Shares of Orexigen Therapeutics (NASDAQ:OREX) fell nearly 4% on Tuesday in anticipation of the company's second-quarter results announcement scheduled for after the market close. Now that those results are out, were the worriers right? Here are the three key things you need to know from Orexigen's results and subsequent conference call.
1. Financials look OK for now
Orexigen doesn't have a product on the market yet to generate revenue, so the expense side of the financial equation is much more critical to the company. During the second quarter, expenses totaled $19.1 million. That was offset in a small way by from the $857,000 received from Takeda as part of its collaboration with Orexigen.
This translated to a net loss in the second quarter of $18.2 million, or $0.19 per share. The average estimate for analysts surveyed by Thomson Reuters matched this figure.
For what it's worth, Orexigen's loss was actually better than one of its competitors that has already launched an obesity drug. VIVUS (NASDAQ:VVUS) reported a second quarter loss of $0.55 per share. It introduced Qsymia to the market in September 2012.
As of the end of June, Orexigen had $96 million in liquid assets. Cash and cash equivalents accounted for $55.8 million of that total, with another $40.2 million held in marketable securities. At the current rate of spending, this should take the company into 2014.
2. European submission faster than Light
By far, the best news from Orexigen related to its pursuit of regulatory approval in Europe for its experimental obesity drug Contrave. Based on discussions with the European Medicines Agency and rapporteurs, the company now plans to submit its Marketing Authorization Approval, or MAA, prior to completion of the Light Study interim analysis.
What this means is that the MAA will be submitted in the next few months. The Light Study's interim analysis is expected to be done before the end of 2013. These results will be available in time to answer the Committee for Medicinal Products for Human Use, or CHMP, Day 120 List of Questions.
As for U.S. approval, Orexigen anticipates a resubmission of the New Drug Application, or NDA, for Contrave relatively quickly after the interim analysis for the Light Study wraps up. We could be looking at an NDA filing as early as late 2013 based on what the company has shared so far.
3. Management likes the macro environment
A couple of macro dynamics are at work that could impact Orexigen's prospects for success. One that the company's management clearly likes was the American Medical Association's recent decision to classify obesity as a disease. Orexigen CEO Michael Narachi made a point to mention his support for this decision. Narachi thinks that this could pave the way for more ready access to obesity drugs such as Contrave.
Briefly mentioned were the rival companies with relatively recent obesity drug launches. As mentioned earlier, VIVUS launched Qsymia nearly a year ago. During the first half of 2013, Qsymia generated sales of only $9.6 million. This sluggish start stemmed in large part from a limited distribution model during much of this period.
Arena Pharmeceuticals (NASDAQ:ARNA) began selling Belviq in June after waiting months for the Drug Enforcement Administration to classify the drug. How well sales have gone since then depends on whom you ask.
Belviq chalked up sales of $1.3 million during the first three weeks of its launch. Arena's CEO, Jack Lief, said that the company is "very encouraged by the positive response from patients and physicians." On the other hand, Arena's short-sellers point out that the numbers of prescriptions for Belviq aren't tremendously more than those for Qsymia at this stage in the game.
Orexigen's management team thinks they have better odds of success. Narachi emphasized the company's focus on a primary care versus specialty launch. And Orexigen will presumably have the benefit of a huge study supporting Contrave's safety profile.
If Orexigen's Light Study results are positive, I expect Contrave will gain approval on both sides of the Atlantic. You can bet that the stock will make a big move on good news. Of course, shares would make a big move in the other direction if the results aren't so great.
I suspect that Orexigen will be successful both in the regulatory process and in commercialization of Contrave. The company has a good partner in Takeda, so it won't have to tackle a launch on its own. I wouldn't be surprised if the initial efforts of Arena and VIVUS end up plowing the ground in a way and actually make commercialization easier for Orexigen. We'll see.