4. ARNA is a buyout, merger, or partner candidate.
According to Ibisworld, 13 blockbuster drugs will lose patent protection through 2013. One example, between 2010 and 2012, drugs that make up 42% of Pfizer pharmaceuticals revenue will lose patent protection. Big pharmaceutical companies need blockbuster drug companies more than ever. I believe Arena will either be bought out or merge with Eisai. It is very common for a pharmaceutical company with a high stock price (P/E Multiple) relative to earnings to use the stock as currency. A merger with Eisai in a stock for stock deal is the most likely event.
On the other hand, in this environment of shrinking blockbuster sales, a Big Pharmaceutical can easily afford to buy Arena in cash or stock and cash combination. Accountants and financial experts will agree that pharmaceutical companies like Pfizer, Abbot Labs, Astrazeneca , Novartis, and Merck & Co.,, just to name a few, have existing complimentary marketing infrastructure capable of making Belviq sales a source of virtually pure profit. The value of Arena on a 7 times multiple of past projected historical sales data (referred to above for drugs serving huge medical needs) alone would put Arena at $7-$10 Billion in a buyout scenario. However, Arena comes with some enticing benefits for a pharmaceutical suitor - 10 year Swiss Tax Haven and R&D Write-offs. How does Arena's proven unique drug discovery technology factor into the equation? Is there any doubt a pharmaceutical company would have to pay a premium for the hundreds of patents this technology has created. We challenge Wall Street either to agree with us or give us concrete analysis to the contrary.
Therefore Arena is a red-hot buy in my opinion. Arena's stock is temporarily beholden to the wave of short interest attacks sitting at all time highs of 43,934,871 as of August 31, 2012. The shorts, according to some experts who teach short selling, appear to have been misled into believing DEA Classification is the