Orexigen (NASDAQ:OREX) entered the anti-obesity space in October, and after an initial hiccup with a single source pharmacy, seems to be moving along at a much better pace now considering the time of year. The advantage of an October launch is that the company and its marketing partner, Takeda, have a bit of time to work out the kinks prior to the weight loss season in January. The disadvantage is that Contrave is launching in what is likely the toughest time of year in terms of selling weight loss drugs.
Right or wrong, the bar for measuring the launch of Contrave was set by Arena Pharmaceuticals' (NASDAQ:ARNA) Belviq, which launched in the summer of 2013. Belviq sales were at about 33,000 bottles at the 3-month mark. We now have 7 weeks of data on Contrave and thus far sales stand at a bit above 12,000.
On its face, and simply looking at the numbers, it would appear that Contrave is tracking behind the performance of Belviq. The reality is actually a bit different. Adding to the difficulty in comparing the launches, the single source pharmacy reportedly does not report its numbers to IMS Health or Symphony Health. This means that the tracking services must use estimates to account for those sales, a science that will take a bit of time to refine.
In my opinion, the hiccup at launch, which caused scripts to be delayed by a week or two, was a mistake that should have never happened. That being said, it appears that the corrective measures were taken quickly and sales began to follow through in short order. The dip we see in the launch chart relates to the latest data set, including Thanksgiving week.
In looking at the Contrave launch, we can note that it took about 6 weeks for sales to get to the 4,000 scripts neighborhood. In comparison, the Belviq launch took 16 weeks to get to that same level of sales. In simple terms, even inclusive of the launch hiccup, the Contrave launch is setting a trajectory that is above that which we saw with Belviq. Simply stated, that is what was needed if we want to have a chance at seeing the equity begin to rise.
What investors should be looking for is modest rises in scripts over the next few weeks and a shift in trajectory with the beginning of 2015. Investors need to bear in mind that the price point of Contrave is substantially less than its competitors. While a lower price may drive the numbers up, more volume in sales is needed to see the dollars. Simply stated, Contrave needs to be at a higher level in sales volume to get to a similar number in revenue. Thus, simply looking at the script numbers without considering revenue is a mistake.
Keeping an eye on how the revenue picture plays out is of extreme importance. The company is likely a couple of weeks away from a decision on whether or not Contrave receives approval in Europe. Approval by the EU would be a tremendous upside advantage to Orexigen and Contrave because competing drugs Belviq and Qsymia are not approved there. On the other hand, a rejection or delay in Europe will mean that the U.S. sales will have to be the driver.
Do not let the European issue on approval allow you to lose focus of what is happening state-side. Contrave seems to be off to a good start in sales volume, but needs more sales to get similar revenue to what the competition is getting. The launch trajectory looks decent, but this drug is not yet selling at levels that will impress the street and cause a rise in the price of the stock. We are looking for modest growth in the remainder of 2015, a decision regarding Europe, and more compelling growth of U.S. sales as 2015 starts. The timing here does not do investors any real favors. Pay close attention and focus on these important metrics for the very short term. Stay Tuned!
Disclosure: 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.
Additional disclosure: I have no position in Orexigen