This BioPharma Stock is Making All The Right Moves

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

Arena Pharmaceuticals (NASDAQ: ARNA) have been extremely busy preparing for the launch of its anti-obesity drug, Belviq. As the end of 2012 nears, the preparations for the launch are speeding up. In addition, the company is trying to establish partnerships in other territories to prepare the ground for the launch of its drug. Arena had reached an agreement with Ildong Pharmaceuticals for the exclusive marketing rights of its drug. The company has now announced the agreement with Ildong Pharmaceuticals for Temanogrel, Arena's internally discovered inverse agonist of the serotonin 2A receptor.

Agreement with Ildong:

Arena has entered into an agreement with Ildong for the development and licensing of Temanogrel. According to the company website, "Temanogrel is an inverse agonist of the serotonin 2A receptor intended for the treatment of arterial thrombosis and other related conditions." The drug has completed Phase 1a and Phase 1b clinical trials

According to the American Heart Association, there were 14.9 million people alive in 2008 having survived either a myocardial infarction or a stroke. Many patients receive daily anti-thrombotic therapy to decrease the risk of future events. This indicates that there is a large target market for the drug in the United States. Temanogrel has demonstrated impressive results, and the company is hopeful that it can be a key medicine in the field.

Arena had stopped the development of the drug due to the high costs of phase II and Phase III trials. The company was looking for collaboration to further development of the drug. According to the agreement, Ildong will have the exclusive marketing rights for the drug in South Korea. In return, Ildong will fund and conduct the next two clinical trials under the supervision of a joint committee. The next two clinical trials will be a Phase I trial with healthy volunteers and Phase 2a proof-of-concept trial with actual patients.

However, Arena will have the rights of ownership outside of South Korea. Furthermore, the company will be able to use data collected by Ildong for development and commercialization of the drug. The agreement is hugely beneficial for both companies. Arena will be able to conduct the clinical trials for its drug in a cost effective way, while Ildong will get a product with massive potential. Moreover, Arena will receive a royalty on the sales inside South Korea and Ildong will receive a share of sales in other territories, as well as licensing transactions.

Future Collaboration Opportunities:

Arena Pharmaceuticals is making all the right moves at the moment. The company has an agreement with the Japanese giant, Eisai, for the marketing of its anti-obesity drug Belviq. Furthermore, the company is expanding its portfolio of international collaborations. At the moment, the company is waiting for approval from European Medicines Agency for Belviq. If the drug gets approval, I can see Arena getting into an agreement with a giant for the marketing of Belviq in Europe. There are many big pharmaceutical companies such as, AstraZeneca (NYSE: AZN) and GlaxoSmithKline (NYSE: GSK), which will be interested in getting a fat chunk of this market. Both of these companies are trying to get their foot into the obesity market, and a partnership with a biotech fits well into their agenda.

Obesity has become a worldwide problem, and currently there are almost 500 million obese people in the world. The market size for Belviq is massive, and the company will have no shortage of potential partners. Eisai will also be interested in expanding its partnership with Arena, or taking over the company. Arena has an advantage over its closest rivals, Vivus Inc (NASDAQ: VVUS) and Orexigen Therapeutics (NASDAQ: OREX). Vivus will not be able to market the drug in Europe after its drug was rejected by EMA, while Orexigen will not be able to enter the market any time soon. A similar takeover potential can also be suggested for both Vivus and Orexigen. However, similar risks also exist for these two competitors.

Where things can go wrong?

We have mainly discussed the positives about the company. However, there is also a possibility that things do not go as expected for Arena. Investors tend to attach emotions with most BioPharma stocks, and it is particularly true for Arena Pharmaceuticals. Investors are not alone in putting too many expectations on the BioPharma sector; the Street also has the habit of expecting too much too soon. We saw how heavy expectations took their toll on Vivus and less than expected revenues caused the stock to fall. Although Arena does not face the same problems as Vivus, we cannot eliminate the possibility of slow sales at the start. Furthermore, Belviq has an exceptional safety profile, but its efficacy is lower compared to Qsymia. Efficacy will play an integral role in the anti-obesity field. As a result, Arena can face lower than expected sales.

Foolish Summary:

Arena has made significant strides, and the company is trying to establish a serious pipeline of drugs. Earlier this year, the company announced the initiation of Phase I multiple dose clinical trials for its Pulmonary Arterial Hypertension drug candidate. With the addition of Temanogrel, the pipeline of the company is swelling. However, the most attractive drug in the portfolio is Belviq, which is expected to bring massive amounts of revenue for the company. After the recent good news of insurance coverage for Belviq, prospects are even brighter for the company. I also think that increased insurance coverage can affect the players in the anti-obesity drugs market. Arena Pharmaceuticals is becoming a solid player in the biotech sector, and this is just the start of exciting times for its investors.

ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR) and GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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