Arena Shares Finish Higher After FDA Rejects Obesity Drug Lorcaserin

Arena Pharmaceuticals (ARNA) announced, as expected, the U.S. Food and Drug Administration did not approve its weight loss drug Lorcaserin for patients who are obese and overweight because the potential risks outweigh the minimal efficacy.

The FDA said it was concerned about certain risks, including the possibility of cancerous breast tumors found in rats, which were not found in humans. The FDA wants to see an independent review of these results, which could lead to request for further studies.

It also said the efficacy of the drug in people without type 2 diabetes was marginal and recommended that Arena submit the final study report of the trial done in diabetes patients. Arena said it expects to announce top-line results in the next few weeks and to have a completed study report by the end of the year.

The FDA also stated in its complete response letter that additional clinical studies may be required to obtain a more robust assessment of Lorcaserin's benefit-risk profile.

"This is an important step for us toward the FDA's approval of Lorcaserin," said President and CEO Jack Lief. "While the complete response letter provides us with recommendations from the agency, we intend to meet with the FDA to obtain further clarity on the approval path and timeline. We will work with the agency to address the issues with our NDA as quickly as possible."

Eisai Pharmaceuticals, which recently bought marketing rights to Arena's drug, said it is committed to collaborating with Arena. In a conference on Monday, the company expressed optimism and Lief actually said he is encouraged by the response, believing the company now has "a path forward to obtain approval of Lorcaserin," as media outlets reported.

Arena's Lorcaserin is one of a few drugs that competing companies such as Vivus (VVUS) and Orexigen (OREX) are trying to develop and be first to market. They aim to deal with the growing obesity problem. The drug works by interacting with a brain receptor involved in appetite control and feelings of satiety.

But despite the growing problem, the FDA has not been easy on Arena and its competitors. In fact, a panel has already recommended not to approve Vivus's Qnexa because of long-term risk concerns, ahead of the FDA decision next week. An FDA panel will decide on Orexigen's Contrave on Dec. 7, with a decision due by the end of January.

Also, earlier this month, the FDA requested Abbott (ABT) to withdraw its controversial obesity drug Meridia from the U.S. market because of concerns it increases the risk of heart attacks and strokes.

Arena shares, which have lost about 75% of their value since the FDA panel no vote in mid-September, see-sawed in today's trading, but finished the day nearly 2.5% higher. OREX shares finished the day about 3.7% higher, while VVUS shares fell slightly.