Arena Pharmaceuticals partners with Eisai on Lorcaserin sales

Arena Pharmaceuticals and Eisai signed a partnership agreement to commercialize anti-obesity drug Lorcaserin upon FDA approval. CEO Jack Lief had targeted the first half of 2010 for a partnership agreement, and it looks like he made this self-imposed deadline. An independent advisory committee will review Lorcaserin's New Drug Application (NDA) on September 16, 2010 and Lorcaserin's Prescription Drug User Fee Act (PDUFA) date is October 22, 2010.

ARNA receives a $50 million upfront payment, and another $90 million upon FDA approval. Other terms of the partnership agreement for US sales are contained in the following article.

http://www.businessweek.com/news/2010-07-01/eisai-will-sell-arena-s-weight-loss-drug-in-the-u-s-if-cleared.html

The agreement includes up to $1.41 billion in milestone payments, plus up to 36.5% of US sales. Given there are 101.23 million shares outstanding, with an additional 28 million warrants, shares of ARNA are severely undervalued in the event of FDA approval, in my opinion. This marketing agreement does not include sales to Europe and Asia, and rest of world (ROW) markets. ARNA is also in the unique position for an investigational drug company in that it has its own manufacturing facilities (in tax-friendly Switzerland) and retains all ownership rights for Lorcaserin. This validates Lorcaserin's lead status as a potential first-line therapeutic treatment for obesity, as Vivus' Qnexa and Orexigen's Contrave are also up for regulatory approval.

Here is my previous detailed analysis of the anti-obesity sector for investigational drugs:

http://gregnguyen.blogspot.com/2010/04/is-magic-weight-loss-pill-just-around.html

See disclaimers on the side bar.

Disclosure: long ARNA shares, sold January put options on ARNA (bullish positions)