What Is It With ARENA and the EMA?

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

Regardless of FDA approval, safety issues have been a great concern with regulators and medical practitioners when it comes to obesity drugs. It is no wonder then that it took USFDA thirteen long years to approve another obesity drug after Xenical, Belviq of Arena Pharmaceuticals (NASDAQ: ARNA) and Qysmia of Vivus (NASDAQ: VVUS), despite obesity being a priority with researchers.

Belviq was approved by the FDA in June 2012 while Qsymia was approved in July 2012. There was much hype regarding the approval of these diet pills because of prevalence of huge demand. Improved profitability of the two companies was expected to reflect in their stock prices. However, VIVUS stock lost momentum after July 2012 and fell by more than 52% between July 2012 and February 12, 2013. Although Arena's stock gained almost 26% since approval, it has been more or less an up-and-down story and is currently trading at a sizeable discount to the peak it achieved in the month it was approved.

Both Qsymia and Belviq seem to have run into troubles of different sorts.

Qsymia had issues with REMS (Risk Evaluation and Mitigation Strategy), pricing and insurance and the way it was marketed. Belviq, on the other hand was supposedly much safer, although with slower efficacy and Arena Pharmaceuticals was expected not to repeat mistakes committed by Vivus while marketing Qsymia.

The major issue with Belviq however was approval by the European agency for the evaluation of medicinal products, European Medicines Agency (EMA).

EMA has still not approved Belviq (active ingredient: lorcaserin). Although, it was expected that EMA will take its own time to approve Belviq, there has been an inordinate delay and still no signs of approval. Belviq was expected to be launched in the US market early this year after the DEA completed its scheduling. It now appears that even DEA had problems with Belviq (see below).

What is it with the EMA?

Even at the time of approaching EMA (March 2012), there were fears that the agency would have problems with approval as it is not known to follow USFDA. Those fears seem to have come true.

Lorcaserin was once rejected by FDA nearly two years ago because it had reasons to believe that it caused “mammary neoplasms (to) occur near clinical exposure and the tumorigenic MOA remains unresolved." This ground for rejection was resolved by the FDA this time after independent pathologists came to the conclusion that the drug was not likely to cause tumors in humans as its carcinogenicity was species specific.

Belviq is considered to be safe by the FDA and did not require any REMS, which is a strategy that the regulator mandates so that the benefits of a drug outweigh the known and/or potential serious risks associated with it. It was expected that CHMP (Committee for Medicinal Products for Human Use), the committee responsible for elaborating EMA’s opinions on human use of medicinal products, would come up with a favorable recommendation and the agency will approve Belviq a few months after that. That has not happened and it is almost a year since Arena applied for approval.

EMA’s advisory committee is seeking more information and risk/benefit analysis on Belviq. Besides more information on detection of tumors in rats, the agency also wants to know more about other clinical and non-clinical issues identified during the present and previous studies of lorcaserin.

CHMP has sent Arena a 180-day list of questions relating to various issues including those relating to heart valve and psychiatric side effects and some of them are pretty difficult. The current 180-day list follows the earlier 120-day list that comprised some of the same concerns, which indicates that the European regulators were not fully satisfied by Arena’s responses.

Problems with US Launch

The Drug Enforcement Agency (DEA) proposes to place lorcaserin in Schedule IV of the Controlled Substances Act. The proposal is on the recommendation of Assistant Secretary for Health of the Department of Health and Human Services (HHS) and on an evaluation of all other relevant data by DEA. Those adversely affected or aggrieved by the proposal were to file their comments by January 18, 2013. Hopefully, the rule becomes effective after a 30-day wait and Eisai, Arena’s marketing partner, can then start selling Belviq.

It would also be of interest to investors who fancy the obesity drug space that Vanderbilt University, a private research university in Nashville, Tennessee is partnering with GlaxoSmithKline to develop a new obesity drug that is safer and would not raise blood pressure in patients. Phase 1 trials will begin in 2016 and we can expect similar hurdles this time also if at all there are any positive results. The target of the GSK research is melanocortin-4 receptor, which plays a role in balancing food intake and energy expenditure.

Conclusion

Bureaucratic delays, necessary or unnecessary cannot and should not be taken lying down. Whether or not there is substance in Arena shareholders’ accusation that DEA’s bureaucratic delay is unnecessary is a debatable issue. If shareholders are to be believed, then hedge funds are conspiring with DEA to destroy Belviq. With additional 4.25 million shares purchased by institutions, institutional holding of ARNA stock has increased by 5.7%.

With the 30-day deadline set by DEA rules about to expire, Arena and its marketing partner are sure to make a strong launch of Belviq and gain advantage over Vivus’ Qsymia. However, analysts have lowered forecast of 2013 sales by 70% – down from $115 million to $35 million. JPMorgan analyst, Cory Kasimov, however, forecasts 2013 sales at $74 million growing to $481 million in 2016.

So far so good in as far as the US market is concerned.

Forget DEA and hedge funds for the time being but EMA’s concerns are for real. Even at the cost of repeating what I said in the beginning, I would like to bring to notice the fact that it took thirteen long years for the second and third diet pills to be approved by the FDA. With obesity assuming epidemic proportions, it is a major concern in the US. If despite that the FDA has been wary of approving diet pills, then there is definitely a reason for that.

While delay by EMA is not the end of the world for Arena, losing the European market will have a major impact on Arena’s revenues. Already, the ARNA stock has suffered a loss of 14.2% after CHMP failed to approve Belviq in its last meeting in January (not assuming a correlation, however). This means another wait of 30 days for a ruling to come.

Safety issues must necessarily be addressed. EMA’s delay in approving Belviq indicates that they think the FDA has overlooked certain safety issues. If Arena’s answers to the EMA’s questions in the 180-day list fail to satisfy the agency, then doubts about FDA approval may have some substance giving Areana investors a reason to worry. I mean, can we trust the Europeans enough to doubt the FDA's ruling?


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