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

May 11, 2009 | About:

Arena Pharmaceuticals Inc. (ARNA) filed Quarterly Report for the period ended 2009-03-31.

Arena Pharmaceuticals Inc. is a clinical-stage biopharmaceutical company focused on discovering developing and commercializing oral drugs in four major therapeutic areas: cardiovascular central nervous system inflammatory and metabolic diseases. Arena's most advanced product candidate lorcaserin is being investigated in a Phase three clinical trial program for the treatment of obesity. Arena's broad pipeline of novel compounds targeting G protein-coupled receptors an important class of validated drug targets includes compounds being evaluated independently and with its partners Merck & Co. Inc. and Ortho-McNeil Pharmaceutical Inc. Arena Pharmaceuticals Inc. has a market cap of $208.49 million; its shares were traded at around $2.81 with and P/S ratio of 21.25. Arena Pharmaceuticals Inc. had an annual average earning growth of 0.7% over the past 5 years.

Highlight of Business Operations:

Revenues. We recorded revenues of $2.7 million during the three months ended March 31, 2009, compared to $2.6 million during the three months ended March 31, 2008. Our revenues for the three months ended March 31, 2009 included $1.4 million under our manufacturing services agreement with Siegfried Ltd, or Siegfried, a decrease of $0.6 million from the $2.0 million of manufacturing services revenues recorded in the three months ended March 31, 2008. Our revenues for the three months ended March 31, 2009 also included $1.3 million for patent activities from our collaborations with Ortho-McNeil-Janssen and Merck, compared to $0.6 million of such revenues recorded in the three months ended March 31, 2008.

Included in the $23.3 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended March 31, 2009 was $22.7 million related to our lorcaserin program and $0.3 million related to receipt of the complete data package from our Phase 2b clinical trial of APD125. Included in the $27.0 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended March 31, 2008 was $23.3 million related to our lorcaserin program, $1.8 million related to our APD125 program and $0.9 million related to our APD791 program.

Amortization of acquired technology and other intangibles. We recorded $0.6 million for amortization of acquired technology and other intangibles in both of the three month periods ended March 31, 2009 and 2008. The workforce we acquired from Siegfried in January 2008 is being amortized over its estimated benefit of two years, for which we expect to record additional amortization expense of $0.6 million in the remainder of 2009. Our patented Melanophore technology, which we acquired in 2001 for $15.4 million, is our primary screening technology and is being amortized over its estimated useful life of 10 years. We expect to record charges of $1.2 million in the remainder of 2009, $1.5 million in 2010 and $0.3 million in 2011 for amortization of the Melanophore technology.

Interest and other income (expense), net. Interest and other income, net, decreased by $3.2 million to an expense of $1.1 million for the three months ended March 31, 2009, from income of $2.1 million for the three months ended March 31, 2008. This change was due primarily to (i) a $3.3 million decrease in interest income attributable to both significantly lower cash balances and interest rates, (ii) a $0.4 million non-cash gain from the revaluation of our warrant liability and (iii) a $0.3 million increase in interest expense and financing costs, which included lease payments on our lease financing obligations accounted for in accordance with SFAS No. 66, Accounting for Sales of Real Estate and SFAS No. 98 Accounting for Leases. Due to declining cash balances and low interest rates, we expect our interest income will continue to decrease in 2009.

Net cash used in operating activities was $51.7 million during the three months ended March 31, 2009, and primarily was used to fund our net losses in the period, adjusted for non-cash items. Non-cash items included $2.8 million in depreciation and amortization expense, $2.0 million in share-based compensation expense, $0.6 million in amortization expense related to acquired technology and other intangibles, $0.4 million gain from the revaluation of our warrant liability, as well as changes in operating assets and liabilities. Net cash used in operating activities was $40.6 million during the three months ended March 31, 2008, and primarily was used to fund our net losses in the period, adjusted for non-cash expenses. Non-cash expenses included $2.8 million in depreciation and amortization expense, $2.4 million in share-based compensation, $0.6 million in amortization of acquired technology and other intangibles, as well as changes in operating assets and liabilities. We expect net cash used in operating activities in 2009 will decrease from the 2008 level as we complete our Phase 3 lorcaserin BLOOM and BLOSSOM trials, prioritize our spending towards activities that support filing an NDA for lorcaserin and realize expected operating cost savings from our recent workforce reduction.

Net cash of $26.8 million was provided by investing activities during the three months ended March 31, 2009, primarily proceeds of $28.9 million from our short-term investments. These proceeds were partially offset by $2.3 million used for equipment and improvements to our facilities. Net cash used in investing activities was $45.5 million during the three months ended March 31, 2008, and was primarily the result of net purchases of short-term investments of $21.0 million, $19.6 million used for the purchase of our drug product manufacturing and packaging facility in Switzerland and $4.5 million used for equipment and improvements to our facilities. We expect that our capital expenditures in 2009 will be substantially less than in 2008 due to our ongoing cost-containment efforts.

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Rating: 3.3/5 (4 votes)

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