💊 Did Arena Get What The Doctor Ordered?

Uber plans non-strategic stake sale; Beyond Meat jumps.

Hey Global Investor! Here’s what you need to know before the US markets open.

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💊 Arena Pharmaceuticals: What The Doctor Ordered?

24 hours can make a big difference. Ask the shareholders of Arena Pharmaceuticals (ARNA). When the markets closed on Friday, shares of the biopharmaceutical company were down 34% for the year. Arena’s shares more than made up for the deficit when the next trading day ended. What gives? (Tweet This)

The Drug That Didn’t Deliver

Arena Pharmaceuticals was founded in 1997 in San Diego, CA. It focused on small molecule drugs targeting multiple therapeutic areas. The company developed Constitutively Activated Receptor Technology (CART), which is used to identify drug leads to increase or decrease a biological response.

In 2009, Arena submitted a New Drug Application to the FDA for Belviq for use in treating chronic weight management in adults who are obese. The regulator gave its approval to the drug in June 2012 after evaluating its safety and efficacy through multiple clinical trials.

These trials included 8K obese and overweight patients with and without type II diabetes. The trials ran for 52 to 104 weeks. The approval was granted on the condition that Arena will conduct postmarketing studies, including long-term cardiovascular outcomes, and screen patients for the risk of adverse cardiac events like heart attack and stroke, after ingesting Belviq.

Unfortunately, Belviq’s sales were underwhelming, and Arena decided to sell Belviq, its only commercial drug, to Japanese partner Eisai Co. Ltd. in 2017. Eisai paid $23M for global manufacturing, commercialization, and IP rights, among other privileges for Belviq.

Arena still had some royalties it could have received on global sales of the drug: 9.5% on sales of $175M or less; 13.5% on sales of $500M or less; and 18.5% on sales greater than $500M. All those lofty numbers didn’t matter since Belviq’s global sales in 2015 stood at a paltry $37.7M.

The inevitable job cuts followed. Arena first laid off 80 workers in October 2015, followed by another 100 in July 2016. Coup de Grace followed. Belviq was finally withdrawn from the market in February 2020 after a five-year clinical study discovered an increased risk of cancer among its patients.

Today, Arena has no commercialized drugs and reported zero revenue for Q3. Net loss for the quarter stood at $196.3M.

One Man’s Trash Is…

Currently, Arena is developing treatments for gastroenterology, dermatology, and cardiology. The company’s lead drug, called etrasimod, is in late-stage testing to treat ulcerative colitis and mid-to-late stage study in Crohn’s disease, both of which are inflammations of the intestines and affect more than 3M people annually in the United States.

Also in Arena’s pipeline are two molecules for cardiovascular treatment: Temanogrel for treating microvascular obstruction (in Phase II trials) and APD418 for acute heart failure (also in Phase II trials).

Enter Pfizer, whose drug candidate for treating ulcerative colitis, is currently in a mid-stage study. Flush with the income stream from Covid vaccines, Pfizer recently acquired immuno-oncology company Trillium Therapeutics for $2.22B to bolster its pipeline for treating blood cancer.

Pfizer is acquiring Arena for $6.7B in cash and will pay $100 per share – almost double Arena’s Friday’s closing price of $49.94. Pfizer hopes this deal will give it a good grip on the $20B global inflammatory bowel disease market. The deal should close in the first half of 2022.

Pfizer needs to put the Covid windfall to work. Arena needs the validation that it’s working on meaningful molecules after burning its fingers once. Arena’s CEO Amit Munshi echoed his shareholders’ sentiments when he said this transaction represents the next best step for both patients and shareholders.

As Arena’s stock surged by 80% on Monday, investors were beside themselves. Analysts seem to have factored in the idea that etrasimod may be more effective than Bristol Myers Squibb’s Zeposia. If that is the case, did Arena sell out too soon? It doesn’t matter. Pfizer now holds the keys to Arena’s IP.

Market Reaction
ARNA ended at $92, up 2.13%, after Friday’s 80% jump.

Company Snapshot 📈

ARNA $92.00 +1.92 (2.13%)

Analyst Ratings (13 Analysts) BUY 31%  HOLD 69%  SELL 0%

Newsworthy 📰

Plans: Uber looking to sell Didi, other non-strategic stakes, says CEO (UBER +4.25%)

No Impact: Bumble CEO says business has been largely unaffected during Omicron threat (BMBL +0.91%)

In The Works: Analysts say McDonald’s, Beyond Meat plan big US 2022 McPlant expansion (BYND +9.29%)

Later Today 🕒

  • Lennar Corporation Earnings (LEN)
  • Heico Corp. Earnings (HEI)
  • Nordson Corporation Earnings (NDSN)
  • Toro Co. Earnings (TTC)
  • ABM Industries Inc. Earnings (ABM)
  • Revlon Inc. Earnings (REV)
  • AutoZone Annual General Meeting (AZO)
  • 7:00 PM IST: Retail Sales
  • 12:30 AM IST: FOMC Announcement
  • 1:00 AM IST: Jerome Powell Press Conference

Today’s Market Terminology: Gross Refining Margin (GRM)

GRM is the difference between the value of petroleum products, when they leave the refinery and the value of crude oil entering the refinery

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