The Future Is Bright For Arena Pharmaceuticals

| About: Arena Pharmaceuticals, (ARNA)
This article is now exclusive for PRO subscribers.

This summer, the FDA took action to make Arena Pharmaceuticals' (NASDAQ:ARNA) Belviq the first drug approved for the treatment of obesity in thirteen years. By now, most are aware that Belviq's main competition is Vivus' (NASDAQ:VVUS) Qsymia, and this has led to a sharp divide in investor opinion concerning the two drugs.

While many have supported one drug or the other on a basis of safety or efficacy, I contend that the relative marketability of Belviq and its potential uses outside the realm of obesity position Arena Pharmaceuticals for a very exciting future. Indeed, the company's vision for Belviq is promising, and it warrants far more attention than it's been given to this point.

A Closer Look at Belviq's Marketability

When considering whether or not a product will be successful in the marketplace, it is important to investigate the product's marketability. Some determinants of marketability include the size of the target market and how easily the target market can be accessed via advertisement, thereby increasing public awareness of the product.

For both Belviq and Qsymia, the target market is enormous. In the United States alone, 150 million people are considered overweight or obese (BMI≥25). Globally, the numbers are even more staggering: at least 500 million people are considered obese (BMI≥30). While both Belviq and Qsymia have been approved for use in the United States, neither has been approved for use anywhere else in the world.

Currently, Arena is pursuing EMA approval for use of Belviq in the European Union. Since Qsymia was recently rejected by the EMA for use in Europe, a vote of confidence from the EMA would leave Arena in a great position to take advantage of the entire European market. At this point, then, it would seem that Belviq has a small edge in terms of potential target market size.

As far as ability to access the target market, most would agree that Arena has the edge there, as well. The restrictive REMS placed upon Qsymia at the time of FDA approval is very limiting, and it's something that has definitely impacted sales of Qsymia to this point. As part of the REMS, Vivus is not allowed to advertise Qsymia directly to consumers, adversely affecting Vivus' ability to access the target market.

Another element of the Qsymia REMS requires that patients who are prescribed Qsymia use a mail-order pharmacy service. This means that a patient cannot simply fill a Qsymia prescription at the neighborhood pharmacy; rather, upon completing some extra paperwork, the Qsymia prescription is delivered to the patient's door. While this sounds very convenient, the excess paperwork is often considered an unnecessary inconvenience. Additionally, patients using a mail-order pharmacy can't speak with a pharmacist in person, which makes some patients uneasy ("who will answer my questions?").

Development of Combination Therapies Based on Belviq

While Belviq's advantage over Qsymia with respect to marketability is important, I believe that the prospect of using Belviq in combination therapies could have an even greater impact. In the recent Credit Suisse Healthcare Conference, Craig Audet specifically mentioned Arena's plans to pursue both Belviq/Metformin and Belviq/Phenteramine combination therapies.

Data from Arena's BLOOM-DM trial suggest that Belviq is effective in lowering HbA1C in type 2 diabetics, meaning that type 2 diabetics taking Belviq enjoy better long-term glycemic control than those taking placebo. As such, a combination of Belviq and Metformin (the current standard of care for glycemic control in type 2 diabetes) could allow for even better gylcemic control in type 2 diabetes than either drug alone. Indeed, if studies of a Belviq/Metformin combination yield positive results, Arena would have a whole new target market of patients.

In my opinion, a combination therapy of Belviq/Phenteramine is truly exciting. While Fenfluramine/Phenteramine ("FenPhen") was an exquisitely effective anti-obesity drug, it was heavily associated with valvular heart disease and subsequently pulled from the market. It is now known that Fenfluramine induced valvular heart disease via stimulation of the 5HT2B receptor in valvular tissue. Fortunately, Belviq is 100x more selective for the 5HT2C receptor than the 5HT2B receptor, which basically limits Belviq's action to central 5HT2C receptors. While Fenfluramine worked at the same central 5HT2C receptors, its secondary action on peripheral 5HT2B receptors is what caused problems. As such, many have hopes that a Belviq/Phenteramine combination therapy could be as effective as FenPhen, without the associated risk of valvular heart disease.

Time to Invest, Not Trade

Clearly, Belviq gives Arena the chance to become a legitimate pharmaceutical company that deserves consideration as an investment, not just a fleeting trade. With patent protection of Belviq until 2023 in most jurisdictions, Arena has plenty of time to expand Belviq's target market and explore alternative ways to monetize the drug.

Recently, many people have made bold predictions regarding early sales numbers for Belviq. Whether or not these predictions come true, I believe that the Arena's real value lies in its future plans for Belviq. In other words, don't make a trade for today...make an investment for tomorrow.

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.

Disclaimer: This article is not to be construed as advice from a licensed financial advisor. The ideas herein are solely presented for informative and entertainment purposes. The stock market is inherently risky, and each individual investor must make his/her own decisions based on his/her research and risk tolerance. Before investing, always do your own due diligence and/or speak with a licensed financial advisor.