Shares of Orexigen Therapeutics (OREX) surged today, tacking on as much as 21% before settling in at 11% after the company’s new weight-loss drug Contrave officially went on the shelves.
The drug, which became just the third FDA-approved weight-loss drug only last month, is now available with a prescription for patients that meet a certain number of criteria.
In a press release, Orexigen said its extended-release Contrave pills are approved…
“… as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adults with an initial body mass index (BMI) of 30 kg/m2 or greater (obese), or 27 kg/m2 or greater (overweight) in the presence of at least one weight-related comorbid condition (e.g., hypertension, type 2 diabetes mellitus or dyslipidemia).”
The price of OREX stock certainly responded to the announcement Tuesday, though much of the movement might have come on a short squeeze — which occurs when traders who have borrowed and sold shares of a company in the belief the stock will fall are forced to buy back those shares and return them to their original owners.
As of Sept. 30, Orexigen stock was heavily shorted at eight days to cover — the number of days it would take for all short positions to close out their positions at the average daily volume. That’s four times as long as it would take to cover the short positions in the SPDR S&P 500 ETF (SPY).
Investors are hoping that Orexigen’s Contrave does more for the stock than similar weight-loss treatments have done for other small biotech stocks Arena Pharmaceuticals (ARNA) and Vivus (VVUS). ARNA stock and VVUS stock — while they popped after their drugs were approved — have cratered 28% and 61% this year, respectively.
Given the choice of investing in one of these three weight-management plays, I don’t blame Wall Street for placing its chips on Contrave. Orexigen, by partnering with Japan’s Takeda, has secured a powerful partner willing to put major muscle behind making Contrave successful. Specifically, Takeda has a team of some 900 sales reps hocking the Orexigen product — 50% more than ARNA’s Belviq product enjoyed and six times the fleet of 150 that VVUS employs.
While sales of Vivus’ obesity treatment Qsymia nearly tripled year-over-year in the second quarter, sales still only totaled $11 million in the period. There’s reason to believe Orexigen’s Contrave can surpass that level. Contrave has been dubbed the “Goldilocks pill” in the obesity market, falling nicely between Qsymia and ARNA’s Belviq on the efficacy and safety spectrum.
Takeda’s sprawling sales force combined with the lack of a blockbuster drug in the obesity and weight loss arena make Orexigen Therapeutics a stock you may want to consider.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.