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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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  • Arena Charts 8 comments
    Mar 3, 2014 4:55 PM | about stocks: ARNA

    Sharinky, and apparently a few very vocal Arena longs think that the charts that I show are "manipulated" in some way to skew things one way or another. Of course, this is not the case, but every once in a while I do need to take the time to show why these black helicopter chasing people are off their proverbial rockers.

    Charting past sales of Arena (NASDAQ:ARNA) does not get you very much other than a history of what sales were. If you include an expectation line in the chart, it gives you something to compare the sales to (like expectations), which can then be used to assess whether or not the past sales are getting you to where you want to be.

    Below are two charts. The top one is a pure static representation of sales as they have been, with no real gauge vs. expectations. The chart is essentially useless other than being a record of past sales. The second chart has a line that shows expectations. In this case, the expectation line is seeking for sales to be at $60 million by March 31st. Ironically, sharinky and the helicopter chasers took no exception to my chart until the point in time where the sales started to track below the expectation line.

    Bear in mind, these charts are the identical sales data, the same size, and not manipulated in any way from the standard that Microsoft assigned in creating them.

    Chart 1

    Chart 2

    As you can see, the sales appear flatter in the second chart despite the fact that the data is the same. The reason is that the second chart considers sales at a higher level. In chart 1 the axis goes to 7,000 scripts. In chart 2 it goes to 16,000 scripts.

    Chart 1 is essentially useless, whereas chart 2 offers up a projection of where we want to see sales go, and how the progress is in getting there.

    Thus, there is no conspiracy, no manipulation, and no funny business. It is simply a chart assessing actual sales vs. reasonable expectations.

    Cheers!

    Disclosure: I am long ARNA.

    Stocks: ARNA
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Comments (8)
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  • sharinky
    , contributor
    Comments (244) | Send Message
     
    When I looked at the article, week 24 scripts looked equivalent with week 37 scripts. For someone giving your articles a cursory view you would have thought scripts were flat with week 24. That is not the case. As far as this information being useless, I am not sure what you mean. It is a record of past sales vs. the expectations you have laid out. That is what graphs should track.
    4 Mar 2014, 09:12 AM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11620) | Send Message
     
    Author’s reply » Sharinky....

     

    Yet, instead of asking a question, or doing a little bit or research, you run around the web saying that I am putting up distorted graphs. I am not.

     

    My graphs have been operated the same way since the beginning. Further, I am not adjusting sales to reflect inventory. I have utilized information that becomes available on conference calls to change the upward adjustment factor. WHENEVER I have done this, I have disclosed it, as well as why I did it.

     

    Early in the process, the tracking of IMS and Symphony could be imperfect for many reasons. As they gather data, they make their own adjustments to their formulas. They do not make an announcement about this, they simply refine it in order to arrive at a higher degree of accuracy. I do the same. Thus, early on, it was appropriate to make an upward adjustment of 30% on IMS. As time passed, and IMS had more data to work with (making its number more accurate), it only makes sense that an upward adjustment I use be refined as well.

     

    The sales tracking chart is not using the raw data, but rather adjusted data. Thus, 1,000 scripts adjusted uyp by 20% two months ago would be 1,200. That same 1,000 scripts adjusted up 10% today would be 1,000. Thus, you can see that even though the raw number reported was 1,000, it is not equal when adjusted.

     

    Making refinements to the adjustment is not nefarious in any way. It is prudent. When information becomes available that tells us that the degree of accuracy is improved, we all need to adjust accordingly.

     

    Simple tracking of sales does not really give you much to assess how well you are doing. Tracking sales against expectations will tell you if you are above or below what is expected of you.

     

    It would appear that what you want is a 30% adjustment to continue in perpetuity despite the very real knowledge that such an adjustment is currently not correct. In the beginning it worked. After the Q3 report it was prudent to move the adjustment to 20%. After the Q4 call it became prudent to lower the adjustment to 10%.

     

    Arena disclosed that between launch and the end of the year that 157,000 bottles of Belviq were shipped. That would include bottles sold to consumers as well as inventory on shelves that IMS or symphony would not have counted yet. I assume that inventory is about 40,000. This would mean that 117,000 bottles have been sold to consumers, and would be tracked by IMS or Symphony. For the same period, IMS (unadjusted) was at 105,000. Symphony, unadjusted was at 123,000.

     

    Thus, overall, IMS likely tracks a bit low, and Symphony a bit high.

     

    So.....Now that you have the information (which if you had been reading all along you would have), you can assess things better. Instead, you make the decision to attack me based on an uninformed stance that you have.

     

    4 Mar 2014, 12:33 PM Reply Like
  • Ethereal Veil
    , contributor
    Comments (35) | Send Message
     
    Neither IMS nor Symphony can be 'high' as you so put it. You want to say that one or the other is light because they do not track from every source of possible sales then that is plausible. But to now suggest that you should be lowering either sources' weekly numbers makes absolutely no sense. The weekly scripts sales is 'the weekly script sales'! 1000 in weekly script sales is just that, 1000 scripts. It is not 1000 less some number you deem warranted because you pulled an inventory number out of thin air. If you believe that then guess what, your inventory assumption is 'WRONG'. IMS & Symphony cannot be 'over-reporting' weekly scripts without gross error on their part or illegal deliberate manipulation of the data which would serve no point.
    6 Mar 2014, 12:13 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11620) | Send Message
     
    Author’s reply » ethereal....

     

    I adjust IMS up by 10%. Please follow along. In the beginning, I adjusted IMS up by 30%. After the Q3 report I lowered the adjustment to 20%. After the Q4 I lowered it to 10%.

     

    Now think about this.

     

    If 157,000 bottles sold between launch and December 31st, then what would you feel is a reasonable number that is in inventory and not sold?

     

    I put that number at 40,000.

     

    This would mean that about 117,000 have been sold to consumers.

     

    IMS for the same period is at 105,000.

     

    If you adjust IMS up by 30%, you are too high. Does that make sense?
    6 Mar 2014, 06:17 PM Reply Like
  • DSandman999
    , contributor
    Comments (2463) | Send Message
     
    Sometime you have to state (every time) what you are trying to show with the graph and make sure it is an apples to apples comparison. "yossi"'s graph was done to compare against Spencer's but failed to do so because it was not done with the correct parameters, even if the data was the same. That is a "yossi" bad, not Spencer's.
    The intent of Spencer's graph was to demonstrate where things are between the sales and the expected or sales goal. It was not intended to show accelerating/decelerating slopes of the sales. Using it for a different purpose is a sharinky bad :) You are also running into a software bias to attempt to make the data more meaningful, so it plays with the left side values and ranges and the bottom width to make the changes in data stand out. Here, the left side value has to be controlled by the charter. Not exactly a Spencer bad, but Spencer may need to be careful to keep the information showing the same where he can. Once there are enough measurements along the bottom that the charting software is unable to keep each point separate, the ups and downs will start to smooth out and you will see trends stand out but loose accuracy in the path fluctuations.
    I run into this all the time. Basic rule is to use the graph for what it is intended to show and use other graphs, with different parameters related to the information you are interested in, to evaluate that metric.
    Spencer did this with his (above) graphs, but he did not try to match "yossi"'s graph. To do that he would have had to scrunch his width to match.
    4 Mar 2014, 02:09 PM Reply Like
  • Ethereal Veil
    , contributor
    Comments (35) | Send Message
     
    1) A graph showing actual data (in this case script numbers) over time is not useless. They are commonly used in every corporation to provide a quick view of whether the data being reported is increasing, decreasing, staying flat over time.

     

    2) What you call a 'projection' (the chart with a grey line showing increasing sales at an increasing rate, hence the upward sloping curve) is not a real projection that any corporation would be using. They would be using 'real' projected numbers that would be overwritten each reporting period (weekly, or at minimum on a monthly basis) with the actual data. These two data sets (actual numbers + future projections) would then form the expected projections [keeping in mind the further out into the future the projections go, typically the greater the variance in their relevance will be].

     

    3) You seem to be willing to make alterations to the weekly data being reported because of assumptions you have chosen to make after the quarterly earnings report. Yet this 'grey sloping line' (which I might point out is not how any company would ever project future sales - a perfect upward sloping curve???) which if was based on an original sales target as established at launch should also be being adjusted over time to more accurately reflect a projected target. Example: if the original projection was 150MM or 200MM (I forget what you were using), well it is clear that this number is not going to be met in that original time frame. So if you are re-adjusting the weekly data based on current quarterly earnings report then you should be altering the target you are projecting (even though no company would ever show a projection like the 'grey line' you have).
    6 Mar 2014, 11:57 AM Reply Like
  • Spencer Osborne
    , contributor
    Comments (11620) | Send Message
     
    Author’s reply » etheral...

     

    lots of words, but you are not really portraying things the way they are
    3 Apr 2014, 05:50 PM Reply Like
  • Brian, M.D.
    , contributor
    Comments (120) | Send Message
     
    The conclusion is sales are growing nicely. The expectations by someone were all wrong. They didn't understand the need for M.D. education for a completely new drug for a new disease that had been falsely classified as a behavior. There will be a nice increase in the slope soon enough. You will have to be content with doubling sales per quarter for now.
    The prevalence of disease will push the sales up with no plateau for years.
    3 Apr 2014, 12:14 PM Reply Like
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