Monday, April 18, 2011

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) Q2 2011 Price Target

Recent price: 1.29$
P/E Ratio: -
3 Months Target Price: 2$

Company Description
Data provided by Reuters explains that Arena Pharmaceuticals Inc, incorporated on April 14, 1997, is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing oral drugs that target G protein-coupled receptors (GPCRs), in four major therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases. The Company’s advanced drug candidate is lorcaserin hydrochloride (lorcaserin), for weight management, which has completed a pivotal Phase III clinical trial program. In December 2009, it submitted a new drug application (NDA), for lorcaserin to the United States Food and Drug Administration (FDA), for regulatory approval. In addition to lorcaserin, its internal development programs include APD791, APD916 and APD811, all of which are oral drug candidates. APD791 is a selective inverse agonist of the serotonin IIA receptor intended for the treatment of arterial thrombosis and other related conditions, and it has completed Phase Ia and Phase Ib clinical trials. APD916 is histamine H3 inverse agonist intended for the treatment of narcolepsy and cataplexy, and it has filed an investigational new drug (IND), application for this drug candidate. APD811 is a selective agonist of the prostacyclin receptor intended for the treatment of pulmonary arterial hypertension, and it is in preclinical development.

Confidence Margins
Strong resistance $2.38 (+84%)
Light resistance $2.23 (+73%)
Light support $1.26 (-2%)
Strong support $1.16 (-10%)

Since the end of January, Arena Pharmaceuticals Inc has announced a workforce reduction, the departure of their CFO, poor guidance for their fiscal year 2011 and finally continued uncertainty regarding the quick approval of their Lorcaserin drug. Current prices have anticipated the worst and now seems like the right time to open a long position.

Entry strategy
For the cautious investor:
Buy the stock for 1.50$ or less. Keep this position on close watch as the light support is only pennies down.

For the risk-taking trader:
The July 2011 1$ call option contract seems to be the right position to take as it offers a fair potential of profit, they can be acquired for about 37$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 2$, or keep it until 2.25$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 2$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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