by James Brumley | July 20, 2012 8:01 am
Pardon me for asking, but wasn’t the approval of Qnexa — or Qsymia, as it’s called now — supposed to send shares of Vivus (NASDAQ:VVUS) through the roof? Not that an 11% pop immediately after the approval is a bad move, but let’s face it … the stock is down about 10% from where it was at Monday’s close, the day before the long-awaited approval. Anybody who waited to pile in after the FDA’s decision became certain has to be a little disappointed.
Then again, considering Arena Pharmaceuticals (NASDAQ:ARNA) also failed to make any real progress after the late-June approval of its weight-loss drug lorcaserin, perhaps traders shouldn’t be scratching their heads too much.
It all bears repeating the message I sent in late June … the one that started an outright firestorm.
Yes, it’s me again. I’m the guy who dared to suggest Arena shares had no room left to make gains following the company’s June 28 approval of its flagship diet pill.
Oh, it wasn’t that we wouldn’t see some sort of knee-jerk bullish reaction. In fact, I specifically said at the time:
“As counterintuitive as it might seem, the value of Arena Pharmaceuticals shares might already have priced in the approval of lorcaserin (it’s up almost 300% since late April), leaving the stock nowhere else to go once any good news is released. Oh, we’ll possibly see a knee-jerk bullish bump with an approval. By and large, though, the market already has seen the writing on the wall, and any such bump likely will last less than a day.”
ARNA immediately jumped from $8.73 to $13.50 after the news came out that day … and started to slide lower five minutes later. It closed at $11.39 that session, and currently is at $9.65. It struggled to brush a high of $12.07 in the meantime, and still is well under values of $20 per share, and even $30, that speculators were throwing around at the time.
I hate to be the one to say I told you so, but … I told you so.
Now I have to wonder if we’re going to see the same non-response with VVUS now that it finally has won the key approval. The stock jumped from Tuesday’s close of $26.46 — before the approval became official — to Wednesday’s open of $30.33. Since then, VVUS has fallen back to below $26 and still is selling off.
Said another way, VVUS hasn’t doled out any post-approval rewards yet, either — just disappointment.
Granted, two days don’t make or break a stock, but this name hasn’t even come close to living up to the expectations traders had about the effect of Qsymia’s approval. We might want to give it a few more days for the dust to settle, but it’s not an encouraging start.
I’m certain that casting my doubts on the foreseeable upside of VVUS will stir up the same hornet’s nest I stirred up when I dared to examine the bearish side of an Arena trade. Just to stave off most of the pitchforks, though, let me clarify what I’m saying …
This isn’t a judgment on the merits of the company. This isn’t a judgment of Qsymia’s potential. This simply is a caution that there’s a huge disconnect between the stock’s price and any semblance of a plausible value right now, stemming from the fact that traders ran shares up too far in anticipation of Tuesday’s drug approval.
Sometimes that disconnect can work for a stock, and sometimes against it. With such high, hype-induced expectations surrounding this stock, though, that disconnect is more of a liability than beneficial for Vivus right now. The time to buy was months ago.
The good news is, these disconnects usually are short-lived. The bad news is, the odds favor a “reconnect” at prices considerably lower than where VVUS shares are priced now.
Oh, and if you want proof that euphoria and a buying mood can peak with a drug’s approval rather than get started by one, here are five examples of when it happened. Some of the similarities between them, Arena and Vivus are almost frightening.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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