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In the prescription drug anti-obesity market, there are essentially two players involved at the present time with drugs either on the market already or bound for the market shortly. Vivus (NASDAQ:VVUS) launched its drug, Qsymia, in mid September, and Arena (NASDAQ:ARNA) is awaiting DEA scheduling prior to launching its own drug, Belviq.

There are often some very competitive juices flowing between investors in Vivus and investors in Arena. While it can cause a lively debate, and that debate can be highly entertaining, the discussion often seems to center on personal opinion and the hope that the investment someone made in one company will pan out. First, success in one's own investment should never rely on hope. Second, the success of one's own investment is not predicated on the failure of the other company. In essence, the only value that is typically created with the banter surrounding Vivus vs. Arena is that of entertainment. Investors do not need entertainment from the stock market. We can go watch the latest James Bond film or catch the latest episode of "Big Bang Theory" for that.

When I made my initial investment into this sector, I made the choice to invest in Arena. It was not because I thought Vivus would fail, and in fact, it had a lot to do with where the two equities were trading at when I decided to invest. In point of fact, it has been my belief that the anti-obesity market is large enough for two, or even three, companies to enjoy success.

I have stated many times that Arena investors should monitor and watch what happens with Vivus very closely. Because Vivus got Qsymia to the market first, it offers Arena investors a lot of insight as to the prospects of Belviq when it enters the market.

The Street set up very lofty expectations for Vivus when it launched. Those lofty expectations were also placed on Arena. As we saw, the initial results of Vivus were less than the Street wanted. It was not that the initial results were bad, it was that they did not match expectations.

When Vivus had its Q3 conference call several weeks after the launch of Qsymia, there were some glaring insights into the challenges that Vivus faced going forward. Many of these insights could apply to Arena as well.

Some key components that we were able to obtain from the initial Qsymia results were the REMS requirements placed on the drug, the cost of the drug, and the fact that insurers were not covering the drug.

The REMS requirements are something that is unique to Vivus' Qsymia. Essentially, it is a government mandated patient educational process and monitoring system. When Vivus was making its way through FDA approval, the agency recommended that Vivus collect additional data, and upon a positive result from that data, apply for modified REMS. Vivus has accomplished this, and anticipates that the process for modification may take about six months.

Other information we saw with the initial results of Vivus are items that Arena investors should watch closely. They impact both companies. Sometimes there is nothing more dangerous to an investor than setting expectations too high. In writing about these equities, I often get communications from people who have very lofty expectations. Arena investors need to be careful, because the discussion is often so general that it becomes difficult to garner anything meaningful from it.

I have seen investors speak to a "market that is worth billions and Arena will dominate it."

Is that billions over a quarter? A month? A year? Several years?

Is domination 30% of the market? Is it 50%? Is it 70%?

You see, the pom-poms can be great, but your idea of success may differ substantially from mine.

In an investors' conference on December 4th, Vivus President Peter Tam seemed to indicate that a slow and steady progression of Qsymia in the anti-obesity market is a realistic way to look at how things will develop. Those words give me pause in that from my perspective as an investor in Arena, perhaps the expectations are being set at a height that may not be obtained. Peter Tam is calling for patience. Perhaps from an Arena perspective, that virtue will be more valuable than anything else.

Setting aside the REMS issue we see with Vivus, the issue of patient acceptance, insurance co-pays, and getting some traction with performance are all issues that Arena will face. Certainly, Qsymia being on the market helps the situation because Vivus is blazing trails, but as investors, we really need to step up to the plate and establish parameters that mark degrees of success.

I recently had a commenter state, " DEA scheduling of Belviq will send the stock skyrocketing."

This comment may seem harmless and full of hope. My response was to ask some natural questions. How is skyrocketing defined? What time frame are we talking about? Upon asking those questions, all I could hear was the crickets chirping.

If you are invested in Arena, it makes sense to hope that your investment performs well and that the company will be a success. However, as investors we need to gauge, for each of us as individuals, what we consider success. Doing this is critical if you want investment success. Here are some questions that Arena investors need to ask themselves:

1. How many Belviq prescriptions in the first quarter of sales would I consider good? How many would be great? How many would be outstanding?

2. What do I expect this equity to get to with an announcement of DEA approval?

3. What do I expect this equity to get to when product launch is announced?

4. What time frame am I expecting this equity to get a decision regarding use of Belviq in Europe?

5. What type of revenue do I consider good for the first quarter of Belviq sales? What level is great? What level is outstanding?

These may seem like simple questions. It is amazing the number of people that will refuse to answer them. In most cases, people refuse to answer them because they do not want self accountability. By speaking in general terms, an investor can, in their own mind, make any result seem positive. If there is accountability, then, as investors, we can be more critical of ourselves as well as our expectations.

In my mind, Arena is a sound investment. I see success even at what some may consider more modest levels, and carry expectations that will satisfy me at those levels. If the company does better than that, then I am doing even better.

For example. I currently see Arena testing $11 when DEA scheduling is announced. I see that as a level that the equity can spike to, and as an eventual foundation going into product launch. I would not define $11 as "skyrocketing." In my mind, "skyrocketing" implies that an equity will at least double. I do not see that in the cards. I do see potential of a double in the first year after launch, provided that the company sees prescription results that outperform the levels experienced by Vivus with Qsymia.

So what are my answers to the questions I posed?

1. How many Belviq prescriptions in the first quarter of sales would I consider good? How many would be great? How many would be outstanding?

  • Good - 40,000
  • Great - 75,000
  • Outstanding - 100,000

2. What do I expect this equity to get to with an announcement of DEA approval?

  • $11 - as a pop and eventual foundation going into launch

3. What do I expect this equity to get to when product launch is announced?

  • $15

4. What time frame am I expecting this equity to get a decision regarding use of Belviq in Europe?

  • March of 2013

5. What type of revenue do I consider good for the first quarter of Belviq sales? What level is great? What level is outstanding?

  • Good - $12 million
  • Great - $23 million
  • Outstanding - $30 million

You see, a market of billions does not mean that the cash rolls into the door on day one, or even day 45. This will take time to develop. Vivus has shown us that there is not a virtual rush to the doctor's office to get on the pill. Even if you believe Arena is a better product, the initial results of Vivus should give you some insight. In the first month or so of launch, Vivus landed 5,600 scripts. A simple extrapolation shows that a quarter would be about 17,000. Compounding growth (more in line with reality) would put one quarter's worth of scripts at perhaps 25,000.

Investors owe it to themselves to think critically. Generalized expectations and discussion do very little to serve your own bottom line. Only by setting expectations can investors really have control over their portfolio. This does not mean that you sell an equity if it does not meet your expectations. It simply means that you evaluate your position with a more detailed and critical eye. It does not mean that we have to step back from words like "billions" or "skyrocketing." It simply means that we quantify what those terms mean to ourselves.

Responsible Arena investors owe it to themselves to watch Vivus closely and use the yardstick provided by Vivus to gauge performance levels. As an ARNA long, I want to see Vivus succeed in this newly developing market because it gives me a better way to gauge my Arena investment.

The lesson here... Banter does not add value to your investment. Establishing your own parameters of success can add value.

Source: Arena Investors Should Watch Vivus Closely

Additional disclosure: I have no position in Vivus.