Wider-than-Expected Loss at Orexigen in Q1 - Analyst Blog

Orexigen Therapeutics, Inc. OREX reported a net loss of 23 cents per share in the first quarter of 2014, wider than the year-ago loss of 21 cents. Loss was also wider than the Zacks Consensus Estimate of a loss of 20 cents. Revenues remained flat year over year at $0.9 million, in line with the Zacks Consensus Estimate.

Operating expenses decreased to $24.0 million during the first quarter of 2014 from $20.3 million in first quarter 2013, primarily due to higher raw materials, inventory and manufacturing-related expenses and salaries and personnel related costs.

Research and development (R&D) expenses increased 12.2% from the year-ago period to $17.0 million. General and administrative (G&A) expenses were up 37.5% to $7.0 million.

Pipeline Update

Orexigen's lead pipeline candidate, NB32, is currently under regulatory review in both the U.S. and the EU. The U.S. Food and Drug Administration (FDA) is expected to render a decision on NB32 by Jun 10, 2014, while a recommendation from the European Medicines Agency's Committee for Medicinal Products for Human Use is expected after the review of the Day 120 List of Questions. The company expects to submit its response to the Day 120 List of Questions by the end of May 2014.

We note that the company has a collaboration agreement with Takeda Pharmaceutical Company Limited (TKPYY) for the development and commercialization of NB32 in North America. Takeda has experience in the metabolic disorder market, which should be beneficial. The companies have started preparations to launch NB32 with approximately 900 sales representatives. Orexigen has rights to NB32 outside North America and is looking for a partner to commercialize NB32 in ex-North America territories.

Apart from NB32, Orexigen's pipeline includes another obesity candidate, Empatic (phase II completed). The company is looking for a partner to develop and commercialize the candidate, before initiating phase III studies.

Our Take

In the near term, we expect investor focus to remain on NB32. It is likely that NB32 will be approved both in the U.S. and EU given the positive data from the Light Study. This will also help Orexigen secure a lucrative partnership for NB32 in ex-North America in 2014.

Additionally, the company expects to receive milestone payments of $100 million from Takeda, after approval but before the first commercial sale of NB32.

However, we note that NB32, once launched, will enter a highly crowded obesity market with products like VIVUS Inc.'s VVUS Qsymia.

Orexigen carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Alexion Pharmaceuticals, Inc. ALXN carrying a Zacks Rank #2 (Buy).

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