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Insider activity is very important for investors in any company. The SEC still requires insiders to report all of their transactions. As insiders have an insight into the workings of their company, it may be wise for an investor to look at these reports to see how insiders are legally trading their stock. For this reason, I decided to write this article about Arena Pharmaceuticals (ARNA). I am going to talk a little about the company and its next catalyst.

Arena is a biopharmaceutical company that engages in discovering, developing, and commercializing oral drugs that target G protein-coupled receptors in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases.

Clinical Developments


(Click to enlarge)

Belviq: The first new prescription diet drug in 13 years

On June 27, 2012 The FDA approved Belviq (lorcaserin hydrochloride), as an addition to a reduced-calorie diet and exercise, for chronic weight management. Janet Woodcock, M.D., director of the FDA's Center for Drug Evaluation and Research, said:

Obesity threatens the overall well being of patients and is a major public health concern. The approval of this drug, used responsibly in combination with a healthy diet and lifestyle, provides a treatment option for Americans who are obese or are overweight and have at least one weight-related comorbid condition.

This news has increased the price of Arena Pharmaceuticals shares. The company's stock hit its 52-week on June, 27 at $13.50. Currently, Arena is trading at $8.48 per share (as of Dec. 4, 2012). Investors are waiting for the sales of Belviq.

First Catalyst

Arena has the first important catalyst in 2013 because the company will launch its diet drug Belviq. The expectation created for this launch is very high. For this reason, Arena Pharmaceuticals could have a year 2013 with a lot of volatility.

Fundamental Basic Review

Arena has a market cap of $1.84 billion and an enterprise value of $1.79 million. This stock trades at an cheap valuation without considering its clinical developments. Its trailing P/E is zero, and its forward P/E are just incalculable. Arena's estimated growth rate for this year is 29.52%. It has a total cash position on its balance sheet of just $165.77 million, and its total debt is at $74.82 million.

For the nine months ended September 2012, Arena's revenue increased 141.07% to $25.65 million from $10.64 million from the same 2011 period. The basic share count is 213.80 million (as of Dec. 4, 2012).

Insider Activity

In 2012, insiders have started to sell shares in Arena Pharmaceutical. The total number of sold shares is 227,465 in 2012.

  • Robert Hoffman, SVP, finance and CFO, has just sold 50,000 shares, or $416,000 worth of stock, at $8,32 per share.
  • Steven W. Spector, EVP and General Counsel, has just sold 156,665 shares, or $1,565,100 worth of stock, at $9,99 per share.

Arena Pharma: Increased short interest

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
11/15/2012 61,748,793 9,512,313 6.491459
10/31/2012 50,945,833 9,620,081 5.295780
10/15/2012 47,445,300 8,060,361 5.886250

Conclusion

Arena is positioned to have a significant changes in the price of its shares because the future launch its diet drug Belviq. This situation could be generate a good speculation around its future revenues in 2013. However, investors will need a dose of confidence with future insiders buying shares in 2013. For this reason, Arena Pharma is a candidate for short positions currently.

Source: Arena Pharmaceuticals - Insider Activity Report