This morning Arena Pharmaceuticals (ARNA) announced a US marketing partnership with the US arm of Japan's Eisai, known for gastrointestinal drugs, among others. A well-attended conference call with many new (to me, at least) faces was held before market open, which will be archived on the company's web site for 30 days.
Reasonable people may disagree whether this is the long hoped-for partnership with Big Pharma by one of the three small-pharma obesity drug developers, ARNA, Vivus Inc. (VVUS) and Orexigen Therapeutics (OREX). While I personally am in the camp that would think of the top dozen or so by worldwide revenues when people say "Big Pharma" -- Pfizer, GlaxoSmithKline, Roche et al. -- Eisai is certainly in or close to the top 20, depending on who's counting and over what period, and a muscular partner.
The deal is structured to reflect lorcaserin's risk profile relatively early in the game, that is, pre-approval -- lorcaserin will face an FDA advisory panel only in September and receive an approval decision in October. For the moment, ARNA will receive only $50 million upfront from Eisai, which isn't much for a drug that analysts have been ballyhooing as potentially a $1B or more annual blockbuster. Milestone payments of up to $160 million then follow, mostly contingent upon approval and delivery. All this limits Eisai's risk during the approval and pre-launch manufacturing process.
However, the back end is heavily weighted in ARNA's favor if lorcaserin does get approved and take off: a $1.16B sales-related milestone payment could kick in, which is rich considering that Eisai's most recent US revenues in fiscal year 2009 were $3.9B. Eisai's purchase price to ARNA also steps up from 31.5% of sales to 36.5% of sales as sales volume rises.
All in all, it would appear that ARNA is happy to lock in some first-dealer advantage and very favorable partnership terms in the event that lorcaserin does come to market. I like this strategy and so should other shareholders, since if lorcaserin does not come to market close to schedule, ARNA's prospects are very limited anyway -- why not increase the possible upside?
Two side notes in closing. First, CEO Jack Lief insists that ARNA's market research shows that doctors will prefer to prescribe lorcaserin as a monotherapy. I'd be interested in seeing that research or at least hearing more details of it. I'm not convinced that there is no interest at all in a potential lorcaserin-phentermine combination (the much-rumored "safe fen-phen").
Second, and this is not limited to ARNA -- I'm not opposed to values. But partnerships, alliances and mergers and the like don't require a perfect match of values, so please don't go on too much about how much everyone agrees with everyone's values. Of course we don't want one side's values to be "We hug the trees" and the other side's to be "We steal shareholders' money and line our pockets with it." But short of this, maybe we can take the values thing as read sometimes.
Arena previously said that in their practitioner surveys,about 20% of obesity doctors would prescribe lorcaserin with phentermine right away, and 80% said they would use it as a monotherapy at first. Of course, those who use it with phentermine will see much more weight loss than those who don't, so patient pressure and peer pressure should spread the combination approach very quickly.
Posted by: Biobabe | July 05, 2010 at 10:11 AM