21 April 2019

Purpose of this write-up is to share our research, facts, and opinions about Arena. This is not an investment advice.

Arena Pharmaceuticals (Nasdaq: ARNA) Arena is a world leader in development of novel, small molecule drugs with optimized receptor PK/PD. Its highly selective targeting GPCR technology produces highly efficacious drugs with very clean safety profiles. This has been proven by an approved drug and a rich pipeline with stellar data. Arena is poised to deliver at least three more first- or best-in-class compounds addressing multi-billion dollar markets.

·      Ralinepag, a best-in-class agent for pulmonary arterial hypertension (PAH) with stellar phase 2 trial data, demonstrated an unprecedented 20% improvement in pulmonary vascular resistance in patients that were already on dual background therapy. The pharmacokinetic (PK) and pharmacodynamic (PD) characteristics of ralinepag deliver unprecedented intravenous-like pharmacology in an oral medication. FDA discussions are ongoing and phase 3 trial plans (possibly fast-track) will be out shortly.  Three independent phase 3 trials for ralinepag are expected to launch in 2H 2018.  The ralinepag extension study results confirmed the stellar results achieved in the main trial. Oral prostacyclin is expected to grow ~50%, with ralinepag potentially capturing 50% of the class. The differentiation study against selexipag will have a switch design and it's expected that ralinepag will be better than selexipag in improving PVR at peak and trough exposures.

UPDATE 25MAR2019: UTHR's CEO praised Ralinepag at the Oppenheimer conference:
- PAH doctors love Ralinepag and have said they've seen something very unique in R.
- FDA granted 7 different ways to get R approved via 3 different P3 trials.
- R has one of the clearest regulatory approval paths ever.
- Selexipag is set to reach $1bil in sales. It's twice a day dosage, less attractive mechanism of action, and inferior. So Ralinepag doing $1b sales is totally in play.
- For UTHR, a clear well-documented path to approval whose model does more than a $billion a year in sales was a slam dunk NPV decision.

At a modest P/E, and lowest possible double-digit royalty, today's Arena valuation only covers Ralinepag potential. Add to it Arena's crown jewel, Etrasimod and so much more, and that tells us ARNA is grossly undervalued.  

·      Etrasimod is a best-in-class S1P modulator with strong receptor selectivity for both S1P1 and the additional therapeutic targets S1P4 and S1P5.  Unlike competitor compounds, etrasimod has no off-target activity against the deleterious S1P2 and S1P3 receptors.  Etrasimod was generally safe and well tolerated with no serious adverse events recorded at the high dose (2 mg).  Market research indicates that etrasimod has over eighty commercially viable target indications. So far, it has shown class-leading, rapid onset (and offset) of T-lymphocyte counts on a background of no significant off-target safety concerns (cardiovascular, ocular, or hepatic) as seen with competitor compounds.  Etrasimod P2 data readouts (both primary and secondary) were spectacular with 33% of patients in the high dose (2 mg) group achieving clinical remission despite having been exposed to heavy (and often unsuccessful) pre-treatment with biologics. In addition to the UC and Crohn’s Ph3 programs, Arena has an ongoing PBC P2 trial and has disclosed plans for an atopic dermatitis Ph2 trial for next year.

      Nov 2018: ARNA has received a green light from the FDA on an abbreviated registrational design (treat through) for Etrasimod in GI (i.e. should lead to accelerated approval).
Jan 2019: Arena announced positive data from the open-label extension (OLE) of the Phase 2 OASIS trial of etrasimod. Etrasimod demonstrated durable, long-term clinical remission and was generally safe and well tolerated in this trial.


Key Takeaways from ARNA’s May 8, 2019 Earning Call


ARNA is demonstrating that it’s very well designed Ralinepag Phase III trials were no fluke by putting forward an innovative and very aggressive plans for its Estrasimod Phase III ulcerative colitis (UC) known as ELEVATE UC.  Quotes from the conference call:

 Arena has developed a field-based team of health care professionals to interact directly and frequently with leadership at the sites, the PIs and study coordinators, with a focus on customer service. This is a different and additive approach compared to the typical process of delegating site relationships to a CRO”

“We are extremely confident in our global CRO and their capabilities in the IBD space, and with them, we have developed a coordinated approach to drive excellent customer service to sites and their patients with an appropriate overlay of quality assurance with respect to trial execution”

“We fundamentally believe etrasimod has an opportunity to be a best-in-disease therapy that can truly shift the UC treatment paradigm and potentially offer patients an improved quality of life”

More on the trials:

o   The ELEVATE UC Phase III pivotal trial will initiate soon (mid-year) and is split into 2 parts:

§  ELEVATE UC 52 - a treat-through design with a 12-week induction period seamlessly followed by a 40-week maintenance period for a total 52-week exposure

§  ELEVATE UC 12 – a 12 week confirmatory 12-week induction period trial (which is designed to end about the same time as the end of the UC 52 trial).

o   Both the ELEVATE 52 and ELEVATE 12 trials will target populations that are either naïve to a prior biologic or JAK inhibitor or populations that have failed either of these two popular options

§  By demonstrating superiority here, ARNA can establish etrasimod as the go-to-choice for UC therapy.   The market opportunity here is very large and ARNA’s outstanding success in the phase II OASIS trial give them confidence in being aggressive for success

o   The ELEVATE UC trials will be conducted in approximately 450 sites across more than 40 countries.   Enrollment (700) will be staggered to optimize trial progression.   Although this seems like a lot of sites of the number of enrollees, I consider it very assuring that ARNA recognizes the monetary value of time decay and is willing to be very aggressive to make sure that ARNA trial delays become a thing of the past.  

o   Data from the ELEVATE UC trials is expected in 2021.   This is an aggressive timeline compared to previous competitors in this space.

o   Patients completing either study will be eligible to enroll in an open-label extension trial from which additional long-term safety and efficacy data will be collected

o   Based upon the results of the Phase II OASIS Trial where etrasimod showed best-in-disease characteristics, approval seems likely


Etrasimod is clearly the only next generation S1P modulator being developed today

·       ARNA has recently completed a human mass balance study in humans (the same type of study that resulted in a refuse to file letter for ozanimod in 2018) and confirmed that etrasimod has no major circulating metabolites.   This in addition to no issues that should delay approval (as with other compounds that demonstrate liver toxicity (i.e. elevated liver enzymes), heart rate changes, AV block, ocular issues, half-life, etc.).  

o   Etrasimod clearly has an amazing opportunity to be not only a best in class but also a best in disease agent  

Expect ARNA to roll etrasimod into a number of other indications in the future.  Quote from Amit Munshi:

  We're excited to further evaluate etrasimod in multiple indications going forward and continue to believe that it is the only next-generation S1P modulator in development with improved pharmacology and pharmacodynamics and demonstrated improved safety and efficacy, offering tremendous promise in the treatment of a broad range of immune and inflammatory-mediated conditions”


·      Olorinab is a best-in-class cannabinoid receptor type 2 (CB2) full agonist for visceral (and other types) of pain and, based upon the literature, may have potent anti-inflammatory activity as well.  ARNA released better than expected P2 data in 3Q2018 showing excellent, statistically significant efficacy and as with Arena's other drugs, excellent safety. The excellent efficacy comes without psychotropic or addictive properties.  Olorinab has virtually zero CB1 activity and does not penetrate the blood brain barrier.

·      Belviq (lorcaserin) is a best-in-class 5HT2c agonist approved for obesity and is designed to avoid the off-target activity (against the 5HT2b receptor) that contributed to the downfall of fenfluramine (fen-phen). Belviq has excellent efficacy and a very clean safety profile. Please see www.belsuccess.com

·      APD418 is a First-in-Class Calcium-independent Myofilament Derepressor (CMD) for Decompensated Heart Failure (DHF).

·      The The ARNA spin-off – Beacon Discovery GPCR research engine – has inked collaborations with Johnson & Johnson, Boehringer Ingelheim, Takeda, Escient Pharmaceuticals, and others. Arena will have a share of Beacon's success. https://www.beacondiscovery.com/our-collaborators.

·      Arena has a large inventory of other compounds and a rich IP war chest.  Management has stated that a new phase 2 ready cardiovascular asset is to be introduced in the 2H of 2018. 

·      Arena spent a billion dollars developing lorcaserin and therefore has a huge tax-loss write-off potential that could prove to be very favorable. 

·      Arena is financially strong and organizationally lean, having gone through a major reset the last two years, with 90% new management. Arena had $593 million in cash as of June 30, 2018 which is augmented with a $800 million infusion from Ralinepag partnership, for a total of around $1.4 billion cash

VALUATION: Currently, Arena is grossly undervalued at around $2.2-billion (current fair value is over $8-billion in our opinion).

·      Ralinepag alone, which has demonstrated best-in-class characteristics and superiority to selexipag (Uptravi).  Ralinepag's fair value is at least $7 billion (J&J paid around $7 billion for Selexipag as part of their Actelion acquisition).  Arena inked a deal with United Therapeutics (Nasdaq: UTHR) who are experts in PAH including a $800 million up front cash, plus $400 million milestone payments, plus double-digit royalties, plus absorbing the development costs of Ralinepag. Given the potential market size of several billions, this deal can prove to be very lucrative, and importantly, provides significant levels of cash for Arena to focus on delivering its crown jewel drug: Etrasimod.

·      Etrasimod shows significant superiority over ozanimod in efficacy and safety at the same level of development and should be valued at $7 billion. Celgene paid that much for Receptos just to get ozanimod.   Recent and unexpected clinical data released by Celgene has raised significant concerns about safety issues (e.g. very long-half life) with ozanimod.   A short half-life (claimed by Receptos) was one of the differentiating safety factors (vs. Gilenya) responsible for the acquisition of Receptos by Celgene.

·      Olorinab is the first-ever highly specific full agonist of the CB2 receptor in development and may represent a suitable replacement for opioids in many pain situations (value: $15 billion+?).

BUYOUT / PARTNERSHIP: Arena is an unheralded, undervalued gem which can significantly boost a large healthcare company’s pipeline and market position. "Big Pharma" which is thirsty for boosting its pipeline could acquire Arena within the next 12 months for over $10 billion (over $200/share).

ETRASIMOD (Arena $ARNA) vs. Ozanimod (Celgene $CELG)

CEO Amit Munshi: "I think it's a just a really big difference between the compound (etrasimod) and is driven predominantly by one was developed in house on the back of 400 scientists, 80 medicinal chemist and one (ozanimod) that was licensed from an academic lab with incomplete medicinal chemistry."

Etrasimod is the only next generation S1P1 modulator.  Discussed superiority in pharmacology and safety vs. Ozanimod and Gilenya


We do not represent the company, so for more information, please visit www.arenapharm.com or contact Arena’s CFO, Mr. Kevin Lind, at (858) 210-3636.


Arena Private Investor Group

PS -- April 2019, Credit Suisse upgraded ARNA's price target to $77 citing ARNA as an attractive M&A target, and it recommended investing now ahead of expected strong clinical newsflow.

From NASDAQ.com- summary of analyst ratings

From NASDAQ.com- summay of analyst ratings as of 1 July 2019

This website is not sponsored by Arena Pharma. It's put together by a group of investors.You can request to join our mailing list by contacting "mailings.arna" at -- gmail -- dot -- com

Arena's official site is www.arenapharm.com

Inaccuracies may exist in the transcription

JP Morgan Healthcare Conference Presentation -- January 2019

Jess Fye

Great. Good morning everyone. I'm Jess Fye, Senior Biotech Analyst at JPMorgan and we're continuing the healthcare conference this morning with Arena.

Quick housekeeping note. There's going to be a Q&A session with the management team immediately after this just down the hall in the Yorkshire room. So if you want to head that way afterwards I'll be going that way, you can walk over with me, but for the presentation, I'll turn it over to the company's CEO, Amit Munshi.

Amit Munshi

Thanks Jess. And thanks for the invitation here this year. And thank you everyone for appearing with us on this Thursday morning and being here today.

As always the obligatory forward-looking statements. We ask you refer to our full SEC filings for a full list of disclosures.

2018 was a pretty amazing year for Arena and we think the best is still ahead for the company. We have we believe the right trifecta necessary to build and sustain a long-term successful business. And it comes in three flavors: one, a management team that is continually executed over the last 18 to 24 months; a best-in-class and potentially a best in disease compound Etrasimod promising earlier candidates in Phase 2 and preclinical; and the story continues to get better on these compounds with the recently announced open label data. Etrasimod alone addresses a $4 billion to $8 billion market opportunity and we're incredibly excited with the most recent deal we did at the back end of 2018 with United Therapeutics on Ralinepag and of course that's pending FTC closure.

On the back of that, we will be in a unique situation with $1.3 billion of capital on our balance sheet and sufficient capital to continue developing our products for the next several years. In 2019, we've got some huge milestones ahead for the company things that are almost unimaginable for us 24 months ago. We'll be initiating Phase 3 trials in Ulcerative Colitis and Crohn's. We'll be initiating a Phase 2 program in atopic dermatitis on the back of the early DERM data we saw last year.

We'll also be initiating a trial in IBS pain with Olorinab again on the back of very successful Phase 2a data that we saw in 2018. We'll continue to make progress on Ralinepag and again pending FTC closure that will be in the hands of our partner United Therapeutics, we think they have the right combination of commitment to the space, commitment to the patients, and of course, capabilities to develop that product successfully.

And then, finally, we announced the development of APD 418 and moving that into clinic in 2019 and beyond.

So a quick snapshot of the pipeline, on Slide 4 here. You can see again multiple products moving into Phase 3, a lot of the programs moving to Phase 3 ulcerative colitis and Crohn's with Etrasimod moving forward with important randomized well-controlled trials in areas like atopic dermatitis, and again, progressing Olorinab as a mixed asset with a real clear footprint in both the autoimmune space and a real focus in both gastroenterology and dermatology. And again APD 418, we'll talk about that briefly.

So a quick snapshot of Etrasimod. Again, we believe we've got a best-in-class compound both from an efficacy and a safety point of view. The product has very rapid onset of activity and a very rapid offset of activity. And again, the safety profile continues to impress us as we continue develop and expose more patients to the product. The product also has no titration compared to the competitive products in the category. And again, we believe beyond UC and Crohn's and atopic dermatitis where we're addressing $4 billion to $8 billion market opportunity.

I won't spend too much time. We've covered multiple points here already. But we continue to believe that the UC data including the open label data, which I'll talk about in a moment continues to be supportive of category leading and we're starting to consider now potentially best in disease compound in IBD. So the combination of the IBD opportunities and potentially other Phase 2 opportunities again put us at a significant opportunity ahead for the company.

We've spent a lot of time talking about the clinical differentiation of the compound. We spent a lot of time talking about the inherent benefits of the compound will do so again this morning. But I also want to take a moment to talk about what the market opportunity looks like in IBD. One of the questions we get a lot is, is this a crowded place, is there are a lot of products being developed? Here's the reality and the reality is, this market is predicted to grow to about $26 billion and potentially beyond. Recently the CDC doubled the prevalence estimates in ulcerative colitis and Crohn's from 1.6 million patients to 3.1 million patients in United States.

And importantly close to 80% of patients in both UC and Crohn's are not receiving either biologic or are not in remission on their current biologic. So despite how large this market is today and despite how large this market is intended to become patients are not getting access to important therapeutics. These patients remain on corticosteroids for long periods of time. They remain on things like [indiscernible]. And so there's a really large market opportunity and we've been spending a lot of time doing very quantitative discrete choice control analysis to help us continually understand how our product fits in the treatment paradigm and how we're going to be able to take care of these patients over the long term.

Importantly physicians are moving more and more to oral therapies are looking more and more to oral therapies and in those oral therapies routinely physicians select S1P modulators over JAK inhibitors. And when we put blinded profiles in front of physicians, they routinely selected Etrasimod over Ozanimod.

And that's really driven by a couple of key differentiating factors from [BRAC] [ph]. Number one, we have a best-in-class pharmacology profile. We have no activity on the S1P2 and P3 receptors. And we've demonstrated and published that the competing products including Ozanimod and other compounds that have been in development over many years. Both addressed -- both P2 and P3, so that the very specific pharmacology of the compound is a fantastic starting point for the story for Etrasimod.

We also have an extremely fast offset of action. This is important clinicians like people get out in the event there is a problem. As you can see when you withdraw Etrasimod within a week, 95% lymphocytes recovery. We actually don't know how long it takes to get Ozanimod because that data has never been presented. But we do know that at two weeks only about 60% of lymphocytes are recovered for these patients. And that again looks similar to potentially even worse than the first generation Gilenya. So there is really only one true second generation, next generation compound and that's Etrasimod.

A very quick onset of action. We lower lymphocytes three times faster than Ozanimod. We'll be doing a lot of work in Phase 3 to elucidate how this maps to symptom relief, but it's very clear when patients are in flare which is the only time they change modalities we have the ability to reduce lymphocytes reduce the inflammatory burden significantly faster.

We previously demonstrated a competitive dataset on four domain male score for Etrasimod an 18.7 delta roughly almost 2X what it previously been seen with other oral agents and we were incredibly excited about that and we'll talk a little bit more about some of the new data here in a moment. The safety profile from Phase 2 as we'd expected from our Phase 1 work, safe and well-tolerated, no SAEs at the 2 milligram dose group, low impact on heart rate nearly conduction and no SAEs or discontinuation is related to either one of those. Importantly no cases of Sinoatrial Arrest, we all know the competing products from the category had multiple cases Sinoatrial Arrest, no liver function, abnormalities, macular edema or pulmonary function abnormalities.

We recently announced -term clinical remission data for Etrasimod, let me spent a couple of minutes talking about that. Previously, we had shown that clinical remission as defined by the FDA in the 2016 guidance document where rectal bleeding is set to zero, endoscopy permitted 01 and still frequency is 01. That we demonstrated by 31% of our patients achieved clinical remission based on the more stringent FDA criteria in the first 12 weeks of the study.

We recently announced that at the end of 46 weeks, 39% of patients had achieved that that remission hallmark. And importantly patients who then went on -- who had stayed on the or start on the tumor growing group and continued on half of those patients were in clinical remission.

We also had some additional information in the press release, you've had chance to see that, 75% of patients were original clinical remitters in the OASIS study retain that remission at 46 weeks and 93% of responders retained that response rate at 46 weeks. Again those are unprecedented data and we actually look at the press release for more complete information.

For lymphocyte reduction continues to be predictable. It continues to be robust and you can see here patients who were previously on 1 milligram or placebo as they move, they have rapid and sustained lymphocyte reduction. And of course, the 2 milligram group continues to have a nice plateau on the lymphocyte reduction. Clinical response as you would expect when patients are moved from placebo are 1 milligram into the open label phase and received 2 milligrams of Etrasimod. They will continue and improve or getting through that 75% low 80% response rate at the end of 46 weeks. So again, quite remarkable data continues to affirm our belief that that this is a potential best in disease compound.

Open label safety and tolerability where as expected. There were no new safety findings in fact in heart rate and AV conduction was minimal. And again, similar to the first twelve weeks of the study there were no discontinuations to heart rate effects or AV blocks.

So from here we're going to move on to our Phase 3 program. We're excited about the study design. We've spent time with the regulators on thinking through the study design. Our study design is optimize based on several criteria, one is an expedited trial design required. We're limiting the randomization and doing a [treat to] [ph] trial design. I'll talk about that. I'll show you that on the next slide. That's really driven by the bigger [effect] [ph] size we saw as well as the work we've done on the statistical side.

We've got some proprietary methodology for site selection and patient referrals and we've developed a field-based organization to create a real high touch environment for clinicians to allow us to enroll this program effectively. We're also moving directly to a Phase 3 program in Crohn's.

So again, these are the two studies for ulcerative colitis, study 1, is a treat to study design. Looking at the 2 milligram group versus placebo and then we have a shorter 12-week conduction study that will be the second confirmatory pivotal trial for the program and then patients will move in an open label. And as we get closer finishing these trials will provide more details on these programs. We're really excited about the designs and we continue to be impressed with the performance of the product in the clinic.

We're also moving on to atopic dermatitis as the next indication we'll be doing a -- well-controlled trial in this space initiating in 2019 with potential data read out in 2020. The hallmarks of the disease are consistent with a mechanism of action for S1P. You have a disruption of the skin barrier activation dendritic cells and migration of CD4, CD8 positive T lymphocytes back into the skin to create inflammatory cascade. And, of course, we know that we've done an outstanding job in the UC space in terms of T lymphocyte control and we think we'll be able to do that in this disease state as well. So again, the mechanism is spot on to the actual treatment activity of the drug.

We have some early data in dermatology with a handful of patients in the Phase 2 study that had dermatological manifestations, secondary ulcerative colitis. The majority of the patients or significant majority of patients responded had full clearance of their condition and this is just an example of a very severe patient who had [indiscernible] gangrenous and showing a really nice improvement in their [ulcerative] [ph].

So like to spend a few minutes talking about Olorinab and then move on to our new program APD 418. So with Olorinab just to remind everyone it's a perfectly restricted highly selective and in fact 1000 were selected for CB2 versus CB1 and it is the only full agonist we believe currently in development in this space. We're taking us into visceral pain very specifically gastrointestinal pain.

There are 25 million patients in the United States who suffer from IBS, 1.6 million with IBD that estimate has again just recently raised to 3.1 million, 78% of IBS patients report recurring continuous abdominal pain. This is independent of the motility impact of the drugs that are on the market today, 90% of IBD patients express abdominal pain of cramps, again most of them independent of the remedive state. And that's really driven by a micro inflammation that's occurring in these patients we will talk a little bit about that.

Incredibly a quarter of these patients upwards of 35% of these patients are on chronic opioids for the pain. And that's really striking for patients who are already potentially in an IBS conservation mode or have Crohn's disease. And now you're adding an opioid on top of that, so quite striking in terms of the pain impact on these patients.

I won't belabor the point on the market opportunity, but move quickly over here to the study results. We did a small with all the caveats of a small open label study to help inform our development path for the program. This was the data that was presented last year. We think that the drug has a very clear activity signal. I share that data with you, importantly safe and well-tolerated in this study. And in fact 100% of patients responded at the eight week endpoint.

That study was conducted in IBD pain or Crohn pain specifically Crohn's patients who are already in remission or at quiescent at Crohn's. And that's a shared mechanism with IBS pain, so these patients are having a submucosal micro inflammatory state. They have a increased CB2 receptor expression in the colonic mucosa and the ulcerative margin in IBD and the colonic mucosa in IBS. So very consistent mechanism action between the two areas. And again, CB2 is the activation on sensory effort nerves, in the colon we think is where this activity is, is working for this program.

We've done a series of preclinical experimental models in both IBD and IBS pain. We continue to see very consistent dose dependent activity for the drug. And that translated very nicely into a Phase 2 data readout specifically as I pointed out earlier 100 percent of patients had improvement at the FDA threshold of 30% on the AAPS scale. And the mean change for these patients was 4 point, 6 point on a 10 point scale. And that's roughly in our estimation of a two to two and half times what's been seen with other agents motility agents who are also looking for pain as a secondary endpoint.

So this product can be used independent of prescription motility agents that can be used on top of motility agents that are over the counter and they can also be used on top of motility ages that are either on the market or currently in development for IBS. So we'll be moving into an IBS pain study in the middle of this year.

I won't spend too much time on Ralinepag today for obvious reasons again pending the FTC closure. We're excited to work with our partner United Therapeutics in moving this program forward.

So moving on to APD 418 for the last few minutes here, APD 418 is a first-in-class calcium independent Myofilament Derepressor for decompensated heart failure. This is again a home grown program and we're really excited about the impact this product could potentially have for patients as we all know in decompensated heart failure, you have decreased contract activity and inotropes are routinely used in contractually and work through a calcium dependent channel, the calcium dependent channel also creates immunodynamic changes which result in an increase in mortality for these patients who are on multiple inotropes and the products like the bitumen.

In our hands APD 418 and just in terms of how it was designed was designed to improve cardiac performance without changing cardiac human dynamics. The product works I should say by working through the beta 3 channel. It's a beta 3 antagonist, beta 3 acts as a brake on contractually and removing that brake increases contractually and does not touch the calcium activity and therefore it does not have activity in a broad set of vascular areas and has no changes in immunodynamics. So we're incredibly excited about this new mechanism when the process of getting an IND prepared and we hope to get that IND filed this year on the program.

So taking a giant step back again. We have the hallmarks what we believe has a potential would be a fantastic company over the next several years. We have products that address large market opportunities with demonstrated best-in-class and potentially best in disease profiles both from a intrinsic profile as well as from a clinical data profile. We have a broad pipeline we're moving Etrasimod into additional indications as well as moving the lawn out into IBS and potentially IBD pain.

We continue to demonstrate the ability deliver on important data sets like the open label data and we're incredibly excited about the recently announced deal. The transformational deal with United Therapeutics which strengthens our balance sheet and allows us to take the product all the way across.

So coming back to my original point, think there's very few companies that have the critical hallmarks of long term success, a strong balance sheet best in class or vessel disease compounds with demonstrated efficacy and a management team that has routinely executed over the last 24 to 30 months have really excited about the next few years for the business. And I'd be remiss, our CFO is here in the front row, I'd be remiss if I didn't mention that on top of the 800 million on the Ralinepag deal, we have sizable regulatory milestones of $450 million and low double digit royalty. So again, tremendous potential upside in the future on Ralinepag as well.

So I'm going to stop there and I know we've got a breakout in the Yorkshire room, I believe before taking your questions there. Thank you.


Interview with Amit Munshi by Evercore ISI analyst Dr. Josh Schimmer

Dr. Schimmer

So thank you for being here Amit. We've known you over the years in many different roles and we continue to ask you questions outside Arena too on a one-off basis, sometimes at fireside chats in foreign countries if you remember.

But today's conversation is all Arena and we're going to focus on -- we're going to focus on your S1P1 primarily, but before we start, perhaps turn it over to you, quick overview of the company for people that don't know Arena and also more importantly your most important corporate priorities currently?

Amit Munshi

Sure. So Arena is a 20 -- now 21-year old company, started off as a discovery research platform on G protein-coupled receptors, really driving what was known at the time to be best in class chemistry, best-in-class pharmacology.

Unfortunately, the company took a little bit of a wrong turn around an obesity asset, about 10 or 12 years into their life cycle, on the back of a drug called Belviq. They raised a little $1 billion in equity capital. And what most people didn't fully realize is they never turned the spigot off on the discovery research engine.

So 400 scientists, 80 medicinal chemists and 0.25 million square feet in San Diego, multiple vivariums, unlimited resources and these scientists developed some unbelievable compounds.

So when Belviq failed commercially, the Board decided to do a reset, brought in new management team. That was in May of 2016. And we began essentially a cleanup process, which took the company down to about 35 people. We've been rebuilding the clinical development group from scratch. We went kind of radio silent for six, seven months. We had our first data in early 2017 from Ralinepag and the product we just finished a partnership deal on. On the back of that we did our first couple of capital raises, began to reset the shareholder base. We were about 75% retail, about a $400 million market cap. Today, we're about just around $2 billion market cap, 87% institutional. So a complete switch of the company in a relatively short amount of time.

We raised about $600 million in equity capital, on the back of these three products that all had positive Phase 2 data read outs. So we're three for three and we recently completed -- just announced pending HSR clearance, a large transaction with United Therapeutics for about a $1.2 billion deal, about $800 million of cash upfront. So we are now sitting with multiple Phase 3 assets.

Company Representative

Did you realize that $800 million upfront cash.

Amit Munshi

There is $800 million upfront, yes.


So of the $2 billion -- so currently the valuation is $2 billion market cap and how much of cash you're sitting?

Amit Munshi

$1.2 billion, post the transaction we are sitting on about $1.2 billion, $1.3 billion in cash. And as we'll talk about in a moment, Etrasimod is now unequivocally the only next generation S1P modulator in development. There is nothing even close to it. I'm happy to walk through that today. We also have olorinab that read out in a IBD pain trial. We're taking that now into a Phase 2b IBS pain.

So we'll have two compounds, three indications in GI. We're also taking etrasimod into atopic derm. And we will be initiating a Phase 2b study on that mid-year 2019. So we’ll have four Phase 3 trials and about half a dozen Phase 2 programs between etrasimod and olorinab and then we announced at R&D day some additional early stage compounds in the cardiovascular space.


What about the annual OpEx spend in 2019? What does that look like, currently, I mean --

Amit Munshi

Yes. Our last quarter was right. I think it's around $28 million for the quarter. So we're still relatively light. We're just under 200 people inside the company. Now…


The annual burn is sub 150. So I guess my question is with the amount of cash on balance sheet, like what exactly are the company's plans?

Amit Munshi

We're ramping up four Phase 3 trials. That number will change. Now we haven't provided guidance.


Okay. So it's not looking to spend cash on some product in-licensing arrangements?

Amit Munshi

No, no, we still fly JetBlue.


Okay. But -- no, what I mean is from a product in-licensing perspective there is no plans to spend the cash on the balance sheet or any of that, or any one time dividend…

Amit Munshi



It all stays committed to the project in-house in the really….

Amit Munshi

With one exception, we’re continually look at early stage, meaning preclinical early Phase 1 assets that we think would be a nice fit to our compound long term. So we as we think about a balanced portfolio approach, we've got a whole slew of Phase 3 things happening. We've got a basket of Phase 2 things happening. We've got one preclinical compound. It'd be nice to sort of augment that early basket of things at this juncture.

That's all happened very, very quickly because again rewinding back 24 months we were a company with three pre Phase 2 assets and fortunately for us everything worked and we were able to do a fantastically [organized] [ph] therapeutic [indiscernible] HSR review.


Okay, excellent, all right. So maybe just to get a bit more specific then, can you go through the S1P subtype specificity of your lead program and we’ll follow that.

Amit Munshi

Sure. So there are two distinct advantages to Etrasimod. One starts with the pharmacology and the second one is the PKPD. So kind of hit on both. The pharmacology is as most of you know there is five receptor subtypes creatively numbered one through five. You want to touch 1, 4 and 5, you want to avoid 2, and 3.



Amit Munshi

Two and three are associated with a series of adverse consequences including cell proliferation, 3 is associated with additional cardiac toxicity.


And what's the data supporting that? Exactly what I was going to get that?

Amit Munshi

It's literally two decades worth of -- would fill up about half this room, like two decades of work on S1P2. S1P2 activity has a host -- it's probably the one that we know the most about. S1P2 activity has implications across a broad range of negative consequences for patients with autoimmune diseases most notably S1P2 opens endothelium epithelial barrier junction.

So we know that Gilenya for example hits S1P2 along with other subtypes. We know clearly that Ozanimod hits S1P2. We have looked at internalization assays. we've published that work and we know that Etrasimod does not.

Opening endothelial and epithelial barrier junctions has implications for adverse events, for sure things like increased LFT, increased PFT some of these things that we've seen with Ozanimod and Gilenya but we have not seen with Etrasimod may be attributable to S1P2. Again through this barrier disruption and disrupting these cell to cell junctions.


Would there be any effect on like cardiovascular outcomes?

Amit Munshi

Cardiovascular is really driven by 1 and 3. I'll come back to that in a moment. S1P2 receptor selectivity it's critical to understand that S1P2 opens the junctions and S1P1 closes the junctions. So you've got -- when you're hitting both the receptors you're actually working against yourself, in some of these junctions. Now why is that important. Well that's important because --


So the EC50 could look very different between the two, so technically won't exactly be one-to-one.

Amit Munshi

No, it’s not a one to one ratio. But there is definitely activity occurring in both directions. So it's a little bit more complex and I'll touch on that in a moment. Again that's critical for GI conditions because last thing you want to do is you don’t want to affect - further degrade the epithelial lining of the gut.

Importantly and critically when you try to close the junction with S1P1, right, you want to make sure you don't degrade the S1P1 receptor. So something about how Gilenya and Ozanimod hit the S1P1 receptor actually degrades the S1P1 receptor. So does not allow full recycle of the S1P1 receptor.

You could think of it as a [stuck] [ph] receptor and we've seen that in multiple cases with some of these agents and it's just a function of the fact that they have very high potency to the S1P1 receptor. And something about how they're hitting the receptor is causing this issue and whether it's the Gilenya being a pro drug and Ozanimod being an accidental pro drug, it's unclear but it's something about how it's hitting the receptor.

And we do not degrade the receptor remotely to the extent that Ozanimod does. So you're not -- you're opening the junctions but you're not effectively closing the junctions. So that's the P2 activity.


Got it, okay.

Amit Munshi

And so let's come back to cardiac issue, she asked about cardiac issue. Again something about how we're hitting the P1 receptor versus Ozanimod and Gilenya has a slightly differential profile on the cardiac. This is an -- on cardiac effects are on target effects for S1P class. First dose monitoring, first dose watching maybe is a better word, is going to be part and parcel of the S1P class, as far as we can tell today.

But importantly unlike Ozanimod we have not seen dozens of cases of second degree AB conduction issues. We have not seen multiple cases as they saw even back in their Phase 1 study of sinoatrial arrest. We have a stockage of conduction between the SA and the AV node.

We haven't seen anything even remotely like that or in fact or without a titration schedule our mean heart rate is all in the single digits from the Phase 2 study and as you recall, with their titration schedule dose mid-teens conduction, mid-teens heart rate drops from their Phase 1 and Phase 2 studies, and their [indiscernible] study.

So important differences in how that the cardiac profiles look between the two compounds and again we don't have a titration schedule they do. So that's the receptor selectivity. On the pharmacology side as we all know now there's this new CC metabolites, the Celgene cooperation metabolite which is the fifth identified metabolite for Receptos, the compound. And that half-life of that is about 10 to 15 days as disclosed by Celgene. And as a consequence, as a clinician, you would not be able to get out quick.

Now interestingly, we've known this for a couple of years, right. We didn't know what the problem was but we've been talking about their lymphocyte recovery from their Phase 1 data so when you withdraw their drug Ozanimod within about two weeks here, about 60% lymphocyte recovery, it looks to be fairly flat, it’s not recovering quickly. Ozanimod and we say Gilenya looks about the same maybe a little bit shorter.

And of course, in our case, when you withdraw the drug within a week, you have 95% lymphocyte recovery right and you'd expect for a drug that truly has a 1 to 1.5 day half-life. So, I think it's a just a really big difference between the compound and is driven predominantly by one was developed in house on the back of 400 scientists, 80 medicinal chemist and one was licensed from an academic lab with incomplete medicinal chemistry.


Interesting, interesting. So, that was a bunch of things there, but touching up on a few of the things you mentioned metabolite characterization, have you done that?

Amit Munshi

We have where we develop the compound, right, so we didn't license it from somebody. So everything that has been done, we have brother compound, sister compounds, [indiscernible] compounds. We've looked at this 10 ways to --


And what is the half-life of your -- first off what are the metabolites?

Amit Munshi

So we haven't fully disclosed all the metabolites here, but I will tell you that we don't have any metabolite over the 10% threshold.


No metabolite over 10%.

Amit Munshi

That 10% threshold is the guidance document, right. If it's over 10% you have to characterize it. And the metabolite has no differential characteristics on pharmacology or pharmaco-kinetics.


But if I remember correctly, I think Ozanimod had one metabolite that was just at the 8.8% or something like that. I mean, one of those things that you have to keep an eye out for especially given its half-life. So A, do you have something that's awfully close to 10,B, what is a half longer than a [indiscernible] metabolites?

Amit Munshi

It is not. No.


No on both.

Amit Munshi

So it needs diligent backup. This is not a normal line of inquiry, right? If this is a molecule developed at Merck or if it's a molecule developed in house at Janssen this would not be a normal question, right? We don't -- normally you characterize this stuff way before, right?

You don't even have to get to your -- by the time you get to human mass [indiscernible], it ought to be confirmatory, right? Because you've developed the compound, you’ve characterized it, your scientists know how the compound works, you understand the scaffold, you understand the metabolite, the metabolic profile of the compound well before you get to your Phase 3 program and finishing up your human mass [indiscernible].

So this line of inquiry is not a normal line of inquiry. We're asking these questions only simply because Celgene is now ended up with what I like to call an accidental pro-drug. And but we're happy to go through this, because it's an in-house developed compound.


Got it. And to be clear, have you done -- okay, so you don't need to do a DBI work, that Celgene [indiscernible] metabolites?

Amit Munshi

Well, we've already -- we know our metabolites, and [indiscernible] different compound. So there's no differential profile.


And thought process, given the specificity on the S1P receptor subtypes. My question is what's the thought process by not pursuing MS relapse remitting perhaps even secondary progressive?

Amit Munshi

I answer that two different ways. One is you can do anything, but you can't do everything, right?


But when you got $1.2 billion to in cash on balance sheet, you can do everything.

Amit Munshi

Which is why we're pushing hard in derm. We like derm better. Why go after more serious conditions when I can go after conditions that are easier to justify with our risk benefit profile. So with an improved risk benefit profile why go after more serious conditions, that's point number one.

The point number two, at some point Gilenya is going off-patent, Tysabri is going off patent. It's going to be a genericized market in the MS base. It just -- it feels much better to go after things where they can't go after.


Or you could say that for Otezla going off patent in psoriasis for example. I know you're [indiscernible] atopic dermatitis. But I think you're doing broadly derm now.

Amit Munshi

We are going atopic derm. Atopic derm, and there maybe some other derm indications. We showed at R&D day with some really nice data on pyoderma gangrenosum. We showed excellent extraintestinal manifestations data that looks suggestive of a really strong profile on the derm space.


I had a question on your pyoderma gangrenosum growth. I mean the data looks great and you know you have anecdotal evidence that actually works here. So why did you terminate the study and like pivot to atopic derm rather than develop it when you have that proof of concept.

Amit Munshi

It's a rare disease right. It's [indiscernible] rare disease and from a enrollment perspective I remember we're still sub 200 people at the company, so we’re relatively small company. So we had to make prioritization decisions and we terminated that as we were really scaling up the UC program, right, as we are enrolling that program.

So literally you have to take people off of one program, put them onto another program as a small company. You can't turn a switch on and go from being 35 people where we were in May of 2016 to be a 1,000 people two years later. It's not even – it's a very competitive labor market. You want to get the right talent in the right jobs. You have to scale the company in a somewhat methodical way in order to get done everything you need to get done.

And with PG, we started PG as a hedge and we were concerned about our ability to enroll UC. We enrolled UC way faster than we thought we would. And we did that with some things that we learned in-house about the ulcerative colitis market some of which I don't want to discuss publicly.

And because we're using some of the same tricks in our – some of those same tools rather in our Phase III program where we learned some really important things and as the UC program got fully enrolled we had to make just a prioritization decision. But PG is very interesting. We may come back to it at some point.


All right. So this may not be a fair question so tell me if it's not. But I look at Gilenya, half a milligram, I look at Ozanimod it's going for one milligram and I look at the Etrasimod going for up to two milligrams now. Those are not same molecular mass. So my question is what's the molar equivalent of a 2 milligram Etrasimod versus a, Okay, we'll keep going.

Amit Munshi

I'm not sure it even matters but I will tell you is that our 1 milligram on 3 domain remission looks awfully a lot like their 1 milligram. Now they can't push higher than one milligram because they are already having adverse event issues at one milligram, we could easily go up to 2 milligrams with a very clean safety profile.

So our 2 milligram safety profile looks better than Ozanimod's 1 milligram and our 1 milligram efficacy looks like theirs and our 2 milligram efficacy of course --


And did you have a dose below 1 milligram in the UC chart.

Amit Munshi

We do not.


So could the FDA ask for a lowest effective dose, do we know that?

Amit Munshi

One milligram was not effective, it was not statistically.


Okay, the one was not. So you have that.

Amit Munshi

In a 150 patient trial it was not statistically significant.


Got it. And then as it relates to just comparing the background population in the Ozanimod UC study which was more mild to moderate than moderate to severe…

Amit Munshi

No, that’s about the same in terms of…


I am curious if like did the background matter.

Amit Munshi

We had a more recalcitrant patient population; we had 40% of patients who had failed at anti-TNF or an integrin -- or an integrin, where they only had about 18% biologic failures in there.


What’s the efficacy in integrin failures?

Amit Munshi

We’ve not disclosed that for now.


Okay, is that potentially for presentation at some point.

Amit Munshi

Just a handful of people.


Okay. It's a relevant metric is why I asked.

Amit Munshi

It is a very relevant metric and but against a handful of people it's hard to read. When I mean a handful I literally mean a handful.


Okay, excellent.


On R&D day you mentioned potentially having an abbreviated registration pathway in GI in using a [3] [ph] study design. And you mentioned you would discuss this proposal with regulators have you had that conversation yet with the FDA.

Amit Munshi

Yes and we have the green light.


You have the green light.

Amit Munshi





Excellent. So my last question, what should we know about the therapeutic deal especially as it relates to what it means to Arena from the -- because you've got 800 million but there's a potential for another 400 million plus royalties, if my understanding is right. So what should we know about what milestones could be ahead that, that’s will be very helpful.

Amit Munshi

The milestones as we discussed one is ex-US approval and the other one is a milestone on the inhaled formulation. So we've already begun some work on the inhaled. United of course is more is better positioned to manage that.

So pending HSR clearance and approval we're going to be -- the product is transformative for United Therapeutics, importantly it's transformative for patients. We think they're in the best -- and it's transformative for us as a deal. And so it couldn't be a better fit. And I think they're just in the best position to bring this to patients as fast as possible.


Excellent. Well thank you for being here. Great seeing you.

Question-and-Answer Session

Q -

Amit Munshi

Yeah. Thank you.


Belviq (lorcaserin) is a best-in-class 5HT2c agonist approved for obesity and is designed to avoid the off-target activity (against the 5HT2b receptor) that contributed to the downfall of fenfluramine (fen-phen).  The medical community has been eagerly awaiting the results of a 6-year, 12,000 patient P4 cardiovascular outcome trial (CVOT) and today (July 17, 2018) Eisai released topline results from this trial where it was established that Belviq met its primary safety objective, finding that long-term treatment with BELVIQ does not increase incidence of MACE, defined as cardiovascular death or non-fatal myocardial infarction or non-fatal stroke, in overweight and obese patients at high risk for CV events. With this result, BELVIQ becomes the first- ever weight loss medication approved for chronic weight management to achieve this objective in a dedicated long-term cardiovascular outcome trial.  These results most importantly demonstrates that chronic use of Belviq does not cause the valvular pathology that was associated with the use of the weight loss blockbuster drug fen-phen.   This alone removes a huge impediment that caused many weight loss doctors to be very cautious about prescribing Belviq for weight loss.   In summary todays preliminary results demonstrated:

1)   BELVIQ became the first medicine used for chronic weight control to establish cardiovascular safety per FDA guidelines
2) A reduction in progression to type 2 diabetes in patients without diabetes

3) Improvement in multiple cardiovascular risk factors including beneficial changes in lipid profiles, blood pressure, blood glucose and renal function.

  1. blood lipid profiles improved
  2. blood pressure lowered
  3. blood glucose levels decreased and
  4. improved renal function

We expect the release of additional detailed and positive data from this trial in the coming months that should help establish Belviq as the premier weight loss drug available today and additionally open up the use of Belviq in additional indications (currently under study) for application in smoking cessation, cocaine abuse, opioid abuse and others

 (Please see www.belsuccess.com, where some patients describe having profound weight-loss of over 100 pounds without any side effects.) CVOT results will allow for label expansion to Type 2 diabetes (T2DM) (interim data suggests prevention of progression to T2DM). Arena receives a tiered royalty (9.5–18.5%) from partner Eisai.

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