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There has been endless speculation surrounding Arena Pharmaceuticals (ARNA) since its FDA approval for the anti-obesity drug Belviq last year. The drug required DEA scheduling, which had investors on the edge of their seats for months, and it now faces more speculation about approval in Europe and a pending launch.

Investors have been waiting so long that despite a launch that could be as little as two weeks away, the equity sits range bound in the $8s. It is incredible to think that Arena, which had been trading on some pretty wild swings amidst all of the speculation, has settled down into what might only be termed as a rut.

Where We Are Now

Arena is essentially waiting for the 30-day comment and 45-day response period related to the recommended Schedule IV classification by the DEA. Arena partner Eisai has requested that an additional 30 day hold after the close of the response period be waived and it appears that this request will be granted. Thus, the earliest possible launch date is on or about March 3rd. Seeing that March 3, 2013 is a Sunday, we may start off March 4th with an announcement that Belviq is now available in the U.S. market. This is potentially exciting news. So why is Arena stuck in a rut?

Expectations

One very likely reason that Arena seems to have stalled is that this company is now on the cusp of no longer being gauged by pure potential but instead by potential PLUS actual results. I am not referring to weight loss results here but rather sales results.

Arena's competitor Vivus (VVUS) launched its anti-obesity drug Qsymia last Fall and the initial sales results were lukewarm when compared to the expectations the Street had placed on both Vivus and the prescription weight loss drug category as a whole.

I have long stated, especially since the initial results of Qsymia, that Arena investors need to pay attention to Street expectations, develop their own expectations and have a strategy in mind as to how to trade this equity. Some readers were critical of my opinion, but in the end my opinion is simply based on a common sense approach to risk and reward.

Shifting To Measurable Performance

Arena is now at a point where investors and the Street will actually have measurable performance to judge. That can be a tricky time for an equity and an even trickier time to be invested in it. Don't get me wrong, there is still a lot of untapped potential in Arena and Belviq that carries some sort of value. The change is that it is now going to be combined with actual sales results that could either temper expectations or send them even further upward.

Yes, Europe, China, and other regions are still in the potential pipeline. Belviq combination drugs are as well. The level of value this pipeline gets will be impacted in a major way by the early sales results of Belviq in the United States.

Understand The Excitement - Plan Ahead

Many Arena investors (not all) have looked at Arena as a lottery ticket of sorts. Obesity is a global problem and Belviq is one of two prescription drugs that may be able to capitalize on that market. That is indeed something to be excited about. However, the "weight-loss" market is massive and includes many solutions that do not require a prescription and likely have a lot less side effects.

Thus far most of the excitement is relegated to investors. Qsymia and Belviq do not seem to have the buzz right now. Simple Google search terms like "Best Weight Loss Pill" and "Best Way To Lose Weight" deliver extracts of African Mango, Raspberry Ketone and other over the counter solutions that promise users will shed pounds. Like it or not, this multi-billion dollar market is a crowded place.

As Belviq gets ready to launch, will it be a winning lottery ticket or the ticket that simply gets you your money back? The good news is that as I stated previously there is a lot of support just above $8. The equity has now spent a few weeks sitting in this range, and if sales are at least decent, Arena can build from this level. If there is a disappointment on the Street with the launch, we could see the $7s. Essentially, investors need to have a plan now.

If you are looking for an entry point, you may be best served to see what happens and then buy in or short accordingly. Certainly you would miss the first few percentage points, but you will also have mitigated a lot of risk. If you are holding the equity, you likely want to carry a wait and see and prepare to hold or sell depending on the news delivered. If you are already short you are simply waiting for the news and acting accordingly. This is not rocket science. It is simple common sense. However, you would be surprised by the number of investors that lack such a simple plan of action.

In my opinion the baseline for Arena will develop about 60 to 90 days after launch. At that point the impact of actual sales results will be built in and expectations modified to suit the actual results. The swings after that will be derived from the "potential pipeline" and any upward or downward surprise in sales results.

Investors in Arena have an advantage in that they can use Vivus and Qsymia as a proverbial measuring stick. That is not to say that Arena will match, be ahead of, or behind Vivus's Qsymia, but rather to utilize your research on Belviq to determine vs. Qsymia what results you expect.

Remember, while your own expectations are extremely important, it is Street expectations that will drive the price. As Belviq nears a launch date pay attention to the news flow, volume, and opinion of the Street. These will all weigh in on how Arena's stock price reacts.

Source: Is Arena's Belviq 2 Weeks Away From Launch?

Additional disclosure: I have no position in Vivus.