Arena Pharmaceuticals (ARNA) yesterday announced that olorinab failed to meet the primary endpoint in the Phase 2 CAPTIVATE study in IBS abdominal pain. This is disappointing but not remotely the reason to own (or sell) the stock. IBS is a difficult to treat condition and when we got into Arena the programs with olorinab didn’t even exist. We are here for the opportunity represented by etrasimod which is being studied for ulcerative colitis (UC) in the Phase 3 ELEVATE study (data expected early 2022) and, to a lesser degree, for Crohn’s in the Phase2/3 CULTIVATE study (interim data expected later in 2021). There is still a lot of time before this data comes out – this current retreat is not likely to matter in the long run (though it stinks right now).
Notably, analysts that are bullish on Arena assigned only a 15% chance of success with olorinab and gave the stock just a dollar or two worth of credit for the program. For those hung up on that asset, the study did show a statistically significant benefit at the highest dose for patients with moderate to severe pain. Arena is considering a sale or licensing of the asset (it was well-tolerated and safe, which is a significant achievement), which makes sense in my view as another player can likely pick up the ball and do something with it while Arena could get some cash and maintain focus on larger opportunities. I don’t see any reason to sell the stock on this news and would be a buyer instead. The catch here is, of course, that we will need to get eventual success in the ELEVATE study for the stock to do well. Should that program fail, which would be a HUGE surprise, the stock would get destroyed (unless management has revealed other potential blockbuster assets prior). That’s development-stage biotech investing. BUY