Arena Pharmaceuticals (NASDAQ:ARNA)
Arena Pharmaceuticals has been struggling to stay afloat as a company, especially with Belviq under performing in the obesity market. Thing are about to get worse because now it will have to go back to the drawing board. In other words, it has admitted that Belviq is not taking off in the market. In light of this it is forced to cut back on its Belviq sales force, and will instead focus on its pipeline candidates.
The hope there is that it can bring a new drug to market that might be able to stage a turnaround in the company. To do this Arena has something very drastic in hopes that it will work. It has rolled part of its pipeline to an independent privately held pharmaceutical company known as Beacon Discovery Incorporated. The company has formed it as an independent company and hopes to be able to bring its G-protein coupled receptors drugs to life with a partnership.
Trade smarter and make more money with Tradespoon!
In order to accomplish this it will have to seek out and find pharmaceutical companies willing to engage in a partnership for these G-protein coupled receptors drugs. Arena will have certain rights to the drugs developed at Beacon. It will also obtain rights to potential revenue Beacon gains in the future. There are a few problems associated with Arena taking this position. The first is that the Arena stock ticker ARNA will not see much movement.
After all, the remainder of Arena’s pipeline is being shifted over to Beacon. Where does that leave Arena Pharmaceuticals itself? That means that Arena itself will still have Belviq but the problem is that Belviq has not been delivering at all. For example it posted a second quarter loss of $27 million, because sales of Belviq have been constantly falling. The loss of $27 million incurred during the quarter wouldn’t have been so bad if revenue came in strong. That was not the case, because Arena earned $9.5 million for the quarter.
Even with the company holding $122 million in cash it won’t do good if Belviq sales continue to falter. It doesn’t even help now that Arena has offloaded its pipeline into a spin out privately held company either. Most investors that made money of of this stock were the ones who stuck through FDA approval. Before FDA approval the stock hovered around $1.78 per share. As soon as the FDA approved the drug it shot up as high as $12 per share. That would have been the time to sell and make a profit considering that the stock has cratered ever since.
It is not entirely Arena’s fault, after all, how could it have foreseen that the obesity market was not interested in weight loss drugs? Obesity is a major problem in the U.S. and abroad, therefore there was a belief that sales of Belviq could reach at least $1 billion in sales. As evidenced over the years the number has hit nowhere near close to that. Of course it is not the company with poor sales performance. Two other competing biotechnology companies also failed to breach the market.
Both Vivus and Orexigen which also obtained FDA approval, failed to generate a large amount of revenue as well. All this has to do with the fact that it had been many years prior to these new FDA approvals where patients were willing to take obesity drugs. Earlier obesity drugs hit the market, but followed catastrophe after major side effects were found for those taking the drugs. The company that had a popular obesity drug was the American Home Products Corporation.
It had a drug known as phen-phen which was widely popular, but quickly turned into trouble when the drug was linked to heart valve issues. It seems that since then doctors and patients alike have been skeptical about obtaining prescription drugs to treat obesity. The hope now is that Arena Pharmaceuticals can gain value from Beacon, but results from there may not be out until late 2017 to early 2018. That means for time being Arena stockholders are left stuck holding the bag.
Don’t waste your time! Click here to find winning trades in minutes!
[Image Courtesy of Wikipedia]