Arena Pharma Will Dominate US, Europe & Rest of Globe's Obesity and Diabetes Markets

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

Many retail investors believe Arena Pharmaceuticals (NASDAQ: ARNA) has an emerging blockbuster in its obesity and diabetes medicine, Belviq. Institutional investors have not caught on fully but are getting there. Arena's institutional ownership has been streadily on the rise since FDA approval of Belviq on June 27, from 25% to 45% of the float. The American market is ripe and wide open, but Arena's prospects are global, another fact most Wall Street analysts have not yet considered.

Most analysts are still on the sidelines regarding the US market, let alone Europe. They were dealt such a fiction by hedge funds and Vivus (NASDAQ: VVUS) proponents that in the thawing of that fiction into nowhereland, the paradigm shift is taking them some time and pain. Main Street has been highly consistent throughout, however. Dr. Steven Vig, who treats many obesity and diabetic patients, has been one of Belviq's proponents for a long time. He's recently put together the a fine video explaining the science and the market thoroughly.

Obesity treatment has been an area in which retail investors have beat Wall Street hands down. Retail still owns majority of Arena shares while Wall Street's apetite for Arena is growing. It's not often that Main Street calls the shots but in this case we do -- we decide when and at what price to sell our shares to Wall Street. Patience is the name of the game, in my opinon, and investors need to do good, thorough research for themselves. The pros are not providing the needed guidance. Many pros are providing analysis to suit their agenda, be it their customers who are short and need shares or those who missed the boat and need to get in at higher prices.

A company you want to invest in is often the best source of information. Arena has provided plenty of important information in its recent investor conferences. There is also plenty of material on regulatory agencies' websites, and also blog posts such as these and message boards can be a good source of information as many people participate and share their views, but it's important to be skeptical while reading reading public boards as they may contain inaccurate information.

While Wall Street isn't even debating ROW (rest of the world) potential for Arena, Main Street is ahead of the game again. Check out these statistics:

The size of the obesity market is well known: two-thirds of the population in the United States is overweight and one-third, obese. The statistics in many other countries are similar. In Korea, where Arena recently signed a marketing agreement for Belviq, one-third of adults are obese. In Central and South America, over 30% of women are obese. In Mexico, 30% of adults are obese and 70% are overweight.

In the UK 25% of adults are obese and 57% are overweight. In Kuwait over one-third of men and almost half of all adult women are obese. In other Arabic countries the numbers are similar to Kuwait.

In other regions too obesity rates have skyrocketed and are projected to continue to increase, including child-obesity. That’s why experts call obesity a pandemic. Globally, over 500 million adults are obese.

Arena has a partnership with Eisai for North and South Americas. Arena also has a partnership with a large Korean pharmaceutical, Ildong, for not only Belviq but funding of research for another novel agent of Arena's, for thrombotic diseases. Arena has indicated it is talking to many interested parties globally. I expect we will hear more partnerships in the near future. Arena's CEO recently stated there's high demand for Belviq in Asia, including China, India, and the Middle East, and Arena will pursue all these opportunities.

However, Europe remains the short-term, low-hanging fruit internationally. Many Wall Street analysts, hedge funds, and journalists have been consistently wrong so far in their predictions for Arena, and now they're skeptical about European approval. My research indicates that European as well as Swiss approvals of Belviq are slam dunks. Here's why:

From "GUIDELINE ON CLINICAL EVALUATION OF MEDICINAL PRODUCTS USED IN WEIGHT CONTROL -- section 4.2.1": "Proportions of responders in the various treatment arms could be considered as an alternative primary efficacy criterion where response is more than 10% weight loss at the end of a 12-month period."

Arena indeed meets and exceeds the above criteria. Comparing "treatment arms," the number of responders who lost more than 10% of their weight was significantly higher in the Belviq group than in the placebo group.

Separately, a cardiovascular working group in Europe has recommended to CHMP that the efficacy threshold is lowered to 5% based on the cardiovascular and other health benefits observed at 5% weight loss. We know that a modest 5% weight loss can have significant improvements on overall health -- 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 superior efficacy, which will even improve further though upcoming trials in combination therapies.

I believe EMA will view Belviq as very safe -- just as FDA did by not requiring a REMS program. Therefore, European approval of Belviq will happen in the first half of 2013 -- most likely by February 2013 we will have the CHMP recommendation for approval and it will get finalized by member states by April. This opens a huge market where Arena will be the only player. Qsymia by Vivus was recently rejected in the EU and despite Vivus management's desire for appeal, Qsymia will never get approved in Europe.

There is a dire need for a safe and effective obesity drug in the EU and Belviq will be it. I expect Jack Lief, Arena's shrewd CEO, to strike yet another deal for the company with a global player for European partnership (click here to vote for Jack to be CEO of the year).

I will not be surprised at all to see a buyout by that time given strong US sales and Eisai's need to increase its sales presence, which it has done in the past in partnerships with Pfizer (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ). Any of those companies or Merck (NYSE: MRK)‎, Abbott Laboratories (NYSE: ABT), or another big pharma could be a potential suiter for Arena, providing a creative deal that covers Arena's deal with Eisai. With strong US sales and EU approval, the price tag I believe will be north of $30 per share.


The views expressed above 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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