What: Orexigen Therapeutics' (NASDAQ:OREX) stock is down about 15% today after reporting earnings and updating investors on its plans after the bell yesterday.
So what: U.S. prescriptions of Orexigen's obesity drug Contrave were up 10% quarter over quarter, but net sales were down about 20% quarter over quarter, implying that Orexigen Therapeutics' partner, Takeda Pharmaceuticals, needed to discount the drug to convince people to start taking it or for payers to cover the drug.
Orexigen's management wasn't exactly clear why there was a discrepancy between prescriptions and net sales because its relationship with Takeda calls for some confidentiality. Tom Cannell, Orexigen Therapeutics' chief commercial officer did mention that Orexigen and Takeda "expect through a set of plans and actions for that gross-to-net to improve, but I think that's about all I can kind of say in terms of the current relationship."
Arena Pharmaceuticals (NASDAQ:ARNA) ran into a similar issue with its obesity drug Belviq. To increase sales, Arena Pharmaceuticals' partner Eisai handed out a lot of free trials and started a copay assistance program that increased the gross-to-net adjustment. Because Arena Pharmaceuticals and Orexigen are paid royalties on net sales, they take a hit when their partners discount the sales.
Today's decline may also be due to investors worrying about Orexigen's European launch of Contrave, which goes by the name Mysimba in Europe. Instead of licensing the drug to a major drugmaker in Europe, Orexigen is retaining the marketing rights and partnering with local experts for promotion and distribution. It's been seven months since Mysimba was approved, and Orexigen doesn't expect to launch in Europe until the second half of 2016.
Now what: Orexigen has been talking about a partnership for Mysimba for months. The lack of follow through implies that the biotech couldn't find a partner -- or at least one at a price it felt was reasonable. Big pharma isn't always right, but the fact that none were interested in Mysimba says what they think of the opportunity in Europe.
In the U.S., if Takeda can keep the patients on Contrave and transition them to paying close to full price, the discounts will be worth the temporary hit. Only time will tell if that comes to fruition.
There doesn't seem to be much reason to buy today's dip. At this point, Orexigen remains a wait-and-see stock.
Brian Orelli and The Motley Fool have 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.