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September 16, 2010

Arena Pharmaceuticals Inc. investors hoping the company’s new weight loss drug Lorcaserin would win approval from the U.S. Food and Drug Administration (FDA), were instead shocked to find that an FDA advisory panel recommended the denial of the drug because of low efficacy and safety concerns, including that the drug caused cancer in laboratory rats, reported Reuters.

Investors say that Arena failed to disclose that rats given Lorcaserin developed cancerous tumors. Arena maintains that the cancer findings would not apply to humans and that the clinical trials showed no increased risk.

The U.S. Food and Drug Administration (FDA) Endocrinologic and Metabolic Drugs Advisory Committee voted 9 to 5 that the available data do not adequately demonstrate that the potential benefits of lorcaserin outweigh the potential risks.

The news caused Arena Pharmaceuticals Inc. (ARNA) shares to drop nearly 40% today.

"The concern that people have is, when did management know about this and what was the extent of the signal that was observed?" one investor who asked to remain anonymous told Reuters. "I think lawyers will have a field day with this. I suspect there will be some subpoenas and a lot of pointed questions from attorneys and investors."

Former federal prosecutors told Reuters that it would potentially expose the company to liability if the company failed to disclose material information that would affect either an FDA approval or an investment in a publicly traded company.

The FDA is cautious about approving new diet drugs since the devastating results of Fen-Phen. According to The New York Times, Lorcaserin mimics the brain chemical serotonin similar to the action of fenfluramine, which was the half of the drug combo Fen-Phen the FDA pulled from the market due to heart valve damage.

"We believe that lorcaserin has a positive benefit-risk profile and represents a potential advance in the treatment of obesity," said Jack Lief, Arena’s President and Chief Executive Officer in a release. "We will work with the FDA as the agency completes its review of the lorcaserin new drug application."

The FDA usually follows the recommendation of the advisory committees and will decide the fate of Lorcaserin next month.

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