Rodman and Renshaw analyst downgrades ARNA

Elemer Piros, analyst for Rodman & Renshaw, downgraded shares of Arena Pharmaceuticals (symbol "ARNA") a few weeks ago.

His comments:

http://www.bioworld.com/servlet/com.accumedia.web.Dispatcher?next=bioWorldHeadlines_article&forceid=55188

Yet Piros argued that lorcaserin's "weak efficacy" will change the overall risk/benefit discussion when the panel convenes again. Although the drug met the FDA's requirement for a doubling in the percent of patients who lost 5 percent of their weight, it has fallen short on the other efficacy measure, showing 3.6 percent placebo-adjusted weight loss.

I guess he was unaware of the either/or efficacy clause, according to the FDA 2007 Guidance on Weight Management drugs.

http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm071612.pdf

c. Efficacy benchmarks

In general, a product can be considered effective for weight management if after 1 year of treatment either of the following occurs:

• The difference in mean weight loss between the active-product and placebo-treated groups is at least 5 percent and the difference is statistically significant

• The proportion of subjects who lose greater than or equal to 5 percent of baseline body weight in the active-product group is at least 35 percent, is approximately double the proportion in the placebo-treated group, and the difference between groups is statistically significant

Regarding the lucrative Lorcaserin marketing agreement with Eisai, ARNA receives some of the highest revenue splits in the industry. Yet, Piros was unimpressed:

http://www.bioworld.com/servlet/com.accumedia.web.Dispatcher?next=bioWorldHeadlines_article&forceid=55010

Elemer Piros, analyst with Rodman & Renshaw, dubbed the deal "meek" and "fairly modest," noting that the arrangement is "highly back-end loaded, and leaves a lot of lorcaserin commercial risk with Arena shareholders."

Note: at the time of the downgrade, shares of ARNA were trading under $3. A month later, shares are gapping up above $6 in anticipation of a positive advisory committee review on September 16, and full FDA review (PDUFA) on October 22. Piros' price target for ARNA shares is $1.

Rodman & Renshaw is an investment bank specializing in the life science/healthcare industries, among others. ARNA was looking to raise capital prior to its partnership agreement with Eisai. ARNA ended up choosing an alternate route in their latest PIPE financial deal with Deerfield.

See disclaimers in the side bar. No causal relationship implied.

Disclosure: long shares of ARNA.