Arena shares fall as drug misses an FDA benchmark

Shares of Arena Pharmaceuticals Inc. plunged Monday as a late-stage study showed its obesity drug fell shy of a proposed Food and Drug Administration standard.

The stock fell $1.37, or 30 percent, to $3.13 in midday trading. Shares have traded between $2.70 and $7.42 over the past 52 weeks.

Early Monday, the San Diego-based company said lorcaserin met the study's weight-reducing goals in a late-stage study. While the results partly met FDA benchmarks, they still fell shy of a proposed FDA guideline, the key measurement for much of Wall Street as competition in obesity drugs grows.

The missed FDA benchmark calls for at least a 5 percentage point difference in weight loss between the test drug and placebo. While the average weight loss of lorcaserin patients was 5.8 percent, or 12.7 pounds, placebo patients lost 2.2 percent, or 4.7 pounds. That's a percentage-point difference of only 3.6.

The company still met all study goals and another key FDA benchmark for weight loss. Potential competitor La Jolla, Calif.-based Orexigen Therapeutics Inc. experienced a similar plunge in its stock price in January after the developing drug Contrave fell shy of the same FDA benchmark, despite meeting other study criteria. The difference in a late-stage study of the drug amounted to 4.2 percentage points.

In December, though, Mountain View, Calif.-based Vivus Inc. reported a difference of 7.5 percentage points for its developing obesity drug Qnexa in a late-stage study.

Arena, meanwhile, still has another pivotal late-stage study for lorcaserin, with results expected in September. All three companies are expected to continue releasing late-stage study data in 2009.

Arena Chairman and Chief Executive Jack Lief brushed aside concerns of the one FDA benchmark, saying the drug's positive study data and safety results will make it a key product when approved.

"Physicians will use the drug because they feel it is well tolerated and patients will stay on it long enough to lose a meaningful amount of weight," he said.

The biggest issue for physicians, he added, will be finding a drug that benefits most patients in a reasonable period of time, with the least side effects. Lorcaserin, he said, is poised to meet those criteria on the market.

Analysts, overall, agree that the drug is poised for FDA approval. They are more concerned with the effect the benchmark results might have on partnership discussions.

Needham & Co. analyst Alan Carr downgraded shares of Arena to "Hold" from "Buy," citing the results' effect on partnership outreach.

"The overall concern I have is their ability to partner this drug with big pharma," he said.

He still expects an FDA submission by the fourth quarter and a potential launch in 2010.

Meanwhile, Leerink Swann analyst Jonas Alsenas said the results were consistent with expectations and reaffirmed an "Outperform" rating on the stock.

"The sell-off in stock is overdone, given the safety and efficacy results, though management has not helped matters by raising expectations to high levels," he said in a note to investors.

He said the results should be sufficient for eventual FDA approval, especially with positive safety data. Still, the company is in a "precarious" cash position, he added, saying the company could run out of cash in the fourth quarter unless it receives financing.

Lief said the company is weighing options including partnerships and real estate sales in order to raise financing. In its annual financial report to the Securities and Exchange Commission, filed March 16, the company said it could face a variety of problems if it doesn't get sufficient funding in 2009.