Arena Pharmaceuticals (NASDAQ:ARNA) reported its Q1 earnings after hours today and missed the street's expectations by two cents. The company lost 12 cents per share vs. expectations of a ten cent loss. The company had revenue of $6.8 million while the street was expecting revenue of almost $8 million. The cost side of the equation was over $30 million. Overall, the company posted a loss of $23.5 million.
The flagship product of the company, Belviq, brought in $2.882 million. This is what I had projected the quarter to deliver. In looking at the quarterly sales of Belviq, some interesting tid-bits come to light:
- Overall product revenue was $2.882 million vs. my estimate of $2.9 million.
- IMS Health calculated sales at 77,000. This would imply that revenue per sale was $37.43
- I adjust IMS Health Sales upward by 10%. Using my adjustment on IMS, the revenue per sale would be $34.02
- Symphony had sales at 95,000. This would imply revenue per bottle at $30.34.
- Some investors feel that a 20% upward adjustment is appropriate for the Symphony numbers (I thoroughly disagree). For those that feel such an adjustment is needed, the average revenue per sale would be $25.28.
Given that my calculations had pretty much pegged the revenue dead on, I am more than comfortable with the status of a 10% upward adjustment to IMS and leaving Symphony numbers unadjusted.
The company call today carried a substantial focus on Belviq. While the progress in sales, insurance coverage, and awareness have been substantial, the revenues delivered seem to be falling short of street expectations. The good news is that Q2 sales are substantially higher than what we had in Q1. Thus far in Q2 I estimate revenue to be at nearly $1.4 million at 5 weeks into the quarter.
This quarter represented the first quarter in which the Arena investment in Taigen was disclosed. That investment is about 4% of the company and carried a value of $53 million. This makes the cash, cash equivalents, and securities available for sale at about $256 million.
Arena did announce that it is expecting results on current studies regarding smoking cessation and use with phentermine to be available by the end of the year. This was offset by the lack of transparency on the "refill rate" of patients on Belviq. The company also outlined that pipeline studies will be progressing during this year as well. Overall, the quarter was pretty much a discussion of progress that has not yet measured up to the types of numbers that impress the street.
The key for Arena at this point seems to be hitting a higher and higher note on Belviq sales. The current pace seems to be somewhere between $125 million and 4150 million. For longs, the saving grace is the compounding growth should generate bigger sales and more impressive numbers as the year progresses. Overall Arena was upbeat on the call, but did not take the step of commanding the sector. The company also seems to be less transparent than the street would like to see. The question about the length of time patients stay on the drug seemed to be dodged. Dodging a question means that listeners will assume the worst. The data on refills has been much flatter than new scripts. The data does miss some that are filling a new script (Patients can get three refills in one script and then be counted as new again because of a new piece of paper) are actually refills, but still the trajectory on refills is flatter with both IMS and Symphony. Given that the question was asked and not really answered, this will become a focal point for analysts as time progresses.
The equity will certainly recover from this dip. Sales will keep increasing, insurance coverage will increase, and study results will progress. As an example of what to look forward to, script sales are currently 51% better than last quarter and could be as much as 75% better by the end of the quarter. The Arena story is finally taking shape, but it will be a while before the street appreciates it. The bottom line is that sales need to pace to $150 million in 2014. 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.