What to Expect From Arena Pharmaceuticals, Inc. (ARNA)’s Launch of Belviq

Insurance coverage

Insurance coverage for obesity drugs is increasing. Lonnel Coats recently stated in an interview with CNBC that 30% of insurers currently cover BEVIQ. Mr. Coats expects the coverage to go up to 50-70% within 24 months. Currently the US healthcare system carries a burden of around one billion dollars a day in treating obesity and T2DM. Insurance companies have an incentive in covering obesity drugs because a reduction in weight helps some 50 conditions which result in being overweight.

A big boost to obesity drug makers, e.g., Arena, Vivus, and Orexigen Therapeutics, Inc. (NASDAQ:OREX) is this week’s the AMA declaration that obesity is a disease. This will naturally lead to increased insurance coverage.

“Recognizing obesity as a disease will help change the way the medical community tackles this complex issue that affects approximately one in three Americans…The AMA is committed to improving health outcomes and is working to reduce the incidence of cardiovascular disease and type 2 diabetes, which are often linked to obesity.” Patrice Harris, M.D.

Stock price

If we assume each sales rep has about 100 callable doctors, half of those doctors need to write one prescription per month early in the launch and by December each doctor needs to write one per month to reach to justify Jefferies $12 price target. This is based on the assumption of 2000 weekly scripts starting in July, with a 6% w/w growth rate and 50% responder refill rate. In this model, after 26 weeks (by end of 2013), Eisai generates 30M revenue.

With 85 million Americans adults being obese, 20 million Americans having type 2 diabetes, 80 million Americans having borderline diabetes (A1C between 5.7%-6.4%), 45 million with high cholesterol, and 68 million having high blood pressure, the potential market for Belviq is huge. Expecting doctors to write one prescription per month to justify a $12 stock price is very reasonable.

Recently, Eisai’s CEO, Lonnel Coats indicated in a Bloomberg interview that he expects revenues from Belviq of over $150 million this year. While this was a not a formal communiqué, it is not clear if these are Eisai’s internal goals based on overhead, cost of investments, etc., or if this number was derived though channel checks. Arena’s CEO, Jack Leif has reportedly stated in the company’s recent shareholder meeting that $150 million is conservative! It is also not clear if they meant fiscal or calendar year as Eisai’s fiscal year end with Q1, 2014.