Contributor Since 2012
One has to ask during this tough week for Arena Pharmaceuticals who were the real losers. No not in terms of money. In terms of dignity. Most people who read this will be longs who suffered a downturn in the PPS of Arena.
With lower volume this week, most trading was done via HTF Machines, hedge funds, and institutions. Retail investors were pretty much watching the mysterious price drop despite more money actually going into the stock. A look at block trading and net cash flow indicate that more money went into Arena than out. Go ahead and check day for day and you will see what I am talking about.
How is this possible? Reading message boards there are a plethora of reasons ranging from poor Arena management, to conspiracy, dark pools, naked short selling and the list goes on.
What is the real truth?
Nothing has changed at Arena in the last two weeks with the exception of full rights being given to Eisai to market Belviq. In return Eisai takes on additional costs for marketing so this is actually good for Arena.
So what we know is that actual news for Arena as well as cash flow into the stock are both positive.
The theory I subscribe to is the % of institutional investors versus the % of retail investors. In the case of Arena, 75% of holdings are/were held by retail investors. In order to allow larger institutions to get more shares, market makers, hedge funds, and institutions work together to drive the price of the stock down. What you will find in this scenario is that individuals who still have a profit in Arena (even after last weeks losses) and those longs with small losses are jumping out of the stock which allows hedge funds and institutional investors to get these shares at a lower cost. This helps hedge funds cover their short positions and allows the institutional investors to build a larger portfolio of Arena shares.
If my theory is correct you will see the percentage of institutional investors go up somewhat dramatically when updated numbers are released.
So my overall evaluation is that the PPS of Arena, although beaten up, will rebound as binary events continue to take place (EU approval, DEA finalization, Switzerland/Canada/Mexico/South America approvals, etc...).
In summation and in answer to the opening question...the real losers are the individual retail investors that sold there shares to allow institutions to gain more shares of Arena. It would be difficult to call hedge funds losers because in the sense of that word, they have surpassed even the greatest all time losers by the unscrupulous tactics they play while tearing peoples lives apart all in the name of making money regardless of the goodness or weakness of the company.
Always on your side...THE TRUTH
Disclosure: I am long ARNA.