This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Two pharmaceutical stocks demonstrate portfolio pitfalls and rewards

By Chris Lau for Kapitall.

Obesity is a medical problem that now has drug treatment options. Prior to FDA approval, investor interest in Arena Pharmaceuticals (ARNA) soared. Since the FDA approved Belviq, Arena began to market and sell the drug. Sales are steady but not as strong as initially thought. This creates an opportunity in pharmaceutical stocks for investors with a long term time horizon.

Arena results miss

Arena reported quarterly results on May 12 2014 that missed consensus estimates. The company lost $0.12 per share on revenue of $6.8 million. The weak results validated the short-selling thesis for the bears. Moreover, the short float is high, at 23.19 percent.

Despite the short-term challenges, Arena is showing improving business performance. Expenses rose 29.9 percent in Q1, compared to the 183.3% growth in revenue. Prescriptions are also up 31% (based on IMS Health data). Institutional ownership is strong. Most importantly, Arena and its partner Eisai are expanding its sales force and availability worldwide.

In the value space, Theravance (THRX) is down nearly 35 percent from its yearly high. Short float is 22.3%. Theravance reported weak quarterly earnings on May 6. The company reported revenue of just $0.17 million and a loss of $0.62 per share. To boost shareholder value and to become more focused, Theravance is spinning out Theravance Biopharma on June 2. Biopharma will hold the “discovery, development, and commercialization of small molecule product candidates” in such areas as bacterial infections and respiratory diseases. Theravance Inc. will become a Royalty Management Company. The latter will begin paying a dividend of $0.25 per share quarterly.

Risks still high

Stock price volatility will be the biggest risk for Theravance and Arena in the near term, but the future for both companies is bright. Investors should add these two companies to their watch list and consider buying them on weakness.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,719.92 -78.57 -0.44%
S&P 500 2,080.41 -9.70 -0.46%
NASDAQ 5,108.6660 -18.8590 -0.37%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs