Hedge Funds are Interested in Arena Pharmaceuticals
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One of the ways that retail investors can even out the flow of information is by following what hedge funds are investing in. A popular way to do this is to follow the 13F reports that hedge funds file each quarter. And while just blindly following what the big funds are buying is probably not the best idea, making this strategy one of your criteria for investing might be a prudent move. One of the companies that has seen recent hedge fund buying is Arena Pharmaceuticals (NASDAQ: ARNA).
Arena Pharmaceuticals is a developmental biopharmaceutical company focused on discovering, developing, and commercializing oral drugs that target G protein-coupled receptors. The company is currently in a battle over who can provide the market's best obesity drug. It's two main competitors are Vivus (NASDAQ: VVUS) and Orexigen (NASDAQ: OREX).
Vivus has two upcoming catalysts during 2013. The catalysts include sales numbers for Qsymia, and Phase II trials for sleep apnea and diabetes drugs. With the stock price dealing with a recent slump, these catalysts have the potential to provide the much needed boost that investors have been looking for. Vivus, however, does appears to be in a fairly strong financial position. The company's cash position came in at $62 million in the third quarter financial report, compared to $39 million a year ago. This puts the company in a position where they most likely won't have to issue additional shares. The company also narrowed its net loss from the same period a year ago. For the third quarter 2012, the company lost $40.5 million from operations compared to $83.6 million for the same period a year ago, a very solid improvement. As the revenue generated was the same for both periods, the narrowing of the loss stems primarily from cost savings measures that the company has implemented. This is a sign of a strong company with strong executives at the helm.
Meanwhile, Orexigen will face its Phase III trial results later this year, as the company is currently evaluating cardiovascular risks for its drug Contrave. Orexigen has a lot of catching up to do if it wants to reign supreme in the obesity drug market. It will likely need to show incredible safety numbers in order to steal market share away from Arena and Vivus.
Arena's obesity drug will officially launch shortly under the name of Belviq. Vivus has already launched the drug, but it has failed to gain a lot of traction due to its limited marketing efforts. Additionally, thus far physicians have seemed unwilling to prescribe Vivus to their patients.
Arena has seen hedge funds acquire roughly 29 million shares during the most recent quarter. The largest holder of Arena shares is Wellington Capital. Since the company has roughly 215 million outstanding shares, institutions acquired roughly 13% of the company's float. This is a pretty strong indicator that the company may have a promising 2013.
Technically speaking, the company is trading very close to its 3 month high of $10.14. As the chart below indicates, the stock has rallied over the past couple of months.
The stock has likely risen due to the upcoming catalysts for the company. The company will see its obesity drug have its official launch to the public shortly. And later this summer, Arena will provide the results of a Phase I trial attempting to treat pulmonary arterial hypertension.
The company had a strong third quarter in 2012, which is likely contributing to some of the momentum seen in the chart above. Arena recorded $25.7 million in revenues compared to the same period in 2011, which only generated $10.6 million. Additionally, the company appears to be managing its costs better as the R&D costs decreased by over $3 million from the comparable period. With strong catalysts, institutional buying, and technical momentum, the stock may have a strong year.
It is important to keep in mind that all biotech stocks have risks, and Arena is no different. It will face stiff competition from Vivus and Orexigen, and the fate of each company will likely be decided during the year. Additionally, the company may announce less than positive data for its Phase I update in the summer.
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