Arena ($ARNA) shares slide after it slashes staff, outlines FDA's lorcaserin demands

Three months after running headlong into an unexpected obstacle at the FDA that left its stock price battered and its NDA for a new obesity drug under a dark cloud, San Diego-based Arena Pharmaceuticals announced on Thursday that it is laying off 66 workers as it hustles up a response to the agency's CRL. Arena has said before that it plans to resubmit its NDA for lorcaserin by the end of this year, but after listing a series of issues to be resolved with regulators, the biotech concluded that it can't guarantee that it will stick to that timetable. And investors responded to the latest update from Arena by chopping close to 10 percent off the value of the biotech's shares in pre-market trading. 

The layoffs account for a quarter of Arena's workforce. And chopping the staff will eliminate more than $13 million in annual costs. There will be plenty left for the remaining workers to do, though, and proving that lorcaserin is safe--without being forced to mount costly new clinical trials--will be at the top of the list.

In its release, Arena said that it is planning to test the theory that lorcaserin causes mammary tumors in rats by increasing prolactin. "The FDA has recommended a dosing duration of no less than three months to establish a causal relationship between lorcaserin, prolactin elevation and mammary tumor development in rats. Subsequent to the end-of-review meeting, the FDA requested that Arena consider performing a separate 12-month study in female rats that would test whether transient prolactin elevation mediated by short-term exposure to lorcaserin can result in mammary tumors in rats."

The biotech also plans to conduct non-clinical experiments, including receptor pharmacology studies, and a small clinical study to "measure lorcaserin concentrations in human cerebrospinal fluid to provide additional data that may be informative for predicting human brain levels at therapeutic doses of lorcaserin. At the FDA's recommendation subsequent to the end-of-review meeting, Arena will expand the receptor studies to more fully characterize lorcaserin's activity at the 5-HT2B receptor to further assess the risk of valvulopathy."

There are other issues as well on the agency's check list. Analysts are likely to wonder if the one-year timeline outlined in today's announcement will be nearly enough to accomplish all the tasks at hand. For one, Matthew Herper at Forbes, the company's response to the FDA demands illustrates that CEO Jack Lief's passion for the product is interfering with the company's response to regulators. And if so, he should leave and let someone else who's able to objectively map a path forward take over.

"Executives at Arena probably believe so passionately in lorcaserin that they can't believe anyone could doubt it," writes Herper. "Belief and faith are what have gotten Arena this far, but they are not what is needed now. It's time to figure out how to get the drug approved, and that could require a fresh set of eyes."

- here's the Arena press release