Arena Pharmaceuticals Shares Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of diet drug developer Arena Pharmaceuticals (NAS: ARNA) caught a tailwind today, rising as much as 14% in intraday trading after an encouraging announcement from a competitor.

So what: Getting a prescription diet pill approved in the U.S. has been a tough slog for the companies that have set out to do it. Orexigen (NAS: OREX) has already pulled itself from the fight, announcing in June that it would halt work on its obesity drug after it thought the Food and Drug Administration put an unnecessarily large hurdle between its treatment and potential approval. Arena and Vivus (NAS: VVUS) , meanwhile, have pushed on. And perhaps the dedication could pay off -- in a press release yesterday, Vivus said that the FDA will reconsider its Qnexa drug early next year.

Now what: So here's the thing when it comes to Arena. First, from Captain Obvious' desk, the FDA reached the agreement with Vivus, not Arena. Second, the FDA has promised to reconsider, not approve Vivus' drug -- they could very easily get the new application and say "You know what? We were right the first time. Rejected!" And finally, the consideration of approval will only be for obese patients that are unable to have children. The obesity market is huge (no pun intended), but you significantly cut down your addressable market when you put on a qualifier like "unable to bear children."

Obesity is a real problem, particularly here in the U.S., but the FDA is making it very clear that companies that want to sell diet pills are going to have to fight tooth and nail to get them approved for use by anyone. Like it or not, the FDA is the gatekeeper here, and so as long as it keeps that attitude I'd have trouble getting excited about any of these companies.

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