Tomahawk, WI 7/22/2013 (Basicsmedia) – Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) recently launched an FDA-approved anti-obesity drug called “Belviq” which would cater to the ever increasing obesity market in the U.S. This will compete with Vivus’ Qysmia, which has not performed well from the time that it was launched in September of last year. Can Belviq outperform Qysmia and can this be Arena’s chance to recover from its looming financial performance?

Rising Obesity Cases

With obesity now accounting for more than One-third of U.S. adults, there’s no doubt that there’s a market for anti-obesity drugs. In 2008 alone, “Medical costs associated with obesity were estimated at $147 billion wheras the medical costs for obese were $1,429 higher compared to normal weight people.”

“In 2008, 25.5% percent of Americans were considered to be Obese” implying a significant increase of 40% to its current level in 2013 of 35.7%. This indicates that obesity is growing a an alarming rate over the years.

The World Health Organization (WHO) cited that being overweight and obese could wreck havoc for several chronic diseases, including cardiovascular diseases, diabetes and cancer. Overweight and obesity have now become a concern in the low- and middle-income countries, especially in urban settings. This was the problem only in high income countries earlier.

Last week, the American Medical Association made headlines when it has officially recognized obesity as a disease, thereby pushing stocks higher for obesity drug makers which include Arena Pharmaceuticals, Inc. , VIVUS, Inc. (VVUS) and Orexigen Therapeutics, Inc. (OREX).

Arena Pharmaceuticals, Inc.

“Arena Pharmaceuticals is a biopharmaceutical company which engages in developing, discovering and commercializing novel drugs which target G protein-coupled receptors, or GPCRs, which will address the unstaturated markets. BELVIQ® (lorcaserin HCl), Arena’s internally discovered drug, approved in the U.S and is currently under review for regulatory approval in additional territories.”

Recent figures show that Arena has obtained the second lowest share price change at – 28.5% beating its rival Vivus which obtained as shown in the chart below. Rivals Orexigen Therapeutics , Roche (RHHBY), and GlaxoSmithKline (GSK) garnered price Changes of 53.71%, 40.93%, and 7.51% respectively. (Time frame for the changes)

Negative Profit and Slow Revenue Growth – Arena’s Major Concerns

Revenue growth is currently at 8.40% for the first quarter of 2013, bringing its revenue to $2.37 million from its original $2.19 million from the same period last year. However, despite an increase in revenue, net income is still at negative level amounting to $-18.88 million

EBITDA margin is also at negative level, currently at -798.77% for the first quarter of this year showing signs that more operating expenses are eating away the company’s bottom line thereby decreasing its overall profit.

Meanwhile, the debt to equity ratio is at 0.92 which is higher in comparison to the industry’s average, implying that the company is more prone to debt financing and has higher default risk. However, despite its high debt-to-equity ratio, the company’s quick ratio is at 5.06 which is very high demonstrating very strong liquidity for the company.

Net operating cash flow has increased to -$18.22 million in comparison to the same quarter last year, implying an increase of 18.09%. However, despite the increase in cash flow, it is still low as compared to the industry’s average growth rate of 20.56%.

ROE is currently at -86.62% for the first quarter of the year which is significantly lower than the industry’s average of 20.32% and S&P 500’s 13.11%. The chart below shows that the company has the lowest ROE amongst its direct rivals Vivus and GlaxoSmithKline of-66.90% and 60.64% respectively.

The figures above show that Arena Pharmaceuticals is not really doing well as implied by its negative income and negative ROE. In other words, it is currently operating at a loss which is making it unattractive to investors at the moment.

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