Competition
Belviq was approved about the same time as Qsymia of VIVUS, Inc. (NASDAQ:VVUS) but not with REMS. Qsymia also had insurance concerns, which have not been fully resolved until now. Like Belviq, Qsymia has also not been approved by EMA as yet. On March 4, 2013, Vivus announced that it was lowering the price of Qsymia by 70%, causing shares of VIVUS, Inc. (NASDAQ:VVUS) stock to slide. The market viewed this as a threat to Belviq and shares of Arena also reacted to the news and slid 4.4%.
The Mexico application
Yesterday, Arena announced that Eisai, through its subsidiary Eisai Laboratories, has submitted a marketing authorization application for Belviq in Mexico with the country’s regulatory body, the Federal Commission for the Protection against Sanitary Risk. Based on this submission, Arena will receive a milestone payment of $500,000 from Eisai.
Mexico is viewed as a good market for an approved anti-obesity drug. It is believed that 30% of the Mexican population is obese and 70% either overweight or obese. However, a proposed entry in a potentially lucrative market and Arena’s cashbox sweetened with $500,000 still has failed to push the stock price up.
Short Interest
One probable reason for this could be too much short interest in Arena shares. 61 million shares, representing 28.41% of the total outstanding shares of Arena are in the red. Taking into account the average daily trading volume of Arena shares, it will take 11.64 days for covering the shorted shares.
So, is Arena a buy at this price?
Let us consider the technical side first. Although I am not a great admirer of short interest data, in this case it needs to be looked into. More than 10 days for covering mean that if a short squeeze were to begin, there is ample scope for an upward movement. However, it needs to be considered that in such cases the upward movement can be as short-lived as the downward move was when the stock was being shorted. That brings us to the fundamentals.
Investment in Arena is a long term play for those who believe that there is a huge market for FDA approved anti-obesity drugs. Belviq is among the two obesity drugs that were approved after a long wait of 14 years. Belviq is also considered to be safer than the other approved drug, Qsymia (like they say in Wikipedia, Dubious – Discuss).
It is just a matter of time before the DEA comes out with its scheduling, clearing the way for a commercial launch – the 30-day hold period should expire on April 3, 2013. Following DEA scheduling, apart from revenue from sales, Arena expects $65 million in milestone payments from Eisai, roughly $6 million from amortization of upfront payments from existing collaborations, $3 million from its manufacturing facility in Siegfried and another $1.5 million in additional regulatory milestone payments from Eisai.
My personal opinion is that Arena holds something for every type of investor short term as well as long term. Investors should use the current dip in stock price as an entry point. However, they need to approach the stock with great caution.
I have a fear that Belviq may not turn out to be as big a success as it is made out to be. Substantial appreciation is possible only after the company comes up with great numbers, failing which it may prove to be another long, long wait until the Arena can manage another FDA approval. Or an anticlimax.
The article Arena – Is The Recent Dip A Good Time To Buy? originally appeared on Fool.com and is written by Sujata Dutta.
