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Friday, March 29, 2024

Arena Pharmaceuticals – Time To Dive Under the Hood (Again)

Reminder: Pharm is available to chat with Members, comments are found below each post.

Howdy PSW Members!  It has been a while since I last did a post on Biotechs, and I do miss the daily chat.  I will tell you if you are new, this is one of the best sites for learning how to trade! Phil is an amazing Captain and Mentor, so follow along, bookmark things from the site to read again, and take notes. Over the 14 years I have been a part of this community, Phil has made me a better trader as well as making me think about things beyond the markets.

For those that don’t follow biotech, and are newer to PSW, I have been working in the industry for over 20 years.  My specialty is drug safety and metabolism, as I have my PhD in Pharmacology/Toxicology and an MBA (just because!). Now, about Arena Pharmaceuticals (ARNA). Let’s dive in! 

Arena has been around awhile.  They were founded in 1997 as a GPCR company, with a plethora of drugs in the pipeline, but in the mid-2000s, they put all their eggs in one basket – lorcaserin.  Remember all the hoopla about Fen-Phen and how well it worked in the ’90s for weight loss? Then what happened? Oh yeah, heart problems and death!  Well, Arena had a better ‘Fen’ called lorcaserin, which was a 5-HT2C receptor agonist that works in the brain by stimulating this receptor and making one want to eat less. There was a race at the time between three companies to be the first to show their drugs were working in the weight loss area, Arena, Vivus and Orexigen. Arena was the only company with a ‘new’ drug, while the others were combining different approved drugs into a single pill.  Needless to say, Arena did not win the race, but the whole weight loss bonanza died down because people figured out they they could….excercise. Novel thought…huh?

Arena, being a GPCR company, did have other compounds in their pipeline.  Many of these were first and best in class compounds, but managment chose to throw most of their funds at lorcaserin, and thus a few of the better compounds sat on the sideline, slowly progressing to the clinic. Lorcaserin was eventually approved in 2012, out licensed to Eisai, but never became a block buster everyone thought it could be.  Now, years later, it has been withdrawn from the market because of safety reasons (go figure).

Luckily, the company’s other drug candidates are proving to be some of the most interesting and dynamic players in a few diseases. Below is the current snapshot of their pipeline, and readouts from a few of these clinical trials are coming up later this year.

Arena’s flagship program is estrasimod, which is a once-daily, highly selective sphingosine 1-phosphate (S1P) receptor modulator (other S1Ps are in trial or approved for MS, and only one is currently competiting in the disease areas Arena is targeting – time will tell). S1P modulators halt the egress of immune cells from traveling to the site of inflammation. Two UC phase 3 trials are ongoing, and several phase 2 trials are underway or beginning ( AD, EoE, AA) (data here). The UC trials are the juggernauts, but data for those trials are several years out, but for the phase 2 AD trial data should come out Q1 -2021.  AD is an interesting target for a S1P receptor modulator, as preclinical data are sparce about this mechanism.  Currently, the standard of care is topical steriods, but for those with more severe cases, Dupixent, a monoclonal antibody injectable, is taking over the market. If etrasimod shows any promise in these patients, the an oral drug will surely win out over an injectable (if they are equal in efficacy).  Unfortunately, AD is not a homogeneous disease, so there will be room for several drugs in this market space (AD market is currently ~$11B and growing at 13% annually).

The real value, though is not the flagship compound, etrasimod, but the dark horse of the pipeline, olorinab.  Olorinab is being investigated in pain associated with IBS, where up to 70% of IBS patients experience pain associated with their disease. Opioids are great for pain, but the side effects in taking them are two fold, addiction and consitpation, which are unwarranted to have concurrently with IBS. Therefore, enter olorniab. Olorinab is a peripherally restricted cannabanoid receptor 2 agonist (CB2). To understand the mechanism of action is simple, but to convince others that this is not THC-like remains difficult.  In essence, olorniab binds to one of the two receptors in which THC binds, but unlike THC, olorinab should not elicit a euphoric effect.  The euphoria is related to CB1 receptors in the brain. Olorinab binds to CB1 with a much lower affinity (>1000X more selective for CB2 vs CB1) and olorinab does not cross into the brain in large amounts. Clinically, olorinab has shown ‘something’ in humans. The trial poster that is linked is an uncontrolled trial, meaning there were no placebo patients, so it is hard to say if the drug actually works. Clinical trials in pain are notoriously hard to do and take large numbers of patients due to a placebo effect, where those on placebo also have pain relief. But, Arena has shot for the stars in their phase 2 trial, and if it works (flip a coin), the stock will skyrocket.  Data are due out Q1/Q2 2021 (Prediction – it comes out sooner than Q1).

The rest of Arena’s pipeline is too early to call. The microglial neuroinflammation is interesting, but years away. Same for APD418. Ralinepag will bring in royalties when it is finally approved, but a WAG is that they sell the back loaded royalty stream to UTH to raise funds rather than dilute shareholders. In the near term though, Arena will have to raise funds as their burn rate was whopping (>$400M in 2019).

Watching the stock and buying a few long dated calls and selling short dated puts on dips in the stock price is the way to play for an upside transaction.  Running into the end of the year, although this is an election year, should provide a move back up to the $60 range.  Any early release of data from the AD or Pain trials will provide a catalyst, but be prepared for the opposite direction.  Good luck and stay safe!

– Pharm

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