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Arena Trading Surges Ahead of Key FDA Drug Approval Decision

Stocks in this article: ARNA VVUS

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Updated with stock price.

SAN DIEGO ( TheStreet) -- Arena Pharmaceuticals' (ARNA) share price and trading volume are sharply higher two weeks in front of an expected U.S. approval decision on the company's weight-loss drug.

With 30 minutes remaining in Wednesday's regular trading session, almost 54 million shares of Arena have already traded hands with the stock up 1.5% to $8.00 -- near a five-year high. Average daily volume in the stock is 16 million shares.

This frenzied trading in Arena looks to have started last Friday and has accelerated over the past three trading days. On Tuesday, Arena shares rose 11% on volume of almost 38 million shares.

"Everyone is scratching their heads," said one institutional investor who follows biotech stocks closely.

The U.S. Food and Drug Administration is expected to issue an approval decision on June 27 for Arena's weight-loss drug lorcaserin. An FDA advisory panel held May 10 voted to recommend lorcaserin's approval.

Trying to nail down the exact reasons for the sudden spike in Arena trading is difficult. Arena CEO Jack Lief met with Wall Street investors at a healthcare investor conference last week, where he expressed optimism about an on-time FDA approval without a risk-management plan for lorcaserin, according to two investors who met privately with Lief.

Some investors and analysts have speculated that FDA could delay lorcaserin's approval by three months to give the agency more time to review the drug and finalize a risk-management plan to ensure safe use.

"I don't think institutions are piling into Arena but it's possible. Honestly, I don't know what's going on with the stock," said one of the investors who met with Lief.

Institutional ownership of Arena has been relatively low given widespread skepticism about lorcaserin's modest ability to shed weight. But mutual funds and other large Wall Street investors may be new converts and upping their ownership in Arena following the positive FDA panel and belief that FDA will follow through with a full approval.

Arena's short position was almost 40 million shares as of May 31, which could also help explain the stock's recent movement.

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