Feuerstein's Biotech-Stock Mailbag

---

Let's chew the fat. In this case, Arena PharmaceuticalsARNA and its obesity drug lorcaserin.

Shahram asks, "This price action makes no sense with Arena. William Ho from Bank of America says doctors prescribe obesity drugs for only 6 to 12 months and they don't work. Lorcaserin works, patients lose 10% of their body weight and there are no heart issues. There is nothing like it on the market or in clinical trials. What in the world is going on with the price? Help!"

I touched on Arena in last week's Mailbag, which some of you may not have read since it ran on Monday, when the Bear Stearns BSC crisis was stealing everyone's attention.

This is what I wrote:

"In the good ol' days of last year, a stock like Arena Pharmaceuticals would trade up in anticipation of news like the safety check of its experimental obesity drug. But even as the safety data came in positive on Monday, Arena's share price fell further.

"I'm waiting to see a biotech stock that can actually build on good news -- and keep those gains -- before I start to gain confidence that the worst is over."

Let me be clear. Monday's safety update on lorcaserin was positive news. The problem, however, is that investors don't really care. That may not make sense, but it's the story of this biotech market, unfortunately.

I'd also tell Shahram to step back a bit. Lorcaserin has potential as an obesity drug, but only the ongoing phase III study will prove if that's the case. A clean 12-month safety check for heart-related issues is good, but it doesn't rule out something bad popping up in the future

Meanwhile, there aren't many trading catalysts for Arena, which helps explain the recent price action. Data from the phase III lorcaserin studies won't ready until the first half of 2009. And while Arena is expected to find a partner for this drug, many investors don't believe a partnership is likely until next year.

---

William H. asks, "What's your take on the recent announcement by ExelixisEXEL of a partnership agreement with GenentechDNA over development of a cancer drug?"

My take: I like it.

The drug is XL518, a so-called MEK inhibitor, which works by disrupting one of the signaling pathways inside cells that allow tumors to grow out of control. XL518 is still in phase I studies, however, so the positive news of the partnership is tempered by the fact that the drug's development is still in the early stages.

I've long liked Exelixis for its deep pipeline of cancer drugs. Unfortunately, the stock has been hammered in this biotech bear market. At below $6, the stock is down about 50% from where it was last fall. I used to think Exelixis at $7-$8 was cheap, but I guess not.

The knock on the company is that it burns through too much money and none of its drugs are far enough along. Those are valid arguments, and ones that sting in this market, where investors are exquisitely sensitive to risk and hate companies that spend, spend, spend.