I have seen a pretty steady stream of communications regarding the new pricing for Belviq, the 15 day free sample, and the 30 day Doctor's office freebies. There seem to be many opinions about each.
I believe that the doctors office samples (launched in early October) were a very direct response to the pending launch of Contrave and the thought that Takeda would utilize free samples at the doctors office. Further, I believe that this concept made people at Eisai a bit nervous and the response was to initiate a free sample program that would give a potential patient a 30 day supply for free.
Ultimately, Takeda flipped the table on everyone when they launched Contrave in lat October and instead of offering a free sample at the doctors office, simply carried a very low price point. Essentially, Eisai was now committed to a program of doctors office samples yet had to now consider the low price point of Contrave.
In response, I believe that Eisai shifted gears to lower the price of Belviq and in doing so, decided to abandon the doctors office sample program. Simply stated, it is my opinion that Eisai has been very reactive with these things rather than proactive.
I think there is also a possibility that the free 30 day supply served to shrink up inventory that may well have been on the path to expiration. Let's remember, that the sales expectations were initially expected to be quite high and that a certain level of stuffing the channel was happening. In concept, it is likely better to offer pills that are nearing expiration as samples rather than having them go to waste.
If the intent of Eisai last October was to offer a lower price point, then one would have to question why the launch date of the new price point was pushed back in January. In my opinion the answer is simple. Lowering the price was not something that was being considered until late November or early December when it was clear that Contrave's price was bringing a lot of scripts in the door. We need to remember that the first few weeks of the Contrave launch were weak and impacted by computer errors that were not getting scripts filled in a timely manner. Week 1 of the Contrave launch was 154 scripts, week 2 was 374 scripts, and week 3 was 657.
In my opinion the move for doctors office samples was an attempt to preempt what was anticipated from Contrave in reaction to a concept that was widely discussed by analysts as Takeda prepared to launch. I think that there was some "belief" in the doctors 30 day samples up until the point where the Contrave launch really took off. At that stage, the reaction was to lower the price and abandon the doctors freebies.
The most troubling thing I have seen with regard to the doctors samples was the fact that doctors seem to have decided to use these samples to give to existing patients rather than to attract new patients. Exactly how wide spread this dynamic was is unknown, but the fact that no stringent parameters about how these samples were dispensed would seem to indicate that proper planning of the program was not conducted. In my mind this points to the concept being reactionary rather than well thought out.
The shift to a $75 price point seems to have had more thought behind it, but has still not been seamless. The launch of the pricing was delayed, and clarity of price point is still up in the air for many. Eisai cut back the number of reps from 600 to 450 at the same time. Personally, I would have thought that keeping these reps on to get the word out on the new price would have been valuable, but that is merely my opinion.
At the end of the day, the numbers all need to boil down to revenue for Arena. Freebies do not generate meaningful revenue in and of themselves. Yes, the cost of the sample is covered, but the idea is to get to profits. I hear a lot of talk that the script numbers are not considering samples, and therefore the numbers are higher. The key is getting 1.5 million paying scripts in 2015. That is the pace that needs to be demonstrated.
Think about this. I have estimated $35 million in revenue from Belviq sales. Many analysts are in the same ball-park. At some point, analysts will begin to assess the likelihood of getting there. As each week passes, the chances of an analyst assessing the pace and publishing a report increases. If paying sales are not hitting the required pace, even bullish analysts will need to adjust.
Some say that weekly script numbers are just noise. I disagree. The weekly numbers represent the path to acceptable revenues that can drive the price of the stock. The noise comes in the form of excuses about samples, weather, holiday's, etc. Pay close attention over the next few weeks, because I guarantee you that the street is.
Disclosure: The author is long ARNA.
Additional disclosure: I have no position in Orexigen