Arena Pharmaceuticals' Solution to a Billion Dollar a Day Problem

REZA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Aside from their impact on quality of life of millions of people, and causing death among many of their victims, obesity and diabetes are the top burdens on the healthcare system in the US. The following statistics are shocking:

a) A 2012 Cornell University study published in the Journal of Health Economics estimates that the treatment of obesity in the US costs $190.2 billion per year.

b) According to the American Diabetes Association, treatment of diabetes costs over $200 billion a year in the United States.

If we combine these costs we get $1.068 billion a day cost associated with obesity and diabetes.

Obesity & Diabetes On The Rise

A recent Gallup pole showed that since 2008 obesity has increased in nearly all age groups in the US. In 2010, an estimated 79 million American adults were pre-diabetics and 1.9 million were being newly diagnosed. Obesity is usually the culprit for many other conditions. In fact, a cardiologist wrote:

"Almost every patient I see in the hospital started out with obesity as their first problem. Then diabetes follows, hypertension, atherosclerosis, renal failure, heart failure, amputations, dialysis, respiratory failure, myocardial infarction, sepsis, stroke, and death. You would think the hospital beds are filled with people dying from cancer or damaged lungs from smoking. Wrong, the hospitals are filled to capacity with obese people."

Arena's Solution: Belviq

I know this field from direct personal experience. A very close, loved relative is obese. She's tried everything and has ended up gaining more weight than before. Like millions of other obese people, she desperately needs help. I have done a lot of research in this area and have came to realize that Arena Pharmaceuticals (NASDAQ: ARNA)'s Belviq is the best weight loss drug there is because of its excellent safety profile efficacy.

Safety

Belviq does not raise the heart-rate, doesn't increase blood pressure, and doesn't have the awful side effects of some other drugs, such as Vivus' Qsymia, that include birth defects and cardiovascular risks. 

Efficacy

Two Phase III trials of Belviq showed completers lost an average of 8% of body weight and responders lost between 11% and 12% of body weight in a year. The top 25% of weight losers lost an average of 35 pounds in one year. This is very good efficacy.

Belviq For Treatment Of T2DM

Dr. Steven Vig, who treats many obese and diabetic patients, wrote:

The Bloom DM (diabetes mellitis) one year study produced a 27 point drop in the fasting glucose level on Belviq, along with a 0.9 point drop in the hemoglobin A1C level (compared to a 0.4 point drop on placebo).  These improvements are comparable to many of the diabetes pills that we currently use!

From an investment standpoint, no wonder another MD & scholar, Dr. Daniel Lopez, calls Belviq a goldmine! Can you imagine having a treatment that addresses a market size of $1 billion a day?!

What's Next?

We are waiting for the DEA to complete its review of the FDA's recommendation to schedule Belviq. This has taken the DEA around 5 months so far. It's mind boggling why the wait has been so long and whether the DEA or the Department of Justice understand the urgency of this epidemic. One of the many letters sent to the DOJ include my letter to the Attorney General, Mr. Eric Holder. Someone wrote the following satire about the DEA delay -- I do not approve of it because it's callous and it's fake, but it does reflect what some investors are thinking.

Arena's partner Eisai has experience marketing blockbusters in the US and I expect they'll do a great job with making Belviq available to all the patients who desperately need it. I believe that as it has done in the past, Eisai may partner with the top two biggest pharmas in the world, i.e., Pfizer (NYSE: PFE) and Johnson & Johnson's (NYSE: JNJ), or smaller US BP's such as Merck & Co (NYSE: MRK)‎ or Abbott Laboratories (NYSE: ABT)

Europe / ROW

While Vivus' (NASDAQ: VVUS) Qnexa was recently rejected in Europe, there's no doubt in my mind that Arena's Belviq will be approved in Europe because of its excellent safety and remarkable efficacy with responders. About 50% of European adults are obese or overweight. There is a clear unmet medical need, a ready target market for Arena and whomever will be their lucky partner in the EU. I anticipate Arena will partner with a large global player in Europe, such as Roche, which is based in Switzerland (where Arena's manufacturing is based), GlaxoSmithKline, Novartis, Sanofi, Pfizer, or some other global player. It will be very interesting to see who Arena will partner with in various territories, including the Asia Pacific.

Most of these companies are cash rich and have dwindling pipelines in need of replenishment. Arena is a perfect choice for a buyout, which I estimate will be valued at least around $6 billion or about $25/share.

The Big Picture

When it comes to do-or-die businesses, the biotech industry takes the cake. Arena Pharmaceuticals is one recent success story in the industry after gaining FDA approval for its innovative obesity drug. While the future looks bright for Arena, there are still plenty of obstacles ahead. In The Fool’s brand new premium research report on Arena Pharmaceuticals, they walk investors through the must know opportunities and threats facing the company. Since key news can develop quickly, they're also including a full year of updates for those who sign up. Click here now to learn more.


beatlesforever has a position in ARNA. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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