The Weighting Game Has Just Begun (ARNA)

What impact will the distribution agreement that calls for Express Scripts (NASDAQ: ESRX) to sell the anti-obesity drug Qsymia, manufactured by VIVUS (NASDAQ: VVUS), have on a similar drug, Belviq, produced by Arena Pharmaceuticals (NASDAQ: ARNA)? It is a good question that will have traders digging for answers. Traders do know one thing for certain: Arena is still waiting for classification scheduling from the Drug Enforcement Agency (DEA) while its competitor goes to market, even though Belviq received the approval of the Federal Drug Administration first.

According to an article appearing this morning on Seeking Alpha, Arena Pharmaceuticals may still have the upper hand on its rival in the anti-obesity market. European officials have doubts over the safety of Qsymia and, therefore, may not approve its use on the continent. This would leave the field wide open for Arena Pharmaceuticals. A rejection in Europe may also cast doubts about the VIVUS-created drug in the United States. Traders will certainly want to keep a close on eye on the proceedings across the pond.

The VIVUS news yesterday was not the only blemish on Arena Shares. Thestreet.com reiterated its sell recommendation on the stock with a score of D-. The computer-based rating took into account several metrics that included the company’s relatively low gross profit margin, underperforming net income growth as compared to peers in the biotechnology industry, and a debt-to-equity ratio above the average for the industry.

Buyers of Arena Pharmaceuticals shares appeared to slough off the negative news today. Perhaps traders viewed the VIVUS deal in a positive light in which strong sales for Qsymia may open plenty of doors for Belviq. Regardless, buyers of Arena shares showed some enthusiasm during the trading day. After opening unchanged, the stock advanced to a high trade of the day at $9.07 in the first 90 minutes of the session. The first print of the morning at $8.74 also marked the low for the trading day. Shares prices flattened out for the remainder of the day. At the closing bell, the stock registered a gain of over 2.5% to finish the trading session up 23 cents and a price of $8.99. Traders exchanged 11.29 million shares during the day, or about 1.4 million more shares than traded on an average day.

In June, Arena Pharmaceuticals share prices more than doubled on news that the FDA had approved Belviq for chronic weight management in adults. Belviq was the first diet drug to be approved by the federal agency in 13 years. In one day, the stock moved higher by 30% to set a new 52-week high at 13.50, which represented an increase of 1000% from the 12-month low set earlier in the year.

Ten analysts currently follow Arena Pharmaceuticals with an average rating of “hold” on the stock by the group. The consensus has an average price target of $10.83.

Arena Pharmaceuticals focuses on developing drugs for the treatment cardiovascular, central nervous system, inflammatory and metabolic diseases. The San Diego-based company was founded in 1997.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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