Arena Pharmaceuticals Inc. (ARNA) suffered a loss (excluding special items) of 23 cents per share in the fourth quarter of 2010 as against an adjusted loss of 38 cents suffered in the year-ago quarter. The narrower loss in the reported quarter was attributable to the rise in revenues coupled with a decline in research and development (R&D) costs. The Zacks Consensus Estimate hinted at a loss of 22 cents per share.
Quarterly Results
Revenues in the final quarter of 2010 climbed approximately 50% to $4 million. The jump was mainly attributable to the sharp rise in revenues from collaborative agreements. The Zacks Consensus Estimate was $5 million.
Operating expenses declined 15.4% to $26.4 million. The decline was mainly attributable to the fall in R&D expenses (down 22% to $16.5 million). The reduction was primarily attributable to the completion of late-stage studies on weight management candidate lorcaserin. General and administrative (G&A) climbed 12% to $7.3 million in the reported quarter.
Annual Results
For full-year 2010, Arena Pharma suffered an adjusted loss of approximately $1.06 per share as against the 2009 adjusted loss of $1.81 per share. The narrower loss was attributable to higher revenues and lower operating expenses in 2010. The Zacks Consensus Estimate for 2010 hinted at a loss of $1.10 per share.
2010 revenues climbed 59.6% to $16.6 million. Higher revenues from collaborative agreements accounted for the increase. The Zacks Consensus Estimate for 2010 was $17 million. Arena Pharma expects revenues in the range of $11 million-$13 million in 2011. R&D expenses are expected to decline in 2011 due to the cost cutting initiatives adopted by the company coupled with the completion of studies on lorcaserin.
Our View
We believe that the earnings report is a non-event for Arena Pharma as investor focus will be on the status of lorcaserin. In October 2010, Arena Pharma suffered a huge setback when the US Food and Drug Administration (FDA) issued a complete response letter (CRL) stating that the efficacy of the drug in non type II diabetes obese patients was found to be marginal.
Following the receipt of the CRL, Arena Pharma completed an end-of-review meeting with the US regulatory body and intends to resubmit the application seeking approval of the candidate by the end of 2011. We note that lorcaserin is not the only obesity candidate to be rejected by the FDA in the present form. The FDA has also refused to approve obesity candidates of Orexigen Therapeutics Inc. (OREX) and Vivus Inc. (VVUS). Both companies have been issued CRLs.
We prefer to remain on the sidelines, with a ‘Neutral’ view on Arena Pharma, till more visibility is obtained on lorcaserin’s progress. The Neutral stance is supported by the Zacks #3 Rank (‘Hold’ rating) carried by Arena Pharma in the short run.
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