Arena Trading Surges Ahead of Key FDA Drug Approval Decision

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

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.

"I'm chalking it up to short covering in a market that is taking risk down," said a biotech hedge fund manager. "Real investor buying may be part of it but 20% of Arena's float is short."

It's also not uncommon to see biotech stocks run up into FDA approval decisions as momentum investors try to play any short-term pop in price and volume. Arena certainly fits this category, perhaps even more so given the high-profile nature of weight-loss drugs in general.

Whether or not FDA approves lorcaserin on June 27 or delays approval for a short time, Arena and its marketing partner Eisai are not expected to launch the drug commercially until early next year.

The FDA is also reviewing Vivus' ( VVUS) weight-loss drug Qnexa, with an expected decision date of July 17.

--Written by Adam Feuerstein in Boston.

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

>To follow the writer on Twitter, go to http://twitter.com/adamfeuerstein.

>To submit a news tip, send an email to: tips@thestreet.com.

Follow TheStreet on Twitter and become a fan on Facebook.

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.

More from Stocks

50 Stocks Goldman Sachs Thinks Can Triumph Over Labor Inflation

50 Stocks Goldman Sachs Thinks Can Triumph Over Labor Inflation

Trump Issues New Trade Threats, Apple, ZTE, GameStop - 5 Things You Must Know

Trump Issues New Trade Threats, Apple, ZTE, GameStop - 5 Things You Must Know

China-Focused Stocks Hit Hard as Beijing Responds to Trump Tariff Threats

China-Focused Stocks Hit Hard as Beijing Responds to Trump Tariff Threats

The Quick Answer Why Trump's Trade War Makes Stocks at Least 10% Overvalued

The Quick Answer Why Trump's Trade War Makes Stocks at Least 10% Overvalued

Dow Futures Plunge, Global Markets Rocked as Trump Takes Trade War to Next Level

Dow Futures Plunge, Global Markets Rocked as Trump Takes Trade War to Next Level