Despite sales surpassing 4,000 prescriptions, Arena Pharmaceuticals
(NASDAQ:ARNA) is still slumping. The bearishness we reported
last month looks persistent for obesity drug makers. Maybe the market even wants Arena to fall: short float is an astounding 27.9%.
(NASDAQ:VVUS) had a head start in promoting its obesity drug, Qsymia, but odds look better for Arena to reverse its decline. The question for investors with a longer time horizon is… when?
Vivus Shares Reverse Course
Shares in Vivus reversed course this month and are now flat over the last six months. Arena fared even worse -- shares are down nearly 40% in the same period:
Vivus received a vote of confidence when investment firm Cowen upgraded its rating on the company to “Outperform.” Analysts at Bank of America are hopeful that Vivus will find a partner for its Qsymia drug.
But if Vivus expands its sales force and channels on its own, it could create a strain on its balance sheet. Debt could rise sharply or shares would need to be issued, diluting current shareholders.
Arena already has a partner to grow its sales staff: Eisai Co.
(OTCMKTS:ESALY) The company is not growing its obesity drug Belviq sales as fast as investors would want, which might explain the sharp drop in its share price. But the slow growth could be a blessing: Arena may not boost operating costs for the sake of promoting short term sales.
By growing its sales staff steadily, Arena and Eisai could maintain healthy profit margins instead. If sales growth reaches a positive inflection point due to successful advertising and word of mouth, the companies could justify a stronger spend on operations.
High Uncertainty Creates Entry Points
There is no telling how long Arena or Vivus could go in the short-term, but both might be suitable for investors looking for exposure to the pharmaceutical industry in new drug areas.
The uncertainty in the growth in sales for Arena’s Belviq will likely weigh on its shares. A year from now, sales could be much stronger (and we could be much thinner). Hungry investors who still like what Belviq or Qsymia have to offer to patients may not want to walk away from the table yet.
Editor's note: This story by Chris Lau of Kapitall was written exclusively for Minyanville.
Kapitall's lists break complex concepts down to their basics, offering education and investing ideas to novices that double as a refresher course for more seasoned investors. Inspired by video game design, Kapitall's revolutionary brokerage platform combines a graphical user interface with tools that make it easy to build portfolios, share ideas and execute trades.
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Author Chris Lau has position in ARNA.