Arena Pharmaceuticals Inc. Reports Operating Results (10-Q)
Arena Pharmaceuticals Inc. has a market cap of $179.1 million; its shares were traded at around $1.34 with and P/S ratio of 10.8. Arena Pharmaceuticals Inc. had an annual average earning growth of 6.8% over the past 10 years.
Highlight of Business Operations: Revenues. We recognized revenues of $3.9 million during the three months ended March 31, 2011, compared to $2.5 million during the three months ended March 31, 2010. Our revenues for the three months ended March 31, 2011 included (i) $1.4 million in manufacturing services revenue under our manufacturing services agreement with Siegfried Ltd, or Siegfried, (ii) $1.0 million under our marketing and supply agreement with Eisai in reimbursements for additional lorcaserin pre-approval development work, (iii) $1.0 million from amortization of the $50.0 million non-refundable, upfront payment we received in July 2010 from Eisai and (iv) $0.5 million, primarily for patent activities, related to our former collaboration with Ortho-McNeil-Janssen Pharmaceuticals, Inc., or Ortho-McNeil-Janssen, that was terminated effective December 28, 2010. Our revenues for the three months ended March 31, 2010 included $2.0 million of manufacturing services revenues and $0.5 million of patent fee revenue from Ortho-McNeil-Janssen.
Research and development expenses decreased by $2.4 million to $15.9 million for the three months ended March 31, 2011, from $18.3 million for the three months ended March 31, 2010. This was primarily due to decreases of (i) $1.5 million in salary and other personnel costs and (ii) $0.5 million in facility and equipment costs, both the result of the workforce reduction we completed around the end of the first quarter of 2011 and our cost-containment efforts. These decreases were partially offset by a $0.9 million increase in internal research and development manufacturing costs for our Swiss facility due to a decrease in manufacturing services under our manufacturing services agreement with Siegfried, which resulted in an increase in our unused manufacturing capacity. Internal research and development manufacturing costs for our Swiss facility include costs related to lorcaserin activities as well as unused manufacturing capacity. Although we expect to continue to incur substantial research and development expenses in 2011, we expect our research and development expenses will be significantly lower than the 2010 level, primarily due to lower external clinical and preclinical study fees and expenses, including manufacturing costs, and cost savings from our 2011 workforce reduction. We expect to incur manufacturing costs for lorcaserin and that such costs will be substantial if the FDA
Included in the $1.7 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended March 31, 2011 was $0.3 million related to our lorcaserin program, $0.9 million related to our APD811 program for the potential treatment of pulmonary arterial hypertension and $0.3 million related to our APD334 program for the potential treatment of autoimmune diseases, including multiple sclerosis. Included in the $2.1 million total external clinical and preclinical study fees and expenses for the three months ended March 31, 2010 was $1.5 million related to our lorcaserin program, $0.3 million related to our APD811 program and $0.1 million related to our APD916 program for the potential treatment of narcolepsy with cataplexy.
Interest and other expense, net. Interest and other expense, net, increased by $8.6 million to $14.7 million for the three months ended March 31, 2011, from $6.1 million for the three months ended March 31, 2010. This increase was primarily due to a (i) $10.5 million non-cash loss on extinguishment of debt and (ii) $1.0 million reduction in the non-cash gain from revaluation of our derivative liabilities. These increases were partially offset by a $3.0 million decrease in interest expense primarily related to the Deerfield loan as a result of principal repayments totaling $67.7 million that were made subsequent to the first quarter of 2010. The interest expense recognized for the three months ended March 31, 2011 includes $0.9 million we paid to Deerfield in cash, compared to $1.7 million paid for the three months ended March 31, 2010. Although we expect the two debt prepayments of $20.0 million and $17.7 million made in the first quarter of 2011 to reduce our future interest expense by $3.7 million, we expect that our interest expense will continue to be substantial due to both the $22.3 million remaining principal balance on the Deerfield loan and, to a lesser degree, payments on our lease financing obligations. At March 31, 2011, we expect interest expense of $3.9 million to be paid in cash over the remaining term of the Deerfield loan.
Although our March 31, 2011 condensed consolidated balance sheet reflects a total balance of $12.2 million for our note payable to Deerfield due to the requirement to separately value the components of the note, warrants and related financial instruments, the principal balance outstanding on this loan was $22.3 million at March 31, 2011. In January 2011, we prepaid the $20.0 million principal repayment that was due to Deerfield in July 2011, which is expected to save us $0.7 million in interest payments. In addition, in March 2011, as part of a financing with Deerfield, we prepaid $17.7 million of the $40.0 million principal repayment that was due to Deerfield in June 2013, which is expected to save us $3.0 million in interest payments.
Net cash of $6.0 million was used in financing activities during the three months ended March 31, 2011, due primarily to principal repayments to Deerfield of $20.0 million and $17.7 million in January 2011 and March 2011, respectively, and $3.4 million paid to Siegfried in January 2011. These repayments were partially offset by net proceeds of $35.3 million from the sale of 12,150,000 shares of common stock and 12,150 shares of Series C Preferred to Deerfield in March 2011. Net cash provided by financing activities was $24.3 million during the three months ended March 31, 2010, due primarily to net proceeds of $24.2 million from the sale of 8.3 million shares of common stock under an equity financing commitment with Azimuth.
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