Arena Reaches Critical Point On Insurance Coverage

| About: Arena Pharmaceuticals, (ARNA)

I have long maintained that one of the key elements in the success of Arena Pharmaceuticals (NASDAQ:ARNA) Belviq is not efficacy, the potential market, or combinations, but rather insurance coverage. Today Arena announced that the insurance industry has reached a critical point in coverage of the anti-obesity pill Belviq. Insurance coverage for Belviq has now reached 50% of covered lives.

"Securing broad reimbursement coverage is an important part of the foundation for the long-term success of Belviq in the United States, and Eisai has continued to demonstrate its expertise in this area. Over 50% of insured commercial lives with coverage for Belviq represents a significant increase from the approximately 30% of insured commercial lives that were estimated to have coverage at the launch in June of 2013." - Jack Lief President and CEO

There are a few important points of clarity:

  • 50% of covered lives does not mean that 50% of insurance companies cover Belviq. It represents that half of the amount of people with insurance have an anti-obesity benefit that in some way covers Belviq
  • Insurance coverage will vary. Insurance is typically offered in tiers. The better the tier, the more the insurance company will pay toward the drug. Getting any coverage is the first step. Improving to better tiers is the second.
  • Many patients may still need to meet certain criteria to get coverage. This could still include pre-authorization.
  • Coverage for an insurance company differs from state to state. For example, it is possible that a Blue Cross plan in Tennessee may cover while a Blue Cross plan in Texas does not.
  • Many insurance companies have different plans. For example, a higher quality Blue Cross plan may offer coverage, while a lower cost plan may not.

Even with these caveats, the news of getting to 50% of covered lives is great news over the longer term. This is a hurdle that was important to navigate over in building a foundation for Belviq. It will also help the company moving forward in other nations by the simple fact that more coverage can lead to more patients. With more patients, there is more data available to present to governing bodies. Thus far, Belviq is proving to exhibit the type of safety profile that was pointed out as U.S. approvals were being sought.

From the standpoint of the stock, reaching a tipping point with insurance adds stability. Yes, the stock will still be volatile and sales will be a key driver, but broader insurance helps to make the drug more budget friendly for consumers. This can assist in sales in a great way.

This news is a small catalyst in the near term, with potential to be a longer lasting catalyst if we can see the demonstrated traction continue. Seven months ago the covered lives was at 30%. Three months ago it was at about 40%. Today it stands at 50%. If the company can reach 60% in the next few months, the traction will be as clear as it can be. With obesity being on the front page, and with legislation being proposed in how to deal with it, it is only a matter of time before we see another press release discussing coverage.

The news today may be from Arena, but the trend also benefits the sector as a whole. Vivus (NASDAQ:VVUS) with Qsymia, and Orexigen (NASDAQ:OREX), which is seeking approval for Contrave will likely have very similar covered lives already or upon approval and launch. Arena partner Eisai estimates that the potential market in the United States alone stands at 80 million for obesity. In addition to having weight loss attributes, Belviq has shown success as a treatment for smoking cessation and controlling Type 2 diabetes. These other indications serve to increase the potential of the drug.

In pre-market Arena is up 3% on this news. 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 Orexigen or Vivus