ARNA is being pumped and may show some upswing: Arena Pharmaceuticals (ARNA) has been mentioned quite a few times in the past but most recently last week. We thought that the company would announce the initiation of a Phase I study for APD356 in the very near future.
Our timing was pretty close as Arena Pharmaceuticals announced yesterday that it has initiated a Phase 1 clinical trial in the United Kingdom for APD356, its lead anti obesity compound. This double-blind, placebo controlled, single dose, dose-escalation trial is planned to enroll 54 healthy, overweight volunteers. The study will evaluate the safety and tolerability profile of APD356 which is an orally-administered small molecule that is a selective 5HT2C serotonin receptor agonist. APD356 has been shown to reduce body weight and food intake in animal models of obesity. The goal of this compound is to regulate body weight by regulating satiety aka appetite.
The 5HT2C receptor is located in an area of the brain known to be critical for regulating metabolism and food intake. APD356 reduced body weight and food intake in animal models of obesity, which, Arena believes, is due to the compound's ability to regulate satiety. Arena's in vivo experiments showed that APD356 selectively reduced fat mass in obese animals, while leaving lean body mass unchanged, a very desirable outcome. Further, these same animals evidenced a statistically significant decrease in total cholesterol, while their HDL, the so-called "good" cholesterol, increased.
The potential for APD 356 is unlimited, especially here in the United States, where obesity is a major problem for both children and adults. The Centers for Disease Control and Prevention reported that 15.3% of children ages 6 to 11 were overweight in 1999 and 2000, more than triple the average of 4.2% from 1963 to 1970. Readers interested in learning more about this drug can view presentations at Arena's website.
The Bottom Line
Shares of Arena traded up to an intraday high of $6.15 per share and ended up closing the day at $6.10 on very strong volume. There is one word that comes to mind for this measly gain, TERRIBLE. We first introduced the company to readers at $6.00 per share. We took an initial position in the company at an average cost of $6.01 and increased our position at $6.00 per share. On a positive note, yesterday shares traded to its highest level since January 14.
The question on shareholders minds is why isn't this stock moving north? Arena has an enviable cash position that stood at $154 million or $5.67 per share as of December 31 and a terrific pipeline coupled with major partners such as Merck & Co., Inc. (MRK). So what gives? The answer is a rather simple three letter acronym, BVF aka the Biotechnology Value Fund. San Francisco-based BVF, which once controlled a 27 % stake in Arena, has been selling millions of shares everyday. This venture capital fund has been at odds with the management team at the company for quite some time. Things have gotten pretty ugly and personal.
BVF has been selling but the stock has held up very well. The fund has approximately 6.7 million shares left and may end up selling their entire position. It appears that other institutions are lining up and taking BVF's place. In this red hot market there aren't many opportunities to take significant positions in anything trading at or near cash. APD356 represents the first time Arena has had any of its drugs enter clinical trials. Going forward, valuations for the company should increase as the trial progresses and additional drugs make their way into clinical trials as well.
There are not a whole lot of bargains out there and that's why we are going to hold onto our entire Arena position. It won't take too much activity for Arena to move up once BVF is done selling because 66.16% of the company is held by institutions while insiders own around 31%. One minor complaint that we have is the lack of media excitement over the obesity compound but may come in due time.
[This message has been edited by Art (edited February 26, 2004).]
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