Event - Cancer signal still a question for Arena obesity pill

On first read, Arena Pharmaceuticals’ 37% share rise to an 18-month high last week as the second advisory committee hearing for obesity drug Lorqess approaches is not too surprising. The signs are growing that the FDA might be more receptive toward the current generation of obesity drugs with a positive adcom vote in favour of its competitor, Vivus’ Qnexa.

The big question facing expert panellists convening May 10, along with agency staff, will be whether the California company’s rat carcinogenicity analysis, sought in a complete response letter in 2011, was long enough to assuage the regulator’s worries about cancer risk. With the possibility that Qnexa will get a thumbs up from the FDA by its PDUFA action date April 17, there may be a sense of reduced need for a second pill to help the one-third of Americans classified as obese achieve a healthy weight.

Company Arena Pharmaceuticals
Product Lorqess (lorcaserin)
Market cap $435m
Product NPV $519m
% of market cap 119%
Event type FDA Advisory Committee PDUFA
Date May 10, 2012 June  27, 2012

Rat cancer

The safety signal that ruined Arena’s first try at approval was linked to mammary tumours found in rats dosed with the drug (Without delay, FDA sends Lorqess back for more work, October 25, 2010). The hypothesis was that Lorqess increases prolactin production in rats and thus results in mammary tumours.

In meetings following the complete response letter, Arena said regulators recommended a rat study dosing duration of at least three months – and requested it go to 12 months – to test the link and establish it as specific to rats and irrelevant to humans. The company went with three months, an issue that worries analysts from BMO Capital Markets.

Added to that is the data suggesting that Lorqess, known generically as lorcaserin, was the least effective in reducing weight of the three submitted to the FDA and rejected in 2010 – Qnexa, with a strong 20-2 adcom vote now behind it, was seen as the most effective of the three (FDA panel clears Qnexa's path to market but length still uncertain, February 23, 2012).

As lorcaserin has the carcinogenicity question hanging over it, the panel makeup will be somewhat different from that of Qnexa, which most importantly had a cardiovascular risk to be considered - separate adcom scheduled for this week will take on some of the cardiovascular issues that have been troubling the agency on obesity drugs.

The likely inclusion of cancer experts in the mix of those voting on Arena’s drug will change the dynamic of the debate, especially since the rat-specific mechanism has not been established, according to the BMO analysts.

Still, analysts from Piper Jaffray are bullish on Arena and expect approval based on the Qnexa vote, a hopefulness shared by investors. Shares continued to rise today, up 15% to $2.77 in early trading, valuing Arena at very near the net present value of Lorqess' estimated royalty stream.

High hopes

FDA approval following a positive vote would be a big win financially for Arena. Its US marketing deal with Eisai included a $90m milestone on regulatory approval and product delivery. The company ended 2011 with $58m in cash, and this year has raised $28m in a share sale to Deerfield Management and $25m from an equity line of credit with Azimuth Opportunity.

A positive vote followed by FDA approval should also improve the prospects of a partnership in Europe, where a marketing authorisation application has already been filed. Given the cash position, it may be negotiating from a position of strength in Europe should it receive an approval from the FDA. However, another complete response letter based on uncertainty of the cancer risk would clearly weaken its hand.

Arena’s second-chance efforts to get FDA approval have sparked enough investor faith to prop up its value, although nowhere near the giddy $8 heights the shares reached, prior to the first FDA rejection. A second negative vote and agency rebuff would no doubt crash those share prices once again. Given the uncertainty over whether the group has proven its case, it is a big bet to take.

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