Why Orexigen Therapeutics is Falling Today

Shares of Orexigen Therapeutics (NASDAQ: OREX  )  fell more than 15% this morning on heavy volume after the company announced that the Food and Drug Administration had pushed back its review of the company's resubmitted new drug application for Contrave. As a refresher, Contrave is the company's flagship chronic obesity treatment that will be marketed by Takeda Pharmaceuticals, assuming the drug gets past the FDA. The Prescription Drug User Fee Act action date was set for yesterday, but will now be extended by three months to Sept. 11

Over the past month, Orexigen shares have risen close to 30% in anticipation of Contrave's approval, so it's not entirely surprising that shares are giving back some of that gain after today's regulatory delay. With that said, let's take a closer look at Orexigen's fall and see if today's dramatic pullback represents a possible buying opportunity.  

OREX Chart

OREX data by YCharts.

The obesity market is a tough nut to crack
Even with one in three U.S. adults reportedly being classified as obese, and the numbers only growing worse by the year, Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS (NASDAQ: VVUS  )  haven't been able to capitalize on this massive market. The two companies' combined sales for their obesity medications are on track to fall short of $100 million this year, although they were both heavily touted as blockbusters in the making prior to their approvals.

Per comments from the management teams for both companies at various times, the obesity market is in dire need of development from educational and insurance coverage standpoints. Even though Arena's marketing partner Eisai has made significant progress on these fronts in recent months, the obesity space is haunted by the ghosts of drugs past that were plagued by serious adverse events and even deaths.

Orexigen hopes to help usher in a new age for obesity drugs with the approval of Contrave. Keeping with this idea, Takeda is set to roll out a nearly unprecedented marketing effort for the drug following FDA approval.

Perhaps more marketing will do the trick, but it remains to be seen if any drug can generate sizable sales in this market now. I have a hard time believing Orexigen's nearly $800 million market cap heading into this regulatory review properly reflected the present state of the obesity market.

Is the market overreacting to today's news?
Here's the odd part about today's pullback: Contrave's regulatory review is being delayed because the FDA wants more time to put the final touches on post-marketing requirements, as well as the package insert, according to Orexigen's press release. In other words, Contrave looks well on the way to being approved later this year, yet shares are still falling hard. 

I suspect today's pullback has more to do with day traders exiting the stock following Orexigen's recent run-up. The stock was set up for a "sell the news"-type event, and this regulatory delay was good enough.

Foolish wrap-up
Like its obesity brethren before it, Orexigen shares have now seen their price spike leading into the pivotal regulatory review and subsequently fall for reasons wholly unrelated to the company's underlying fundamentals. While it looks like this pattern could repeat itself heading into September, you should consider Contrave's long-term commercial prospects before investing. After all, trying to time a so-called biocatalyst can backfire in a hurry, evinced by today's action. With that in mind, I think long-term investors might want to take a flier on this obesity drugmaker, at least until the space finally shows some signs of opening up to pharmaceutical therapies. 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2014, at 2:14 PM, kafantaris wrote:

    Still waiting for that weight loss pill?

    Nothing wrong with that. We all are.

    In meantime, we could do some walking or maybe some standing. A good night’s sleep might also help, as could skipping breakfast.

    Yes, fasting about 16 hours a day does wonders for our immune system, as well as our waistline -- conventional wisdom about “the most important meal of the day” notwithstanding.

  • Report this Comment On June 11, 2014, at 2:31 PM, marp11 wrote:

    fools

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  • Report this Comment On June 11, 2014, at 2:32 PM, marp11 wrote:

    2 generics

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  • Report this Comment On June 11, 2014, at 2:49 PM, marp11 wrote:

    The American Medical Association delegation today affirmed physician support for concrete efforts to address the nation's obesity crisis. The organization's passage of the "Patient Access to Evidence-Based Obesity Services" resolution gives the AMA decisive direction to support advocacy efforts to improve patient access to all evidence-based obesity treatments. Proven obesity treatments range from bariatric surgery and obesity drugs to intensive lifestyle interventions and nutrition counseling - and evidence supporting new and improved treatments are emerging each day.

    The move comes at the one-year anniversary of the organization's declaration of obesity as a disease, a policy change that echoed support for a long-held classification by a number of leading health organizations, including The Obesity Society (2008). TOS member clinicians and scientists have long supported both efforts: to treat obesity as a serious disease and improve access to treatment. With the nation's largest physicians' group on board, U.S. policy makers and health insurers must take action to improve access to and coverage of these procedures and medications that are often the last hope for individuals with severe obesity.

    While the Affordable Care Act (ACA) requires insurance coverage for individuals affected by obesity and other related conditions like diabetes, insurers - including those participating in the health insurance exchanges - are not required to cover proven obesity treatment options. And while coverage for bariatric surgery for severe obesity is spotty, at best, coverage for obesity drugs and other evidence-based treatment options is excluded.

  • Report this Comment On June 11, 2014, at 3:03 PM, feelinIrie wrote:

    Belviq rules!

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