Is Belviq The Next Global Blockbuster?

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In its recent quarterly update, Arena Pharmaceuticals (NASDAQ: ARNA) announced some important new developments. For example, the company announced that it is working on establishing Belviq as a therapy for various indications such as smoking cessation, and doing trials in combination with agents such as phentermine and metformin. Arena will disclose more details after consulting with the FDA on further studies.

Another important announcement was partnership with Ildong Pharmaceuticals to penetrate the South Korean market that has a huge number of obese patients. I believe this is one in a series of strategic partnership that we will hear from Arena, to address the obesity problem in a number of countries.

As an investor, I like the idea of receiving milestone payments and various streams of income from different partners based on their net sales, and partners usually cover the costs of getting local approvals. In the case of Ildong, the payments include a $5 million cash upfront and $3 million once the drug is approved by KFDA in South Korea. I believe having the US FDA approval opens doors to Arena and its partners obtaining approvals around the globe as most other regulatory agencies will use FDA’s due diligence as basis of their assessment.

The idea of Belviq becoming a blockbuster is emerging as a reality before our eyes. I think in the next six months not only we will see a Big Pharma partner with Arena in the EU, but we will see strategic partnerships covering most of the globe including other large markets of Asia and beyond. Arena’s partner already is working on penetrating the North and South American markets.

In my opinion, once these partnerships flourish, Arena will be every investor’s dream: a small research and development joint pounding out global blockbuster molecular agents and combination therapies!

It’s noteworthy that Belviq is not only a great treatment for obesity, it could potentially become the favorite first-line therapy for Type II diabetes and Metabolic Syndrome which provide Belviq an even bigger market than the existing, humongous, under-served, global obesity market.
 
Arena’s margins on Belviq are high enough to make Belviq very profitable. Arena provides the global market "Swiss Quality" tablets manufactured to highest standards in Zofingen, Switzerland. A negotiated, friendly Swiss tax system adds icing on the cake of Arena’s balance-sheet and profitability.

In its conference call Arena indicated that its US marketing partner Eisai believes:

“Belviq will be one of the most important compounds in the history of their organization, based on the drug’s strong marketing position. Eisai is focused on delivering increasing sales of Belviq each year by expanding its sales force, following the initial market penetration and improved reimbursement.”

Initially, Eisai will target 30,000 physicians in the US. I have a friend who has 300 obese patients! If these 30,000 doctors have half as many patients, we are looking about initial targeting of about 4.5 million patients which is a fraction of the US obesity market – add to that Type II diabetes and Metabolic Syndrome and we’re looking at a huge growth potential for Arena & Eisai in the US alone.

Eisai’s US CEO recently indicated they will eventually look into expanding their sales force through direct hire or contract sales organizations – or I suppose through partnerships with other big pharmas.

Arena’s global market is set to increase dramatically once it obtains European approval in the first half of 2013. I anticipate a positive recommendation from CHMP will be issued 1Q2013. I am confident Belviq will be approved in Europe. Obesity is a real problem in Europe and EU has recently rejected Qsymia by Vivus (NASDAQ: VVUS) due to safety issues. Belviq is far safer than Qsymia and Arena indicated EU did not ask any surprise questions, or questions the FDA had not asked. Arena has addressed EU’s 120 day questions so the application is progressing smoothly.

Furthermore, Arena expects a decision from Switzerland’s regulatory body, Swissmedic in the first half of 2013 as well. I expect that to be positive as well.

It's noteworthy that Arena is the only company with a new breakthrough obesity medication that has started to penetrate global markets. Orexigen Therapeutics (NASDAQ: OREX) is at least a year away from obtaining FDA approval, and longer in obtaining EU approval if it doesn't face the same challenges Vivus had in Europe. Both Qsymia and Orexigen's Contrave also face generic competition which Arena doesn't have to worry about.

As Belviq moves towards a global blockbuster status, Arena short sellers have been increasing their exposure, setting themselves up for a painful short squeeze. I’ll go over this in further detail in my next MF article.

Know What You Own

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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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