Why Arena Pharmaceuticals' Shares Jumped

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) were tipping the scales today, gaining as much as 53% in intraday trading after the company's flagship drug was approved by the U.S. Food and Drug Administration.

So what: It's been 13 years since the FDA approved a diet drug, but Arena's Belviq has ended the drought. The regulator gave Belviq the go-ahead for treatment of patients with a body-mass index (BMI) of 27 or greater, which covers those classified as overweight and obese. Patients also have to have a condition associated with their weight, such as high blood pressure or type 2 diabetes.

Now what: Since an FDA advisory panel had given Arena's drug a thumbs-up back in May, the FDA's decision shouldn't come as a complete surprise to investors. However, there's been a particularly high bar for getting diet drugs through the approval process -- just ask Arena competitors VIVUS (NAS: VVUS) and Orexigen (NAS: OREX) -- so the final approval was hardly a slam dunk.

What there's little question of at this point is the size of the potential market for Belviq. But with the approval now in the bank, the next big hurdle for investors is how receptive the market will be and how quickly Arena and its marketing partner Eisai can ramp up sales.

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