Jacob Smith's  Instablog

Jacob Smith
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Attorney and long time investor. I became very interested in the stock market at age 12 when my grandparents started talking to me about their Microsoft stock. I found the whole thing fascinating. I have invested ever since. I was never interested in working as a money manager, however, as I... More
  • ARNA: Only A Disaster Sends This One Lower 0 comments
    Apr 7, 2013 11:35 PM | about stocks: ARNA

    I could care less about the current battle between VVUS and ARNA longs and shorts. While I do own some ARNA calls far out into the future, I'm not trying to hype the stock up, merely making a logical assessment of ARNA's short term (< 6 months in my view) prospects.

    ARNA could be a disaster. Belviq might ultimately flop. This could be a penny stock in a few years. My calls might expire worthless.

    But not in the next 6 months.

    This stock has been so beaten down by its critics and has been so overanalyzed that the stock has found its absolute bottom for the time being, barring catostrophic news. ANY positive news whatsoever about Belviq is going to send this stock higher.

    ARNA's bears like to say that things like Esai's $65m bonus has already been priced in. That good news from the DEA is already priced in. That the launch is already priced in. That any kind of decent sales are already priced in. Nope.

    In fact, the reverse is true with ARNA. The only things really priced into the stock at this point are the delays with the DEA, the fact that Belviq is "only 40% effective," that VVUS flopped, etc.

    Someone commented the other day that there is no catalyst other than spectacular sales that will send this stock higher. I beg to differ. The catalyst I see (and a big one at that) will be Belviq doing even 50% better than VVUS did at first in sales. The cool thing is that Belviq does not have to be a blockbuster for this stock to scream higher in the short term. Once investors hear that the drug is actually being purchased in any decent manner will bring in a hoarde of new longs, just hoping to get in before the next big thing.

    This WILL happen because Esai has already basically guaranteed a launch that will at least be better than VVUS's, due to the fact that it has its massive, experienced sales force and everything already set up to go.

    Remember, Belviq might be the worst weight loss drug that a doctor will ever prescribe, but that is irrelevant for the short term outlook of ARNA's stock price. Once the market gets wind of even decent sales (which Esai will surely make happen in the beginning) it will send this stock momentarily through the roof.

    All the bad things are already priced into this stock. Unless some kind of catosprophic news comes out before the launch, ARNA is going to roar in the short term.

    Disclosure: I am long ARNA.

    Additional disclosure: While I am long, the amount of money I have invested in this stock would probably buy you a nice night on the town with your wife at the local KFC. I am an attorney without a degree in finance. However, I am what you could easily call an expert in human behavior and usually have a pretty dang good read when it comes to market psychology.

    Stocks: ARNA
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