Weight loss with BELVIQ is Arena Pharmaceuticals, Inc (NASDAQ:ARNA)’s gain
On June 11, Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) will launch BELVIQ, its obesity drug, in the U.S. The company shares dropped post this announcement. Technically speaking that is not really a bad thing at all. Over the past one week, in anticipation of the news, investors had been bidding $9 for ARNA shares and when the news came, they sold. However, now that BELVIQ will soon be on shelves, there are several reasons why investors can look forward to profitability for Arena.
BELVIQ’s U.S. launch has triggered a $65M payment from Eisai to Arena. The former is its partner. Depending on BELVIQ’s annual sales levels, purchase price adjustments may also add $1.19 billion to ARNA’s kitty. Arena Pharmaceuticals has a market cap of $1.82B. Comparing this to the payment indicates exactly how inexpensive Arena’s shares are in comparison to future sales. Once the billion dollar sales-level has been touched, Arena will be worth 1.5 times the sales. Bigger pharma players like Pfizer and Merck’s price-to-sales ratio is 3.
Qsymia and Belviq are the first anti-obesity drugs to have received clearance in the U.S, since 1999. In the 21st century, obesity is a global health threat. It can lead to chronic illnesses such as heart disease and diabetes. Since 1980, the condition has grown by 100% in the U.S and now a third of its population is considered to be overweight. So, if these drugs have so much potential due to the sheer size of the market, why are investors shying away from them? The only evident reason is that the drugs are priced very steeply and sales are being hurt due to lack of appropriate marketing to GP’s.
About weight loss drugs
Is it possible that the key to weight loss lies in the brain? That is the basis of these drugs when they apply for FDA. These drugs are supposed to make you feel you are full. Some critics have been watching cautiously from the sidelines. Belviq faced FDA rejection in 2010 as there were indications of heart-valve side effects. Other diet drugs have also been pulled-out from the market in the past, due to cardiac complication risks. But the path now seems to be clear for BELVIQ and hopefully it will make its mark.