NEW YORK (AP) — Shares of Arena Pharmaceuticals Inc. extended their rally Tuesday as investors anticipate the Food and Drug Administration's decision on the company's experimental obesity drug lorcaserin.
THE SPARK: The FDA is scheduled to make a ruling on lorcaserin by June 27. The product is one of a group of experimental obesity drugs are seen as potential big sellers. However, the FDA has yet to approve the products, primarily because of concerns about their side effects. An advisory panel recommended in May that lorcaserin be approved.
THE BIG PICTURE: Lorcaserin is designed to stimulate serotonin receptors in the brain linked with feelings of satiety, leading patients to feel full. The FDA declined to approve the drug in 2010 because of concerns about tumors that were observed in lab rats treated with the drug, as well as potential effects on patients' hearts and other issues.
The FDA is scheduled to make a decision on a possible competitor to lorcaserin, Vivus Inc.'s drug Qnexa, by July 17. It also received a positive recommendation from an advisory panel.
THE ANALYSIS: JMP Securities analyst Jason Butler said that Arena's shares are being driven by investors' assessments of the chances that the drug will be approved.
"The debate on Wall Street has been 'will they get outright approved, or like we've seen with Vivus, will they get a three-month PDUFA extension because the FDA needs more time?'" Butler said, referring to the review time stipulated under the Prescription Drug User Fee Act. The FDA extended a review of Qnexa in April.
Butler said Wall Street might see an extension as a positive for Arena because if the FDA takes more time to review the drug, it might be interpreted as a signal that the agency is close to approving lorcaserin.
SHARE ACTION: Shares of the San Diego company jumped 81 cents, or 11.4 percent, to close at $7.88 Tuesday. Arena Pharmaceuticals' shares are up 19.4 percent over the last two trading days. The stock has more than doubled in value since the FDA panel's favorable recommendation. The stock closed at $3.42 before the May 9 review.