What is Going on With Arena?

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

The Healthcare sector has shown mixed trend over the past three months. Especially, anti obesity drugs manufacturers like Arena Pharmaceuticals (NASDAQ: ARNA) and Vivus (NASDAQ: VVUS) have shown highly volatile trends. Arena Pharmaceuticals stock has been trading between $7 and $10 since mid July. The stock closed at $7.91 on October 31. After the approval of its anti-obesity drug, Belviq, the stock breached the $10 mark but could not hold the price level. The market is waiting for the next catalyst for Arena to drive its price up. At the moment, the company is working on its DEA scheduling for Belviq, which can be the next catalyst for Arena. Arena investors may not have to wait long for the good news as the company will announce its third quarter earnings and corporate update on November 6.

My Take on DEA Scheduling:

At the time of approval, Arena was asked to perform six post marketing studies including a long-term cardiovascular outcomes trial. Vivus also received approval for Qsymia soon after FDA gave the nod to Belviq. Qsymia is a new formulation of Phentermine and Topiramate, which are available as generics. Phentermine has schedule IV status, but Qsymia is not DEA scheduled.

At the time of approval, FDA recommended schedule IV for Belviq. DEA schedules drugs in five categories. Schedule 1 contains drugs with the highest potential for abuse while schedule 5 drugs have the lowest potential for abuse. It is unlikely that schedule IV will have a negative impact on the sales of Belviq as the drug has low potential for abuse. Most of the schedule IV drugs are sold widely. Usually, it takes between four and six months for the decision about DEA scheduling to come out. DEA started the process of review for Belviq in July, and I expect the agency to make a decision soon.

Third Quarter Results and Clinical Trial of APD811:

Arena Pharmaceuticals will announce their third quarter results and corporate update on November 6. At the moment, Arena is waiting for a decision from DEA about Belviq before the company starts to market its drug. Arena does not have any drug in the market; therefore, investors will not be looking at the revenue figures. However, there could be some important update about the launch of Belviq. The market is waiting anxiously for Arena to launch its anti-obesity drug.

Arena Pharmaceuticals initiated the Phase 1 multiple dose clinical trial of APD811, a novel oral drug intended to cure pulmonary arterial hypertension [PAH]. The trial will enroll up to 30 healthy adult volunteers and will evaluate the safety, tolerability and pharmacokinetics of the drug. Arena previously evaluated single-ascending doses of APD811 in the initial Phase 1 clinical trial. The announcement of trial took its share price close to $10, but the stock could not hold that price level. The Arena pipeline has one drug at present, and APD811 will be a welcome addition if the drug comes through trials successfully.

Competition

At present, there is only one major player in the anti-obesity drug market. Vivus recently launched its anti obesity drug Qsymia. Despite its restrictive label, Qsymia was welcomed by doctors and patients. When it comes to marketing the drug, Arena will enjoy certain benefits over Vivus. Arena has an experienced partner in Eisai, which will make the Belviq launch a smooth process. Eisai has already started its efforts to market the drug in the U.S. Furthermore, the drug has an extremely favorable label. The drug will give doctors leverage to use it in a variety of situations. An extremely safe profile makes Belviq an automatic choice for doctors in a number of cases.

Along with the advantages, there are also some disadvantages to consider. Belviq has lower efficacy compared to Qsymia and may disappoint its users in the beginning. The obesity market can become a hotly contested next year with three drugs in the market. Orexigen Therapeutics (NASDAQ: OREX) is trying to get its weight loss pill Contrave for approval earlier than expected. If, OREX is successful, the obesity market can have three participants vying for the top spot.

Foolish Summary

Arena pharmaceuticals stock has been lingering below $10 for a considerable time now. The stock is waiting for its next catalyst, which I believe is not far now. There are exciting times ahead for Arena and its investors. As I stated in my previous articles, Arena will have a bigger market than its direct competitor after Qsymia was rejected by EMA. There is massive upside potential in this stock. I believe the announcement of Arena's plans on November 6 will clear a lot of uncertainty. The next two quarters are extremely important for Arena as the company nears the launch of its drug. Wider market access and partnership with Eisai will prove to be massive advantages for the company.

Know What You Own

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