Arena Pharmaceuticals Announces Positive Phase 2 Results in PAH

Summary

• Ralinepag shows remarkable improvement in patients with pulmonary arterial hypertension.
• Positive results in the PAH trial was a much needed change after the company's first FDA approved product didn't sell well.
• Cash is only expected to last for the next 12 months.

Monday, Arena Pharmaceuticals (ARNA) announced positive phase 2 results in patients with pulmonary arterial hypertension. The stock shot up as high as 41% in after-hours trade on the news to $25.99 per share. These results paint a new picture for Arena who has suffered over the last few years with an obesity drug known as Belviq.

Phase 2 Data

The phase 2 trial recruited a total of 61 patients with pulmonary arterial hypertension -- PAH. Patients in the study either took Ralinepag or a placebo. The trial met on the primary endpoint of the study in that the drug demonstrated a statistically significant absolute change in baseline in pulmonary vascular resistance -- PVR. Patients treated with ralinepag showed a 29.8% improvement in PVR compared to placebo with a p-value of p=0.03. That means that the primary endpoint reached statistical significance. In addition, there was a 20.1% improvement in patients treated with ralinepag compared to baseline. Arena plans to present the full positive data at a future medical conference. What is even better is that this data gives the company the backing to move to a phase 3 clinical trial. The Chief Scientific Officer of Arena, Preston Klassen, M.D. had this to say in a quote:

"It is exciting to see the positive nonclinical pharmacological profile translating into potentially the first oral prostacyclin therapy that may approach consistent therapeutic levels without the complexity of parenteral (IV) therapy. These data give us confidence to move expeditiously toward a Phase 3 clinical program."

What is being described above is that the oral drug from Arena Ralinepag might be close to achieving the same therapeutic effect as those drugs that are given intravenously. An oral treatment option for these patients would be a lot more ideal. PAH is a life threatening disease because there is a strain on a patient's heart which can lead to heart failure. What happens in PAH is that there is an increase in pressure in the arteries that carry blood from the heart to the lungs. In other words, the arteries become constricted, and that makes it difficult for the blood to get to its destination.

Major Setback

An issue that has been plaguing Arena Pharmaceuticals for many years was the approval of its weight loss drug Belviq. The company had chosen to dump the drug over to its worldwide marketing partner Eisai. That means that Eisai took over all responsibility for selling Belviq in the market. The reason for the change, as noted by Arena, was so that it could instead focus on its pipeline. The therapeutic results posted on Monday in PAH prove that it was a wise move. Arena not only was able to shift focus to its pipeline, but it also received other benefits by getting rid of Belviq. First, Arena landed up to $23 million in cash payments. Secondly, it saved around $80 million or more in cost savings from walking away from the drug. The obesity market wasn't just a tough nut to crack for Arena. Both Orexigen (OREX) and Vivus (VVUS) also faced hardships in the obesity market. In March of 2016, Takeda walked away from its deal with Orexigen. Vivus who decided to go solo selling its obesity drug has performed poorly as well. Despite this setback, Arena has pulled through with its latest clinical results. Not having to rely on Belviq is a good thing for the company.

Financials

According to the most recent 10-Q SEC filing, Arena has cash and cash equivalents of $79.5 million as of March 31, 2017. After the SEC filing, Arena raised around $79.4 million in April of 2017. Arena offered to sell 69 million shares at a price of $1.15 per share. The company now has enough cash to last for the next 12 months. That is a big problem because biotech companies with one years worth of cash don't wait until the end to dilute. There will likely be a cash raise within the next few months which would put some pressure on the stock.

Risks

There are quite a few risks for those who are investing in Arena Pharmaceuticals. One such risk is that while the phase 2 results were positive, that doesn't automatically mean that the phase 3 results will come out the same way. Without finding an adequate partnership for another product in the pipeline Arena will have to raise cash one way or another. That might involve taking on debt or diluting shareholders. Even if the company passes a phase 3 trial with Ralinepag there is no guarantee that the FDA will approve the drug in its current form.

Conclusion

Arena Pharmaceuticals has posted positive results in a phase 2 trial treating patients with PAH. That provides these patients the ability to take an oral drug instead of having to go through an intravenous infusion. These positive results point to a major shift for Arena as a biotechnology company. Dumping Belviq over to Eisai just might have saved the company from collapsing.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.