To think that less than three months ago shares of Arena Pharmaceuticals Inc. (NASDAQ: ARNA) were trading as low as 2.00 is mind-numbing but with an FDA approval comes plenty of rewards and shareholders of the biopharmaceutical company experienced that first hand when the agency made lorcaserin, to be marked under the commercial name Belviq, the first obesity medication to win favor in 13 years.
That FDA approval came back in late June and shares climbed as high as 13.50 following the news but since that time ARNA has seen a noticeable pullback with shares falling as low as 10.08 on Thursday. While shares have managed to climb to the 11.20 mark on Friday there are concerns about where the price will go in the near future as the company could be facing some competition.
Just how likely it is that the FDA issues yet another approval for an obesity medication is yet to be seen but Vivus Inc. and their shareholders will find out next week with their Prescription Drug User Fee Act (PDUFA), or FDA `Action` date, for Qnexa, scheduled for July 17th. The overwhelming belief is that Vivus will win approval and that could spell trouble for ARNA and their shareholders.
Of course ARNA’s success isn’t dependent upon what happens on July 17th, the facts seem to support the belief that Belviq has fewer side effects than Qnexa and will be accessible to a larger market. That market is massive considering that the FDA approved lorcaserin for those who are obese or who have a body mass index (BMI) of 27 and have another risk factor like high blood pressure, high cholesterol, or diabetes. What that equates to is nearly two-thirds of the population in the United States.
As it stands there are still some concerns over what risks are presented by lorcaserin, namely how it could play a role in heart disease. While those concerns may have some merit the reality is if you are obese then you are already carrying risks of heart disease. That’s not to say that the risks of lorcaserin should be overlooked but common sense should prevail.
Whether or not Vivus and their Qnexa obesity medication can compete with ARNA’s Belviq remains to be seen but one thing is for certain, Qnexa doesn’t have the same market to work with. Even with an FDA approval Qnexa is facing tighter restrictions as IPQ Analytics, an independent research firm, has warned of “risks that exist which are not currently being factored into expectations.” This could lead to a risk management program that would accompany an approval for Qnexa, something that Belviq was able to avoid.
That could be of substantial benefit to ARNA as the risk management program for Qnexa could place restrictions on prescriptions for women of childbearing age and/or those with cardiovascular risk given the fact that the drug had been sent back for additional studies due to concerns about heart valve damage, a permanent and life-threatening side effect.
Not lost on investors is the fact that a number of insider transactions among executives at Vivus have taken place, giving some skeptics reason to believe that the company has its doubts about Qnexa and its impact on the market. While these transactions are well within the rights of executives and may simply be seen as an opportunity to grab profits the timing does appear odd.
Aside from the potential competition in the way of Qnexa, ARNA is also facing doubt from those who believe the company’s diet drug won’t earn as much as they expect. Jim Cramer has been among the most vocal on this front, predicting Arena will gain just below 40% of its revenue from treatment, substantially lower than what the company has predicted.
Without question there are legitimate concerns investors should be aware of when it comes to ARNA, namely that the company’s shares have already jumped more than 500% for the year. That leaves many to question whether or not ARNA has already peaked. With shares as high as they are right now it may make sense to wait for a pullback and if Vivus gets that approval next week there will almost certainly be a downturn for ARNA shares which could then provide an excellent opportunity for investors to build a position.