Arena Pharma Raising $352 Million Following Positive Phase II Data

Earlier this week, Arena Pharmaceuticals, Inc.’ shares rose 34 percent in premarket trading after the company released positive top-line results from its Phase II trial of etrasimod in ulcerative colitis (UC). Yesterday, the company announced the pricing of an underwritten public offering of 8.5 million shares of its common stock—$41.50 per share.

In the trial, patients that received 2 mg doses of the drug had statistically significant improvements compared to placebo in the primary, secondary and clinical remission endpoints. Etrasimod 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. Another arm of patients receiving 1 mg per arm didn’t show statistically meaningful improvement.

The drug also has potential for treating other autoimmune diseases, and its safety profile has the potential to make it best-in-class. The company expects to move into Phase III studies, and because the 1 mg dose is unlikely to be evaluated in further studies, trial design should be straightforward.

The company hopes to raise $352.8 million from the stock offering, which is expected to close on March 26, 2018. Buyers also have a 30-day option to purchase up to 1.275 million additional shares of common stock at the public offering price.

It plans to use the net proceeds from the offering for the Phase III programs in UC, as well as clinical and preclinical development of other drug candidates, such as relinepag for pulmonary arterial hypertension. It will also, of course, be used for general corporate purposes like working capital, manufacturing and capital expenditures.

The joint book-running managers for the offering are Citigroup, Leerink Partners, Canton Fitzgerald, Credit Suisse and RBC Capital Markets. Guggenheim Securities and JMP Securities are co-managers.

Spencer Osborne, writing for Seeking Alpha earlier this week, said, "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 of 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."

Etrasimod seems to have a better safety profile than potential competitors, such as Celgene’s ozanimod, which was rejected by the U.S. Food and Drug Administration (FDA) for relapsing multiple sclerosis in February. The agency is requesting more data. Celgene’s drug, which was being evaluated for MS instead of UC, nonetheless has similar mechanisms of action as etrasimod. So in that regards, the real threat to Celgene is related to label expansion opportunities.

Novartis, however, does have Gilenya, on the market, which is the first and only S1P modulator approved by the FDA. Etrasimod seems to have a safety advantage over Gilenya, which brings in around $3.2 billion in annualized revenue.

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