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Arena Pharmaceuticals, Inc. Message Board

  • riskon4life riskon4life Sep 9, 2012 3:15 AM Flag

    Irrationality Theory and the Sell-Side Analyst

    The truth is that I, as with many other devoted Arena longs, projected that we would witness an atypical post-approval divergence - in rationale - amongst the analyst community. It seemed logical that forecasters would struggle to extrapolate (Internally and externally) the supportive reasoning affecting Arena’s post-approval and future price per share valuation. Currently, some institutions have Arena's price per share target at $20, while others, as of late, have set it at $6. As we have all observed, this prophecy has now come to fruition.

    One might ask, “Why such a bifurcation?” Well, the answer is rather rudimentary in my opinion. Logic tells us that it’s because all pertinent research prior to the physical launch of Belviq (Or any other drug in a waiting period for that matter) is explicitly and unarguably a tentative engagement. Categorically speaking, all assumptions, models, and empirical evaluations pertaining to the product’s allure, marketability, sales revenue projection, and overall sustainability are therefore centered on a hypothetical premise. Hence, under these indistinct circumstances, it is fair-minded to expect a modest to significant variation in analytical opinions and their respective contradictory conclusions.

    Now, in my opinion, it’s unquestionably an organization’s prerogative to disseminate a report on the prospects of a company’s drug under the aforementioned “conjectural” conditions. Keep in mind, though, in order for any prominent grade analysis to be impactful, specifically in the sphere of an indubitably educated investment audience, the research should unequivocally include a balanced and unprejudiced evaluation of the facts. This includes future catalysts that, as most investors recognize, could just as easily propel Arena’s shares to much higher levels or to all-time highs.

    In my opinion, Credit Suisse’s report conclusively lacks this criterion. Their presentation blatantly chooses to exclude all potentially positive aspects and progressive outcomes that will significantly stimulate Belviq’s/Arena's future success and result in a subsequent increase in aggregate shareholder value. Moreover, they completely ignore and disrespect the company’s extraordinary accomplishments thus far, including a robust pipeline of novel drugs, which are in various phases of scientific development. Remember, Arena employs some of the preeminent scientists in the biotech industry, thus, additioanl NDAs will eventually be filed with FDA. There is no question in my mind that Arena has a very bright future -- beyond Belviq.

    Since we have discussed the prospective catalysts on this board a million times, I will not bother rehashing them here. My main point is that analysts have been all over the board with this name since day one; it’s no secret. They were oblivious then, and as witnessed by the recent downgrade and $6 price target by Credit Suisse, they’re still incompetent today. Please know that I am not at all worried about my investment in this remarkable company, but instead disappointed in the lack of proficiency and the basic inability of world class institutions to just get it right for a change.

    To conclude, I am a firm believer that most analysts’ research notes are merely self-promoting instruments that are predestined to oblige the underlying institution and its clients. Hard to believe? Not really. With that said, I wouldn’t read much into any of these upgrade/downgrade cycles, but instead, allow the company’s innovative predisposition, potential forthcoming catalysts, and future financial performance to command the price per share instead. It won’t be long, in my opinion, before all the skeptics realize that they got it wrong once more.

    Best of luck to all of you!


    Disclosure: I am long Arena and staying that way

    Sentiment: Strong Buy

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2.13+0.01(+0.47%)Nov 25 4:00 PMEST