Today shares of Arena Pharmaceuticals (NASDAQ:ARNA) moved up by more than 7% to close at $8.94 a share with a dramatic increase in volume, 14,237,072, which is about 3 times the average volume for ARNA of 5,360,293 (NASDAQ.com). But what was behind this move?
Some, myself included, did predict that ARNA shares would slowly gravitate towards $9 per share right before the Belviq launch as speculators purely interested in a possible sales surprise got on board. However, not many of us expected such a dramatic move so soon, especially considering the apparent lack of interest in ARNA shares even weeks after final DEA scheduling was released.
It is pretty clear that retail was not behind this move up due to volume being nearly 3 times average. One thesis states that many of the 60 million shares currently being sold short are now being covered.
However, some are positing that this current move up was not short covering at all and that the volume increase was completely the result of higher demand for ARNA shares. If that is the case, that leaves us with one option: Institutional buying has increased.
If institutional buying has indeed markedly increased, then something is going on here that most investors are not yet aware of. How do I come to this conclusion? Plain and simple logic.
Nothing has changed since the DEA gave its go-ahead for Arena and Eisai to begin selling Belviq. In fact, not one piece of new news has been released since Arena management spoke about Arena at the BOA/Merrill Lynch symposium on May 15, 2013. For Institutional buying to increase enough to send ARNA over 7% higher in one day when the same institutions had the opportunity to buy the same shares with the same news for the last 3 weeks for around $8 a share but passed and are now willing to pay up to $8.94 a share defies logic. The mere fact that we are closer to the Belviq launch could not serve as enough of a catalyst to make the shares almost an entire dollar more valuable to institutions when they passed on the same shares just last Thursday at much lower prices.
Possible catalysts for today's move include a yet to be leaked buyout offer, a leak that sales will be higher than first expected, or merely institutional research that shows a risk to benefit ratio far exceeding the value of ARNA at $8 a share.
Whatever it is, there is more to this current run up than meets the eye. Something is driving this buying outside of just the run up many of us expected and I predict we will be hearing more information about this reason before Belviq launches on June 7th.
Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.