Not All "Regulatory Updates" Are the Good Kind

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Orexigen Therapeutics (Nasdaq: OREX  ) was up as much as 22% today because the company announced that it plans to hold a conference call on Friday to provide a regulatory update on Contrave. What will management say? It's anyone's guess.

So then why is the stock up so much today? Again, it's anyone's guess. Hope? Shortage of lottery tickets, maybe?

Orexigen tried to get its obesity treatment Contrave approved earlier this year, but the Food and Drug Administration asked for another clinical trial before the agency would approve it.

There are three probable updates Contrave could make:

  1. The FDA has agreed to some alternative strategy that will make it easier to gain approval of Contrave.
  2. The trial is proceeding and will take years to complete.
  3. Orexigen is dropping development of Contrave altogether.

The first would be a win for investors, but I wouldn't count on hearing that one. The FDA's issue with Contrave has to do with cardiovascular issues, the same problem that got Abbott Labs' (NYSE: ABT  ) Meridia pulled off the market. And the agency hasn't been too kind to VIVUS' (Nasdaq: VVUS  ) Qnexa or Arena Pharmaceuticals' (Nasdaq: ARNA  ) lorcaserin, either. Both have a laundry list of things to complete to gain approval.

If Orexigen runs the trial, it'll be dead money for years. And when the results finally come out, investors will probably own less of the company than they do now, because Orexigen will probably need to sell additional shares to last that long.

Dropping development of Contrave isn't such a bad idea, although I'm not sure how investors would react to the news. Orexigen has a backup obesity drug, Empatic, in phase 2 development. Both drugs contain the active ingredient in GlaxoSmithKline's (NYSE: GSK  ) Wellbutrin, the suspected culprit of the heart issues, so investors should listen closely to how managements plans to convince the FDA that it isn't an issue.

The 48 hour pre-announcement of the conference call is a little unusual. If the company has something to say, why not say it now? The likely answer: Orexigen has a shareholder meeting scheduled for tomorrow. By announcing the conference call today, it can avoid answering any questions about Contrave's development at the meeting.

At the meeting, investors are being asked to increase the number of authorized shares from 100 million to 300 million. Asking for the ability to raise more funds before giving the regulatory update would seem to point toward a long road forward.

But now I'm just speculating.

Check back Friday for our Foolish take on the regulatory update. And if you want to be sure not to miss it, add Orexigen to your Foolish watchlist.

Fool contributor Brian Orelli holds no position in any company mentioned. See his holdings and a short bio. The Motley Fool owns shares of GlaxoSmithKline and Abbott, and Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline and Abbott. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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