A Top Biotech Buy

08/17/2011 11:30 am EST

Focus: STOCKS

Michael Murphy

Former Editor, New World Investor

One thing about biotech stocks is they don’t have to sweat the tumult in the credit markets, so they’re worth a look when other sectors are bogged down in credit issues, notes Michael Murphy of New World Investor.

Arena Pharmaceuticals (ARNA) released the re-adjudication of the data on mammary tumors in female rats as August began, and then reported earnings soon after.

They has $3.3 million in revenues and lost $22.9 million, or 16 cents a share. They had $97.6 million in cash at the end of the quarter, and they intend to end the year with about $60 million, which will be a year’s worth of cash at that point and plenty to make it through lorcaserin approval around mid-2012.

They’ve been very inventive about raising money so far, and I’m not worried about that right now.

The re-adjudication was a huge win for Arena, because if the adjudication went the other way, it was game over. I was surprised by the size of some of the adjustments. However, we’re now in a position where the rat cancer issue is behind us, looking at the science.

If the FDA still wants to turn lorcaserin down for political reasons, they’re going to have to find some other excuse—and the heat is really on them on this process.

However, the company is still taking everything seriously, and feels forced to waste our money doing science experiments for the FDA. As they told me months ago: “It’s the only FDA we’ve got.”

ARNA remains a top buy under $5, for the impact of the release of the rat cancer data, with a $24+ target after the FDA approves Lorqess in 2012. [Shares are under $1.50 right now—Editor.]

We’ll move to a different stock for the recovery trade in a couple of weeks, but I would not sell a share for any other reason.

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