Arena Pharma's Weight-Loss Pill Has Few Fans in Japan

SAN DIEGO ( TheStreet) -- Japanese stock analysts are not hot for Arena Pharmaceuticals' ( ARNA) newly approved weight-loss pill Belviq.

Eisai, the Japanese drug maker, is in charge of selling Belviq in the U.S. under terms of its partnership agreement with Arena. This is why the Japanese sell-side community is weighing in on Belviq's commercial prospects. Like their U.S. counterparts, Japanese analysts are skeptical that Belviq will become the blockbuster weight-loss pill envisioned by Arena and its shareholders.

Here's what J.P. Morgan's Masayuki Onozuka told clients soon after Belviq was approved:

"Commercial success hinges on stronger marketing: We expect only a limited profit contribution from lorcaserin Belviq, as (1) early-stage marketing will require caution while the drug’s safety is being confirmed; (2) Eisai has just 250 US MRs marketing representatives for primary-care drugs; and (3) we think the drug’s exceptionally mild effectiveness -- weight loss of less than 5% even after three months of use -- could prompt many patients to stop taking it. We forecast a sales contribution of $100 million in 2014 (year two) and $200 million in 2016. With Eisai’s PPI Aciphex set to go off-patent in the US in 2013, the company faces an environment unsuited to an aggressive sales push for primary-care drugs, and we will be interested in seeing what kind of marketing strategy it comes up with."

Morgan Stanley MUFG analyst Mayo Mita wasn't any more effusive in her assessment of Belviq:

"For the treatment of obesity, Belviq competes with Vivus' ( VVUS) Qnexa and Orexigen ( OREX)/ Takeda's Contrave. Of these three drugs, Qnexa has the highest efficacy but relatively high incidence of side effects. Belviq has the lowest efficacy, while Contrave achieves a balance between efficacy and side effects in our view… While not yet incorporated in our earnings models, assuming peak sales of $200-500mn million, we believe the impact to Eisai’s profits will be limited given that it will need to procure the product and incur costs for marketing/PMS studies."

Credit Suisse's Fumiyoshi Sakal:

"The approval comes as little surprise after an FDA advisory council recommended it by an 18:4 vote (one abstention) on 10 May and appears to be already reflected in Eisai’s share price, which is at a YTD high. While we are impressed with the approval -- the first in 13 years for a new obesity drug in the US -- we also expect it to be only a modest positive for the shares of Eisai. We also see little possibility of lorcaserin quickly developing into a blockbuster… Arena apparently regards Eisai as an optimal partner in selling lorcaserin, but it looks like Eisai will face substantial milestone payments and other costs.

Sakal forecasts $400 million in U.S. sales of Belviq in 2018.

Citi's Hidemaru Yamaguchi:

"We expect a 2013 launch for Belviq, with sales of $25.17 million in FY3/13, $125.86 million in FY3/14, $377.57 million in FY3/15, $566.36 million in FY3/16, and $623 million in FY3/17."

Barclays' Atsushi Seki:

"We revise our forecasts for Eisai to factor in sales of the obesity drug Belviq. We maintain our 2-EW rating on a peer comparison and expect investors to now focus on the drug's pricing, insurance coverage, and competition. This is not a high-margin drug for Eisai; we think gross margin could range from 30–50% depending on sales. We also expect Eisai to shoulder 90% of the costs for an upcoming clinical testing of the drug’s long-term safety and accordingly raise our forecast for R&D spending."

Lastly, the most optimistic Belviq outlook comes from Goldman Sachs' Steve Chesney:

"In our view, FDA approval without the need for additional pre-approval trials is a positive for Eisai. Approval came with some caveats, however, including that dosing should be stopped if 5% weight loss is not achieved within 12 weeks. Based upon the Belviq clinical data (58% of patients fail to achieve 5% weight loss by week 12) and the commercial experience of other weight loss drugs with similar efficacy, we believe lack of efficacy will significantly limit uptake for Belviq… Although we forecast$1.1bn billion in Belviq sales, contributing 13% to our FY3/17 top line, given the terms of the in-licensing deal (avg. 34% of sales to purchase from ARNA and additional $1.2bn purchase price adjustments on first $2.5bn of sales) we forecast 39% average GP margin, well below Eisai’s FY3/12 consolidated GP margin of 73%."

The consensus view from Japanese analysts seems to be that Eisai is getting a raw deal in its partnership with Arena, suggesting (without saying explicitly) tht perhaps Eisai needs to buy Arena to make Belviq profitable. But with growth slowing due to the loss of patent exclusivity for the Alzheimer's drug Aricept and the setbacks with its breast cancer drug Halaven, does Eisai have the financial resources necessary to make a run at Arena?

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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