More Than 40 Winks From Arena

Ever have those sleepless nights of tossing and turning, and then have difficulty rolling out of the rack in the morning? Well, Arena Pharmaceuticals (Nasdaq: ARNA  ) has you in mind. On Tuesday, the company announced positive preliminary results from its phase 2 clinical trial for APD125, which aims to treat people suffering from chronic insomnia.

With APD125, the study showed, there was a statistically significant improvement in a patient's ability to remain asleep during the night after falling asleep. Patients in the study reported no adverse reactions, and APD125 did not impair cognitive function the morning after.

This is a noteworthy accomplishment for Arena for two reasons. First, the market for sleep drugs is huge. Last year, Sanofi-Aventis (NYSE: SNY  ) sold about $1.9 billion worth of Ambien, and Sepracor (Nasdaq: SEPR  ) rang up $567 million in sales of Lunesta. The market is also the target of generics as well as biopharmaceutical start-ups such as Vanda Pharmaceuticals (Nasdaq: VNDA  ) , with its VEC-162 drug.

Another reason is because this step demonstrates Arena's progress in trying to bring new products to market. The company is in the red, with most of its revenue coming from collaboration agreements with companies including Merck (NYSE: MRK  ) and Johnson & Johnson (NYSE: JNJ  ) . Arena is planning to begin phase 3 clinical trials for APD125 in 2008 and is already in the phase 3 stage with lorcaserin, a treatment for obesity.

In May, Arena entered a sale-leaseback transaction with BioMed Realty Trust (NYSE: BMR  ) for three of its properties to strengthen its cash position. The company expects to end the year with about $265 million in cash. Arena lost about $72 million in the first half of this year, so this development in APD125 should allow management to sleep a little bit easier for now.

For related Foolishness:

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