NEW YORK (AP) -- Shares of Arena Pharmaceuticals Inc. declined Wednesday after a Piper Jaffray analyst downgraded the stock, noting that the share price has grown as Wall Street becomes more hopeful that Arena's obesity drug lorcaserin will be approved.
THE SPARK: Analyst Edward Tenthoff downgraded the stock to "Neutral" from "Overweight." He said the stock could continue to rise if a Food and Drug Administration advisory committee recommends that lorcaserin be approved, but the shares are a riskier proposition at their current levels. Tenthoff has a price target of $2.50 per share.
If the advisory panel recommends against approving lorcaserin, shares of the San Diego company could fall to around $1, Tenthoff wrote.
THE BIG PICTURE: Arena and its partner Eisai are trying to win FDA approval to market lorcaserin for patients who are overweight or obese and have at least one health problem related to their weight. The FDA refused to grant approval in 2010 because it was not convinced the drug was effective, and because preclinical studies showed a link between lorcaserin and tumors in rats.
Tenthoff said Arena made a strong argument that many of those tumors were caused by a "rat-specific mechanism" that would not affect people. The panel will consider that argument when it convenes on May 10. The FDA itself is scheduled to make a decision on lorcaserin by June 27. The FDA is not required to accept the advice of its panels, but it often does so.
SHARE ACTION: Arena Pharmaceuticals stock fell 35 cents, or 10.9 percent, to $2.90 in midday trading. The stock is up 60 percent since March 22 and it has more than doubled in value since Nov. 25, the last trading day before Tenthoff's most recent upgrade. Shares closed at $1.27 before Tenthoff upgraded the stock to "Overweight."