Charting Arena's Path for 2013

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

So here is a quick overview of what has happened so far: Since the launch of Roche's Xenical 13 years ago, the US market had not seen - and the FDA had not approved - another effective obesity drug for the massive American market and even more progressively massive American consumer.

Caucasian physiology is said to tolerate a higher BMI than say, Chinese physiology; but even with the BMI set at 30, over 30% of Americans are considered obese. According to this report, even the least obese US state, Colorado, is 20% obese, and over 10 states are over 30% obese, Mississippi being the fattest state at around 34%. Colorado is a tragic story because, with all those mountains, you would think people would have to do more exercise!

Jokes apart, considering that a large portion of the population in the US are not Caucasians, a BMI of 30 for obesity threshold is probably too high (I don't have specific data, but common sense tells me this, plus the fact that for Koreans, it is 25, for Chinese, 27) and therefore, a really, really high percentage of Americans were in need of an efficient and safe FDA-approved anti-obesity drug.

After years of R&D, both Vivus (NASDAQ: VVUS) and Arena (NASDAQ: ARNA) lately submitted an anti-obesity drug candidate each to the FDA for approval. The VVUS drug was submitted a little earlier than the ARNA one. Qysemia, the VVUS drug, was a combination of phentermine and topiramate. Phentermine is a weight-loss chemical which works by suppressing appetite and releasing dopamine, serotonin and norepinephrine. Topiramate is a seizure-suppressant. Unfortunately for VVUS, phentermine is tainted by association with the American Home Products (now Wyeth) anti-obesity drug once popularly known as fen-phen. Introduced in the 1970s, this drug, a combination of fenfluramine and phentermine, caused potentially fatal heart and lung problems, which ultimately led to $13 in billion legal damages and the drug's subsequent withdrawal from the market. While phentermine was not directly associated at that time with these adverse side-effects, later research has shown that the substance has numerous dangerous side effects. A list can be found here.

I consider the FDA's approval of this drug as unfortunate, given the history of phentermine. I am no doctor, but I have a healthy suspicion for drugs, and generally do not prefer to fill my body with unknown chemicals unless I develop a potentially fatal disease. If I were obese, I would run. I would not ingest a substance that has been part of a story that ended in at least a few deaths and quite a few near fatal diseases. Some readers will definitely tell me how wrong I am, and if some of them are medical professionals, they will cite studies and sources claiming how harmless that substance was. I still wouldn't take it. As I said, I would run; from them, if necessary, which will help me both lose weight and possibly survive.

As an excuse for the rant above, here is the REMS for Qysemia:

QsymiaTM (phentermine and topiramate extended-release) capsules CIV
Risk Evaluation and Mitigation Strategy (REMS)

A Risk Evaluation and Mitigation Strategy (REMS) is a strategy to manage known or potential serious risks associated with a drug product and is required by the Food and Drug Administration (FDA) to ensure that the benefits of a drug outweigh its risks. The FDA has required a REMS for Qsymia.

The purpose of the Qsymia REMS is to inform prescribers and females of reproductive potential about the:

  • Increased risk of congenital malformation, specifically orofacial clefts, in infants exposed to Qsymia during the first trimester of pregnancy
  • Importance of pregnancy prevention for females of reproductive potential receiving Qsymia
  • Need to discontinue Qsymia immediately if pregnancy occurs

This makes you understand why the FDA had some reservations about the drug, and why the EMA has not approved it after multiple efforts by Vivus. Admittedly, mine is a knee-jerk reaction, and I am exaggerating it some, but most medically less-aware laymen will have a similar reaction. This is the reason you don't see much TV and print ads for Qysemia; same reason why only about 20% of patients are actually receiving reimbursements for it, and many of the rest are not picking up their prescriptions. Probably the very same reason that it is seeing a 50% drop in VVUS stock's price since July, when the drug was approved.

<img src="http://static.cdn-seekingalpha.com/uploads/2012/11/8/4222561-13524017922529402-Ed-Liston.png" />

Into this playing field, Arena will enter with its Belviq (Lorcaserin) drug probably early next year, once its DEA scheduling is complete and its marketing partner Eisai starts supplying the drug in the US market. The market perception is that Belviq is less effective but more safe. While the safety issue is probably corroborated widely, its lower efficacy might be an unstudied perception. To be very frank - and many medical professionals will agree - nothing works as well as dieting, exercise and lifestyle changes. If, like me, you have NAFLD (non-alcoholic fatty liver disease), coupled with Type 2 Diabetes, most medical professionals will tell you to take metformin, a highly efficient liver glucose-suppressant, do a lot of exercise, eat less and not eat much oily food, or starchy food, or food; and maybe, just maybe, and only for a short term, prescribe an anti-obesity drug. None of the anti-obesity drugs thus far in the market really have long term positive effects; some drugs are known to actually increase obesity in the long term.

Given that caveat, I will still say that safety is a more important issue than comparatively lower efficacy, and if Belviq is safer, it will conquer the market - unless Orexigen or someone else develops a better drug.

Because Belviq is coming to the market a few months after Qysemia, it also has the benefit of hindsight. Specifically, it has the following advantages:

  • No REMS, so easier to advertise (you don't want to publicize the REMS too much)
  • ARNA has a better understanding of how EMA will play the game, since it has seen how Qysemia fared (assuming ARNA has an idea what exactly transpired, of course)
  • ARNA knows that without contracting with large pharma, it cannot market Belviq, since it saw how VVUS lacked marketing apparatus because it did not tie up with large pharma. ARNA's tie ups with Japanese Eisai and Korean Ildong are crucial, and big steps in the right direction.
  • Pediatric investigation application for Belviq approved by EMA, similar application by Qysemia not approved. Belviq did some things right.

In their latest Earnings Call, ARNA CEO Jack Lief and others discussed a few important issues. Although the details are all there in that transcript - which I urge every ARNA Long to read - I will discuss some of that data in easy-to-read subheadings, with some additional information.

ARNA/Eisai's Marketing and Sales Plan in the US

ARNA has executed its sales strategy well. Its collaboration with Eisai is going to be very important and will give it just the edge it needs against competition. ARNA has already delivered drug supplies from its plant in Switzerland to Eisai in anticipation of the launch. It received a $5 million milestone payment from Eisai out of a total of $65 million that it will receive.

Eisai has a lot of depth in drug marketing around the world. It is one of the top pharmaceuticals in the world. It has a long history of collaborating with other pharmas like Pfizer and Johnson & Johnson. It develops, manufactures and/or markets over 30 drugs, with its most popular product being Aricept. The company is widely global; with considerable presence in the US, China, Europe, and a host of other countries.

It is not surprising that Eisai has developed a formidable strategic plan to market Belviq in the US. Its team of 200 reps will target 30,000 physicians "including cardiologists, endocrinologists, internal medicine, obesity specialists and high-value primary care" in the US. Even more important, and with a lesson learned from Qysemia, ARNA and Eisai are making sure there is a payer market for Belviq. They are approaching all the right people - employers, insurance companies and the Government - to ensure proper coverage for the drug.

Regional Collaborators Pay For Regional Developments

I found this very interesting as a strategy that ARNA is making sure its regional collaborators pay for developments in their territories. This will save ARNA a lot of money, and it tells me that Belviq has garnered considerable confidence among drug marketers. As an example:

Eisai is responsible for obtaining 90% of the U.S. cardiovascular outcome trial, and 90% of any required development in the remainder of North and South American territories.

ARNA's Korean Strategy

It is important for investors to know that ARNA is focusing on the non-US markets. As an example of ARNA's focus here, they have collaborated with Ildong, one of Korea's largest pharmaceuticals, to create a market for the drug in that country. The related 8-k filing is here.

According to OECD reports, obesity in Korea is a growing phenomenon.

(Source: OECD)

<img src="http://static.cdn-seekingalpha.com/uploads/2012/11/8/4222561-1352403988632601-Ed-Liston.png" />

In the next 10 years, over 35% percent of Koreans will be classified as overweight or obese. Child obesity, especially in boys, is an emerging problem; in the next 10 years, between 35-40% of boys will be obese. With a current population of 50 million, that is a market of roughly 20 million as of now. Korea is a developed country with sound medical insurance schemes, so it will not be difficult for the nation to adapt to a new anti-obesity drug like Belviq. Considering that Ildong has considerable experience in that market, this is a major strategic step forward for ARNA.

The EMA Approval Question

EMA is not an American agency and it likes to say so every so often. It is widely known - and more widely appreciated - that the EMA does not automatically follow the USFDA's cue; unfortunately for Vivus, it had to learn this the hard way that approval by the USFDA does not automatically mean approval by the EMA. In fact, at least two studies (here and here) show that the EMA takes much more time, approves fewer drugs and is generally much more painstakingly meticulous than the USFDA.

In the earnings call, ARNA said that the main issues for the EMA were

  • Cancer - tumors in rats from the two-year carcinogenicity study
  • Drop on rate in the studies
  • Coagulopathy.

According to its latest 8-k filing, ARNA has submitted its responses to the EMA assessment report and list of questions. If all goes well, ARNA will get its Marketing Authorization Applications (MAA) in early 2013.

So, briefly, and in summary, ARNA's path in 2013 (for Belviq) is:

  • Launch in the US market - early 2013
  • Get approval and launch in Korea - mid 2013
  • Get EMA approval - mid 2013
  • Find EU partners, either continuing with Eisai or someone else - late 2013
  • Open up other potential markets, notably in Latin Americas, China, India and Russia, Australia etc - approval stage, mid 2013, launch stage - over the next 2-3 years.


 Shas Dey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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