Arena shares fall on failed study, cash concerns

Shares of Arena Pharmaceuticals Inc. fell Wednesday after the biotechnology company said it will likely cut development of an insomnia drug candidate after it failed a midstage study.

The stock slipped 15 cents, or 4.1 percent, to $3.47 in morning trading. Shares have traded between $2.70 and $9.25 over the past 52 weeks.

The San Diego-based company was developing ADP125 in a Phase 2b clinical trial but said it failed to meet both the primary and secondary goals. The company will end development of the drug candidate, with the company's focus remaining on the obesity drug candidate lorcaserin.

The company expects results from a late-stage study near the end of March and hopes to ask the Food and Drug Administration for approval by the end of 2009. Analysts, meanwhile, remained focused on lorcaserin as Arena's key drug candidate, while voicing concern over the company's cash situation.

As of Sept. 30, Arena had $167.1 million in cash and cash equivalents, according to a Securities and Exchange Commission filing.

"Although APD125 is not the company's primary driver, Arena was developing the product in the hopes of finding a partner to get much needed cash for development of lorcaserin in obesity," BMO Capital Markets analyst Jason Zhang said in a note to investors.

He put his "Outperform" rating under evaluation and said the study results were surprising, given previous positive data. Now, he expects the company to run out of cash by the end of 2009.

Leerink Swann & Co. analyst Jonas Alsenas also voiced concern over the company's dwindling cash. He reaffirmed a "Outperform" rating, though, and expects late-stage study results for lorcaserin to be positive.

Still, the partnership process for the drug candidate could become complicated if potential competitors such as Orexigen Therapeutics Inc. and Vivus also have positive results on their developing obesity drugs.

"Discussions could occur among all potential licensors and licensees that could delay final decisions and licensing agreements," he said in a note to investors.

Meanwhile, Lazard Capital Markets analyst Matthew Osborne reaffirmed a "Hold" rating, also citing concerns about competition.

La Jolla, Calif.-based Orexigen's obesity drug Contrave is in late-stage development, along with Mountain View, Calif.-based Vivus' Qnexa.