As those of you who follow the race to beat obesity you no doubt have watched the race to provide a drug to help carve those unsightly pounds. Obesity effects 1/3 of the American population and the recent approval of Belviq, a new medicine to be used in conjunction with exercise, has caused gyrations in the price of Arena Pharmaceuticals. Arena, which was started by CEO Jack Leif back in 1997, has seen its stock as high as $47 a share and as low as $1 a share. This is quite a range for a company that has been around for 15 years.
In the last few months Arena stock has been commented on by almost every analyst, citizens group and brokerage house. As a result Arena which could be hard to spot on the CNBC ticker if you watched all day can now be seen 20 times per minute.
Although, familiarity with Belviq is growing, I would venture to say that few people outside of Wall Street are even aware that the FDA gave its approval to the drug less than 2 weeks ago. Upon approval Arena stock jumped to $13.50 from a low of $7.80 on the same day. The stock has been trading in excess of 30M shares a day since its approval.
It is difficult to monitor the stocks ups and downs because of trading by hedge funds, both short and long retail investors, as well as banks and brokerage houses. To simplify, many investors who thought Arena would not receive approval bet wrong on the stock. Now in order to salvage any hope of getting their money back these entities that bet against approval are using unscrupulous tactics to save their souls.
These tactics include spreading false rumors to get retail longs to cash their shares in at prices that would seem very low given the eventual payoff for these shares. One only needs to look at the daily news stories picked up on a daily basis to see how this is done. An example is a news article posted by Dean Marin of Wall St. Cheat Sheet late Friday. She claims "Arena Pharmaceuticals, Inc. (NASDAQ:ARNA): On June 27th, 2012, the US FDA approved the new diet pill Belviq. According to Reuters, Belviq (Lorcaserin), by Arena Pharmaceuticals, is the first weight-loss drug to be approved in 13 years. In the briefing documents for the May 10th, 2012, FDA Endocrinologic and Metabolic Drugs Advisory Committee, reviewers expressed concerns on safety of the drug, as it may cause heart problems. Hence, the stock is finishing Friday on a cautionary note."
This news was from May 10th, almost 2 months ago and obviously before the FDA stating clearly that Belviq has NO issues with heart problems. So what purpose does such information serve other than to trick investors? This is only a mild example of what takes place with rumor and innuendo on a daily basis.
Getting back to reality, several binary events will be coming up in the near future for Arena. On July 17th, a competitor drug known as Qnexa will be either approved or denied by the FDA. While I place a 50-50 chance on approval, it would appear that safety issues with that drug may preclude an affirmative vote by the FDA. Regardless of the vote, Qnexa will be required to have several restrictions for its use.
On July 27th, The European Medicines Agency (NYSEMKT:EMA), will provide questions back to Arena that will provide an input to whether Belviq will get a seal of approval in Europe. Although it is not a sure thing, I put the odds of eventual approval at 80% or better. The EMA has already shown indication that Qnexa will not be approved in Europe.
So what we are looking at in Belviq is a new novel drug that will help overweight individuals lose pounds. Important to note is that the first 10 - 15 pounds is MOST IMPORTANT as individual on the cusp of Type 2 Diabetes and patients with high cholesterol will see positive improvements with this drug. The drug has also shown promise in helping with cessation of smoking.
Based on Belviq going viral over the next few months this news will get out to the public very quickly. According to Arena, a half Billion Pills have already been manufactured in a facility in Switzerland. The drug should see a roll out in about 4 months as the result of a final labeling review by the DEA. All indications are that everything is pointing north for Arena and its shareholders. I expect shares of Arena to move towards $20 if Qnexa gets turned down by the FDA and $15 if it gets approved with expected restrictions. Upon EMA approval and word of mouth the stock should be closer to $40 by the end of this year.
As usual I present...THE TRUTH AN NOTHING BUT THE TRUTH
Disclosure: I am long ARNA.