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A Pointed Response To An Outspoken Arena Investor

|Includes:Arena Pharmaceuticals, Inc. (ARNA)

Jim Stevens is an Arena investor that is passionate about the company, passionate about the treatment of obesity, and passionate in his following of the sector. I like to see passion in things because it shows an active interest. However, sometimes passion can jade thought processes and lead to some thinking that is not only off base, but well outside the realm of reality.

I was recently made aware of a post that Mr. Stevens made somewhere. I verified the post, and have copied it below. I will then respond to it point by point

Excellent post. Two key things with any investment like Arena are Market Potential, which you addressed perfectly. Next is a product that can address the MP successfully. With Belviq, Arena has a product that is addressing that market with growing success. The fact is that Belviq works and as the awareness of this fact permeates through both Physician and Consumer awareness as is happening, then the Market Cap will continue to rise.

Spencer showed in his recent fraud of an article that he can't grasp this concept.

Spencer btw defending Consumer Reports shows his true intentions.
In addition, he continues to use the $150M number that Lonnel Coats threw out in a cocky manner that never was an actual estimate of what Eisai thought would be done in either 6 or 9 months.

Spencer had to know it never was a real number because the initial stocking package with Eisai's Distributors was only 50K bottles or $10M. Had the $150M number been real, the stocking package would have been 150K bottles or $30M gross.

It is time for people to realize is that Spencer is not some guru.
He is far from it. It is time to take him down for the real fraud that he is and demonstrated many times in his latest article.

Sharon and Captam showed in their posts a truer perspective as opposed to Spencer's intentional limited perspective

First, it is my assumption that the article that Mr. Stevens is referring to is my piece titled, "What Will It Take For Arena Stock To Rise?".

Mr. Stevens calls the article a "fraud article". Mr. Stevens could not be any further off base. His comment appeared on a thread that discussed market cap. His comment was a response to this:

"Market Cap, as defined by GAAP, is a good tool but just one metric. I know as those betting against Arena flail about looking to rationalize their mistake, the topic of Market Cap often comes up. As you succinctly point out in relative terms Arena's market cap is not out of line. In the case of Belviq, from a fundamentalist perspective, the metric that trumps market cap is market potential. If one bakes market potential into their analysis one finds the obesity market is one, if not the largest, market in the bio space, hence pushing near sighted palpitations concerning market capitalization to the back of the bus. Even if a treatment has a ridiculously high selling price it is still selling into a much smaller market whereas roughly 1/3 of the world's population is obese! Losing weight with Belviq also has positive indications for diabetes, lower back pain, smoking, etc., all near the top of the list of most common and treatable diseases/conditions (after the common cold). Speaking to the choir, especially in the case of Arena, we know Market Cap is an over simplification, like many other metrics, that do not tell the totality of an investment. Those that are able to see the forest, as well as the tree, are the ones who are successful in their investments. Take Care!" - Captam13

My article made a very brief point about market cap. That point was that on a market cap basis that Arena is trading at a substantial premium to its peers. It was a simple assessment of the anti-obesity space and not meant to be a detailed analysis of whether the market cap is or is not appropriate. I agree fully with Captam13 that market cap is simply a tool and just one metric.

For Jim Stevens to call my article a fraud is simply something that is well out of line. Instead of pointing out anywhere that he thinks it is fraudulent, he encompasses a blanket statement. If he were a "bigger person" he would not stoop to such levels. I fully grasp that market cap is one simple component. I fully comprehend that it is not the "be all and end all" of the valuation of a company. The article was simply addressing what it would take for the stock to move up. The subject of market cap made up just a very small portion of the article.

Next, Mr. Stevens goes on to say that I "defend consumer reports" and thus have "shown my true intentions". Again, this is way off base.

Another commenter stated, "If anything shorts are allowing longs to accumulate on the cheap like last November in low $4's on Ginger Skinner's manipulative article, and the lower the better... use dips for buying"

I responded, "Ginger skinner did not write a manipulative article. That is another myth. The consumer reports doctors had the same opinion about Qsymia, and will likely have the same opinion about Contrave when it gains approval"

I am not defending the article at all. I am simply pointing out that the intention of the Consumer Reports article is not to manipulate a stock. If you read my Consumer Reports article again, you will see that I was in no way defending it, but rather looking at the equity impact, and recommending that over-passionate investors not turn it into a firestorm.

Next, Mr. Stevens goes into the Coates statement about $150 million in sales. Mr. Stevens categorizes it as a "cocky statement". As I have stated to Jim many times in the past, he can toss away the $150 million statement if he so desires. The overall CEO of Eisai outline $200 million at the Eisai annual meeting just three weeks before Coates made his statement. Let's look at how Mr. Stevens characterized the $150 million.

"Jack in response to a question of what he thought about the $150M number (not guidance) thrown out by Lonnell Coats, VP of Sales for Eisai in the Americas. Jack responded and said it was "too low". I was there and know what he said. Now regarding from June to Dec, 2013 for the timeframe, there was no specified timeframe in either the question or Jack's response. Many think it is through March 31st, 2014. But regardless, as you correctly noted, no official guidance has been issued by Eisai or Arena. Jack said stay tuned, I took that to mean that Arena is going to give guidance in their August earnings CC for the Q2'13" - Jim Stevens July 6, 2013

So Jim, if you were there and you are saying that Arena Management said it was too low, how is it that Arena and Eisai did not set the expectation level? Jim, Let's toss aside the comment from Coates, and even Arena's CEO and simply go to the statements made that sales would be $200 million by March 31st of 2014. Actual sales were $45 million by that date. If people are wondering why this equity has suffered, the reason is that expectations are not met. That is a cross that this equity will have to bear until it can demonstrate compelling traction. It is compelling traction that will make the equity rise.

You then state that I must have known it was not a real number because the initial stocking package was only 50,000 bottles. Why on earth would the initial package have been 150,000 bottles. The distributors can restock every month, or every week if needed. If it was a BS number, then why did the CEO of Arena parrot it and call it too low? Within the course of one month we had the overall CEO of Eisai say $200 million in 10 months, the U.S. CEO of Eisai say $150 million by the end of the year, and the CEO of Arena say that $150 million was too low. I realize you want to ignore all of this, but this is what was outlined. Bullish analysts had gross sales at $60 million in 2013 prior to these numbers being put out by Eisai and Arena executives.

I do not pretend to be a guru Jim. I analyze and I report. I offer perspective and opinion. For you to call me a fraud is outlandish and demonstrates that you have serious lapses in your rush to judgment. If you want to be a "message board hero" that is your prerogative.

You crossed the line when you insinuated that I received the bottles shipped number from someone.

You crossed the line when you insinuated that I conversed with Thomas Wei.

You are crossing the line again by insinuating that I defend Consumer Reports, and labeling me as a fraud.

Mr. Stevens, you are simply being outlandish.

Disclosure: The author is long ARNA.

Stocks: ARNA