What: Shares of Orexigen Therapeutics (NASDAQ: OREX), a biotech company focusing on the development of anti-obesity medicines, saw its shares briefly rise by as much as 23% on exceptional volume today. This rocket-like rise was sparked by the announcement that the company struck a private placement deal with The Baupost Group, L.L.C. to purchase 20 million shares of common stock at $3 a share and warrants for 5 million shares. The warrants are reportedly exercisable for five years at $6 per share. Overall, this deal raised $60 million for the company, according to the press release.
So what: Orexigen is attempting to strengthen its balance sheet as it works toward finding a marketing partner for its fat-fighting pill Contrave/Mysimba in ex-U.S. territories, according to the company. In other words, management apparently wants to be able to approach these negotiations from a position of financial strength, rather than having to hurriedly ink a deal due to problems with its cash runway. That being said, this deal also appears to be tied to Orexigen's restated collaboration agreement with Takeda Pharmaceuticals, wherein Orexigen is now responsible for the first $210 million of funding for Contrave's upcoming cardiovascular outcomes trial.
Now what: Even after striking this private placement, Orexigen isn't in a great financial position, given its amended collaboration agreement with Takeda. Specifically, this latest influx of funds should give the company around $230 million in cash, cash equivalents, and marketable securities. That won't be enough to cover its long-term financial obligations, and Contrave's sales aren't substantial enough -- at least not yet -- to pick up the slack. As such, I'm perfectly fine sitting this one out for the time being.