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Orexigen Struggles as Contrave Commercialization Costs Rise


On Jan 3, we issued an updated research report on Orexigen Therapeutics, Inc. OREX. This biopharmaceutical company, based in La Jolla, CA, is focused on the development of obesity treatments.

In the last three months, Orexigen’s share price has underperformed the industry to which it belongs to. The stock has lost 40.4% compared with a decrease of 7% for the industry.

We remind investors that Orexigen had terminated its collaboration agreement with Takeda for commercializing Contrave in the United States in early 2016 and started selling the drug itself. Sales numbers improved in three quarters of 2017 as the company booked product sales in the United States instead of royalties paid by Takeda on Contrave sales in the United States in the year-ago period. However, the increase in revenues was offset by costs associated with commercializing of the drug which resulted in losses in 2017.

The estimate revision trend for the fourth quarter of 2017 remains unfavorable with one estimate moving down and no revisions in the opposite direction in the past 60 days. Estimates declined 5.1% from a loss of $1.96 per share over this period to a loss of $2.06 per share. The trend reflects analyst apprehensions over the stock’s performance in the fourth quarter.

Contrave is Orexigen’s only approved and marketed drug. But Contrave is a late entrant in the obesity market already crowded with products like VIVUS, Inc.’s VVUS Qsymia, Novo Nordisk’s NVO Saxenda and Arena Pharmaceuticals, Inc.’s ARNA Belviq.

However, the targeted sales efforts to drive Contrave sales are a positive as prescriptions and sales have risen sequentially in 2017. Moreover, low rates of penetration and awareness and the lack of safe and effective treatment options make the obesity market highly lucrative.

The company is also collaborating with regional partners in Europe for expansion.

Meanwhile, a ruling from the United States District Court for the District of Delaware has confirmed the exclusivity of Contrave through 2030.

But the absence of any late stage pipeline candidate is concerning. If Contrave disappoints, the company will have little to fall back on. Execution risks remain even though Orexigen continues to work on growing Contrave sales in the United States.

Orexigen has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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