Arena Pharmaceuticals (ARNA) has announced that the company has partnered with Everest Medicines on Raliepag and Etrasimod in China and other Pacific region countries. The deal pays Arena $12 million in upfront cash and includes up to $212 million in milestones. In addition, Arena will receive royalties on the net sales of each drug that can go as high as low double-digits.
Ralinepag has completed phase 2 clinical trials in the United States for the indication relating to Pulmonary Arterial Hypertension, and is poised to enter a phase 3 program. Etrasimod is in phase 2 clinical trials in the United States for the indication of Ulcerative Colitis.
With this move, Arena has engaged a professional company well versed in the development and regulatory process involved with getting a drug approved and launched. Everest will be responsible for funding and navigating the entire process within the listed countries.
What does this deal mean to investors? In the short term, not very much. Getting $12 million in upfront cash will not create a material shift in anything Arena does. In the longer term, the deal makes logical sense. The pharmaceutical business in the region is complex. In my opinion, it is far better to engage professionals that are experienced in this area than to attempt to do all of the learning and legwork necessary to advance the program in that area of the world. This move allows Arena to focus efforts on the United States and Europe while its partner focuses on the China-related countries. Arena retains rights to both drugs in all other regions.
In my opinion, Arena was in a very good negotiating position with both of these drug candidates. This means that details of the contract are likely very fair to both parties. That is an important note for investors. Having good partnership deals in place does not hinder possible M&A activity, whereas a bad deal could set up a substantial roadblock. This means that possible M&A remains alive and well with Arena Pharmaceuticals, as are possible partnerships for Europe and North America. Further, the establishment of a China deal could serve to be a signal to other potential partners or suitors that now is the time to step up to the plate. In my opinion, at least at this stage, there is nothing to dislike about this Everest deal.
Arena has been flirting with a price per share above $30. This deal will not drive the price to new highs, but will solidify a foundation for the company that essentially removes a bit of the risk associated with investing in a smaller drug development company.
I see Arena as a good play because of the quality of the pipeline candidates and the stage at which the development of the pipeline exists. Arena could stack the deck with several pipeline developments, deals, and advancements throughout next year. This company is not reliant on a single drug delivering a home run in order to survive. Instead, it has several paths to possible success, any one of which could be very interesting for investors of any type.
Let me be clear. Arena is still a speculative play in many respects. It just so happens that between cash on hand, an existing drug on the market in Belviq, and a mature pipeline, the risk level is at least partially mitigated by a wide and strong foundation. Stay Tuned!
Disclosure: I am/we are 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.