Orexigen (OREX) Obesity Drug Contrave Registers Slow Growth

On May 16, we issued an updated research report on La Jolla, CA based Orexigen Therapeutics, Inc. (NASDAQ:OREX) . Orexigen is a biopharmaceutical company focused on the development of obesity treatments.

Over the last three months, Orexigen’s share price has been trading below the Zacks categorized Medical-Biomed/Genetics industry. The stock lost 25.1% compared with a decrease of 4.2% for the broader industry.

Orexigen reported results for first-quarter of 2017 earlier this month. The company’s loss of $4.67 per share in the first quarter was significantly wider on a year-over-year basis. However, the company’s sales increased year over year to approximately $19.1 million.

We remind investors that Orexigen had terminated its collaboration agreement with Takeda for commercializing Contrave in the U.S. in Mar 2016 and started selling the drug itself. Sales numbers improved in the first quarter as the company booked product sales in the U.S. instead of royalties paid by Takeda on Contrave sales in the U.S. in the year-ago period. However, the increase in revenues was offset by costs associated with commercializing the drug.

Apart from the quarterly debacle, the estimate revision trend for 2017 remains unfavorable with one estimate moving down and no revisions in the opposite direction over the past one month. Loss estimates have also moved down by 17% from $9.44 over this period to a loss of $11.47 per share. The trend reflects analyst apprehensions over the stock’s performance this year

Contrave is the only approved and marketed drug of Orexigen. But Contrave is a late entrant in the already crowded obesity market. Contrave has registered slow growth with the number of prescriptions written rising a mere 2% year over year in the first quarter. However, low rates of penetration and awareness and the lack of safe and effective treatment options make the obesity market highly lucrative.

Management has adopted several strategies to drive Contrave’s sales including speaker programs and patient starter kits and new promotional materials and educational resources for health care practitioners. Moreover, the company came up with a new patient-focused campaign with direct-to-consumer advertising. The company is also collaborating with regional partners in Europe for expansion.

But the absence of any late stage pipeline candidate is concerning. If Contrave disappoints, the company has little to fall back on. Execution risks remain even though Orexigen continues to work on growing Contrave sales in the U.S.

Zacks Rank & Key Picks

Orexigen currently has a Zacks Rank #4 (Sell). Some better-ranked medical stocks are VIVUS, Inc. (NASDAQ:VVUS) , Catabasis Pharmaceuticals, Inc. (NASDAQ:CATB) and Epizyme, Inc. (NASDAQ:EPZM) . Vivus sports a Zacks Rank #1 (Strong Buy) while Catabasis and Epizyme carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vivus’ loss per share estimates narrowed 22% to 39 cents for 2017 over the last 60 days. The company posted positive surprises in all the four trailing quarters with an average beat of 233.69%.

Catabasis’ loss per share estimates narrowed 9.2% to $1.68 for 2017 over the last 60 days. The company posted positive earnings surprises in all the four trailing quarters, with an average beat of 8.65%.

Epizyme’s loss per share estimates narrowed from 2.7% to $2.53 for 2017 over the last 60 days. The company posted positive earnings surprises in the four trailing quarters, with an average beat of 11.09%. Its shares are up 33.5% so far this year.

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