Arena Pharmaceuticals Inc suffered a major setback on Thursday when U.S. advisers rejected its proposed weight-loss pill amid concerns that tumors in rats might indicate a risk of cancer in humans.

Lorcaserin, Arena's most advanced drug candidate, is the second diet drug to stumble in a race among three small companies to launch the first new prescription diet drug in a decade.
Arena shares fell nearly 40 percent in after-hours trading Thursday to $2.28. The shares had been halted in regular trading pending results of the advisory meeting.

The stock is down 67 percent from Monday's close, with many investors fleeing the shares on Tuesday after the U.S. Food and Drug Administration issued documents raising safety concerns that included the rat tumors and memory loss.

Shares of Orexigen Therapeutics Inc, still to face an advisory panel on its diet pill, rallied 38 percent to $6.77 on Nasdaq.

The advisory committee voted 9-5 that potential risks from long-term use of Arena's lorcaserin outweighed possible benefits from modest weight loss. Panelists said they were unsure if tumors in lab rats meant the drug would increase brain or breast cancers in people.

"I do think (lorcaserin) is promising, but there's too much uncertainty at this time," said Jessica Henderson, the panel's consumer representative.

An FDA panel in July urged against approval of a diet drug from Vivus Inc after voicing concern about depression, memory loss and potential birth defects. Vivus shares fell 1.4 percent on Thursday.

Orexigen's drug, Contrave, is expected to face FDA advisers in December.

The expert panel called on Thursday for more study of Arena's lorcaserin in people with diabetes, high blood pressure and other health problems, to better reflect patients who would use the drug if it was approved.

The FDA usually follows panel recommendations. A final ruling is due October 22.

The probability of lorcaserin ever reaching the market is "really small," BMO Capital Markets analyst Jason Zhang said after the panel vote.

"They can run a large trial in a high-risk group and see if that will show similar efficacy but a better risk profile. That's a little remote," Zhang said.

Arena said its drug was safe at recommended doses and would help fight the U.S. obesity epidemic. Japan's Eisai Co holds the U.S. marketing rights to lorcaserin.

"I just couldn't get over that we didn't have a broader population that was representative of people most likely to get this (drug)," said Dr. Lamont Weide, an advisory panel member and chief of diabetes and endocrinology at the University of Missouri in Kansas City.

Arena is studying lorcaserin in overweight and obese diabetics and said it expects results later this year.
The companies believe the drug has "a positive benefit-risk profile" and Arena "will work closely with the FDA" on its review, Arena Chief Executive Jack Lief said in a statement handed to reporters shortly after the committee vote.

Consensus forecast data from Thomson Reuters showed analysts expected Arena's drug could reach peak annual sales of $822 million if it reached the market.

Drugmakers have failed for decades to produce a pill to help people shed a significant amount of weight without serious side effects.

Risks of current options were highlighted on Wednesday when U.S. advisers agreed tougher action was needed on Abbott Laboratories Inc's diet drug Meridia, but split on whether it should be banned.

Blocking Appetite
Arena's lorcaserin was designed to block appetite signals in the brain in a similar way to the now-withdrawn fenfluramine in the fen-phen diet-drug cocktail. The Arena drug is more selective in the receptors it affects and the company says studies have not found any of the heart-valve problems with lorcaserin that were linked to fenfluramine.

Arena also argued the findings of rat tumors did not apply to people because they resulted from high doses or biological mechanisms specific only to rodents. No increase in cancer cases was seen in people.

Patients who took 10 milligrams of lorcaserin twice daily for a year lost about 5.8 percent of their body weight on average, FDA reviewers said. Placebo patients lost 2.5 percent.

Prescription weight-loss drugs have failed to gain much traction in the United States, despite the potential for strong sales in a nation where two-thirds of the population are overweight or obese. The current U.S. diet drug market is small at about $381.5 million in 2009, according to data from IMS Health.

Arena is developing other drugs for treatment of blood clots, sleep disorders and pulmonary arterial hypertension, but all are in early testing.