Arena Pharmaceuticals ( ARNA) carries a heavy burden.

Not only is the San Diego-based drug company under pressure to produce boffo results from a phase III study of its obesity drug later this month, but Arena's drug also must find a way to free itself from the dark and costly legacy of the fen-phen diet pill tragedy of the 1990s.

Arena's obesity drug is known as lorcaserin. Investors will get a first look at lorcaserin's ability to shed pounds -- and do it relatively safely --when Arena announces results from the first of two, phase III studies at the end of March. Data from the second phase III study are expected in the fall.

Arena is one of three companies with obesity drugs in ongoing phase III clinical trials ( Vivus ( VVUS) and Orexigen Therapeutics ( OREX) are the others). Of the three, Arena is probably under the most scrutiny because lorcaserin is a chemical cousin to fenfluramine, or the "fen" in the effective but unsafe fen-phen diet pill combination regimen.

People who took fen-phen lost weight, as much as 15%-20% of their body weight, in fact. But the combination, in particular, fenfluramine, caused serious damage to some people's heart valves. The drug was yanked from the market in 1997and its maker American Home Products, which later became Wyeth ( WYE), was forced to pay billions of dollars in damages to people injured by the drug.

Lorcaserin and fenfluramine both work through an effect on a receptor in the body that regulates levels of serotonin, a brain chemical that can increase feelings of satiety, or fullness.

The problem with fenfluramine was that the drug also had an effect on similar, related receptors in the body that induced the heart valve damage.

Arena has chemically engineered lorcaserin to be much more specific so that it targets only the serotonin receptor controlling satiety while not affecting related receptors that might trigger heart damage.

To date, lorcaserin has a clean safety record, with no evidence that it is causing the kind of heart valve damage attributed to its chemical cousin fenfluramine. Yet, doubts persist, which is why the safety data from the lorcaserin phase III studies are more important than how much weight loss the drug induces in patients. The effect the drug has on the heart, as well as effects to the central nervous system, will be scrutinized closely.

If lorcaserin's safety profile isn't clean, the drug - and Arena -- could be in big trouble.

Arena's first phase III study -- dubbed BLOOM -- enrolled 3,181 patients and randomized them to receive lorcaserin or a placebo for two years of treatment. The primary goal of the study is to determine if lorcaserin can induce greater weight loss than placebo, measured as the percentage of body weight lost after two years.

All patients in the BLOOM study also undergo a moderate diet and exercise program, so it's expected that patients taking the dummy pill will likely lose between 1.5% and 2.5% of their body weight.

The Food and Drug Administration requires that any experimental obesity pill must help patients lose at least 5% of their body weight, adjusted for placebo. For lorcaserin to be successful in the BLOOM study, it will have to cause between 6.5% and 7.5% weight loss, assuming the historical weight loss seen in placebo patients also is observed in the study.

On Arena's last quarterly conference, held March 12, Arena CEO Jack Lief suggested that lorcaserin might be having the desired weight-loss effect since blinded patient data from the BLOOM study was coming back in the desired 6.5% to 7.5% weight loss range. This means that Arena knows generally the weight loss for all patients in the study, but the company doesn't yet know how much weight lorcaserin or placebo patients are losing individually.

Arena's stock price has actually dropped since the company's quarterly conference call, suggesting either that investors don't believe the confident signals being sent out by Arena management, or lorcaserin's safety profile remains a major concern.

Arena shares closed Friday at $3.98.

On March 16, Canaccord Adams analyst Adam Cutler downgraded Arena to a sell with a price target of $2.50. Cutler believes the BLOOM study will show lorcaserin to have a modest weight loss benefit with a clean cardiovascular side effect profile, but even this data will not be positive enough to quell concerns about the drug.

"Arena management has stated that BLOOM safety data alone will not be enough to rule out elevated risk of valvulopathy heart valve damage to FDA requirements," Cutler wrote in his downgrade note, adding that additional safety data from the second phase III study -- dubbed BLOSSOM - also must come back clean.

Completion of the BLOSSOM study isn't expected until September. At Arena's current cash burn rate, there is a chance the company could run out of money before the BLOSSOM data are ready.

Arena hasn't provided financial guidance for 2009 but management has stated that it intends to license lorcaserin to a partner, presumably a larger drug company, which would ease Arena's cash problems and help fund the drug's further development and marketing, if ultimately approved.

Yet, many analysts, including Canaccord's Cutler, believe pharmaceutical companies are wary of lorcaserin because of its fenfluramine roots, so Arena may not be able to attract a partner until all of lorcaserin's safety and efficacy data are released in full.

Both Vivus and Orexigen have already released some late-stage data on their respective obesity drugs, with more data coming available later this year. Like Arena, neither company has yet to attract a "Big Pharma" partner.
At the time of publication, Feuerstein's Biotech Select model portfolio had no positions in any stocks mentioned.

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