The report warns that the problem is only getting worse.  From 2007 to 2009, 2.4 million more adults became overweight.  And because obesity is tied to a number of illnesses, including heart disease, diabetes and certain kinds of cancer, the medical costs of a person suffering from obesity are $1,429 more than a person of average weight.

Although the numbers of adults who are obese vary from state to state, the lowest percentage of obesity does not fall below 18% in any single state.  The average is more than 25%.

The obesity problem has reached an inflection point and it may now be the most serious health issue facing the nation.  Reflecting on this crisis, the First Lady launched the “Let’s Move” project, encouraging exercise to fight childhood obesity.  Similarly, state and federal government programs have been sponsored to encourage a healthier lifestyle.

24/7 Wall St. looked at the percentage of obesity in each state and compared it to the state’s population, as reported by the 2009 census.  We then took the total population suffering from obesity and multiplied that number by $1,429. The following is the rate of obesity by state, highest to lowest, and the possible cost to treat obesity-related illnesses by state.

Colorado

*Percentage Obese: 18.6%

*Population: 5,024,748

*Number Of Obese: 934,603

*Cost: $1,335,547,869

*Percentage Obese: 19.7%

*Population: 599,657

*Number Of Obese: 118,132

*Cost: $1,035,692,511

*Percentage Obese: 20.6%

*Population: 3,518,288

*Number Of Obese: 724,767

*Cost: $1,035,692,511

*Percentage Obese: 21.4%

*Population: 6,593,587

*Number Of Obese: 1,411,027

*Cost: $2,016,358,466

*Percentage Obese: 22.3%

*Population: 1,295,178

*Number Of Obese: 288,824

*Cost: $412,730,487

*Percentage Obese: 22.8%

*Population: 621,760

*Number Of Obese: 141,767

*Cost: $202,576,869

*Percentage Obese: 23.0%

*Population: 3,825,657

*Number Of Obese: 879,901

*Cost: $1,257,378,686

*Percentage Obese: 23.2%

*Population: 974,989

*Number Of Obese: 226,197

*Cost: $323,236,153

*Percentage Obese: 23.3%

*Population: 8,707,739

*Number Of Obese: 2,028,903

*Cost: $2,899,302,654

*Percentage Obese: 23.5%

*Population: 2,784,572

*Number Of Obese: 654,274

*Cost: $935,101,046

The company has two drugs here for this, but the company bought its entire franchise back and this collaboration will include Type 2 diabetes.  ISIS will grant to Ortho-McNeil worldwide development and commercialization rights to two of its diabetes development candidates, ISIS 325568 and ISIS 377131, which inhibit the production of glucagon receptor and glucocorticoid receptor.

Ortho-McNeil will provide funding to ISIS to support the joint discovery of novel drugs to treat diabetes and obesity. J&J will continue development of these drugs after the initial collaboration phase. ISIS will receive a $45 million upfront licensing fee, and research and development funding over the period of the collaboration. In addition to the licensing fee, ISIS could receive more than $230 million in milestone payments upon successful development and regulatory approvals of ISIS 325568 and ISIS 377131, plus royalties on sales. ISIS may also receive milestones and royalties on the successful development and regulatory approvals of additional drugs discovered as part of the collaboration.

Before this morning’s news, ISIS had a $1.06 Billion market cap and shares closed yesterday at $12.76.  Shares are up 8% at $13.80 after the CEO came on CNBC, and its 52-week trading range for its stock was $7.49 to $14.00.  On the June 30 balance sheet, the company had over $200 million in cash and short-term investments and its total liabilities were listed as $215.97 million.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

As far as when that safety review is in September is not yet known and has not been formally set.  I contacted David Walsey, Director of Corporate Communications at Arena, by phone this morning and he confirmed, "As of now no formal date has been set, but past guidance in the conference call is an indication for the month of September."

We wanted to see what stock options trading signals as far as price expectations and current trading activity ahead of the event.  We are including September stock options because the date is currently unspecified, but the bulk of the trading activity so far is for the October month option expirations.  For starters, Arena’s stock closed at $12.50 yesterday and have traded over $13.00 mid-morning.

The SEPT-2007 options are not that active with that month having a September 21, 2007 expiration date and some traders might not believe that the safety review will hit before then.  The September $12.50 Calls and $15.00 Calls have a small open interest with 1,285 contracts and 1,847 contracts listed in the open interest respectively.  But based upon current prices, it appears that options traders today peg only a $1.20 move based upon the safety review.  Traders should really rely the October expiration month for a clearer picture.

A review of the the October calls that expire on on October 19 is a bit more active and much more forthcoming: the $12.50 calls and the $15.00 calls each carry 5,788 and 6,641 contracts respectively in the open interest.  Combined that only represents 1.23 million shares on a fully leveraged basis, and the company trades 1 million shares or more on an average day.  When we look at the October contracts the price movement expectations we get a range of a range of up to $2.75 to $3.45 depending on which contract you use.  The put options for the $12.50 and $10.00 PUTS also have a combined open interest of 11,700 contracts and those price indications are somewhat in the same range.

We won’t make calculations out to January, 2008 contracts, but the open interest is even larger for the closest call and higher options there.  Keep in mind that these ‘option price indications’ can fluctuate wildly, and even though there is much time value these can go up and down based solely on options traders making price and risk adjustments.  Those figures are also based on a snapshot of mid-morning prices on a static basis rather than on a dynamic pricing model taking all historic trades and all strike prices into consideration.  With many investors being on vacation and half of Wall Street out all or most of next week, it’s probably safe to go ahead and make a forecast that this options trading activity and the open interest will increase considerably going into September.  With an $800 million market cap and some calling for this to be a blockbuster drug, Arena will probably garner a lot more outside press coverage ahead of and going into this event as well.

Here is the company’s description of the drug:  Lorcaserin, Arena’s orally administered, internally discovered drug candidate for the treatment of obesity, is in an ongoing Phase 3 program. The compound stimulates the 5-HT2C serotonin receptor, located in the hypothalamus, an area of the brain which helps regulate satiety and influences metabolic rate. Results from a Phase 2 study demonstrated that treatment with lorcaserin produced highly statistically significant, progressive and dose- dependent weight loss over a 12-week period. In the study, which excluded diet and exercise, patients taking a daily 20 mg dose of lorcaserin realized a mean weight loss of 7.9 pounds, while patients on placebo lost less than one pound. Lorcaserin was generally well tolerated at all doses and had no apparent effects on heart valves or pulmonary artery pressure.

Jon C. Ogg
August 24, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.