Arena Pharmaceuticals' Outlook Hinges On Success Of Lorcaserin

| About: Arena Pharmaceuticals, (ARNA)
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by Kelly Jamrozy

The weight loss industry is a booming business, but one of the places it often struggles is with prescription weight loss drugs. This is at least partly because there have been so many weight loss drug disasters. Consumers are desperate for a quick-fix, but they realize danger often lurks behind the easiest solutions to weight loss. The FDA has also been reluctant to approve new weight loss products, but that tide might be turning in the near future. Companies such as Arena Pharmaceuticals (ARNA) have drugs that could be making a big splash in the weight loss marketplace.

Arena, which is currently selling for just under $3 a share, is a clinical-stage biopharmaceutical company with a focus on developing and commercializing oral drugs targeting G protein-coupled receptors in the areas of the central nervous system, cardiovascular disease, inflammatory disease, and metabolic disease. The drug in Arena's pipeline that receives the most attention is Lorcaserin, which is well into phase three clinical trials and intended for use in weight management. Arena is addressing specific concerns from the FDA with the drug and the company's ultimate goal is to receive approval for the United States market, as well as select markets outside of the United States.

In addition to Lorcaserin, Arena is focused on APD811, an internally discovered, orally available agonist of the prostacyclin receptor intended for the treatment of pulmonary arterial hypertension. Also in the pipeline is APD334, an internally discovered, orally available agonist of the S1P1 receptor intended for the treatment of a number of conditions related to autoimmune diseases, as well as research programs on cannabinoid receptor 2 agonists, intended for the treatment of osteoarthritis and pain, and APD597 agonists intended for the treatment of type 2 diabetes. Most of these drugs besides Lorcaserin are in phase one or preclinical phases, but it is still a varied pipeline. This is one of the main things investors should aim for when choosing a strong biotech company, especially when choosing from companies priced so low. A strong and varied pipeline is an indication of a bright future.

Obviously, the biggest expectations for Arena center on Lorcaserin. Lorcaserin is intended to help with weight management, including weight loss and maintenance of weight loss, in patients who are clinically obese or patients who are seriously overweight and have at least one weight-related co-morbid condition. Lorcaserin is believed to act as a selective serotonin 2C receptor agonist. The serotonin 2C receptor is expressed in the brain, including the hypothalamus, an area believed to be involved in the control of appetite and metabolism.

According to the Centers for Disease Control and Prevention, more than one-third of US adults are considered obese, but experts believe that even a small weight loss of just 5 or 10% can result in health improvements concerning cardiovascular risk factors, as well as a significant reduction in the risk of developing type 2 diabetes. A recent report issued by the Organization for Economic Cooperation and Development (OECD) predicts at least 75% of Americans will be obese by the year 2020. Obviously, this prediction could be off-course, but based on trends across the country, the epidemic shows no signs of stopping. Biotech companies focused on weight loss and weight related diseases are expected to soar in the coming years. Arena is not the only option, either, for investors interested in putting money into this market.

Vivus (VVUS) is another major player in the obesity market and saw a bump following the OECD report. Its current price is just under $23. Analysts expect it to steadily rise over the next decade, due at least in part to its weight loss drug Qnexa. Qnexa is expected to receive approval from the FDA before Lorecaserin and will be the first weight loss drug approved in more than a decade. Approval should come in April, but most investors think the drug is as good as approved because of a positive report issued by the FDA in February. Vivus stock doubled after the panel released its findings, but weight loss drugs are an iffy business, so there is still a bit of doubt.

Another company I consider part of the weight loss industry is Human Genome Sciences (HGSI). It will also have a major impact on the obesity market in 2012, due to its focus on treatments that affect diseases related to obesity. Its drug Albiglutide uses proprietary albumin-fusion technology, but was licensed to GlaxoSmithKline (GSK) in 2004. HGS is also seeing successful results from a phase 3 trial of Albiglutide for use in treating Type 2 diabetes. An April 3, 2012 news release provided more information about the success of these trials, showing seven of the eight were successful. Other drugs developed and marketed by HGSI include Benlysta, a lupus drug, and Raxibacumab, a drug intended to treat inhalation anthrax. The company also has a stocked pipeline.

Ultimately, a weight loss investment boils down to choosing between the Vivus drug, Qnexa, and Arena's Lorcaserin. I think decisions concerning these companies should be a matter of how much you are willing to spend based on the risk. Arena is available for much less than Vivus, but Qnexa is poised to make a bigger splash in the near future than Lorcaserin. I believe both are strong investments, so make your choice based on how much you want to spend now, as opposed to how much you want to make over the long haul.

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