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 biotechnology company Arena Pharmaceuticals (NAS: ARNA) rose as much as 14% on rumors that it could be a takeover target by a larger pharmaceutical company.
So what: According to a report by MarketWatch, Arena's shares were rising due to an unconfirmed rumor that there may be interest in purchasing the biotech company. Arena received approval for diet drug Belviq last month -- the first FDA-approved obesity treatment in more than a decade.
Now what: It isn't a stretch to assume that a big pharmaceutical company could be interested in Arena. About one-third of the U.S. population is overweight, so the implications of a diet drug when coupled with a diet could lead to multibillion-dollar possibilities.
It will not, however, be a cakewalk for Arena. For one, Belviq still needs to be successfully launched. As we've witnessed from multiple biotechs recently, launching a new drug successfully is almost as difficult as getting it approved in the first place. There's also VIVUS (NAS: VVUS) , which received FDA approval for Qsymia (formerly Qnexa) as well. Arena would probably be very smart to ally itself with a company that has deep pockets and has a strong history of marketing new drugs, but I'd refrain from buying too willy-nilly into these as-of-now-unconfirmed rumors.
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