|By Brian Wilson, Lead Contributor|
|Wednesday, 23 January 2013 08:12|
The company's statements claim that an advisory committee for the EMA (European Medicines Agency) is trying to find out more about Belviq's safety profile – specifically regarding its supposed “heart valve issues” and “psychiatric side effects” on top of the tumors that were found during animal studies.
In addition, the advisory panel also wants Arena to build their argument for approval for the drug, based on the potential efficacy that the drug offers in the obese population versus the potential side effects and other unforeseen consequences that may occur from prolonged use of Belviq/lorcaserin.
While the market's commentary seems to imply that people weren't expecting the Europeans to allow Arena (and Eisai) to march into the EU to sell a weight-loss pills anyway, there seems to be a sense of disappointment that such a large (and growing) market for obese adults seems to be unassailable – at least for the time being.
This same disappointment seems to be derailing the ARNA rally that started in December 2012 following the DEA scheduling of Belviq. Recall that the DEA scheduling was the only thing holding Arena back from a market launch of Belviq for the second half of 2012, and was a major source of frustration for anyone on the long side of ARNA during the time (since the stock traded very bearishly at certain points). Investors seemed quite satisfied once it was “guaranteed” that Belviq was going to initiate its launch in early 2013, although the excitement only got ARNA investors so far.
ARNA clawed its way up to $10/share earlier this month, and made at attempt at $11/share before recent profit-taking (and news from Europe) tanked the stock to $8.82/share – where it closed yesterday.
Going forward, I think any investor who is serious about ARNA will have to prepare for what could be a very volatile launch for Belviq in the US market in the near future. This notion is based on what we saw from the launch of Qsymia (phentermine & topiramate) in September, 2012 by Arena's biggest competitor, Vivus (NASDAQ: VVUS). Although Belviq and Qsymia are not clones of each other, I believe that Vivus' launch provided some valuable insight for biopharma investors and Arena – specifically regarding big problems with prescription reimbursement and with sales volume in the obesity drug sector. Note that Vivus had to implement a “samples” strategy to reach the most recent prescription figures released.
The exact launch date for Belviq is not known at this time, although I think that we are looking late February or early March. It's also unclear exactly how much the Belviq launch will resemble the Qsymia launch in 2012, although Arena investors should be prepare for the worst in the short run.
In the long run, the bullish argument for Belviq and the rest of the prescription weight-loss drug market holds relatively strong. Arena, the most expensive play in the subsector, is trading at a market capitalization of just under $2 billion. Even using conservative estimates, one can gauge that the size of the prescription obesity drug market would be quite monstrous – in the tens of billions within the United States alone. Arena is generally considered the safer drug over Qsymia, and seems to have a better indication and reputation amongst doctors which implies that it could take the lion's share of the market.
The implication is that Arena simply doesn't need the European market to justify its valuation of ~$2 billion. The sheer amount of unmet demand in the United States should leave enough room for Vivus, too. The problem seems to be with the reimbursement policies of major healthcare companies, and the “growing pains” for the obesity drug market. I think it's also important to factor in the lack of competition from big pharma, which not only introduces some M&A speculation over Arena (and Vivus), but also gives some hope for quick sales growth later on.