Arena Pharmaceuticals Incorporated (NASDAQ: ARNA)

Arena Pharmaceutical Inc. (ARNA) engages in the development of innovative therapies for the treatment of cardiovascular, central nervous system, inflammatory and metabolic diseases.  The Company’s lead drug therapy candidate, Lorcaserin Hydrochloride, is in phase III for the treatment of obesity.  Pipeline drug candidates developed by the Company target G protein-coupled receptors (GPCRs), a new approach of compounds presently evaluated in conjunction with Merck & Co. Inc. and Ortho-McNeil-Janssen Pharmaceuticals Inc.  Founded in 1997, the Company is headquartered in San Diego, California.

Source: Reuters.com, SEC Filings.

Financial Summary

Source: Reuters.com, SEC Filings.

Analyst Consensus

The mean of 16 analysts surveyed by Reuters rate shares of ARNA an “Outperform.”

Analyst Recommendations and Revisions

Source: Reuters.com, SEC Filings.

Investment Highlights

Lead Drug Candidate Lorcaserin Hydrochloride

Obesity and associated risks of contracting diabetes are estimated to afflict approximately 400 million individuals worldwide, according to the World Health Organization (WHO).  Sales of drug treatments to combat obesity reached nearly $2.0 billion in 2008, with forecasts of accelerated growth between the years 2009 and 2024.

Obesity’s child disease, diabetes, is a major therapeutic segment of the pharmaceutical industry, with global sales totaling more than $17 billion for 2005, up from $4 billion for 1995.  The pharmaceutical industry expects anti-diabetic drug therapies to grow to more than $22 billion by 2012 due to a growing population of aged persons.

If ultimately approved by the U.S. Food and Drug Administration (FDA), the market for Arena’s drug candidate Lorcaserin Hydrochloride could reach $500 million to more than $1 billion at its market saturation.  Lorcaserin Hydrochloride is in phase III clinical trials, with the prospects of reaching commercialization reaching approximately 90% following successful completion of this phase of development.

Pharmaceutical companies with revenue of more than $1 billion but less than $2 billion include Life Technologies Corp. (Nasdaq: LIFE), which trades at a market capitalization of approximately $8.5 billion, and King Pharmaceuticals (Nasdaq: KG), which trades at a market capitalization of $2.82 billion.  As of February 5, the Company trades at a market capitalization of $293.91 million.  The Company’s potential for strong revenue from its lead drug candidate Lorcaserin Hydrochloride  appears to be already priced into the stock as well as the prospects for a “blockbuster” drug similar to Fen-Phen’s debut in the 90s, though the drug was later determined to be potentially fatal to some patients and withdrawn from market.

Additional Pipeline Drug Candidates

APD791 is an anti-thrombotic drug candidate passed phase 1a and phase 1b clinical trials.  The novel, oral and selective inverse agonist of the 5-HT2A serotonin receptor.  The target population for this drug candidate totals more than 13.9 million Americans who have survived either a heart attack or a stroke.  Other drug candidates in development include APD916 & APD811.

Niacin Receptor Agonist is a drug candidate for the treatment of atherosclerosis presently in development through collaboration with Merck & Co. Inc.  According to the American Heart Association (AHA), approximately 81 million Americans have one or more types of cardiovascular disease.

APD597 is a drug candidate in collaboration with Ortho-McNeil-Janssen for the treatment of type 2 diabetes and other diseases by targeting the Glucose-Dependent Insulinotropic Receptor, or GDIR.

Latest Company News

On February 4, the Company received an upgrade of its shares from research firm Rodman & Renshaw, advising investors not to short the stock prior to Food and Drug Administration (FDA) review of the company’s obesity drug candidate larcaserin.  Analyst Elemer Piros raised the rating of the Company’s shares to “Market Perform.”  Piros offered a target price of $3.00 per share.  Piros said that short sellers of the Company’s shares could get hurt if the FDA reviews favorably on the Company’s obesity drug candidate.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=ARNA

ARNA trades at its 13-day moving average.  The 13-day moving average is downwardly sloped, a bearish sign.

The MACD for ARNA currently indicates a bearish signal.  The MACD is below the signal line, a 9-day moving average of the MACD.  The MACD is also below the critical level of 0, which implies the past price action had been negative.  Overall, the chart is bearish.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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