ARNA shares gain on VVUS' Qnexa rejection

http://www.businessweek.com/ap/financialnews/D9H09AV80.htm

As usual, some analysts really don't get it.

Separately, Barclay Capital analyst Dr. Jim Birchenough maintained a more conservative "Equal Weight" rating on Arena, saying the FDA seems to have a high hurdle for new obesity drugs and lorcaserin could face its own issues with regulators. Those issues could include adequacy of weight loss and heart valve risks.

According to the recently released New England Journal of Medicine article on Lorcaserin:

http://content.nejm.org/cgi/content/short/363/3/245

Serial echocardiography was used to identify patients in whom valvulopathy (as defined by the Food and Drug Administration) developed.

Among 2472 patients evaluated at 1 year and 1127 evaluated at 2 years, the rate of cardiac valvulopathy was not increased with the use of lorcaserin.

New England Medical Journal peer review on Lorcaserin

Boldface is my emphasis.

ABSTRACT

Background: Lorcaserin is a selective serotonin 2C receptor agonist that could be useful in reducing body weight.

Methods: In this double-blind clinical trial, we randomly assigned 3182 obese or overweight adults (mean body-mass index [the weight in kilograms divided by the square of the height in meters] of 36.2) to receive lorcaserin at a dose of 10 mg, or placebo, twice daily for 52 weeks. All patients also underwent diet and exercise counseling. At week 52, patients in the placebo group continued to receive placebo but patients in the lorcaserin group were randomly reassigned to receive either placebo or lorcaserin. Primary outcomes were weight loss at 1 year and maintenance of weight loss at 2 years. Serial echocardiography was used to identify patients in whom valvulopathy (as defined by the Food and Drug Administration) developed.

Results: At 1 year, 55.4% of patients (883 of 1595) receiving lorcaserin and 45.1% of patients (716 of 1587) receiving placebo remained in the trial; 1553 patients continued into year 2. At 1 year, 47.5% of patients in the lorcaserin group and 20.3% in the placebo group had lost 5% or more of their body weight (P<0.001), corresponding to an average loss of 5.8±0.2 kg with lorcaserin and 2.2±0.1 kg with placebo during year 1 (P<0.001). Among the patients who received lorcaserin during year 1 and who had lost 5% or more of their baseline weight at 1 year, the loss was maintained in more patients who continued to receive lorcaserin during year 2 (67.9%) than in patients who received placebo during year 2 (50.3%, P<0.001). Among 2472 patients evaluated at 1 year and 1127 evaluated at 2 years, the rate of cardiac valvulopathy was not increased with the use of lorcaserin. Among the most frequent adverse events reported with lorcaserin were headache, dizziness, and nausea. The rates of serious adverse events in the two groups were similar.

Conclusions In conjunction with behavioral modification, lorcaserin was associated with significant weight loss and improved maintenance of weight loss, as compared with placebo.

Editorial:

The justification for using lorcaserin to manage obesity is not greater efficacy than currently available drugs, but rather an apparently much better safety and adverse-event profile and very clear-cut beneficial effects on risk factors for type 2 diabetes and cardiovascular disease. Where lorcaserin will fit into the management of obesity remains to be seen. Future studies could investigate the potential for improved weight-loss efficacy by combining lorcaserin with other receptor-selective weight-loss compounds such as analogues of glucagon-like peptide 1. Given the history, we will need to be doubly sure about the safety of lorcaserin, used either alone or in combination with other weight-loss drugs.

Valvulopathy is why fen-phen was withdrawn in 1997, after 18 million subscriptions were written in 1996. Pfizer (formerly Wyeth, formerly American Home Products) set aside $21 billion for class action lawsuits.

The potential for a weight management treatment is staggering. Perform your own due diligence.

See disclaimers in the side bar.

Disclosure: no position in PFE. Long shares of ARNA. Short put options in ARNA.

Accumulation phase for ARNA over?

Shares of Arena Pharmaceuticals surged today, after consolidating below $4.50 for several weeks, as the shorts and market makers ran the stops. Nervous Nellies are out of the trade--only the strong hands remain, including large institutional holdings by Deerfield Capital, Federated Investors, and Wellington Management, all reknown for being savvy, long-term value holders. Recent investments by Barclays and Winslow Management boost an already strong roster of institutional ownership. Couple that with recent insider purchases by six of eight members of the Board of Directors, and it was just a matter of time before shares of ARNA spiked up in anticipation of announcement of Blossom results, the second of two pivotal Phase III clinical trials for Lorcaserin, the weight management drug with blockbuster potential.

ARNA CEO Jack Lief has indicated that Blossom top-line results will be announced by "the end of September". Short-term traders may want to accumulate tradeable shares in anticipation of the run-up as we approach said announcement, and sell before the news in a low-risk trade. Long-term investors like myself, however, have been slowly accumulating core holdings with an exit strategy post-pivotal events, including Blossom results in September, New Drug Application submission in December, and potential PDUFA in October, 2010. Because Lorcaserin's potential is enormous (some analysts forecast a $10 billion market annually), I will retain a long-term core holding.

This ameliorates the possibility of an announcement of a marketing partnership with a big pharmaceutical company, which would also cause the shares of ARNA to spike up. Traders in and out of ARNA may miss the train. A partnership seems likely, based on previous clinical trial data on Lorcaserin. Safety and efficacy point towards FDA approvability, as Lorcaserin selectively stimulates the 5-HT2C seratonin receptor, a G protein coupled receptor (GPCR) located in the hypothalamus. Stimulation of this GPCR is associated with feeding behavior and satiety.

Most importantly, Lorcaserin's specificity to the 5-HT2C receptor means it doesn't stimulate the other subtypes, 5-HT2A and 5-HT2B. These other subtypes are linked to cardiac valvulopathy, which caused the massive recall of phen-fen, for which Wyeth has paid out $21 billion in a class action lawsuit. Hence, Lorcaserin is both efficacious AND safe.

The weight management sector is wide open, littered with previous failures by big pharmaceutical companies, and a few marginally effective treatments with adverse side effects, some potentially serious. With the safest treatment in the market, and first-mover status relative to their two competitors: OREX's Contrave and VVUS' Qnexa--both generic compounds with a large exclusion criteria and label warnings, ARNA's Lorcaserin has the biggest commercialization potential.

Disclosure: Long ARNA shares.