Arena's Weight Loss Drug Faces Relatively Easy Path to Approval

by: Michael Murphy, CFA
On the Arena Pharmaceuticals (NASDAQ:ARNA) conference call this morning, a lot of important new information came out, which I have shown in bold below. They ran out of time before they could get to my questions, but they answered most of them anyway.

Management said again they are encouraged by the content of the Complete Response Letter (CRL) and believe they have a path forward to approval for lorcaserin. For the reasons listed below, I think it is a relatively easy path, especially compared to what would have happened without the petition and letters. So thanks again to the 2,000+ people who participated by petition, emails, letters, faxes and phone calls in getting Lorqess a fair review.

Obesity is a disaster, costing $147 billion a year or 10% of all healthcare costs. Obesity doctors desperately need a new drug that works, and the Completer data shows that two-thirds of those who stayed on Lorqess lost at least 5% of their weight, which reduces the probability of progressing to diabetes by 58%. One-third got a 10% weight loss. One-quarter lost at least 35 pounds. These numbers are huge, and can have a very, very significant impact on national health care costs as the baby boomers age, as well as on the quality of life of tens of millions of people. That is why we are invested in this company.

This week, they will request a meeting with the FDA to get the details on what will be needed. They are requesting a Type A meeting, which usually occurs within 30 days, or by November 30 accounting for Thanksgiving. At that meeting, they will work out specifics on who will review the rat cancer data.

Before that meeting, they will have the top-line data on the BLOOM-DM trial of Lorqess in diabetics. This was a one-year trial in 604 people with diabetes. Again, a complete set of echocardiograms was done on each patient to rule out valvulopathy (which no longer seems to be of any concern to the FDA, anyway).
BLOOM-DM has the same primary end points for weight loss as BLOOM and BLOSSOM. Management mentioned twice that historically, weight loss drugs tend to show less weight loss in diabetic population. What they did not mention is that the weight loss by placebo patients in the BLOOM and BLOSSOM trials was much larger than in the trials for Vivus’ (NASDAQ:VVUS) Qnexa or Orexigen’s (NASDAQ:OREX) Contrave. That was an important reason for the “marginal” efficiency of Lorqess – the placebo folks lost so much weight. I think that happened because the low incidence of side effects made it harder to tell who was on the placebo and who was on the drug, compared to the Qnexa and Contrave trials. Placebo patients that thought they were on the drug, stayed in the study longer and followed the diet and exercise guidelines, would lose more weight.

I believe the placebo patients in BLOOM-DM are likely to not lose or even gain weight, making a much easier comparison even if those on Lorqess lose less weight than in the BLOOM or BLOSSOM trials. Management did say they expect better glycemic numbers in the Lorqess patients, which would come with weight loss. They said that BLOOM-DM will be valuable to show how Lorqess works in an even more compromised patient group and for the glycemic numbers. Also, there are no different or more serious adverse events expected in BLOOM-DM than were seen in BLOOM and BLOSSOM.

In addition to the top-line data coming in the next few weeks, Arena will have the full analysis ready by the end of the year. So 30 days after meeting with the FDA, they will be able to submit the data covering the most important of the two FDA concerns.

Q & A Session

Q: Do you have the data and slides on hand to reanalyze the rat data, or do you need to do new studies?
A: We do have the data and slides, and we do not need to do additional carcinogenicity studies. We can provide some data on mechanisms and need to develop other data. This will require additional short-term mechanism studies.

Q: What did the FDA mean by a detailed accounting of slides prepared?
A: This relates to the changes in classification of tumors from one reporting period to the next. Normally, the FDA only sees the final data. But the Agency wanted an update every two months. Arena had one veterinary cancer expert give the initial reading, and then had a three-person peer-reviewed panel adjudicate the slides. In each two-month report, the FDA got a mix of initial readings and final readings, except at the end when they got the final readings. I wonder if this is the first time the FDA saw initial data as well as final data.

Q: Any idea why the female rat placebo tumor numbers were higher than usual? No. They were 44% vs. 40% usually.

Q: Any need to do tests in another animal? No. Our belief it is a rat-specific effect. Mouse data at 4x dosage completed clean.

Q: Do you have any data that rats with prolactin peaks got cancer and those that don’t, don’t? No, because one is always taking animals at different stages of peaks and valleys of prolactin. Arena stabilized prolactin levels for the reported results. The company continues to think the prolactin response was more than sufficient to cause cancer. The prolactin receptor is very sensitive.

Q: Is “marginal” efficacy something that will affect approval? We don’t think so. The Completer data was very good. The CRL essentially says that the BLOOM-DM data will be sufficient to answer most of the efficacy questions.

Q: What about the issue of patients not being representative? Management cited the percentage of people with various co-morbidities. This issue has always baffled me, as the Advisory Panel seemed to think Lorqess was tested in healthy people. A Body Mass Index over 30 is not healthy or normal. A person with a BMI over 27 and co-morbidities like high blood pressure, hypertension, valvulopathy or a history of cardiovascular disease is not healthy by definition. This issue seemed to be made out of whole cloth by the FDA. One wonders if they even would have allowed a new chemical entity to be tested on people known to be sicker than the entrance criteria for those with a BMI over 27.

Q: How hard is it to look at central nervous system levels in humans versus animals? The company is exploring if there are ways to do this with PET scans.

Q: What about the Schedule IV classificaiton? No big deal, it allows for five prescription refills. Ambien, Provigil, and Darvon are Schedule IV drugs. Arena will work with Eisai (OTCPK:ESALY) on a rationale to complete studies to change the classificaiton, if needed.

Q: What will Eisai do if Lorqess is approved only for diabetics? Under the contract, Eisai can sell in the U.S. for all label indications.

The Bottom Line

Arena will meet one of the two conditions by the end of the year, by submitting the BLOOM-DM data. I expect no surprises, unless the placebo patients gain weight and make Lorqess look even better.

They will meet with the FDA by the end of November. I expect the parties to agree on a three-person panel to review the rat data. The FDA’s thin justification for combining the cancerous and non-cancerous tumor data related to the reclassification of the tumor data. We now know why that happened, and also why it confused the FDA. The panel simply needs to validate each tumor type. Then they re-run the statistical significance calculations and – surprise! – there is no statistically significant increase in cancerous tumors until rats get over 50x the human dose. That panel can also review the literature on method of action, supplemented by any short-term studies that Arena provides.

I expect this work can be completed by the end of January and submitted in February. The two questions of mine that did not get answered were:

(1) Given the small number of specific issues, how long would you expect FDA review to take?

(2) What will be the extent of Eisai’s financial support during the next 6 months?

I don’t believe it will take the FDA six months to review these two specific items, but it could take three months. So I want to amend my February-April timetable to April-June. Arena has plenty of cash for the coming year, and nothing the FDA has asked for is very expensive. With the completion of the BLOOM-DM filing, a lot of expenses for consultants and such will go away. So while Eisai will be providing some financial support, it isn’t relevant.

So we have the following stock-moving events:
  • ARNA releases top-line data on BLOOM-DM - this is the only "real" issue for approval
  • ARNA meets with FDA by November 30
  • ARNA files BLOOM-DM data by the end of the year
  • ARNA files rat cancer review in CRL response by February 28
  • ARNA gets final Lorqess decision from FDA April-June
The shortsellers pre-packaged story featuring “Rejected” in the headline was picked up by everyone except Andy Pollack of The New York Times and Gekkowire. The slightest bit of original work by the other “reporters” would have disclosed that on July 24, 2009, the FDA implemented a three-step response to New Drug Applications: Approvable, Complete Response Letter, and Not Approvable. “Rejected” is not an FDA response, although I guess it could be used as a synonym for Not Approvable. It is not an accurate description of a Complete Response Letter, except in the mind of a shortseller or those he is trying to influence.

Disclosure: Long ARNA

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