SAN DIEGO ( TheStreet) -- The hedge funds think Arena Pharmaceuticals ( ARNA - Get Report) will fail.

That's the consensus opinion emerging from an informal email poll taken this week, which asked healthcare buy-side investors, mostly biotech-focused hedge funds, to handicap the Sept. 16 FDA advisory panel that will review Arena's obesity drug lorcaserin.

Of 30 respondents, 75% predicted the FDA panel of outside experts will vote against recommending approval of Arena's lorcaserin. The remaining 25% of respondents believed the panel will vote in favor of the drug.

Pascal Besman, a managing director and institutional healthcare sector broker at JMP Securities, and I jointly conducted the poll to gauge buy-side investor opinion going into Thursday's closely watched FDA advisory panel for Arena.

Hedge fund managers are a skeptical lot and they tend to love shorting stocks that, like Arena, have moved sharply higher in front of big stock-moving events. This makes the pessimism aimed at Arena highlighted in the poll not altogether surprising. Other voices, including analysts and investors voting with their pocketbooks, are taking a more pro-Arena line as the FDA advisory panel nears.

The buyside investors in the poll cited lorcaserin's lackluster ability to help patients lose weight and keep it off and inconclusive proof of the drug's long-term safety as the main reasons for why they predict the FDA's advisory panel will vote against the drug's approval.

In two phase III studies to date, lorcaserin-treated patients lost approximately 4% of their weight, adjusted for placebo -- a result statistically significant in favor of lorcaserin. Perhaps more importantly, lorcaserin showed no signal for an increased risk of cardiac valvulopathy over two years of follow-up.

Arena's management and the analyst and investors who support the company cite lorcaserin's lack of serious side effects and two years of safety data showing patients are free from any additional cardiovascular safety problems as strong evidence that will compel both the FDA and its advisory panel to support the drug's approval.

Even lorcaserin's efficacy is unfairly maligned, Arena supporters claim, because in studies the drug helped far more patients achieve clinically meaningful weight loss than placebo -- as much as currently approved weight-loss drugs and enough to meet FDA's efficacy thresholds.

Arena's enters the fray of an FDA advisory panel amidst a regulatory environment obsessed with drug safety and (so far) unkind to obesity drugs. In July, a similar FDA panel voted against Vivus' ( VVUS - Get Report) obesity drug Qnexa, citing unacceptable safety risks and the lack of long-term safety data. That same panel struggled with a debate over the heart safety risks of GlaxoSmithKline's ( GSK) diabetes drug Avandia.

On Sept. 15, an FDA panel will re-examine the status of Abbott Labs' ( ABT) currently approved weight-loss drug Meridia in light of new data associating the drug to an increase in heart attack and strokes. European regulators have already pulled Meridia from the market and the editors of the prestigious New England Journal of Medicine have called on the FDA to do the same thing here.

The panel of experts who will debate Meridia and its heart safety issues on Weds. Sept. 15, will reconvene the next day to review Arena's lorcaserin. Will these experts see lorcaserin as a bright light in an otherwise dark and dangerous obesity drug market? Or, will the panel be so concerned about safety and future risk that they conclude no obesity drug, no matter what data have been compiled to date, is safe enough for approval today?

Arena's surging share price going into Thursday's FDA panel reflects a good amount of optimism for lorcaserin's chances. At $7.21, Arena shares are up 84% since Vivus was dinged by its own FDA panel on July 15. Arena's value were also lifted by the lorcaserin marketing partnership signed with Japanese drug maker Eisai on July 1.

Sell-side analysts currently cover Arena with 7 buys, 10 holds and one sell rating.

Piper Jaffray analyst Ed Tenthoff is the sell side's biggest Arena backer, urging his investor clients to buy the stock in advance of the FDA advisory panel.

"We expect valvulopathy to be the primary safety question raised in lorcaserin briefing documents out on September 14th and discussed at the FDA panel meeting on September 16th," wrote Tenthoff in a recent research note. "That said we believe pooled data from BLOOM and BLOSSOM the lorcaserin phase III studies meet the prespecified non-inferiority analysis and support the safety of lorcaserin. Recent controversy over statistical methods overlooks the more important point that the totality of existing data does not show an increased valvulopathy risk for lorcaserin." Tenthoff has an overweight rating on Arena and a $10 price target.

The controversy over the statistical methods used to analyzed lorcaserin's heart safety data comes from Jefferies analyst Thomas Wei, who has been raising questions and concerns about the drug's safety -- both valvulopathy and psychiatric side effects -- in recent research notes. Wei has a hold rating on Arena and a $5 price target.

Then there are the analysts like JMP Securities' Jason Butler who are either on the fence about the outcome of the lorcaserin panel, or who believe the stock's current valuation already bakes in a positive outcome, not to mention the drug's approval and significant future sales.

"My current view is that there is a 60% chance of a positive recommendation for lorcaserin at the panel. However, I also think there is a strong possibility of a delay (complete response letter) even with a positive panel outcome based on the lack of a REMS risk management program proposal. The diabetes data (BLOOM-DM) could be a further cause for delay," says Butler, in an email.

Added Butler, "The main driver of my market perform rating is valuation as I believe that you need blockbuster sales to justify something around $10 and I don’t see this happening for lorcaserin monotherapy."

The FDA is expected to issue drug approval decisions on Oct. 22 and Oct. 28 for the obesity drugs from Arena and Vivus, respectively. Orexigen Therapeutics ( OREX) will bring its obesity drug Contrave in front of an FDA advisory panel on Dec.7 and has an approval decision date of Jan. 31, 2011.

--Written by Adam Feuerstein in Boston.

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