The long awaited launch of Arena Pharmaceuticals' (ARNA) anti-obesity drug Belviq is finally here. The company issued a press release encompassing the physical launch, a $65 million dollar milestone payment from marketing partner Eisai (OTC:ESALF), as well as the launch of a Belviq presence on the Internet with a well designed webpage that engages physicians and consumers alike. The launch is an exciting time
"Our team discovered and developed BELVIQ with the goal of providing physicians with a new tool to help fight the global obesity epidemic," said Dominic P. Behan, Ph.D., Arena's Executive Vice President and Chief Scientific Officer. "We are proud to provide physicians in the United States with a new treatment option that along with diet and exercise can help committed patients effectively manage their weight."
Perhaps the biggest question on the minds of investors is what will happen next. I have long maintained that while the launch is important, it is secondary to the numbers. It is the sales levels and associated revenue that the street is looking for. The numbers gained even more importance when competitor Vivus (VVUS) saw a very modest launch with its anti-obesity drug Qsymia.
I had previously stated that I was anticipating a possible run toward $9.50 going into launch, and that the equity would settle back down and await some sales numbers. I also stated that I felt Arena was a decent bet at any price under $8.50. As it turns out the company did not quite get to $9.50 going into the launch, and has settled back down closer to $8.50 than $9.00 or $9.50. Thus, while I was perhaps a bit aggressive on the near term projections, an opportunity has certainly presented itself.
The most likely source of sales numbers will be an independent analytical company that surveys the market place and provides estimated script numbers on a weekly, monthly, and quarterly basis. These numbers are called channel checks. The equity will move and respond to these checks.
With Arena trading at about $8.50 I see a great opportunity in the works for those that have been on the sidelines. As stated above, I felt that Arena was a buy at anything below $8.50 leading into launch and that investors waiting until after launch may well need to get in at a price point above $9. It would appear that those on the sidelines still have time.
If you have read my articles for any length of time you are well aware that I try to be a realist, and I try to look at the equity from every perspective. That can be frustrating for the more passionate longs, but as a body of work I have tended to be not only in the right neighborhood, but also on the right street with my projections on where the equity would go. Yes, I speak a lot about caution. In my opinion, as a spec play, an investment in Arena warrants caution. With that, here is my latest caution.
As I have stated, the street is waiting for channel checks to assess the potential of the market and the level of revenue that may be possible for Arena. This equity will move when channel checks start coming out in a week. The caution is that these channel checks may lack accuracy. Consider these factors:
1. We know that Arena and Eisai have stated that the initial phase of the launch is in very strategic targeted areas. It is possible that channel checks may under-sample or over-sample that area and thus the model will be flawed.
2. Developing an accurate channel check model requires time. It is essentially a poll that extrapolates data by a multiple to arrive at an estimate. The multiple is not an exact science. One example be seen with Vivus. In mid-May the channel checks showed an impressive 42% week-over-week increase. It is thought that Vivus finally worked with those conducting channel checks to point them in the right direction.
3. The initial channel checks will have a factor involving pent up demand. Extrapolating the first week of sales over a year is dangerous. As and example I will use Apple (AAPL) and an iPhone. When a new iPhone comes out initial sales are massive. The following week sees sales back off a bit, and the third week a bit more.
The essence here and first thing to understand is that no matter what the first channel checks say, it will move the equity one way or the other. The second thing to understand is that the data of the initial channel checks may not be accurate. The third thing to understand is the expectations of the street. I have stated that I think this equity can appreciate and move if it looks like it can obtain 40,000 unique prescriptions in the first three months. That type of start makes the lower end bonus payments attainable.
The bottom line is that there seems to be a very good buying opportunity at current levels. There is also an opportunity for more active traders to play the news cycles that will transpire until such time that Arena or Eisai gives actual numbers. Pay attention. This sector is getting interesting.