Nobel Prize and the Next Biotech Goldmine
Reza is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earlier this month, the 2012 Nobel Prize in chemistry was granted to two American scientists for their work on a G-Protein Coupled Receptors (GPCRs), a.k.a. "seven-transmembrane domain receptors" which sense external molecules and activate internal signals and cell response. These receptors are linked to a wide range of diseases. Around 70% of all medicines today somehow affect these receptors and most of them were developed without a good understanding of GPCRs.
Arena Pharmaceuticals (NASDAQ: ARNA) has focused their research on GPCRs, and developed breakthrough technologies in selectively targeting these receptors. This selective targeting is one reason Arena's obesity medication, Belviq, which should be available soon, has such an excellent safety profile.
Many drugs that either do not selectively target these receptors or sloppily effect them cause extreme side effects. My uncle who was in the hospital recently was hallucinating due to a pain medication. The person next door had the same hallucinations which caused chaos in the hospital.
Another obesity drug, Qsymia, by Vivus (NASDAQ: VVUS) has serious side effects (e.g., birth defects and increased heart rate), which make some doctors either hesitate or refuse to prescribe it. Qsymia was recently rejected in Europe due to safety concerns including cardiovascular risk. Orexigen Therapeutics (NASDAQ: OREX)'s Contrave also stimulates the metabolism and FDA has required a pre-marketing cardiovascular study.
Arena's Belviq's selective GPCR targeting has allowed Arena to bring a drug to market with an excellent safety profile and therefore, according to many doctors, will be the first-line and preferred therapy for obesity (see diabetes benefits below).
Dr. Daniel P. Lopez, M.D., F.A.C.O.G., an obstetrician and gynecologic surgeon in Los Angeles who has obese patients and is eagerly awaiting Belviq to become available wrote:
"The receptor study submitted in the first NDA was supplemented with data that shows there is no risk of valvulopthy associated with Belviq. The experiments confirmed that Belviq has greater potency at the serotonin 2C receptor than at the serotonin 2A or 2B receptor. Furthermore, the results demonstrated that Belviq's potency is closer to the reference compounds that do not cause valvulopathy that those that do."
Credit Suisse (NYSE: CS) can sing the mantra of "valvulopathy" as a risk in approval in Europe all they want, but I believe European Union's Committee for Medicinal Products for Human Use (CHMP) understands the GPCR receptor study, as the FDA did, and far better than Credit Suisse analysts. Sanjay Kaul sang that mantra at the FDA AdComm, but FDA sided with science and evidence that does exist, not clinical signals that don't. Furthermore, Arena's already good chances of receiving approval in Europe have become stronger with the award of the latest Nobel Prize in Chemistry, which further verifies Arena's development platform.
Dr. Lopez recently told me Belviq is a gold mine because not only is it the preferred therapy for obesity, but he believes it could become at least second-line or even first-line therapy for Type 2 Diabetes. See his extremely fine article: Belviq: A Novel Multipotential Therapeutic and Preventative Anti-Obesity Medication. Biotech goldmines don't come around that often.
It's only a matter of time before Arena's stock is fairly valued, not at price targets of those who cater to short interest, or who have institutional clients seeking the lowest possible price, but fair value that reflects Belviq's true potential, certainly not its current price.
I know a lot of Arena investors and it's refreshing that so many of them who have been around a lot longer than I think a buyout at triple the current value is not fair value – many expect more. I suspect that with strong Belviq initial sales we might be looking at a $6 Billion company next year. At the current number of shares outstanding that would translate to about $25/share.
There are a number of good models out there that predict the price eventually going above $50, but many investors think the company will be bought out as soon as Big Pharma, which has a dwindling pipeline, sees Belviq's good sales. That may be 1st or 2nd quarter of 2013. I see prospects of a bidding war further fueled by a short squeeze!
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The views expressed above are only opinions and are NOT investment advice and are NOT medical advice. Please always do your own research. I am long ARNA and have no positions in the other stocks mentioned above. To find out more about my interests please visit www.rezamusic.com . If you like to join my private Arena-related mailing list send an email to (info -- at -- rezamusic -- dot -- com).
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