Why Orexigen Therapeutics Inc. Shares Were Throttled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Orexigen Therapeutics (NASDAQ: OREX  ) , a clinical-stage biopharmaceutical company developing therapies to treat obesity, plunged as much as 20% after announcing that the Food and Drug Administration had extended its PDUFA decision date on Contrave (also known as NB32) by three months.

So what: Today was originally set to be filled with fireworks in one direction or another as June 11 represented Orexigen's PDUFA date, or the day by which the FDA was to make its decision on whether to approve Contrave or send the company its second complete response letter, or rejection. The extended review of three months with a new PDUFA date of Sept. 11 was reached on accord that Orexigen would complete post-marketing obligations related to its approximately 8,900-person cardiovascular outcomes study known as the Light Study. As Michael Narachi, CEO of Orexigen noted in his company's press release, "We are encouraged by the high level of engagement with the FDA, and are confident that we can reach an agreement on the remaining post-marketing obligation."

Now what: What we have here is a disappointment on two fronts. Options traders that had been better on a huge drop or rise are being left out in the cold with the decision being pushed out three months, and long-term investors are going to have to endure three more months of speculation and cash burn before they know the final fate on Contrave. Ultimately, the move by the FDA isn't a complete shock as it takes drug-user safety very seriously, and it would prefer to have as much data on long-term cardiovascular outcomes as possible when making its decision.

In addition, we also have to look at the abysmal performance of anti-obesity drugs thus far. VIVUS' (NASDAQ: VVUS  ) Qsymia has fallen flat on its face with sequential quarterly prescriptions actually falling nearly 3% in the first quarter, while Arena Pharmaceuticals' (NASDAQ: ARNA  ) Belviq has sold marginally better, but at $8.4 million in total product sales with 400 marketing representatives on the job last quarter it's not as if it deserves a pat on the back, either. Orexigen, on the other hand has the opportunity, because of its extensive cardiovascular safety study, to garner the lion's share of physicians' orders if approved. Its Light Study's interim analysis showed no long-term adverse effects relative to the control treatment, so I still personally believe it has a better than 50-50 shot at approval. Of course, with weight control management drugs garnering an approval hasn't been the issue; selling their product post-approval has been the problem! For now it's probably best to add Orexigen to your watchlist and watch this stock from the sidelines.

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