What: Investors in Orexigen Therapeutics (NASDAQ:OREX) stock were forced to swallow yet another bitter pill in July as shares of the biopharmaceutical company with a focus on obesity fell more than 18% during the month after marketing partner Takeda Pharmaceuticals issued a voluntary recall for the two companies' obesity drug Contrave.
So what: Takeda found a possible defect in a single lot of Contrave in which some pills were splitting into two separate tablets and issued a voluntarily recalling of 3,619 bottles.
While this recall is voluntary and quite small, it does continue to add fuel to the fire that has been raging for a few months between Takeda and Orexigen, which understandably has made investors nervous.
In May, Takeda threatened to terminate its partnership agreement with Orexigen, claiming that Orexigen breached the terms of its contract when it prematurely announced positive results from an on-going clinical trial. The premature announcement resulted in the cancellation of the trial, and a replacement trial is estimated to cost about $200 million. Takeda believes that Orexigen should pay for new trial completely on its own, rather than splitting the cost, since Orexigen was the source of of the misguided pre-announcement.
Now what: Orexigen is set to report second quarter results this Thursday, during which time the company will also provide "a business update". Since its relationship with Takeda is on shaky ground, investors likely fear that the company could announce a separation from Takeda, leaving huge questions in the air about the near-term commercialization of Contrave.
Meanwhile, obesity remains a huge problem, as nearly 93 million Americans alone currently are considered obese. With that number expected to continue to rise in the coming years it would appear that there is huge potential for Contrave. While the drug appears to be a great clinical option for treating patients with obesity, real questions now hang in the air related to the commercialization of the product.
It's my opinion that investors who are interested in Orexigen's stock should probably wait until after the call this week to hear about management's plans for the future of Contrave and get a status update on the partnership with Takeda.
With so much uncertainty in the air, I have a hard time calling the stock a buy, even at these depressed levels.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.