An Exciting Year Ahead For Arena

Nov. 8.12 | About: Arena Pharmaceuticals, (ARNA)

By: Ishtiaq Ahmed

Arena Pharmaceuticals (NASDAQ:ARNA) reported its third quarter earnings and corporate update on November 6. The company provided some important information regarding the launch and potential collaborations along with the financial results. Arena reiterated that Belviq will be available in the market during the first quarter of 2013. Further, Arena will receive a decision in the first half of 2013 about marketing of Belviq from European and Swiss authorities. If approved, the market will expand substantially for Belviq. Please refer to this article for a detailed analysis of European approval. Arena recently started the phase I multiple-dose clinical trial of APD811, its drug for the treatment of Pulmonary Arterial Hypertension [PAH]. The company also announced that it will report results from phase I trials in the first quarter of 2013.

Third Quarter Results:

Arena reported total revenues of $1.5 million for the quarter, compared to $3.5 million in the same quarter last year. Total loss for the first nine months was $67 million, or $0.35 per share compared to $87.8 million or $0.64 per share last year. Total revenue for the nine months ending September 30, 2012 was $25.7 million. On the other hand, revenue for the first nine months last year was significantly low at $10.6 six million. The increase in revenue was mainly because of the $20 million milestone payment from Eisai. At the moment, Arena does not have any drug in the market, and revenues mainly come from collaborative agreements. The company has taken an approach of entering the market with experienced partners. For most of the North and South America, Arena has given exclusive distribution rights to Eisai. It looks like the company will also try to establish collaboration with experienced players in Asia for market entry. Arena announced that it had granted exclusive marketing and distribution rights to Ildong Pharmaceutical Co., Ltd. for South Korea.

Research and development expenses came down significantly during the quarter. Arena reported R&D expenses of $11.6 for the quarter as compared to $15 million for the corresponding quarter last year. Research and development expenses mainly came down due to a decrease in salaries and other personnel costs. Research and development costs decreased by more than $5 million from the first nine months of 2011. The company reported total R&D expenses of $40.2 million for the nine months ending September 30. In addition, general and administrative expenses increased to $7.4 million compared to $6 million for the third quarter of 2011.

Further, the company also reported an increase in the interest expense. However, the increase was mainly due to the non-cash loss from the revaluation of derivative liabilities. Arena reported total interest expense of $27.4 million, up from $21.1 million for the first nine months of 2011. Moreover, the company is in an incredibly strong liquidity position. At the moment, Arena has over $167 million in cash and cash equivalents, up from $57.6 million at the end of the last year. At the end of the quarter, the company had about 217.2 million shares outstanding.

An Exciting 2013?

Arena is set to have an exciting 2013. There will be a lot happening at Arena Pharmaceuticals during the next year. The company will finally launch its drug at the start of the next year in the U.S. I believe Arena has made the right choice to enter the market with experienced partners. It will provide the company an advantage over its competitors. Arena has an extremely attractive product, which can attract some of the biggest players in the market. It is possible that the company may expand its partnership with Eisai for Europe, or with another big pharmaceutical company. Companies such as Pfizer Inc (NYSE:PFE), Bristol-Myers Squibb Company (NYSE:BMY) and Abbott Laboratories (NYSE:ABT) may want to add Belviq to their pipelines.

Arena's main rival, Vivus Inc (NASDAQ:VVUS), recently launched its anti obesity drug, Qsymia. Vivus received a mixed response due to the restrictive label and low insurance coverage. However, Arena is less likely to face such problems due to an incredible safety profile of Belviq. Moreover, vast experience of Eisai in marketing drugs will make Belviq launch a relatively smoother process. Arena has submitted the 120 day assessment report and list of questions to the European Medicines Agency. Along with the launch of Belviq, European approval and the phase I trial results of APD811 will be significant events next year.


Arena's stock price has remained below $10 for a considerable time. Arena lost about 4% on November 6 after Vivus reported poor results and impacted the sector negatively. The stock will remain depressed until the next significant event happens for the company. There will be considerable volatility in the short term, but long-term prospects of the company are bright. Arena investors have a lot to be excited about as the company nears the launch of its potential blockbuster drug, Belviq. I believe Arena's stock will cross $10 mark once the firm launches its drug. A lot will depend on the success of the launch, but I believe the experienced partners will make Belviq launch a success. After the launch, I expect Arena stock to carry on its rise.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ishtiaq Ahmed, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.