Arena Pharmaceuticals Posts Q3 Loss But Pipeline Is Center Stage

About: Arena Pharmaceuticals, Inc. (ARNA)
by: Spencer Osborne


Arena reported a Q3 loss of $34.3 million or $0.70 per share.

Company had $3.6 million in revenue.

The Street wants to see big deals on the pipeline.

Arena Pharmaceuticals (ARNA) has posted its Q3 results and while the stock price did not appreciate the results, the company appears to be well positioned to get some critical work done over the next year. The Q3 press release pretty much summed up what the company feels is important at this juncture. It led with pipeline discussion rather than financial metrics.

The company noted just below the headline that Ralinepag, its drug candidate for pulmonary arterial hypertension, had open-label extension data which demonstrated durable, long-term improvements in both PVR and 6MWD.

With Olorinab, the company posted positive Phase 2a data for the treatment of pain associated with Crohn's disease; all patients with evaluable data at week 8 exhibited a pre-defined clinical improvement.

It is little wonder why the company was so keenly focused on the pipeline over financial metrics. This pipeline is very robust and has some compelling potential that could begin to come into play in the quarters ahead. See below.

Pipeline Update

Etrasimod – Next generation, oral, selective sphingosine-1-phosphate (S1P) receptor modulator intended for the potential treatment of multiple immune and inflammatory diseases

  • Ulcerative colitis (UC):
    • Phase 3 planning ongoing
  • Crohn's disease (CD):
    • Regulatory discussions and Phase 2/3 planning ongoing
  • Primary biliary cholangitis (PBC):
    • Phase 2 trial ongoing
  • Atopic dermatitis (AD):
    • Program planning ongoing

Ralinepag – Next generation, oral, once-daily, selective prostacyclin receptor agonist intended for the potential treatment of pulmonary arterial hypertension (PAH)

  • Advancing PAH Phase 3 clinical program.
  • Delivered positive open-label extension interim trial results.
    • Demonstrated durable, long-term improvements in both pulmonary vascular resistance (PVR) and 6-minute walk distance (6MWD).
    • Favorable long-term tolerability profile demonstrated.

Olorinab – Peripherally restricted, oral, full agonist of the cannabinoid receptor 2 (CB2) intended for the potential treatment of visceral pain, specifically pain associated with Crohn's disease

  • Delivered positive Phase 2a data in pain associated with Crohn's disease.
  • Demonstrated a statistically significant improvement in abdominal pain over 8 weeks of treatment.
  • All patients with evaluable data at week 8 exhibited a pre-defined clinical response of ≥30% change from baseline in Average Abdominal Pain Score (AAPS).
  • Treatment effects were demonstrated early and were consistent over the 8-week treatment period.
  • Appeared safe and generally well-tolerated.
  • Phase 2b clinical program targeting the treatment of gastrointestinal pain being developed.

APD418 (preclinical) - First-in-Class Calcium-Independent Myofilament Derepressor (CMD) for the treatment of decompensated heart failure (DHF)

  • Targets a novel mechanism that improves contractility without adverse hemodynamic changes.
  • DHF is an area of high unmet medical need with significant morbidity and mortality.
  • New preclinical data to be presented at American Heart Association (AHA) Scientific Sessions.

Collaboration Update

  • In October 2018, Everest Medicines received China Food and Drug Administration (CFDA) Investigational New Drug approval for Ralinepag.

Third Quarter 2018 Financial Results

Arena's financial update seems pretty tame when you think about what possibilities the pipeline might deliver. Revenues of $3.6 million, consisting of $3.2 million in royalty revenue and $0.4 million in collaboration revenue were reported. Neither number was a surprise, and neither is really offsetting some of the costs associated with the pipeline, but there are positives here which, over time, and when combined with future drugs, could drive some robust quarters in the not too distant future.

Research and development expenses totaled $28.8 million, which is not shocking given the extensive clinical trial work that is ongoing. Investors should expect this line item to continue to be a bit expensive in the quarters ahead.

General and administrative expenses totaled $10.8 million, which is pretty much in line with what would be expected.

The Net loss attributable to stockholders of Arena was $34.3 million, or $0.70 per share. This was pretty much what the Street was looking for. A key metric is that Arena finished Q3 with an impressive $562 million in cash and cash equivalents.

Management indicates that it is expecting big things to happen over the next 12 to 24 months. This is critical for Arena investors to understand. The company is at a point where it has some great data on various drug candidates for various conditions. There is already enough data to start attracting possible partnership discussions that are deeper than simple probes that sometimes transpire.

With its cash balance, Arena holds a lot of leverage. In point of fact, Arena can exist for well beyond that 12-month to 24-month period that management expects big things in. In simple terms, Arena is not going to lose any leverage because of its financial position, and can work out partnership discussion on the strength of the drug instead of discounting because of a weakness in the balance sheet.

I see this equity as a buy at current price levels with a $60 target in the next 12 months if continued positive progress continues, and a higher stock price if a partnership happens. This should be an equity you give a lot of consideration to. 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.