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Arena’s (NASDAQ:ARNA) Stock Price Could Get Even Slimmer

Investors fattened up the share price of Arena Pharmaceuticals (NASDAQ:ARNA) after the company announced in late June that it and its partner Eisai Inc. got the go-ahead from the U.S. Food and Drug Administration (FDA) to market the obesity drug Belviq. Since then, the appetite for Arena has dwindled considerably: the stock is down nearly 24 percent since early July, and I think it could go lower.

That opinion is based on what’s happened to the share price of Vivus (NASDAQ:VVUS), which got the thumbs up from the FDA for its obesity drug Qsymia a few weeks after Arena. It’s down more than 60 percent since July.

So what caused the enthusiasm for the two companies to wane so dramatically? Perhaps investors came to their senses and realized that safety, efficacy, cost and reimbursement issues could plague the new medications.

The safety of obesity drugs has always been a huge issue. In the case of the Arena and Vivus medications, both were rejected by the FDA in 2010, Arena’s for concerns about links to cancer links and Vivus’s for worries about birth defects and heart risks. In fact, FDA approval of both drugs was conditional on the companies’ continuing to study them to make certain they’re safe. The FDA is also requiring Orexigen Therapeutics (NASDAQ:OREX) to conduct a cardiovascular outcomes trial on its obesity drug Contrave before it can get approved. Want ideas about how to beef up your portfolio by playing the drug obesity market? Consult our real time trading reports.

Safety issues are the very reason Big Pharma has left the obesity market wide open for smaller companies like Arena, Vivus and Orexigen. The 1990s and 2000s saw the withdrawal of obesity drugs and shuttering of research programs by the likes of Wyeth, now owned by Pfizer (NYSE:PFE), Sanofi (NYSE:SNY), Merck (NYSE:MRK) and Abbott (NYSE:ABT).

There’s also a question about the value of both Belviq and Qsymia. In clinical trials patients on the two medicines lost only a modest amount of weight and not that much more than those on placebo. One has to wonder if study patients couldn’t have done just as well by cutting out a double cheeseburger now and then.

And while physicians can prescribe a drug for anyone they think it can help, both Belviq and Qsymia were approved for somewhat limited patient populations. Moreover, Qsymia is expensive – a monthly prescription costs $160, with a co-pay of about $60 for patients with insurer reimbursement. However, only about 20 percent of patients are receiving insurance coverage for the drug.  

Belviq will be marketed in the U.S by Eisai, which has yet to put a price tag on the drug, although it’s likely to be in the same ballpark as Qsymia. Reimbursement also may prove to be a roadblock for the Arena drug. For more information about stocks in this space, our real time trading reports help investors identify opportunities before they happen.

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