|After the big victory for Arena, what next?|
|By Brian Wilson, Contributor|
|Monday, 02 July 2012 02:26|
While initially halted following the news of the FDA approval of Lorcaserin/Belviq, shares were quick to rally over 30% from about $8.73/share well above $13/share, ultimately settling at $11.40/share at the closing bell.
For now, however, there seems to be a bit of confusion and weakening signals on the chart. Biotech traders may be exiting positions, but buy-and-hold investors are betting that Arena will pay off big for years to come.
The reality here is that for the most part, speculators and investors were expecting a NDA acceptance since the May 10, 2012 where the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee meeting voted 18-4 in favor of the drug’s approval. While the usual suspects were pushing panic and shaking investors out of their shares, we urged readers to put things into logical perspective- particularly since this was ARNA’s second shot at glory.
This is a big and relieving victory for Arena, because Lorcaserin/Belviq has had trouble getting approval in the past. Lorcaserin’s NDA submission in 2009, which included data from the two phase III trials known as the “BLOOM” and “BLOSSOM” trials, were initially rejected on the grounds that the drug’s safety profile was not fully explored.
In animal studies, there were incidences where rats developed strange tumors in their mammary tissue. Since this remains as a lingering concern for Lorcaserin, the FDA has issued a warning on the drug despite its NDA acceptance but Arena has essentially secured its position in the obesity drug market with its partner Eisai.
So now that Arena has further justified it’s nearly $2 billion market cap, where will shares go as the drug makes its way to market?
The obesity drug market is largely unexplored territory, which leaves Arena’s future largely up to speculation. I expect bias towards the upside in the medium term, as Arena receives acceptance of its MAA (marketing authorization application) by the European Medicines Agency and grows its presence. This is also backed by a very large number of shares that are short, sitting somewhere near 25%. The short squeeze alone could send the stock soaring.
While it’s possible for Lorcaserin to bring underwhelming income for the first few quarters, I think the potential for ARNA to double or triple over the next few years is very apparent. It is mostly a matter of patience and waiting for opportune moments to buy into the stock (dips here should be considered).