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Arena Pharmaceuticals, Inc. (ARNA - Snapshot Report) reported net loss (excluding special items) per share of 10 cents in the third quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 11 cents but in line with the year-ago loss.

Arena Pharma recorded third quarter revenues of $3.6 million, up 140.9% from the year-ago period due to the launch of obesity drug, Belviq. However, revenues were below the Zacks Consensus Estimate of $6 million.

Belviq Update

The third quarter reflects Belviq’s first full quarter in the U.S. market. Arena Pharma recorded Belviq sales of $2.0 million (including $0.3 million from the 15-day free trial voucher redemption). Arena Pharma had reported Belviq sales of $1.3 million in the second quarter of 2013 – the product was launched in Jun 2013.

Arena Pharma is working on expanding the market reach of Belviq. The company expanded its existing agreement with Eisai Co., Ltd. (ESALY) in the reported quarter. As per the terms of the new agreement, Eisai will enjoy exclusive commercialization rights across the globe, excluding South Korea, Taiwan, Australia, Israel and New Zealand. In exchange, Eisai will make an upfront payment of $60 million to Arena Pharma. Arena Pharma will also be eligible to receive milestone payments of up to $176.5 million on the achievement of regulatory and development targets. Arena Pharma will continue to sell Belviq to Eisai for commercialization at purchase prices ranging from 27.5% to 36.5%, depending on the country and Belviq sales.

Arena Pharma and Eisai will also collaborate on evaluating Belviq for additional indications including smoking cessation (in combination with an appetite suppressant, phentermine). Additionally, the companies will study Belviq's effects on diabetes and cardiovascular outcomes. In Sep 2013, Arena Pharma initiated a study evaluating Belviq 20 mg extended release tablets.

The company is working on advancing its pipeline along with the expansion of the Belviq label. Arena Pharma has completed a multiple-dose phase I trial on APD811, which is being developed for the treatment of pulmonary arterial hypertension.

Other Expenses

Third quarter 2013 research and development (R&D) and general and administrative (G&A) expenses were up 25.6% to $14.6 million and 5.0% to $7.8 million, respectively.

Our Take

Although Belviq sales were lukewarm in the quarter, we believe that the company will benefit from the expansion of the Eisai agreement. Arena Pharma’s growth is highly dependent on Belviq, the company’s sole marketed product. The product represents significant revenue potential and its successful commercialization should drive a company like Arena Pharma to profitability.

Arena Pharma and Eisai are leaving no stone unturned to make the drug a success. Eisai plans to double the size of the sales force for Belviq, to approximately 400 representatives by Dec 2013.

The decision to augment the sales force follows the increase in Belviq coverage by health plans and pharmacy benefit managers since its launch. Eisai is working on improving the reimbursement for Belviq.

We believe the beefed up sales force will boost sales by promoting the drug to more physicians. Increased awareness should help Belviq sales to gain momentum.

Approval for Belviq is also being sought in other countries. However, the approval process for Belviq in the EU has run into rough waters with the company withdrawing its Marketing Authorisation Application for the drug. The European Medicines Agency’s Committee for Medicinal Products for Human Use believes that the results of non-clinical studies were insufficient for the drug’s approval.

Currently approved therapies for obesity include VIVUS Inc.’s (VVUS - Snapshot Report) Qsymia, launched in Sep 2012. However, Qsymia sales are yet to pick up.

Arena Pharma, a biopharmaceutical stock, currently carries a Zacks Rank #3 (Hold). However, biopharma stocks like Actelion Ltd. (ALIOF) look well positioned with a Zacks Rank #1 (Strong Buy).

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