Global Approval Could Be On The Horizon For Orexigen's Weight Loss Drug
Scott Matusow | Jul 30, 2014 09:51PM ET
Orexigen (NASDAQ:OREX) faces a U.S. Food and Drug Administration (FDA) approval decision for NB32 (Contrave) on September 11th, 2014. Contrave is a combination of bupropion sustained-release (SR) and Orexigen´s wholly owned SR version of naltrexone, designed to help patients lose weight. The addition of Naltrexone said to improve patient tolerability for the treatment. The company is due to receive roughly $100 million with approval and launch of the product.
Over the last few years, weight loss drugs have received an abundance of media attention and investor speculation.
Arena's (NASDAQ:ARNA) Belviq gained FDA approval in successfully met the SPA requirements on 8900 patients showing that Contrave did not increase the risk of major adverse cardiovascular events (MACE). Because of this study, doctors might be more inclined to prescribe Contrave over Belviq and Qsymia, which both lack the cardiovascular (CV) data Contrave enjoys.
This factor seems to favor Contrave over Belviq and Qsymia, and could possibly tip the scales towards Contrave in the United States. Vivus and Arena failed to gain approval in Europe (Arena withdrew Belviq application) because both of these drugs simply did not have the data needed for European regulators to give it the green light.
Contrave has a very good chance to gain both FDA and European approval, with the expected European approval decision to occur sometime in October of this year. The political pressure could be ramping up in Europe to approve a drug like Contrave. In Europe, it’s estimated that new cases of diabetes will increase from 366M to over 550M by 2030.
In 2012, France, Germany, Italy, Spain, and the U.K. saw combined spending over 120B for diabetic treatments, and this number continues to rise. Obesity in Europe is now being considered a disability. With Belviq and Qsymia seemingly out of the game in Europe, if approved, Contrave could dominate that market region.
Orexigen will receive $100M upon approval and launch in the USA of Orexigen.
Bullish Call Option Chain:
August Options
As we can see above, there is heavy open interest in the August calls, so some traders believe there will be an an early approval. The put side looks more like a hedge, and not a very big one.
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September Options
The September calls show an extremely bullish sentiment, which most investors and traders believe the stock will be near or over $7 by the time of the September expiry. Orexigen is taking the proper steps and engaging in proper communication with U.S. and European regulators to ensure approval for Contrave here. To show constrast, recently AcelRx received a complete response letter (CRL) from the FDA for its pain medication dispensing machine, Zalviso. AcelRx did not ask for an approval extension and "gambled" that the FDA would review the application amendments -- they lost that gamble and it has so far cost investors 30% equity loss. We can clearly see Orexigen is not willing to take that gamble which we think bodes well for investors.
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