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Posted on 8 July 2012 | 2,553 views

Arena Pharmaceuticals up 578% YTD Even After Its Bear Raid Last Month

On June 22, 2012, shares of Arena Pharmaceuticals (Ticker Symbol: ARNA) experienced significant volatility and although there was no specific news on Arena Pharmaceuticals, there had been some market rumors about a potential bear raid in the stock.

The stock opened near $11.96, but fell quickly almost 35% to $7.80 and after this quick sell-off, the shares rebounded back to $9.88 per share.

Bear Raid is a trading strategy in which traders attempt to push a stock’s price downward in order to cover a short position. This strategy can be executed by spreading negative rumors or publishing a bearish report on the stock.

The bear raid indicated that traders are expecting the drug to receive FDA approval, which would explain the aggressive short covering.

Then Arena Pharmaceuticals anti-obesity drug Belviq was approved by the FDA on June 29, 2012. The drug was cleared for use in obese/overweight adults who have at least one medical condition. Obesity has become a major problem in the U.S. as it is estimated roughly 35 percent of the population is obese.

Shares of biotech companies in the anti-obesity market surged on the announcement that the Food and Drug Administration had approved the first weight loss pill since Roche Holding AG’s Xenical in 1999.

Orexigen Therapeutic (Ticker Symbol: OREX) jumped after the FDA approved Arena Pharmaceuticals’ Belviq weight loss drug. JPMorgan upgrades the stock to Overweight, stating that it  ”stands to be the biggest beneficiary” since its weight loss drug, Contrave, is still in the far future, leaving a gap in valuation with rivals who have drugs closer to an approval date. The shares closed at $5.90, up $0.98 or 19.92% on the day. Orexigen started 2012 at $1.61 per share and closed at $5.78 per share as of July 6, 2012 — up 359% year-to-date.

Shares of Arena Pharmaceuticals have risen more than 578% year-to-date — from $1.92 per share to $11.11 per share as of the close on July 6, 2012.

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