The year didn't start out too well for Arena Pharmaceuticals (Nasdaq: ARNA) with the Food and Drug Administration adding to its to-do list of required actions before the company could resubmit its marketing application for obesity drug lorcaserin.

But the development-stage biotech pressed on and looks like it'll end the year ahead of where it started. Investors seem impressed by Arena's ability to work through the requested items without major incidence.

Arena Pharmaceuticals Stock Chart

Arena Pharmaceuticals Stock Chart by YCharts.

Arena's tenacity, at least of those still working at the company, should be applauded, but don't be fooled into thinking that an approval is a foregone conclusion if Arena checks all the boxes off its to-do list.

The FDA has three major issues with lorcaserin. None required in-depth clinical trials, but that doesn't mean they're straightforward.

Lorcaserin caused mammary tumors in female rats in a preclinical study. The FDA questioned both the classification of the tumors -- which seems to be resolved -- as well as the mechanism that causes the tumors and whether it's relevant to humans. Studies to solve the latter issue are expected to be finished shortly.

The drug also caused brain cancer in male rats. Arena argues that rats concentrate the drug in their cerebrospinal fluid, which gets into the brain and causes brain cancer. Lorcaserin isn't seen at high levels in human's cerebrospinal fluid, but since the levels in the brain can't be measured, the company can't rule out the possibility that there are high cancer-causing levels of lorcaserin in human brains.

The third area has to do with lorcaserin's potential to cause heart valve problems. The drug is related to fenfluramine -- the fen part of Wyeth's fen-phen. Initial results suggest lorcaserin won't cause heart valve problems because it's different enough from fenfluramine and other drugs that cause the problem. But I don't think this issue should be underestimated. Abbott Labs' (NYSE: ABT) obesity drug, Merida, got pulled off the market for heart-related issues, and the FDA is making Orexigen (Nasdaq: OREX) run a trial with nearly 10,000 patients to prove that its obesity drug, Contrave, doesn't cause heart problems. VIVUS (Nasdaq: VVUS) and Arena think they're off the hook for this requirement, but it's impossible to tell with the FDA.

And that's perhaps the biggest risk with Arena. It could resubmit its application only to find the FDA wants more information about these issues or something entirely new, as Amylin Pharmaceuticals (Nasdaq: AMLN) experienced with Bydureon.

With a market cap of about $275 million, Arena is a high-risk, high-reward play. On the high side, a quadruple seems like a very conservative estimate if lorcaserin is approved, but there's a lot of downside risk, too. The company is sitting on $78 million in cash, which will likely be even lower by the time an FDA decision is made. And the cash level might not even be the floor. Beleaguered biotechs have been known to trade for less than their cash. Either way, as the binary events roll in, expect Arena to have a volatile 2012.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.