By Stephen D. Simpson, CFA
December 14, 2005
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Pardon the all-too-obvious pun, but shareholders in small biotech stock Arena Pharmaceuticals (Nasdaq: ARNA) saw a nice, fat rise in their shares Wednesday as investors bid up the shares on positive phase 2 data of a compound targeted at obesity.
The stock was up as much as 25% today as the company reported results from a three-month phase 2 study in 469 obese patients. At the highest dose, the drug produced an average weight loss of 7.9 pounds, or about 3.6% of a dieter's starting body weight. With the placebo group showing a 0.7 pound loss, the results for the drug (currently called APD356) were clearly significant. Positive results were also seen at lower dosages and seemed roughly proportional to the dosage administered.
Although this compound is somewhat similar to the Fen-Phen and dexfenfluramine drugs that caused such troubles for Wyeth (NYSE: WYE), the differences are significant. Specifically, the drug targets a different serotonin receptor than those drugs did. And it's one that I don't believe has been identified with the pulmonary hypertension and heart valve defects that afflicted some users of those problematic drugs. At this point, the most common side effects from Arena's drug appear to be headache and nausea, and there were no severe side effects attributed to the use of the drug.
I can certainly understand why investors would be excited about this news. After all, a safe and effective obesity drug could easily be worth $1 billion or more in annual sales. Furthermore, this drug is currently unpartnered, so it's not unreasonable to think that Arena could get very attractive terms from a larger pharmaceutical company, such as Pfizer (NYSE: PFE) or Merck (NYSE: MRK).
Nevertheless, it's still early in the game. All too many drugs have looked wonderful in phase 2 studies, only to go on to fail in larger phase 3 trials. What's more, even if Arena's drug should succeed in phase 3, the length of the study and subsequent submission work suggest that approval would be unlikely before 2009.
And then there's also the matter of competition over obesity drugs. Sanofi-Aventis (NYSE: SNY) has the much-talked-about Acomplia (rimonabant) awaiting FDA approval, and other companies, such as AmylinPharmaceuticals (Nasdaq: AMLN) and Alizyme, are in trials, too.
In the specific case of Acomplia, it's tough to do a straight-up comparison with Arena's drug. Not only do we lack data from trials of comparable length (though it has shown an average weight loss of about 15 to 19 pounds in one- and two-year studies), but Sanofi's drug also has efficacy with regard to cholesterol, metabolic syndrome, and smoking cessation.
Even still, there is plenty of room for more than one anti-obesity drug. After all, we've seen multiple blockbuster drugs for treatment of conditions like depression and hypertension. Arena shareholders should be prepared for the ups and downs that go with early-stage biotechs, but I don't think there's any question that APD356 is a very interesting and highly promising drug at this point.
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Fool contributor Stephen Simpson owns shares of Sanofi-Aventis and Amylin Pharmaceuticals, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a strict disclosure policy.
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