By Jake King
Since late last year when Orexigen (OREX) revealed that its cardiovascular outcomes trial, the LIGHT study, was enrolling faster than anticipated and that the FDA might endorse an expedited approval process for Contrave, the obesity drug developer has been tempering its original expectations. PropThink called Orexigen "The Best Bet in Obesity in 2013," last December, and shares climbed 30% over the next month. While we stand by the previous assertion -- primarily as a risk-adjusted play in the weight-loss space next to Arena (ARNA) and Vivus (VVUS) -- the newer, softened tone from Orexigen's management team is worth noting, and investors should adjust trading strategies accordingly. We based our previous long list of catalysts in 2013 on rapid interim results and a FDA-led path to early approval, but now, management is walking down those expectations; investors should plan for interim results in the second half. There's little to get shares moving before then, and as such, money may be put to better use elsewhere. Orexigen has broken below its 50-day SMA, and although the 200-Day SMA may provide support at $5.26, the $5 level, a triple bottom, should provide a strong bottom in the near-term. With little to get shares in an up-trend yet in the first half of 2013, plus a slow Qsymia launch ramp that could negatively effect OREX, shares may continue down to $5 before beginning an uptrend ahead of the interim results in the second half.
Tempering expectations for the interim and resubmission. There was much discussion last year of the rapid enrollment pace in the LIGHT study, accelerated time to interim results, and the possibility for an early resubmission/approval following ongoing discussion with the FDA. Originally, Orexigen hoped that Contrave might be considered for approval on the basis of existing data (pre-LIGHT study) together with a post-marketing requirement to supply the interim CV results after approval. The FDA denied this request, reaffirming that CV outcomes from the interim analysis of the LIGHT Study would be required before approval. Since PropThink's last update on Orexigen, the FDA has agreed to allow the independent Data Monitoring Committee's summary report of the LIGHT study interim to form the basis of the Contrave NDA: "The complete clinical study report (CSR) for the interim analysis, which would ordinarily form the basis for the NDA resubmission filing, would be supplied to the FDA during the review within 60 days of the NDA resubmission." Although the company has been forthcoming that there was potential for acceleration, Orexigen has been incrementally tempering enthusiasm since last year. Now, Orexigen has said that the resubmission could dribble over into 2014, and is guiding for interim results in the second half of 2013: "...if the observed MACE rate is at or near the low end of the range of 1% to 2%, the resubmission of the Contrave NDA may not occur until early 2014." When pushed on the issue in its 4Q/YE12 conference call, CEO Mike Narachi said, "So all we are really doing here is just making sure that you and other investors understand that should the actual observed rate be at the low end of that range, at or near 1%, then the timing could be delayed into early '14."
Fair enough, but the company could have laid out the MACE rate in more detail early on. In an October 22, 2012 press release, Orexigen said, "With the resulting increase in observation time in the study, the time to accrual of the 87 major adverse cardiovascular events (OTCPK:MACE) needed to conduct the interim analysis should occur up to two months sooner, potentially as soon as the second quarter of 2013." And on December 18th, the company noted, "Although it is still too early to predict the rate of MACE, if the annual rate is close to the target of 1.5%, Orexigen anticipates resubmitting the Contrave New Drug Application and conducting the interim analysis in 2013, with potential approval as early as fourth quarter 2013." From possible approval in 2013 to possible resubmission in early 2014 is a big swing, and while there's been clarification, it seems management was a little over-enthusiastic last year.
All that to say that traders simply need to adjust timeline expectations downward. Clearly, the market has already taken the news into account -- OREX is down 10% since the conference call and will likely continue downwards without material catalysts. In addition, Vivus' Qsymia has had a slower-than-hoped-for launch, and further disappointing sales from the product will pressure OREX. With nothing in the near-term to catalyze Orexigen, the low $5 range may be an opportune entrance point ahead of the interim results in 3Q or 4Q. Orexigen is compelling long-term for those wanting to stay involved in the obesity space; it's risk-adjusted compared to its more expensive counterparts that are in the middle of exacting commercial launches, and we believe that Orexigen is the best bet in obesity this year. With the water still murky in regards to the true weight-loss market opportunity, playing a cheaper alternative to Vivus and Arena -- albeit with some clinical risks -- makes sense.
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