Opportunities like this do not come around very often. Arena Pharmaceuticals (NASDAQ:ARNA) is in a very enviable position. It will be hosting its quarterly conference call in less than a week and the Street is just now digesting the quarterly call of competitor Vivus (NASDAQ:VVUS). Vivus is up over 10% on its results, and while the excitement about Vivus may lean more toward its erectile dysfunction drug Stendra than its anti-obesity drug Qsymia, the fact remains that the company focus has always been in the anti-obesity space.
In its quarterly call, Vivus disclosed that the quarter over quarter sales of Qsymia dropped from 124,000 scripts in Q4 to 121,000 scripts in Q1. This bit of information could set up Arena for an impressive quarterly call if the company frames its discussion about its own anti-obesity drug, Belviq, in the right way. In the past neither Vivus, nor Arena has taken the bold step to really address the competitive nature of the companies, but now may be exactly the right time to do so.
- Vivus saw a quarter over quarter decline of Qsymia sales of 2.5% compared to a gain of 33% for Arena's Belviq
- Qsymia is losing market share while Belviq is gaining market share.
- Awareness of Belviq is increasing.
- Awareness of Belviq vs. its competitors is rising.
- Belviq sales are pacing for a greater sequential sales improvement in Q2 than it had in Q1.
- Sequential sales improvement in Q1 was 33%. The pace in Q2 is nearly 50%
- Belviq can have 50% of the new anti-obesity prescription drug market by its 1-year anniversary of launch.
One reason that Arena can be a bit more aggressive in this pending earnings call is that the company currently has a television advertising campaign in full swing, something that its competitor Vivus has not done and by all indications is not even considering. One reason that Arena should be more aggressive is that a new competitor, Orexigen (NASDAQ:OREX), is in hopes of bringing its anti-obesity drug, Contrave, to the market if it can obtain FDA approval a month from now. Vivus and Qsymia were first to market, but Arena and Belviq can now set the bar and become the standard of comparison.
Essentially the market leadership position of new anti-obesity drugs is up for grabs and Arena, very justifiably, can lay claim to it with this quarterly call if it desires. A leadership position in this segment is important to Arena because at this time, the company has one drug on the market. There is pipeline potential, but much of that is well beyond a year away.
In the past, Arena and its marketing partner Eisai have perhaps been too aggressive with some projections. Their respective assessment of the market potential and the rate at which sales would grow was well off of the mark. Things are different now. The aggressiveness I outlined above is all very real and measurable. The potential in the space may still have questions about the size and timing, but the leadership role in the space can and should be claimed right now.
Prior to the Vivus call, I was of the opinion that the Arena call would be good but not great. My main worries were that there has been little news on the approval front in other countries and that sales in Q1 would not give certainty to the Street that Belviq can be a revenue driver for the company. It is not that growth is not happening, it has simply been a matter of envisioning the overall year. The fourth quarter of 2013 delivered $2.4 million in product sales revenue. With a 33% improvement, Q1 could deliver between $3.1 and $3.4 million in net product sales. In the scope of annualized revenue, this number is not yet very impressive. Numbers like $5 million and $10 million carry more weight. Those numbers will happen, but that is why I have always seen the Arena story being a second half of the year story. The Vivus call, and if Arena seizes this opportunity, could provide a near-term catalyst in the form of a vision that the Street can understand.
Many investors always get a bit nervous around conference calls. That caution is warranted. When Arena was closer to the $5s, I termed it as a solid buy and even added to my stake. The recent run is nice, and there is a real potential that it can carry forward. The volume in the past two sessions has been lighter than normal, but the equity seems to be holding gains. This week's script numbers should present another positive jump, meaning that we could go into the call on a very good note.
What I see is this. Continued gains if the company seizes the opportunity it now has. If Arena takes that leadership role, we may well see the type of volume that sets a new foundation for the company.
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 Vivus or Orexigen