Shares of Arena Pharmaceuticals Inc (ARNA.O) fell 15 percent on Friday, days ahead of a key meeting at which U.S. regulators will rule on whether to approve its experimental weight-loss drug.
The U.S. Food and Drug Administration is expected to rule on whether to approve the company's drug, lorcaserin, by June 27.
The stock closed down $1.80, or 15 percent, at $9.88. Earlier, it fell to as low as $7.80, a drop of more than 33 percent from Thursday's close.
Investors have been optimistic about the prospects for the drug, and - even with Friday's declines - the stock has appreciated more than 430 percent this year.
There was no news on Friday to explain the decline. The stock closed as the second-most actively traded on Nasdaq Friday, with more than 88 million shares traded, trailing only Intel Corp (INTC.O). Shares have gained ground each day for the past 10 trading sessions, rising 82 percent in expectation of a favorable ruling.
"Biotech stocks often display erratic trade patterns heading into critical FDA decisions," said TD Ameritrade chief derivatives strategist J.J. Kinahan. "Many of the traders are speculating that this could be profit taking as this was a $2 stock two months ago."
Investors in the options market are still betting on gains. Weekly call options expiring July 29 - which give an investor the chance to buy the stock by a given date at a particular price - were active. Investors bought calls at prices higher than the current share price, suggesting they see more gains ahead.
Arena option volume was heavy Friday, running 4.6 times the average daily turnover with 160,000 calls and 86,000 puts traded, according to options analytics firm Trade Alert. The most active options were the July $6 strike put followed by the July $15 call.
"On the options front, we are seeing speculators using the sell-off as an opportunity to take bullish positions by buying weekly June calls expiring next week and July calls expiring on July 20," Kinahan said.
(Reporting by Toni Clarke, additional reporting by Doris Frankel in Chicago; Editing by Bernadette Baum, Gary Hill)