Orexigen (NASDAQ:OREX) investors and the company itself are in a bit of a pickle. It is being reported that the post-marketing cardiovascular trial mandated by the FDA has had the plug pulled. The issue surrounding this latest news could impact the stock as well as the bottom line.
Before getting into the details, it is likely prudent to go into a bit of history and why a post-marketing trial exists and is even required.
It is no secret that getting a drug tested and approved is a lengthy process. In an effort to help streamline that process the FDA has allowed drugs to gain approval and enter the market with some trials to be conducted afterward. In concept, the additional clinical trials will be conducted within set time-frames and will add to the data and label of the drug once complete. The problem with this is that sometimes companies find ways to delay these trials, and sometimes sales of the drug are not bringing in enough revenue to even support the clinical trial.
In this sector there are three anti-obesity pills that were approver with post marketing clinical trials as a condition. The biggest and most expensive of these trials is studying cardiovascular safety. The problem in this sector is that none of the anti-obesity drugs is seeing enough sales volume to make such studies fiscally sound.
Vivus (NASDAQ:VVUS) markets the anti-obesity drug Qsymia. Qsymia was approved about 4 years ago and has not yet started its CVOT clinical trial. Vivus has offered up a host of reasons for not starting the trial, but the reality may well be that these are simply stall tactics in hopes that the FDA will reduce the requirement or perhaps even remove it altogether. Thus far the Vivus strategy has worked, and to this day a CVOT clinical trial for Vivus has not been started.'
Arena Pharmaceuticals (NASDAQ:ARNA) is the company behind Belviq. Arena has a partner, Eisai, that bears the cost of most of the CVOT clinical trial. This trial hurts the bottom line of Eisai, but the trial was started and is under way.
Orexigen, with its partner Takeda now out of the picture, seems to be taking a page from the Vivus playbook. The company stopped the recently started CVOT trial that had the Takeda name on it, and now wants to redesign a trial that will satisfy more than one CVOT trial at the same time.
On its face, the concept of having heart safety data makes a lot of sense. In reality, millions of scripts will have been written and consumed by the time any of that data is even available. Arena will be the first to complete its trial and those results are still years away. Common sense may well dictate that if millions of scripts have been written and there appears to be no issues, why should hundreds of millions of dollars be spent on such a study. After all, Vivus has been on the market for years now and has not even started a study. Further, the Vivus drug and the Orexigen drug are both branded combination versions of generic drugs that have been on the market for years and are already well understood.
Part of the delay tactic strategy that Vivus is using and Orexigen appears to be using may find some roots in the ANDA challenges posed by Teva. Teva has filed applications with the FDA challenging the patent of both Qsymia and Contrave. Each company has had to file a lawsuit against Teva in order to defend themselves. One aspect that may make a generic less likely to gain FDA approval is a lack of post marketing CVOT data. Further, if one of these companies were to lose its case, hundreds of millions of dollars will have been spent that a generic competitor would benefit from.
Management of Orexigen is, in my opinion, trying to preserve capital, and trying to move forward in the most sensible fashion. Management certainly sees the fact that Vivus has not initiated its own required trials and has seen no real repercussions from the FDA as a result. It may even be that Vivus is close to negotiating a trial that costs a mere fraction of the originally speculated $200 million.
Where Orexigen may be at a disadvantage is the fact that it has made moves that have aggravated the FDA in the past. Data on the first CVOT trial was released early and resulted in that trial being cancelled mere months before the 50% data readout. The FDA was rather frustrated with the move, and forced the company to agree to a second and new study. It is this second study that the company is now stopping.
Is Orexigen playing with fire? Perhaps. This is something that investors need to consider carefully. The stock is in danger of delisting and a notice should be received any day now from NASDAQ. The company is making efforts to gain approval in South Korea and launch there in the second half of the year. Contrave is already approved in Europe, and a selective launch in that region is also anticipated. There is a lot to consider with this investment, but the bottom line is this. Despite selling more scripts than its competition, sales are still much lower than needed to drive equity appreciation. Stay Tuned!
Disclosure: I am/we are long ARNA, OREX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no position in Vivus
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