Even though short interest rose for VIVUS, Inc. (NASDAQ:VVUS), but declined for Arena by mid-April, investors need to determine how much bearishness there will be to weigh shares lower in the short term.
Short Interest in Arena
| Settlement Date | Arena -Short Interest | % Change | Avg Daily Share Volume | Days To Cover |
|---|---|---|---|---|
| 4/15/2013 | 62,304,084 | 2.9% | 3,718,007 | 16.75739 |
| 3/28/2013 | 64,168,688 | 7,063,367 | 9.084717 |
Short Interest in Vivus
| Settlement Date | Short Interest | % Change | Avg Daily Share Volume | Days To Cover |
|---|---|---|---|---|
| 4/15/2013 | 28,821,711 | -9.3% | 1,502,761 | 19.17917 |
| 3/28/2013 | 26,360,430 | 1,514,478 | 17.40562 |
Data Source: Nasdaq.com
Investors will also need to decide what it means for Arena to withdraw its application in Europe. Arena said that the move was strategic, and will evaluate the best method for submitting the application again at a later date. The region continues to be of strategic importance in gaining global sales for BELVIQ.
There are five additional things investors should consider for Arena, following its sharp drop.
1) Final DEA Scheduling to Lift Shares
Eisai will be handling the launch of BELVIQ in the United States, and the companies are waiting for the Drug Enforcement Administration (“DEA”) to complete scheduling. The delay limited the upside in Arena over the last few months, but Eisai is furthering its readiness for launching the drug. Activities include refining the reimbursement strategy so that it is ready when the designation of “effective” is scheduled.
Eisai has 50 internal reimbursement specialists assigned for BELVIQ. The company aims to have 70% of the patients with insurance, up from 33%.
On the conference call, Arena said that the U.S. launch will be supported in three ways:
1. Treatment guidelines for BELVIQ were published for reference for Endocrinologists.
2. A cost and savings study for federal health uses a 10-year scoring system. By using a 75-year horizon instead, a more accurate savings is scored
3. A report illustrates that an obesity cost curve in California would help the state save $81 billion over 20 years.
2) Combination Therapy Undergoing Study
Arena is studying treatments using a combination of BELVIQ and phentermine. Both Arena and Eisai will meet with the FDA in the current quarter to present the development proposal.
3) Costs Under Control
Arena has a healthy balance sheet. Arena generated revenue of $2.4 million, helped by a $500,000 milestone payment related to regulatory approval for BELVIQ in Mexico. Operational costs rose slightly to $7.3 million, compared to $6.4 million last year. The company ended the quarter with $136.3 million in cash in the first quarter, compared with $156.1 million in the previous quarter.
4) Near-Term Risks
Risk aversion rose along with the lack of detail from Arena on withdrawing the MAA in the EMA. The lack of information is due to the CHMP (Committee for Medicinal Products for Human Use) needing to first accept the withdrawal.
In regards to the Cardiovascular Outcomes Trial (“CVOT”), it is still not finalized with the FDA.
5) Competitive Analysis
Competitor VIVUS, Inc. (NASDAQ:VVUS) received approval from the FDA for its risk evaluation and mitigation strategy (“REMS”) for Qsymia. Vivus may now dispense Qsymia to be dispensed through pharmacies, in addition to mail-order pharmacies. The approval benefits Vivus, but Arena thinks that it, too, may benefit in signing up larger payers.
VIVUS, Inc. (NASDAQ:VVUS) also reported quarterly earnings on May 8, 2013. The company reported Qsymia sales that were below consensus estimates. Worse still was that nearly $6 million in inventory needed to be written down. On its conference call, Vivus said that it would accelerate adoption of Qsymia by physicians. This will be done by growing insurance coverage and driving patient trials, in effect lowering costs for patients.
Orexigen Therapeutics, Inc. (NASDAQ:OREX) also reported on May 8. The company lost $0.21 per share on revenue of $857,000. The company is still in the developmental phase for Contrave, its lead product for obesity treatment. Orexigen completed Phase III clinical trials for Contrave.
When Orexigen Therapeutics, Inc. (NASDAQ:OREX) reported quarterly results in March, the company lost $0.41 per share. Revenue was $857,000, hurt by higher operating expenses. Expenses for Orexigen Therapeutics, Inc. (NASDAQ:OREX) rose to $33.3 million, compared to $5.2 million in the previous year.
Conclusion
The unexpected withdrawal of BELVIQ in Europe surprised investors, but now that the completion designation for the drug in the United States is given, it should provide a sustained, short-term lift for shares. Insider sales remain light, with 6 insider sales and 6 buys in the last year. Conversely, insider sales occurred 21 times, compared to 11 insider purchases in the last 12 months.
If bearishness rises, investors could look at warrant pricing as a possible guide for support. At December 31, 2012, Arena had warrants to purchase 3.4 million shares at an average exercise price of $6.23 per share. There were also options to buy 13.8 million at an average exercise price of $4.44.
Who will win the obesity drug market?
Can VIVUS, Inc. (NASDAQ:VVUS) pick up its lagging sales and fend off the competition, or will Arena Pharmaceuticals reign supreme in the obesity space? If you’re in the dark, grab copies of The Motley Fool’s premium research reports on VIVUS and Arena Pharmaceuticals to stay up to date. Senior biotech analyst Brian Orelli gives investors the must-know information, including an in-depth look at the obesity market and reasons to buy and sell both stocks. Click now for an exclusive look at Arena and VIVUS — complete with a full year of free updates — today.
The article Looking at Arena Following Sell-Off originally appeared on Fool.com.
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