I’ve been mostly on vacation this week so have tried to whittle my work load down to communicating on the items of utmost importance. As a result, this week’s update is more of a review of the most notable news, which is Arena Pharmaceuticals’ (ARNA) quarterly results (hint: the real big news with the stock hasn’t come yet, but will within the next two weeks!). You also should have received the Special Bulletin yesterday that Asure Software (ASUR) has been moved to Sell due to a post-earnings report selloff, which extends a pattern of underperformance that now seems likely to continue.
Around our portfolio, it’s been a fairly typical week, excluding events with Arena and Asure. AxoGen (AXGN) continues to climb, Rapid7 (RPD) took a little dip on selling from insiders (not a big deal in my opinion, just helps increase the public float), Datawatch (DWCH) came down 5% to 9.05 so remains on high alert, and everything else was relatively unchanged.
Now, on to Arena.
Arena Pharmaceuticals (ARNA) Reports Q4 Results
Arena reported this week with revenue of $15.4 million ($14.2 million in collaboration and $1.2 million in royalty) and EPS of $-0.36 both coming in ahead of expectations. But those aren’t the main story here since they mainly reflect collaboration revenue and a small royalty from the weight loss drug Belviq (licensed to Eisai) and not drug development news. Arena sold its manufacturing facility in Switzerland since it will cost money to run and management said it is focused on developing its pipeline, not manufacturing.
The main story is around the pipeline. Management gave a few more details on the Phase 3 ralinepag trial design, saying, as expected, there would be two trials (to support separate registrational filings), plus a third, non-registrational trial to provide evidence of differentiation from other treatment options. It plans to enroll both newly diagnosed (incident) patients, as well as those already receiving therapies (prevalent patients). And the studies will focus on exercise capacity (cardiopulmonary exercise testing, or CPET, and six-minute walk distance), as well as time to clinical events. Patient enrollment numbers will be around 250 (for exercise capacity) and 700 (time to clinical event). Management expects to give the market more details on the trial designs when mid-year results come out (when enrollment should have begun) and believes the exercise capacity trial would likely be completed faster, though it recognized that the time to clinal event trial would have interim data readouts. Both studies should provide enough data to support separate registrational filings with the FDA. As we’ve known, the company is being deliberate about its trial strategy, and not trying to rush things. While the market would like results sooner rather than later, in the long run, it’s better to maximize the chances of success. The market might be getting a little impatient, which could account for some of the stock’s underperformance this week.
We’ve been waiting to hear about etrasimod, and the market clearly wanted this news during the earnings report. We have a little longer to wait. Data for the etrasimod Ulcerative Colitis (UC) phase 2 trial is coming by end of March (only two weeks away), and will include tolerability, lymphocyte reductions, primary endpoints and a few secondary endpoints. The idea will be to give the Street enough information to compare etrasimod with other drug candidates out there, but also retain enough proprietary data for Arena to put out in medical journals. This is going to be a significant event one way or the other.
Management was asked about what it needs to see in the trial results to avoid class labeling on heart rate affects (which Celgene’s ozanimod requires). Management essentially said the market just has to wait until the data comes out, but that it’s important to remember that there is no titration schedule (increase of dosing to measure side effects at different doses) with etrasimod (there is with ozanimod). In other words, etrasimod is in a different class than ozanimod.
Also, etrasimod’s trials for pyoderma gangrenosum (PG) and primary biliary cholangitis (PBC) are currently enrolling. There is no deadline for data readouts, but we’ll likely get more info once we get UC results.
I mentioned in my report on Arena that developing etrasimod by itself would be very costly. The company ended the year with $271.3 million in cash, cash equivalents and investments (it raised $248.8 million in 2017), and management declined to answer a question about its projected cash burn if it develops etrasimod on its own. When asked if the company would partner on the asset management, company management said that if UC data is positive, it plans to take it forward independently in major markets. It noted it already has a partner for China and would partner in other secondary markets. I think this statement could have spooked the market into thinking Arena will need to raise a bunch of cash at some point to move etrasimod forward, and there’s probably some truth to that. That said, there’s no reason that management should be giving a lot of details on the go-forward strategy until the Phase 2 UC data is out, since the bottom line is that will dictate what happens next. If the data is terrific, there will be more interest from potential partners and Arena’s stock will likely go up. If the data is bad, there will be less interest and the stock will probably take a hit. Why put the cart before the horse?
Lastly, topline data for the APD371 trial (pain associated with Crohn’s disease) is still due in Q2.
Shares of Arena have traded down on heavy volume (roughly 8%) over each of the last two days. I believe this is a reflection of market impatience, not poor pipeline prospects (what’s really different?). While the drop in the stock is alarming, it’s important to recognize this is biotech, and it’s not all that unusual in that context. Shares will move more based on trial results, and while I don’t have a crystal ball, prior trial data is encouraging, so until that changes I plan to keep at Buy.BUY.