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Vivus Obesity Drug Delay Is Good and Still Means Arena Pharma Rejection

Updated with recent stock prices.

BOSTON ( TheStreet) -- Another day, another plot twist in the continuing soap opera of weight-loss drugs seeking U.S. approval: A three-month extension tacked on to the review of Vivus' (VVUS - Get Report) Qnexa is a cause for celebration while also setting up an even juicier opportunity to short shares of rival Arena Pharmaceuticals (ARNA - Get Report).

The U.S. Food and Drug Administration has pushed back the approval decision date for Vivus' Qnexa to July 17 from April 17 because the agency needs more time to review a risk management plan for the weight-loss drug. A Vivus delay is good because it strongly suggests FDA's top brass have decided to approve Qnexa; all that remains is making sure that proper safeguards are in place to minimize safety risks.

Put it another way: If FDA had decided to reject Qnexa, it could have easily waited until April 17 to send Vivus a complete response letter. The agency hasn't done that, so Qnexa will be approved, albeit a bit later than expected.

Meanwhile, die-hard Arena bulls are yelping with excitement over the Vivus delay because they now (mistakenly) believe Arena's lorcaserin will be the first weight-loss drug to receive FDA's blessing on June 27.

Pardon the pun, but fat chance.

Lorcaserin isn't much more than a placebo (a paltry 3% weight loss) with the added bonus of causing tumors in rats. Arena's has failed to disprove a link between the lorcaserin-fueled rat tumors and the potential for breast cancer in humans, despite the company's claims to the contrary. And let's not forget the risk of heart valve damage that still lingers over lorcaserin, a chemical cousin to the infamous and dangerous fenfluramine.

FDA may be under political pressure to approve a new weight-loss drug but lorcaserin isn't the one. Expect the drug to be hammered again at a May 10 advisory panel meeting followed by an FDA rejection on June 27.

Arena fans have proven to be impervious to common sense ever since lorcaserin's shortcomings were made known years ago, so don't be surprised if Arena's stock rises into the May 10 advisory panel. A higher Arena stock price just makes it a more lucrative opportunity for those investors seeking to go short.

Arena shares are down 3.5% to $3.01 while Vivus shares are off 4% to $22 in Tuesday trading.

For more views on Vivus and Arena, read Top FDA Approval Decision Gurus Weigh in on Vivus' Obesity Drug

--Written by Adam Feuerstein in Boston.

>To contact the writer of this article, click here: Adam Feuerstein.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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