Arena reports lower net loss of $28.80M for second-quarter 2010

Arena Pharmaceuticals, Inc.Aug 4 2010

Arena Pharmaceuticals, Inc. (Nasdaq: ARNA) today reported financial results for the second quarter ended June 30, 2010, and recent developments, including the successful Pre-Approval Inspection, or PAI, of the company's Swiss drug product manufacturing facility by the US Food and Drug Administration, or FDA.

"We have recently achieved a number of important milestones, including the establishment of an agreement with Eisai for the commercialization of lorcaserin in the US, the successful completion of the FDA's pre-approval inspection of our Swiss manufacturing facility and the publication of our BLOOM trial results in the New England Journal of Medicine," stated Jack Lief, Arena's President and Chief Executive Officer. "We are continuing to execute on our plans for lorcaserin as we prepare for the September FDA advisory committee meeting and potential regulatory approval."

Arena reported a lower net loss in the second quarter of 2010 of $28.8 million, or $0.28 per share, compared to a net loss in the second quarter of 2009 of $38.0 million, or $0.48 per share, and a lower net loss in the first half of 2010 of $60.0 million, or $0.60 per share, compared to a net loss in the first half of 2009 of $88.6 million, or $1.16 per share.

As expected, research and development expenses declined to $20.5 million in the second quarter of 2010 from $24.2 million in the second quarter of 2009. Research and development expenses in the first half of 2010 declined to $38.8 million from $66.8 million in the first half of 2009. This decrease is primarily attributable to the completion of the pivotal Phase 3 clinical trials for lorcaserin. Research and development expenses included $1.8 million in non-cash, share-based compensation expense in the first half of both 2010 and 2009. General and administrative expenses totaled $6.8 million in the second quarter of 2010, compared to $5.7 million in the second quarter of 2009, and $13.8 million in the first half of 2010, compared to $13.3 million in the first half of 2009. This increase in general and administrative expenses is primarily attributable to increased market research expenses. General and administrative expenses in the first half of 2010 included $1.3 million in non-cash, share-based compensation expense, compared to $1.6 million in the first half of 2009. Interest expense of $9.9 million was recorded in the first half of 2010, compared to $3.7 million in the first half of 2009. This increase is primarily attributable to the loan Arena received from Deerfield Management in July 2009.

At June 30, 2010, cash, cash equivalents and short-term investments totaled $118.5 million and approximately 112.3 million shares of common stock were outstanding. In July 2010, Arena received an upfront payment of $50.0 million from Eisai Inc., or Eisai, under a marketing and supply agreement for lorcaserin.

Arena's Recent Developments

• Arena's wholly owned subsidiary, Arena Pharmaceuticals GmbH, entered into a marketing and supply agreement with Eisai for the commercialization of lorcaserin in the United States following FDA approval. Eisai was established in 1995 and is ranked among the top-20 US pharmaceutical companies (based on retail sales). Eisai began marketing its first product in the United States in 1997 and has grown to become a fully-integrated pharmaceutical business with fiscal year 2009 sales of approximately $3.9 billion. Under the terms of the marketing and supply agreement, Arena received an upfront payment of $50.0 million from Eisai, and, upon regulatory approval and the delivery of product supply for launch, Arena may receive up to an additional $90.0 million in milestone payments depending on the label and timing of approval. Arena will manufacture lorcaserin at its facility in Switzerland and sell finished product to Eisai for a purchase price of 31.5% - 36.5% of Eisai's annual net product sales. Arena is also eligible to receive $1.16 billion in purchase price adjustment payments based on annual sales levels of lorcaserin and up to an additional $70.0 million in regulatory and development milestone payments.
• The FDA completed the PAI of Arena's drug product manufacturing facility in Switzerland and classified the inspection as No Action Indicated, or NAI, with no Form 483 issued. In addition to this PAI, one of Arena's contract manufacturing organizations for lorcaserin active pharmaceutical ingredient, Siegfried Ltd., was also inspected by the FDA, and the inspection was also classified as NAI with no Form 483 issued. These successful PAIs enable Arena to manufacture finished product for marketing and distribution following regulatory approval.
• Results from the two-year, pivotal Phase 3 BLOOM (Behavioral modification and Lorcaserin for Overweight and Obesity Management) trial were published in the July 15, 2010, issue of the New England Journal of Medicine. The data presented in the article show that lorcaserin used in conjunction with behavioral modification caused significantly greater weight loss and improved maintenance of weight loss compared to placebo. Lorcaserin also improved values for biomarkers that may be predictive of future cardiovascular events, including lipid levels, insulin resistance, levels of inflammatory markers and blood pressure.
• The FDA notified Arena of the tentative scheduling of an Endocrinologic and Metabolic Drugs Advisory Committee meeting on September 16, 2010, for the review of the lorcaserin New Drug Application, or NDA.
• At the American Diabetes Association's 70th Scientific Sessions, pooled Week 52 data from lorcaserin's pivotal Phase 3 clinical trial program were presented. Data from over 6,000 patients show that more than twice as many lorcaserin patients (47.1%) achieved at least 5% body weight loss compared to placebo (22.6%) using Intent-to-Treat with Last Observation Carried Forward analysis. Lorcaserin reduced body weight in all patient subgroups evaluated, as defined by gender, age, ethnicity, starting body weight and starting Body Mass Index, or BMI. Greater improvements in cardiovascular risk factors were also achieved with lorcaserin treatment compared to placebo overall and in most subgroups. Patients in both the lorcaserin and placebo groups who decreased their body weight by at least 5% achieved more favorable changes in lipid parameters, glycemic parameters, blood pressure and high sensitivity C-reactive protein as compared to those who had less than 5% weight loss. Greater improvements in these cardiovascular risk factors were also achieved by patients who entered the studies with values indicative of elevated risk.
• Arena received net proceeds of $35.5 million in June 2010 from the sale of 11.0 million shares of common stock to Deerfield Management at a price of $3.23 per share. As part of the transaction, the exercise price of 16.2 million of the 28.0 million outstanding warrants to purchase common stock that Deerfield previously received in connection with a June 2009 loan to Arena were reduced from $5.42 to $3.45 per share.

2010 Financial Guidance

Arena reported that it expects to end 2010 with $112 million to $122 million in cash, cash equivalents and short-term investments, reflecting receipt in July 2010 of the $50 million upfront payment from Eisai, and also increased revenue guidance from a range of $12 million to $14 million to a range of $14 million to $16 million to reflect the 2010 amortization of such upfront payment. Both cash and revenue guidance excludes any potential milestones from Eisai and other existing collaborations, revenue from any new collaborations in 2010 and any commercial sales of lorcaserin. Arena decreased its 2010 guidance for general and administrative expenses from a range of $31 million to $35 million to a range of $26 million to $30 million (including non-cash expenses of approximately $3 million) primarily to reflect lower anticipated marketing costs for lorcaserin. Arena reiterated the following other components of its full year guidance: external clinical and preclinical study fees and expenses, including manufacturing, of approximately $17 million to $21 million; internal research and development expenses of approximately $57 million to $63 million (including non-cash expenses of approximately $10 million); and capital expenditures of approximately $7 million.