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When you hear the name Arena Pharmaceuticals (NASDAQ:ARNA) most investors will immediately think of the anti-obesity drug Belvviq. Rightly so. Belviq, currently is the only product that Arena currently has FDA approval and is actively being marketed. The company does have a pipeline of drugs, all with potential, but whether we as investors like it or not, the near term success of Belviq, and thus the stock, is tied to Belviq. That is where I will focus at the moment.

Belviq launched in June of 2013. Sales of Belviq have been modestly improving since launch and the equity has suffered. Hurdles include a lack of insurance coverage, lack of consumer awareness, lack of physician awareness and cost. In addition, at this point, Belviq is only approved in the United States. The hurdles of the early phase of launch can become catalysts in 2014. Before getting to the concept of Belviq OTC let's look at a few factors:

  • Belviq is under application in Mexico
  • Belviq is under application in Brazil
  • Belviq is under application in Canada
  • Belviq is under application in Switzerland
  • Belviq is partnered and under application in Taiwan
  • Belviq is partnered and under application in South Korea
  • Eisai (OTCPK:ESALY) is doubling the sales force and by December of 2013 will have over 400 reps in the field. This will allow physician awareness to increase.
  • Eisai has already started consumer advertising in magazines and should be expanding that ad campaign as the new year roles in. This will increase consumer awareness.
  • With the new year we may see a decent jump in insurance coverage. Currently anti-obesity is addressed in just under 40% of covered lives. More insurance typically means more affordability.
  • Anti-obesity products typically are stronger in the first six months of the year and the new year is approaching.

The items above, combined with a longer term outlook on the pipeline and Belviq combinations are enough to see that there is potential with this drug, company, and stock. Especially as the company now is sitting at 52 week lows. In my opinion, as the bottom forms, it could be a very compelling entry point. That is all great, but let's think a bit bigger for a moment. Belviq OTC (Over The Counter).

It is understood that through clinical trials Belviq had a pretty good safety profile. A good safety profile is necessary, given the fiasco that Phen-Fen had over a decade ago. It is that safety profile that could eventually lead to a Belviq product that is available without prescription. There are several reasons why I feel an OTC solution could be compelling. I must caution that this is a concept that still could be years away.

Health issues are typically not something people like to talk to anyone about, even a doctor. Being overweight and tackling that issue head on can have a stigma. Sometimes a person is simply more comfortable tackling an issue themselves. Being able to buy a weight loss product over the counter could be the solution that simply makes the attempt more palatable to consumers.

Typically an OTC product is one where the active ingredient is not as strong as the prescription version. In covering this equity and studying the drug, I have spoken to many people that actually use Belviq at a half dose and have success. While prescription Belviq can be used by someone that is only slightly overweight, the guidelines state that those people need to have co-morbidity such as diabetes, etc. This safety precaution likely was borne from the "sins of the past" with regard to weight loss products.

As time passes, and if the safety profile of Belviq remains strong, there may be a point in time where a lower dose could garner OTC status. That would bring in a whole new world of consumers that are trying to lose less weight, or dare I say want to shed a few pounds for vanity reasons. Currently I feel that the customer pool of those with a BMI under 30 is a small segment of those taking Belviq. In essence, people do not usually make an appointment with a doctor about the 15 to 20 extra pounds they have. However, they may very well want a solution to the issue that is less intrusive than doctor appointments.

If we look at the next few years we can start to assemble a pathway to increasingly good things. It is possible that 2014 can bring various approvals of Belviq in other countries. We could see the company apply in Europe again. We will see advertising starting to ramp up, and will see the effects of more doctors being aware of Belviq. In addition, we will likely see the comfort level of doctors scripting the drug increase as more time passes with little or no negative side effects. All of these things will/could support an eventual path to an OTC product.

One reason that I feel an OTC product from Belviq is compelling is what it does and how it accomplishes that. There are many OTC weight loss products on the market, but the side effects may not always be desirable. Belviq (at this point) appears to not carry this same baggage. One such product on the market is Alli. Alli is an OTC version of Xenical. The drug has been suspected of causing liver damage. Alli works by taking away fat in meals. One problem is that the drug can not distinguish between good fats and bad fats. It also lacks the ability to control caloric intake. Like Belviq, proper diet and exercise is recommended, but relying on a consumer to follow instructions can be fraught with risk. Belviq works to promote satiety, and appears to do it by specifically pushing the correct button in the brain and only the correct button. If caloric intake is reduced, a major part of the battle of the bulge would be controlled.

In its first 7 months on the market Alli sold $241 million in product. The early success was great, but the follow-through was not pretty. In 2008 sales dipped to $120 million. With 2009 came European approval and sales picked up to an impressive $326 million. The annual sales of Alli have not broken out since, but there has been acknowledgement that demand is lower.

While the Alli story does not necessarily have a happy ending, there are some parallels that we can see that illustrate a better possible path for Belviq.

Alli launched in the US in June of 2007. Belviq in June of 2013.

Alli got approval in Europe about 18 months later. Belviq may follow that path.

Alli, as an OTC product saw success out of the gate in the first 7 months. In my opinion the second year lull was an impact of consumers not really following instructions. Yes, Alli stopped fat from being absorbed, but did little to stop the size and mass of food intake.

Eventual approval in Europe spurred new markets and opportunity. I see the same thing happening for Belviq.

The safety profile is what is now impacting Alli. If Belviq can keep a very good safety profile it can avoid the fate that Alli has seen. Essentially, Belviq has the potential to re-write what safe weight loss can be. Re-writing that book will not be easy, and will take time, but the possibility here seems to exist.

In my opinion, 2014 is a key year for Arena. It will set the stage for success, validate the type of work Arena has, as well as the pipeline, and be the foundation for expansion that can deliver compelling financial results. Belviq already appears to be a compelling product. Compelling products have value. For that reason, I see it as a worthy investment so long as an investor is reasonable about expectations and timelines. 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.

Source: Arena Pharmaceuticals - Belviq OTC?