Arena Pharmaceuticals Is Now An Attractive Buy

Apr. 9.12 | About: Arena Pharmaceuticals, (ARNA)

Biopharmaceutical investments can be quite viable based on successful or unsuccessful drug trials. For example, Human Genome Sciences (HGSI) rose 5% in early April due to its announcement of a cash influx of $183 million. In contrast, Keryx (KERX) dropped 5% due to the failure of the Phase III trial for Perifisone. This drop is set to continue, and I predict that it will even out very low. While this is disheartening news for anyone that has Keryx stock, there is some hope in the backup drug Zerenyx. Keryx has announced that it will direct all of its efforts (meaning $31 million) at the completion of the Phase III study for Zerenyx. If the study succeeds, then we will see a rise in Keryx's stock that will not be as great as it would have been with the Perifisone success, but will help nonetheless.

While the big news with Keryx right now is the failure of Perifisone, there are a couple of factors that could save Keryx. The first positive being the aforementioned development of the Perifisone-backup, Zerenyx, could bring stocks right back up in the fourth quarter when the phase III testing is complete. Another plus for Keryx is that the patent for Perifisone was set to run out in 2013. Because of the short amount of time that Perifisone was going to be on the market and at its peak profitability, many conservative investors did not invest in the hype that was the new drug due to the lack of long term gains. While Keryx is having some problems, and is dependent on its next drug, another company is seeing success with other aspects of the biotech market.

Arena Pharmaceuticals (ARNA) has seen an increase in stocks beginning in late March up until the current week. This sudden rise in stock prices from due to the acceptance of an MMA by the EMA for an investigational weight loss drug known as Lorcaserin. The next step will be the FDA's approval of Lorcaserin for the American market. If said approval occurs, then expect to the price go even higher than its current max peak. This is a great comparison of risk versus reward, as you can see the risk did not payoff in the case of Perifisone with Keryx, but the case was quite the contrary with Arena's Lorcaserin in Europe.

Another biotech company seems to have gone way beyond the way of Keryx, Dendreon (DNDN) has taken a big hit in the past year, going from $40 to $10 in the market. The high of $40 was due to the fact that the company had approved and released a prostate treatment drug known as Provenge. While the outlook was great for Dendreon, it did not hold up, due to the high price and low benefits. This is a case where the successful release of the drug did not equate to a long term benefit.

I would have sold my stocks in Dendreon at that time, had I accumulated this knowledge about the new drug. But, it just goes to show, things are not in black and white when it comes something being beneficial or harmful to a company. There is one more company to compare when deciding on your accumulation of Keryx stocks versus other companies: Cell Therapeutic (CTIC).

Cell Therapeutic is going through a slump right now, for good reason. In January 2012, it pulled its application to the FDA for review of Pixantrone, a treatment drug for non-Hodgkin's lymphoma. Cell Therapeutic ended up resubmitting another NDA for consideration by the FDA that is due to be acted upon by October. Accelerated approval by April presents an opportunity to investors to truly make some money by way of investing now, while the company price is at a low $1.29. This is another textbook case of risk versus reward, because Pixantrone could go either way right now. If it fails the review, then expect to see the stock plummet to all time lows for Cell Therapeutic. If it passes, then expect to see the numbers shoot up much higher than normal.

So, where is Keryx headed from its current position, and how does it stack up against its competitors? With the latest failure of Perifisone, Keryx's future is uncertain. The biggest thing to watch out for in the future with this biotech company is the approval/disapproval of Zerenyx. While neither will be absolutely detrimental to the company, investors should take heed. Much of the hope in Keryx was lost in the failure of Perifisone, but it may be beneficial to purchase stock now. Just remember that the risk that is based not only on the success of Zerenyx, but also in the regaining of confidence in Keryx. I recommend buying a conservative amount of stocks now, and more as the price drops. When Zerenyx is about to be tested, we will see a rise in the stock prices with last minute investors coming in. At this time, do your research and find out the outlook for the drug.

As of right now, it is still rather uncertain whether Zerenyx will make the review due to all of the attention focused on Perifisone's failure. So, the risk versus reward comes into play again with Keryx's backup plan, and I suggest having at least a small hand in it that will not ruin you, but could at least make a little bit of money. As to whether you should invest money in another company over Keryx, I would suggest consideration of Arena. Its current project, Lorcaserin, is expected to be accepted by the FDA, in spite of its original rejection. The reason given for the rejection was a lack of extended period tests, a problem that has been remedied in the last year. So, definitely consider putting your money in Arena, as it is expected to jump if the Lorcaserin tests are successful.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.