|Written by GSCR Staff|
|Monday, 16 July 2012 09:29|
Tomorrow will either be a good day for Arena Pharmaceutical (NASDAQ – ARNA - $11.51) or a good day for Vivus ($28.15). In June, ARNA received FDA approval to market their obesity drug. Tomorrow, VVUS goes before the FDA to see if they will get a thumbs-up or thumbs-down. Both stocks are up today. If VVUS does not secure approval, or there seems to be a delay, ARNA will benefit from the limited competition. If VVUS wins approval, the stock will likely rally (but only a bit given its rise already this year.)
Roughly 25% of ARNA’s shares outstanding are short. If VVUS does not win approval, some ARNA shorts may cover. Moreover, some of them may cover a few days later even if VVUS wins approval.
Given that the risk/reward is not great on VVUS but better on ARNA, if you have some real stones, buy ARNA or play some short term ARNA options. Otherwise, it will be interesting to see whether there truly is an inverse relationship between the two companies and bet accordingly.
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