Arena's Pipeline Holds Promise, Plunging Revenues A Concern

We issued an updated research report on Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) on Mar 6.

Arena has two key candidates — etrasimod and olorinab — in its pipeline.

Etrasimod is presently in late-stage development for ulcerative colitis (“UC”). Arena is currently enrolling patients in a pivotal phase III ELEVATE UC 52 study evaluating etrasimod for treating moderately-to-severely active UC.

The study is part of the ELEVATE UC registrational program, which comprises two pivotal studies to evaluate etrasimod in UC patients. The company has plans to initiate ELEVATE UC 12, a 12-week induction study, later this year.

A phase IIb study — ADVISE — is evaluating etrasimod in patients with atopic dermatitis (“AD”). Data from the study is expected in the second half of 2020. Another phase IIb study — CULTIVATE — was initiated earlier this year to evaluate the candidate in Crohn's disease.

Two separate mid-stage studies are planned for initiation later this year to evaluate etrasimod in patients with eosinophilic esophagitis, a gastro-intestinal disease, or alopecia areata, an autoimmune disorder.

A phase II CAPTIVATE study is evaluating olonarib as a treatment for abdominal pain associated with irritable bowel syndrome. Data from the study is expected in the second half of 2020. Arena is also looking to expand its pipeline through partnerships.

We would like to remind investors that in January 2019, Arena out-licensed the global rights to its late-stage pulmonary arterial hypertension candidate ralinepag to United Therapeutics, Inc. UTHR. The company received an upfront payment of $800 million and is eligible to receive up to $400 million in potential milestone payments, per the terms of the deal. This fund is being used to support continuation of clinical development of other candidates. Meanwhile, the company is streamlining its business to help cut annualized cash expenditures and other related operating expenses. The company ended the year with a strong balance sheet with $1.1 billion in cash, cash equivalents and investments.

Although Arena is progressing well with its key pipeline candidates, the company will face stiff competition from multiple approved drugs in their targeted indications. There are several drugs approved for treating UC including AbbVie’s ABBV multi-billion dollar drug Humira. Sanofi/Regeneron’s (NASDAQ:REGN) Dupixent is one of the top drugs approved for treating AD. Moreover, olonarib, following a potential approval, will compete with Allergan/Ironwood Pharma’s Linzess.

With no marketed drug, the company is overdependent on its partners for revenues. The termination of license agreements with Outpost Medicines and Axovant Sciences related to certain pipeline candidates in late 2019 and early 2020 are likely to dent revenues in the future quarters.

Arena’s revenues will also be hit in future quarters as royalties on Belviq sales are likely to be lower in 2020. In February 2020, the company’s partner, Eisai announced voluntary withdrawal of Belviq from the U.S. market, following FDA’s recommendation based on unfavorable risk-benefit profile observed in a cardiovascular outcomes study.

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