Shares of Amarin (NASDAQ:AMRN) closed Friday's trading session at $14.56, down $0.09 (0.61%) after seeing its price dip to under $14 earlier in the week on the heels of an article by Adam Feuerstein, who mentioned a high level meeting between Amarin brass, and the FDA. Adam speculated that the meeting concerned the marketing exclusivity of AMR101 -- how many years Amarin will get to sell the fish-oil pill before generic drug makers can file a challenge to enter the market. Adam brings up some valid, yet regurgitated points about AMR101's New Chemical Entity (NCE) status -- and the five years of market exclusivity that goes with it -- as being almost as important to Amarin as getting the drug approved on July 26.
I give some commentary beginning at the 8:59 mark in a video I made over the weekend, how traders can benefit from what I call "The Feuerstein affect," which basically explains how certain articles he writes affect the stock he is writing about in a very predictable manner, which can help make some nice gains if traded correctly. In the video, I give an opinion that I expect Amarin shares to trade over $16 a share this week, as short sellers should be clearing out a good deal of their positions, and catalyst long traders pile in. I still strongly feel that the share price should be approaching $18 as we near the July 26th approval date. The chart also looks very bullish on Amarin, as I remarked in a prior article.
It was revealed on Thursday July 5th, that Avon Products Inc. (AVP) filed a form 8k in regards to taking out a line of credit for up to $750 million, with access to $500 million immediately. As referenced in the 8k, Santander Investment Securities Inc., and Goldman Sachs Bank USA are 2 creditors listed. This tells me this is simply not a loan to pay down company debt, but more likely a loan for Avon to acquire another company, because both banks frequently underwrite acquisitions.
Furthermore, Avon's last 10Q filed May 1st flatly states that its liquidity could be affected by an acquisition of another company. This is what I was referring to in my last video as I erroneously stated this was in the latest 8k from the company. Taking out a line of credit now would assure that its liquidity would not be greatly affected at this time.
While this is a general statement found in the 10Q, I find it to be relevant to its latest 8k. The $500 million number would be closer in line to what Obagi would be acquired for - at least this is what I have been hearing.
In what I believe is related to Avon's 8k, Obagi filed an 8k this past Tuesday that officially removes the shareholders' rights provision from its corporate by-law, otherwise known as "the poison pill."
In the same video where I make the remarks about Amarin, I give my observation why I feel these two 8k events are related, and why I feel Avon has made, or will make a tender offer very soon, perhaps publicly revealed before this morning's pre-market. The poison pill expired on June 6th after shareholders failed to ratify its force and effect moving forward - effectively voting down the pill.
However, there is a significant difference between the pill's expiration and elimination.
Elimination of the pill makes it much harder for management to initiate another pill quickly. With an expired poison pill provision, management can reinitialize another one at a moment's notice, effectively thwarting a hostile take-over. An eliminated provision from its by-law makes initiating another one much harder, taking a few days to do so. By the time the company could do this, any hostile take-over attempt would likely be successful.
Because of the July 10th 8k which eliminated the provision from its corporate by-law, I speculate that Obagi management no longer feels the threat of a hostile take-over, which many believed caused them to initiate the pill in December of last year in the first place - signaling a deal might be on the table, as I speculate between June 6th and July 10th, the negotiation process and due diligence for an offer took place.
If a tender offer is not announced this morning, I feel this offers an unique opportunity for traders to take advantage of because Obagi will be taken out, and much sooner than later in my strong opinion. I estimate the take-out price for Obagi to deliver $23 to $25 a share into shareholders' hands. I caution traders that extreme volatility and manipulation could be seen in the stock price here, so trade this one smartly.
Vivus's (NASDAQ:VVUS) weight loss drug, Qnexa, faces an FDA approval decision this week by July 17, 2012. Shares of the company have gained over 15% in the last month - but closed Friday's trading session at $27.16, down $0.57 (2.06%).
Qnexa seems to be more effective than Arena's (NASDAQ:ARNA) Belviq, which recently gained approval on June 27th. Qnexa might be the more effective drug between the two, but safety concerns might be more an issue for the drug, though I think Qnexa will be approved - barely. I do not see much upside with Vivus, as I already feel the stock is overvalued, and approval of Qnexa has been over baked into the price. The downside risk is far greater here on a rejection and/or FDA label restriction, so traders and investors should consider this.
If Qnexa fails to gain approval this time around, I would expect the Arena stock to take off very hard, possibly trading up to as high as $17 a share. A rejection of Qnexa would mean Arena would have the only FDA approved weight loss drug, allowing the company to effectively corner the market. Arena shares closed Friday's session at $11.18, up $0.57 (5.37%), so it appears that many investors/traders might be speculating that Qnexa could be rejected by the FDA this week, or approved with label restrictions because of its documented issues that its use might cause problems for pregnant women. In both cases, Arena's Belviq would seem to be in a better position to capture more market share.
Orexigen Therapeutics (NASDAQ:OREX), likely related to both Vivis and Arena, saw its stock price rally on Friday, closing at $7.06, up $0.45 (6.81%).
Orexigen's weight loss drug candidate, Contrave, suffered an FDA rejection in February 2011. At the time of the rejection, the FDA asked Orexigen to conduct an additional study focused on the drug's heart side effects, a long-standing safety issue with weight loss medications.
Another factor that could be contributed to the share price increase in Orexigen was that estimates were recently increased by Bank of America/Merrill Lynch, likely due to the enrollment for its Light Study trials exceeding expectations. Estimates were raised from neutral to buy, with a price target raised from $3.50 to $7.
Contrave is at least 2 years away from market if approved by the FDA its second time around, so I feel the stock price is a bit over speculated at this time. Short sellers might feel the same way, so long side traders should consider this factor. If Contrave is approved in the future, then we should see a stock price well north of $25 a share, assuming the share count of 67 million outstanding remains. In contrast, Arena has nearly 200 million shares outstanding. Investors should always consider market cap as the most relevant factor in stock pricing over the actual share price.
Disclosure: I am long OMPI.
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