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Arena bounces back. Stock soars on ozanimod rival’s PhII success

Its diet pill was a commercial flop that almost sent Arena to the grave. Now — with its second pipeline drug reporting positive mid-stage data — Arena is making a comeback.

After a rocky few years that included massive layoffs, companywide restructuring, and an obliterated stock, Arena now has a fresh pipeline with two drugs that have produced solid Phase II data. The San Diego company’s stock $ARNA, once in the gutter, has more than doubled since this time last year.

Amit Munshi

The stock price flew up 25% overnight following news late Monday that its ulcerative colitis drug etrasimod proved promising in a Phase II study. The once-daily oral drug is a S1P receptor modulator that works much like the blockbuster hopeful ozanimod. That drug was the subject of Celgene’s $7.2 billion buyout of another San Diego company, Receptos, and has been touted as $1 billion-plus per year asset. Its future, however, is unclear after the FDA kicked back Celgene’s marketing application just last month.

In a lengthy conversation last year, Arena’s CEO Amit Munshi told me its drug etrasimod was like ozanomid… but better. “We believe it’s safer and potentially more efficacious (than ozanimod),” Munshi said.

In the recent Phase II study, Arena reported patients on the 2-mg dose of the drug had statistically significant improvements over the placebo in all primary, secondary, and clinical remission endpoints.

Some investors, however, worry the FDA’s recent reaction to ozanimod might signal safety issues and a potential class effect that would cast a shadow on etrasimod. Biotech analysts at Leerink, though, see no reason to jump to that conclusion.

We don’t think this is the case, or else they would have reported it by now, given its materiality. Management has previously spoken of S1P receptors 2 and 3 contributing to cardiac, pulmonary, and possible tumor-related risks. As a result, activity of S1P receptor modulators will manifest unwanted cardiac AEs unless the compound has selectivity. Etrasimod has been designed to selectively target receptors 1, 4, and 5 for clinical efficacy while avoiding 2 and 3. Supporting this claim, Arena did not see any substantial heart rate effects in their Phase I study, which is reflected in the lack of dose titration in the current Phase II study. Thus, although some investors interpret the recent refuse-to-file letter for Ozanimod to be due to safety and a potential class effect, we continue to think etrasimod could be differentiated.

Preston Klassen

Arena is moving the drug forward, noting that it would pursue new immune-related applications for etrasimod, data permitting. That means Arena’s pipeline, once a one-trick pony with the commercial flop Belviq on center stage, is becoming more robust. In addition to etrasimod, Arena has a pulmonary arterial hypertension drug, ralinepag, which put up positive Phase II data last July. The biotech plans to take that program into Phase III trials. The company also has a mid-stage cannabinoid 2 receptor pain drug, APD3771, for pain associated with Crohn’s disease.

“We believe these data support proceeding to a Phase II program in ulcerative colitis and continuing efforts to understand the broad potential utility of etrasimod in other immune and inflammatory diseases with significant unmet needs,” said Preston Klassen, Arena’s executive vice president of R&D and chief medical officer. “Along with the positive Phase II results for ralinepag reported last year, this important milestone for the company further amplifies our conviction in Arena’s internally discovered and developed compounds and their potential to be best-in-class.”


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