Wednesday, July 28, 2010
Step into the Arena, Fat Drugs at the Plate
Arena Pharmaceuticals (ARNA) is about to take its place at the plate. With the Endocrinological and Metabolism Panel pitching and the FDA catching, the game will be played in September. ARNA is following Vivus (VVUS) in the lineup. This company and its combination drug, Qnexa, were defeated by the pitcher (9 no and 6 yes), but it is waiting now to see whether the FDA knocks them out of the game completely. Generally the FDA follows its Panel's recommendations, but VVUS is holding out hope. See http://ir.vivus.com/releasedetail.cfm?ReleaseID=488784
Arena's lorcaserin is a new drug product, a selective serotonin 2C receptor agonist.
It works in the hypothalmus and it alters feeding behavior and hunger. The drug has proven to be effective in promoting weight loss. http://www.arenapharm.com/Lorcaserin.aspx?p=2.2 Be clear, Qnexa, too, was effective. The Panel got hung up on potential side effects and risks, especially in preggos. Part of the problem with obesity drugs is that the standard treatment of diet and exercise has no significant risks. Also, it is difficult to eliminate fat bias, the notion that obesity is a problem of self control and that it is not a per se disease.
ARNA share price has been popping in anticipation of the September meeting. ARNA closed at $6.35 today. Since the drubbing of VVUS, ARNA has moved up from the mid $4's. VVUS, which had risen to $13.68 in anticipation of positive Panel news, closed today at $5.63. There is no doubt that the fat drug market is long hanging fruit. Any effective product, which gets approval, will make a short and maybe even long term killing. So what to do?
Hmm. Will ARNA move up to the $13 range over the next 6 weeks? If so, jump on now and sell before the hearing. For those who used that strategy with VVUS, well, they were clever and are now rich. Maybe, let the price run on ARNA and then short the stock when the meeting is held. Now that's gutsy, but an idea. This plan works with negative news. Day trade ARNA, well, it's volatile and has OK volume, 10M shares traded today. Or buy ARNA and hold. Now that's an old school thought and with a positive Panel response, a great plan of action.
No matter how you look at it, speculation in ARNA is afoot. Since the Panel gunned down Qnexa, they would be hard pressed to floor lorcaserin as well. The chubbies are going to get increasingly frustrated, since they want some help. The odds, consequently, are better for lorcaserin to get a Panel blessing. Well, you pays your money and gets your choice. Join the crowd and take a seat in the Arena. It should be great theater and exciting gambling.