Friday's Bio Pharma Watch List: Focus On Arena And Antares

April 27, 2012  |  includes: AIS, ARNA, WPI

These 2 Bio Pharmas should be watched closely for today's trading session and weeks to come. I will do my best using the charts and offer fundamental factors why I feel these stocks could see a nice short term gain, and could see larger mid to long term gains.

Arena Pharma (ARNA) 2/26/12 pps: $2.15

Arena shares have been under some pressure lately as several articles across the internet, specifically, an article by Adam Feurstein from the street.com. I wrote an article giving a bit of critique on Adam's article and gave an opinion that Arena's lead drug, Lorcaserin, for the treatment of obesity has a 30% chance of gaining approval from the FDA. I have tried to weigh all the factors involved here, considering Vivus's (VVUS) likely approval of its weight loss drug Qnexa.

It does seem to me that big money is banking on Qnexa, and betting against Lorcaserin. I am certainly no medical expert by any means, but the data I have reviewed seems to me to support Lorcaserin gaining approval. I feel this way because the data seems to show the drug is safer than Qnexa, but its drawback being it is not as effective. I want to give a more reasoned opinion here about my prediction concerning Lorcaserin's approval chances so here goes:

If the FDA is not unduly influenced by big money hedges betting against Lorcaserin, then I would give Lorcaserin a 70% shot at gaining approval. If the big money hedges are successful at unduly influencing of the regulators, then a 20% shot is in order. In a perfect world I would like to think that undue influence from big money does not occur, but I think most people reading this know the realities of how things can work sometimes. Mannkind (MNKD) had its inhaled diabetes treatment rejected in great part because of what I feel was undue influence by a large hedge fund manager.

Having said all of this, I feel Arena's stock has been grossly over sold and I see a pattern repeating itself in the chart that could bode well for Arena longs; let's take a look.

(click to enlarge)

Yes, I know the black lines on the above chart are crudely drawn, but I want to demonstrate what I see here with the chart. First off, the long term trend is strongly in tact going back to November - December 2011. From each hard run up, a rather sharp sell-off occurred. This has happened 3 times now in the current trend wave. The 2nd wave formed a wedge pattern where you can see the bottom black line basically touch the top line in the middle of March.

I see the same thing occurring now after the 3rd wave, and strongly feel a strong move upwards in price is about to occur. Of course, this is only my opinion, but anyone who knows my track record predicting short term moves knows that I am usually right on the money. I expect a move to over $2.50 to occur in the Arena price in the short term.

Antares Pharma (AIS) 4/26/12 pps: $3.09

Antares released news yesterday before the bell announcing to the market that a settlement was reached between Teva (TEVA) and Pfizer (PFE) in their epipen patent infringement lawsuit.

Antares today announced that Meridian Medical Technologies, a Pfizer subsidiary, has entered into a settlement agreement with Teva, Antares' pharmaceutical partner, that will resolve pending patent litigation related to its abbreviated new drug application (ANDA) for a generic epinephrine auto-injector. According to the terms of the settlement, Teva may launch a generic epinephrine auto-injector covered by its ANDA on June 22, 2015 or earlier under certain circumstances, subject to receipt of approval from the U.S. Food and Drug Administration. Additional terms of the agreement are confidential, and the agreement itself is subject to review by the U.S. Department of Justice and the Federal Trade Commission. Under a separate agreement, Teva has agreed to provide Antares with device orders of an undisclosed amount in the years 2013 and 2014, to make a milestone payment to Antares upon FDA approval of epinephrine auto-injector, and to assume all litigation costs related to the patent litigation between Teva and Meridian Medical.

Also released yesterday, Watson Pharma (WPI) and Antares Pharma announced the launch of Gelnique 3%™ (oxybutynin) gel 3%, for the treatment of overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency and frequency. Gelnique 3%™ is a clear, odorless topical gel that has been shown to be an effective and safe treatment for OAB. The product is available in a metered pump dispenser, offering patients convenient dosing.

Both of these catalysts moved the Antares stock price to as high as $3.34 in the regular trading session, before being 'bear raided' with short sells tanking the stock price to as low as $2.98 a share, $0.12 lower than the stocks closing price the day prior. The good news here for Antares longs is that these shorts might just get 'short squeezed' very hard soon. Let's take a look at some reasons why this is likely to occur in my strong opinion:

News upcoming on Nestragel: There has been no news on this product which has been phase 3 ready for some time. Nestragel is a female unique gel contraception formulation to say the least. Dr. Paul Wotton, the Antares CEO recently remarked in an investors conference that Antares is no longer interested in royalty deals with 'partners.' Dr. Wotton clearly stated that he wants new partnerships to be just that, a true partnership with Antares being a 50/50 partner. I feel this is the reason we have not heard news as of yet on Nestragel. Dr. Wotton knows this is a multi-billion dollar with plenty of room for a new form of contraception. Big Pharma wants this one, and for good reason; it's a potentially huge revenue generator.

Studies have shown that women prefer gel based treatments 2 to 1 over traditional pill forms.

Furthermore, Nestragel topical gel is delivered by a single dose applied directly to the skin daily. Dr. Paul Wotten explained that the gel "will enable women to utilize contraception by incorporating into their normal morning hygienic routine and schedule."

The following information was taken from the latest Antares April 2012 PDF investor presentation file. I encourage those reading this article to carefully review this PDF to see what else Antares has to offer besides just Nestragel.

Key Nestragel points:

• Successful Phase 2 Trial:
• Suppressed ovulation (given for 21 days).
• Well tolerated with no serious adverse events reported and no skin irritation.
• Nestorone® has no androgenic effects but is not orally active - ideally suited
to gel administration.
• Formulation and active drugs are designed to reduce adverse events
− 31% of women discontinue oral contraceptives use after 6 months, and 44%
within 12 months.
• Seeking a development and commercialization partner (not a royalty deal).

(click to enlarge)

A wedge pattern is clearly set up above; this is not a head and shoulders pattern as the bear raiders have been trying to set up. This is clearly shown by the bottom black line tilting upwards with no break below the longer term neck-line. The top line would have to break down below where I started the bottom line for a bonafide head and shoulders pattern to occur. Many amateur chartists make this mistake quite often; they see a few bumps after a top and think it is a right shoulder when it is not.

Ok, enough chart and hype talk here; it really comes down to a company's ability and real potential to make big money, period. Antares is not like other bio-pharmas that carry huge risk with experimental drugs and their huge risk of rejection by the FDA. Antares is more a innovative drug delivery company that is unique and poised to generate some serious long term revenue in the future in my strongest opinion.

The company is close to being profitable currently, has no debt, hardly any warrants left and over $30 million in cash. Investing in Antares now is investing in its future, not its current state of business. I feel shorts are short sighted with Antares in this regard. Stock speculation is what it is about with smaller cap growth companies. It is not what the company is now, but what it will be in 3 to 5 years from now, where I see a stock price between $20 and $50 a share. If you disagree, then short it and hold your short for that long and let's see how you do in that time frame; I will bet you will see multiple margin calls.

For investors wanting safer plays that generate the profits and revenue now, you will have to pay a premium for this, period. Many of these companies will either see small growth, or no growth at all in the next 3 to 5 years.

I predicted correctly that I believed news was coming with Antares in an article I wrote 1 day prior to the actual news release. I made this prediction based on the buzz I was hearing and the trading pattern of the stock, which I monitor daily. I made an opinion call for a short term price move to $3.25 and this target was met yesterday; lucky call?

I am good at what I do period, and my record speaks for itself. This is not meant to be arrogant, but I trust my ability to sniff out price moves in stocks, and pick very long term winners. Here is one example of my predictions concerning Antares.

Would I like to see people buy Antares? You bet I do, as I own 86,200 shares of it, so I want to get that straight with people. My motivation is to get the word out on an opportunity I feel many will benefit from in the long term with Antares; It is good for me, and good for those who buy it in my opinion.

I have only flipped shares in Antares one time, back in the summer of 2011. I will not risk flipping my shares now because I know at any time, huge news could come and I expect this news to come for the reasons I have mentioned. I have grown weary of short sellers attacking the stock and feel many people either do not know the full story of Antares, and/or do not understand it. I am confident my investment in Antares will pay off big-time in the future. I am also confident that shorts are about to get seriously squeezed here.

Here are my opinions on the Antares stock price future moves:

$3.50 to $4.00, 2 to 6 weeks.

$4 to $7 by end of this year. Higher if the buy-out rumors come to pass.

Chart data sourced from Yahoo Finance.

By Scot Matusow

Disclosure: I am long AIS.