Arena: The Improving Odds Of A Belviq Blockbuster

| About: Arena Pharmaceuticals, (ARNA)

With the recent launch of Arena Pharmaceuticals' (NASDAQ:ARNA) first approved drug, Belviq, for the chronic medical management of obesity, I thought I'd address recent changes in the obesity space that dramatically improve the odds of Belviq becoming a blockbuster drug. If Wall Street was a Vegas casino, and some say it is, the odds of Belviq ever coming to market a few years ago were probably 10-1 and the odds of it becoming a blockbuster were 100-1. The FDA and a lot of the medical community viewed obesity as a lifestyle choice and not as a disease. However, just this year there have been important events that in my view, make the odds in Arena's favor for having the first blockbuster drug specifically approved for weight loss.

I won't belabor the fact that our country, and the rest of the westernized world, faces a crisis of epidemic proportions with obesity. At least half of the adults in the United States would qualify on-label for Belviq -- there is no larger market within the pharmaceutical business than one that can help with the medical management of obesity. Up until very recently, the focus has always been on diet and exercise, as it should, but it is clear that an overwhelming majority of people fail with diet and exercise alone. For the most part, there have been no good tools for physicians to choose from to help their patients stick to a diet and exercise plan. Phentermine is written over 7M times a year but it is only approved for short-term use and it is a stimulant; it doesn't help with a diet and exercise program. Like other drugs, when you stop taking phentermine the weight comes back on; just like when you stop taking Lipitor, your cholesterol goes back up. That is why for most people, a medical management medicine will be a chronic drug and not one you just take for a few months to lose a few pounds. As an investor in Arena, chronic Belviq usage is important for building compounded revenues over time as you add more and more long-term patients into the pipeline.

As I have discussed in previous articles, Arena's Belviq is the first approved drug that has the criteria necessary to become a 1st in class drug for this emerging space. It is highly tolerable with few unpleasant side effects above placebo, the most of which is a mild and transient headache. It is very safe with no increased risk of valvulopathy, cancer or birth defects and it is highly effective for a specific class of patients that can be quickly identified. Dr. Ken Fujioka, a weight loss expert with Scripps Clinic who was in charge of some of lorcaserin's (Belviq) drug trials believes one of the key reasons why the drug was ultimately approved is that they were able to identify responders by 5% weight loss at the 12-week mark in a meta-analysis of trial data. In a poster presentation at this weekend's American Diabetes Association's 73rd Scientific Sessions in San Diego, Dr. Steven Smith presented findings from a study looking at "responder" results, which include:

  • Predicted responders with type 2 diabetes amounted to 35.9 percent of diabetics studied. They lost an average of 20 pounds after 52 weeks. More than one-third of that group, or 36 percent, lost at least 10 percent of their body weight, and 71 percent lost at least 5 percent.
  • Among nondiabetics, predicted responders constituted 49.3 percent. They lost an average of 23 pounds after 52 weeks. Of that group, 50 percent lost at least 10 percent of their weight, and 86 percent lost at least 5 percent.
  • A patient is 200-300% more likely to experience 5-10% weight loss than diet and exercise alone when taking Belviq.
  • Responders reduce HbA1c by 1.2 points and even non-responders reduce HbA1c by .8, 240% better than placebo and indicating a 2nd method of action other than weight loss.

The FDA approved label for Belviq makes this "responder" criteria very clear by recommending a re-assessment at 12-weeks and if the patient loses 5%, they should remain on the drug and if not, they should discontinue use. It is this label criteria that should make it an attractive choice for physicians and patients to try to see if they are in fact a responder because if they are, then they will go on to lose an average of over 10% of their body weight in the course of a year. It is this same risk / benefit equation that should also encourage insurance payers to cover Belviq for at least 12 weeks and then as a chronic therapy for the responders. With additional changes in the obesity space since Belviq's approval, the odds of this increase in payer coverage is underway far sooner than everyone expected.


Since my last article on Seeking Alpha to address the short-thesis for Arena, a couple of very important events have taken place. The first is the introduction of the new treatment algorithms for diabetes and pre-diabetes by the American Association of Clinical Endocrinologists. This treatment plan for the standard of care for treating diabetes is followed closely by practicing endocrinologists and primary care physicians who specialize in this disease. For the first time in AACE's history, they are recommending introducing weight loss medicines early in the treatment plan. This confirmation by AACE is of pivotal importance for earlier acceptance by practicing physicians and to further justify coverage by payers.

It is worth stressing the importance of Belviq being the only novel drug available for physicians in the last 14 years and the first one that can also reduce HbA1c by .8-1.2, which is of critical importance to this category of patient. Through Eisai Pharmaceuticals (who is selling and marketing Belviq in the United States), education of specialists on the diabetic benefits of Belviq and the overall drug profile, Belviq is likely going to become the 1st line standard of care under this new algorithm.


As important as the new AACE Algorithm is, the American Medical Association's (A.M.A.) recent decision to classify obesity as a disease is icing on the cake. This is a shift in sentiment so profound that it dramatically increases Belviq's chances of becoming a blockbuster faster than all of the analysts have forecasted. Although the A.M.A.'s decision does not force insurance coverage, it greatly influences it and when combined with the updated AACE Algorithm, should usher in payer coverage at a faster pace than originally forecasted.

Some highlights of the A.M.A.'s decision include:

"Whereas, Weight loss from lifestyle, medical therapies, and bariatric surgery can dramatically reduce early mortality, progression of type 2 diabetes, cardiovascular disease risk, stroke risk, incidence of cancer in women, and constitute effective treatment options for type 2 diabetes and hypertension;"

"Whereas, Progress in the development of lifestyle modification therapy, pharmacotherapy, and bariatric surgery options has now enabled a more robust medical model for the management of obesity as a chronic disease utilizing data-driven evidenced-based algorithms that optimize the benefit/risk ratio and patient outcomes; and

Whereas, The suggestion that obesity is not a disease but rather a consequence of a chosen lifestyle exemplified by overeating and/or inactivity is equivalent to suggesting that lung cancer is not a disease because it was brought about by individual choice to smoke cigarettes;"

"therefore be it RESOLVED, That our American Medical Association recognize obesity as a disease state with multiple pathophysiological aspects requiring a range of interventions to advance obesity treatment and prevention. (New HOD Policy)"

"if treatment is indicated, physicians should encourage and facilitate weight maintenance or reduction efforts in their patients or refer them to a physician with special interest and expertise in the clinical management of obesity; (6) urge all physicians and patients to maintain a desired weight and prevent inappropriate weight gain; (7) encourage physicians to become knowledgeable of community resources and referral services that can assist with the management of overweight and obese patients; and (8) urge the appropriate federal agencies to work with organized medicine and the health insurance industry to develop coding and payment mechanisms for the evaluation and management of obesity."

On the heels of the A.M.A's decision, members of Congress introduced the "Treat and Reduce Obesity Act." This bill would force Medicare to cover both weight loss counseling and also weight loss drugs for chronic weight management. If this Act is agreed to in this year's congress, then Medicare would cover weight loss drugs beginning in 2015. "(B) Effective Date- The amendment made by subsection (A) shall apply to plan years beginning on or after the date that is 2 years after the date of the enactment of this Act" You could see commercial payers cover weight loss therapies in greater numbers in 2014 and it is possible you could see full commercial and government coverage in 2015-2016.


Belviq officially became available for marketing on June 7th but it wasn't available in 20,000 retail pharmacies until at least June 11th. As such, the first week's reported script numbers by IMS Health only included 3 days of availability and as the kinks get worked out of the infrastructure over the next few weeks, we should have much better insight into the launch success Eisai is experiencing. On Friday, it was reported within social media that the first 3 days of Belviq availability resulted in 1,087 filled scripts. That is approximately 10X the volume of scripts Vivus's (NASDAQ:VVUS) Qsymia did in the first week of availability. I believe if this trend continues, Belviq will be outselling Qsymia within its first month of availability -- Qsymia has been on the market for 10 months. By the end of 2013, I believe you will see Belviq outselling Qsymia by a factor of 10-1. This is confirmation of my opinion expressed for many years that Qsymia does not have the profile of a 1st line therapy; it isn't novel and is simply a very expensive combination of generics that weight loss specialists have already been prescribing for more than a decade.

On a recent interview on the Dr. Steve Show, Dr. Sue DeCottis from DeCottis Medical in Midtown Manahattan echoed the excitement weight loss specialists have around Belviq and why Qsymia isn't really a factor. It is the embracement of Belviq from the weight loss specialists that will fuel the early success of Belviq while the education for other specialties and primary care physicians takes place. One of my contacts who owns a weight loss clinic is already writing 5 scripts per day of Belviq and phentermine in combination and I believe this is happening in numerous clinics throughout the country. I am looking forward to writing an upcoming article on the early results seen from this potential powerful combination therapy. Once news of the early success makes its way through social media, the demand for this combination should increase exponentially. Arena and Eisai will be conducting formal safety studies with phentermine in Q4 of this year and expect results will be available this time in 2014. Sometime in the beginning of the year, I also suspect Eisai will begin direct to consumer advertising fueling the next wave of success stories.

As exciting at it is to witness the first few weeks of Belviq scripts, it is important to keep a long-term view on this equity. The fundamental shift in how obesity is viewed in the medical community and a much improved outlook for payer coverage makes this a multi-year investment. If Medicare and most commercial payers cover Belviq in 24-36mo, we will see Belviq become a blockbuster multiple times over. The first billion in annual Belviq net sales will generate Arena earnings of over $2. As Arena makes this transition from losing money to becoming profitable, increasing revenues, massive earnings with high-growth -- the market capitalization will increase significantly over the next several years. I maintain investors with a multi-year horizon will benefit greatly from their patience.

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.

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