A form S-3 Registration Statement appeared on the Arena Pharmaceuticals website; the company may now issue an additional $150 million in new securities.

An S-3 appeared on the Arena Pharmaceuticals website allowing the company to issue up to an additional $150 million in mixed securities. The document starts off:

"We may, from time to time, offer to sell up to $150,000,000 of any combination of the securities described in this prospectus, either individually or in units, at prices and on terms described in one or more supplements to this prospectus."

invest.arenapharm.com/secfiling.cfm?filingID=1193125-10-104544

The company may issue additional shares of common stock, preferred stock, debt securities or warrants. The preferred shares would undoubtedly be convertible.

With a market cap today of $323 million, if this dilution were applied immediately, the share price could drop as low as $2.19.

The bigger question is what does this move mean for lorcaserin—the drug on which the future of this company depends? It seems to me that having this option could mean one of two things:

(a) The company is having difficulty finding a marketing partner for lorcaserin, so it needs the extra cash to ensure the successful launch of the drug;
(b) It could also mean that the company is simply strengthening its hand: with this option, it gives the company, potentially, a reservoir of cash and a better negotiating position with potential partners. It may not ever need to tap this potential reserve;
(c) It's a long shot, but maybe Lief already has a deal and is getting ready to cash in--it's a long shot, because $150 million isn't much money given what lorcaserin is potentially worth.

As of its last reported numbers, the company has close to $120 million in cash and cash equivalents on hand. Jack Lief, the CEO of Arena, is holding a webcast tomorrow, so many of these questions could be answered then. The link to this webcast is provided next.

invest.arenapharm.com/releasedetail.cfm?ReleaseID=465312

As of writing this piece, the share price has dropped about 10 cents from its close yesterday. I just sold some Arena at $3.27. Options prices have remained steady—July calls have climbed a little.

I guess many shareholders will be glued to the webcast tomorrow for clues as to how the company is progressing. My sense now is that the company may not strike a deal with a major pharma company before the summer.

I certainly believe in lorcaserin. I think it is a very good drug. I am intrigued that the FDA has not yet appointed an advisory committee. A competing drug from Vivus has had a committee appointed; given that the NDAs were filed around the same time, I would have expected the committee to review both drugs at the same time. All signs are that the FDA will look favorably on this drug, though I wish I had a guidance document for a review panel—it's usually very telling!