Leerink Downgrades Orexigen, Cuts Target From $4.50 To $2

Leerink’s Paul Matteis downgraded the rating for Orexigen Therapeutics, Inc. OREX from Outperform to Market Perform, while reducing the price target from $4.50 to $2.

Orexigen Therapeutics’s recent SEC filing provided details of the company’s Takeda agreement and revealed a lower long-term royalty percentage and milestones than previously projected.

Analyst Paul Matteis mentioned that the little growth in Contrave weekly TRx during the past seven months is surprising. Although seasonality had played a role, promotions by 900 Takeda representatives appear to have not yielded results.

While growth tapering for the drug class is consistent with historical obesity market trends, increased awareness, Takeda promotional efforts and superior demand growth were expected to produce better results in the case of Contrave, the analyst added.

Checks with payors revealed a cautious near-to-mid term outlook for reimbursement in the obesity market, Matteis mentioned, while adding that this may limit upside to the stock in case “TRx shows a re-acceleration during the historically volume heavy spring.”

Orexigen Therapeutics’ performance in the last two quarters has been negatively impacted by high discounting and lack of reimbursement. “Should TRx re-accelerate, we believe it will be important for net-revenue/patient to concurrently improve significantly,” Matteis stated.

The downward revision in the price target reflects slower Contrave TRx growth, a slow improvement in the company’s gross and net profits, lower-than-expected royalties and milestones associated with the Takeda agreement.