Arena Pharmaceuticals (NASDAQ:ARNA) … what a wild roller coaster ride this stock has been. It was all the rage leading up to the approval of its weight-loss drug Belviq (lorcaserin) on June 27, with the stock soaring from $2.43 at the end of April to $13.45 immediately after the FDA announced the good news. That’s a 453% move in less than two months.
Click to Enlarge I just hope you got out (i.e. took profits) right when a truckload of investors were planning on piling in following the approval. Why? Because the stock started to tumble immediately after that post-approval surge. Between then and now, Arena has fallen back from that $13.45 start following the drug’s approval to Tuesday’s closing price of $7.36. That’s a 45% stumble.
Here’s the deal: While I don’t know that the absolute bottom has been made, I do think it’s time to start prepping an entrance strategy for a position in the stock … for a couple of reasons. First things first, though.
Like I Said …
If the up/down action all seems familiar, it might be because that’s how I described things unfurling for Arena Pharmaceuticals back on June 19, eight days before approval. Specifically, I suggested:
“… 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. If anything, that strength will be support for folks to start booking profits into.”
It wasn’t a popular stance at the time, even though — unfortunately — it all panned out like I described. In fact, I was expecting people to show up at my door with pitchforks.
I’m not revisiting the stock now to gloat, however. I’m revisiting Arena again to tie up another loose end I left open the first time around:
“… the time to buy ARNA was either in early May before the advisory panel voted favorably on the drug, or will be after the dust settles — and the stock pulls back — after any approval.”
Well, guys, the dust is settling.
Eventually, It’s All About the Numbers
Contrary to popular belief, I don’t hate Arena, and I have no reason to bash the stock. It is maddening when the hype surrounding a stock drowns out its true value, however, and that’s exactly what happened with ARNA.
Look closer, though. The hype is fading. So too is the bullish interest, but that’s OK, since at least with the smoke-clearing we can start to do what we should have done a long time ago … crunch the numbers, which (surprise) actually look compelling.
To be fair, most of the numbers still are rough guesses at this point, but they’re good enough to lay the groundwork. There really are only three numbers at the core of the question, though:
$60.9 billion, $220 million and $2.6 billion.