arna-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q

_____________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-31161

_____________________________

ARENA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

_____________________________


Delaware (State or other jurisdiction of incorporation or organization)						23-2908305 (I.R.S. Employer Identification No.)

136 Heber Avenue, Suite 204, Park City, UT (Address of principal executive offices)						84060 (Zip Code)

858.453-7200

(Registrant’s telephone number, including area code)

_____________________________

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	ARNA	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Small reporting company	☐
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

The number of shares of common stock outstanding as of the close of business on April 29, 2021:


Class			Number of Shares Outstanding
Common Stock, $0.0001 par value			60,696,200

INDEX

ARENA PHARMACEUTICALS, INC.

INDEX


PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balanc e Sheets - As of March 31, 202 1 and December 31, 2020	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss - Three Months Ende d March 31, 2021 and 2020	2
	Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 3 1 , 202 1 , and 20 20	3
	Condensed Consolidated Statements of Cash Flows - Thre e Months Ended March 31 , 202 1 , and 20 20	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	18
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	20
Item 6.	Exhibits	52
Signatures		53

TRADEMARKS AND CERTAIN TERMS

In this Quarterly Report on Form 10-Q, “Arena Pharmaceuticals,” “Arena,” “Company,” “we,” “us” and “our” refer to Arena Pharmaceuticals, Inc., and our wholly owned subsidiaries on a consolidated basis, unless the context otherwise provides. “APD” is an abbreviation for Arena Pharmaceuticals Development.

Arena Pharmaceuticals ® and Arena ® are registered service marks of Arena. Any other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	432,978	$	219,544
Short-term investments, available-for-sale	655,846		884,497
Prepaid expenses and other current assets	32,781		35,266
Total current assets	1,121,605		1,139,307
Land, property and equipment, net	21,129		22,090
Other non-current assets	41,202		29,323
Total assets	$	1,183,936	$	1,190,720
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	21,980	$	35,351
Accrued clinical and preclinical study fees	20,969		18,325
Current portion of lease financing obligations	4,558		4,401
Total current liabilities	47,507		58,077
Other long-term liabilities	10,410		10,963
Lease financing obligations, less current portion	40,027		41,211
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value, 7,500,000 shares authorized, no shares issued and outstanding at March 31, 2021 and December 31, 2020	—		—
Common stock, $0.0001 par value, 147,000,000 shares authorized at March 31, 2021 and December 31, 2020; 60,619,144 and 58,611,210 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	6		6
Additional paid-in capital	2,711,930		2,587,494
Accumulated other comprehensive income	204		700
Accumulated deficit	(1,626,148)		(1,507,731)
Total stockholders' equity	1,085,992		1,080,469
Total liabilities and stockholders' equity	$	1,183,936	$	1,190,720

See accompanying notes to unaudited condensed consolidated financial statements.

INDEX

ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Revenues:
Royalty revenue	$	—	$	262
Total revenues	—		262
Operating Costs and Expenses:
Research and development	102,535		78,533
Selling, general and administrative	29,458		26,442
Total operating costs and expenses	131,993		104,975
Loss from operations	(131,993)		(104,713)
Interest and Other Income (Expense):
Interest income	690		4,946
Interest expense	(1,073)		(1,163)
Other income, net	90		723
Gain from Longboard equity method investment	13,869		—
Total interest and other income (expense), net	13,576		4,506
Net loss	$	(118,417)	$	(100,207)

Net loss per share, basic and diluted:	$	(1.98)	$	(2.00)

Shares used in calculating net loss per share, basic and diluted:	59,780		50,228

Comprehensive Loss:
Net loss	$	(118,417)	$	(100,207)
Foreign currency translation loss	(165)		(14)
Unrealized loss on available-for-sale investments	(331)		(1,164)
Comprehensive loss	$	(118,913)	$	(101,385)

See accompanying notes to unaudited condensed consolidated financial statements.

INDEX

ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount

Balance at December 31, 2020	58,611,210	$	6	$	2,587,494	$	700	$	(1,507,731)	$	1,080,469
Shares issued from stock plans, net of payroll taxes paid	766,792	—		8,982		—		—		8,982
Share-based compensation expense	—	—		17,016		—		—		17,016
Issuance of common stock under the ATM facility, net	1,241,142	—		98,438		—		—		98,438
Unrealized loss on available-for-sale investments	—	—		—		(331)		—		(331)
Translation loss	—	—		—		(165)		—		(165)
Net loss	—	—		—		—		(118,417)		(118,417)
Balance at March 31, 2021	60,619,144	$	6	$	2,711,930	$	204	$	(1,626,148)	$	1,085,992


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount

Balance at December 31, 2019	50,170,953	$	5	$	2,173,154	$	1,303	$	(1,102,997)	$	1,071,465
Shares issued from stock plans, net of payroll taxes paid	125,761	—		3,191		—		—		3,191
Share-based compensation expense	—	—		15,214		—		—		15,214
Unrealized loss on available-for-sale investments	—	—		—		(1,164)		—		(1,164)
Translation loss	—	—		—		(14)		—		(14)
Net loss	—	—		—		—		(100,207)		(100,207)
Balance at March 31, 2020	50,296,714	$	5	$	2,191,559	$	125	$	(1,203,204)	$	988,485

See accompanying notes to unaudited condensed consolidated financial statements.

INDEX

ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Operating Activities:
Net loss	$	(118,417)	$	(100,207)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	974		950
Share-based compensation	17,016		15,214
Amortization of net premiums (discounts) on available-for-sale investments	1,113		(264)
Gain from Longboard equity method investment	(13,869)		—
Other operating activities, net	1,659		22
Changes in operating assets and liabilities:
Accounts receivable	(379)		1,498
Prepaid expenses and other assets	3,194		(9,818)
Accounts payable, accrued liabilities and other current liabilities	(11,280)		(1,440)
Net cash used in operating activities	(119,989)		(94,045)
Investing Activities:
Purchases of available-for-sale investments	(161,178)		(182,794)
Proceeds from sale and maturity of available-for-sale investments	388,385		222,235
Purchases of property and equipment	(97)		(532)
Net cash provided by investing activities	227,110		38,909
Financing Activities:
Principal payments on lease financing obligations	(1,027)		(887)
Proceeds from issuance of common stock under ATM facility, net	98,438		—
Proceeds from issuance of common stock from stock plans, net	8,982		3,191
Net cash provided by financing activities	106,393		2,304
Effect of exchange rate changes on cash	(80)		(14)
Net change in cash, cash equivalents and restricted cash	213,434		(52,846)
Cash, cash equivalents and restricted cash at beginning of period	219,770		243,500
Cash, cash equivalents and restricted cash at end of period	$	433,204	$	190,654

Supplemental Disclosure:
Cash paid for interest	$	1,057	$	1,147

See accompanying notes to unaudited condensed consolidated financial statements.

INDEX

ARENA PHARMACEUTICALS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Arena Pharmaceuticals, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission, or SEC, from which the Company derived its condensed consolidated balance sheet as of December 31, 2020. The accompanying condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year, particularly in light of the pandemic of coronavirus disease 2019, or COVID-19, and its impact on domestic and global economies.

Liquidity.

As of March 31, 2021, the Company had cash, cash equivalents and available-for-sale investments of approximately $1.1 billion. The Company believes its cash, cash equivalents and available-for-sale investments will be sufficient to fund its operations for at least the next 12 months.

The Company will require substantial cash to achieve its objectives of discovering, developing and commercializing drugs, as this process typically takes many years and potentially hundreds of millions of dollars for an individual drug. The Company may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. The Company will need to obtain significant funds under its existing collaborations, under new collaborations, licensing or other commercial agreements for one or more of its drug candidates, programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, issuance of debt or other transactions. The Company's ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and potential disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with its clinical research organizations and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm the Company's business, results of operations and future prospects. To the extent the Company obtains additional funding through product collaborations, these arrangements would generally require it to relinquish rights to some of its product candidates or products, and the Company may not be able to enter into such agreements on acceptable terms, if at all.

Use of Estimates.

The preparation of financial statements in accordance with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. The amounts reported could differ under different estimates and assumptions.

Reclassifications.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Contingencies.

The Company discloses information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates.

INDEX

Recent Accounting Pronouncements.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

The following table provides a brief description of recently issued or adopted accounting standards:

Standard

Description

Effective Date

Effect on the Financial
Statements or Other Significant Matters

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

ASU 2019-12 modifies ASC 740, Income Taxes to simplify the accounting for income taxes in various areas.

January 1, 2021

The Company adopted ASU 2019-12 on January 1, 2021 which did not have a material impact on its consolidated financial statements.

ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)

ASU 2020-01 clarifies the interactions between Topic 321 (equity securities), Topic 323 (equity method and joint ventures) and Topic 815 (derivatives and hedge accounting). The ASU addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments.

January 1, 2021

The Company adopted ASU 2020-01 on January 1, 2021 which did not have a material impact on its consolidated financial statements.

ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Cost

ASU 2020-08 clarifies an entity should, for each reporting period, reevaluate the amortization period for a premium paid on an individual callable debt security that has multiple call dates.

January 1, 2021

The Company adopted ASU 2020-08 on January 1, 2021 which did not have a material impact on its consolidated financial statements.

Concentrations of Credit Risk.

The Company's financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and available-for-sale investments. The Company limits its exposure to credit loss by holding cash primarily in US dollars or placing its cash and investments in US government, agency or government-sponsored enterprise obligations and in corporate debt instruments that are rated investment grade, in accordance with an investment policy approved by its Board of Directors.

2. Cash, cash equivalents and restricted cash

The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows, in thousands:


	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	432,978	$	219,544
Restricted cash included in other non-current assets	226		226
Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows	$	433,204	$	219,770

The restricted cash relates to the Company’s property leases. The restriction will lapse when the related leases expire.

INDEX

3. Fair Value Disclosures

The Company’s investments include cash equivalents and available-for-sale investment securities consisting of money market funds, U.S. treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity.

The Company measures its financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company uses the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial assets and liabilities:


Level 1	-	Observable inputs such as unadjusted quoted prices in active markets for identical instruments.

Level 2	-	Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly.

Level 3	-	Significant unobservable inputs based on our assumptions.

The following tables present the Company's valuation hierarchy for its financial assets that are measured at fair value on a recurring basis, in thousands:


	Fair Value Measurements as of March 31, 2021
	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	338,669	$	—	$	—	$	338,669
US government and government agency notes(2)	418,205		—		—		418,205
Corporate debt securities(2)	—		128,134		—		128,134
Commercial paper(2)	—		109,507		—		109,507
	756,874		237,641		—		994,515


	Fair Value Measurements as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	64,361	$	—	$	—	$	64,361
US government and government agency notes(2)	621,400		—		—		621,400
Corporate debt securities(3)	—		162,906		—		162,906
Commercial paper(3)	—		131,525		—		131,525
	$	685,761	$	294,431	$	—	$	980,192

______________________

(1)Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

(2)Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.

(3)Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.

The Company obtains the fair value of its Level 2 financial instruments from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices and obtaining market values from other pricing sources. The Company did not adjust or override any fair value measurements provided by these pricing services as of March 31, 2021 and December 31, 2020, respectively. The Company has not transferred any investment securities between the classification levels.

4. Investments, Available-for-Sale

Investments, available-for-sale, consisted of the following, in thousands:

INDEX


March 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
US government and government agency notes	$	418,166	$	54	$	(15)	$	418,205
Corporate debt securities	128,038		145		(49)		128,134
Commercial paper	109,515		9		(17)

SEC Form 10-Q filed by Arena Pharmaceuticals, Inc.