[Updated, 11/15/18, 2:06 p.m. ET. See below.] Arena Pharmaceuticals continued its comeback Thursday, netting a whopping $800 million up front in a deal that hands United Therapeutics another experimental drug for the rare disorder pulmonary arterial hypertension (PAH).
The deal gives United Therapeutics (NASDAQ: UTHR) worldwide rights to Arena’s (NASDAQ: ARNA) experimental drug ralinepag, which is in late-stage testing for PAH. Aside from the massive upfront payment, the company, which splits its operations between Research Triangle Park, NC, and Silver Spring, MD, could pay San Diego-based Arena another $400 million if the drug progresses to and through a regulatory review.
A securities filing shows, for instance, shows that Arena will be eligible for a $150 million payment upon the first approval of ralinepag in a “major non-U.S. market,” and another $250 million if the FDA approves an inhaled version of the drug. Arena would get royalties from sales as well.
Shares of Arena boomed nearly 22 percent Thursday, to $39.50 apiece, as the deal marked the latest step in the company’s strategic turnaround. Arena was initially known for the obesity pill lorcaserin (Belviq), which the FDA approved in 2012. But obesity drugs, including lorcaserin, have struggled mightily commercially. Arena asked out of the field by selling lorcaserin to partner Eisai in January 2017, with shares sitting around $15 apiece.
Since then, the company has put its resources behind a pipeline of drugs for ulcerative colitis, PAH, and pain—and that decision has paid off. Multiple compounds have shown promise in early testing, shares are now worth more than double their price in early 2017, and Arena today nabbed one of the larger upfront payments in a licensing deal for an experimental drug in recent memory.
For United Therapeutics, meanwhile, the deal adds to an already strong position in PAH, a rare disorder in which high blood pressure develops in the arteries of the lungs. The cause of PAH isn’t known, but patients who have it can experience shortness of breath, chest pain, and loss of consciousness.
United Therapeutics already sells the standard of care drug for PAH, treprostinil, in three different forms: one is an injection; another is an inhaled solution; and a third form is an extended-release tablet. Treprostinil is a synthetic version of prostacyclin, a substance in the body that helps dilate blood vessels.
The Arena drug, a once-daily pill, also dilates blood vessels, but in a different way. It selectively binds to the prostacyclin receptor to initiate the blood vessel-widening effect. The company has said this approach may be safer and more effective than other drugs, like a similar, rival treatment from Johnson & Johnson, selexipag (Uptravi), that won FDA approval in 2015. Arena’s drug succeeded in a Phase 2 study in October 2017, and has since been moved into Phase 3 testing.
The treprostinil drugs sold by United Therapeutics generated more than $1.4 billion of the company’s $1.7 billion in 2017 revenue. Remodulin, the version of the drug administered by injection, was the top seller, accounting for $670.9 million in 2017 sales. But treprostinil has lost patent protection, and other drug companies are developing their own versions of the drug to get a piece of the PAH market. United Therapeutics acquired one of them, reaching a $141 million deal in April for San Ramon, CA-based SteadyMed, whose Treyvent product administers the drug via a disposable pump and skin patch system. Meanwhile, Research Triangle Park-based Liquidia Technologies (NASDAQ: LQDA) is in late-stage testing with an inhaled version of treprostinil.
[Paragaph added with analyst comment.] The deal for the PAH drug is a good one for Arena, according to Leerink Partners analyst Joseph Schwartz. In a research note, Schwartz wrote that United Therapeutics’s acquisition of ralinepag lends validation to the drug and frees Arena from the financial responsibility of further developing and commercializing it. Furthermore, Arena gains an immediate cash infusion that it can devote to etrasimod, an experimental treatment for ulcerative colitis and Crohn’s disease, and the rest of its drug pipeline.
The stock price of United Therapeutics rose more than 6.7 percent to $118.35 per share following the announcement of the deal with Arena Thursday morning.
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