What: According to data provided by S&P Capital IQ, shares of anti-obesity drugmaker Orexigen Therapeutics (NASDAQ:OREX) fell by 28% last month. This marked decline in the biotech's share price was triggered by a lackluster third-quarter earnings report, where the biotech's flagship fat-fighting pill Contrave generated only $12.8 million in North America sales. After divvying up the revenue with its marketing partner Takeda Pharmaceutical, Orexigen booked a mere $2.6 million in royalties from U.S. net sales of the drug during the three-month period.
So what: Orexigen is currently losing around $4 million a month, and this number is expected to rise once the company initiates the required post-marketing study assessing Contrave's long-term impact on cardiovascular health. As the company exited the third quarter with $233.4 million in cash, cash equivalents, and marketable securities, Orexigen could be facing a cash crunch before the end of 2016.
Now what: Orexigen CEO Mike Narachi tried to assuage investors' concerns about these dismal financial figures by reiterating his belief that the "overall market for anti-obesity medicines" will grow significantly in 2016, implying that Contrave's sales will start to pick up in a big way going forward. But we've heard similar claims from the management team of Arena Pharmaceuticals (NASDAQ:ARNA) and other companies with competing FDA-approved anti-obesity medicines in the past. And so far, these optimistic projections haven't come to fruition, although Arena did report a jump in sales of its weight control management drug Belviq by nearly 10% between last quarter and Q3 2014. Still, Arena is looking at just $4.9 million in quarterly sales of Belviq.
Arena and Orexigen have to figure out a way to persuade a broader range of payers to cover their prescription weight-loss pills. After all, patients don't appear to be willing to come out-of-pocket in large numbers for these drugs. That's why investors may want to remain cautious with this particular group of speculative biotech stocks as a whole right now.
George Budwell 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.