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Arena: Oversold And Undervalued! 9 comments
It's time to set the record straight! Arena (ARNA) is undervalued and there are several reasons for the current price per share. Yes, there are questions about what the DEA will say in their review as well as what the exact market penetration Arena will have with Belviq. Also it looks like they will have competition in the market place with Vivus's drug Qnexa and we have to keep that in mind when tallying the risks with Arena and their drug. Most ARNA share holders were more than disappointed with the price action after a nail biting halt that ultimately ended up as FDA approval for Belviq. After all the closing price of ARNA on the previous Thursday was $11.68. So why the Ho Hum price action after a historic approval on a potential blockbuster drug? Was the approval already priced in? Is a fair market cap $1.8 billion? Let's take a look at some glaring factors that the big money has been working hard at hiding from the everyday retail investor.
Let's first take a look at Arena's approved drug Belviq vs. Vivus's pending approval drug Qnexa. We've all seen the stats from both studies so we are not going to go through the numbers again. However Arena's approved drug Belviq is a brand new drug that is not a cheap comb of existing approved drugs and it can be used long term with what appears to be a low risk profile. Now on the other hand Vivus's pending approval drug Qnexa is a comb drug of two existing drugs and it not for long term use. Qnexa maybe be more effective but it seems to carry a high risk profile. Also how will insurance companies and Doctors truly view Qnexa? After all it's basically already out on the market as two separate approved drugs Phentermine and Topamax. What is keeping doctors from writing prescriptions for both generic drugs? You would have to assume that insurance companies are thinking the same thing. That is more than enough to question the market penetration that Qnexa could have if it gets approved. Arena's approved drug Belviq on the other hand provides a new way to attack obesity and it has no generics to compete within the open market.
Now let's take a look at the market cap of both Arena and Vivus and let's see if it makes sense. Arena has a market cap of 1.82 billion and Vivus has a market cap of 2.84 billion. One makes sense and the other is a joke. Vivus has Qnexa up for approval as we all know and they also have Avanafil which received FDA approval earlier this year. Avanafil is a erectile dysfunction drug which is entering into an already crowded market place but it most defiantly adds to the company's value. The major value of this company is the potential approval for Qnexa and it sure looks like approval is just about priced in at the moment. Now if Vivus receives approval it should top out at a 3 to 4 billion market cap so if you're long VVUS I would not expect a big bump in pps. As for Arena let's take a look at what they have to offer. Their only drug that is approved is Belviq and as we discussed it is a completely new drug to fight obesity and it's the first drug to receive approval from the FDA in 13 years! There should be little push back from insurance companies and doctors alike. Typically a blockbuster approved novel drug will move a small company like ARNA into the area of 3 to 5 billion in market cap after approval. So what gives? First let's take a look at this from a different angle and we can try to make sense of this. Let's say we have two new grocery stores, Store A and Store B. You walk into Store B and the selves are bare but they have some house wives magazines and candy at the register. The manager of Store B tells you that stock to fill the shelves may or may not be on the way within the month but not to lose faith. You then leave and head over to Store A. When you walk into Store A and what do you see? Not promises! You see the shelves are completely full. So let me ask you. Which store is worth more? Store A or Store B? Now ask yourself why in the world is Arena (ARNA) only sitting at a 1.82 billion market cap and Vivus (VVUS) is flying high at 2.84 billion? Let's look into that.
Wall Street screwed up and backed the wrong horse and now they're trying to put the fix in while they take your shares cheaply. Now it is no secret that Arena was largely owned by retail investor and heavily shorted while Vivus has largely been held by the smart money. Nobody but long Arena investors believed that they had a chance of FDA approval and so the shares were held down. So even while Arena's shares have seen a giant leap in value they are still undervalued due to the large number of shorted shares. Arena (ARNA) should be priced in the area of $23 and not stuck in single digits. So why is it and what's going on? Let's face it, the FDA was under a lot of pressure to approve a new drug to fight Obesity and they did that when they approved Belviq. Now that the political pressure has back off you have to ask yourself an important question. Will the FDA approve Qnexa? From the looks of it the smart money may not be so sure about Qnexa and they maybe stealthy moving out of VVUS and at the same time forcing ARNA down in order to establish are large position. This is why having a stock owned largely by Tom, Dick, and Harry retail investors is a bad thing. They put stop loses in thinking that they will at least get that price. However what these folks often do not know is that a stop loss is just a trigger for when your shares get sold as a market order. Then Tom, Dick, and Harry gets very angry when their $10 stop losses executed at $9.00 or lower. This allows the smart money to rip shares from the everyday investor's hands. This has been going on since approval and when will it stop? All I can say is I own ARNA and I will hold onto it because it is way oversold and way under its true value, even if Qnexa is approved.
Disclosure: I am long ARNA.
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This post has 9 comments:
Thanks for your comments. I was seriously wondering if the fact that Arena only shares one third of the revenues is also a factor in the low price? Any comments?
I am a chemical engineer and I would look after data and test results. There is NO room to lie about that. Fundamentally this two drugs worked differently. Arena's reduces one's appetite for foods (the biggest reason for all obese problem) and it is a eating desire suppressant if you want to call it. When your food intake is less than normal and your daily activities remain the same normal level (you don't need to count those extra special exercise workout as they did in their phase II and phase III with reference group) then you don't have the normal amount of calories to be burned and naturally the body index will fall.
Vivus' is a stimulant which works on the other end of the spectrum. It stimulates the metabolic function of one's body to burn more calories. It would allows the patient to eat as much as he or she desires and the drug just help the body burn more calories than the intake, to get rid of the excess food intakes. What is the exact mechanism ? Vivus did not reveal or did not know for sure and/or FDA did not ask this question. All we knew is that It makes your body organs (heart and all) working extra hard and fast to consume this extra amount of food intake. When it stimulates so hard and so fast, the new metabolic process took care of those calories and more. In the end patient lost wt.
To me such stimulating way to reduce body wt is equivalent to running extra 20 miles each day without physically running. But all your internal body organs must work that hard and fast without your knowledge or feeling. So the quickest way to tell is to measure one's heart pulse rate and blood pressure and so on. It is a suicidal way to abuse your vital organs on a fast track. Simple as this. What makes it even more dangerous is its fast wt reduction rate. It lends to drug abuse when some innocent patients want to have a quick and drastic effect..That means the internal organs would be that much more abused and may never recover from such damages at all.
However in the real world, such scientific data or fact finding is not the focus of Wall Street and other financial institutes. They like to see the speedy effect as if the anti-obese drug should be done like an Indianapolis car racing game. Of course, the dark side of FDA should not be left out of this fact hiding scheme either.
My daughter, a seasoned financial advisor, NBA from a prominent University, told me point blank that Arena's would never be approved. Well, fortunately we have two facts on my side, FDA did approve it and Arena's drug will be safe and should work like miracle when one takes it and live on his or her normal daily routine (before and after, each patient compare with his or her own). This is the most important part of this whole game.
With regard to its stock price, Arena is not the only orphan that WS had attempted to kill. The drug benefits will speak for itself and it looks like that day is quick approaching after FDA is getting out of the way. With such depressed stock price that would only offer the courageous and most intelligent investors an opportunity to make a few more bucks.
Like you said, if anything to match the stock performance like VIVUS, Arena should be at least in the $35.00 level after the FDA approval.
This is all I can say.
Frank
1. Qnexa, if/when approved, will have REMS ... not fun
2. Vivus does NOT have a marketing partner for Q and I am not sure if they even have a sales team. I overheard that they are going to sell Qnexa via mail orders only. Sounds a bit weird, especially with REMS.
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