Despite sales surpassing 4,000 prescriptions,
) is still slumping. The bearishness we
last month looks persistent for obesity drug makers. Maybe the
market even wants Arena to fall: short float is an astounding
) 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
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:
(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.
This story by Chris Lau of
was written exclusively for Minyanville.
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