Trials Are Expected In Japan And China, But Arena's Belviq International Sales Will Have To Wait

| About: Arena Pharmaceuticals, (ARNA)
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Eisai to submit in China this summer.

Eisai to submit in Japan this summer.

Switzerland rejects Belviq application.

The good news about Belviq from Eisai (OTCPK:ESALY), the marketing partner for Arena Pharmaceuticals (NASDAQ:ARNA), is that the company intends to submit applications in both China and Japan in the next three months (page 19 of Eisai presentation materials). The bad news this week, not discussed by Eisai, and buried in the Arena 10Q was that the Swiss have rejected the Belviq application for approval.

Eisai disclosed that it intends to submit a Clinical Trial Notification in Japan and a Clinical Trial Application in China. These are essentially the initial steps in seeking an approval for a drug in the respective countries. This step is an early one in the overall process. Essentially the trials need to be conducted, results studied, and application for approval made. Approval can take months or even years. That being said, the fact that this is moving forward is good news.

The bad news surrounding Belviq use outside the United States is that to date, no other country has yet approved the drug for use. Arena pulled the application in Europe when it became clear that the company could not address concerns of the EU prior to a decision being made. Pulling the application let Arena avoid what would have been a rejection. In Switzerland, Arena (and later Eisai) seemed to feel that approval was possible. Ultimately, Belviq was rejected in Switzerland based on concerns similar to those raised by the European Union.

This leaves investors looking to Canada, Mexico, Brazil, and South Korea for the next news on the possibility of Belviq sales outside the United States. Eisai filed in Mexico and Canada in April and June of 2013 and Brazil in February of 2014. South Korean Marketing partner Ildong filed for approval in that country in November of 2013. Taiwan is on the radar screen with partner CYB, but as yet a date for application there has not been established.

Realistically speaking, possible approval in another country in 2014 seems to be resting with Mexico or Canada. Mexico has a large obesity issue and a large potential market. Canada is substantially less populous and represents a much smaller market. Next month the applications in Canada and Mexico will hit the 1-year mark. For perspective, the application in Switzerland was filed in July of 2012 and apparently the decision of a rejection was reached in the last couple of months (though the real story is unclear given the language of the Arena SEC filing).

For investors the bottom line is this. We should not expect any meaningful revenue to be generated from any other country in 2014. That boils down to U.S. sales driving the only meaningful revenue to Arena. There is still potential outside the U.S., and that could provide upside in 2015 and beyond, but the keys to seeing the Arena stock rise on business fundamentals are with U.S. sales, better insurance coverage, and increased awareness.

In my estimation, U.S. gross sales of Belviq are currently pacing at a bit over $100 million on a conservative approach or $125 million on a more aggressive approach. A 2014 with $100 million in gross sales will generate about $17.3 million in revenue for Arena. At gross sales of $125 million the Arena share would be $21.7 million. This represents a path to profits but does not yet deliver them. Arena will likely spend between $85 and $115 million this year. As you can see, patience and patients are needed to drive this equity.

Potential catalysts include pipeline studies and additional label indications such as the use of Belviq for smoking cessation. Results on these studies will come toward the end of this year. Potential risks are slow approval or rejection in other countries, slow adoption of the drug, or competition from companies like Vivus (NASDAQ:VVUS) with Qsymia or Orexigen (NASDAQ:OREX) with Contrave (if approved next month). Vivus has faced many challenges this year and sales have been pretty flat. Orexigen, assuming approval, has its marketing partner Takada committed to dedicating 900 sales reps to the Contrave launch.

Arena has been trading well off of its highs, and could be an attractive buy at current levels as long as you understand the playing field. Stay Tuned!

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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