A dual event in the obesity space this week, the U.S. FDA approved Orexigen Therapeutics’ (OREX) weight loss pill Contrave just one day before an FDAadvisory panel voted 14 to 1 in favor of approving Novo Nordisk’s (NVO) Victoza, an injectable treatment for Type 2 Diabetes now in line for a weight loss label.
With Contrave’s approval decision, OREX fell from $6.00 to below $5.50 in the Thursday trading session. The stock closed the week at $5.16.
Last week, we explained to PropThink’s Premium subscribers why they should be taking profits before the approval:
“We continue to believe that OREX will be approved next week, though the stock likely has limited upside on an approval. With the stock at $6.00, we suggest locking in some gains, either selling the stock outright or selling Calls (a covered call strategy) in equal proportion to equity. . . On Tuesday of next week, FDA will release briefing documents related to a September 11 meeting of the Endocrinologic and Metabolic Drugs Advisory Committee (Thursday) for Victoza (liraglutide), a GLP-1 agonist indicated in type 2 diabetes and marketed byNovo Nordisk (NVO). The advisory committee meeting is scheduled to evaluate liraglutide as a weight management product.
This presents headline risk next week as investors currently overlooking Victoza realize there is another obesity drug in line for approval, and marketed by a pharmaceutical powerhouse. We think it makes sense to lock in gains ahead of this event. Consider the implications of a Contrave approval on Thursday, at the same time that an FDA advisory committee (potentially) votes in favor of approving liraglutide in the same indication.”
By the same token, our call to PropThink subscribers to take profit on Keryx (KERX) just before Zerenex’s approval decision last week proved just as prescient. KERX dropped as low as $13.75 this week, from $18.00 prior to the approval decision. Likewise, selling $20 Calls before the decision, which we discussed in the Sell alert to Premium subscribers, also played out beautifully as option premium collapsed on the day of the approval. KERX has been one of PropThink’s biggest wins over the last two years, +550% since we pounded the table late in 2012. Now, we’ve taken profits on what, in the last year, has become an increasingly complicated commercial story – we think investors are better off putting the money to work elsewhere.
XTANDI, Medivation’s (MDVN) treatment for prostate cancer, was approved this week in the pre-chemotherapy setting. The approval came early, as Mr. Deryugin was wrapping up an update on Medivation, following up on his April suggestion to “buy the dip” – MDVN is up 50% since. The crux of the April buy recommendation was that Medivation’s full-year guidance for domestic XTANDI sales was far too conservative. Indeed, this has proven to be the case; Medivation has twiceraised guidance since. Though the pre-chemo approval was expected by the markets, Mr. Deryugin explained this week why he still likes the longterm MDVN story. Read, “Medivation: Strong XTANDI Performance Warrants Continued Exposure”
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One or more of PropThink’s contributors are long MDVN.
