Arena Pharmaceuticals Inc. (ARNA) is a San Diego-headquartered biopharmaceutical company that develops novel medicines with pharmacology and pharmacokinetics. Since its founding in 1997, the company has only brought one product to market: the weight-loss medication Belviq (lorcaserin), which received U.S. Food and Drug Administration (FDA) approval in June 2012. However, the product did not meet the company’s sales expectations and it was sold in January 2017 to Japan’s Eisai Co. Ltd. 

ARNA has a product line-up that is in various stages of clinical trials. These include Etrasimod (APD334), which is in a Phase 3 clinical trial for ulcerative colitis, a Phase IIb/III clinical trial for Crohn’s disease, and a Phase 2b clinical trial for atopic dermatitis; Olorinab (APD371), which is in Phase 2b clinical trial for the treatment of abdominal pain associated with irritable bowel syndrome; and APD418, which is in Phase 1 clinical trial for acute heart failure.

The company is also developing Ralinepag (APD811), which is in Phase 3 clinical trial for pulmonary arterial hypertension. Last October, ARBA completed the $56 million financing of Longboard (formerly Arena Neuroscience), an independent company concentrating on investigational therapies for rare neurological diseases.

ARNA operates under the corporate motto “Care More. Act Differently.” The company differs from other biopharmaceutical firms because many investors group it with cannabis industry stocks due to its medication Olorinab (APD371) being an oral, peripherally acting, highly selective, full agonist of the cannabinoid type 2 receptor. However, the rest of its products are non-cannabinoid medicines and ARNA does not promote itself as a cannabis-focused company.

Here’s how our proprietary POWR Ratings system evaluates ARNA:

Trade Grade: B

ARNA is trading at $75.23, which is closer to its 52-week high of $90.19 than its 52-week low of $32.95. The stock joined the rest of the market in tumbling last March when the coronavirus pandemic crippled the economy, but it made fine progress by regaining its strength up through early November, when its Q3 earnings report put the stock in a 23% downward spin; it has since begun to climb again.

What went wrong with the Q3 earnings to cause the stock to fall? The company reported only $20,000 in Q3 revenue compared to $1.4 million from one year earlier, while research and development costs ballooned to $79.8 million from to $60.3 million in the same period one year earlier. Net loss in Q3 was $97.4 million compared to a net loss of $72.9 million in the previous year while the basic and diluted net loss per share was $1.69 versus $1.46 for the same period in 2019.

In the press release announcing the Q3 results, President and CEO Amit D. Munshi did not call attention to the financial results but focused on the progress of the clinical trials. “We are optimistic about the next 12 to 18 months as we continue our efforts to build long-term value for all of our stakeholders and execute on key catalysts,” he said.

Buy and Hold Grade: C

The stock’s proximity to its 52-week high is a key factor that our Buy and Hold Grade considers, and ARNA lost points when its stock went kerplunk in November after the Q3 results. While it has been gaining momentum since that abrupt descent, the company is cognizant that better results are needed quickly. 

During a Q3 earnings call, Laurie Stelzer, executive vice president and chief financial officer, announced the company was “reducing operating expenses through enhanced clinical trial efficiencies and focusing on optimizing our spend. As a result, our guidance range for operating cash burn for the full-year 2020 is expected to be $345 million to $355 million, which is down from our previous guidance of $400 million to $430 million.”

 Peer Grade: A

ARNA ranks #43 out of 430 in the Biotech category. Considering the company does not have any medications on the market, this high ranking in a very crowded category is impressive.

 Industry Rank: D

 Unfortunately for ARNA, the Biotech industry ranks #102 out of 123 stock categories, with an average POWR Rating of “C.” Only 100 of the 430 stocks in this category carry an “A” or “B” POWR Rating.

Overall POWR Rating: B (Buy)

Fortunately for ARNA, its strong points outweigh the recent problems with the stock and it has earned a “B” rating that has eluded much of its competition.

Bottom Line

ARNA has yet to wear out its welcome with investors, particularly those focused on cannabis stocks, and the company is looking ahead into 2021 with great optimism on its multiple clinical trials. Investors should pay attention to the company’s Q4 earnings report, which is scheduled to be released on 2/24/21.

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ARNA shares were trading at $75.20 per share on Wednesday morning, up $0.23 (+0.31%). Year-to-date, ARNA has declined -2.12%, versus a 0.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...

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