Recently, Arena Pharmaceuticals Inc. (ARNA) inked a deal with Japanese company Eisai Inc. for lorcaserin, its candidate for weight management, including weight loss and its maintenance.
On being approved, the marketing rights of lorcaserin in the US will be granted to the Japanese company. The ultimate value of the deal is dependent on the successful commercialization of the obesity candidate.
The deal will entitle Arena to $50 million in upfront payments. Furthermore, the company stands to receive up to $90 million in milestone payments from the Japanese company.
Arena will manufacture lorcaserin and sell it to Eisai, who will take care of its marketing and distribution in the United States. Arena will sell the obesity drug for a purchase price starting at 31.5% of Eisai’s annual net product sales. The price will increase on a tiered basis and could reach 36.5% of annual net product sales exceeding $750 million.
Furthermore, Arena can receive $1.16 billion as a one-time purchase price adjustment payment coupled with additional regulatory and milestone payments of up to $70 million.
We remind investors that lorcaserin is currently under review by the FDA. The New Drug Application (NDA) seeking marketing approval for lorcaserin, will be scrutinized by the Endocrinologic and Metabolic Drugs advisory committee of the US FDA tentatively on Sep 16, 2010. However, FDA is not bound to follow the advice of its advisory committee.
A response from the FDA should be out by the fourth quarter of 2010 (action date: Oct 22, 2010). Lorcaserin would be Arena’s first drug to hit the market if the US on approval.
However, we note that Arena is not the only company seeking to develop a treatment for obesity. Companies such as Amylin Pharmaceuticals Inc. (AMLN), Orexigen Therapeutics Inc. (OREX) and VIVUS Inc. (VVUS) are all striving to bring obesity treatments to the market. Orexigen’s Contrave, VIVUS’ Qnexa as well as Arena’s lorcaserin works on the patient’s central nervous system, thereby dampening the appetite.
Furthermore, recently, Amylin Pharmaceuticals and partner Takeda Pharmaceutical Co. Ltd. (TKPYY) announced that they intend to advance their obesity combination treatment of pramlintide and metreleptin into late-stage studies.
Lucrative Obesity Market
Obesity is an attractive market that could be worth many billions of dollars. It is estimated that obesity affects over 400 million people globally. Moreover, obesity is linked to increased health risk of several medical conditions. Moreover, obesity leads to various other serious health problems. Given the huge unmet need in this market, the successful development of the obesity pipeline would help drive growth at Arena.
Our Recommendation
Arena is a Zacks #3 Rank (‘Hold’) company, which indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months. Our long-term Neutral stance on the company indicates that the stock is expected to replicate its short-term performance, but over 6-12 months. Consequently, we advise the investors to retain the stock over the time-period.
Read the full analyst report on “ARNA”
Read the full analyst report on “VVUS”
Read the full analyst report on “AMLN”
Read the full analyst report on “OREX”
Read the full analyst report on “TKPYY”
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