Arena Pharmaceuticals (ARNA) is in the midst of some exciting times. The company gained FDA approval for Belviq, which is a weight-loss drug that can tap into a pretty impressive market in just the United States alone. Belviq was the first weight-loss drug approved by the FDA in over a decade while the nation has continued on a path of getting heavier and heavier.
Arena has a marketing and supply contract in place with Eisai (ESALF.PK) that encompasses both North America and South America, while it has retained these same rights for all other territories. Essentially the company has a great partner to launch Belviq with, but has not given up the farm by giving up many potentially lucrative territories.
So here Arena stands, on the cusp of what can be a cash windfall, and now the rumors start about potential buyouts. I guess that makes some sense, but I still maintain that these rumors are overblown and premature at this juncture. It does not mean that I think a buyout is not in the cards at some point; it is simply my opinion that now is not the time.
One very real reason that I feel a buyout is not in the cards in the immediate future is the very real fact that Arena is in the catbird seat in many respects. The company has begun the process for European approvals, and as of this moment can realize substantial gains on Belviq based on successes in the U.S. Certainly this makes Arena attractive to a potential suitor, but the flip side of that equation is that Arena may want to play the field for a while and reap the rewards. It is essentially a short-term vs. long-term proposition, as well as a catch-22!
On one hand, Arena looks very appealing to others because Europe and other territories are still up for grabs. On the other hand, it could be quite tempting for Arena to be the proverbial underdog that made good and joined the big boys club.
The timing could not be better. Arena is currently flush with cash (about $143 million), has FDA approval and could be launching Belviq very shortly, and has another $65 million payment waiting in the wings. Essentially the company is not forced into a corner, and has a lot of latitude to consider several paths -- one of which could be a buyout.
In my opinion, Arena should hold off on cutting any deals relating to additional territories because such deals -- or, more accurately, the lack of such deals -- preserves company options as well as value. By holding off, Arena can maintain a competitive landscape of potential suitors. Speculation that Arena has big potential is warranted; it is just a matter of timing. For investors, things look promising, but there could be more value if the company sits tight at the moment.
Disclosure: I am long ARNA.