Since the year began, the SPDR S&P Biotech ETF has soared 22%. By comparison, shareholders in Arena Pharmaceuticals (NASDAQ:ARNA) have endured a multi-month downtrend, with their stock down 31% year-to-date and underperforming the biotech index by a full 53%.

What's the culprit behind Arena Pharmaceuticals' dismal performance? That's what we'll answer today, as well as look at some of the opportunities and headwinds that await which could move the stock higher or lower.

Why Arena has tumbled in 2014
Though they don't all figure into the equation equally, I would suggest there are three reasons why investors have put cement blocks on Arena's stock this year.

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Source: Arena Pharmaceuticals.

First, and likely most important, the sales of highly touted weight control management drug Belviq underperformed.

Originally, Belviq was expected to compete head-to-head with VIVUS Inc.'s (NASDAQ:VVUS) weight-loss drug Qsymia from the get-go, since they were approved just weeks apart. However, Belviq took close to a year to be scheduled by the Drug Enforcement Agency. By the time Belviq did make it to pharmacy shelves, VIVUS's drug had already been on the market for quite a while.

On the plus side for Arena, VIVUS's Qsymia has largely flopped. Qsymia has struggled to garner new insurance coverage, and VIVUS has had to grapple with selling the product on its own, since it has no marketing partner. The bad news is that Arena hasn't fared much better, even with the help of Eisai (NASDAQOTH:ESALY), an experienced licensing partner.

Despite aggressive increases in Eisai's sales force meant to increase awareness of Belviq among physicians and consumers, results have been underwhelming at best. For a drug once touted as a potential blockbuster, Belviq prescriptions totaled just 110,000 in the second quarter, a 43% increase from the sequential third quarter. In revenue terms this equated to just $9.9 million, and missed Wall Street's forecast. The revenue is even more disappointing when investors consider that Arena is receiving just 31.5% of Belviq total sales per its licensing agreement with Eisai.

Secondly, competition in the weight control management space is only expected to increase. On top of directly competing against VIVUS, the Food and Drug Administration is expected to make a decision on Orexigen Therapeutics' (NASDAQ:OREX) Contrave very soon, potentially adding another drug to an indication which frankly hasn't sold well thus far. Furthermore, an interim analysis of Orexigen's roughly 8,900-patient cardiovascular outcomes study, known as the Light Study, showed that Contrave was safe. This study may wind up putting Contrave a step ahead of its peers if it's ultimately approved in the U.S. 

Finally, I'd suggest that, to a lesser degree, Arena's cash burn is causing concern. Despite Arena's licensing deal with Eisai, which resulted in a number of one-time payments, it thankfully has $219 million in cash to work with. However, Arena is also projected to lose $50 million-$60 million annually over the next two years. If Arena can't quickly right its ship it could burn through its remaining cash on hand.

Why there's still hope
Despite the recent disappointment, there's also hope that Arena can turn things around.

For one, don't discount the fact that Arena has partnered with Eisai to handle the marketing of Belviq. VIVUS chose to go it alone with Qsymia and its lack of marketing expertise has shown in its results. Belviq, on the other hand, has nearly caught Qsymia in total prescriptions written in far fewer quarters, which I suspect is due to the experienced marketing team Eisai brings to the table.

Also, investors should take into consideration the clinical results that got both Belviq and Qsymia approved in the first place. Though Qsymia resulted in a greater percentage of patients losing more than 5% of their weight during treatment, Belviq was considered the safer of the two treatments. Physicians and consumers are often going to opt for a safer treatment, thus giving Belviq a possible advantage over Qsymia.

Lastly, keep in mind that the pool of patients who could benefit from weight control management drugs is huge. According to the Centers for Disease Control and Prevention, 34.9% of all U.S. adults, or 78.6 million people, are considered obese. As long as Arena and Eisai work toward improving insurance coverage of Belviq it's quite possible that sales will eventually head higher.

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Source: Centers for Disease Control and Prevention.

Where Arena heads next
Probably the most difficult question of all to answer is where Arena Pharmaceuticals' stock will head next.

On one hand it's hard to deny the incredible opportunity afforded to weight control management drugs given the aforementioned CDC obesity statistic. On the other hand, investors have given sales of anti-obesity drugs plenty of time to improve, and in roughly two years we've seen minimal progress at best. In spite of Arena's hefty drop in share price this year I'd suggest your best bet would be to stick to the sidelines and wait for considerably better revenue results before diving back in, as the company's $219 million isn't going to last too long if it continues to lose $50 million-plus annually.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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