Arena Pharma And The Fat Lady's Song

Investors should also remember that Arena receives only roughly a third of lorcaserin sales; marketing partner Eisai gets the rest. Thus, even if lorcaserin reached $1.2 billion in revenues -- double the peak sales of Roche's similarly effective but side effect-laden obesity drug Orlistat -- despite a superior competitor (Vivus' Qnexa) and the albatross of history, Arena would net only $400 million. That's not bad, but it doesn't justify the company's $1.8 billion market capitalization.

I'm not a huge fan of obesity drugs. Despite the astonishing scale of the obesity epidemic in the U.S., I think the best long-term solution is a systematic overhaul of our society's interaction with food and exercise, not a pill that can't even maintain a modest effect for the vast majority of patients that take it. Obesity wasn't rampant, or even an issue, in the 1970s when I was a child; this is an avoidable condition and is the direct result of unfortunate lifestyle -- increased portion sizes, intensely marketed and heavily subsidized processed foods, and the ubiquitous sugar bombs from corporate behemoths like Coca-Cola.

Until this environment changes, Arena executives might as well be trying to climb a greased fire pole. Lorcaserin might be approvable, but it doesn't solve the problem even for the people that get a benefit. The 220 lbs woman who loses 10% of her body weight still weighs almost 200 lbs, and will likely gain back much of the weight even if she stays on drug. The key reason lorcaserin won't be a mega-blockbuster is actually quite simple: at some point, patients realize when the treatment isn't doing much good.

Disclosure: Sadeghi has no positions in any of the stocks mentioned in this article.

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