Arena Pharmaceuticals, Inc. (ARNA)

[clawmann]

Much has been written about the rat cancer issue. The basic point is this: Normally a company only supplies the final animal data to the FDA. But ARNA was providing the initial data to the FDA on a rolling basis. All initial assessments of rat tumours (categorizing them either as benign or malignant) were done by one veterinary pathologist.

The final animal data was provided by a panel of three veterinary pathologists, who reviewed the initial assessments and - in so doing - recategorized as benign some tumours that had been initially classified as malignant. ARNA, using the more reliable final data, determined there was no statistical significance of malignant or benign tumours, (and if the final classifications are indeed correct, ARNA's conclclusions of no statistical significance are also correct).

But the FDA saw that the final numbers showed a lower incidence of malignant tumours than the initial data, and this made them think something improper was going on (which is why they made a big deal out of the rat cancer data at the advisory panel). The FDA also, in its briefing docs to the advisory panel, did something that was quite outside normal scientific practice: they combined the tumour data (lumped it all together, benign and malignant), and only by doing so could they claim the tumour incidence was statistically significant.

In the CRL issued by the FDA, the FDA called for a new independent assessment of the rat tumour slides. That is happening now or will happen very soon. In addition, I beleive they want ARNA to put forward evidence supporting its assertion that, in any case, any increase in tumours is attributable to the increased level of prolactin caused by lorcasein in the rats (a phenomenon that is species specific and does not portend an increased tumour risk in humans). In addition, ARNA has one piece of major positive evidence: In the 2 year 7000 patient Phase III trial, there was no evidence of increased tumours in humans.

The particualar species of rats that are used are genetically predisposed to tumours, which is why even 40+% of the placebo rats developed tumours. This is exactly why these rats are used in carcinogenicity studies, because if something is carcinogenic, these rats are like the canary in a coal mine, it will show up quickly. But certain substances cause increased tumours because they generate a prolcatin response in these rats, something that causes tumours in these rats but is also very species specific.

This is the big issue for lorcaserin here. If the independent assessment of the rat tumour slides validates the final numbers that ARNA sent the FDA, then that will go a long way to settling this issue. In addition, ARNA has the world's leading expert on these rats submitting a document on the prolactin issue. (BTW, this exercise, if it validates ARNA's position, will also damage severely the class action lawsuits because it will be a very strong defense to the claims that ARNA failed to disclose negative statistically significant data in its SEC filings.)

That is a big part of what this month's meeting with FDA is about. I follow this company and its stock closely, and I am betting that ARNA puts the rat cancer issue to rest in the very near future and lorcaserin gets approved by mid-2011. If that happens, this stock will be at $15 by September 2011.

I should also point out that, on the efficacy question, the FDA's current guidance is different for a single agent (like lorcaserin) than for a multiple agent (like qnexa and contrave, which are combos of existing drugs). In the FDA guidance, the efficacy bar for a single agent is lower than for a combo. What surprised me was that Contrave, a combo, demonstrated efficacy barely better than lorcaserin and presents a clear risk of cardio events, and yet was recommended by the advisory panel.

So you can see how important the rat cancer issue is. If this issue had not come up, it is a high percentage proposition that lorc would already be approved.