Arena Pharmaceuticals: Obesity bet
"Don't risk the house on our latest pick; it is a highly speculative bet on Phase III data results due soon from Arena Pharmaceuticals (Nasdaq:ARNA)," says Ian Cooper in SC Trading Pit.
After a nice a 50% retracement from pumped highs of $7+ (which we nailed perfectly), it's time to go long with the underlying stock.
"But please don't risk the house on these positions. We're playing a hopeful run up on speculation heading into Phase III data and a win is unfortunately never a guarantee.
"We've been watching shares of Arena Pharmaceuticals since mid-2007... and for good reason. Right now, 30% of Americans are obese, according to the Centers for Disease Control and Prevention, as compared to 14.6% in 1971. So the obesity treatment market is obviously huge.
"And for Arena, it could be an absolute gold mine. You see, if all goes well in coming weeks, Arena could take a commanding position in that very market, pegged at more than $10 billion.
"At any given time, it's estimated that 70 million Americans are trying to lose weight, and spending billions to do so. Imagine if a $483 million company like Arena was to tap that market? It'd never see the single-digits again.
"Sure, there are three obesity drugs on market right now. But none of them are blockbuster drug-worthy and carry severe side effects.
"Arena's Lorcaserin works by stimulating the 5-HT2c serotonin receptor in the hypothalamus which affects 'fullness' (or satiety) and metabolic rate. Its goal: to produce a minimum 5% loss of body weight for patients taking the drug.
"Naturally, any oral drug that can help people shed unwanted weight and have minimal side effects is going to be huge. The opportunity for the company could easily be worth more than $5 billion to $10 billion a year in sales.
"So far, success isn't an issue. In Phase 1 and 2 trials, more than 900 patients took the drug and had no safety issues. Plus, two separate analyses - conducted by independent safety monitors in a 2006 Bloom study - report this obesity drug to be safe, after both a six-month interval, and a year of follow-up.
"But come late March or early April, Arena will announce weight loss data from Phase 3 trials, which studied effects on 3,100 patients. If the data is positive, Arena will attempt to present full data in medical journals or meetings.
"And it'll surely heat up talk of buyouts... easily. And it'll go after FDA approval by year's end. But, again, we emphasize nothing is a guarantee. and betting on drugs is a risky investment."
Article provided courtesy of TheStockAdvisors.com.
