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Arena joins the GBMB



September 23, 2010 – Comments (2) | RELATED TICKERS: ARNA , ANTH , MSTX

There's nothing scientific about calling a bottom on Arena at 1.6. This is just pure instinct about human nature. Recent events have made it clear that the behavior of Vivus, Arena, and Orexigen is going to remain volatile and counterintuitive until the last of the current crop of obesity drug candidates is rejected by the FDA. My only real money score so far has been on Vivus where I made several thousand on impressive phase III efficacy results. Fortunately I didn't bet real money on my prediction that Qnexa would receive a positive panel vote. I missed a beautiful opportunity last week on Arena puts when I hesitated to buy them at my preset threshold. Now I'm back in the game long on Arena. For the sake of argument I'll write up Arena in my conventional GBMB format.

Arena Pharmaceuticals (ARNA) - market cap 182M, share price 1.62. Cash 119M, debt 139M, quarterly burn 30M. Those financials aren't looking pretty after a 9-5 FDA Advisory Panel vote against lorcaserin. The actual PDUFA is October 22. Here are my estimates for the share price after the PDUFA: rejection with request for new clinical trials - 0.8, rejection with request for more pre-clinical carcinogenicity studies - 2.5, approval - 15. Personally, I believe that the advisory panel trumped up the carcinogenicity data because they don't want a low efficacy drug for obesity on the market. They don't want to admit that efficacy is the issue because lorcaserin technically satisifed the established FDA guidelines, which I think the FDA would like to rewrite. Therefore, I think the first outcome is upwards of 80% likely. Lorcaserin will never be approved. The second outcome is about 15% likely and approval is less than 5%. So by my calculus, Arena stock is fairly priced right now. On the other hand, the same crowd of loons that promised a positive panel vote for lorcaserin last week is now regrouping to predict an FDA rebellion against their own advisory panel. As October 22 approaches, I expect that the center of gravity will shift back towards optimism enough to bring the share price to the 2.5 range. Towards that end I bought 5000 shares today at 1.6 with a goal of selling at 2.5 over a week prior to the PDUFA. Early rejections have happened several times in recent years.

I'll also add Anthera to the GBMB list.

Anthera Pharmaceuticals (ANTH) - market cap 74M, share price 3.3. Cash 51M, debt 0, quarterly burn 4-8M. Anthera is the Oliver Twist of baby biotechs. Their share price seems to have been jinxed from inception, and every turn is met with misfortune. The company was forced to reduce the price of their IPO by half in March of this year, raising only 42M. The share price muddled along humbly at 7 for a couple of months and then began to stagger, touching 4 in July before a pseudo-recovery took the share price back to 6. The upward climb was short-lived and the share price is now showing downward momentum at 3.2. Throughout these valuation travails, Anthera has displayed a surprising absence of negative catalysts. The company has three compounds in clinical trials and thus far seems to be executing their development plan. The phase III VISTA-16 trial of varespladib in acute coronary syndrome was initiated in June and has an estimated completion date of February 2012 (although I suspect it will be later). The PEARL-SC phase IIb trial of A-623 B lymphocyte inhibitor for lupus has been initiated, but it is unclear if any patients have yet been enrolled. The estimated date of completion for this trial is May 2012. My main question and concern about Anthera at this time is the disappearance of  the IMPACTS phase II trial of secretory phospholipase inhibitor A-001 in sickle cell anemia. reports that this study was completed in December 2009, yet the company issued their last press release about it in March 2009 ( to report encouraging preliminary data and continuance of the trial). Subsequent quarterly PR's do not mention IMPACTS and barely refer to A-001. If IMPACTS has failed and the company swept it under the rug I consider this to be a serious indictment of management's integrity and the company's long-term prospects. Despite this concern, I believe the drop in share price is more reflective of stochastic movement in a thinly traded small cap biotech than true market pessimism. A market cap of 75M is low for a company with ongoing phase III and phase II trials of two compounds for diverse indications, even if A-001 and IMPACTS are completely discounted. Hopefully Anthera is truly an Oliver Twist and not an Artful Dodger, and will eventually find their way to security and acceptance in a most Dickensian manner. The share price was as low as 2.85 this week before recovering to the current level. I would look for a drop back below 3 for a GBMB buy.

And now a couple of updates:

Adventrx Pharmaceuticals (ANX) - a week ago the company announced twelve month stability data for Exelbine, the last obstacle to submission of an NDA which will occur in Q4. The stock rose 400% earlier this year after NDA submission, before giving it all back when the FDA refused to accept. The stock continues to hover slightly above my GBMB threshold of 1.8, but I'll have a hard time not buying this given the probability of upward momentum after the NDA. I'll probably hit below 1.9.

RTI Biologics (RTIX) - I'm still well in the red on my buy of 3000 shares at 2.95 in June. But revenues have been holding stable and the company hasn't had to revise any of their earnings estimates, despite the dire economic pessimism that dropped the share price from from 10 in fall 2008. It seems clear to me at this point that elective surgery won't simply cease to occur, but the market still treats RTI like this is a definite possiblity. After spying what appears to be a recent bottom at 2.1, I'm considering doubling down below 2.15. I think RTI is primed for a rebound.

And of course, as always, be careful out there ...



2 Comments – Post Your Own

#1) On September 23, 2010 at 10:37 AM, Momentum21 (96.33) wrote:

I will join you and add to my position at 1.57...hoping not to be "GAMB" : )

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#2) On September 23, 2010 at 10:41 AM, Momentum21 (96.33) wrote:

ANTH is en fuego...

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