Institutional Appetite is Increasing for ARNA and Decreasing for VVUS and OREX
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Comparing the latest institutional ownership reports for the three obesity drug stocks, Arena Pharmaceuticals (NASDAQ: ARNA), Vivus (NASDAQ: VVUS), and Orexigen Therapeutics (NASDAQ: OREX) reveals a trend that I predicted in previous articles, namely an increase in institutional appetite for Arena shares and a decrease for Vivus shares. Orexigen, which is a long way from obtaining approval, also experienced a decrease.
The latest institutional holdings report, which covers the period ending June 30, only three days after Arena's PDUFA date, shows a net increase of 18,550,184 in ARNA holdings and a net decrease of 5,717,430 and 1,665,947, respectively, for VVUS and OREX.
I anticipate that the next report on Nov. 15, covering the period ending Sept. 30, will show a further boost for Arena and further erosion in Vivus' institutional holdings for the reasons discussed presently.
The following institutions initiated a new position in ARNA:
OPPENHEIMER FUNDS (3,000,000 shares), CUPPS CAPITAL (1,001,772 shares), PERCEPTIVE ADVISORS, LORD ABBETT, ORBIMED ADVISORS, AIG, SG AMERICAS, TRADEWORK, BLACKROCK GROUP, INSIGHT CAPITAL, ALYESKA, AMERICAN CENTURY, ALLIANZ, CONNOR CLARK, UBS, ING, GSA CAPITAL, CAXTON, MANULIFE, KNIGHT CAPITAL, MACQUARIE, DIVERSIFIED TRUST, ANALYTIC INVESTORS, DIAMONDBACK, NORTHERN TRUST, PRINCIPAL FINANCIAL, WILMINGTON FUNDS, AXA, ROYAL BANK OF CANADA, PRUDENTIAL FINANCIAL, NOMURA, TORONTO DOMINION BANK, and many many more.
Meanwhile many existing institutional shareholders increased their position:
VANGUARD GROUP bought an additional 3,535,204 shares. STATE STREET bought 3,195,22 shares. WELLINGTON MANAGEMENT bought 3,099,42 shares. MORGAN STANLEY bought 1,561,429 shares, and many many more institutions added to their position.
The net increase of 18,550,184 in institutional holding came despite profit taking at a time when the stock more than sextupled between pre-AdComm price levels and June 30 due to a positive AdComm and full approval with a very favorable label on June 27's PDUFA date.
It's interesting to note that BANK OF AMERICA increased its holding while its analyst rated the company as "underperform." This kind of hypocrisy is not unusual on Wall Street where headfakes and deceit are regularly employed to manipulate sentiments. Jim Cramer even goes as far as boasting about manipulation in this video. I know from Dendreon (NASDAQ: DNDN) experience that some analysts form negative views in order to cater to large clients who are short a stock.
In a note to clients, Simos Simeonidis of Cowen Group wrote: "patients and physicians may find Qsymia's risks more tolerable than those connected to Belviq." I asked him to justify this statement but he didn't, which I assume means he couldn't because there is no scientific basis for his statement.
The scientific community generally considers Belviq to be much safer than Qsymia. FDA tends to agree with this as evidenced by mandating REMS for Qsymia and no such restrictions for Belviq. When it comes to obesity medication, given the history of this line of treatments, doctors prefer the safer alternative, i.e., Belviq. So Cowen's statements might be an attempt to raise "FUD" (fear uncertainty doubt).
Another favorite "FUD" line for manipulators is efficacy numbers. They like to say Belviq provides a 3% weight loss -- which is utter nonsense -- without providing the context. The meaningful efficacy number in my opinion and those of several doctors I've talked to is that the average completer weight loss was 26 pounds or 8.2% -- 63.9% lost greater than 5% of their weight, 34.7% lost greater than 10% and the top 25% lost over 16.7%.
The misleading 3% number is an average that includes the many subjects who dropped out of the studies early. That figure is also calculated after subtracting the weight lost by the "placebo" group, which was prescribed diet and exercise, even though real-world patients will also be prescribed diet and exercise. In fact, the FDA has advised that only patients who lose at least 5% in 12 weeks should stay on the drug, and subjects in the studies who met that milestone and stayed on the drug for a year averaged 11% weight loss.
Institutions may have followed Vivus insiders in selling their shares! Institutions sold over 5.7 million shares as of June 30. SOROS FUND MANAGEMENT is one of many institutions that sold Vivus shares.
Vivus insiders sold 820,241 shares in the last three months. This number is very close to insider sales at Orexigen for the same period: 848,742 shares, and Orexigen has only half as many shares as Vivus outstanding. Arena's insider sales were much lower: 166,665 shares, mostly by Steven Spector, the company's General Counsel, as an "automatic sell." Arena has about twice as many shares as Vivus outstanding. It's notable that Arena's CEO has not sold a single shares since founding the company. To me this is a very strong sign of confidence.
INCREASING INSTITUTIONAL APPETITE FOR ARENA
I wrote about Arena's prospects for approval when the stock was around $2 and most Wall Street hedge funds and their analysts and journalists were saying lorcaserin (Belviq) would not get approved. My prediction that it would get approved was purely based on science and what I heard from several doctors who said Belviq is a good efficacious safe drug. It was also clear that Belviq may become a blockbuster as it is desperately needed for addressing the obesity pandemic.
As a result of the wrong call by Wall Street analysts and the institutions that follow them, institutional ownership in Arena was around 25% before approval. To match its peers I predict that number will go closer to 70%. The latest report shows an ownership of almost 32% so the trend is definitely as we predicted and I expect this trend to continue. Some of the reasons for this appetite are:
- Belviq's blockbuster potential and exponential sales, which could start as early as November.
- Prospects for a bidding war. Arena's CEO has indicated there's a lot of interest in Belviq by Big Pharma. Many believe a buyout will not happen under $40/share.
- A lucrative contract with Eisai for sales and marketing in North and South America. In addition to purchasing the drug from Arena for roughly a third of its net sales figures, Eisai will also make sales milestone payments totaling $1.4 billion, and it will cover most of the cost of post-marketing clinical trials (90% of the expensive CVOT trial and 50% of the smaller pediatric trials).
- European and Swiss approval & partnership / ROW partnership. Arena owns the worldwide rights to Belviq, outside of North and South America.
- DEA scheduling is ongoing and I expect it will complete sooner than the company expects. Here's a letter we wrote to the DEA.
- Arena expects to receive $65 million in milestone payments this year.
- Low institutional holding means it will at least double and this provides a strong stream of demand.
- High short interest (around 40 million shares) provides another strong stream of demand because shorts simply made the wrong call.
- The management is solid -- I've met them and have full confidence in them. I am convinced their interest is aligned with that of shareholders.
- Swiss manufacturing is ready to produce a billion pills per year. They already have enough of the active ingredient on hand to produce half a billion pills. It may have already started.
- Eisai is already targeting other North and South America markets, beginning with Mexico, Canada, and Brazil.
- ROW provides huge opportunity for Arena with skyrocketing number of obese people in Germany, China, India, Saudi Arabia and many other countries.
Even in Switzerland, which is known as a fit country due to hiking and mountaineering, one-third of people are overweight and the disease-related costs of overweight and obesity have doubled since 2004.
In the US obesity-related costs add $190 billion to health-care costs.
Attacking the obesity epidemic is a win-win for everyone except hedge funds that bet against Arena because Arena will be a major player in this lucrative space.
Here's a letter I recently wrote to some friends about Arena & Belviq. More letters and articles that a group of investors and others wrote about Arena can be found at this file: letters to the FDA and SEC. To join my ARNA-related mailing list email me at (info at rezamusic dot com). I send mails from time to time to share my thoughts such as these emails. I do not provide investment or medical advice and encourage you not to believe what I say and to do your own research to find out the truth or fallacy of things that are pointed out in my writings on your own.
I own shares of Arena. This is not an investment advice. Please do your own research. For more information about my interests and to join my spam free mailing list please visit www.rezamusic.com. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.