Orexigen Starts Its Road Show - What The Slides Tell Us

| About: Orexigen Therapeutics, (OREX)

Orexigen therapeutics (NASDAQ:OREX) disclosed in an 8-K that, starting today, they are beginning to meet with "investors, analysts and others." The regulatory filing included a copy of the slides that management will be using during these presentations. This is known in the industry as a "Road Show" - i.e. company management hitting the road to talk to potential institutional investors and their gatekeepers to raise interest in the company ahead of an offering. Last Friday, after the market closed, OREX filed a $150 million mixed securities shelf offering with the SEC. The filing of these slides means that the shelf offering is not just "in case we need it" but rather, is something the company plans to actively pursue. We review herein, something that the slides tell us, but that the company did not intend to say.

What The Slides Tell Us

The slides from the regulatory filing are packed with information, both about the discussions between the company and FDA regarding what it will take to get Contave approved, and on their expectations for how the obesity market will grow over time and where Contrave may fit in the competitive landscape. The tail end of the presentation even spends time showing how their other obesity drug candidate, Empatic, (another combination of 2 generic drugs) has shown promise in phase II trials.

The slides tell us that the cardio-vascular outcomes trial currently being done for Contrave, called the Light study, will cost approximately $100 million to get through interim analysis and approval. However, this does not mean that the $126 million in cash and cash-equivalents that the company has on-hand is enough. In a press release earlier this year, the company stated that:

As a result of the successful acceleration of enrollment, some expenses associated with the Light Study will shift from 2013 into 2012. Accelerating enrollment does not result in a change to the Company's guidance that current cash, cash equivalents and marketable securities will last through the anticipated timing of the resubmission of the Contrave NDA.

The slides talk about the expenses directly related to the study, but the press release refers to the adequacy of cash reserves for the company as a whole. Investors should pay attention to the press release in this regard. OREX has enough cash to get to NDA resubmission, not all the way to approval. OREX's current cash position, anticipated expenses prior to Contrave approval, the filing of the S-3 and the road show all suggest that OREX is in the process of raising cash.

The slides also tell us something that the company did not explicitly intend to say. That is, the company is in a bit of a rush to get things done. OREX has errors on slides 11 and 12 of the presentation as filed with the SEC. The y-axis of the graph on slide 11 is labeled as "% weight loss" and they characterize responders as those having negative values. Similarly slide 12 states that the "% weight loss at 1 Year" was -10.3%, -9.8% and -12.7% in three separate trials. Clearly a negative percent weight loss implies a weight gain. These slides should have said "% weight change" or should have used positive values to characterize responders.

As potential investors in a new round of financing, it's great to see a company having a plan to address approval issues and to enter the market to be successful; but, when basic mistakes about the presentation of scientific data are evident, one wonders where else such mistakes might be occurring. It inadvertently raises doubts about whether or not the clinical trials are being conducted rigorously.

With two recent press releases regarding how fast the Light study has been enrolling, and with some analysts issuing price targets of $13 without any approved products on the market, these kind of mistakes tend to signal caution. As a potential investor, one beings to wonder "do these guys really have it together?" OREX management rushed to file this 8-K. A quick once-over of the slides could have saved them the embarrassment of putting out something with such a basic error.

The company will undoubtedly fix these errors prior to presenting to potential investors and analysts; however, the filed 8-K still shows the mistakes. At the end of the day, mistakes like these on a slide presentation will have zero effect on FDA approval; however, they could affect institutional investors' perception of the company which in turn could affect the terms and pricing of a financing round.

Investors who are on the sidelines would do well to see how the pricing of this financing round affects holders of the common prior to buying the stock. Institutional investors looking at OREX's potential offering should not necessarily be deterred by the errors above - they are typos, but, in face-to-face meetings they would do well to gauge OREX management to make sure that the company's desire to get to market quickly is not affecting their ability to execute diligently.

Investors already holding OREX common stock should know that this is a long-term play. The company will see an approval decision at earliest in the first half of 2014. The pending financing, depending upon it's size and the nature of securities offered, will affect the price action between now and then; Clearly if the interim analysis of the Light study is favorable, and if the company resubmits their NDA in 2013, the stock price should be higher in 2014 than it is now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.