Seeking Alpha
Long/short equity, deep value, value, research analyst
Profile| Send Message|
( followers)  

On 4/18/12, Adam Feurstein, stock writer for The Street.com, wrote a critical piece on Arena Pharma's (NASDAQ:ARNA) Lorcaserin, a weight loss drug candidate awaiting a second decision from the FDA for approval on May 10th of this year.

I am not going to get into splitting hairs on each point that Adam raises for his opinion that Lorcaserin will be rejected again, but I will offer a general opinion and commentary on his views in this article.

First off, Adam is a writer offering opinions. I think people accusing him of working with market manipulators to illegally influence the stock price of Arena is flat wrong. Reviewing Adam's opinions, I have come to the conclusion that for the most part, they are fair views. However, I did find a few observations by Adam I feel that were not fair views, and I will start with those.

In response to Arena long demanding Adam retract some of his views on Lorcaserin, Adam stated:

"Apparently, writing a column predicting the rejection of a weight-loss drug because it doesn't help people lose weight and is potentially unsafe is a terrorist act."

I do not agree with the statement above as being a fair one by Adam. Flatly stating that Lorcaserin does not help people lose weight was not offered with a preface of "in my opinion" and appears to be offered as fact. While there is some question how effective Lorcaserin actually is, the drug has shown to actually help people lose weight. I think Adam should have quantified the statement above with the data that shows at least 5% weight loss in most patients receiving the drug did see a weight loss benefit. It is fine if Adam concludes that the drug does not "substantially help people lose weight," but to flatly state it does not help people lose weight is not a fair comment in my opinion. However, this does not mean Adam is dishonestly working with hedge fund shorts to manipulate the stock price, and I caution people to basically chill out a bit before making this type of serious allegation.

Adam continues with his article with the following point:

Some cautious words from Arena's recently filed 10-K to get started:

"We expect the FDA to conduct a benefit-risk assessment based upon the totality of the new and previously provided data to determine the approvability of lorcaserin. It is important to note that the FDA may analyze or weigh the data differently than we or others do. (Emphasis mine.)

"Others" include Arena bulls who post obsessively on stock message boards.

More warnings from Arena:

"In addition, the analyses we included in the resubmitted Lorcaserin NDA include estimates based on certain assumptions and extrapolations. The FDA may accept our assumptions and extrapolations or may use different ones in analyzing the data, which could lead the FDA to reach different conclusions. (Emphasis mine.)

Arena is not "warning" investors per say in as much as the company is engaging in proper risk based statements for investors to consider. We can find comments from just about every company's 10K that mirror the above statements Adam quotes from Arena's 10K.

Adam also states Lorcaserin "may exacerbate heart valve problems because the incidence of valvulopathy was higher than placebo."

However, the placebo incidence was unusually low in BLOOM-DM, making the fact that Lorcaserin incidence was higher mostly a moot point. The incidence in all groups was close to that in the general population (under 3%). In contrast, the incidence for fenfluramine users was 20%-30%.

To be fair to Adam on the above, he did say "may exacerbate" which is a fair comment by him in my opinion.

Adam goes on to state Lorcaserin was shown to "fuel the growth of tumors."

Malignancies were higher in the higher-dose group of rats. But this higher dose group received 100 mg/kg/day, which is the equivalent of a 220-pound. person taking 1,000 10-mg tablets per day. I think this issue is more on Arena for over dosing those rats, something I think Adam should have addressed.

Benign tumors are not really a concern for the FDA because they pose no serious health threat to humans, albeit it they would cause at the very least financial strain on insurance companies and people because they still would need to be removed if their size became too large.

The main concern was that the benign tumors be reliably distinguished from malignant tumors, which the pathology group was able to achieve.

Adam has more to say, and I have linked his article here at the beginning of this article for people to read what else he has to say. One of my motivations for writing this short article is that I feel people should not be so fast to react in a manner to accuse Adam of working with shorts to wreck the Arena pps. I understand Arena investors will naturally react to anything negative about the company, but I urge investors to leave over-emotional reactions off the table, and throw them to the ground where they belong.

While I disagree with Adam in some of his views, he has many more years of experience over me in these matters, so I tend to respect his opinions, even when I disagree with them. For the record, I have never spoken with Adam Feurstein, so I am not writing this to defend him.

It's my opinion when Lorcaserin is compared to Vivus' (NASDAQ:VVUS) Qnexa and Orexigen Therapeutics' (NASDAQ:OREX) Contrave, Lorcaserin seems to carry a lower health risk profile, but less weight loss benefit.

It is my personal opinion that none of these drugs should gain approval because I strongly feel it sets a bad precedent for people to rely on a drug to lose weight, rather than a healthy diet and exercise. Granted, some very obese people can barely even walk, while others have other issues that no matter how much they eat correct, just cannot lose weight. I am not sure whether approval of these types of drugs is worth catering to a minority of the obese population that fits into what I just mentioned. I believe you either approve all these drugs, or none of them.

However, it's my opinion as a stock writer that Qnexa will gain approval, Contrave I think is 50/50 approval, and 30/70 against Lorcaserin to gain approval. Arena might be worth a look for traders/investors looking for a very high risk play that could yield a huge reward if Lorcaserin receives approval.

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

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.

Source: Assessing Adam Feuerstein's Views On Arena Pharmaceutical's Weight Loss Drug