Arena - Belviq Sales Force To Double?

| About: Arena Pharmaceuticals, (ARNA)

In the same week that Arena Pharmaceuticals (NASDAQ:ARNA) saw Credit Suisse (NYSE:CS) downgrade the stock and Piper Jaffray slice its price target for concerns over sales numbers and revenue, an internal Eisai memo may be indicating that help is on the way.

According to a source, an internal memo circulated at Eisai indicates that the company is adding 114 new representatives and 100 contract reps. Training for the added force is reported to be starting this week. The memo cites that by December of 2013 the sales force concentrating on the anti-obesity drug Belviq will be over 400. This is up from the 200 dedicated representatives that have been making calls on doctors since the launch in June.

It is no secret that sales of Belviq have been below expectations. Over the last several weeks, I have been speaking to the trajectory of the sales being flatter than desired to meet the expectations of the more bullish analysts. For two weeks now, I had been cautioning that the sales results we were seeing would result in analysts adjusting their models downward and possibly issuing downgrades. That process started this week with Credit Suisse and Piper Jaffray. Both firms cited the sales pace and revenue as the major concern.

No matter what your stance is on Arena as an investment, it is important to understand the sentiment of the Street and weight it against what it will take to see positive sales traction. It has long been my opinion that the downtrend in Arena needed compelling sales results to reverse. Essentially I have stated that a 20% week over week rise in scripts (excluding holiday impact weeks) would be enough to pause the downtrend. As yet we have not seen that happen.

With a sales force of over 400, Eisai (OTCPK:ESALY), Arena's marketing partner, seems to be upping the stakes. The added sales force is not at the cost of Arena, as it falls within the parameters as an Eisai responsibility. The success of Belviq has a lot riding on it not only for Eisai, but for Arena as well. A doubling of the sales force translates to additional face time with more doctors to educate them on the benefits of Belviq. Whether the larger sales force was an Eisai decision, or at the insistence of Arena is unknown. It does however offer a solution to the weaker than expected sales that have brought the stock price in Arena down and resulted in analyst downgrades.

I caution investors that this internal memo is not yet verified. However, the time for Arena and Eisai to react was at hand, and such a move would make business sense. I also caution investors that until we do see an uptick in sales that more downward adjustments may happen. Some analysts prefer to wait until quarterly results before offering up an assessment. That means that the next several weeks should be viewed with caution.

Lastly, in the short term, the weekly sales figures will remain as a driver for the short-term trading action with Arena. I have maintained that it makes sense to wait for the dust to settle and to see a trend reversal before jumping in. I still maintain that position, though with the action today it could appear that a bottom has been formed. If Arena is going to be a success, it will be a longer-term story. There is time to wait and see here.

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.

Additional disclosure: I have no position in Credit Suisse or Eisai