Orexigen’s Stock Is Beating out the Competition: Here’s the Trade

Last December, we called Orexigen (OREX) the obesity stock to own in 2013. Thus far, we’ve been spot on.


Arena (ARNA) and Vivus (VVUS) have both underperformed due to the poor initial launches of their respective weight loss drugs, Belviq and Qsymia. Back when we penned the original column, Orexigen carried a market capitalization of just over $400M, and we speculated that in 2013 the stock would begin to close the gap with the $1.5B Vivus, and the $1.9B Arena. Now, the stock trades at a valuation of almost $700M, while Vivus carries a market cap of just $1.24B, and Arena $1.5B

Orexigen in a press release on Tuesday reiterated that they expect interim results from the ongoing Light Study, designed under a Special Protocol Assessment with the FDA to rule out cardiovascular risk in patients on Contrave (NB32), by early December. If positive, the company expects to re-submit the Contrave New Drug Application by the end of 2013.

The Light study measures Major Adverse Cardiovascular Events in patients taking Contrave compared to patients taking placebo. The study won’t be fully complete until 2017. The interim analysis is event-driven, and an independent data monitoring committee confirmed the expectation of 87 events in the next two months (before November), which will trigger the interim look. This timeframe gives Orexigen a little over a month to analyze the data.

With interim data from the ongoing LIGHT study due before year-end, we’re long OREX in expectation of a run into this inflectional event.

In December of 2010, a FDA advisory panel, convened to weigh the benefits of Contrave, voted 13-7 in favor of approval. They committee also voted 11-8 that a cardiovascular outcomes study could be conducted post-approval.

In January of 2011, however, the FDA issued a Complete Response Letter to Orexigen for Contrave. The FDA noted specific concern about the cardiovascular safety profile of Contrave when used long-term in a population of overweight and obese subjects. The letter said explicitly, “Before your application can be approved, you must conduct a randomized, double-blind, placebo-controlled trial of sufficient size and duration to demonstrate that the risk of major adverse cardiovascular events in overweight and obese subjects treated with naltrexone/bupropion does not adversely affect the drug’s benefit-risk profile.” This is the Light Study, which began enrolling patients in June of 2012.

Here’s what this looks like on the 3-year chart. That gap up in August of 2009 coincided with the release of positive data from Orexigen’s Phase III program.


Considering that OREX traded over $8.00, to highs of $11, following the positive Phase III results and again following the advisory panel’s positive vote, we believe that $8.00 represents a realistic target for the stock coming into the interim results in early December, with positive results sending the stock to new highs. Notice that OREX has hugged its 50-day SMA since mid-2012.

With almost four months before the interim data, traders are vacating and will look to re-enter closer to the interim read-out. OREX is down 6% to $6.79 on Tuesday, thus watching the 50-day for support and an entrance at $6.67 makes sense. A break below could send the stock to its 200-day and the lower bound of its upward channel around $6.00 in the next month or so. We’re currently interested in the run-up into the event, but will continue to assess the risk that the interim look shows a higher-than-expected rate of CV events in the Contrave arm. Orexigen plans to issue a press release discussing in general the interim results once in-hand.

In connection with OREX, PropThink has taken a long position.