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Spencer Osborne is founder of Satellite Standard Group [SSG], and a partner of Sirius Buzz (http://siriusbuzz.com/). Sirius Buzz covers the satellite radio industry as well as companies that do business in this sector. Sirius Buzz provides information and opinion to readers with an interest in... More
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  • Is Eisai Slick Or Just Bad At Estimating The Market? 17 comments
    Jul 16, 2014 10:32 PM | about stocks: 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
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Comments (17)
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  • vitosoranno1
    , contributor
    Comments (1632) | Send Message
     
    Hi Spencer,

     

    You state that over 3,000,000 ads have been aired.

     

    Is this statement accurate?

     

    Cheers!
    .
    16 Jul 2014, 11:34 PM Reply Like
  • jakes101
    , contributor
    Comments (1119) | Send Message
     
    obviously he meant $ spent not ads aired
    17 Jul 2014, 12:41 AM Reply Like
  • jakes101
    , contributor
    Comments (1119) | Send Message
     
    Spencer,

     

    I beg your pardon. Please don't tell me you are starting to buy into the Eisai takeover conspiracy? Not you too. You are trying to make points as to why we had a slow launch. I'm not buying it Spencer, I read your points...and they usually compel me to agree, I don't see it. Just because people are discussing it more and more does not make it so. It also does not justify making arguments towards how that might be possible...unless you indeed believe it could hold some water.

     

    When I was a wee lad, a long while ago, my grandmother told me to eat lots of red onions each day. All my teenage years I ate sandwiches with nothing in them but chopped up red onions...I know it sounds gross and crazy. You know why I ate them, because she told me each day that red onions will make your d!(k grow. I wanted to believe it, anything to make an excuse.

     

    I think you know what I'm trying to say. I'm staring at the pps today, that is what's on my mind, not this conspiracy stuff!!
    17 Jul 2014, 12:59 AM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » Jakes.....

     

    I am not a subscriber to most conspiracy theories.

     

    I do think that Eisai could have been a bit slick leading up to the deal for the rest of the world.

     

    With just 3 months of sales to look at on October 1st, Eisai carried a substantial sales estimate for the next 6 months. Arena would have that substantial estimate in hand when considering the deal for the rest of the world.

     

    On one hand arena would be saying something like, " sales are starting off very slow." On the other hand they would be saying something like, "Eisai is paying up front for $150 million in sales, so things will pick up nicely going forward."

     

    Arena let the rest of the world go to Eisai based not on real metrics, but instead estimates of a rosy picture painted by Eisai.
    17 Jul 2014, 09:40 AM Reply Like
  • daxtrdr
    , contributor
    Comments (473) | Send Message
     
    Spencer,

     

    That would mean that Lonnel Coates was made to be a scapegoat. That would require one of two things; 1. Lonnel is a very stupid man and Eisai is very underhanded or, 2. Lonnel was somehow complicit. Neither one sounds plausible to me. If Eisai is playing any games I tend to think it started after they too realized the roll out was not as successful as previously thought. I don't believe that either.
    17 Jul 2014, 01:24 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » Dax....

     

    Not saying that the comments I am about to refer you to are valid, but if you do a little legwork on Eisai at cafe pharma you will see some interesting insights into Coates, Obrien, and Ciriello. I will not use the term underhanded. Savvy is a term I would use. Employees of any company will have complaints, but usually there is some underlying issue that brings about complaints. Take a look at the various boards in the link below:

     

    http://bit.ly/1pf0nBs

     

    I think it possible that Eisai wanted the deal for the rest of the world, and gave Arena every reason to believe that things would be fine. In fairness to Eisai, they could plausibly believe that things would be fine at only 12 weeks into launch. Once the deal was inked, they will have gotten what they want. Thus, no adjustment to sales estimates I april of 2014.
    17 Jul 2014, 01:46 PM Reply Like
  • daxtrdr
    , contributor
    Comments (473) | Send Message
     
    Hmmm. I not familiar with Café Pharma other than I know it's where people in the industry chat. Lots of anonymous posters over there. Probably for good reason. But then again there's those imposter and multiple ID issues. Boy, I dunno, I guess anything's possible but I'm gonna need a little more evidence. Thanks for your detective work. If you know more that what you are saying, just give me a wink ;-)
    17 Jul 2014, 02:01 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » Dax....

     

    All is quite subjective. What I can say is this.

     

    If I was Eisai, and I wanted to expand my deal, I would not raise any flags going into the discussions. I would keep the estimates in tact, negotiate my deal, and then gladly pay the money for the big estimates knowing that if I fail to meet the estimates that I would get a refund 6 months down the road.

     

    The key for me would be getting the ROW rights tied up. If painting a pretty picture allowed me to do that, the I would allow the party I am negotiating with to assume that the picture was drawn with permanent marker when in fact it was drawn with a dry-erase marker.

     

    Having negotiated many deals, I know that sometimes your best friend is the imagination of the other party.

     

    Think about the timing....on October 1 arena is under the assumption that sales will reach at least $150 million by March 31st. Eisai handed them million in cash based on that assumption. A few weeks later Eisai comes knocking with another $60 million wanting the rest of the world rights. The launch us just 3 months old and arena gets over $20 million in cash followed by another $60 million a few weeks later...."Eisai must really want this drug"

     

    Meanwhile Eisai knows that if sakes are not meeting estimates that millions are headed back to them.

     

    Let arena see dollar signs, visions of vacation homes and Astin Martins in the driveway.

     

    Sign the deal while everyone is happy and then you can relax a bit. You know the launch will take time, that approvals will take time, and that the first focus will be controlling costs to recover cash outlay. If the drug goes viral....great. If it does not, you simply march along trying to keep the cost side under control while attempting to jump start the sales.
    17 Jul 2014, 02:52 PM Reply Like
  • jakes101
    , contributor
    Comments (1119) | Send Message
     
    Spencer...

     

    Reading this last comment to daxtrdr, you make some plausible points towards Eisai being pretty slick, esp your last paragraph. Quick & slick is one thing, takeovers is another.

     

    Sign them quickly, in case it becomes a blockbuster. Nothing wrong with that. Eisai has spent lots of time and money with reps and commercial time in relation to how much in sales have been actually made. If sales are slow, ARNA rebate comes in, keep expenses in check. Yes yes yes.. part of doing business, being slick is part of it. All is still normal here.

     

    To put it all together and say that they are now testing waters by not going all out on commercials, deficiencies in apps filed etc etc... All this to keep the launch at a slow pace in order to acquire ARNA, not sure about that Spencer. Then you state that we will never really be sure or know the true intentions. You either trust Eisai or you don't. It was a joint partnership. Do you trust your partner? It seems like you don't.

     

    Eisai can't control Medicare/Medicaid coverage. Some things are just the way they are.

     

    This is taking away from management problems. Mr Lief is your salesman, this is the problem.
    17 Jul 2014, 08:02 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » Jakes....

     

    I am not a subscriber to the concept that Eisai has any real desire to take over Arena. In fact, I do not think that it is likely at this stage, or based on Belviq.

     

    In business trust is an intesting word. I trust people in business only to a certain level.

     

    Eisai has to be able to make money in this deal. I think the bad launch and lack of real progress points to the fact that Eisai only has so much money to spend. I think they overestimated the market by a wide margin, and now need to figure out how to move along without losing their proverbial shirt.

     

    Until they get managed care on board with insurance, it is going to be a bumpy road
    18 Jul 2014, 01:09 PM Reply Like
  • daxtrdr
    , contributor
    Comments (473) | Send Message
     
    Thank you. I can see the logic in that.
    17 Jul 2014, 04:21 PM Reply Like
  • jakes101
    , contributor
    Comments (1119) | Send Message
     
    daxtr,

     

    You can?
    17 Jul 2014, 08:04 PM Reply Like
  • daxtrdr
    , contributor
    Comments (473) | Send Message
     
    There is logic there. Did not say I agreed or believed in it. Not sure Spencer does either.
    17 Jul 2014, 09:47 PM Reply Like
  • jakes101
    , contributor
    Comments (1119) | Send Message
     
    Fair enough.

     

    I think when we go this route, we have to be careful not to put too much on Eisai. It's a fair debate, but we must not over look Mr. Lief and the ARNA management team..talk about slick. I'm deeply concerned with Mr Lief as of late.
    17 Jul 2014, 10:42 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » Jakes....

     

    Arena management has their own version of slickness. No doubt about that.
    18 Jul 2014, 10:58 PM Reply Like
  • daxtrdr
    , contributor
    Comments (473) | Send Message
     
    Spencer, I have to admit I was very skeptical of this instablog. I was scared you jumped the shark a little bit. I knew you'd recover quickly though ;-)

     

    However, since you turned me on to Café Pharma there's lots of interesting stuff over there. Lots of allegations regarding channel stuffing. If you follow some of that stuff, it just may lead someone to conclude that Japan management at Eisai was actually duped by one of their own outside of Japan. Sorry so cryptic but you know what I am saying.
    21 Jul 2014, 06:29 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11478) | Send Message
     
    Author’s reply » dax.....

     

    It is a bit scary.....the channel stuffing sounds a lot like making the numbers look good even though they really aren't. At some point it catches up. The hope would be that the sales would be enough at that point to hide it, but if they are not....look out.
    21 Jul 2014, 06:46 PM Reply Like
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