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Orexigen (NASDAQ:OREX) has announced that the company is on the cusp of having enough cardiovascular data from its Light Study on the anti-obesity pill Contrave for a possible resubmission for a new drug application to the FDA by the end of the year. In addition to this news, the company reconfirmed its strategy to submit Contrave for European approval.

Orexigen is one of three players in the prescription anti-obesity space. Competitor Vivus (NASDAQ:VVUS) and Arena (NASDAQ:ARNA) both have FDA approved drugs on the market. Vivus launched Qsymia last Fall and Arena, with marketing partner Eisai, launched Belviq in June. Neither Vivus nor Arena have an anti-obesity drug approved in Europe. Thus, while it may seem that Orexigen is behind the curve, the company may leapfrog its competitors in Europe.

As all three of these drugs were in development stage, the Street had assigned a very healthy premium to these companies because of the overall size of the potential market. In the United States alone, there are about 100 million obese people and another 100 million that are overweight. Early sales levels of Vivus's Qsymia tempered the enthusiasm substantially, and while Arena's Belviq is seeing a stronger U.S. launch, the sales numbers still remain modest by standards that define blockbuster drugs. The biggest issue in my opinion is a relative hesitancy of insurers to cover anti-obesity medication.

While there is still relative uncertainty in the sector, the potential is still quite impressive. The size of the market would seem to dictate that any viable treatment could have success. In fact, it is my opinion that there is room and space within the market for a few treatment options.

The potential advantage Orexigen has at the moment is in Europe. If the company can get Contrave approved there it will be the first to market. That can be a huge advantage. However, recent history tells us that a company still needs to execute. Vivus was first to market in the United States with Qsymia and the opportunity and advantage that was within its grasp was squandered. Arena had hopes of being first to market in Europe, but withdrew its application there because authorities in Europe had safety concerns with Belviq. This has opened a proverbial door for Orexigen.

The anti-obesity space is not yet defined and still carries a lot of speculation. With a lack of insurance coverage, Arena and Vivus are discounting more heavily than they otherwise would. Each drug has its positives and its drawbacks. Right now the Street seems willing to assign value to the potential of Orexigen's Contrave. It will make for some interesting price movement over the next several months as the applications in the U.S. and Europe get submitted. The fact that the company announced that it is getting ready to file in the U.S. this Fall indicates that Orexigen is pleased with the early results of the trial and anticipates success.

What investors need to bear in mind is that while the prospects are exciting, things like approvals take time. Jumping into an investment on the excitement may have investors locked in at prices higher than they need to be. The simple truth is that there is time here to assess the space before the fundamental story of Orexigen develops. Investors should watch progress of Arena and Vivus in sales as well as insurance coverage to gauge the market. Stay Tuned.

Source: Orexigen Readies New Drug Application

Additional disclosure: I have no position in Orexigen or Vivus