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Spencer Osborne
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Spencer Osborne is founder of Satellite Standard Group [SSG], and a partner of Sirius Buzz (http://siriusbuzz.com/). Sirius Buzz covers the satellite radio industry as well as companies that do business in this sector. Sirius Buzz provides information and opinion to readers with an interest in... More
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  • Belviq Sales Move Back Up 13 comments
    Dec 13, 2013 10:22 AM | about stocks: ARNA

    This week, SA declined this article under the standard program, thus, readers will get it in an Instablog format.

    As was anticipated, the week over week growth in prescription sales from Arena Pharmaceuticals (ARNA) looks very impressive at first glance. After all, being up about 24% sounds very nice. The main factor in the 24% gain is that the numbers from last week, which was down 27% included the Thanksgiving holiday. The dip last week should have been expected by investors, just as the rise this week should be expected. However, the majority of investors do not necessarily follow the sales data closely, and thus a market reaction can ensue with the data. Last week we saw a sell-off. This week we saw Arena begin a recovery ahead of the news, but what is appearing to be a sell off of sorts after the news. Essentially, scripts did not get back to pre-Thanksgiving levels, but instead came up almost 500 scripts short of the numbers two weeks ago, prior to the holiday

    Services such as IMS Health and Symphony Health provide sales data on hundreds of prescription drugs. Investors use this data to see if actual sales are aligning with expectations. In the case of Arena, what investors are looking for is growth in Belviq sales on a continued basis. The short term reactions on weekly sales are usually tied to what type of growth we are seeing. A modest move in the equity usually correlates to a modest gain in the sales pace. An aggressive gain in the equity can be tied to a growth pace that is showing singes of exceeding expectations.

    To simplify this consider that, at this point in time, typical weekly gains of 4% to 8% are pretty much expected. Taking out holiday anomalies, we should anticipate that if sales growth is within this range that the equity reaction will be mild. If we were to see a week over week gain (in a normalized week) of over 10%, it would demonstrate that traction in sales is developing in a way that is more positive than anticipated. Thus, when I say something to the effect that it would take a 10% gain in sales to drive the stock, I am not referring to a 10% increase in perpetuity, but rather at this point in time.

    This week sales were up 24% (unadjusted) according to IMS Health. Script sales fell short 5,000 (unadjusted) and seem to have demonstrated a partial recovery from the holiday week. Ahead of us, we should now have two weeks of reported gains (numbers reported on 12-20 and 12-27) before we see our next holiday anomaly for Christmas week (numbers reported on 1-3). The numbers reported 3 weeks from today (1-3) will include the Christmas week. The number reported 4 weeks from today (1-10) will include New Years week.

    (click to enlarge)Belviq Sales Tracking

    In looking at the chart we can see that sales have been progressing at a modest pace. I adjust the numbers upward to account for prescriptions written where a patient fills a few months at a time, under-reporting, etc. I have gross sales (to consumers) for the year at $23,968,109. Gross sales are what is used to determine blockbuster status ($1 billion of sales in 1 year). Arena is paid a percentage of net sales, not gross.

    Overall, in this sector, there were some very lofty sales projections made. Arena, as well as competitor Vivus (NASDAQ:VVUS), have had sales figures well below those expectations. A new investor considering this sector may look at the stock chart since launch and wonder why this equity has seen such a dramatic shift down. The easy explanation is that sales expectations (right or wrong) were not being met. That being said, there is an opportunity here if you look at catalysts that have potential to carry impact in 2014. These catalysts include broader insurance coverage, more advertising, a bigger sales force speaking to doctors about Belviq, and the fact that weight loss as a sector tends to sell more in the first 6 months of the year.

    In the very near term we should have 2 more growth weeks reported followed by a dip for Christmas week, and sales in the New Year's week low as well. After that, we should see a normalized pace for several weeks. It is during this period that we want to see traction increase. Those that know what to look for because they follow closely can profit from their knowledge.

    In my opinion, as 2014 begins to take shape, sales expectations will be formulated by the street. One big goal for Eisai, the marketing partner of Belviq, will be to be able to report something good at its fiscal year end, which is March 31st of 2014. In my opinion, Eisai has every reason to develop a hard push with the beginning of 2014. This could bode well for those invested into Arena at the right price. Stay Tuned!

    Disclosure: I am long ARNA.

    Additional disclosure: I have no position in Vivus

    Stocks: ARNA
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Comments (13)
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  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    Spencer,

     

    Next Friday we will get more than 10% increase and pps will pop imo!
    13 Dec 2013, 01:35 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (7344) | Send Message
     
    Author’s reply » yossi....

     

    a 10% WOW next week would get us back to where we were prior to Thanksgiving....About 5,200 unadjusted. Thus, the 4 week period would be essentially flat.

     

    The issue that the stock will have is that we are just two weeks away from numbers that dip once again. The time-frame of playing this may be so narrow that people do not act on it.

     

    Clearly we did not see a full recovery from pre-Thanksgiving numbers this week. Next week may deliver that, but these holidays are a tough time of year for the segment.
    13 Dec 2013, 01:42 PM Reply Like
  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    Spencer,

     

    NOT 10%, but "MORE than 10%"!

     

    Looking for 12%-16% next Friday!
    13 Dec 2013, 02:20 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (7344) | Send Message
     
    Author’s reply » yossi....

     

    could be, but the numbers between now and the end of the year will not be impressive. It is simply not a good time of the year for weight loss.
    13 Dec 2013, 03:04 PM Reply Like
  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    Spencer,

     

    BUT pps will NOT drop!
    13 Dec 2013, 03:10 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (7344) | Send Message
     
    Author’s reply » yossi....

     

    I think that we could test lower....in particular with script numbers 3 and 4 weeks from now. We will likely not see script traction in the weekly numbers until 6 to 7 weeks from now. Those numbers could be impressive and show a gain.

     

    There is nothing compelling with sales that will happen over the next 4 weeks. What we have in that period is actually bearish things happening.

     

    All of this also goes to where sales are vs. expectations.

     

    Lets remember the $200 million and $150 million sales goals. This drug will finish the year with gross sales at around $30 million. That is just 20% of the stated goal. They may get to $50 or $60 million by March 31st, and that is just 25% of what the CEO of Eisai was looking for ($200 million by March 31st). There will be 13 weeks of sales between January 1 and March 31. We would need to see scripts average 10,000 per week during Q1 2014 to see ttal sales since launch be between $50 and $60 million.
    13 Dec 2013, 03:44 PM Reply Like
  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    Spencer,

     

    I really hope shorts will NOT cover until TV ads will start...

     

    (4 weeks max).

     

    Let's see them then!

     

    Do you really think ALL of them are that crazy?

     

    Don't you understand it's too risky?

     

    Do you really think there are no better candidates to short out there now?
    13 Dec 2013, 04:12 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (7344) | Send Message
     
    Author’s reply » yossi....

     

    I would surmise that the vast majority of shorts have no compelling reason to cover. More often than not, the short side is simply a hedge play tied to the options market. As long as Arena stays within a given range or in a specific trajectory, they are "safe" with no reason to cover.....OR....they simply reset the trade by covering and playing a new option.

     

    13 Dec 2013, 04:27 PM Reply Like
  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    Spencer,

     

    Sorry but does not make sense imo.

     

    They are shorting ARNA for fun or for making money?

     

    There is NO point to remain short just because you own also enough calls.

     

    BTW, NOT all of them are hedged imo...

     

    Please note that if only 25% of them will want to cover soon...
    (I assume that the rest of them will follow!)
    13 Dec 2013, 04:46 PM Reply Like
  • Ethereal Veil
    , contributor
    Comments (21) | Send Message
     
    Billionaire big money shorts never lose. They added to their positions during the November post-earnings rise and are now preparing to destroy retail longs all over again. This should plummet to $5 quick and from there back down to 52 week lows around $4/share.

     

    Time to give up on this stock ever turning itself around. It is down almost 40% in 2013 from the near $9/share it was at back at the beginning of January.
    13 Dec 2013, 01:41 PM Reply Like
  • 9neil
    , contributor
    Comments (23) | Send Message
     
    Ethereal Evil may have a point. But the shorts would have to bankrupt the company to win. They will have to cover at some point, they best hope that institutional buying completely ceases and longs get bored of owning their shares. Somehow I just can't see that scenario playing out.
    13 Dec 2013, 02:45 PM Reply Like
  • m_yossi
    , contributor
    Comments (281) | Send Message
     
    9neil,

     

    They are shorting ARNA but they are fighting Eisai now!

     

    Eisai is NOT ARNA (and not DNDN!)...
    13 Dec 2013, 04:18 PM Reply Like
  • healthythoughts
    , contributor
    Comments (2936) | Send Message
     
    Have a Happy New Year all!!!
    31 Dec 2013, 05:25 PM Reply Like
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