Flash Alert – SeekingAlpha Article on Arena – 5.4.12

Dear New World Investor:

I will submit this article to SeekingAlpha today. It should be on their webiste this weekend, and will be picked up by Yahoo Finance on Monday. I am also submitting it as a public comment to the Advisory Committee meeting on May 10.

What Arena Pharmaceuticals Needs To Say To The May 10 FDA Advisory Committee

Arena Pharmaceuticals will go before their second FDA Advisory Committee on May 10, seeking approval of lorcaserin for the treatment of obesity. Their PDUFA date for a final FDA decision is June 27. Recently, the FDA delayed the PDUFA date for Qnexa, another drug for obesity treatment made by Vivus, to July 17. Because Arena has a manufacturing facility in Switzerland and a marketing partner in place for the U.S., they have an opportunity to be first to market with a new drug in this underserved sector. About one-third of adult Americans are obese, and the condition has serious, expensive consequences for the medical system including diabetes, heart disease and cancer.

Qnexa is a combination of two approved generic drugs, an appetite suppressant, topiramate, with a metabolism increaser, phentermine. Topiramate was developed to treat epilepsy, and is often prescribed for migraine headaches. Phentermine is a 50-year-old drug currently used to treat obesity, but because it is an amphetamine – a chemical cousin of crystal meth – it usually is dosed for a maximum of 12 weeks at a time. Patients lose weight on it, but then when they go off it to detox, they tend to regain the weight. By providing a combination drug including an appetite suppressant and a lower dose of phentermine administered continuously, Vivus was able to avoid the regaining weight period.

A similar strategy is used by Orexigen for their obesity drug, Contrave. Contrave combines an appetite suppressant, naltrexon, with a metabolism increaser, bupropion. Naltrexon is used to treat alcohol and opiod dependence. Buproprion is an antidepressant and smoking cessation aid. In their Phase III trials, weight loss on Contrave was not quite as high as on Qnexa, but was good. The FDA has asked Orexigen to do another trial to more thoroughly investigate the cardiovascular impact of Contrave.

Arena’s lorcaserin will be trade-named Lorqess. Lorqess is a combination of an appetite suppressant, lorcaserin, with – nothing. There was no metabolism increaser in their clinical trials, because the FDA wanted lorcaserin tested as a single agent since it is a New Chemical Entity (NCE). Even so, lorcaserin met one of the two draft FDA efficacy standards, in an either/or requirement that means the drug is efficacious.

How much better would lorcaserin have done if it was combined with phentermine? Would it have provided better weight loss than Qnexa, with fewer side effects? One way to look at the potential is to turn the question around, and ask how well other appetite suppressants do without the advantage of an accompanying metabolism increaser.

The answer is that results are mediocre, and some do not meet either of the FDA draft standards for weight loss even though they are very effective in combination with other drugs. This is not surprising; there are synergistic effects to combination drugs, which is why the FDA requires even combinations of well-understood single drugs to undergo trials. Low dose topiramate appears to result in 6%+ weight loss, depending on the time period. Lorcaserin was around 6%. Interestingly, fenfluramine was about 4%, yet in the fen-phen combination with phentermine, it was one of the most effective weight loss therapies ever. Of course, the side effects of fenfluramine were even worse than topiramate, and the drug was taken off the market.

At the AdCom meeting, Arena has to strongly emphasize that their results were obtained with a single chemical entity, and it must be approved in order to progress to possibly more effective combinations such as lorcaserin/phentermine, lorcaserin/buproprion, or lorcaserin/anything.

An entire arm of potential obesity treatment research will be cut off if the Advisory Committee votes against approval of lorcaserin, or the FDA turns it down.

So the Advisory Committee seems likely to balance the efficacy of Lorqess against the risks. Like all obesity drugs, Lorqess works quite well for some and not at all for others. These “high-responders” can be identified as early as 30 days after therapy starts. Those who completed the lorcaserin trials, which is the same as saying those who were losing enough weight to be motivated to stay on the protocol, showed impressive weight loss at levels that would have a significant impact on progression to diabetes or, for diabetics, remarkable improvements in metabolic function.

Against that, the Advisory Committee will evaluate the real risks remaining after Arena’s thorough resubmission addressing the issues in the Complete Response Letter (CRL) they received after the first Advisory Committee and FDA decision. We can dispose of the bogus rat cancer issue without comment; it is only an issue for the naked shortsellers.

Benign tumors or fibroadenomas were increased in rats, although not in humans in the clinical trials. There is a high incidence of fibroadenomas in rats in general, and the prolactin method of action studies Arena performed in response to the CRL should take care of this issue. At the very least, if we get an oncologist on the panel, the cynical comment in the last AdCom that “Well, those rats died from their benign tumors” will be laughed out of the room. (Unless the panel members think a doctor would let a 250-pound woman grow a 100-pound benign tumor without thinking to remove it).

Valvulopathy was the issue that caused fenfluramine to be removed from the market. Arena did periodic heart scans on every patient in their clinical trials to check for valvulopathy. The company initally wanted to exclude the possibility that Lorqess doubles valvulopathy. The FDA wanted them to exclude a 50% increase. Assuming the “normal” incidence of valvulopathy would be 2.5%, they set the trial size at 8,000 patients to meet the FDA requirements.

But the incidence of valvulopathy was only 1.7%, so the company can only exclude an increase of 67%, not 50%. They might have had to do another 4,000 patients to exclude a 50% increase in valvulopathy at that surprisingly low level of incidence.

FDA Deputy Director Eric Colman said in the last Advisory Committee meeting that the 50% exclusion is a fluid standard. But – here’s the point – lorcaserin does not CAUSE valvulopathy. The exclusion statistics are just a matter of statistics and sample size. There was no increase in valvulopathy in the Phase III trials. The company has done further work in response to the CRL on the affinity of lorcaserin for the serotonin 2A or 2B heart receptors (very low) versus the serotonin 2C appetite receptor (very high), and the transient nature of valvulopathy in the trials plus the fact that there was no particular increase in overall valvulopathy all tell the panelists that valvulopathy is not a problem. At most, Arena may be required to monitor the first 2,000 or 4,000 patients for valvulopathy post-approval, just to reassure the FDA.

Where does this leave us? I believe the risk/reward ratio of lorcaserin heavily favors a vote for approval by the Advisory Committee on May 10, and FDA approval on June 27. I have updated my model to account for the larger number of shares outstanding after the recent financings, and it reduces the current target price from $25 to $22. For the line-by-line explanation, please see my earlier article at seekingalpha.com/article/427881-arena-pharma-s-5-year-revenue-forecast.

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