Arena Pharmaceuticals Takes Aim at Celgene

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On Monday, Arena Pharmaceuticals (NASDAQ: ARNA) unveiled mid-stage trial results for etrasimod, an S1P-modulating drug that works similarly to ozanimod, one of Celgene's (NASDAQ: CELG) most anticipated drugs. The results were impressive -- and that has me thinking that if they're duplicated in future trials, etrasimod could threaten ozanimod's peak revenue potential. Is Arena Pharmaceuticals about to outflank Celgene in this battle over billions?

What's at stake

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Celgene's and Arena Pharmaceuticals' drugs both reduce lymphocytes to prevent an immune system reaction by targeting sphingosine-1-phosphate (S1P), a major regulator of T- and B-cell trafficking, and they're both under development as a treatment for immune-related diseases, including ulcerative colitis.

Ulcerative colitis is a chronic inflammatory bowel disease caused by the immune system mistaking food, bacteria, and other materials in the colon as invaders. The mistake triggers an immune system response that results in the colon becoming inflamed and tiny ulcers forming. In turn, this can cause abdominal pain, blood in the stool, appetite loss, fatigue, and delays in growth and development.

Typically, ulcerative colitis is diagnosed when patients are in their 30s, and it's estimated that there are about 907,000 Americans who suffer from it. A chronic disease, ulcerative colitis requires a lifetime of treatment. Current treatments include aminosalicylates and corticosteroids, which are for short-term use in mild cases, and immunomodulators, which can help control disease in patients when aminosalicylates or corticosteroids don't work. Anti-TNF biologics, such as Humira, are often used to treat severe cases of ulcerative colitis, too. Altogether, spending on these drugs totals in the billions of dollars per year.

A battle brewing

Growing evidence suggests that S1P modulators can effectively help ulcerative colitis patients.

In mid-stage trials, the clinical remission rate for patients receiving 1 mg of ozanimod daily was 16.4% at eight weeks and 20.9% at 32 weeks, based on the total Mayo Clinic score (total-MCS), a scale assessing the severity of ulcerative colitis. Those results significantly outperformed the 6.2% remission rate that was observed in patients taking a placebo.

Those results prompted Celgene to enter into phase 3 trials for ozanimod in the indication, giving it the lead. However, Arena Pharmaceuticals' etrasimod isn't far behind, and ultimately, it could offer best-in-class safety. In its phase 2 study, 24.5% of patients achieved clinical remission on a 2 mg daily dose of etrasimod at 12 weeks based on total MCS. For comparison, only 6% of patients taking a placebo achieved clinical remission at that point.

It's bad science to compare data from separate trials, so we can't look at this data and claim etrasimod is the better drug. However, we can say both drugs appear to be effective. Therefore, the drug that ends up winning the majority of market share may be the one that's viewed as safest.

Safety is particularly important in this class of drugs because safety risks are associated with Gilenya, the first S1P modulator to win FDA approval. Gilenya has been on the market for use in multiple sclerosis since 2010, and while it generates sales of over $3 billion per year, it's associated with a number of safety concerns, including a risk of a drop in heart rate on day one, macular edema, infection, and elevated liver function tests.

It's not fully understood what's responsible for these adverse events, but it's generally believed that they're due to Gilenya's non-specificity. Gilenya interacts with all five S1P receptors, and its interaction with S1PR2 and S1PR3 may be the cause of unwanted side effects. If that is indeed the case, then both ozanimod and etrasimod may avoid many of Gilenya's adverse events because each targets fewer S1P receptors. However, of the two drugs, it appears that etrasimod is the only one that avoids interacting with S1PR2.

So far, ozanimod and etrasimod appear safer than Gilenya based on phase 2 data. In ozanimod's ulcerative colitis study, the most common adverse events have been anemia, upper respiratory tract infection, and back pain at 92 weeks. The only serious adverse events occurring in two or more patients were anemia and ulcerative colitis flare. In etrasimod's phase 2 study, there were no serious adverse events in the 2 mg dose arm at 12 weeks, no significant observed changes in heart beat, no cases of macular edema, and no test results indicating increased liver function.

All eyes on Celgene

Celgene has already filed for FDA approval of ozanimod in multiple sclerosis. However, that application recently received a Refusal to File letter, which will force Celgene to meet with FDA officials and, perhaps, refile for its approval later. In ulcerative colitis, Celgene expects its phase 3 ozanimod study to finish enrolling patients this year. If the company hits that goal, it shouldn't be too long before investors have in hand late-stage safety data that could help determine which of these companies stands the best shot at coming out ahead.

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Todd Campbell owns shares of Arena Pharmaceuticals and Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.