Arena Pharmaceuticals Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biopharma company Arena Pharmaceuticals (Nasdaq: ARNA  ) dipped as much as 13% in intraday trading on massive volume.

So what: Early Wednesday, Arena announced its plans to move forward with its diet drug lorcaserin. Following the Food and Drug Administration's rejection of the drug earlier this year, the company said it expects to resubmit its application for approval by the end of 2011. Management seemed optimistic that its end-of-review meeting with the FDA gave it clear direction for moving forward. Though today's action suggests investor disappointment, the stock is actually still up almost 10% from its close at the end of last week thanks to a furious run-up on Monday.

Now what: Arena has been battling with Vivus (Nasdaq: VVUS  ) and Orexigen (Nasdaq: OREX  ) to be first to deliver a new prescription weight-loss drug to the market. Both Arena and Vivus have run into roadblocks in the form of FDA rejections, while Orexigen looks to have a leg up after getting a positive recommendation from a panel of FDA experts. The FDA is expected to deliver a decision on Orexigen's drug by the end of January. In the meantime, time is money for Arena -- both in terms of the cost of running additional studies and the fact that potential revenue from lorcaserin is worth less today the further out it's pushed -- but for investors that enjoy the chase of biopharma home runs, the possibility of huge revenue from an approved lorcaserin could still be a draw.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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