In the previous part of this article, I discussed the potential obesity market and some promising drugs on the scene. In this part, I am going to focus on how Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) and its Belviq are poised to grab a large part of this market compared to peers.
VIVUS, Inc. (NASDAQ:VVUS)’ Qsymia – problems with the medication and the company’s strategy
Since phentermine and topiramate’s combination had proved to be efficacious over the years, Vivus decided to combine the two drugs into one pill. However, the company should have tried to answer the following basic question at the outset – why would physicians prescribe a more expensive branded drug combining two existing generics rather than continuing to prescribe the generics separately? The benefit of combining two pills into one does not outweigh the cost advantage of buying the generic pills separately.
Another problem with marketing this drug and expanding its reach beyond bariatric prescriptions is convincing endocrinologists, cardiologists and primary care physicians to prescribe the medication, since they are also likely to get patients who are suffering from a weight problem. Now, this would happen only if the drug demonstrated the ability to generate cardiovascular and/or metabolic benefits. Qsymia, however, is associated with increase in heart rate and birth defects, both of which contribute to the failure in converting doctors in other specialties. So if the bariatric physicians as well as physicians in other specialties related to obesity are not going to get convinced about prescribing Qsymia, then, the future for this product is likely to be very weak.
Arena’s Belviq – potential advantages and disadvantages
Looking at the fate of Qsymia in the market surely must make the other weight management drug originators wary. One fact that Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) must keep in mind is the pricing issue which Qsymia is currently contending with. The presence of effective generics in the market makes penetration difficult unless substantial drug superiority is established. The FDA guidelines mentioned that about a year’s time is required to establish the efficacy of a medication. Till then, would a hefty price manage to outdo generic competition?
A Bloomberg Brief article reveals that Arena and its marketing partner for Belviq, Eisai, have decided to price the drug at a premium to VIVUS, Inc. (NASDAQ:VVUS)’ Qsymia. Cost of Belviq has been set at $199.50 for a month’s supply, versus Qsymia’s price of $160 for a month’s supply. Time will tell whether this will turn out to be a good decision especially in the face of data that shows, Qysmia prescriptions declined, while the number of prescriptions for phentermine held steady this year. Qsymia had gained FDA approval last year in July and began marketing the product in September. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) on the other hand got its product Belviq approved in June 2012 and is waiting for scheduling by the Drug Enforcement Administration (DEA) to be complete before marketing its product.
It’s highly important for both the companies to get their insurance coverage plans for their products in place. VIVUS, Inc. (NASDAQ:VVUS) has already taken steps towards this by launching their “Get Started! Program,” which allows anyone with a written prescription for the drug dated on or after November 16 to receive their first two weeks of treatment free. Arena has about 50 reimbursement specialists and 200 sales people to work on Belviq as primary coverage.
Arena as an investment opportunity
Obesity is a multi-billion dollar market and with a novel drug demonstrating least side effects as well as improvements in cardiometabolic factors, Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is well set to enter the market. There will be hurdles of course, with price issues and generic competition, but the deal with Eisai and plans for getting insurance coverage for their drug prescription, Arena can competently handle the pressures it is likely to face. The recent modification of the Risk Evaluation and Mitigation Strategy, or REMS, by the FDA which makes the VIVUS, Inc. (NASDAQ:VVUS) drug, Qsymia available through retail pharmacies, has some Arena investors worried. However, I think that this news should not make much of a difference, because Arena will be gaining ground in the market based on factors unaffected by the availability of Qsymia through retail pharmacies.
The chart below shows that for quite some time Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) has had a growth rate about 200% more than the growth rate of Nasdaq and S&P 500.
The company generated revenues of $27.6 million in the financial year 2012 compared to $12.7 million in the financial year 2011. This increase in revenues was primarily due to the $20 million milestone payment from Eisai for the inclusion of the data from the Phase III BLOOM-BM clinical trial in the FDA-approved prescribing information for Belviq. Post DEA scheduling of Belviq, Arena is expecting revenues of $65 million in milestone payments from Eisai, along with another $1.5 million additional regulatory milestone payment.
A $1.7 billion company, with a current ratio of 5.7 which makes it rank 64 out of 245 in the biotechnology sector places Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) in a decent position to deal with the expenses and revenue uncertainty for the coming year, as Belviq enters the market. Arena looks like a long-term winner to me, and I would rate it as a buy.
The article Have Drugmakers Found the Panacea for Obesity? (Part II) originally appeared on Fool.com.
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