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

November 09, 2009 | About:
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10qk

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Arena Pharmaceuticals Inc. (ARNA) filed Quarterly Report for the period ended 2009-09-30.

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 $332.5 million; its shares were traded at around $3.59 with and P/S ratio of 33.9. Arena Pharmaceuticals Inc. had an annual average earning growth of 0.7% over the past 5 years.

Highlight of Business Operations:

Included in the $7.7 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended September 30, 2009 was $7.4 million related to our lorcaserin program and $0.1 million related to each of our APD125 and APD811 programs. We previously studied APD125 for insomnia. Included in the $27.9 million total external clinical and preclinical study fees and expenses noted in the table above for the three months ended September 30, 2008 was $23.1 million related to our lorcaserin program, $4.2 million related to our APD125 program and $0.1 million related to each of our APD791 and APD916 programs. APD791 is our lead drug candidate for the treatment and prevention of arterial thrombosis.

Interest and other income (expense), net. Interest and other expense, net, increased by $5.8 million to $7.6 million for the three months ended September 30, 2009, from $1.8 million for the three months ended September 30, 2008. This increase in expense was primarily due to (i) a $5.4 million increase in interest expense related to the Deerfield loan, (ii) a $2.5 million non-cash loss on extinguishment of debt resulting from the $10.0 million repayment on the Deerfield loan and (iii) a $1.3 million decrease in interest income attributable to both lower interest rates and cash balances. This increase was partially offset by (i) a $2.5 million non-cash gain from the revaluation of our derivative liabilities and (ii) a $1.6 million write-down on our investment in TaiGen Biotechnology Co., Ltd., which we recorded in 2008. We expect our interest expense will continue to be substantial as a result of the Deerfield loan and payments on our lease financing obligations.

research personnel, as well as our cost-containment efforts and (iii) $4.0 million in salary and personnel costs. Included in the $39.8 million of total external clinical and preclinical study fees and expenses for the nine months ended September 30, 2009 was $38.4 million related to our lorcaserin program, $0.6 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. Personnel-related employee separation costs resulting from the workforce reduction are reflected as a separate line item in our condensed consolidated statements of operations. Included in the $90.9 million of total external clinical and preclinical study fees and expenses for the nine months ended September 30, 2008 was $77.5 million related to our lorcaserin program, $9.9 million related to our APD125 program, $1.4 million related to our APD916 program and $1.2 million related to our APD791 program.

Interest and other income (expense), net. Interest and other expense, net, increased $12.3 million to $13.7 million for the nine months ended September 30, 2009, from $1.4 million for the nine months ended September 30, 2008. This increase in expense was primarily due to (i) a $6.2 million decrease in interest income, (ii) a $5.4 million increase in interest expense related to the Deerfield loan, (iii) a $2.5 million non-cash loss on extinguishment of debt and (iv) a $1.4 million increase in interest expense related to our lease financing obligations. This increase was partially offset by a $2.2 million non-cash warrant settlement with one of our Series B warrant holders and a $1.6 million write-down on our investment in TaiGen Biotechnology Co., Ltd., both of which we recorded in 2008.

Net cash used in operating activities was $129.6 million during the nine months ended September 30, 2009, and primarily was used to fund our net losses in the period, adjusted for non-cash items. Non-cash items included $8.3 million in depreciation and amortization expense, $5.4 million in share-based compensation expense, a $2.5 million loss on extinguishment of debt resulting from the $10.0 million repayment on the Deerfield loan, $3.5 million in accretion of debt discount on the Deerfield loan, $1.7 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 $148.6 million during the nine months ended September 30, 2008, and primarily was used to fund our net losses in the period, adjusted for non-cash expenses. Non-cash expenses included $8.7 million in depreciation and amortization expense, $6.1 million in share-based compensation, $2.2 million in warrant settlement charges related to a disagreement with one of our Series B warrant holders, $1.7 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 and BLOSSOM trials, prioritize our spending towards activities that support filing an NDA for lorcaserin and realize expected operating cost savings from the workforce reduction we completed in June 2009.

Net cash provided by financing activities was $166.5 million during the nine months ended September 30, 2009, and was primarily attributable to net financing proceeds of $96.9 million from the issuance of a note and related financial instruments to Deerfield, net proceeds of $49.7 million from the sale of 12,500,000 shares of common stock at $4.17 per share, $15.0 million in reimbursements for improvements made to one of our leased facilities and net proceeds of $14.7 million from the sale of a total of 5,745,591 shares of common stock under our equity financing commitment with Azimuth. Such proceeds were partially offset by the $10.0 million of principal repayment on the Deerfield loan. Net cash provided by financing activities was $2.2 million during the nine months ended September 30, 2008, and was primarily attributable to net proceeds of $1.4 million received from option exercises and purchases under our employee stock purchase plan and $1.0 million in reimbursements for improvements made to one of our facilities.

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