Orexigen Therapeutics, Inc. (NASDAQ:OREX)

CAPS Rating: 2 out of 5

A biopharmaceutical company focused on the development of pharmaceutical product candidates for the treatment of central nervous system, disorders, with an initial focus on obesity.

Recs

4
Player Avatar zzlangerhans (99.85) Submitted: 6/4/2011 1:06:52 AM : Outperform Start Price: $2.16 OREX Score: +18.00

Orexigen is down big today, and I smell a big opportunity.

The fact that the stock is down 33% today on what I perceive to be good news for the company is a perfect example of baby biotech madness. As I have been pointing out repeatedly ever since the FDA rejection in February, Contrave is a lost cause in the US. The proposed cardiovascular outcomes study was a disastrous endeavour that would have driven Orexigen into the ground. The company's decision to abandon that path has saved them from bankruptcy. Appropriately, the dumb money that was expecting a Contrave miracle fled the stock today, leaving them ripe for the picking with 76M in cash and an enterprise value of 25M.

What does the immediate future hold? I won't go out on a limb and claim that the current price represents an absolute bottom for the stock. After all, it wasn't long ago that many biotechs traded for less than cash on hand. But with the outcomes study on hold, and a staff reduction imminent, Orexigen can reduce their burn to about 5M and prolong their cash runway by several quarters. With the market cap dropping close to cash on hand, several potential catalysts can send the share price running back towards 3. Remember that the company plans to appeal the FDA's responses through a formal dispute resolution process. This won't lead anywhere, but will draw some dumb money back in as the company froths their prospects with press releases. Similarly, optimistic projections for ex-US obesity markets will spike the share price intermittently before ultimately dead ending.

Ultimately, Orexigen's long-term prospects hinge on conservation of that sizable chunk of cash and development of new pipeline candidates that do not contain buproprion. This company has shown substantial resilience in the face of several setbacks and I don't see this as the beginning of their end. I'll be watching this stock very closely for stabilization, and when I see it I'll likely make a sizable GBMB purchase in order to benefit from that first spike of resurgent optimism.

Report this Post 8 Replies
Member Avatar zzlangerhans (99.85) Submitted: 6/6/2011 3:36:28 PM
Recs: 1

Bought 6000 shares at 1.85 for the GBMB account.

Member Avatar zzlangerhans (99.85) Submitted: 6/17/2011 2:52:20 PM
Recs: 1

Added another 6000 share today at 1.51. Market cap is now 73M and cash is 77M. My cost basis for 12000 shares is 1.68 which is just slightly over cash. I consider Orexigen at this price to have the best risk/return of all biotechs at this time.

Member Avatar jed71 (90.37) Submitted: 9/21/2011 9:42:57 AM
Recs: 0

Given today's move, are you selling or holding? I am thinking I might hold but would love a second opinion....

Member Avatar zzlangerhans (99.85) Submitted: 9/21/2011 10:58:43 AM
Recs: 1

I'll probably sell if it gets back to 2.5. There's a long time to wait before any news and I think eventually there will be a sad ending for Orexigen investors. The green thumb will remain open unless I believe that the stock will sink back below my original entry price.

Member Avatar jed71 (90.37) Submitted: 9/21/2011 11:35:56 AM
Recs: 0

Thanks, appreciate your feedback.

Member Avatar portefeuille (99.66) Submitted: 9/21/2011 3:00:33 PM
Recs: 0

I'll probably sell if it gets back to 2.5 ...
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I don't want to interfere too much, but you could try selling in tranches.

Member Avatar jed71 (90.37) Submitted: 9/21/2011 4:26:18 PM
Recs: 0

Thanks, Porte. I don't know if I own enough to make it worthwhile to sell in tranches. :-)

I am considering selling some $2 calls in November or October just to generate a little cash and lower my cost basis (which is already pretty low).

Member Avatar zzlangerhans (99.85) Submitted: 9/21/2011 5:42:31 PM
Recs: 0

My girlfriend suggested I sell in tranches also. Actually, she suggested I sell just the shares I bought at a lower price because I'd make more profit from those. It's not really my style though.

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