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Biotech / Medical : Arena Pharmaceuticals (ARNA) -- Ignore unavailable to you. Want to Upgrade?

To: scaram(o)uche who wrote (1455)	3/30/2009 1:23:24 PM
From: software salesperson	Read Replies (3) \| Respond to of 2274

3/30/09 j birchenough We are maintaining our 2-Equal weight rating and reducing our price target to $3 on ARNA following review of BLOOM study results lorcaserin in patients with obesity. With placebo adjusted weight loss of 3.6%, categorical weight loss no better than intensive dietary counseling and with unanswered questions on impact of dropouts, numerical differences in 12 month valve effects, and lack of detail on CNS effects we believe that regulatory and commercial risk exists and expect shares to remain at current depressed levels. Overview ARNA hosted a conference call this morning to review top-line BLOOM study results for lorcaserin in obesity. With LOCF analysis yielding placebo adjusted weight loss of 3.6% and categorical 5% weight loss of 47.5% vs. 22.6% with placebo no further detail was provided on impact of dropouts on maintaining categorical results >35%. Results appear below that for marketed drugs like Meridia and in line with placebo results from other trials. As a result, we are reducing our 2011-2012 sales estimates to $145M and $286M from $234M and $339M, respectively. While we remain underwhelmed by lorcaserin efficacy, it is too early to assess relative safety data with limited detail provided on CNS AEs, formal neuropsychiatric scales, abuse liability results and with confidence intervals not provided for 12 month echo data where a slightly higher valvulopathy rate was seen with lorcaserin (2.7% vs. 2.3%). With full detail possible by ADA in June and with further data from BLOSSOM expected in September, we would continue to advise investor caution. Adjustment to Financial Model Based on lower than expected mean placebo adjusted weight loss with lorcaserin, we are reducing our 2011-12 sales estimates to $145M and $286M from prior estimates of $234M and $339M, respectively. The impact on our 2011-2012 EPS estimates is a reduction to $0.80 and $1.20 from our prior estimates of $1.20 and $1.33, respectively. Adjustment to Valuation We arrive at our new $3 price target by applying the same 10x multiple to our lower 2012 EPS estimate of $0.80 vs. prior estimate of $1.20 and discounting at the same 45% rate. We believe that the multiple adequately reflects future growth prospects for lorcaserin and that the 45% discount rate appropriately reflects risk to achieving that growth.