Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Is Eisai Slick Or Just Bad At Estimating The Market?

|Includes:Arena Pharmaceuticals, Inc. (ARNA)

In November of 2013 Eisai cut a deal with Arena Pharmaceuticals for what essentially equated to the sales rights for Belviq for the rest of the world. The deal netted Arena $60 million and gave Eisai the rights to Belviq almost everywhere. Some think Eisai got a bargain. Others have more of a wait-and-see attitude.

Did Eisai cut a good deal? What motivated Arena to cut the deal? Did Arena need cash? These are questions that were asked at the time, and some of them still do not have answers today. Perhaps Eisai was a little slick.

What we know is that sales in 2013 were quite modest when compared to expectations. what we also know is that a little over a month before the deal for the rest of the world was announced that Eisai gave Arena projections and money for the next 6 months worth of sales. Just 6 months later, Arena found itself having to return $19.3 million because sales were more scant than what Eisai had laid out. that is correct, Arena will have to refund $19.3 million. That number is what Arena would be paid on about $110 million in gross sales that simply did not happen.

Was Eisai that bad at estimating the market? perhaps they were not. perhaps Eisai wanted Arena to have the impression of good progress when it, on October 1st of 2013, gave Arena an estimate and the accompanying wad of cash.

If Eisai was expecting about $150 million in sales by March 31st, and reiterated that number to arena on October 1st, it could compel Arena to think that they were aligned with the right partner, and that it was worth while to sell the rights to the remainder of the world to Eisai. From Eisai's perspective, the upfront payment on estimated sales would simply come back to them if the expectations were not met.

Did Eisai's estimates give Arena confidence in Eisai that perhaps should not have been there? It is a question that will be asked many times as the year progress if expectations are not being met.

Now, readers must understand that this is all very theoretical. If Eisai was indeed slick, do not ever look for them to admit it. If Eisai was bad at estimating, then perhaps they were not the best partner after all.

Over the years I have had many people comment that Eisai was delivering a slow launch in an effort to be able to buy out Arena. The theory is interesting to discuss, but in the end we will never really know the true answer. There are some compelling things to point to a campaign that is less than ideal.

  • Advertising seems robust but air times are less than desirable for the most part. With over 3,000,000 ads aired, less than 2% have been in Prime Time.
  • Ads seem to spike for about a week and then settle down. It is almost as if they do just enough to show a demonstrated effort
  • Estimates made are not close to reality, but could be used as a tool in negotiating a deal for the rest of the world. The penalty for missing estimates is that Eisai gets money back.
  • Applications for approval in other countries seem to be very challenged. Some of the slow progress is these countries themselves. Other slowness appears to be deficiencies in the applications Eisai filed.
  • On April 1st of 2014 Eisai had an opportunity to adjust projections. On that date they did not adjust them. Is that because Eisai understands the market better now, or is it related to the fact that Eisai already got the rest of the world deal and did not need to impress anyone at that stage?

The bottom line here is that sales of Belviq are an important part of the growth story in Arena. Eisai needs to have pressure applied to deliver a marketing campaign that brings both companies revenue. Time gets more critical with each passing week. Stay Tuned!

Disclosure: The author is long ARNA.

Stocks: ARNA