Shares of Arena soar on potential for diet drug

Investors were sweeping up shares of Arena Pharmaceuticals (ARNA) today ahead of a U.S. Food & Drug Administration panel meeting on rival Vivus' (VVUS) diet drug Qnexa -- the first potential U.S. prescription weight-loss drug in years.

An FDA advisory panel will discuss Qnexa to determine whether its weight-loss benefits outweigh any side effects, such as cardiovascular risks, that have plagued diet drugs in the past.

FDA staffers said earlier this week that they were also concerned about potential risks for congenital defects, psychiatric problems such as depression, memory loss and other cognitive issues and increased body acids.

Shares of Vivus were halted pending the outcome of the panel, but Arena's stock surged 86 cents, or 20%, to $5.14 on optimism that Qnexa, and later its own diet drug Lorcaserin, will be approved.

"Imagine what a drug can do that doesn't have side effects and removes more weight," Leerink Swann analyst Steve Yoo told Thomson Reuters.

• Find a new broker and trade online

The FDA will weigh the panel's recommendation before making a final decision on the drugs. The FDA does not have to follow the recommendations of its panels, but it typically does.

Orexigen Therapeutics' (OREX) Contrave is a third diet drug the FDA will consider. Shares were up 20 cents, or 3.5%, to $5.75.

Arena shares also got a boost after data from a two-year clinical trial for Lorcaserin showed that users lost more weight than those taking a placebo. The results are published in the current edition of the New England Journal of Medicine.

More than two-thirds of Americans are overweight or obese. Last year, prescription and over-the-counter diet drugs brought in just $381.5 million in 2009, according to IMS Health.