Orexigen Investors Hope For FDA Approval

| About: Orexigen Therapeutics, (OREX)


FDA Scheduled To Decide On Contrave June 11th.

If Approved, Contrave Would Be 3rd To Market.

Marketing Partner Takeda Said To Dedicate 900 Reps.

Free Samples At Doctors Office Could Be Big.

Orexigen (NASDAQ:OREX) is just a day away from receiving an FDA decision on its anti-obesity drug, Contrave. If approved, it will be the third entrant into the space, joining Arena Pharmaceuticals' (NASDAQ:ARNA) Belviq and Qsymia from Vivus (NASDAQ:VVUS). Leading up to this date, Orexigen has seen a nice run in its stock, moving from the $5.00 price point two months ago, that I labeled as a buy, to its current price of around $7.00.

At this point, Orexigen longs may not appreciate what I have to say. I anticipated a run-up into approval, but also anticipate a fall back once the decision is made. If approved (which I see as very likely), a small run will continue, but as excitement wears off, it will settle down. If rejected (which I do not think is likely) a sell-off will be immediate. This is one of those occasions where a judicious use of stops may be warranted. Using stops wisely can allow you to maximize the gains of the run without sacrificing too much. Just be careful where you set them.

The fact of the matter is that Orexigen will go from excitement of approval to having to show sales that demonstrate that the drug will have traction. That takes time. Over the past two years, the prescription anti-obesity space has not set the world on fire in terms of sales. Betting that Orexigen will change that attitude overnight is not really a sound bet in my opinion.

Orexigen's marketing partner, Takeda, has promised to hit the street with an impressive 900 reps, but direct-to-consumer advertising is likely months away, whereas Arena's partner Eisai (OTCPK:ESALY) already has print and television ads running. Perhaps a big advantage that Orexigen has is that, as a non-DEA scheduled drug, doctors will be able to give samples at the office. This practice is something that Belviq and Qsymia have not been able to do.

In many ways Orexigen is viewed as the "sweet-spot" anti-obesity drug. Right, wrong or indifferent, it is perceived as more effective than Arena's Belviq and safer than Vivus's Qsymia. In fact, it may have just the right attributes to garner approval in Europe, where Belviq and Qsymia both failed. Certainly the investment community will debate efficacy, safety, and which company built the better mouse trap, but in the end, Contrave will be an additional tool in treatment chest that doctors have.

In my opinion, Orexigen is currently riding a wave of anticipation. Within a month or so, the wave that will place value on the equity will no longer be anticipation, but will be measured in sales, market penetration, and whether or not the sector as a whole will finally make real strides.

In its first three months, Vivus saw scripts of Qsymia at about 15,000. Arena's Belviq, which launched 9 months later, had three month sales at about 40,000. One would anticipate that given better insurance coverage, more reps, and free doctors office samples, that Contrave should, at an absolute bare minimum, be able to do 50,000 prescriptions in three months. Sales is what the street will be watching, and with weekly data available to the street, there is precious little wiggle room.

The key elements I see over the next 3 months are sales that demonstrate that Contrave can be a top-notch player in the sector and what happens in Europe. The street may have some patience on sales if the general feeling is that Orexigen will gain approval in Europe, but that level of patience will be more narrow than the street gave Vivus and Arena, both of which have seen their respective stocks drop.

Personally, I think that the sector has some real potential and that there is a need to treat obesity. I have not bet the farm on the sector, nor do I intend to. If the sector gains steam, none of these equities will run away on me overnight.

There is one thing that we do not yet know about Contrave that is critical to not only Orexigen investors, but the sector as well. What is the official price point? This critical item can impact many things. If you are invested in the sector, watch closely for this information. Stay Tuned!

Disclosure: I have no posityion in Orexigen, Eisai, or Vivus. The author is long ARNA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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