What Orexigen Is Saying -- and Not Saying

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What's going on these days with Orexigen Therapeutics  (Nasdaq: OREX  ) ? While obesity-drug rivals Arena Pharmaceuticals  (Nasdaq: ARNA  ) and VIVUS (Nasdaq: VVUS  ) get nearly all of the publicity, Orexigen plugs along like the little engine that could.

The company announced its results for third quarter after the market closed on Wednesday.  Here is what the company is saying -- and not saying.

The best news for Orexigen on the financial front is that its cash situation looks good. The company reported $108.3 million in cash, equivalents, and short-term investments at the end of September. When the cash raised in the stock offering last month is added in, Orexigen expects to have at least $130 million remaining at the end of 2012.

Looking at the big picture, though, the even better news was that enrollment in Orixegen's Light Study progressed more quickly than expected. The goal of the Light Study will be to show that no cardiovascular risk exists with usage of its Contrave obesity drug. The company has enrolled more than 8,000 patients in this study and expects to ultimately include around 9,000 patients.

Orexigen discussed its recently completed marketing studies during the earnings conference call. The physician survey -- which included questions about Contrave, Arena's Belviq, and VIVUS' Qsymia -- found that there is ample market potential for all three drugs. According to Orexigen, Contrave was viewed by physicians as having advantages for women of child-bearing age, patients with diabetes, patients with depression, and patients with a wide range of body mass indexes. 

What is Orexigen's take on VIVUS' recent launch of Qsymia?  Management says it's too early to make any judgments. However, they were quick to note that the distribution model is only targeting specialty mail-order pharmacies. Orexigen, with North American commercialization partner Takeda, plans to aggressively educate physicians.

Orexigen might be the little engine that could, but its stock has been derailed to some degree by the two other locomotives on the tracks. VIVUS' disappointing results and Arena's ho-hum report dragged down Orexigen before it announced its information. 

The worst news for Orexigen is that it missed consensus earnings estimates. The company reported a net loss of $0.44 per share, while analysts were expecting a loss of $0.30 per share. That miss comes with a big asterisk, though. The main reason for the higher loss is that expenses for the Light Study were incurred earlier than expected because enrollment went so quickly. 

Dim lights
The company didn't give many details on the possibility of a fast path NDA resubmission for Contrave incorporating interim analysis from the Light Study. For now, the status is that discussions with the Food and Drug Administration continue.

Orexigen also wasn't able to shed much more light on if the FDA will allow results from the Light Study to be used with the phase 3 study of Empatic, the company's other obesity drug. It hopes to use the Light Study data to show that Empatic doesn't have cardiovascular risks.

Not much new information was given about partnering outside of the U.S., either. Management stated that discussions were being held that included Contrave and Empatic. An agreement is anticipated after interim results are available from the Light Study, which should be in either the second or third quarter of next year.

There are still plenty of questions for Orexigen, just as there are for Arena and VIVUS. However, the potential for all three really could be huge (no pun intended).

I think Orexigen could be the best of the bunch for three reasons. First, Contrave shouldn't require DEA scheduling, unlike Belviq and Qsymia. Second, Orexigen's partnership with Takeda and its clear focus on targeting physicians makes sense to me. Third, the company could benefit from entering the market later than the others for the same reason that football teams in overtime prefer to have the ball after the other team -- they can adjust their game plan as needed. 

Based on these reasons, I'm making a CAPScall of outperform for Orexigen. This is certainly a longer-term call, since Contrave likely won't be commercialized until late 2013 at the earliest. My hunch, though, is that Orexigen is going to shine brightly.

That's not to say that the other obesity drug companies won't do well. The ravages of America's obesity epidemic are a challenge of epic proportions. New drugs from companies like Orexigen, Arena, and VIVUS could help to reverse this deadly course while reaping massive profits for investors in the process.

The profit opportunity is immense, but plenty of risks still exist. You can learn the full story behind VIVUS in the Fool's brand new premium research service. It's such an important story that we have our top health care writer on the job, so make sure to secure a copy today by clicking here now.

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