Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Arena Pharmaceuticals Lost 17% of Its Value in January

By George Budwell - Feb 9, 2016 at 10:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Arena's pivot away from the lethargic anti-obesity drug market didn't help it escape the biotech bloodbath last month.

ARNA Chart

ARNA data by YCharts

What: According to data provided by S&P Global Market Intelligence, shares of Arena Pharmaceuticals (ARNA) dropped by more than 17% in January. Given the lack of negative catalysts during the month, its poor showing appears to simply reflect the widespread sell-off in the biotechnology industry, which hit small-cap companies particularly hard. 

So what: During its presentation at the J.P. Morgan Healthcare conference in January, Arena's management said that the company plans to pivot more toward its rich pipeline of drugs targeting G protein-coupled receptors, and away from its FDA-approved fat-fighting pill Belviq, in order to create shareholder value going forward. The commercial development of the obesity drug market has been painfully slow since Belviq's approval, and the environment hasn't exactly improved for it with the approval of competing pill Contrave from Orexigen Therapeutics (NASDAQ: OREX)

Now what: Arena recently announced a licensing and collaboration agreement with privately held German giant Boehringer Ingelheim to develop drug candidates targeting orphan central nervous system receptors. Under the agreement, Arena is eligible for milestone payments of up to $262 million. That's welcome news, in that those cash influxes would help the biotech advance its wholly owned clinical candidates without requiring it to wipe out shareholder value via multiple secondary offerings.

Having said that, I won't be picking up shares in this small-cap drugmaker until its pipeline produces another late-stage product candidate. The slower-than-expected commercial uptake of both Arena and Orexigen's anti-obesity medications means that these companies are essentially back to functioning like risky, clinical-stage entities. Unfortunately, the market has basically turned its back on developmental biotechs this year, and unless the mood changes, Arena's shares could fall even further. 

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Arena Pharmaceuticals, Inc. Stock Quote
Arena Pharmaceuticals, Inc.
ARNA

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.