New Hurdle for Orexigen Diet Pill Has Investors Worried

Feb. 6.11 | About: Orexigen Therapeutics, (OREX)

By Michael Fitzhugh

The U.S. Food and Drug Administration’s surprise rejection of Orexigen Therapeutics’ (NASDAQ:OREX) experimental diet pill Contrave has investors wondering if the company will be able to stomach the steep price of proving the drug safe for widespread use.

The FDA will require Orexigen to conduct a stringently controlled and lengthy new trial of Contrave to evaluate heart damage risk before considering it again for approval.

A new study could take three to six years and require Orexigen to raise as much as $100 million to $200 million in additional capital, according to Canaccord Genuity life sciences analyst Adam Cutler. That money might potentially come from a restructuring of the company’s Contrave development partnership with the Japanese drug giant Takeda Pharmaceutical or possibly through a new partnership, Cutler suggested.

Contrave is a combination naltrexone HCl and bupropion HCl, both of which have been widely used individually for years. Bupropion is an antidepressant and smoking cessation medication. Naltrexone is a treatment for alcohol and opioid addiction.

In combination, the drugs have shown an ability to help people with obesity initiate and sustain weight loss of at least 5 percent of their starting body weight in one year.

The drug was widely thought to be a shoo-in for approval given the proven track record of its components and following the positive outcome of a December meeting in which its Endocrinologic and Metabolic Drugs Advisory Committee voted to support the drug’s approval.

Despite recognizing the need for new obesity therapies during 2010, the panel had declined to recommend that the FDA approve two other experimental obesity drugs, Arena Pharmaceuticals’ (NASDAQ:ARNA) lorcaserin and Vivus’ (NASDAQ:VVUS) Qnexa.

Contrave’s failure leaves the overweight and obese people in the United States stuck with limited choices: they can either pursue the first-line prescription for weight-loss: dieting and exercise, use one of the few already-approved therapies, such as Roche’s Xenical (orlistat), or go in for gastric banding and bariatric surgery—the benefits of which can be off-set by greater expense and risk.

Orexigen says it is continuing to work on its second-most advanced drug candidate, the weight loss drug Empatic. Meanwhile, the company plans to work closely with the FDA to determine appropriate next steps toward getting Contrave approved.