Arena Pharmaceuticals' (ARNA) CEO Jack Lief on Q1 2014 Results - Earnings Call Transcript

May.12.14 | About: Arena Pharmaceuticals, (ARNA)

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)

Q1 2014 Results Earnings Conference Call

May 12, 2014 05:00 PM ET

Executives

Robert Hoffman - Chief Financial Officer

Jack Lief - President and CEO

Craig Audet - SVP of Operations and Head of Global Regulatory Affairs

Bill Shanahan - Chief Medical Officer

Analysts

Bob Ai - Wallach Beth

Shaunak Deepak - Jefferies

Matt Lowe - J. P. Morgan

Ted Tenthoff - Piper Jaffray

Scott Marx - Samlyn Capital

Operator

Good day everyone, and welcome to Arena Pharmaceuticals’ First Quarter 2014 Financial Results Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Arena’s Chief Financial Officer, Mr. Robert Hoffman. Mr. Hoffman, please go ahead.

Robert Hoffman

Thanks, John. Thank you for joining us. I am Robert Hoffman, Arena’s Chief Financial Officer. We hope that you have had a chance to review the news release we issued earlier this afternoon and included the summary of certain corporate events, in our financial results for the first quarter of 2014.

Joining us on today’s call with prepared remarks will be Jack Lief, our President and Chief Executive Officer; and Craig Audet, our Senior Vice President of Operations and Head of Global Regulatory Affairs; Dominic Behan, our Chief Scientific Officer; and Bill Shanahan, our Chief Medical Officer, are also available to address your question.

During this call, we will make forward-looking and other statements about our goals, plans, expectations, and future activities and events, including statements about BELVIQ and our drug candidates, including with regards to efficacy, safety, R&D, advancement potential, regulatory applications and collaborations; commercialization of BELVIQ, including with regard to product supply marketing the salesforce, physician and patient awareness, marketplace adoption and reimbursement; financial results, conditions, and guidance, and other statements that are not historical facts.

Such statements may include the words, plan, expect, believe, may, will, can or similar words. You are cautioned to not place undue reliance on these forward-looking statements, which represent our judgment and beliefs only as of the time they are made. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995.

Risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements include the timing, results and cost of manufacturing, commercialization and R&D; the regulatory process and decisions; data and other information related to drugs and drug candidates may not be as expected, favorable, or sufficient for further development or commercialization; activities and results related to our collaborations and our entry into additional collaborations; and other risks identified in today's financial results press release as well as our SEC filings.

I will now turn the call over to Jack.

Jack Lief

Good afternoon, and thanks for joining us today. On our last conference call, we outlined our key priorities for this year and during the first quarter we focused on implementing these initiatives. This year is off to a productive start with significant new marketing initiatives for BELVIQ, for chronic weight management, the advancement of our lorcaserin life-cycle management programs and the development of our internally discovered pipeline.

I’d like to begin today's call by highlighting that on Friday, Eisai announced they will further expand the BELVIQ salesforce. Eisai plans to increase the salesforce by 200 representatives for a total of approximately 600 sales representatives focused exclusively on educating physicians on the efficacy and safety profile of BELVIQ. This increase is an addition to the 200 BELVIQ sales representatives Eisai added around the end of last year.

I'm also pleased to report that Eisai's continued work to expand reimbursement has resulted in additional insurance coverage for BELVIQ. According to Fingertip Formulary, the number of insured commercial lives in the United States with access to BELVIQ is now estimated to exceed 60%. Eisai is targeting 70% coverage by the end of 2014 fiscal year.

In the first quarter of 2014, approximately 77,000 BELVIQ prescriptions were filled, which represents a significant increase of 31% over the previous quarter. Nearly 30,000 healthcare practitioners have prescribed BELVIQ since launch. With the recent implementation of television advertising, the increases in the BELVIQ’s sales force 600 representatives and additional insurance coverage, we believe the BELVIQ is well positioned to continue the upward trend in physician and patient adoption.

On today's call, Craig will provide an update on Eisai's commercial activities and our development program progress. Robert will review our financial results for the first quarter and I will close with the review of our upcoming development before opening call to your questions. Craig?

Craig Audet

Thanks Jack. Eisai continues to increase its investment in commitment to key strategic areas in order to expand awareness and adoption of BELVIQ. In addition, significant increase in sales force assets which are expected to nearly quadrupled physician coverage since launch. Eisai continues to utilize other avenues to increase physicians’ awareness and education. These activities include BELVIQ’s [speak of your own], national webcasts, regional and national meeting and conventions.

From launch to the end of April, approximately 13,000 physicians have been directly engaged through such educational programs. On the patient fund, Eisai is focusing on increasing awareness and call to action through various campaigns. The most significant of these is the national direct-to-consumer television advertising campaign for BELVIQ that Eisai initiated in mid-April. The advertisement is designed to encourage a productive dialogue between patients and their physicians and specifically whether BELVIQ is right for them as part of a weight management program. The commercial is aired over a thousand times on 45 networks such as Lifetime, Oxygen and AMC.

In addition, Eisai continues to invest in print advertisements in major magazines such as people, Sports Illustrated, Oprah, and Cooking Light. Eisai’s marketing efforts have thus far translated in a quarterly BELVIQ prescription growth and we expect that the newly launched initiatives will further add to that growth.

Beyond the branded campaign, last week Eisai launched an interacted and motivational non-branded campaign called My Healthy which focuses on health gain through weight loss. The campaign encourages realistic goal setting for those who are affected by obesity (inaudible) talking ultimately with a doctor about weight and health, making healthy food choices and being more active.

With regard to our lorcaserin and life-cycle management opportunities we’ve made significant progress. We and Eisai are evaluating lorcaserin as an aid for smoking cessation, exploring the safety of co-administration of lorcaserin and phentermine and developing a once daily extended release formulation. In addition, we are investing BELVIQ’s impact on diabetes and cardiovascular outcomes.

In March, we initiated dosing in a 12 week Phase 2 clinical trial that will enroll approximately 600 active smokers to evaluate lorcaserin as an aid to smoking cessation. I am happy to report that the study is more than 50% enrolled and we expect to have results for this study around the end of the year. I am also happy to report that Eisai has completed enrolling the lorcaserin and phentermine co-administration study. We also expect to have results of this 12-week pilot study around the end of the year.

With respect to our development plans for our once daily 20 milligram extended relief tablet, we plan to initiate studies with our chosen formulation around the third quarter of this year with results expected by early second quarter of next year.

Lastly, Eisai has initiated enrollment in the cardiovascular outcomes trial CAMELIA which will evaluate the lorcaserin’s effect on the incidence of major adverse cardiovascular events or MACE compared to placebo. CAMELIA will evaluate whether lorcaserin reduces the incidence of conversion to type 2 diabetes and MACE plus.

Beyond lorcaserin, we have also made good progress in the first quarter advancing our internally discovered compounds that target GPCRs. Our goal is to deliver additional unique medicines for unmet medical needs. These compounds include APD811, APD334, Temanogrel and APD371.

With regard to APD811 our non-prostanoid prostacyclin agonist intended for the treatment of pulmonary arterial hypertension, we have been focused on completing the proprietary work required to initiate our Phase 2 trial. We plan to begin this trial around mid-year. In addition, we are preparing to initiate a Phase 1 multiple ascending dose trial for APD344, our S1P1 receptor agonist intended for the treatment of autoimmune diseases. This trial is also planned to begin around mid-year.

We are collaborating with Ildong on the development of a Phase 1 program for Temanogrel, an inverse agonist of the serotonin 2A receptor intended for the treatment of thrombotic diseases. And lastly, we are continuing our Phase 1 single ascending dose trial of APD371, an agonist of the cannabinoid 2 receptor intended for the treatment of pain.

In summary, we have made significant progress advancing lorcaserin program as well as our early stage compounds in our pipeline. With regard to BELVIQ, we are pleased with Eisai’s commitment to and investment in the brand. We look forward to continued prescription growth as well as positive feedback from patients and physicians as the new launch initiatives take place.

Robert will now review our financials.

Robert Hoffman

Thanks, Craig. I’ll focus my comments and highlight the financial performance for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013. For the following financial results, 2014 will refer to three months ended March 31, 2014, and 2013 will refer to three months ended March 31, 2013.

For 2014, we recorded revenues of $6.8 million compared to $2.4 million for 2013. 2014 revenues included $2.9 million from net product sales of BELVIQ, $2 million from amortization of upfront payment, 900,000 reimbursements from Eisai for development and patent and trademark expenses, and a milestone payment of $500,000 earned in connection with Eisai’s application for regulatory approval of BELVIQ in Brazil. Of the $2.9 million from net product sales of BELVIQ, $2.7 million represented 31.5% of Eisai’s net product sales which were $8.4 million and 200,000 related to redemptions of the 15 day free vouchers. We and Eisai currently recognize net product sales revenue when Eisai ships products to its wholesalers.

During the quarter ended March 31, 2014, Eisai shipped approximately 73,000 bottles of BELVIQ. Due to the utilization of Eisai voucher and savings program, the gross to net production for the quarter was approximately 42%.

Cost of product sales of BELVIQ totaled $800,000 for 2014. We recorded $500,000 for 2013 which reflected the unused capacity cost for one month in which no BELVIQ manufacturing was performed.

Research and development expenses for 2014 increased to $21 million from $14 million for 2013. The increase is primarily attributable to external clinical and preclinical study fees and expenses including manufacturing costs and personnel costs. R&D expenses for 2014 included $1.7 million in non cash share-based compensation expense compared to $700,000 for 2013.

General and administrative expenses totaled $8 million for 2014 compared to $7.3 million for 2013. The increase is primarily related to personnel costs. G&A expenses for 2014 included $1.4 million in noncash share-based compensation expense compared to $1 million for 2013. Net loss was $25.3 million for 2014 or a loss of $0.12 per share on a fully diluted basis compared to a net loss of $80.9 million for 2013 or a loss of $0.09 per share fully diluted. Cash, cash equivalents, and short term investments totaled $256.5 million at March 31, 2014. At March 31, 2014 we had approximately $219.5 million common shares outstanding.

I’ll now turn the call back over to Jack.

Jack Lief

Thanks Robert. As we have discussed on today's call, we continue to move our key priorities forward. Eisai has intensified efforts to educate patients and physicians about BELVIQ. We continue to advanced our lorcaserin life-cycle management opportunities and make progress in the development of a novel pipeline.

We look forward to the following developments this year. Continued BELVIQ prescription growth, getting further reinvestment coverage for BELVIQ, completing lorcaserin’s Phase 2 smoking cessation trial and the lorcaserin phentermine co-administration pilot study, initiating a Phase 2 trial for APD811, progressing Phase 1 development of APD334 and APD371, furthering the advance of Temanogrel with Ildong and updating you on the progress of our other clinical programs a appropriate.

We see an extraordinary amount of opportunity this year, as well as in the long-term and remain committed to our vision of leading the industry in the discovery, development and commercialization of GPCR-directed medicines.

We'll now open the call to your questions. John?

Question-and-Answer Session

Operator

Okay. (Operator Instructions). And our first question comes from Bob Ai from Wallach Beth. Bob, please go ahead.

Bob Ai - Wallach Beth

Hi, thank you for taking my call. My question, first of all did you disclose what’s the [ASG]?

Jack Lief

Robert, we didn’t disclose that but if you take the wholesale acquisition cost of 199.50 and the gross to net discounts 42%, that roughly gets you to a selling price of $116.

Bob Ai - Wallach Beth

Okay. That’s great. Can you talk about the independent study, sponsored the study of lorcaserin for weight loss management in patients on antipsychotic?

Jack Lief

So on antipsychotics with BELVIQ, what specifically you have in mind, we’re not sponsoring this.

Bob Ai - Wallach Beth

I’ve seen on committed trials that got…

Jack Lief

No there is a report about two cases on people which was done by an independent investigator, but he reported on some beneficial effects in fewer individuals who were taking a typical antipsychotic in terms of their weight, but we’re not sponsoring any trials at the present.

Robert Hoffman

Not yet, yes.

Jack Lief

It’s an investigator sponsor trial.

Bob Ai - Wallach Beth

Okay, yes. I am not sure. Do I have the time to ask another question?

Jack Lief

Sure, go ahead.

Bob Ai - Wallach Beth

On the smoking cessation study, let’s just assume I mean if the result is absolute good or bad either to know what’s going to happen. But if somewhat the result, somewhere in between like say, do you have something fixed rate another grade, but it also reduced I mean the people who are on the drug that lost weight or at least not gain weight versus that people on placebo that have gained weight. Would that make sense to continue to further study or maybe even in combination with some existing anti-smoking methodology so that you can get better fix and have with better weight control?

Jack Lief

Sure. We are focus on improving human health by bringing innovative medicines targeting GPCRs. With the smoking study, we find, at least in our market research that a lot of people who want to stop smoking are reluctant to try to do that because they are afraid of gaining weight. So as you correctly pointed out, there is an opportunity to benefit patients at a number of different areas both in the area of weight gain, as well as helping them stop smoking and we’ll see how that works out.

Bob Ai - Wallach Beth

I mean if the trial show that the drug does not help people quit smoking very much, but it helps them not gaining weight, I mean lose some weight, at least not gain weight. Would that be a primary endpoint, a primary study endpoint that you can go on for the larger study?

Jack Lief

Bob we get this question a lot; do we need to be -- in terms of efficacy. The way we look at it, there is a great deal of interest in new treatment options in this area and so physicians have a choice of match the patients profile. We think that could take the form of enhanced efficacy, enhanced safety or perhaps both. So we are looking at it that way, but until we get the results, we can’t really comment any further.

Bob Ai - Wallach Beth

Okay, all right. Thank you.

Operator

Okay thank you. And our next question is coming from Shaunak Deepak from Jefferies. Sir, please go ahead with your question.

Shaunak Deepak - Jefferies

Hi guys, thanks for taking my questions. Just want to find out if you had any current feedback on the average [production BELVIQ] use?

Jack Lief

So Eisai is looking at that, they have the preliminary data from early in the launch. As you know, it takes at least six months before you can really start looking at this. So, we don’t really want to quote numbers at this point, it is very preliminary, very early data. We are really looking or hoping to get data from this year. We think it will be much more representative of what we are seeing out there.

Shaunak Deepak - Jefferies

All right, then just in terms of like the expectations you have around the increased sales force like how much more coverage will you have forward for all prescribers?

Jack Lief

Well, you know they are currently calling on about 65,000 physicians and with the extra 200 sales representatives that brings up to 90,000 physicians. So in terms of looking at the majority of the market, I think that those 600 sales representatives are addressing the market very nicely.

Keep in mind that I think Eisai was looking at three key areas; physician education, reimbursement and patient awareness. And now that patient awareness is being addressed by both print, as well as TV ads, reimbursement is now north of 60%. It was appropriate for any item moved into their field force expansion opportunity, so we will see how that goes and I think Eisai is monitoring all three of these areas very closely.

Shaunak Deepak - Jefferies

Okay. I will get back in the queue. Thanks.

Operator

Okay. Thank you. And our next question comes from Cory Kasimov from J.P. Morgan. Cory, please go ahead.

Matt Lowe - J. P. Morgan

Hi guys. It's actually Matt Lowe in for Cory today. Just one query, what you expect the impact of the extra sales reps to be presumably you’ve hit the majority of the high prescribers at this point so maybe if you could talk about why do you expect the impact of the additional 200 reps would be? And then how many more reps could Eisai potentially add to the 600 going forward? Thank you.

Jack Lief

Well, taking the last part of the question first, I don't want to speculate on if or when Eisai plan to further increase from the 600, but they felt that it was appropriate now to begin that expansion to 600. Eisai as you know wants to look at the marketing very carefully and make sure that physicians are educated in the appropriate news of BELVIQ including the appropriate patients and certainly with reimbursement and patient awareness I think that that contributes to that.

It's hard to say exactly how many more prescriptions are going to be coming from additional sales representatives versus the TV advertising versus the reimbursement, versus the print ads, versus the online media. So, we'll just have to monitor that.

Matt Lowe - J. P. Morgan

Okay. Thank you. And then let me just a close follow-up on the combo data towards year-end. I guess could you help kind of frame expectations or maybe what you are looking to see in that study to go forward with that combination; I understand it's primarily a safety study. But mainly what you're primarily looking to see in terms of both safety and efficacy to kind of move that program forward? Thank you.

Craig Audet

Well, what we've always said in terms of the combo study is that it’s a pilot study. And as you said, the primary endpoint is safety; there is secondary endpoint for efficacy. Really what we're looking here is safety of the combination and that's going to help inform further development and our discussions with the FDA, should we decide to take it forward. So that's really where we're at this point.

Matt Lowe - J. P. Morgan

Okay, Craig. Thank you.

Craig Audet

Sure.

Operator

Thank you. And our next question comes from Steve Byrne from Bank of America Merrill Lynch. Steve, please go ahead.

Unidentified Analyst

Hi, this is [Sarah] on for Steve, thanks for taking the question. So after your scripts, could you please tell what percent were free discount rates with reimbursement paid?

Robert Hoffman

We haven't disclosed that this quarter?

Unidentified Analyst

Okay. And then, so your reimbursement levels are reaching 60%. I guess what percent of redeemed scripts are covered by insurance?

Robert Hoffman

We haven't disclosed that information either.

Unidentified Analyst

Okay. And then I guess with the sales force expansion, is this driven to reach new geographies or new specialties of combination of both?

Craig Audet

So Sarah, as Jack mentioned, what this does is increases their reach from that of about 65 physicians -- 65,000 about 90,000 physicians. They're going to continue to target primary care endos, cardiovascular specialists, gastrointestinal specialists, so just given the broader reach. As you can imagine, if they're doing direct-to-consumer television ad and physicians aren’t well informed about BELVIQ and the patient goes and ask for it, but the physician won’t know. So they need to get out there and make sure that physicians are well educated.

Craig Audet

We get calls from physicians, calls, emails saying hey, can you have a sales rep call on the --interested in this. And with the additional sales force, I think we’ll have fewer and fewer of those situations.

Unidentified Analyst

Okay. Thank you.

Operator

Okay, thank you. And our next question comes from Ted Tenthoff from Piper Jaffray. So Ted please go ahead. Ted, you may want to check your mute button in case you’ve muted your phone.

Ted Tenthoff - Piper Jaffray

Great, thanks very much. So, question on the fixed dose combo you mentioned. Can you tell us a little bit more about that?

Craig Audet

So, the study is evaluating. So, the study is evaluating BELVIQ alone versus BELVIQ plus 15 milligrams of phentermine versus BELVIQ and 30 milligrams of phentermine. And so, as we’ve said, it’s primarily designed as a safety study to inform what the best doses are going to be moving forward in the future.

Ted Tenthoff - Piper Jaffray

And is that underway or when do you expect to start that?

Craig Audet

Yes. So, it’s fully enrolled. Bill, do you want to…

Bill Shanahan

It’s fully enrolled and we expect results by the end of the year.

Ted Tenthoff - Piper Jaffray

From the fixed dose combo, okay excellent.

Bill Shanahan

Yes…

Ted Tenthoff - Piper Jaffray

Are you -- I am sorry. And then are you considering other potential combination such as metformin or are we going to kind of see how this comes in and see what that leads us?

Jack Lief

There is lots of potential combinations that one could imagine but we have to prioritize. A0nd so what you’re seeing right now is the results of that initial prioritization. And that’s based on the questions that we are being asked by physicians also. So we will be looking at other combinations as well. As Bill just mentioned, the two patients that were reported on who were on atypical antipsychotics and so on and so forth.

Ted Tenthoff - Piper Jaffray

Okay, excellent. Thank you very much.

Operator

Thank you. And our next question is from Scott Marx from Samlyn Capital. Scott please go ahead.

Scott Marx - Samlyn Capital

Hey guys. I just had a quick question for you. If you multiply, and you know I ask this ASP question every quarter, so I get confused a lot. But if you multiply the ASP times of bottles sold, you get to the revenue? That’s right. And…

Robert Hoffman

Correct.

Scott Marx - Samlyn Capital

So if the ASP is in average sales per script and the bottle is a bottle but a lot of the scripts are half bottles, how do you get to the ASP per script?

Robert Hoffman

Well, so I guess it totally gets different. I view the bottles shipped related to revenue, I don’t calculate it for the script. So…

Scott Marx - Samlyn Capital

So, ASPs are the average selling price per scripts?

Robert Hoffman

Well it’s not per script it’s per bottle that we sold to distributors.

Jack Lief

The bottles are all 60s and if there is a voucher for 15 days then the patient would only receive 30. So the drugs [dose] break the bottle...

Scott Marx - Samlyn Capital

Okay. But that wouldn’t count, they would be -- okay. But if someone wrote a $15 or 15 day script, that wouldn’t -- that would just be half priced, half a script in your mind.

Robert Hoffman

Yes again, I view it as [bottle] against the script.

Scott Marx - Samlyn Capital

Okay perfect, thanks guys.

Robert Hoffman

Sure.

Operator

Okay, thank you. And at this time Q&A session has ended. So I would like to call turn the call back to Craig Audet for any closing remarks.

Craig Audet

So before we close, we want to note that we and Eisai will be featuring BELVIQ at the American Diabetes Association’s Scientific Sessions in June. We’ll have three aspects that highlighting data from our Phase 3 program that have been accepted for presentation. Eisai will have a booth featuring BELVIQ. They are going to host a product theatre and sponsor some symposium. So thanks again for joining us today and for your continued support.

Operator

Okay ladies and gentlemen, this does conclude your conference. You may now disconnect. And have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!