NEW YORK (CNNMoney.com) - Arena Pharmaceuticals stock surged as much as 23 percent Wednesday after the California biotech announced study results for its experimental weight loss drug.

San Diego-based Arena Pharmaceuticals (up $2.01 to $13.42, Research) on Tuesday night unveiled study results for APD356, a weight loss pill that the company says reduces patients' weight by up to nearly eight pounds over a 12-week period.

The clinical trials are from phase 2, and the company still has to conduct the more exhaustive phase 3 studies before filing the drug with the Food and Drug Administration.

"We're looking at many millions of potential patients," said Arena chief executive officer Jack Lief. "Obviously the market [for weight loss drugs] is very large. We certainly think this will be a billion dollar opportunity."

"I'm not surprised to see this reaction at all," said Bret Holley, analyst for CIBC Markets, referring to the stock price surge. Holley said investors are projecting a "large opportunity" for the drug, even though it isn't projected to enter the market for another five years.

Patients who took daily 20 mg doses of APD356 lost 7.9 pounds during the course of the study, which had 469 participants, according to the company. Patients who took smaller doses lost less weight, losing 4 pounds on 10 mg doses and 5.7 pounds on 15 mg, the company said. Patients on placebo lost 0.7 pounds.

Lief said that one-third of the patients lost 5 percent of the body weight, or about 12 pounds, in 12 weeks without diet or exercise and that "most of the side effects are pretty benign."

Holley, the analyst, said one of the patients suffered a seizure during the trials. "I think that's something to note and watch as the drug goes into phase 3 trials next year," said the analyst.

The drug works by reducing appetite, said Lief, who founded the biotech in 1997. Patients on the highest dose would take a 10 mg pill before breakfast and another before dinner.

"The drug is in the brain and it's telling the body, 'Hey, you're not as hungry as you would be otherwise," said Lief. "That tempers your appetite and you eat less and you lose weight."

The diet drug is Arena's most advanced pipeline product, though the biotech is also testing a treatment for insomnia. In addition, in partnership with Merck (Research), the company is also testing in phase 1 a drug to increase HDL, also known as "good" cholesterol. In partnership with Johnson & Johnson (Research), the company is conducting preclinical trials for a diabetes treatment that would help type 2 diabetics control their blood sugar level without insulin injections.

Arena's announcement follows a report Monday from the American Public Health Association, which said that 23.1 percent of Americans are obese, more than twice the level in 1990, according to Reuters.

Holley does not own Arena stock but CIBC conducts business with the company.

To read about another biotech's treatment for heart disease, click here.