Time passes and there is nothing that anyone can do about it. Many Arena (NASDAQ:ARNA) investors find themselves watching the proverbial clock with the anti-obesity drug Belviq, which gained FDA approval last Summer and has, as yet, been unable to launch because the drug lacks final DEA scheduling. Certainly it can be frustrating, but rather than angst investors really need patience. There is a process at play. The DEA has proposed a schedule, and all that is now needed is finalization.
Because I cover Arena I have been sent several emails from investors requesting that I join them in a comment campaign to the likes of the DEA, Federal Register, and even the SEC. While such campaigns may have noble intent, I have reviewed many of the submissions and find them to be rather pointed and tied to one's investment rather than to the real issue at hand. I have seen submissions calling for investigations, stating that billions are being lost on obesity, and people are suffering because Belviq has not been able to launch. Such campaigns are typically viewed as noise, but likely add more time to the review process than anything else. Simply stated these submissions tend to be gross exaggerations and geared toward the commenter's investment rather than any real issue at hand. A government reviewer tends to get more cautious and careful when there appears to be scads of overzealous people inserting themselves into the process. Personally I will not partake in such a campaign, or at least not in the present form I see.
Belviq is not the only product on the market to address obesity. In fact there are hundreds, if not thousands, of products on the market. Are billions really being lost because Belviq has not received a final schedule? The simple answer is no. Those suffering from obesity could start a proper exercise program accompanied by a proper diet and mitigate many health issues associated with obesity. That simple step alone would likely apply to at least 90% of the market. Is it right that the DEA process has taken so long? No. Can some correspondence be submitted in a meaningful manner? Yes. The DEA does not care about your investment. The DEA cares about proper process, researched scheduling, and ensuring that there are no wrenches in the works. Sometimes the harder you push a government agency the longer the process takes. Even if the comments are simply transparent noise. The best party to respond and communicate with these agencies is Arena itself. The company has not asked for some investor with a few thousand shares (hoping that the equity goes to $20) to muddy the waters.
The real play investors should be focused on is their own strategy with regard to Arena. When do you anticipate approval? What is your plan if that date is delayed? What type of move do you see upon approval? How will early sales be? What level of sales would constitute a successful launch? What is the street expecting? How do street expectations line up with your own? If you have not answered these questions to yourself, but instead have been spending time and energy offering up jaded comments to government agencies, I will say that you have taken your eye off the ball.
I anticipate that the DEA finalization will happen in early Q2. I anticipate that the equity will indeed see a pop on the news. I anticipate that the pop will then settle down and the next phase of anticipation will be the early results on sales. That is the key to this equity. Initial results will not remove all questions, but it will at least give investors a taste of what to expect. A savvy investor can play the timing of these things quite well. A real savvy investor will watch closely as the launch of Belviq begins.
Strategies will differ depending on how long someone has been invested and even whether or not they are already invested in the equity. For investors that have been in the equity for a long period of time the strategy might be to simply hold. For those not already invested the strategy is seeking out a good entry point. Is Arena currently at a good point of entry? Personally I feel that it is, but with a cautious stance. You see, it takes buyers in the market to drive an equity up. The launch may or may not create a little buying pressure. The real pressure will appear if the early numbers look very promising. That is when you need to pay attention, and that is why you need to develop a strategy now.
I can see Arena testing recent highs of $8.70 or even $9.00 on launch news and then settling back down to the $8.50 neighborhood as the street awaits initial sales results. If early numbers are good but not great the equity will likely make a slower move up. If the numbers are great, we can see the equity move at a faster and more steady pace upward. That is why I see current levels as a decent start point and a risk that many investors may be willing to take. The launch is likely to happen in the very short term with initial channel checks on sales beginning within a couple of weeks of launch. Remember, it takes buying pressure to drive the stock. While many are focused on the launch itself, it is the initial sales results that will deliver the prize and allow investors to make a decision on whether Arena is a buy, sell or hold.
Arena is a company that has a lot of potential. There are catalysts in the pipeline that are worth additional consideration, but the essence of this company centers on Belviq right now. The pipeline will be much more handsome if Belviq is successful and it will be weighed down if it is not. Let the company respond to government agencies and focus your energy on what strategy to use regarding this equity.
Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.