Arena Pharmaceuticals Inc. (ARNA) reported the success of its second large late-stage study of its weight-loss drug lorcaserin, but the strength of the results disappointed Wall Street when compared to other drugs being developed.

Arena's stock fell 12% to $4.30 in early trading Friday. The San Diego drug developer is in a three-way race with Vivus Inc. (VVUS) and Orexigen Therapeutics Inc. (OREX) to develop a new obesity treatment, a potential multi-billion dollar market.

Arena believes that the data from the study, called Blossom, met the Food and Drug Administration's guidance for effectiveness in order to obtain marketing approval. The data showed a clean side-effect profile and Arena plans to apply for marketing approval in December, as well as immediately begin partnering talks with a large pharmaceutical company.

In a conference call Friday, Arena executives called it a "game-changer" and projected that the drug will be a preferred first-line therapy for primary care physicians because of its lack of side effects.

But the effectiveness of the drug lags that of the others in development.

Barclays Capital analyst Jim Birchenough said the results were "at the bottom of the range for late stage candidates, only approximating regulatory requirements, of questionable clinical significance and unlikely to support partnership."

Shares of Vivus recently traded up 8.5% to $11.42 and Orexigen rose 1% to $9.31.

But analyst Bret Holley of Oppenheimer defended the drug's prospects and believes that lorcaserin's safety will lead it to be combined with other treatments and bring a "meaningful place in the obesity armamentarium."

Under FDA guidelines for clinical trials of obesity treatments, one of two goals must be met. A trial must show that at least 35% of the drug group lost at least 5% of body weight, but that group must be approximately double the percentage of patients with similar weight loss on the placebo. Alternatively, a study can show that patients had an average weight loss that was at least five percentage points higher than the placebo group's loss.

Arena's data didn't meet the second benchmark and 47.2% of the patients on the drug lost at least 5% of their weight, compared to 25% taking the placebo. Although it isn't double, Arena believes the FDA will accept the success of the trial because the drug arm is "approximately" double the placebo group.

"We are confident that we meet the benchmark," said Jack Lief, Arena's chief executive in an interview.

The one-year trial included more than 4,000 patients and found that those taking the drug twice a day lost 5.9% of their weight on average, compared to 2.8% on placebo, a difference of 3.1 percentage points.

The data from the Blossom study is similar to that from the first major trial of lorcaserin, called Bloom, which reported a more-than-double difference, but still disappointed investors when it was disclosed in March, sending its stock down 28% the day it was released.

Vivus reported the strong success of its two late-stage trials earlier this month and it is the only company of the three that met both FDA requirements with its data. Orexigen reported the successful outcome of three major Phase III trials of its drug Contrave in July.

In the past three months, shares of Vivus are up 85%, shares of Orexigen have more than doubled and Arena is down 5%, according to Thursday's closing stock prices.

Because of the market size - the Centers for Disease Control estimates 34% of U.S. adults are obese - analysts expect there to be room for multiple drugs to thrive. That market size also means that the companies will need to cut deals with large pharmaceutical companies to sell the drugs to primary-care physicians.

The potential side effects of obesity drugs have made large pharma companies cautious because of past disasters like the former Wyeth (WYE) drugs, Pondimin and successor Redux, which were part of the notorious fen-phen combination that was linked to heart-valve damage and led to billions of dollars in lawsuit settlements.

Arena's drug works in a similar manner to Wyeth's former treatment, by stimulating a receptor in the brain to make a person feel full, but both of its major studies have now shown that there is no increase in such heart-related side effects.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com