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I have been saying for quite some time that while DEA scheduling was important to Arena (ARNA), it is the sales figures that will lead to movement in the share price of the equity. The reasoning is simple. Arena will now be making a big shift toward fundamental performance rather than simply being a pure speculative play. That does not mean that the speculative story for Arena is gone. It simply means that in the shorter and mid term we need to see sales to justify valuations that were speculatively applied over the past 10 months or so. Arena still has a pipeline of potential, but sales of the anti-obesity drug Belviq will be the key.

One reason that there has been a pause, and in my opinion a buying opportunity as the equity sits at about $8.00, is that the speculative phase of Arena set a very high bar. It is always great to be in on something with a lot of potential, but sometimes the expectations get so lofty that even a great performance does not warrant huge appreciation in stock price. In my experience the market rewards upside surprise far better than rewarding a great performance on already high expectations.

It has been my opinion that DEA scheduling could help establish a stock price of $8.50 as a baseline. I still maintain that thought process and therefore, at $8.00 per share it would appear that there is at least 50 cents of potential in the short term. If sales are good for the first 3 months (40,000 scripts) then the equity should be able to hold the $8.50 level and even perhaps test $9.00. If sales are great (75,000 scripts) then $9.00 to about $10 could be the target. If sales are outstanding (100,000 scripts) this equity could challenge 52 week highs. I outlined these numbers 5 months ago and suggested that anyone invested in this equity do a similar exercise to better frame their own expectations vs. the expectations of the street.

We do have to wait until June to see sales start and that may provide some short term volatility that a savvy investor or trader can take advantage of. I see anything below $8.50 as a buying opportunity to play the launch of Belviq. If the launch goes well it may well become a hold for a more active trader. Longer term investors can let things play out longer. Those that were fortunate enough to invest at a couple of bucks can afford more patience and latitude. The bottom line here is that sales will determine the equity outlook in the near and mid term. It will take time for the anti-obesity market for Arena to mature and gain its foothold. The potential could be substantial, but remember, the equity is impacted not by what you or I expect, but rather what the market expects. Stay Tuned.

Source: For Arena, Sales Is Key