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Arena Pharmaceuticals Inc.’s (ARNA - Snapshot Report) loss (excluding special items) of 7 cents per share in the third quarter of 2012 was narrower than the year-ago loss of 16 cents per share and the Zacks Consensus Estimate of a loss of 8 cents per share.

Quarterly Results

Arena Pharma recorded third quarter revenues of $1.5 million compared with $3.5 million in the prior-year quarter. Revenues during the quarter missed the Zacks Consensus Estimate of $4 million.

Operating expenses at Arena Pharma declined 9.6% to $20.6 million on account of lower research and development (R&D) expenses. R&D expenses recorded a decline of 22.4% to $11.6 million due to decrease in salary and other personnel-related expenses. General and administrative (G&A) expenses decreased 22.6% to $7.4 million in the reported quarter.

Belviq Update

In June 2012, the US Food and Drug Administration (FDA) approved Belviq (lorcaserin HCl) as an adjunct to a healthy diet (low on calories) and increased physical activity for chronic weight management in obese (Body Mass Index, or BMI, >30) or overweight (BMI >27) adults suffering from at least one weight-related co-morbid condition. The move marks the first FDA approval for a weight-loss drug in 13 years.

While clearing the drug, whose safety and efficacy when co-administered with other weight loss products and the effect on cardiovascular morbidity and mortality are yet to be established, the FDA recommended Belviq to be classified by the US Drug Enforcement Administration (DEA) as a scheduled drug.

Eisai Co., Ltd. (ESALY), which will market Belviq in the US, is preparing for the launch of the drug after the DEA gives its verdict on the matter. Eisai is currently expecting Belviq to hit the US market in early 2013.

We note that Belviq received a 120-day assessment report from the European Medicines Agency (EMA) for the Marketing Authorization Application (MAA) submitted in the EU earlier this year. Arena Pharma expects a final decision from the regulatory authorities in the EU and Switzerland by the first half of 2013.

2012 Guidance

Arena Pharma maintained its 2012 revenue guidance in the band of $91–$97 million. This includes $65 million which Arena Pharma will receive as milestone payments from Eisai following the DEA scheduling of Belviq. The company also mentioned that revenues could be lower by $65 million if the company fails to receive DEA scheduling in 2012.

Arena Pharma also continues to expect R&D expenses in the range of $57–$67 million. Arena Pharma also kept its G&A expenses guidance unchanged at $20–$24 million.

Our View

We currently have a Neutral recommendation on Arena Pharma which carries a Zacks #3 Rank (short term ‘Hold’ rating). The FDA approval of Belviq is a huge boost for the company. The drug targets the highly lucrative obesity market. Competition however is intensifying with Vivus Inc.’s (VVUS - Snapshot Report) obesity drug Qsymia launched in the US in September this year. We expect investor focus to remain on the DEA scheduling of Belviq.

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