The long anticipated launch of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) anti-obesity drug is upon us. On Friday, June 7th, Arena and marketing partner Eisai Co., Ltd. (ESALY) will be officially bringing Belviq to market. For Arena it is a big day, as it brings in a $65 million milestone payment from Eisai and guarantees a profitable quarter. Some investors are anticipating big things with this launch and have placed some high expectations on the equity. Others have been more measured about the process and have seen the challenges of competitor VIVUS, Inc. (NASDAQ:VVUS) has had with its own anti-obesity drug Qsymia.
There are a few things that investors should consider. There are longs that have been in the equity for over a year and bought the stock at a couple of bucks, and there are longs that got in on the excitement of the FDA approval and are likely in the red, with a few in positive territory. It has been a long year since FDA approval, and those that were not as fortunate when they bought the equity could simply be looking for an exit point. There will be a decent number of these less passionate longs that will hold out on the gamble that a huge percentage of this country is obese and that this market segment may find their miracle cure in a pill. In contrast there are two other groups of investors. The shorts have placed bets to the tune of 60 million shares. While most of these short shares are likely tied to a hedge in one form or another, there are those that are simply betting that sales of an anti-obesity drug will not warrant price appreciation, but rather a decline. The last group are active traders that simply play the pops and drops like a fiddle.
It is my belief that it is not the launch that will set the stage on Arena (ARNA), but rather the channel checks starting a week or so after the launch. These will be based on actual sales and will be extrapolated out in order to determine if Belviq can hit a sales revenue target of $250 million in the first year. The deal between Arena and Eisia has several targets in sales that change the terms of the share of Net Revenue received by Arena as well as adjustment payments. The channel checks will be the driver.
From a pure technical standpoint Arena is looking bullish. Many technical indicators are showing strength. As tempting as it is to embrace this data we do need to consider that technical take pending news out of the equation. Technicals only consider news after it happens. At that point an investor could have already missed the move. In my opinion if you are already in the equity it is worth waiting to see what happens. If you are seeking an entry point you need to be aware that it is the sales results that will be the moving news and that the pending launch will be muted in comparison. A savvy trader can make a play, but there is risk to either side of the strategy (long or short) in the short term. Good sales can propel the equity, while disappointing sales can see this equity tumble. Looking for a trade? Pick your poison. Already placed your bet? Wait and see.
Spencer Osborne will be discussing Arena Pharmaceuticals and the pending launch of Belviq on a special edition of Playground Radio this Thursday, June 6th at 8:00 PM Eastern. Callers are welcome to participate in the live discussion by dialing (347) 934-0239.
Disclosure: Long ARNA
Spencer Osborne is a partner in SiriusBuzz.com and SiriusBuzz Premium, a website dedicated to discussion about SiriusXM Satellite Radio. He also writes exclusive artcles for Seeking Alpha on a wide range of companies. Osborne brings researched based facets of companies to light that investors may want to consider.