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Executives

Robert Hoffman - Vice President of Finance and Chief Financial Officer

Jack Lief - Chairman, President and Chief Executive Officer

William Shanahan - Vice President and Chief Medical Officer

Analysts

Alan Carr - Needham

Cory Kasimov - JP Morgan

Thomas Wei - Piper Jaffray

Bret Holley - Oppenheimer

Ruthanne Roussel - Robins Group

Carol Werther - Summer Street Research

Jim Birchenough - Lehman

Arena Pharmaceuticals, Inc. (ARNA) Q1 2008 Earnings Call May 7, 2008 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Arena Pharmaceuticals Earnings Conference Call. My name is Eric. I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator Instructions).

I would now like to turn your presentation over to Mr. Robert Hoffman, Vice President of Finance and Chief Financial Officer. Please proceed, sir.

Robert Hoffman - Vice President of Finance and Chief Financial Officer

Thanks, Eric. Good afternoon and welcome to Arena Pharmaceuticals’ first quarter 2008 earnings conference call. I’m Robert Hoffman, Arena’s Vice President of Finance and Chief Financial Officer. I will briefly review our financial results for the first quarter ended March 31, 2008 and then turn the call over to Jack Lief, our President and CEO for corporate update.

Before I begin, I’d like to point out that we will be making numerous forward-looking statements during this conference call. Such forward-looking statements include statements about our clinical trials and results, internal and partnered programs, drug candidate pipeline, financial guidance, assumptions, strategy, technologies and other statements that are not historical facts. Such statements may include the words "plan," "will," "believe," "expect," "promise," "potential," "intend," or similar words. You are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and reflect the company’s beliefs, expectations and assumptions based on currently available operating, financial and competitive information and speak only as of the time they are made.

Risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements include the timing and outcome of clinical trials, preclinical studies and research activities, the regulatory process, the timing and outcome of our partnership efforts, our ability to obtain additional financing from collaborators and investors, whether our assumptions prove to be correct and other risk identified in our SEC reports.

For a discussion of these and other factors, please refer to our risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2007, as well as other subsequent filings with the Securities and Exchange Commission. For forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995.

In the first quarter of 2008, we recorded revenues of approximately 2.6 million compared to the first quarter of 2007 revenues of approximately 4.9 million. First quarter 2008 revenues included 2 million in contract manufacturing revenue under our contract manufacturing agreement with Siegfried and 600,000 for patent activities from our collaborations with Ortho-McNeil and Merck.

All of our revenues in the first quarter of 2007 were from our collaborations with Ortho-McNeil and Merck and included 2.5 million in amortization and milestone achievements in technology and access development fees, 1.8 million of research funding and 600,000 for patent activities.

The research funding portion of our collaborations with both Ortho-McNeil and Merck was completed in the fourth quarter of 2007 and therefore no revenues from amortization of previously achieved milestones technology and access and development fees or research funding will be recognized in 2008 and thereafter from these collaborations.

We are still eligible to receive future milestones and royalties on sales under both collaborations. Under the Merck collaboration we may receive additional milestone payments of up to 28 million for Merck’s clinical and marketing achievements, as well as royalty payments associated with Merck’s commercialization of any products discovered under the agreement.

Under our collaboration with Ortho-McNeil, we are eligible to receive a total of 295 million of milestone payments for each compound, as well as royalty payments associated with Ortho-McNeil’s commercialization of any products discovered under the agreement. These milestones include development and approval milestone payments of up to 132.5 million for the first indication and 62.5 for the second indication for each compound and up to 100 million in sales milestone payments for each part resulting from the collaboration.

In the first quarter of 2008, we recorded cost of contract manufacturing of 2.3 million. Cost of contract manufacturing is comprised of direct costs associated with manufacturing drug products for Siegfried under our contract manufacturing agreement including related salaries, other personnel costs and manufacturing depreciation costs. We did not incur any cost of contract manufacturing in the first quarter of 2007 until the agreement with Siegfried was entered into in January 2008.

In the first quarter of 2008 research and development expenses were approximately 47.6 million compared to approximately 35.8 million in the first quarter of 2007. This $11.8 million increase was primarily attributable to an increase in clinical and preclinical study fees and expenses of approximately 9.6 million as we continued the ongoing Phase 3 program of evaluating lorcaserin for the treatment of obesity, initiated a Phase 2 trial of APD125, a drug candidate under investigation for the treatment of insomnia and initiated a Phase 1b trial of APD791, a drug candidate for the treatment and prevention of arterial thromboembolic diseases.

Also contributing the $11.8 million increase in research and development expenses was an increase in personnel cost of 1.5 million due primarily to an increase in the number of US research and development employees from 319 at the end of March 2007 to 353 at the end of March 2008.

Research and development expenses in the first quarter of 2008 included 27 million in external clinical and preclinical study fees and expenses and was comprised of 23.3 million in expenses for lorcaserin, 1.8 million for APD125, 900,000 for APD791 and 1 million on our earlier stage programs including on APD916 are internally discovered oral drug candidate for enhancing alertness. Research and development expenses in the first quarter of both 2008 and 2007 included $1 million in non-cash share-based compensation.

General administrative expenses totaled 8.9 million in the first quarter of 2008 compared to 4.9 million in the first quarter of 2007. This $4 million increase is due primarily to an increase of 1.7 million in patent costs related to our partnered programs in our internal programs in technologies, as well as salary and personnel cost increasing by 1.3 million.

Personnel cost in first quarter of 2008 included a $1.4 million in non-cash share-based compensation expense compared to 900,000 in the first quarter of 2007. To the extent our partners reimburse us for patent costs, the reimbursements are classified as revenues. Such reimbursements totaled 600,000 in the first quarter of both 2008 and 2007. On March 31, 2008, we had 75 general administrative employees compared to 57 at March 31, 2007.

Total non-cash share-based compensation expense was 2.4 million in the first quarter of 2008 compared to 1.9 million for the first quarter of 2007. Net loss allocable to common stockholders was 55 million in the first quarter of 2008 compared to 32.4 million in the first quarter of 2007. The increase in net loss allocable to common stockholders was primarily due to an increase in research and development expenses, general administrative expenses and a decrease in recognized revenues.

Cash, cash equivalents and short-term investments totaled 333.6 million at March 31, 2008 compared to 398.2 million at the start of 2008. We earned 3.4 million in the interest income in the first quarter of 2008. At March 31, 2008, we had 73.8 million shares of common stock outstanding.

For all of 2008, our financial guidance continues to be as follows: 8 to 12 million in revenues, which includes revenue from our manufacturing facility in Switzerland and excludes any potential milestones from existing collaboration that maybe achieved in 2008. This revenue guidance assumes that we do not enter into any new collaborations in 2008.

193 to 209 million in total research and development expenses, this includes 79 to 85 million in internal research and development expenses of which 4 million is for non-cash share-based compensation charges. Total research and development expenses for 2008 also includes 114 to 124 million in external clinical and preclinical study fees and expenses primarily relating clinical trials for lorcaserin, APD125 and APD791. This guidance assumes expenditures for the continuation of our Phase 3 program for lorcaserin, the completion of our Phase 2b clinical trial for APD125 and a completion of our Phase 1b clinical trial for APD 791. Over 75% of our external clinical and preclinical study fees and expenses guidance for 2008 relates to continued development of lorcaserin.

General and administrative expenses for 2008 of 27 to 31 million, which includes 4 million in non-cash share-based compensation charges and also includes patent costs related to our partnered and internal program totaling 6.7 million of which we expect 2.6 million will be reimbursed by our collaborators and therefore have included 2.6 million in our patency revenue in our revenue guidance.

Cash usage for operating activities of 190 to 210 million in capital expenditures totaling 38 to 44 million which includes cash paid in January 2008 for the acquisition of Siegfried of our drug product manufacturing facility and related assets. Capital expenditures also include certain improvements to one of our facilities, 15 million of which we expect to be reimbursed to us in early 2009. Total cash used for operating activities and capital expenditures are therefore projected to be in the range of 228 to 254 million.

We expect to end 2008 with approximately $160 million in cash, cash equivalents, and short-term investments assuming no new collaborations or milestone achievement revenues and that common stock will be issued in connection with the conversion or redemption of outstanding shares of our Series B redeemable convertible deferred stock including any that maybe converted or redeemed on or before Series B1 December 2008 mandatory redemption date.

With the expected year-end cash, cash equivalents and short-term investments of 160 million and the approximately 15 million in reimbursements we expect to receive in early 2009 for leasehold improvements, we believe we have sufficient funding to complete our Phase 3 lorcaserin program and file an NDA in 2009. This projection assumes cash expenditures of 105 million for internal research and development, general and administrative expenses and capital expenditures. And 70 million in external preclinical and clinical study fees and expenses related to the development of lorcaserin. This assumes we’ll continue any trials initiated in 2008, but that we will not initiate any new clinical trials in 2009 for any drug candidate other than a Phase 1 clinical trial for APD 916 for which we to file an IND in late 2008 and expect to start a Phase 1 trail in early 2009. This also assumes that we maintain the same number of employees in 2009, as we expect to have at the end of 2008.

Now, I would like to turn the call over to our President and CEO, Jack Lief.

Jack Lief - Chairman, President and Chief Executive Officer

Thanks, Robert. Good afternoon, everyone and thank you for joining our 2008 first quarter conference call. With the exception of our stock price, I think we have got in 2008 off to an excellent start. Most significantly we reported that based on the month 12 review of the Echocardiographic Safety Monitoring Board, we are continuing BLOOM a two pivotal trial with more than 3,000 patients evaluating the safety and efficacy of lorcaserin for the treatment of obesity, more about this in a moment.

We have also initiated APD125 insomnia, the Phase 2b trial and the Phase 1b trial for APD791 or anti-thrombotic drug candidate. In addition to progress in our independent programs we announced in January progressed with two of our partnered programs. Merck initiated a Phase 1 trial of a second generation, oral niacin receptor agonist discovered by Arena. Also initial clinical trial results of APD668 suggest that targeting the Glucose-Dependent Insulinotropic Receptor, or GDIR, improves glucose control in patients with type 2 diabetes. And you may recall we announced our partner that our partner Ortho-McNeil has advanced potentially more potent Arena-discovered GDIR oral drug candidate into preclinical development.

I am also pleased to announce a new development. The start of the Phase 1 trial of an Arena collaboration compound under our partnership with Taisho Pharmaceutical Company Limited for an undisclosed common psychiatric disorder. Taisho’s progress helps to further demonstrate the value of Arena’s GPCR focused approach in discovering novel compounds.

Turning now to lorcaserin, because the lorcaserin Phase 3 pivotal program is scheduled to complete in 2009, our primary focus this year will remain on the pivotal and supplemental trials and the timely filling of our NDA late next year, as well as exploring potential partnership and commercialization opportunities.

As a quick review we have three ongoing Phase 3 trials, BLOOM a two year trial started in September 2006 and BLOSSOM and BLOOM-DM both one year trials that started last December. As you may recall an important difference between BLOOM and BLOSSOM and BLOOM-DM trials is the absence of any echocardiographic screening requirements in the later two trials.

Echocardiographic was used to exclude patients with FDA-defined valvulopathy, and certain other abnormalities from enrolling into BLOOM trial, because of the favorable ESMB review we propose that exclusion criteria related to echo findings be removed for future trials. Consistent with our proposal the FDA has allowed us to enroll BLOSSOM and BLOOM-DM without such echocardiographically defined exclusion criteria. Also these two trials are not monitored by an independent ESMB. I should also note there are no further planned ESMB reviews for the BLOOM trial.

The month 12 review mark the completion of all ESMB monitoring agreed to with the FDA. Beyond being the last planned review by the ESMB, the 12 months review is significant for a few other reasons. First, it yielded information gathered over twice the exposure period of the previous review. We believe that a 12 month exposure duration even under the most conservative interpretation of the literature should be sufficient to detect a fenfluramine-like effect on heart valves, if present. Second, the primary echo safety endpoint for the pivotal program is based on the month-12 data.

Third, the review confirmed that the rate of FDA defined valvulopathy in the placebo group remains consistent with our statistical powering assumptions used in the design of the Phase 3 trial program to monitor patients for any increased risk of developing valvulopathy.

Clearly, the favorable month-12 review is very meaningful to the continued development of lorcaserin, especially considering that we’ve now evaluated many more patients for 12 months than were ever evaluated in controlled prospective obesity trials assessing heart-valve damage for any period of time that we are aware of.

Our most advanced patients in BLOOM have been enrolled in the trial for over 19 months and will conclude treatment in the September timeframe. Although blinded data by its nature is uncertain and any observations or conclusions made by examining the blinded data may not be reliable or indicative of the unblinded results. Our ongoing review of the blinded data reveals no apparent pattern of events, which we believe impacts the continuation of the trail and approvability of lorcaserin. We will continue to be as transparent as we reasonably can about developments in BLOOM trial, but we are obviously limited by the fact that it is an ongoing blinded pivotal trial.

Enrollment in the BLOSSOM is proceeding well and should complete in about two months. With respect to BLOOM-DM our enrolment rate continues to under perform our initial expectations but, it is not expected to impact next year’s NDA filings.

Based on FDA guidance we believe only two adequate and well controlled pivotal trials are required for submission of the lorcaserin NDA in late 2009. Because of this, we are now planning for the BLOOM-DM trial to be submitted to the FDA as a supplement to our NDA submission. This means that BLOOM and BLOSSOM are expected to constitute our pivotal program, we plan to enroll a total of about 7,000 patients in the BLOOM and BLOSSOM trials. I should add, there are plan conforms to both that 1996 and 2007 draft FDA guidance and will provide the numbers of patients needed to assess safety risks such as FDA valvulopathy.

This plan does not change from our previous financial guidance for 2008 or 2009. With respect to partnering lorcaserin, I plan to find an appropriate partner or partners. I think it would be fair to say that interest has increased since we passed the month-12 ESMB review.

However, while I continue to believe that we are likely to have attractive partnership opportunities I do not want to give the impression that our partnership is imminent or should be expected shortly. There is no rush, and I don’t want to make careless promises since partnering on right terms with the right partner or partners is more important then partnering quickly. We will remain flexible and open to evaluating all options to commercialize lorcaserin ranging from one global partner to individual territorial licenses.

Our next most advanced program after lorcaserin is APD125; an oral drug candidate discovered by Arena and being studied to treat chronic insomnia patients who have difficulty maintaining sleep after initial sleep onset.

Last month we initiated a Phase 2b trial. The Phase 2b of APD125 is a double-blind randomized placebo-controlled subjective study evaluating the efficiency and tolerability of APD125 in patients with primary insomnia characterized by difficulty maintaining sleep. The trial is expected to enroll a total of approximately 675 male and female patients and about 60 clinical sites in the United States and will study two doses, 20 milligrams and 40 milligrams, and placebo over 14 consecutive nights of treatment. The trial will evaluate standard subjective measurements of sleep including change from baseline and number of awakenings after sleep onset, which is the primary end point.

Enrollment in the trial is proceeding inline with our guidance to have results around year end. In the completed Phase 2a trail, the patients treated with APD125 experienced the statistical improvements and objective measures of sleep maintenance including significant reductions in the number of times they woke after falling to sleep and more than a 50% reduction from baseline and time spent to wake during the sleep period. The patients will also experienced an increase in the time spent in deeper sleep with APD125 restoring sleep maintenance with sleep consolidation towards a more normal pattern.

Importantly, these improvements and measurements of sleep maintenance were all achieved without any next day hangover or cognitive impairment. There were also no major differences in reported adverse events compared to placebo and no serious adverse events were reported.

The Phase 2a data was presented today at the American Psychiatric Association meeting by Dr. Russell Rosenberg Founder and Director of the Atlanta School of Sleep Medicine and will be presented at the Associated Professional Sleep Societies’ meeting in June by Dr. Thomas Roth, Director of Henry Ford Hospital Sleep Center. I believe we now have solid proof of concept for APD125 and we are very pleased with its emerging profile.

Based on our understanding of the market and patient needs we continue to believe APD125 has the potential to address the significant unmet need of improving sleep maintenance without the liability of hangover or overdose. Research shows that the majority of patients suffering from insomnia have sleep maintenance complaints and APD125 maybe able to address sleep maintenance complaints in ways not available to current drugs.

I’d now like to discuss our lead anti-thrombotic drug candidate, APD791, a novel orally available inverse agonist of the 5-HT2A serotonin receptor that we discovered. APD791 is currently being evaluated in a Phase 1b trial. The ongoing trails is a double blind randomized placebo-controlled multiple ascending dose trial and up to 50 healthy male and female volunteers between ages 19 and 45 years old. In addition to evaluating APD791 safety intolerability profile the trail is also evaluating the pharmacokinetics and pharmacodynamics of multiple oral doses of APD791 over a period of one week. We continue to anticipate results from this trial around mid year.

The current trail was initiated after the completion of the Phase 1a trial. All doses were well tolerated without dose related adverse events. Such that a maximum tolerated dose could not be defined despite achieving high concentrations in blood. In the Phase 1a trail doses originally intended for the study range from 1 milligram to a 160 milligrams, but due to excellent tolerability we doubled the top dose to 320 milligrams. Dose dependent in addition of serotonin-mediated amplification of platelet aggregation was also demonstrated supporting pre-clinical data and establishing initial clinical validation of APD791s novel mechanism of action.

Our earlier stage pipeline also continues to show promise. Our earlier stage development candidate is APD916, a compound from our alertness enhancer program for which we are preparing to file an IND. We also have compounds being investigated for pulmonary hypertension and autoimmune disorders, as well as other indications. The targets we are investigating for these and other programs include a wide range of GPCRs both known and orphaned.

Our research provides us with a strong foundation that has and will continue to support a promising emerging pipeline that will provide some exciting developments in the future including the potential for tracking partnering opportunities. We plan to reduce some of these earlier programs at an R&D day later this year. I realized there was some confusion around our initial thought to host an R&D day last month, and we apologize for not better communicating the decision to change our plan to hold the event later this year, when additional data is expected.

We will provide more information of the planned R&D day when we have confirmed the date, but postponing the event will allow us to provide a more comprehensive update on our research programs and all of our development stage programs. Lorcaserin, APD125, APD791, and APD916, we think this will make more productive use of everyone’s time.

Looking at our financial position and subject to the guidance Robert provided, we have sufficient cash to fund our Phase 3 program and file an NDA in 2009. Having that runaway provides flexibility and increases our financing options, and let me add although I am generally opportunistic, I think it is unlikely that we would decide to sell stock under current market conditions.

Before opening the call to your questions, I would like to review our expected corporate events over the next few quarters. There are several meaningful milestones including the top line results from the ongoing BLOOM trial around March 2009. The results of the APD125 Phase 2b trial around year end and results of the APD791 Phase 1b trail in the next few months. Consistent with our prior guidance we expect to file a new IND for APD916 by the end of 2008, and announce commencement of a Phase 1 study in the first quarter of 2009.

We will keep you updated on the progress of our current partnerships and we will continue to consider partnership opportunities in order to prioritize our internal efforts to create value and to manage our development expenses.

2008 is off to a productive start. We've continued to advance our drug development efforts and support our innovative research and development potential, Novel drugs. And we will continue to work to advance and improve these fundamentals and strive for the highest level of performance and achievement in discovering and developing novel therapeutics.

Despite progress in advancing our pipeline and innovative research efforts our stock has not performed in the current market. Although, it can be difficult to determine the specific reason, there are likely and number of factors involved in the decline such as timing of expected news flow, our continuing commitment to research and development and a generally lower risk tolerance among investors.

I believe that by continuing to advance our pipeline and delivering on the corporate milestones we’ve communicated to you, as well as recognizing the need to consistently prove our ability to develop and discover novel therapeutics by applying our focused expertise and understandings of GPCRs, our fundamentals get stronger by persisting along the strategic course we’ve said, we can ultimately create significant long-term value.

Our corporate values, utilization, integrity, team work and excellence, remain at the core of all that we do. We will continue to systematically build Arena with a strategic plan that includes, but certainly looks beyond our next corporate milestone and focuses long-term on benefiting patients and optimizing stockholder value.

Thank you. The call is now open to questions. Eric?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Alan Carr with Needham. Please proceed.

Alan Carr

Hi good afternoon, everyone.

Jack Lief

Hi, Al.

Alan Carr

A couple of questions, one -- minor one I just wanted to get out of the way. First about your financial guidance, could you clarify again the guidance for the contract manufacturing for this year?

Jack Lief

We gave total revenue of 8 to 12 million and that includes about 7.5 million in contracts manufacturing revenue.

Alan Carr

Okay, thanks. And, I guess what I wanted you to comment in a little bit more detail with about is the impact of this ever changing strategy of including the BLOOM-DM trial in your NDA submission. So, can you talk a bit about how that’s going to impact timing for submission of the NDA and then when do you think you will be able to submit this SNDA?

Jack Lief

Yeah. So the NDA will be submitted on schedule next year, the BLOOM-DM trial is ongoing and it’s just been rolling as many of these trials enroll relatively slowly and so we expect to be able to file results from this trial when it’s completed possibly even after we file the NDA next year. Bill, do you have anything else to add in that regard.

William Shanahan

We had a window after filing to put in some supplemental data. So, we will just keep you updated, we are not certain yet of what the final time will be to recruit this trial.

Jack Lief

Yeah, keep in mind that it’s the study is nice to have for labeling, but not essential for approval.

Alan Carr

Okay. So as the change you may not need to do SNDA after course enough. Do you think then enrollment with the DM trial is that something that’s going to be -- is that kind of go into the fourth quarter of this year even or do you have a sense at this point?

Jack Lief

I don’t know. And so we would like to make predictions on things that we know. And so, we are telling you the way things stand right now and as the trial gets further enrolled we will be able to address specific timing in either case, it’s not going to affect the NDA or the commercial opportunity that we have with lorcaserin.

Alan Carr

And, with regards to partnering can you characterize whether that’s in a data review stage by big pharma or whether that’s by potential partners or if you started any negotiations?

Jack Lief

Yeah, so we prefer not to discuss our partnering efforts in great detail. I can tell you that we do have interest from a number of companies and the interest ranges broadly, but I would rather not tell you whether it’s at the confidentiality stage at the exchange of information at the term sheet stage or otherwise.

Alan Carr

Okay. Thanks for taking my questions.

Jack Lief

Sure.

Operator

Your next question comes from the line of Cory Kasimov with JP Morgan. Please proceed.

Cory Kasimov

Hi, actually its Cory Kasimov here, good afternoon guys, thanks for taking my question.

Jack Lief

Sure.

Cory Kasimov

I have just one question for you to go back to that partnering issue, we get a lot of questions from investors, and you have multiple OPCD candidates now in pivotal programs, all of which are un-partnered at this particular point in time and there is some of there who are concerned with this and they look at this is a lack of validation for the space or else risk of version on the part of large pharma and so can you just comment in terms of how much of this is by choice at this point in time I mean the advantages of having a product partner now versus perhaps the potential value inflexion that you get and on the Phase 3 data of the dynamics that go into that?

Jack Lief

Sure. To my knowledge we have the only advanced new compound that is approaching NDA. As you know other compounds are combinations of already existing drugs that are currently being prescribed by physicians and are available today. So, having said that I think we’ll have lots of really great opportunities commercially to succeed both financially and near-term and long-term via partnering.

Cory Kasimov

So, we have the only one that I’m aware of?

Jack Lief

Okay.

Cory Kasimov

Then have you noted has it been a noticeable shift in ongoing talks you’ve had with partner since that since the 12-months ESMB announces and I think how much have things changed since then when you talk about risk conversion to these partners and the cardiovascular risk seems to be mitigated towards a very significant to grade this point. So, how much has that changed things?

Jack Lief

Changed it a lot. As I said it’s been a noticeable change and noticeable shift in activity amongst partners and well I can’t get into details. I think pretty confident we will have lots of opportunities for partnering between now and an NDA and possibly be sooner.

Cory Kasimov

Alright, great. Thank you.

Jack Lief

Sure.

Operator

Your next question comes from the line of Thomas Wei with Piper Jaffray. Please proceed.

Thomas Wei

Hi, thanks very much. I just wanted to ask about the BLOOM-DM submission as an SNDA. Have you spoken to the FDA about this do you have agreement about submitting the initial NDA without IBD study?

Jack Lief

Yes we've addressed this both ways with the agency. And if you read the guidance that the agency has out there, the two adequate well controlled studies are more than sufficient especially with 7,000 patients being enrolled in the studies. Having said that we think its desirable to complete the BLOOM-DM study and include diabetes patients on the label or increase our market opportunity may be 20% or something like that and we will be pursuing that.

Thomas Wei

And going back to the original outline of the plan with the FDA, so if I understand correctly the FDA at that stage did not necessarily want you or require you to do BLOOM-DM that was your choice from a marketing standpoint?

Jack Lief

Yes, Bill.

William Shanahan

Yes that’s true and actually if you what they, new guidance says that sponsorship considered examining in the safety and efficacy of an obesity product in diabetics so it is not a formal requirement.

Thomas Wei

Okay, great. Thank you.

Jack Lief

Sure Thomas.

Operator

Your next question comes from line of Bret Holley with Oppenheimer. Please proceed.

Bret Holley

Yeah, hi guys thanks for taking the questions. I guess Jack I’ll just ask the question a little bit differently about the partnership, you know, activities, I guess what I am wondering now that we are relatively close to the actual Phase 3 data, I mean is it something where potential partners are kind of gearing up their awareness of the program going into those data and, just some comment or some idea of their appetite for doing a deal before rather than after the actual data?

Jack Lief

Yeah, so I know Bret that most analysts think that we won’t sign collaboration until after the March, the dated March comes out from the BLOOM study. And that might be true, but I can tell you that it might not -- partners might not wait that long and there is competition amongst partners and it might happen earlier, but I am perfectly happy to keep the expectation to be after the March announcement.

Bret Holley

Then one other question on what evaluation you have kind of as your benchmark, I mean has that gone up substantially since 12 month data and is that potentially sticking point with partners as well?

Jack Lief

You know, I don’t think valuation is that big of an issue I think we will -- obviously will receive very large upfront pre-commercial milestone payments. But, I think most of the economics occur via sales and will be providing the finished product to any partner that we have manufactured in our facility off course in Switzerland. So, I think it gives us greater flexibility in partnering lorcaserin.

Bret Holley

Okay. And then question I have asked before but I will ask it again just because we’ve seen more data, the potential differentiation for APD125 versus eplivanserin do you have updated thoughts on that front?

Jack Lief

Well, we know that we have a very selective, very potent compound the advantage is of course of the mechanism that we address over gap of mechanisms is one of hangover and side effects. The advantages over drugs like eplivanserin I think are largely from a safety perspective. As you know, you cannot over dose we don’t believe you can over dose taking our compound as it’s absorption limited; we don’t see any difference in side effects between placebo and drug doses. So, the only difference that you see is a better night sleep at the end of the evening. So, I think we'll have very good opportunities there. I haven’t seen oral of the eplivanserin and volinanserin data that Sanofi has but I think clearly they are excited about their program and they are pursuing it and they plan to file at least that’s what they claim in NDA some time later on this year. So, I think that’s going to help us a lot in reviewing that information. So, any other questions there?

Bret Holley

No, that’s my question. Thanks very much.

Jack Lief

Sure.

Operator

Your next question comes from the line of Ruthanne Roussel with Robins Group. Please proceed.

Ruthanne Roussel

Hi, good afternoon, thanks for taking my call. Since so many questions have been asked already, I’m going to have to be creative and go off to being track here. I wonder if you do willing to share any color on how many of the trial or the clinical trial patients in Lorcaserin trials are referred by doctors versus how many self referred or perhaps via the internet or other ways of just getting themselves in there?

Jack Lief

What an interesting question. You know; we have never been asked that question.

Ruthanne Roussel

I am probably talking without the numbers too.

Jack Lief

And so I see Bill sweating over here a bit our Chief Medical Officer Bill how would you respond to that.

William Shanahan

Well, the short answer is I don’t know. And the longer answer is of course, we have a mix of academic and private practice or clinical trials specialty sites. In the trial I suspect we get a lot of our patients through referral and advertising but I don’t have numbers, I can’t break that down but I suspect its majority.

Jack Lief

We do have something like 97 sites active in the BLOSSOM study the current study that’s recruiting, finishing recruiting right now so, it is a large widely distributed study throughout the US.

Ruthanne Roussel

Okay, thank you. That’s actually helpful. Another thing I wanted to ask about we know that the FDA has put such emphasis on the depression spectrum in the testing of obesity drugs and suicidality, would there be any way to identify or is there any control over the possibility that lorcaserin may actually induce people to have hyper manic or manic behavior sleeplessness , rapid thoughts?

Jack Lief

As you know we are not aware of anything mechanistically or in of our other studies that would lead one to believe that we do test prospectively suicidal ideations and depressions and everything else like that, Bill do you want to expand on that?

William Shanahan

Yes, we would of course have to depend on just having spontaneously reported adverse events in those regards. But, we have no evidence as such, we did more extensive testing in Phase 1 and didn’t see any evidence and as Jack suggested we do not think mechanistically this should be a problem.

Ruthanne Roussel

Okay, thank you. That’s very clear. No further questions.

Jack Lief

Okay.

Operator

(Operator instructions). Your next question comes from the line of Carol Werther, with Summer Street Research. Please proceed.

Carol Werther

Yes, thank you. My first question I am a little bit confused about what the plans are to do trials with lorcaserin with SSRIs for a abuse potential are those trials ongoing or will it be done this year?

Jack Lief

So obviously, for all centrally active compounds you have to do potential abuse liability studies and we are in the process of getting those studies looked into and moving those forward and regarding SSRIs, Bill do you want to address that?

William Shanahan

Sure, we had proposed doing such a study to the FDA and we need to get their feedback, you can see in the guidance they have some reticence towards using any combinations with a drug that has activity at 2a with a certain urgent compound, so this is something we were discussing with them. We believe that it can done safely and that obviously substantially proportions of these patients do take SSRIs. So we think its an important study to perform, but again -- so we proposed this to the FDA.

Jack Lief

And if we are going to do this trial we would get it done this year.

Carol Werther

Okay. And with the BLOOM-DM trial, when does the window close in terms of just filing additional data and having to file SNDA?

Jack Lief

I believe its seven months after filing. So, you got a 10 month PDUFA but of course, we would pre-negotiate this with the FDA because certainly if they consider this a major change then they could reset the clock. So, we would have to negotiate all this with the FDA.

Carol Werther

Okay and my last question has to do with 125, when are you planning to partner that product, is it after this next day of two trial?

Jack Lief

Sure, the study is going to be finished towards the end of this year and we will announce the date around year end, I think that will be a lot more interest in what I have lot more to talk about once we have that data, so obviously, sleep we think is under appreciated market and I think addressing it in a safe fashion has lot of opportunities for us.

Carol Werther

Great, thank you.

Operator

Your next question comes from the line of Jim Birchenough with Lehman. Please proceed.

Jim Birchenough

Hi guys, we just want to follow up on a BLOOM-DM study. Any insights into why the enrollment has been slower than expected given this relatively rapid enrollment in the BLOOM study.

Jack Lief

Lot depends on that involves the inclusion criteria that the agency would want us to employ, so it is not just diabetics, but its diabetics who are relatively poorly controlled on oral medication that they want us to enroll in “diabetes study”. I’m going to let Bill tell you little bit more about that.

William Shanahan

That’s the basic problem is that we’re competing with, there is something like 300 diabetes trials on clintrials.gov, so we are competing we think in large measure with all diabetes, all oral agent kinds of diabetes trials and there is also several companies with ongoing diabetes trials and obese or overweight patients, so there is a lot of competition to these patients and I think that’s the fundamental problem and certainly many other companies have found much slower recruitment than anticipated in these particular kinds of trials.

Jack Lief

In retrospect, rate of recruitment is about what other people find for the number of sites and that sort of thing for diabetes study.

Jim Birchenough

And this is asking to do my home work for me perhaps but there are some precedents where there have been drug approvals for obesity drugs without diabetes data included, and I ask that because often when the FDA makes a recommendation, while it’s not an absolute requirement, it’s often well advised to follow the recommendation. So, are there any precedents for drugs being approved without that data?

Jack Lief

So the agency did not make a recommendation per say they said look carefully at a population such as diabetics in the obese population. So, recently they made it little bit easier to do these sorts of studies so, Bill are you?

William Shanahan

Yeah, I am not aware, I mean we would be talking about Oralstat and sibutramine, and I'm not -- I do not know off the top of my head whether they also had diabetes trials, I don’t recall them but that doesn’t mean they weren’t done, certainly Rimonabant included a diabetes trial in their program.

Jim Birchenough

Just a final question on partnering efforts, obviously FDA scrutiny of adverse events goes beyond valve effects of obesity drugs and goes to the CNS effects of these drugs and how sensitive do you think potential partners are to getting the full safety data before they make a decision on partnering and how quickly can you get that level of detail to potential partners?

Jack Lief

Well, we do see the blinded data as I said and so you are aware of any unusual events that may occur and we haven’t seen any. So, its an easy question to answer for our partners because we don’t see any signals.

Jim Birchenough

I guess, I am just trying to understand how you would see a signal on a blinded trial unless you are suggesting there has been absolutely not a single patient in the whole trials that’s had any kind of CNS effect?

Jack Lief

Well certainly, the serious CNS effects that you’re most concerned about that you yourself have been most concerned about, we haven’t seen any of those.

Jim Birchenough

Okay, great. Thanks for taking the questions.

Operator

Ladies and gentlemen, this concludes our Q&A portion. At this time, I would like to turn the call over to Mr. Jack Lief for closing remarks.

Jack Lief

Thank you. Before finishing, I would like to reiterate our commitment to executing our long-term vision and strategic plan. We remained focused on benefiting patients and building long-term stockholder value through development and commercialization of Arena drug candidates independently and with our partners. Thanks again for joining us on the call today.

Operator

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect and have a good day.

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Source: Arena Pharmaceuticals, Inc. Q1 2008 Earnings Call Transcript
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