Leerink starts Arena Pharma at OP

Leerink initiated coverage of Arena Pharmaceuticals (NASDAQ:ARNA) with an “outperform” rating and $5 price target. The stock closed at $1.15 on May 18.

“Following a strategic reorganization led by a new management team, we see multiple opportunities for the company to generate significant shareholder value by developing potential best-in-class agents targeting blockbuster opportunities,” writes analyst Joseph Schwartz.

“Arena has greatly improved its exposure to the company’s legacy Belviq franchise by renegotiating its agreement with Eisai, and is focusing its efforts on developing differentiated specialty medicines, which the company could commercialize on its own or garner outside interest in,” he added.

Mr. Schwartz said the new Arena is pursuing markets it can commercialize on its own, although proof-of-concept data in the company’s lead programs could lead to interest from large pharmaceutical/biotechnology companies. In addition, Arena's drug candidates have attractive properties, which could translate into meaningful advantages.

A robust string of catalysts offers multiple opportunities for upside upon potential proof of concept, including etrasimod, which is currently in a Phase 2 trial for ulcerative colitis and is expected to read out by the end of 2017.

Phase 2 studies have been initiated in extra-intestinal manifestations of irritable bowel disease and pyoderma gangrenosum, and Arena expects to initiate Phase 2 studies in primary biliary cholangitis in 2017.

Arena also is developing ralinepag, which is in Phase 2 evaluation for pulmonary arterial hypertension, and APD371 as a peripherally restricted, highly selective full agonist to cannabinoid 2 receptor for the treatment of pain associated with Crohn’s disease. APD371 Phase 2 data is also expected in 2017.