Arena (ARNA) continues to drop. Many investors buying up shares in this biopharmaceutical company are wondering why Arena is down 12% for the week, and down 28% in the quarter after closing recently at $8.15. In contrast to Amarin (AMRN), which did not yet receive protection from regulators, Arena is facing selling pressure even after winning FDA approval for its obesity drug.
Bearishness is rising because of uncertainty from competitor Vivus (VVUS). Investors are spooked because Vivus, another obesity drug maker, did not expect the European commission to recommend its Qsiva drug. Even though Europe should be expected to be a smaller market for obesity, Arena is also being punished.
There are reasons to ignore the negative news and to put together a game plan that may include averaging down on Arena. Averaging down only works if a company is deeply discounted from its intrinsic value and will go up over time, as the market realizes it was wrong. Investors who researched the merits of a company’s product pipeline and concluded the market is wrong will want to stay invested with Arena.
Analysts recently cited everything from limited sales force strength to operational costs as reasons to be negative on Arena. Insiders are not selling.
Here are five reasons to be positive on Arena:
1. Health insurers would benefit from the 8% weight-loss of Arena’s drug.
2. A European rejection for Vivus will only benefit Arena.
3. Milestone payments from Eisai will lower investor worry for Arena’s cash flow.
4. Investors should be reminded that lorcaserin lowered total cholesterol, LDL, and triglyceride levels compared to the placebo group at Year 1 of its BLOOM trial.
5. Arena has $143 million in cash, and will have $215 million in cash after DEA scheduling is complete.
The CDC reported that by 2030, nearly half of U.S. adults will be obese. This means the market for Arena’s Lorcaserin is promising. Lorcaserin, as a serotonin drug, is very precise with its target, meaning physicians will strongly consider prescribing this first when the drug is on the market.
Business Section: Investing Ideas
Here are the companies discussed. For further details on each, click on the icon:
1. Arena Pharmaceuticals, Inc. (ARNA, Earnings, Analysts, Financials): Focuses on discovering, developing, and commercializing oral drugs in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases. Market cap at $1.77B, most recent closing price at $8.15.
2. VIVUS Inc. (VVUS, Earnings, Analysts, Financials): Engages in the development and commercialization of therapeutic products for underserved markets in the United States. Market cap at $1.8B, most recent closing price at $17.90.
For a more detailed analysis on Arena, read this article.
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