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Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Arno Therapeutics (OTCQB:ARNI) is a development stage oncology company currently working to bring forth novel treatments for Prostate, Breast, Endometrial and several other cancer indications. Unlike typical cancer therapies such as Chemotherapy and Radiation, Arno's drug candidates work in combination with currently approved cancer immunotherapies to help to fight tumor regression through hormonal modulation. While Arno Therapeutics has been predominantly under the radar since its inception, investors have now started taking note of the company's prospects since a $30.7M private placement was recently taken in the company by billionaires Phillip Frost, The Soros Fund, Opko Health (NYSE:OPK) and TPG Capital founder David Bonderman. As a part of the private placement agreement, Opko Health was granted the first right of negotiation to acquire Arno Therapeutics for a period of 45 days of a takeover attempt by another company. Opko was also permitted to place its Executive VP Steven Rubin on Arno's board of directors to monitor the company's progress. While many know that Opko has invested in and acquired several development stage biotechs over the past years, I believe there is a high probability Arno will be Opko's next takeover target for various key reasons.

Companion Diagnostics

Opko Health has made it no secret that the company is looking to pair its diagnostic tests with companion drugs and therapies. This mission has been stated by Opko's CEO Dr. Phillip Frost numerous times and has been evidenced by Opko's recent acquisitions of Cytochroma and Prolor Biotech (NYSEMKT:PBTH) just this past year. These acquisitions were strategic in the aspect that each of these companies had drugs targeting disease indications of which Opko Health was developing a diagnostic test for. In the case of Cytochroma, the company was developing a novel Phase III vitamin-d formulation. Being that Opko is aiming to roll out its vitamin-d point of care diagnostic test in 2014, it now has a companion vitamin-d drug to be sold alongside the test when marketed. Likewise, Opko has been developing a near-term Testosterone diagnostic test, which is also expected to be commercialized in 2014. The acquisition of Prolor Biotech allowed Opko to acquire Prolor's HGH-CTP therapy for hormone deficiency, which Opko can now market alongside its Testosterone diagnostic test for those experiencing low testosterone levels. If you can see the pattern here then the next point of this section will make perfect sense. In Q1 of 2014 Opko plans to roll out its much talked about 4Kscore™ which is expected to be the most advanced diagnostic test for prostate cancer available. Currently Opko has no drug or therapy to market alongside this test, but Arno does. Judging by the past statements and actions of Opko Health, investors in Arno will have a high probability in my opinion of a takeover acquisition with a significant share price premium.

Onapristone

Arno's pipeline is focused on the two most common forms of cancer in men and women, which are prostate and breast cancer respectively. The companies lead candidate, Onapristone, works by blocking progesterone receptors, which are correlated with tumor growth and metastasis. The company is targeting this compound to be used in combination with approved cancer therapies such as Johnson & Johnson's (NYSE:JNJ) Zytiga and Medivation's (NASDAQ:MDVN) Xtandi. In combination with Zytiga, Onapristone will be aimed at treating women with PR-positive tumors by working to block the progesterone (PR) receptors correlated with the tumorigenic activity. Likewise, in the case of Xtandi, Onapristone will address prostate cancer patients who express high progesterone activity, which is typically experienced in patients with castration resistant prostate cancer. While the current trial of Onapristone is documenting efficacy in combination with the aforementioned therapies, further studies are likely to test efficacy of Onapristone as a stand-alone treatment. Onapristone is also being studied to treat endometrial cancer.

Mid-Term Candidates

As well as Onapristone, Arno's pipeline contains several other candidates under development. Arno's next furthest along drug called AR-42, is a treatment being developed to target solid tumors through inhibiting histone and non-histone proteins. In pre-clinical studies, the compound has shown superior anti-tumor activity in comparison to the currently approved treatment, Zolinza®. The company believes that AR-42 may possess additional histone-independent mechanisms, which contribute to its superior efficacy profile. Recently AR-42 was granted orphan designation by the FDA for the treatment of Meningioma and Schwannoma. Arno is also working to develop another candidate AR-12 which addresses all solid tumors as well as hematological malignancies.

Risks

While Arno Therapeutics may have a broad pipeline, including some candidates, which I didn't go over, investing in the company certainly comes along with significant risks. If Arno's lead candidate, Onapristone, is shown to be less effective than previously thought, Arno's value will take a significant cut; as this drug is meant to address the two most prominent cancers in men and women. Likewise, although Arno has just raised $30.7M, if the company is not acquired or fails to commence a partnership deal by the time its funds run out, the company will likely be forced to raise money through a secondary offering or further private placement. Investing in Arno Therapeutics also comes with significant regulatory risks. Even if the company's drugs are shown to have a beneficial effect to patients, they may not meet their primary or secondary endpoints in clinical trials, or be shown to be too toxic, which could result in a drug trial failure. These risks should all be taken into account before considering an investment in the company.

Financing and Timeline

Over the course of the last 4 quarters Arno has burned through roughly $23M, which equates to an average of $5.7M per quarter. Assuming that the company maintains this burn rate going into the future, I would estimate that the company has enough cash on hand to last until the end of 2014 per its recent $30.7M raise on October 30th, 2013. Arno's current cash position provides the company with an open runway to achieve various milestones that could allow the company to achieve a higher share price value, diminishing the impact of any future dilutions and upping the premium for any potential acquisition offers. The company's expected milestones over the course of the next year are as follows:

Expected Catalysts

Q4 2013

Onapristone Phase I trial initiation for progesterone receptor positive tumors (Breast Cancer, Endometrial Cancer)

1H 2014Onapristone Phase I trial initiation for men with castration resistant Prostate Cancer who have progressed on Zytiga™ and Xtandi™
1H 2014Pre-clinical data for APR expression in castration resistant Prostate Cancer
2014Phase I results
2014IND filing for Onapristone

Conclusion

I have stated the case as to why I see Arno Therapeutics as being a likely candidate of acquisition by Opko Health and the reasons why the company could have a potentially very meaningful pipeline on its hands. Arno's lead drug Onapritone, if successful in clinical trials could potentially be on the market as soon as 2017 and would be applicable to treat between 60%-70% of breast cancer patients, 50%-60% of prostate cancer patients and 70% of endometrial cancer patients. While the company has been predominantly under the radar prior to its recent $30.7M private placement, things could be changing fast as the company reports it will be experiencing numerous near-term milestones and is planning to present at the upcoming JP Morgan Healthcare Conference in early January. My ideal goal for investing in Arno is based on the probability I see for the company to be bought out by Opko Health.

Source: Arno Therapeutics: A Likely Acquisition For Opko