Since July, the stock price of Arena Pharmaceuticals (NASDAQ:ARNA) has risen and fallen in a wave-like pattern; a pattern that has become familiar to analysts.
Seeking Alpha contributor Spencer Osborne notes that Arena has followed a particular pattern over the last three months. The stock rises above $9 per share only to fall back towards $8 per share in a cyclical fashion. In a recent article, Osborne wrote, “What I see is an equity looking for, and then the street anticipating, the next catalyst.” That catalyst, according to Osborne, is DEA scheduling.
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Arena’s obesity treatment, Belviq, received approval by the U.S. Food and Drug Administration this year, but the drug has yet to receive a schedule from the Drug Enforcement Agency. That designation is determined by how much potential the drug has for abuse. On the DEA’s scale of 1 to 5, one is the most restrictive level. Once the scheduling is decided upon, the drug can be brought to market.
When exactly the drug will be available is unknown. The DEA can take between four and six months to come to a decision. Close to four months have passed since Arena submitted the drug to the FDA. Both investors and the company expect the pronouncement soon. “That is likely the reason that this equity has continued to trade up and down,” said Osborne. “It appears that anticipation builds, then disappointment takes over with no news, and then the cycle repeats.”
Pharmaceutical manufacturer Vivus (NASDAQ:VVUS) released an anti-obesity drug of its own, Qsymia, last month. This is the first new weight loss drug on the market in thirteen years, and Bloomberg Industries analyst Andrew Berens has said it could generate up to $1 billion per year by 2016. According to Seeking Alpha, both Vivus and Arena have a large potential market. “While a market split between Arena and Vivus cannot be determined,” Osborne wrote in August, “it could be an impressive windfall for both.” Furthermore, he adds, investors and Wall Street see “dollar signs when they hear the name of either company.”
According to the Food Research and Action Center, 63.7 percent of adult Americans are overweight or obese, which amounts to 237 million people. If Arena’s drug Belviq permeates even 1 percent of the potential market, that amounts to 1.51 million customers. If Belviq achieves 20 percent saturation, as Pfizer’s (NYSE:PFE) Viagra did, the number of customers becomes 30 million.
Whether the drug reaches 1 percent or 20 percent of the market, Osborne said, depends on “good marketing and good results.”
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