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

August 07, 2009 | About:

Arena Pharmaceuticals Inc. (ARNA) filed Quarterly Report for the period ended 2009-06-30.

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 $378.6 million; its shares were traded at around $4.73 with and P/S ratio of 38.5. Arena Pharmaceuticals Inc. had an annual average earning growth of 0.7% over the past 5 years.

Highlight of Business Operations:

Included in the $8.9 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended June 30, 2009 was $8.3 million related to our lorcaserin program and $0.4 million related to APD811, our lead drug candidate for the treatment of pulmonary arterial hypertension. Included in the $36.0 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended June 30, 2008 was $31.1 million related to our lorcaserin program, $3.9 million related to our APD125 program, $0.5 million related to our APD916 program and $0.2 million related to our APD791 program.

Interest and other income (expense), net. Interest and other expense, net, increased by $3.3 million to $5.0 million for the three months ended June 30, 2009, from $1.7 million for the three months ended June 30, 2008. This increase in expense was primarily due to (i) a $2.5 million non-cash loss from the revaluation of our warrant liability, (ii) a $1.7 million decrease in interest income attributable to lower interest rates and significantly lower cash balances and (iii) a $0.5 million increase in interest expense and financing costs, which included lease payments on our lease financing obligations accounted for in accordance with Statement of Financial Accounting Standards, or SFAS, No. 66, Accounting for Sales of Real Estate and SFAS No. 98 Accounting for Leases. These changes were partially offset by a decrease in other expense as a result of the $2.0 million non-cash warrant settlement that was recorded in the three months ended June 30, 2008. As a result of higher cash balances provided by our recent financings, we expect that our interest income in the second half of 2009 will be higher than in the first half of 2009. We also expect that our interest expense will increase significantly as a result of the secured loan we received in July 2009.

Research and development expenses. Research and development expenses decreased $36.8 million to $66.8 million for the six months ended June 30, 2009, from $103.6 million for the six months ended June 30, 2008. This was primarily due to decreases of (i) $30.8 million in external clinical and preclinical study fees and expenses primarily due to completing our BLOOM trial and nearing the completion of our BLOSSOM trial, (ii) $2.9 million in research supplies due to our cost-containment efforts and (iii) $1.6 million in salary and personnel costs. Included in the $32.2 million of total external clinical and preclinical study fees and expenses for the six months ended June 30, 2009 was $31.0 million related to our lorcaserin program, $0.5 million related to our APD811 program and $0.4 million related to receipt of the complete data package from our Phase 2b clinical trial of APD125. Included in the $63.0 million of total external clinical and preclinical study fees and expenses for the six months ended June 30, 2008 was $54.3 million related to our lorcaserin program, $5.7 million related to our APD125 program, $1.3 million related to our APD916 program and $1.1 million related to our APD791 program.

Interest and other income (expense), net. Interest and other income (expense), net, for the six months ended June 30, 2009 decreased $6.5 million to an expense of $6.1 million, from income of $0.4 million for the six months ended June 30, 2008, primarily due to (i) a $5.0 million decrease in interest income, (ii) a $2.1 million non-cash loss from the revaluation of our warrant liability, (iii) a $2.0 million non-cash warrant settlement that was recorded in the first half of 2008 and (iv) a $0.8 million increase in interest expense and financing costs.

Net cash used in operating activities was $97.2 million during the six months ended June 30, 2009, and primarily was used to fund our net losses in the period, adjusted for non-cash items. Non-cash items included $5.6 million in depreciation and amortization expense, $3.7 million in share-based compensation expense, $2.1 million loss from the revaluation of our warrant liability, $1.1 million in amortization expense related to acquired technology and other intangibles, as well as changes in operating assets and liabilities. Net cash used in operating activities was $94.1 million during the six months ended June 30, 2008, and primarily was used to fund our net losses in the period, adjusted for non-cash expenses. Non-cash expenses included $5.8 million in depreciation and amortization expense, $4.3 million in share-based compensation, $2.0 million warrant settlement provision charge related to a disagreement with one of our warrant holders, $1.2 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 significantly from the 2008 level as we completed our BLOOM trial and are nearing the completion of our BLOSSOM trial, prioritize our spending towards activities that support filing an NDA for lorcaserin and realize expected operating cost savings from our recently completed workforce reduction.

Net cash of $30.5 million was provided by investing activities during the six months ended June 30, 2009, and was primarily attributable to proceeds of $32.6 million from our short-term investments, which were partially offset by $2.5 million used for equipment and improvements to our facilities. Net cash used in investing activities was $65.3 million during the six months ended June 30, 2008, and was primarily the result of net purchases of short-term investments of $31.7 million, $19.6 million used for the purchase of our drug product manufacturing and packaging facility in Switzerland and $13.7 million used for equipment and

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