This is my favorite pick now: Arena has $650m in cash and 2 drugs that look, based on their P2 results, to be best-in-class drugs for huge indications. And then there is a pipeline behind those 2, as well.
Arena's edge is in designing safer and more efficacious G-couple Protein Receptor drugs. For example, their lorcaserin is a more specific version of the notorious fenfluramine of FenPhen fame. Lorcaersin was a debacle for a number of reasons (mostly that the market for prescription diet drugs is apparently hopeless!) but it was just as effective as fenfluramine and much, much safer.
It next drug is going to be Ralinepag for Pulmonary Arterial Hypertension. It is another prostacyclin PAH drug - but P2 results showed that it is VERY safe (the safest out there so far) and VERY efficacious. It effect on mortality is excellent. It is safer but just as (hopefully more) efficacious as IV prostacyclin drugs but...Ralinepag is oral. Arena has guided that it will be going after selexipag and IV drugs head-to-head in P3... The market is $6b...so maybe Ralinepag will capture 50%?
Just 2 weeks ago, Etrasimod P2 ulcerative colitis results were released, too. Etrasimod is an S1P drug - like fingolimod ($3b+/yr and approved) and ozanimod (the reason Celgene bought Receptos.) But Etrasimod results showed that it appears not only much safer than fingolimod and ozanimod, but it is much more efficacious. It is more effective at sequestering a higher percentage of lymphocytes (58% to 49%), AND upon discontinuation of Etrasimod (as might be required upon discovery of patient infection) lymphocyte numbers bounce back fully within a week (whereas with Ozanimod it takes about 4 weeks. Etrasimod also does not appear to require titration, as ozanimod and fingolimod do because of bradycardia. Oral and safe (there were no safety issues) this looks like a category killer again (to me.)
A P2a trial is happening for their APD371 CB2 agonist, too. Too early to say what will happen here. But, it could be an effective therapy for neuropathic pain. If it is then there is a massive need for something in this category. It appears to be a full agonist - and early trials seems to show it is safe and acts as hoped. Other CB2 candidates for other companies seem to have all failed. This could fail too. But if it doesn't then there will be a step-wise increase in valuation because the other drugs in this category are terrible but huge sellers (e.g., Lyrica at $5b/yr.) Right now, I don't value APD371 - hopefully that will change next month.
There is a drug outlicensed to Axovant, nelotanserin, that would be a safer version of ACAD's drug, assuming nelotanserin works (and we don't know that yet, but P3 results should be out soon.) I current value this at $0.
There is another P1 drug that will be annouced in 2H - another cardio-pulmonary indication. Not sure what this is.
There is a program with Boehringer Ingelheim too. No info available about where this is presently.
The long term CVOT trial for lorcaserin will have results next year. Some people think this will be big news. I don't know. Maybe. I doubt it.
When I do a NPV for Arena. I arrive at $85 per share ($2b Ralinepag revenues 8 years out, $1b Etrasimod revenues 9 years out, valued at 4x revenue and discounted back 15% per year, plus $1b for cash and rest of pipeline assets.) Maybe you back out the $14 per share in cash because you need to spend that to get to market with Ralinepag and Etrasimod, but that is still $71 per share, right now, for a $36 equity.
Anyway, this is my big pick. Please tear holes in this thinking and make me smarter! |
