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Why Arena Pharmaceuticals Stock Is Getting Hammered Today

By George Budwell – Apr 18, 2017 at 11:05AM

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Arena raises capital to fund its clinical pipeline.

What happened

Shares of Arena Pharmaceuticals (ARNA), a small cap biotech, are down by more than 16% right Tuesday morning as the result of a $69 million public offering that was announced prior to the opening bell. According to the press release, the company also granted the underwriters a 30‑day option to purchase another 9 million shares of common stock.

A prescription bottle on top of some medical documents.

Image source: Getty Images.

So what

While it's never a great idea to tap the public markets for funds when your share price is dangerously close to the Nasdaq minimum bid of $1 per share, Arena didn't have much choice in this case. The company, after all, is facing a likely spike in its quarterly burn rate after deciding to pivot toward its clinical pipeline of early- to mid-stage candidates and move on from its first commercial product, Belviq. Compounding matters, Arena only had about $90 million in cash remaining, according to its last stated cash position.

Now what

Arena's strategy is to try to advance its experimental pulmonary arterial hypertension (PAH) drug, ralinepag, into a late-stage trial in an expedited manner. To do so, the drug needs to hit the mark in its ongoing mid-stage trial that's scheduled to produce a top-line data readout by mid-year. That said, ralinepag's value proposition ultimately revolves around it becoming a so-called "best-in-class" medicine within a rapidly maturing PAH market.

As that's a particularly tall order, especially for a company with rather limited resources like Arena, and investors may want to be extra cautious with this highly volatile biotech stock. That's not to say ralinepag -- or any of the biotech's other clinical candidates -- won't eventually strike gold in their clinical programs, but Arena doesn't have much room left for error at this point.  

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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