Friday, October 1, 2010

Safety Issues Surrounding Obesity Drug Could Signal End of Road for Arena Pharmaceuticals as Company Awaits FDA Decision

Safety Issues Surrounding Obesity Drug Could Signal End of Road for Arena Pharmaceuticals as Company Awaits FDA Decision

It appears as if the writing is on the wall for the clinical-stage biopharmaceutical company Arena Pharmaceuticals Inc. (NASDAQ: ARNA) as new safety issues surrounding their experimental obesity drug lorcaserin has most analysts doubting FDA approval, a potentially devastating scenario that has already led to a dramatic hit to the share price.
That doubt seems to center around a report that suggests lorcaserin increases the potential risk for a number of cancers. In that report the FDA noted that different cancers developed in rats who took the drug for up to two years and while it has been pointed out that the administered dosage to get those effects were much higher than would be used in humans that has done little to ease the concerns.
Just two months ago the sky was the limit for ARNA as they were the beneficiary of an FDA rejection when the agency nixed Vivus Inc.’s application for the weight loss drug Qnexa. That news sent share prices for ARNA from the $3.88-$4.27 range to as high as $7.46 as recently as Sept. 9 but following Tuesday’s news the price plummeted on massive volume, closing at $4.13.
While the FDA has not formally rejected the application for lorcaserin, with news due later this month, the concerns over the rejected drug Qnexa were not as serious, indicating ARNA’s rejection is coming. Lorcaserin was already facing a tough road ahead due to questions of its effectiveness, its potential to cause heart valve problems, and cognitive and psychiatric side effects; now that road appears even tougher.
Arena Pharmaceuticals has done its best to downplay the cancer concerns but they will have to convince the FDA of lorcaserin’s safety, something that will almost certainly require longer and larger clinical trials. The prospect of new trials could crush ARNA as the small San Diego-based company has sunk most of its resources into lorcaserin and with no approved drugs on the market the company could lose the backing of investors.
With the deck stacked against ARNA many of those investors have already jumped ship, this despite an FDA review finding that one of the lorcaserin doses tested by Arena met the agency’s criteria for effectiveness “by a slim margin.” Unfortunately for ARNA even the FDA panel’s acknowledgement of effectiveness carried a negative tone as they urged the clinical review division to “evaluate whether or not the weight loss associated with lorcaserin is clinically significant.”
Whether that “slim margin” is great enough to offset the concerns over the potential risks is yet to be seen but the FDA is holding the answer. In their summary delivered to the FDA panel Arena said lorcaserin’s benefits “substantially outweigh the potential risks.”
It has been more than a decade since a new diet drug hit the market in the U.S. and Arena Pharmaceuticals is in the middle of a three-way race with Orexigen Therapeutics and Vivus to get a product on the shelves and in front of the overweight population. Analysts have already predicted lorcaserin approval could generate annual sales of $822 million, a figure that has kept some investors holding on to their shares in ARNA.
As the stock continues to fall ahead of the FDA’s decision the risk-takers are finding an opportunity to bet long on the stock or perhaps inherit a pot of gold if approval is granted. While investors are banking on lorcaserin Arena has been developing three other drugs for the treatment of blood clots, sleep disorders and pulmonary arterial hypertension, all of which are still in the early development stage.  If the FDA rejects Arena’s application for lorcaserin these may be the drugs that shareholders hope gain approval some time down the road.
ARNA has a 50 day moving average of 6.20and a 200 day moving average of 3.99 as can be seen in the chart below:
Technical Chart for ARNA
Technical Chart for ARNA

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