Shares of Arena Pharmaceuticals (ARNA) are on the rise after the company said its ulcerative colitis drug met its primary, secondary, and clinical remission endpoints in a Phase 2 trial. Citing "impressive" trial results, Needham analyst Alan Carr upgraded the stock to Buy.

ULCERATIVE COLITIS DRUG MEETS ENDOPOINTS: Arena announced last night topline Phase 2 results from the Oasis trial for etrasimod, an investigational, once-daily, orally administered, selective sphingosine 1-phosphate receptor modulator in development for the treatment of ulcerative colitis. Patients receiving the 2 mg dose of etrasimod achieved statistically significant improvements versus placebo in the primary, all secondary, and clinical remission endpoints. Etrasimod was well tolerated and there were fewer patients with serious adverse events compared to placebo, according to Arena. Impact on heart rate and atrioventricular conduction was low throughout the study with no discontinuations from study related to bradycardia or AV block. There were no increases in liver function tests compared to placebo and no reports of macular edema or pulmonary function test abnormalities.

BUY ARENA: Needham's Carr upgraded Arena Pharmaceuticals to Buy from Hold, with a price target of $60, citing the company's "impressive results" from its Phase 2 ulcerative colitis study. The analyst noted that the safety and tolerability data components are "encouraging," and views the favorable outcome as an important validation of the drug. Although there is an extensive pipeline in the Inflammation space, the unmet need is still substantial and there are few S1P modulators in development, he contended, adding that etrasimod has potential to be an important differentiated tool. Meanwhile, his peer at JMP Securities raised his price target for Arena Pharmaceuticals to $79 from $63, while reiterating an Outperform rating on the shares. Analyst Jason Butler pointed out that the company's top-line results for etrasimod in ulcerative colitis meet or beat his best-case expectations and he has increased his view of the probability of success for etrasimod to 75% from 50%. Wells Fargo analyst Jim Birchenough also raised his price target for Arena to $60 from $53 and reiterated an Outperform rating on the shares.

COMPETITIVE TO CELGENE'S OZANIMOD: In a research note of his own, Piper Jaffray analyst Christopher Raymond told investors that Arena's competitor to Celgene's (CELG) ozanimod looks at least comparable to, if not slightly advantageous, versus ozanimod in previously treated ulcerative colitis. At the very least, the analyst said he believes Arena's S1P is competitive with ozanimod. Nonetheless, with ozanimod phase 3 ulcerative colitis data due late 2019, he thinks Celgene remains in the driver's seat for now.

PRICE ACTION: In late morning trading, shares of Arena Pharmaceuticals have gained over 35% to $41.79, while Celgene is down about 2% to $87 per share.