Did the European Medicines Agency Hand Arena Pharmaceuticals a Gift? (ARNA)

Is one company’s loss another’s gain? This is the question buzzing around the heads of investors over the European Medicines Agency rejection of the weight loss drug Qsiva manufactured by VIVUS (NASDAQ: VVUS). The rejection was not unexpected, but does the formal announcement now open the doors for a similar drug, Belviq, produced by Arena Pharmaceuticals (NASDAQ: ARNA), or do concerns over Qsiva spill over to the approval process for Belviq? These are questions that investors in Arena Pharmaceuticals might contemplate in the coming days.

One reason for the bumpy approval road in Europe is because the European Medicines Agency views obesity as a pychobehavorial problem rather than a medical risk for hypertension and diabetes.

The Food and Drug Administration (FDA) approved Belviq on June 27 for the treatment of chronic weight management in obese adults and overweight adults with a weight-related medical condition. Since then, Arena Pharmaceuticals and its commercial partner Eisai have been waiting on the Drug Enforcement Agency (DEA) to schedule the drug. Drug scheduling is how the federal government classifies a drug for potential substance abuse. The rating system goes from I (low possibility) to V (high possibility). Observers speculate that Belviq will more than likely receive either a IV or V classification (most cough medicines have a V rating). Arena Pharmaceuticals and Eisai do not see an effect on sales if the DEA decides to give Belviq a class IV rating. The two companies expect a commercial release date in early 2013.

Investors and traders had the weekend to digest the news and reacted with a ho-hum at the beginning of trading on Monday. Perhaps the decision by the European Medicines Agency toward Qsiva was already a foregone conclusion. Shares of Arena Pharmaceuticals opened relatively in line with the closing price on Friday. A few minutes after the opening, bell shares hit an intraday high price of $9.23. Sellers took control for most of the day and the stock hit a low of $8.93 by mid-morning. Share prices hardly budged for the rest of the day. When the closing bell rang, Arena Pharmaceuticals shares showed a loss of 2.5% on the day, closing down 23 cents at $8.96. Volume on the day trailed the 9.3 million shares traded on an average day by approximately one million shares.

The stock has seen a meteoric rise since last November when it traded at a low of $1.27. Share prices hit their annual high ($13.50) soon after the FDA gave Belviq the nod in June. The wait for the classification ruling from the DEA plus the news from its competitor VIVUS appears to have caused buyers to hesitate as the stock has traded in a range from $9.00 to $10.00 over the last two months.

Ten research analysts presently follow the stock with an average rating of “hold”. The consensus view places a price target of $10.83 on the stock. The mean earnings estimate for September calls for a loss $0.08 per share.

Arena Pharmaceuticals is a biopharmaceutical company focusing on the development and commercialization of drug therapies for the treatment of cardiovascular, central nervous and metabolic diseases. The company was founded in 1987 and is headquartered in San Diego, California.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).