Obesity Update For Arena

In our view, obesity remains the single largest opportunity for a new pharmaceutical product today. Roughly two-thirds of the U.S. population is overweight. The number is expected to grow to 75% by 2015. There is massive unmet medical need and clear pharmacoeconomic benefits to curtailing the problem.

According to the Journal of Health Affairs, obesity costs Americans $147 billion per year in total medical costs. This is 10% of all healthcare spending, and that number has doubled since 1998. It is likely to continue to surge in the years to come. Obesity is associated with an enormous number of co-morbidities, including high cholesterol, high blood pressure, heart disease, diabetes, joint and muscle pain, as well as depression and fibromyalgia. Studies have shown that reducing body weight by as little as 5% has a meaningful impact on reducing these co-morbidities.

New Products Are Coming...

Several biotechnology companies are working on the next wave of obesity candidates. These include Arena's (ARNA - Analyst Report) Lorcaserin, Vivus' (VVUS - Analyst Report) Qnexa, Orexigen's (OREX - Snapshot Report) Contrave and Amylin's (AMLN - Analyst Report) pramlintide.

Contrave has completed phase III trials and Orexigen's management is expected to file for approval in early 2010. Qnexa is currently in two phase III programs with an NDA expected around the middle of 2010. Amylin's pramlintide and metreleptin is currently in phase IIb. That gives Arena, with an NDA planned before the end of the year, the first-mover advantage.

Safety Is Key Determinant...

Analysis for Contrave looks similar to lorcaserin in terms of efficacy. Both products offered around 17 - 18 lbs of weight loss after one year of treatment. Vivus' Qnexa, which is a combination of phentermine and topiramate, offered up around 20 lbs of weigh loss after only six months.

We are waiting for the Qnexa 1-year data, but it looks like Qnexa is the most efficacious drug. However, it is important to note that there is clearly more to a weight loss drug than just pure efficacy. If efficacy was the only hurdle, Wyeth's (WYE) Phen-Fen would still be on the market.

Physicians' surveys have clearly showed that safety is the paramount concern. And, with the significant prescriber interest in reducing co-morbidities, tolerability and abuse potential are also high on the list of what makes an overall effective drug for obese patients. Physicians will want to prescribe a drug that they feel has excellent safety and tolerability, with a very good chance in helping the patient lose at least 5% body weight. We are starting to feel more and more like that drug is lorcaserin.

What's Next For Arena?...

The biggest near-term catalyst for Arena is the release of the phase III BLOSSOM data in September 2009. From this program, we will look to confirm the efficacy and safety demonstrated in BLOOM, and finalize the NDA package. Data from the ongoing BLOOM-DM program will be filed as a supplement to the NDA in 2010.

There are several scenarios that could play out in 2010. We expect Arena to file for approval in December 2009, putting the FDA action date in October 2010. Depending on the time of the BLOOM-DM sNDA, the FDA will include the diabetes language in the label in October, approve the drug in October and review the -DM data separately, or delay approval in October while it reviews the full application.

The FDA has not met many PDUFA action dates for NCEs over the past few quarters. Plus, the agency has been very tough on new "neuro-physical" drugs for things like obesity, neuropathic pain and fibromyalgia in the past. So we believe the third scenario is the most likely, meaning a final lorcaserin approval will come in early 2011.

Data from BLOSSOM will most likely provide a small pop to the shares. However, the best chance for a meaningful run in the stock is through the signing of a commercialization partnership. We think this will take place around the middle of 2010 after all three firms -- Arena, Orexigen, and Vivus -- have filed for approval of their respective drugs and potential partners can evenly weight the aspects of each application.

We have said in the past, the best overall drug will secure the best partnership. For the meantime, we are maintaining our Neutral rating on Arena, but we believe there is clearly money to be made on obesity stocks over the next few quarters.