week (which caused a dip in the front end of the data) we would have likely seen this number at 7%. I categorized the 6% this week as neutral. I would consider 10% to be bullish given the data vs. expectations.

This week, Arena investors, for the first time, may get some decent insight into the sales pace vs. all of the projections we have been seeing since launch. Arena's marketing partner, Eisai (OTCPK:ESALY), will be offering up its quarterly investment call. It is very possible that we will see gross sales of Belviq as well as net sales. With this data, we can begin to understand the pace at which the wholesale channel is being filled, as well as the revenue that Arena will recognize. Arena gets paid 31.5% of the net sales figure.

Last quarter (in which Belviq was only on the market for a few weeks), we saw the distribution channel filled with $10 million in gross sales, about $4 million in net sales, and about $1.3 million in revenue to Arena. That first $10 million order was comprised of 50,000 bottles of Belviq. By my analysis, the first 50,000 bottles were sold between weeks 12 and 13 after launch. I estimate that through October 25th there have been about 80,000 bottles sold. An assumption that a second order of 50,000 bottles (if that is the increment that Eisai orders in) should have been filled during the last quarter. It is very possible that the quarterly revenues for Arena will be pretty close to the $1.3 million we saw with the first order. Next quarter we may see 100,000 bottles in the pipeline.

Investors will want to pay close attention to the Eisai call on Friday. It will give Arena investors the best glimpse at what to expect when Arena conducts its own quarterly call. Stay Tuned!

Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Eisai