Despite the Stumble, OREX Stock & Contrave Are Still Compelling

by James Brumley | June 12, 2014 12:42 pm

We can say this much for the FDA … at least the agency evenly spreads its torture around.

orex-stock-vivus-stockAfter running weight-loss drug developers Arena Pharmaceuticals (ARNA[1]) and VIVUS (VVUS[2]) — not to mention their investors — through the wringer, the FDA finally approved Belviq and Qsymia (respectively). But now the Food and Drug Administration[3] has decided it needs another three months to make a final decision on diet pill Contrave, from Orexigen Therapeutics (OREX[4]).

The end result? Disappointed OREX stock owners drove shares down 15% in the wake of the news.

Whatever the knee-jerk response, the FDA’s decision and still-likely approval of Contrave has fueled the debate over which of the three big players currently in the weight-loss game is the top dog. Despite Tuesday’s selloff, the answer may well be Orexigen.

Orexigen Gets Blindsided

If it’s all news to you, here’s what happened: Tuesday, June 11, was supposed to be the day Orexigen Therapeutics got the official word from the FDA on the approval of diet drug Contrave. The administration didn’t say either way. Rather, the Food and Drug Administration pushed back the final approval date to Sept. 11, citing concerns not about Contrave’s safety profile or efficacy, but rather, concerns about how the company plans on monitoring for heart risks[5] after any approval is granted.

While it’s certainly not the news shareholders wanted to hear, it’s not necessarily the bad news it’s being made out to be, either. More than anything it’s the FDA being as publicly cautious as it was with Arena Pharmaceuticals and VIVUS when both of those companies were in the same place Orexigen is in now. Like the other two players, however, an approval is apt to be in the cards for Contrave. The FDA knows we need all the help we can get on the weight loss front, even if it would rather not approve any of these diet pills.

So what might OREX stock holders now expect after Sept 11? Hopefully, better success than Qsymia and Belviq have found. Then again, Contrave may be the most marketable in the bunch, capable of doing what Qsymia and Belviq haven’t

The Competition Doesn’t Stack Up

To say Qsymia has been a disappointment would be an understatement. Last quarter, VIVUS sold only $9.1 million worth of the drug[6]. That was up from the prior quarter’s total of $7.7 million, and considerably stronger than the year-ago figure of $4.1 million. But, with VVUS stock trading at $5.21 per share, VIVUS is a $538 million organization with little else on its product menu besides its diet pills. That’s still well shy of the $1.8 billion in annual sales some analysts were batting around shortly after the drug was approved.

Indeed, it’s so shy of the high-water mark, it’s tough to believe VIVUS will ever get there…

The continued demise of VVUS stock since the drug’s approval suggests the market doesn’t have much faith in Vivus. Shares are off more than 80% since their 2012 post-approval peak.

Belviq hasn’t fared any better. In fact, it has fared even worse. Last quarter, Arena Pharmaceuticals reported $2.9 million in revenue stemming from sales of Belviq [7]… that represents its 31% cut of the $8.4 million Eisai Pharmaceuticals reported in sales.

Granted, Arena got a late start following its mid-2012 approval of the drug, with the federal government’s Drug Enforcement Agency dragging its feet on categorizing the drug before allowing it to hit the market. Still, compared to the mania surrounding the weight loss pill before its approval — and the lofty forecasts of $1 billion in annual sales — ARNA stock owners have been duly disappointed, too.

What’s not happening that was supposed to happen? The simplest answer(s) are also likely the most accurate ones. Doctors aren’t particularly impressed by a diet pill that only reduced body weight by an average factor of less than 10%, while patients aren’t keen on using a drug that’s been associated with (even if not empirically linked to) heart risks.

So what do OREX stock fans and followers have to look forward to that ARNA and VVUS stock owners shouldn’t have?

Bottom Line for OREX Stock

To give credit where it’s due, it was TheStreet‘s frequently controversial Adam Feuerstein that hit the nail on the head, calling Contrave the “Goldilocks” diet pill [8]that has shown efficacy squarely between the efficacy of Qsymia and Belviq. He points out how the average one-year user of Orexigen’s weight-loss drug loses 5% of his/her body weight, versus 3% for Belviq and 9% for Qsymia.

Those mediocre results, however, are made much more attractive by the fact that Contrave doesn’t seem to show any major heart risks, even when it seems like the FDA is looking for them within this category of drug. Indeed, the two key ingredients in Contrave are already found in other FDA-approved drugs[9]. The agency would be hard-pressed to find the combination of the two poses any risk to users than one or the other would on its own.

And on a side note, Contrave isn’t likely to be a controlled substance[10], whereas the other two drugs already are. This means doctors can freely give out samples, and prescribe it with greater flexibility.

As for what could really set Contrave apart from other combatants on the diet drug arena, that would be its partner, Takeda.

Investors can’t tell this from a distance, but Takeda has a much larger sales force at its disposal than Arena Pharmaceuticals’ partner Eisai does, and is planning to ramp up its sales staff just to give Contrave its due. The company reports that it’s planning to put 900 agents in place to support sales of the drug, which is well shy of the 600 that Eisai says it’s planning to place to support sales of Belviq. And, as if greater numbers weren’t difference enough, Takeda is already seen as a major name in the weight management arena via the backing of diabetes treatment Actos. Eisai is still cutting its teeth in that market.

None of this is to say OREX stock owners are poised for ridiculous-sized overnight profits. Among the three players though, the last one to enter the playing field looks like it could easily become the name to beat.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:

  1. ARNA: /stock-quotes/ARNA-stock-quote/
  2. VVUS: /stock-quotes/VVUS-stock-quote/
  3. Food and Drug Administration: http://online.wsj.com/article/PR-CO-20140611-903522.html
  4. OREX: /stock-quotes/OREX-stock-quote/
  5. monitoring for heart risks: http://www.cnbc.com/id/101749822
  6. sold only $9.1 million worth of the drug: http://247wallst.com/healthcare-business/2014/05/05/vivus-blows-out-estimates-but-qsymia-units-drop-sequentially/
  7. $2.9 million in revenue stemming from sales of Belviq : http://www.fool.com/investing/general/2014/05/12/arena-pharmaceuticals-q1-loss-widens-34-despite-be.aspx
  8. “Goldilocks” diet pill : http://www.thestreet.com/story/12737868/1/orexigen-goldilocks-obesity-pill-awaits-fda-approval-decision-wednesday.html
  9. already found in other FDA-approved drugs: https://investorplace.com/2013/12/orexigen-diet-pill-contrave-isnt-anything-special-either/#.U5iSiSjs2-Y
  10. Contrave isn’t likely to be a controlled substance: http://www.forbes.com/sites/melaniehaiken/2014/06/10/new-weight-loss-drug-on-the-way-fda-weighs-contrave/

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