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Summary

  • Sales dip by over 10% as Discount Cards Expire.
  • Television ads should reverse Trends next Week.
  • Near Term Volatility Presents Opportunity For Savvy Traders.

Belviq, the anti-obesity drug from Arena Pharmaceuticals (NASDAQ:ARNA), saw sales fall over 10% last week according to industry tracking services IMS Health and Symphony Health. The dip in sales had many confused, but the reason behind the shift in sales is likely due to a pretty simple marketing mistake made by marketing partner Eisai (OTCPK:ESALY). Ironically, this mistake will likely give active traders some volatility in the equity.

The marketing mistake was a rather simple one in that the original discount cards that were given to consumers for Belviq expired on March 31, 2014. If a patient was not aware that the discount program had been extended, the consumer may not fill the prescription because of price. In fairness to Eisai, the company did try to reach out to consumers about the extension of the program. Had the company not made that attempt, the sales would likely have been down even more than they were.

From an investor's perspective, the fact that this happened is unfortunate. However, it is also an opportunity to better understand the equity you are invested in. A few insights:

  • The consumer discount cards work and were being utilized by consumers. This means that they will be utilized again.
  • This past week of sales was the first week of the impact, given that scripts are filled at least a month at a time means that there will be a couple of more weeks where this dynamic carries some sort of impact.
  • Price point is important to consumers. Clearly there was a noticeable fall off in scripts when consumers felt that they had to pay the full price. This points to a continued need for Eisai to get more and better insurance coverage for Belviq.
  • Eisai needs to find a method to get its message out better to existing patients. The arrival of advertising may help.
  • The stock may well take a hit on the sales dip. Now that you know why you have an advantage.
  • The stock may well see a nice pop up that will now be over exaggerated because the problem will indeed be rectified and next week's numbers will mark the first time that television advertising will show its impact.

Speaking of television ads, there are a few things to cover on that subject prior to getting to the weekly sales figures. The television ads began running on April 14th. At 6 days in, the 2 minute ad "Willpower" has aired approximately 259 times. That represents about 45 ads per day being aired. The ad has thus far run mostly on cable networks and has not yet been shown on higher rated networks. It is estimated that each airing of the ad is costing between $1,000 and $3,000. On average I would estimate that Eisai is spending about $2,000 per airing. Essentially, the company has dedicated over $500,000 on advertising in the first week.

We can see that the ad is providing traction on the web by tracking trends on sites such as Google Trends. There are a few things to note when looking at Google Trends. The site allows you to apply settings to the search. Because Belviq is available in the United States only at this point, the filter should be set for the United States and not worldwide. I like to filter the chart down to the last 12 months to assess what the current trends are with a subject.

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Chart Source - Google Trends

You can see from the Google Trends chart above that web searches for the term "Belviq" have reached the highest point since the launch. In fact, the most recent week represents the highest level of interest in Belviq that has existed to date. Clearly this demonstrates that the television ads are engaging consumers to a point of expressing an interest in the product. The next step is seeing how well the conversions go. Getting interest up is the first step. Converting the potential patients to actual consumers of the drug is the next step. As yet, the website associated with the ad, startbelviqnow.com, is not showing enough traction to show data on industry website tracking sites. The website in the ad is actually a redirect to the main site (belviq.com). A redirect is often used to gauge the traffic a specific source (a television ad) generates. The Google trends chart above looks good and shows promise. Now let's assess Belviq against a few other key terms in the sector.

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Chart Source - Google Trends

As you can see in the chart above, competitor Vivus (NASDAQ:VVUS) with Qsymia has typically enjoyed more awareness than Belviq. This changed with the arrival of a Belviq television ad. Bear in mind that the spike we saw in Google Trends will settle down a bit as the "newness" of the ad wears off.

(click to enlarge)

Chart Source - Google Trends

In looking at the overall sector in the chart above we can see that both Belviq and Qsymia are relatively unheard of thus far. That is both good and bad. It is good because it means that there are a lot of potential people out there to find for these drugs. It is bad in that Belviq and Qsymia have been around for quite some time now and still have not managed to really develop any meaningful brand awareness. You can see that even the impressive spike we saw from Belviq this past week is a mere blip on a chart of weigh loss overall.

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Chart Source - Google Trends

By adding the term Weight Watchers, we can see the area where Arena and Eisai want to be within this sector. The chart above shows that last week web searches for Weight Watchers was about 10 times higher than for Belviq or Qsymia. The lesson here is simple. If you want to be naive but impressed, stick to the pretty chart that shows simply Belviq sales. If you want to see the bigger story and the bigger picture, look at Belviq against where you want to be and against a competitor that has already established a place in the market.

Moving on to sales tells us the near term story with Belviq sales and outlines potential opportunities in the equity for savvy investors. Sales this week were down over 10% according to both IMS Health and Symphony Health. My adjusted IMS Health sales were just under 7,200 while Symphony Health showed sales as being just above 8,000. This is a pretty steep decline at a point in time where we should be seeing growth. The fact of the matter is that the television ads discussed above were very much needed. Prior to the dip we saw this week, the growth over the past month had already been more modest (flatter) than the month prior. The chart below shows the clear dip in scripts.

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Chart Source - Spencer Osborne

Overall Sales in 2014 look to be tracking well against the $100 million "guidance" of Arena and the $150 million I have been outlining as the likely pace for the year. My adjusted IMS health tracking shows that current sales are on pace for $100 million, while Symphony Health is tracking with the $150 million line. As the television ad campaign takes hold, I anticipate that the IMS numbers will reach toward $150 million and the Symphony will reach toward $175 million.

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Source of Charts - Spencer Osborne

On a quarter over quarter basis, Belviq sales in Q2 are tracking about 59% better than Q1. With the addition of advertising in Q2, investors should expect to see some pronounced sales numbers starting to happen. The essential story here is that the growth potential is materializing and coming into better focus. As I have stated in the past, the street is just now grasping the concept that Belviq may sell $150 million this year. That can provide upside potential in the stock from current levels. In my opinion a concrete signal that $150 million in sales can happen may propel this equity toward $10 per share as a new bas instead of the $6.50 base we have been looking at over the past couple of months.

Chart Source - Spencer Osborne

In looking at the revenue story we can see the potential of what gross sales are, what net sales are, and the perspective level of revenue share that arena itself will realize. Please bear in mind that these estimates are based on sales to consumers and not sales at the wholesale level.

Chart Source - Spencer Osborne

Bringing all of this together, we have some very real near term catalysts. The sales dip can create a near term hit to the stock, while the television ads should provide a pretty immediate pop in the stock once they become part of the sales numbers. It is important to note that the most recent numbers do not include the time-frame in which television ads were on air. The numbers reported this Friday will be inclusive of the date where television advertising started. In the longer term, the fact that sales will be over $100 million and on a path to $150 million should begin to come into focus more. As this happens, the stock price can stabilize and even grow. The key is to keep expectation real and understand what the street is looking for. Stay Tuned!

Source: Arena Pharmaceuticals' Belviq Sales Dip - Why?

Additional disclosure: I have no position in Eisai or Vivus