Arena Pharmaceuticals Shares Explode on Positive Ulcerative Colitis Trial Data

Arena Pharmaceuticals, Inc. shares rose 34 percent in premarket trading today after the company released positive top-line results from its Phase II trial of etrasimod in ulcerative colitis.

The San Diego-based company indicated that patients receiving the 2 mg dose of the drug had statistically significant improvements compared to placebo in the primary, secondary and clinical remission endpoints. The drug is a once-daily, orally-available, selective sphingosine 1-phosphate (S1P) receptor modulator.

Compared to placebo, patients receiving the 2 mg dose of the drug had a 0.99 point improvement in a Mayo Clinic Score based on three components, stool frequency, rectal bleeding and endoscopy findings. Patients in the 1 mg arm had a 0.43 point improvement, which was not considered statistically significant. However, more patients in the 2 mg group showed endoscopic improvement compared to placebo.

The percent of patients hitting clinical remission, based on the 3-component Mayo Clinic Score, was 33 percent in the 2 mg dosing group compared to 8.1 percent receiving placebo. Remission defined by the 4-component Total Mayo Clinic Score was 24.5 percent for patients on 2 mg etrasimod and 6 percent for patients on placebo.

"The results of this Phase II trial are impressive and demonstrate statistically significant efficacy of orally administered etrasimod, including clinically meaningful improvement in remission, as well as endoscopic improvement in what has been historically referred to as mucosal healing," said William Sandborn, professor of Medicine and chief, Division of Gastroenterology and director, University of California San Diego Inflammatory Bowel Disease Center, in a statement. "Despite recent advances in treatment options, there remains a significant unmet need for new oral therapies for ulcerative colitis. I look forward to etrasimod advancing into a Phase III program."

Tom Kilgore, writing for MarketWatch, notes, "The rally comes after the stock had declined for six-straight sessions, and for 10 of the past 11 sessions, since closing at a near three-year high of $43.37 on March 2…. The stock has lost 9.1 percent year to date through Monday, while the SPDR S&P Pharmaceuticals ETF has slipped 1.6 percent and the S&P 500 has gained 1.5 percent."

Etrasimod has potential for the treatment of other autoimmune diseases. The company indicates that its safety profile has the potential to make the drug best-in-class. It expects to move into Phase III trials, and because there is a clear difference between the dosing, the trial design should be straightforward.

Spencer Osborne, writing for Seeking Alpha, "In an after-hours conference call to discuss the results, CEO Amit Munshi seemed to indicate that Arena intends to proceed without a partner. While this is possible, I believe that it is also plausible that such rhetoric could be a way to sweeten the amount on any potential offers. With its cash reserves, Arena can certainly afford to be patient and diligent about the prospects of potential partnering or a sale."

It also seems that Arena’s emphasis on the drug’s safety is a throw-down to Celgene’s ozanimod. In February, the U.S. Food and Drug Administration (FDA) rejectedCelgene’s New Drug Application for ozanimod to treat relapsing multiple sclerosis, requiring more data. Ozanimod and etrasimod have similar mechanisms of action. Another competitor in the arena is Novartis’ Gilenya, the first and only S1P modulator approved by the FDA.

So far, etrasimod seems to have safety advantages over both ozanimod and Gilenya, and may be more targeted than ozanimod. Gilenya brings in around $3.2 billion in annualized revenue. At this time, because etrasimod is being evaluated in ulcerative colitis instead of MS, the real threat to Celgene is related to label expansion opportunities.

In mid-February, Todd Campbell, with The Motley Fool, wrote, "Given the uncertainty, investors who are considering buying Celgene because of ozanimod might want to hold off until etrasimod’s data is out. At that point, they should be able to get a better feel of how stiff of a competitor Arena Pharmaceuticals could be."

And the answer appears to be: very much a competitor

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