Memorandum

Arena 3Q15 – Belviq (lorcaserin) revenues down 45% YOY and 24% sequentially to $9.2 million; Company announces cost reduction plan and discontinuation of Belviq’s lifecycle management programs – December 8, 2015

Executive Highlights

  • Management reported that Eisai recorded Belviq (lorcaserin) revenues of $9.2 million (of which Arena received $4.9 million) in 3Q15, down 45% year-over-year (YOY) and down 24% sequentially, representing Belviq’s lowest quarter since 1Q14.
  • Arena recently announced a new cost reduction plan, which will reduce its US workforce by ~80 employees (35%) and discontinues Belviq’s lifecycle management programs, including the lorcaserin/phentermine combination as well as the smoking cessation indication.

We’re back with our expanded coverage of Arena, which recently provided its 3Q15 update in a call led by interim CEO Mr. Harry Hixson. Management reported that Eisai recorded Belviq (lorcaserin) revenues of $9.2 million (of which Arena received $4.9 million) in 3Q15, down 45% year-over-year (YOY) and down 24% sequentially. This represents Belviq’s lowest quarter of revenue since 1Q14 and expresses well management’s understatement (and ours) that the obesity market’s growth has not met expectations. Specifically, for 3Q15, the obesity market grew 13% YOY but dropped 21% sequentially to $33.2 million – this comprises revenue from Belviq, Orexigen/Takeda’s Contrave (naltrexone/bupropion), and Vivus’ Qsymia (phentermine/topiramate) (Novo Nordisk’s Saxenda [liraglutide 3.0 mg] is not yet reported). Notably, Arena recently announced a new cost reduction plan, which will reduce its US workforce by ~80 employees (35%) with expectations to cut $11 million of expenses. In addition, this initiative includes the discontinuation of Belviq’s lifecycle management programs, including the lorcaserin/ phentermine combination as well as the smoking cessation indication. However, the company stated that plans to file the NDA for Belviq’s once-daily extended release formulation (Belviq XR) by the end of the year remain on track and that it continues to support Eisai’s efforts to discuss Belviq’s potential in Mexico, Brazil, and Israel. Conversely, management announced that they no longer expect Eisai to resubmit in Europe in March 2016 (as previously planned), although no new timelines were provided. This makes sense that future submissions would likely only be next-generation products. In addition, Arena emphasized its support of Eisai’s efforts in Belviq’s CVOT CAMELLIA, pointing out that market research has suggested that positive CVOT data can enhance payer coverage and “uplift” the obesity drug market. Since the trial’s data are not expected until 2018, management noted current efforts to instead advance its clinical pipeline, although the focus was not on obesity but rather on Arena’s work in inflammatory bowel syndrome and pulmonary arterial hypertension. This disappointing update from Arena is another clear indication of the challenging nature of the obesity market, although we would agree that future CVOT results could potentially provide the hard data payers want to see. Even so, we are disappointed to hear that the lorcaserin/phentermine combination is now on hold, as this could have served as a promising alternative therapy for patients dealing with obesity. Please see below for Q&A of the call and see our updates from Vivus and Orexigen for more on the obesity market.

Questions and Answers

Q: Can you talk a bit about strategy in terms of what your plans might be with the three phase 1/2 programs that you have in development? Are those programs ones that you can keep in-house and commercialize on your own? Or do you plan to partner them, or a mix there? And then if you do plan to out-license them, what are your plans?

A: We can't afford to take all of those programs in the clinic all the way through to phase 2. So we are going to partner one or more than one, but probably not all of them. And that will depend obviously upon collaborators' interest.

Q: To clarify, you can't afford to bring all of them through phase 2, or all of them through phase 3? Might you partner one or more right after Phase 2?

A: I think we're willing to partner at least one or perhaps two before we complete phase 2. As we've stipulated, we maintained a core research capability, so we think we will be able to continue to identify novel GPCR targets and bring them forward, potentially to collaboration or potentially alone, if we decide to do that in the future.

Q: On CAMELLIA, you mentioned data in 2018, but can you give us any more of an update on the intermediate milestones around when you think you might complete enrollment?A: That study, as you may remember, is designed to enroll 12,000 patients and according to Eisai, they expect full enrollment before the end of this year.

Q: With the cost-cutting saving you $11 million year-over-year and then some other potential cost savings as well, how should we think about overall operating expenses, directionally in 2016? Will they be down relative to 2015, or is this offsetting some other growth?

A: No. We expect significant reduction in cost in 2016 over 2015.

Q: When you think about the discovery engine you have at Arena, and the ability to bring new assets into the clinic, when is the right time to partner things? Are you planning on continuing to generate proof of concept clinical data, or could we see any earlier partnerships for pre-clinical assets?

A: You may see some partnering for preclinical assets because we have seen some recent interest in some of those. At this stage, for a company like Arena, the optimal time to partner would be after positive phase 2 results. I'm not sure that the company can afford to take all of its current clinical trials through to the completion of phase 2 and positive results. That's the reason we might be willing to partner some assets before such time.

Q: Regarding Eisai's focus on territories where there's reimbursement, where does the current head count stand in terms of reps detailing the drug? Will there be any changes to that as a result of this focus?

A: At this point, Eisai has not announced any plans to change the current number of reps they have. What they are trying to do is focus more on the areas where overweight and obesity is prevalent and the insurance coverage is more willing to reimburse.

Q: Regarding their plan to focus on certain areas where the obesity rate is high and there's insurance, is that half of the country or only a few areas?

A: It's a significant part of the United States. We don't want to go into much detail because we don't want to give up too many competitive and marketing secrets at this point. There are certain areas like the Southeast where there are significant obesity problems and the insurance tends to be better there than other areas.

Q: What is your general commentary on the competitive landscape of oral branded medications in obesity right now?

A: It is important to realize that phentermine is dominating the market; that's the giant in the market and everybody else is like the midgets. We are all struggling. Some are doing better than others, but certainly I think everyone is struggling vis-à-vis what their expectations were when they initiated these drug development programs.

Q: Regarding the development of the Belviq and phentermine combo, what's the cost-sharing plan with Eisai?

A: That development program would be a 50/50 cost sharing with Eisai.

 

-- by Melissa An, Sarah Odeh, Madellena Thornton, and Kelly Close