Arena Scores Orphan Drug Status For Pipeline Drug - What It Means For The Stock

| About: Arena Pharmaceuticals, (ARNA)


Orphan drug status is positive.

The drug will enter Phase 2 trials this Fall/Winter.

Pipeline valuation is speculative.

The timing of the news was not the best, but Arena Pharmaceuticals (NASDAQ:ARNA) announced today that its pipeline drug, APD811, has received "Orphan Drug" status from the FDA. As stated, the timing of the news was less than stellar, given that the news actually broke late last week before a holiday weekend. The company likely struggled with whether to issue a press release upon the breaking news or save it for a fresh week. The company issued its press release after the Labor Day holiday.

APD811 received orphan drug status for the treatment of Pulmonary Arterial Hypertension (PAH). Orphan drug status is typically reserved for drugs that will treat rare diseases, or for drug candidates that are designed to treat a disease which has few treatment options. The orphan drug status can help with expedited trials and approval. The concept is not designed to rush a drug through the process, but rather treat it with some level of priority. Typically, drugs that obtain orphan drug status can command a higher price on the market, because companies must seek to recover significant investment through very few patients.

It is estimated that between 500 and 1,000 people in the United States are diagnosed with PAH every year. Most people afflicted with the condition are females between the age of 20 and 40. The condition can cause death.

From an equity standpoint, the orphan drug status for APD811 is good news in the longer term. The drug is currently in Phase 1, and the company is seeking to start Phase 2 trials later this year. That would seem promising, but Arena is not alone in the area of PAH treatment. The FDA approved Opsumit in the Fall of 2013, and that product is already on the market. United Therapeutics Corporation (NASDAQ:UTHR) also offers treatment for the condition. Thus, a small patient pool is going to be a competitive environment. Arena is betting that its solution, APD811, will offer benefits and a side effects profile that are better than other options. The reason that the news of the orphan drug status does not have the impact on the stock price that many had hoped for is rather simple. APD811 is still in early stages of trials, and there are other products on the market already. The orphan status may help in the search for a partner for the drug from a Big Pharma company. Arena discovered the drug internally, and currently retains all rights to the drug. Typically, potential suitors may wait until successful Phase 2 or even Phase 3 trials prior to trying to work a deal. The orphan status is a selling point that did not exist a week ago. Arena has made no indication that it is seeking a partner at this stage, but the FDA news this week will add potential value to the pipeline. That being said, pipeline valuation is a tricky thing. Pipelines are full of potential, but as is oft the case, realizing that potential is not guaranteed. Further, developing drugs and taking them through trials is an expensive proposition. Investing on pipeline potential is speculative, and thus, the street tends to be quite conservative in that regard.

Investors considering an investment into Arena should consider the fundamental story first and then the speculative story. At the moment, Arena has one product on the market, the anti-obesity pill Belviq. Eisai has partnered with Arena for most of the global rights on Belviq, but as yet, sales have not grown to levels that will allow Belviq sales to finance pipeline development. Stay Tuned!

Disclosure: The author is long ARNA.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in UTHR.