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Arena Pharmaceuticals Inc. Reports Operating Results (10-K)

March 15, 2012 | About:
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10qk

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Arena Pharmaceuticals Inc. (ARNA) filed Annual Report for the period ended 2011-12-31.

Arena Pharma has a market cap of $271.5 million; its shares were traded at around $1.79 with and P/S ratio of 16.3. Arena Pharma had an annual average earning growth of 6.8% over the past 10 years.

Highlight of Business Operations:

We received a non-refundable, upfront payment of $50.0 million from Eisai, and, following US regulatory approval of lorcaserin and upon the delivery of product supply for launch, will receive $40.0 million or $60.0 million, depending on the approved drug label. We are obligated to sell lorcaserin to Eisai for a purchase price starting at 31.5% of Eisais annual net product sales, and the purchase price will increase on a tiered basis to 36.5% on the portion of annual net product sales exceeding $750.0 million, subject to reduction in the event of generic competition and certain other circumstances. We are also eligible to receive up to an aggregate of $1.19 billion in purchase price adjustment payments based on Eisais annual net sales of lorcaserin, with the first and last amounts payable with annual net sales of $250.0 million and $2.5 billion, respectively. Of these purchase price adjustment payments, Eisai is obligated to pay us a total of $330.0 million for annual net sales of up to $1.0 billion. We are also eligible to receive up to an additional $70.0 million in regulatory and development milestone payments.

Revenues. We recognized revenues of $12.7 million for the year ended December 31, 2011, compared to $16.6 million for the year ended December 31, 2010. Our revenues for the year ended December 31, 2011, included (i) $5.3 million under our amended manufacturing services agreement with Siegfried Ltd, or Siegfried, (ii) $3.5 million from amortization of the $50.0 million non-refundable, upfront payment we received in July 2010 from Eisai, (iii) $3.3 million under our marketing and supply agreement with Eisai in reimbursements for additional lorcaserin development work and (iv) $0.5 million, primarily for patent activities, related to our former collaboration with Ortho-McNeil-Janssen Pharmaceuticals, Inc., or Ortho-McNeil-Janssen, which was terminated effective December 28, 2010. Our revenues for the year ended December 31, 2010, included (i) $7.1 million under our manufacturing services agreement with Siegfried, (ii) $4.0 million of deferred non-cash revenues recognized from our license agreement with TaiGen Biotechnology Co., Ltd., or TaiGen, (iii) $3.2 million for patent activities, primarily related to our former collaboration with Ortho-McNeil-Janssen, (iv) $1.9 million from amortization of the $50.0 million non-refundable, upfront payment we received from Eisai and (v) $0.4 million related to a license agreement with GlaxoSmithKline LLC and GlaxoSmithKline Research & Development Limited, or collectively GSK, for their use of our Melanophore screening technology. The $1.8 million decrease in manufacturing services revenues comparing 2011 to 2010 is comprised of $1.4 million related to reductions in sales prices agreed to in the amended agreements with Siegfried, with the balance related to changes in volume and product mix.

Revenues. We recognized revenues of $16.6 million for the year ended December 31, 2010, compared to $10.4 million for the year ended December 31, 2009. Our revenues for the year ended December 31, 2010, included (i) $7.1 million under our manufacturing services agreement with Siegfried, (ii) $4.0 million of deferred non-cash revenues recognized from our license agreement with TaiGen, (iii) $3.2 million for patent activities, primarily related to our former collaboration with Ortho-McNeil-Janssen, (iv) $1.9 million from amortization of the $50.0 million non-refundable, upfront payment we received from Eisai and (v) $0.4 million related to a technology license agreement with GSK. Our revenues for the year ended December 31, 2009, included $6.6 million under our manufacturing services agreement with Siegfried and $3.8 million for patent activities and additional sponsored research from our former collaborations with Ortho-McNeil-Janssen and Merck & Co., Inc., or Merck.

We received a non-refundable, upfront payment of $50.0 million from Eisai, and, following US regulatory approval of lorcaserin and upon the delivery of product supply for launch, will receive an additional $40.0 million or $60.0 million, depending on the approved drug label. We recorded the $50.0 million upfront payment as deferred revenues and were originally recognizing it as revenue ratably over 13 years, which represented the period in which we expected to have significant involvement. In 2011, based on revised expectations of the timing of regulatory approval for lorcaserin, if ever, we re-assessed such period and are now recognizing this revenue ratably over 14.5 years. Accordingly, at December 31, 2011, our consolidated balance sheet included $3.5 million and $41.2 million for the current and non-current portion, respectively, of such deferred revenues.

We are obligated to sell lorcaserin to Eisai for a purchase price starting at 31.5% of Eisais annual net product sales, and the purchase price will increase on a tiered basis to 36.5% on the portion of annual net product sales exceeding $750.0 million, subject to reduction in the event of generic competition and certain other circumstances. We are also eligible to receive up to an aggregate of $1.19 billion in purchase price adjustment payments based on Eisais annual net sales of lorcaserin, with the first and last amounts payable with annual net sales of $250.0 million and $2.5 billion, respectively. Of these purchase price adjustment payments, Eisai is obligated to pay us a total of $330.0 million for annual net sales of up to $1.0 billion. We are also eligible to receive up to an additional $70.0 million in regulatory and development milestone payments.

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