Why Arena Pharmaceuticals, Inc. Burst Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of obesity drug maker Arena Pharmaceuticals, slumped by as much as 10% earlier today after the company reported financial results and Orexigen announced that its competing drug Contrave could reduce the risk of heart attack by almost 50%.

So What: In the fourth quarter, sales of Arena's weight-loss drug Belviq grew 62% year-over-year to $3.8 million. That contributed to the company reporting full year revenue of $9.2 million, up 41.1% from a year ago.

However, those results aren't likely encouraging long-term shareholders. The company's sales missed Wall Street forecasts by more than $1 million, casting doubt on whether Belviq will ever live up to the sky high projections offered up by many prior to its approval.

Investors were also likely nervous to learn that sales of Belviq by its licensee Eisai were down 40.5% between the third quarter and fourth quarter. That decline was due to an aggressive savings card program launched by Eisai to boost scripts. That program did at least appear to work given that the number of Belviq scripts filled grew 4.2% sequentially to 149,000in the fourth quarter.

In addition to digesting Arena's seemingly lack-luster financial results, investors are also evaluating news that Orexigen's competing weight loss drug Contrave reduced the number of heart attacks and strokes during clinical trials. According to an interim analysis of the 9,000 patient study, patients receiving Contrave experienced 35 major adverse cardiac events compared to 59 such events for patients taking a placebo.

If Orexigen's data holds up throughout its trial, it could allow Contrave to win market share away from Arena's Belviq. While there's isn't a lot of revenue up for grabs in the market right now, many industry watchers still think that spending on obesity drugs will head higher over time.

Now What: Arena expects that the majority of its sales this year will come from payments from its Belviq collaborators Eisai and Ildong, which owns the license for South Korea. Arena receives royalties from those company's of 31.5% and 35%, respectively; however, Arena opted against providing any insight into how much it thinks those payments will be this year. Instead, the company only issued guidance on spending. In 2015, Arena expects to spend between $114 million and $122 million on R&D, as well as another $33 million to $39 million on general and administrative expenses. Since there's little clarity into sales and the company's spending remains a significant headwind, there are likely better investment options out there.

The article Why Arena Pharmaceuticals, Inc. Burst Today originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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