Arena Pharmaceuticals, Inc.
Founded:
1997
President and CEO:
Jack Lief
Employees:
170
Earnings report in 2000:
$7.7 million in revenues; net loss of $6.4 million
Projections for 2001:
Lief expects between $25 million and $27 million in revenues
Headquarters:
6166 Nancy Ridge Drive, San Diego, 92121
San Diego-based drug discovery firm Arena Pharmaceuticals, Inc. is still in its infancy in terms of drug development.
But with a market capitalization of $854.4 million, the firm is already considered a giant in the San Diego biotechnology community.
And mind you, the 4-year-old biotech has yet to bring a product to market.
The key to catching investors’ interest is technology, analysts say.
Arena focuses on one of the most lucrative classes of drug targets , the G protein-coupled receptors, or GPCRs , which are molecules central to human health and disease.
This technology, said Arena President and CEO Jack Lief, makes the company attractive to pharmaceutical firms eager to find new drugs and to investors hoping to cash in on the firm’s own potential clinical candidates.
In 2000, the first year after Nasdaq-traded Arena went public, the firm established an impressive $160 million in joint projects, said Paul Knight, an analyst with Thomas Weisel Partners, a merchant banker in New York City.
This year, Arena hopes to sign research deals valued between $200 million and $400 million, Knight said. Partners include pharmaceutical giants Eli Lilly & Co., Glaxo SmithKline, Taisho Pharmaceutical Co. and Lexicon Genetics.
“Arena won more research collaborations than anyone ever in the history of pharma research,” Knight said. “The pharmaceutical industry is familiar with GPCRs that area attracts a lot of attention.”
Gaining Recognition
Consider too, out of the 100 leading drugs on the market, 34 either wholly or in part act on GPCRs, Knight said. In 1999, GPCR-based products represented more than $34 billion in sales, including such popular drugs as Claritin for allergies, Zantac for gastric ulcers, and Imitrex for migraine headaches.
Finding good drug targets is an onerous task. Scientists know diseases start when normal cell function , regulated by hormone-receptor interaction , ceases.
When hormones and receptors interact, it causes a signal that tells the cell to do its normal job.
But sometimes it can cause disease.
Most drugs work by blocking processes such as the binding of a hormone to a receptor.
Recent advances in genomics have shed light on the importance of GPCRs.
Of the hundreds of unknown GPCRs made public, little is known about the hormones (or ligands) that interact with them.
It has created a huge bottleneck in the drug discovery process.
Arena’s scientific co-founders, Dominic P. Behan and Derek T. Chalmers, say they have found a solution to that problem.
“Using molecular biology you can fool the receptor into activation. When the receptor is activated, you have the basis of a signal by which you can find a ligand (also known as a hormone),” Behan said.
Spurred By Human Genome Project
Compared to the traditional approach, Arena’s technique shaves off between three and five years in research and millions of dollars in spending, Behan estimated.
Behan and Chalmers first met in 1993 at the San Diego-based drug discovery firm, Neurocrine Biosciences, Inc. doing science.
Like the rest of the scientific community, the two scientists got swept up in the excitement over the findings coming out of the Human Genome Project. They had some ideas of their own which they couldn’t realize at Neurocrine.
They wanted to start a firm, but needed money.
A friend, Arena co-founder Michael Lewis, helped by introducing the two scientists to a consultant, Jack Lief.
Lief, who started several biotech firms, saw great potential in the three “young, energetic, smart scientists.”
He joined the team as president and CEO in 1997, raising $1 million in seed funding from Tripos, a life-sciences software company in St. Louis, and an additional $2.7 million from private investors.
The $3.7 million was enough cash to buy equipment, lease a building on Nancy Ridge Drive and hire a handful of scientists.
Research began in January 1998.
Two years later, Lief struck his first deal with Fujisawa, a well-known Japanese drugmaker.
The agreement calls for Arena to supply Fujisawa with receptors that are believed to play a role in preventing strokes.
In April 2000, Arena landed a second agreement with Eli Lilly that targeted the central nervous system.
A third agreement with Japanese drug firm Taisho on obesity and diabetes targets followed in May.
So far, no drug candidates have been tested in humans. But Lief and Knight are optimistic about filing an investigational new drug application by the end of 2002. If the Food and Drug Administration approves the application, Arena will be one step closer to its goal of becoming a full-fledged pharmaceutical firm.
At Arena, 131 scientists out of the company’s 170 employees work on identifying drug candidates, Lief said. Next year, the staff could be expanded to 300 people, he said.
With $222.9 million in cash reported June 30, a steady revenue stream from collaborations, a completed secondary offering and expected profitability, Lief sees no need to raise more money.
Still, recent earnings reports left analysts disappointed.
On July 23, Arena reported a net loss of $3.1 million for the second quarter ended June 30 when analysts expected a profit.
The disappointing news dropped Arena shares by 20 percent to close at $24.60.
But Leif said Arena is still on track to post $3.7 million in earnings and between $24 million and $27 million in revenues for the entire year.
Still, one biotechnology analyst remained skeptical. The analyst cautioned that just because a company has hot technology doesn’t mean it will translate into a marketable product.
“These guys are new,” the analyst said, referring to Arena. “They have a large market cap, but it’s important that they execute.”
A recent report published by investment banker Lehman Brothers and consultant McKinsey & Co. paints a bleak picture for biotechs and drugmakers using genomics technologies to discover new drugs.
Implied in the report is the notion that these technologies will not yield better, safer drugs overnight and that investors need to be prepared to be in it for the long haul.
