The shares of Orexigen are up approximately 17% since November 25, after the company released positive interim data for the Light study. The company expects to re-submit an NDA for Contrave in the next few weeks and expects an approval by June 2014. Investors should expect massive rallies if the company's obesity treatment is approved.
The Business
Orexigen Therapeutics Inc. (OREX) is a biopharmaceutical company with a focus on developing anti-obesity drugs. It currently has two product candidates in its pipeline viz. Contrave and Empatic. The company is in the process to get approval for its lead product candidate Contrave and also has collaboration with Takeda Pharmaceuticals for its commercialization upon expected approval.
The competitors of the company include Roche Holding AG (OTCQX:RHHBY), GlaxoSmithKline plc. (GSK), Arena Pharmaceuticals (ARNA), and Vivus Inc. (VVUS). Except GSK, other three companies have FDA-approved anti-obesity drugs in the market viz. Roche's Orlistat (Xenical), Arena's Qsymia, and Vivus' Belviq.
Collaborations
The company, in September 2010, entered into collaboration with Takeda Pharmaceutical Company Limited, to develop and commercialize Contrave® in the U.S., Mexico and Canada. Takeda (OTCPK:TKPYY) under the agreement assumed the responsibility of packaging Contrave for its commercial sale, upon approval. Orexigen received $50 million in upfront payment and will receive milestone payments and royalty payments from sales between 20% and 35%.
Candidates
The company has currently two product candidates in its pipeline viz. Contrave and Empatic, for the treatment of obesity and the related disorders. Empatic has currently completed phase II trials and awaiting initiation of further trials based on discussion with FDA. Empatic is a fixed dost combination of bupropion sustained release (SR) and zonisamide SR. In the phase II/b patients administered 360 mg of the drug lost approximately 9.9% of baseline body weight or 22 pounds, against 1.7% for the placebo patients, after completing 24 weeks of therapy. The drug is expected to carry a slightly better safety profile for cardiovascular risks, as one of its component bupropion is part of Contrave, which showed lower CV risks in its Light study.
Contrave, an investigational medication, is being developed for treating weight loss. It combines bupropion sustained release and naltrexone, company's proprietary version of SR aimed at improving drug tolerability. The drug works by increase the dopamine activity at certain brain receptors, which leads to reducing appetite and increased energy expenditure. The activity regulation in the brain's dopamine award system achieved by Contrave is expected to help control overeating habits and food cravings. In the previous clinical trials the drug has shown a reduction in weight and maintains it for almost up to a year. It was well-tolerated in the trials and the mild adverse events related to it included nausea, headache, vomiting, constipation, insomnia, dry mouth, and diarrhea.
The company in early 2011 received a complete response letter (CRL) from FDA, following the NDA submission for Contrave. The FDA requested another trial for the drug to evaluate the increased cardiovascular risks associated with the drug. Resultantly, Orexigen initiated a Light study to evaluate the safety profile of Contrave, by demonstrating that the risk of major adverse cardiovascular events (OTCPK:MACE) in obese or overweight patients didn't affect the benefit-risk profile of the drug. The FDA required that the drug would be approved on the basis that the interim analysis results don't double the risk of MACE.
The Light study, double-blinded and placebo controlled, was carried out under the Special Protocol Assessment (SPA), and enrolled approximately 8,900 patients. However, on Monday (25/11) the company announced that it met the statistical requirements set out by FDA and didn't witness any cardiovascular side effects. Furthermore, no new safety concerns arose during the trial period, thus effectively increasing the long term safety profile of the drug.
Market Performance
The year to date performance of 29.9% and is expected to increase further following the positive news relayed regarding the Light study of its lead candidate. The shares rallied as much as 28% pre-market on November 25, based on these results, with an increase in volume traded; and has seen a 17% increase till November 27.
The company currently has a mean price target of $11.29, with a high of $16 and low of $7, with the current price at $6.66 as on November 27. The company currently has a mean recommendation of Buy.
The company has seen recent rating change from the analysts, with a price cut from $11 to $10. This change was due to the Light study and the skepticism regarding the results, since the statistics were not presented by the company. All in all, the company currently has five analysts rating it a buy and one rating it a Hold, with consensus rating of buy and consensus price target of $9.80.
Upcoming Events
The company will be participating in the 25th Annual Piper Jaffray Healthcare Conference on December 3rd. They will be presenting a company overview, which is expected to positively impact the stock prices.
The company expects to resubmit the new drug application (NDA) for Contrave in the next few weeks, following the positive results from the Light study. It further expects a potential approval by June 2014 and beginning of sales in third quarter of 2014. This is the most catalytic event for the company and is expected to monumentally impact the share prices.
The FDA had made it clear that if the interim analysis meets the criteria, Contrave will be approved. The interim analysis was focused at assessing the cardiovascular risks of Contrave. The primary objective was to exclude a hazard ratio of 2.0, using the upper bound of the 95% confidence interval, for excess risk of major adverse cardiovascular events in patients receiving Contrave as compared to placebo. The interim results have been positive to this effect.
The company also submitted the European application for Contrave in October and is under review with the Committee for Medicinal Products for Human Use (OTCQB:CHMP). Following a typical review timeline, the company expects a potential approval in Europe in the second half of 2014. The results of the Light study are also expected to answer any questions that may rise regarding the safety profile of Contrave.
Fundamentals and Potential Risks
The company currently generates revenue through its collaborative agreements, and it was $0.857 for the third quarter of 2013. The loss for the third quarter was $18.57 million, an increase of $0.32 million from the previous quarter. The company currently has cash and equivalents of $82.8 million as of September 30, 2013. The cash is expected to be sufficient for the process related to Contrave's approval and subsequent commercialization. The company currently has no debt and a market capitalization of $675.14 million.
The company being a late entrant in the obesity market is already faced with competitions from Belviq and Qsymia. These drugs have established a market of their own, and Contrave must provide increased benefits to compete with them, and remove the negative sentiment associated with obesity drugs.
Furthermore, the company is also faced with the risk of FDA not approving the drug and requesting additional trials, as happened in 2011 to further test the drug for side effects. This is a major risk as Contrave's commercialization will be further pushed back and it will have to incur increased costs to run those trials.
The company also faces the risk of health insurance companies not covering Contrave. This would mean the users would have to pay for the drug out of their pockets which they may not be very willing to do. This could negatively impact the sales of the drugs, if and when it is approved.
Bottom-line
The results from the Light study of Contrave is an important milestone for the company, and the resubmission of the NDA, and the potential approval next year, is expected to boost the prospects of the company. The company also expects to get approval for marketing in the
Europe before year-end 2014, where its competitors Qsymia and Belviq failed to enter.
The obesity drug market is growing fast owing to the epidemic status gained by the disease. The drugs already in the market failed to achieve their anticipated potential based on the negative sentiment associated with the long-term safety profile of the drugs. Contrave has higher potential based on the safety study conducted and is expected to remove this negative stigma. Not only this, the commercialization partner for Contrave - Takeda, plans to undertake massive marketing efforts, which will help increase awareness and eventually sales of the drug.
Additionally, with the obesity termed as a disease and increased interest from the insurers under the ObamaCare act, anti-obesity drugs are expected to reach wider target market. This is a positive factor for Contrave, if and when it is approved. However, the company might not be able to charge a price solely based on its free-will and may be subject to ceilings.
Some of the analysts are skeptical regarding the Light study's success, based on the lack of data provided, which was due to the study still on-going. However, there is incredulity that either the results aren't significantly below the FDA's hazard ratio of 2, or the FDA might change their mind on approving the drug based on the study.
There is still the concern regarding the market reaction to Arena's and Vivus' drugs, which didn't garner major sales, causing the investors to remain cautious as to Orexigen's potential. Hence, the stock must be assessed for these pros and cons before investing. Overall, I believe that the drug will be approved and shares will rally. While shares came down after approval of Belviq and Qsymia, the oppositie should be expected in this case because there have not been any pre approval rallies for investors to take profit on approval.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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