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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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  • A Lesson For Yossi On Arena 2 comments
    Jul 12, 2014 7:32 PM | about stocks: ARNA

    As has been the case for quite some time, I see scads of communications about Arena. As if my Email box was not full enough, there is always someone that loves to take snipes at me without really posing a question directly to the source....ME.

    Yossi, the first thing you need to do is grow some COURAGE. Your lack of courage is demonstrated by your behavior. Instead of engaging in a discussion you take the COWARDLY way of simply attacking me on the web and essentially inserting words into my mouth. Let be the first to inform you that you lack the intelligence to put words into my mouth.

    With regard to my analysis of cash burn you threw a few jabs.

    "will see a bit of a hit to the cash line with the return of $19.3 million to Eisai" -

    Spencer just forgot to tell you that Eisai should pay Arena more than that based on gross sales estimates for current fiscal year…

    Spencer also forgot to tell you that pipeline (or part of it) could be licensed and they'll not need money for development.

    Spencer also forgot to tell you that he is talking about less than 10% of the amount of cash Arena holds.

    ARNA still have enough cash for more than a year!

    No dilution next 6 months; pps will be very high another 6 months so it should not affect current manipulated very low pps.

    pps went UP 6.13% despite Spencer's article!

    Yossi.....If you took a few simple minutes to look at the available information you would note that there are TWO dates where Eisai can make adjustments to the projected revenue. Those dates are October 1st and April 1st. If you take another moment to dig just a little deeper, you will note that Eisai made an adjustment on October 1st of 2013 and DID NOT make an adjustment on April 1st of 2014.

    The $19.3 million that was overpaid by Arena will need to be refunded to Eisai by April 15th of 2014 based on all distributed product through March 31st of 2014. If you look at the contract you will understand that there are two distinct periods of time that are important. One is the Eisai fiscal year which runs April 1st through March 31st. The second is the commercial year which runs from July 1st to June 30th. The overpayment or underpayment ties to the fiscal year. The milestones, etc. tie to the commercial year.

    Yossi, I did not forget to tell anyone that Eisai will have to pony up dollars to Arena. What I stated was that the company will need to repay the current year this quarter. Given that Eisai did not make adjustments to the 18 month sales projections on April 1st, the payments may not hit the books until Q3 or beyond.

    Yossi, I did not forget to say that the pipeline can be licensed. If you were smart enough to do a little reading you would see that I stated:

    Bear in mind, these are all very subjective numbers and are estimates. What we can see is that at the end of 2014 the cash will be very close to the $100 million that I feel needs to be kept on hand. If Belviq sales are not seeing a ramp up, the company could be entering territory where it will need to obtain cash. This can happen through traditional debt, dilution, or brokering a deal on a drug in the pipeline. Approvals in another country can help, but the numbers simply need to see improvement.

    Yossi, just in case your reading comprehension is a bit SLOW, kindly refer to the words in BOLD in the quote above from me.

    Yossi, you then say that I "forget to say that the number was less than 10% of the cash Arena holds. Now, I know that you may be used to having mommy spoon-feed you things, but what is it about what I have written on the subject of cash burn that you do not understand? Look at what I wrote and DO A LITTLE MATH for yourself!

    With the last quarterly filing we know that Arena has $203 million in cash and an investment in Taigen that is valued at about $53 million. For the purpose of assessing cash and cash burn, I am setting the Taigen investment aside because it would be a last resort sale in my opinion. I look at it like a savings bond of sorts. In my opinion Arena will want to keep about $100 million in cash at all times. This number is a minimum for a company that is actively conducting human clinical trials.

    When Arena did its Q4 report, the company outlined some guidance for cash spend in 2014:

    We expect full year 2014 research and development expenses of approximately $90 million to $98 million
    Full year 2014 general and administrative expenses are expected to be approximately $30 million to $36 million
    We expect to spend approximately $9 million to $10 million in capital expenditures

    All told, the expenses for the year were anticipated to be between $129 million and $144 million. Moving forward I will split the difference and call cash burn out at $136 million. In Q1 we saw $21 million spent on research and development and $8 million in administrative costs. This brings the projected spend from $136 million to $107 million over the next three quarters. That is essentially a cash burn of about $35 million per quarter remaining in 2014 and cash of $203 million.

    We know from the quarterly filing that Arena owes Eisai about $19.3 million from the difference between what Eisai had paid Arena and what sales actually were. I have reached out to Arena about this, but they have not communicated back. The contract calls for over-payment or underpayment to be reconciled within 15 days of the close of Eisai's fiscal year (March 31st). In my opinion this reconciliation will happen in Arena's Q2.

    Thus, we can anticipate cash burn of $35 million plus $19 million in Q2. That would total $54 million. Cash coming in will be about $8 million. Thus, Q2 should look like this:

    Cash On hand at the beginning of the quarter of $203 million - $54 million in burn + $8 million in revenues = $157 million

    For Q3 the cash burn would be about $35 million with revenue of $10 million. The cash story at the end of Q3 would be as follows:

    Cash on hand at the beginning of Q3 of $157 million - $35 million + $10 million in revenue = $132 million

    For Q4 the cash burn should be $35 million again, with revenue of $12 million The cash story would be as follows:

    Cash on hand at the beginning of Q4 of $132 million - $35 million in cash burn + $12 million in revenue = $109 million

    Yossi, Your assertion that Arena has enough cash for more than a year is based on what? Your childlike analysis of this equity? If you take exception to what was presented above why not show some models of how you think that cash will stand rather than simply saying it will be there. You then stated the following:

    pps will be very high in 6 months

    Well, Yossi...What is "very high"? Is that $7? Is it $8? Is it $9? Is it $10? Is it higher than that? Grow some COURAGE and put a number on the table instead of living in a world of generalities that allow you to make excuse after excuse. This last one is one that I find particularly humorous:

    pps. The equity went up 6.3% despite Spencer's article

    Yossi...Kindly refer to the TITLE of my article. I will type it SLOWLY so that we are all sure that you understand what you are reading...

    Arena Stock Holds On Expected Dip In Sales - Bottom May Be In

    Hmmm. Did I say the bottom may be in? I think I did. Yossi, you seriously need to learn to separate your emotion from an equity. You have been wrong countless times about this equity and even the laughable charts you post with a very narrow x axis to make things look outstanding do little to show reality. You are simply dreaming.

    Disclosure: The author is long ARNA.

    Stocks: ARNA
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Comments (2)
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  • daxtrdr
    , contributor
    Comments (145) | Send Message
     
    Spencer,

     

    Please note that I am slowly raising my hand from the back of the class to ask you a couple of questions.

     

    First things first though. I have to divulge that I responded to Yossi's post on IV as you can easily see if you check. I would like to clarify that I responded with one point in mind, actually half of his first point. Here's the half:

     

    Eisai should pay Arena more than that based on gross sales estimates for current fiscal year.

     

    Please note I left out, "Spencer just forgot to tell you that". And I'm not really interested in the "more than that" part either. I am interested in the idea that the second half of his post alludes to. I have also asked you this, prior to his post, in your recent article. Well, after that preamble here goes:

     

    1. Do we know when prepayments are made to Arena for the estimates? I know you are saying maybe 3rd qtr or beyond above. But is there something definitive somewhere?

     

    2. If we can figure out when the prepayments are made I suppose we can also figure out what period of time the prepayments cover. Quarterly, Six Months, Yearly??

     

    3. This is the biggie. If we know the answer to both of the above and we're savvy enough to do some forensics on the financials, then couldn't we get a glimpse at the future projections that are outlined in that closely held, internal 18 month projection. Maybe we can at least figure out six months' worth or so.

     

    What do you think?
    12 Jul, 08:11 PM Reply Like
  • Spencer Osborne
    , contributor
    Comments (6859) | Send Message
     
    Author’s reply » Dax...

     

    I was simply made aware of what yossi said. I have not checked out investors village. My understanding is that he does this foolish stuff on NWI as well.

     

    We know that the payments go into deferred revenue. Looking at last year we had just seen the launch.n thus establishing a definitive date is not very easy.

     

    The payment is for annual based on eisais fiscal year in my opinion. On one hand we can look at deferred revenue and look for a change. With no real milestones on the horizon, we should be able to assess it

     

    I plan on looking at and scrubbing the numbers closely over the. Next two quarters.
    12 Jul, 09:08 PM Reply Like
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