We all know that ARNA had a tremendous runup in 2012. The low was 1.51 on Jan. 5. (Yes, I know - this is where so many here bought their shares.) The high was 12.07 on July 10. If you had bought at the low and sold at the high, you would have multiplied your money 8X, a wondrous thing. But this little exercise will look at where ARNA has gone over the past 6 months, from July 25 to January 25, compared with the rest of the market. In a nutshell, ARNA has gone from a July 25 close of 9.49 to a January 25 close of 8.71 (-8.2%). During that same period, the S+P has gone from 13,231 to 1,500 (+13.5%). The DJIA has gone from 12,676 to 13,896 (+9.5%). The NASDAQ Composite has gone from 2,854 to 3,149 (+10.3%). And the Russell 2,000, perhaps the most relevant index, has gone from 769 to 905 (+17.7%). Picking a biotech ETF at random, I find that the S&P Biotech index (XBI) has gone from 89.7 to 96.4 (+7.,4%).
The suggestion here is that if you had sold ARNA at 9.49 and put your money in almost anything else, you would have done much better over the past six months. These six months have been full of apparently wonderful events for ARNA: The failure of VVUS (although on these boards,perhaps the success of VVUS would have been seen as even more auspicious), the much-anticipated DEA scheduling, a deluge of publicity about the "obesity epidemic", etc. The only setback has been the recent failure of Belviq to get CHMP approval at the point when it was expected.
So, in the face of a strong market rally, and given all the heady expectations for Belviq, why has the stock gone backwards? I would dismiss all the conspiratorial theories about the stock being "held down". The nonsense about "trapped shorts" and hedge funds which covet the stock but are nevertheless selling it to depress the price is unworthy of serious discussion. (The corollary would be that that they have driven the entire S&P up 13.5% in a cynical effort to sell it to you.) Let's also not even consider the possibility that I am a paid "basher", enlisted by sinister hedge funds to discourage the righteous. This discussion will be limited to the rational, those who don't believe in boogeymen, the Trilateral Commission, or The Great Pumpkin.
Okay, out of all the posts on this thread this is only the second by someone subnormal.( I like the open-minded "everyone is entitled to an opinion" paired with the scatological abuse for some imagined departure from orthodoxy.) One of my conclusions after reading the posts here is that the Arena longs are, for the most part, fairly sane reasonable people. Many of them are long not because it's a hot stock, but because they really believe in the company and the science. It's posters like this who give them a bad name. Just as the sceptics are unfairly grouped with the diehard embittered VVUS holdouts. The only additional observation that I would make (this will no doubt be construed as a "bash" by some) is that there seem to be people who have bet the farm on this stock. For some of them, ARNA is their entire portfolio. This is nutty. Someone here posted that ARNA was "one of the safest stocks on WS". Private__Wealth, who is long ARNA, had some fun with this, suggesting obliquely that a "safe stock" might be a large cap with low p/e, predictable sales, and a nice fat dividend. This is not, by any stretch of the imagination, a "safe stock". Few biotechs or pharmas are, once you get below JNJ, PFE, MRK, BMY, etc. Most of the ARNA longs recognize this and are willing to take the risk for what they think may be outsize rewards. Some will say, "But I bought it under 2!" Great. But this isn't a game - it's still real money. If, for example, you had 10,000 shares @2, you had a $20,000 bet on the stock. But now you have a $90,000 bet on the table. One of the absurdities of the Cramer show is the segment where people call in to ask, "Am I diversified?" If they own 5 or 6 stocks which he has recommended, he certifies them as such. This is idiocy. Studies show that you should have at least 40 stocks in your portfolio in order to not be overexposed to weakness in any one stock. 20 stocks might be considered borderline "diversified". 10 would be risky. 1 is crazy.
Arena is not a stock to buy and hold- if someone is looking to purchase.
If a person ALREADY has bought, then they may as well hold if they are less than 10 percent below their purchase price. And if the current price is over their purchase price, then they may either hold or sell- depending on if they are traders, or buy and hope "investors".
I am currently out of ARNA for now. Bought at average of $1.80, sold at average of $9.00
This could be a nice Buy and Hope once the company has some actual sales. Or if he company decided to pay a dividend later- I don't really care for dividend stocks, but I don't think the Shorts would care for the dividend.
Theres a whole bunch of other reasons why this stock has been in this range. Have you ever bought something where you got first dibs, only to see it go up in value after the rest of mass's go into a manic and are willing to pay up for something that is hot. Playstations,Iphones,Xboxes..I think what we are really seeing is accumulation in this stock. Don't you find it strange that no big institution has upgraded this stock since 2010? The only reasonable reason I can think of is that upgrades will come soon after the big guys accumulate their core postions on the stock...There has just been too many good things thats happened in the last six months for this not to get any positive coverage.
Just my thoughts, I could be either crazy or have too much common sense??
Bear, the fact that pps went sideways since fda approval without any sales is not all that bad and it is basically what we should have expected in the first place till we finally start selling belviq to the market. Were you really expecting that the stock will not go backwards without sales for more than half a year?? You're comparing arna with other companies that have products in the market and generating sales. Having said that, I would be concerned if after 6 months of launching the drug and we have a losing investment, then your question is much more appropriate. For now there is really no basis for such fear, doubt and anxiety about us being 8% down since july with us unable to sell Belviq…yet.
So, in the face of a strong market rally, and given all the heady expectations for Belviq, why has the stock gone backwards?
LMAO - what hedge fund are you with ? The Marx brothers?
This has my vote for thread of the month. Some really high quality thoughts and arguments in here!! Some idiots, too - but that's to be expected, heck,there are ten thumbs down on the initial post, that tells you something. Great Job Bear! Two thumbs up!
The trouble with the nested reply format on the board is that many of the interesting posts get lost, but I came across this one and you are right, P_W, this thread is very high quality and extremely interesting. Thanks Bear for setting it up, and to all the posters of fascinating thoughts. Yes, it's a mystery why intelligence gets the thumbs down.
One post from one of you guys mentioned the Street's ratings computer. Like the daily laggard and leader feature, it's a pitiful, algorithm driven joke that surely sees no brain power beyond an intern's. Why they bother with it, #### knows. And yet some people on the board assume it's a personal "in your face, stick it to them" creation of AF and JC to niggle ARNA longs. Oh well...
I am going to resist the temptation to hijack your thread. You know that you and I think a lot alike anyway. I am eager to see what many of the posters on this board write here .... My first view was the post about NFLX and the 65 mm payment - I will reserve my reply for below.
You bring up some good points. An 8X increase is great. Agreed. The fact that from July to January the stock has gone sideways- if not slightly downhill, a fact as well. You are correct, had we all pulled out in July our (short term) profits would be better. In addition, there are some (Cramer et al) that look solely at a subset of numbers and point out that CURRENTLY revenue and profits are weak THUS, the stock is a SELL. (sorry, cant help rolling my eyes here)
Hindsight 20/20. Who here has a crystal ball? Who hear knows how to time the market? Obviously after the fact, we can all figure out what we should have done to maximize the profits.
What I have done is...... sold enough of my 8X stock to have recovered what I put in. I now have pure profit left in ARNA. Look around (and no, walmart is not the only place), there are obese people out there. There is a market. Yes, we all know how to lose weight. Eat less. Exercise more. No pill will work. And yet. Everyone wants one. And for some people, the pill may make a big difference. I think there is a market. I think the drug that gets approved and pushed (ie sales force, marketed right) will reap a tremendous profit.
I think ARNA is CURRENTLY not making alot of money. I think its STILL speculative. BUT things are lining up. The company is doing what it takes to become profitable.
Since I dont have a crystal ball to advice me when to sell at the local highs and buy at the local lows, I plan to just wait things out. Wait till they actually start SELLING the product, when they actually start bringing in REVENUE. That is when the Cramers of the world will start touting how great this stock is- but by then the price may be significantly higher.
That how I feel about this stock
thanks for listening
"The Street's" rating system is an absurdity. They will periodically point out, for example, that a stock like ARNA has a very high p/e ratio, etc. My impression is that it is done by a rather primitive automated screening system. Cramer himself is even more of a joke. I love watching him now spend a half hour trashing AAPL, not long after being its biggest fan. He is a market-following indicator rather than a market leading indicator. Often he is underinformed about a stock he is pontificating about. The day last year ONXX received FDA approval for Kyrpolis, a multiple myeloma drug, he advised his followers to dump CELG, since their big cash cow was Revlimid, another multiple myeloma drug. What he didn't realize was that the drugs do not compete with one another. (In fact, if Kyrpolis extended the lives of MM patients, it would increase Revlimid sales.) Nevertheless, he drove CELG down to 58 that morning. It rebounded the next day and is now brushing 100. He also didn't seem to realize that CELG had a next generation version of Revlimid on the launch pad. He obviously has a staff of analysts who feed him this stuff. ( If you were a reasonably qualified analyst, would you be working for Goldman or for Cramer?)
I think that taking some profits and "playing with the house's money" is a lot more sensible than letting it all ride. I suspect that a lot of ARNA longs have done exactly as you have.
Bear I admire your analysis above but if you had written this last week when we were on the verge of breaking $11 your arguments would hold no weight (no pun intended). If news had broken of anything (DEA, EMA, etc.) your analysis above would look terrible at best. This is a biotech stock and any rhyme or reason is ridiculous IMHO.
Sentiment: Strong Buy
Yes, but it's human nature to try to understand things ... or at least to create a narrative. I was arguing vociferously before expriration that all those 10 calls would wash out. This was not a brilliant insight, but more like physics. In fact, I thought that they would wash out so dramatically, that they would take the price down closer to 9. The stock verged on breaking 11 earlier that week due to a 30 million share day in which it advanced almost a dollar. The popular explanation was that word of a favorable CHMP decision had leaked ... obviously not so. My explanation would be that the Jan10's had dropped from 52 cents to 11 cents over the previous week and a half and that the options MM's had them in hand and wanted one more chance to run them up. If you can buy something for a dime and sell it the next day for over a dollar, that's a very nice return. There were over 6.3 million shares represented by the Jan10's alone. (My assumption would be that after they spiked it up and held it there, they accumulated a short postion while it flatlined; they covered this position at 9.75.) Now the stock is being held in a tight trading range, but the 9 calls are still selling for around 35 cents, if I remember correctly. (although the volume is anemic by ARNA standards) Many here expect it to rebound in advance of the launch of Belviq. In fact, the only way the options MM's can really make a killing here is by taking it up close to 10. If I were a trader, I might bet on that.
Now I will broach another possibility that is never discussed here: Have you considered that the MM's are planning a huge sell-on-the-news bear raid on this stock? It's happened before. Which is to say, are they holding the stock here to liquidate most of their long positions? The contrary assumption is that they are setting a trap for shorts, but I don't think that there are many retail shorts to trap.