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This Weeks Stock Pick

7-12-2010 STW Recommendation OREX - Strong Buy

While the road to FDA approval will be full of bumps in pot holes we see this as a good time to begin building a position. This week one of the other 2 competitive weight loss drugs being considered by the FDA for approval is expected to get an answer. If the VVUX drug is approved it bodes well for OREX. If the VVUS drug is not given FDA approval it I also a good sign for OREX because the bottom line is with over 35% of us now dealing with obesity, doctors need a good arsenal of meds to help reverse this trend. It is becoming obvious that these drugs are truly lifesavers.  

Both drugs used to form the OREX drug Contrave are FDA approved and being used today for other conditions. So they already have met the FDA's safety standard. The trial results for Contrave exceed the needed 5% body weight loss effectiveness required for approval. While not as significant a weight loss as the competitors Contrave seems to have milder side effects. The big plus for Contrave is that the drugs it uses have other benefits and are often used in smoking cessation programs, to treat depression and have shown benefits to the blood sugar level of diabetics.  These are all indications associated with weight problems giving Contrave benefits its competitors do not offer. 

OREX is also not a one trick pony. While they focus on obesity drugs and research they have a second combination drug Empatic which also sows great promise in trials. While approval is not expected for several years it looks like the company will have 2 income producing drugs in the coming years. 

Financially the company has a much improved balance sheet due to moves they made in 2009 and while their cash burn rate is erratic it appears they will have the funding to get through the FDA approval. They are also a buy out candidate from major pharmaceuticals, though they do not currently plan or address on any such actions. 

The OREX stock share price after absorbing significant erosion over the past10 months appears to be reaching a bottom and has begun a short term uptrend. More detail is available below in our technical analysis. Short Interest over 11% also brings the possibility of a squeeze into play.  

The STW analyst has set a short term price target of $5.50 and sees long term price appreciation above $20 on FDA approval. We recommend OREX as a Strong Buy. 

 

Excerpts from OREX news and press releases
 

Orexigen Data Grabs Investor Attention In Beaten-Down Stock

Monday 06/28/2010 12:54 PM ET - Dow Jones News

By Thomas Gryta
Of DOW JONES NEWSWIRES

NEW
YORK (Dow Jones)--Orexigen Therapeutics Inc. (OREX) presented data on its lead experimental weight-loss drug that grabbed the attention of investors, sending the stock up as much as 16%, coming off its lowest levels in 12 months.
The drug, Contrave, helped diabetes patients lose weight and control their blood sugar better than a placebo, according to data presented late Friday at the annual meeting of the American Diabetes Association. The findings aren't especially surprising, but they are reminding investors that Contrave is an effective drug with a large market potential.
"It seems like they are getting very modest credit for having an approvable product," said Cowen & Co. analyst Phil Nadeau. He projects 2014 Contrave sales of $375 million in the U.S., compared to Orexigen's market valuation of $230 million.
The biopharmaceutical company is vying against Arena Pharmaceuticals Inc. (
ARNA) and Vivus Inc. (VVUS) to develop a new obesity treatment, a huge and growing market in the U.S.
Nadeau expressed surprise that Orexigen's stock is moving so much on Monday.
The stock, recently up 13% to $4.69 on the day, is down 36% for the year, compared to Arena, down 6.5%, and Vivus up 8%, for the year to date.
Rodman & Renshaw analyst Elemer Piros called the stock's move a "knee-jerk reaction." He said Contrave's effectiveness in diabetes is consistent with results seen in other obesity drugs and called the data from ADA "incremental."
But Orexigen Chief Executive Michael Narachi believes investors have been waiting to get back into the stock and that large institutions are buying the stock Monday after seeing the data.
"They see us as a value play," he said in an interview.
The Food and Drug Administration is expected to make an approval decision by January for Contrave and a panel will review the drug's application in December, well after Vivus and Arena face their own panels in July and September, respectively.
Narachi expects that many investors are watching to see how those panels proceed, especially the Vivus panel. The companies, along with potential partners at pharmaceutical companies, want to know if there are any general issues that could impact the entire obesity-treatment space and to see what level of post-approval commitment the agency is going to want, he said.
He doesn't believe that Orexigen faces a competitive disadvantage by being the last drug to face a panel and the company continues to pursue a partnership prior to the FDA's decision.
The Contrave study presented at ADA included overweight or obese patients with type-2 diabetes. After a little more than a year, twice as many patients taking Contrave lost at least 5% of their body weight than those taking a placebo.
Those on the drug also had better glycemic control, as measured by their levels of A1C, a type of hemoglobin used to determine glucose concentration over time. Orexigen said 44% of Contrave patients reached the American Diabetes Association treatment target for A1C of less than 7%.
Although Orexigen is seeking an approval for weight loss, Narachi expects the diabetes data to be included on Contrave's label. That could help expand the number of physicians that are willing to use the drug, including endocrinologists that treat diabetes.
Adding to that, JMP Securities analyst Charles Duncan said earlier this month that Contrave's proven benefit in diabetes could help boost the overall argument for new weight loss drugs as a whole.
Because obesity increases the risk of other health problems, it isn't a surprise that weight loss can help improve other aspects of patient health. But Duncan believes the FDA will see proof of those correlations as positive when making approval decisions.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com   


Orexigen(R) Therapeutics Announces That Contrave(R) Reduced Depression Scores and Body Weight in Overweight and Obese Patients With Major Depression

Saturday 06/26/2010 10:00 AM ET - Pr Newswire

Orexigen(R) Therapeutics, Inc. (Nasdaq: OREX) today announced results from a 24-week open-label study demonstrating that treatment with Contrave(R) resulted in significant improvements in depressive symptoms that was accompanied by weight loss and improved control of eating in overweight and obese patients with major depression.

The primary endpoint of the study was the change from baseline in the Montgomery-Asberg Depression Rating Scale (MADRS) at 12 weeks on an intent-to-treat (ITT) basis. Treatment with Contrave32 (32mg naltrexone sustained release (SR)/360mg bupropion SR) resulted in the MADRS score decreasing from an average of 23.7 at baseline (consistent with moderate depression) to 10.5 (mild depression) (p<0.001) at week 12 and further decreasing to 8.4 (remission) at week 24 (p<0.001). Patients who completed the study lost an average of 9.2% of total body weight and reported substantial reductions in hunger, strength and frequency of food cravings and demonstrated improved control of eating.

"Recent reports in the literature show that the risk of depression is higher in obese people and, at the same time, depression has been associated with increased obesity. In addition, obese women are more than twice as likely to be depressed as non-obese women. In this context, clinicians are in need of new tools to treat obese patients suffering from this common co-morbidity," said Dr. Susan McElroy, M.D., Lindner Center of HOPE, Mason, Ohio. "This study is the first step in assessing the value of Contrave in this important patient population and these positive results should encourage additional investigation."

In this study, the most common adverse events were nausea, constipation, headache and insomnia, and, in general, were consistent with past experience in the COR program. There were no serious adverse events reported by the investigator as related or possibly related to Contrave in the trial.

About Contrave

Contrave is an investigational combination therapy believed to address both physiological and behavioral drivers of obesity. The two components of this combination therapy act in a complementary manner in the central nervous system. The central pathways targeted by this treatment are involved in controlling the balance of food intake and metabolism, and regulating reward-based eating behavior. In clinical trials, Contrave was shown to help obese patients initiate and sustain significant weight loss, improve important markers of cardiometabolic risk and increase ability to control eating.

The U.S. Food and Drug Administration (FDA) has tentatively scheduled a Division of Metabolic and Endocrine Drug Products Advisory Committee meeting on December 7, 2010 and the Prescription Drug User Fee Act (PDUFA) action date has been set for January 31, 2011.

About the Contrave Clinical Development Program

All four trials in the COR Phase 3 program (COR-I, COR-II, COR-BMOD and COR-Diabetes) were randomized, double-blind, placebo-controlled trials. The co-primary endpoints were the proportion of patients achieving at least 5% weight loss and percent change in body weight compared to placebo. Secondary endpoints included multiple measures of cardiometabolic risk, quality of life, control of eating, and glycemic control. Contrave was generally well tolerated. The safety and tolerability profile of Contrave in the clinical development program was consistent with the safety profile of the constituent components, which have been in use for other indications for over 20 years. The most frequent treatment-emergent adverse events in patients treated with Contrave were nausea, constipation, headache, vomiting and dizziness. These were mostly mild to moderate in severity, transient, and typically occurred during the first weeks of treatment. Most common adverse events leading to discontinuation with Contrave were nausea, headache, dizziness and vomiting. Treatment with Contrave was not associated with increases in adverse event reports of depression or suicidal ideation compared to placebo. Mean blood pressure with Contrave was generally unchanged from baseline to endpoint. Placebo patients experienced decreases in blood pressure from baseline to endpoint of approximately 2mmHg. Greater weight loss correlated with greater reductions in blood pressure in both Contrave and placebo patients, suggesting that the expected relationship between weight loss and blood pressure was maintained. Importantly, normal circadian blood pressure patterns were preserved with Contrave. There was an increase in pulse of about one beat per minute in patients taking Contrave. Serious events were reported infrequently and included events of cholecystitis (Contrave 0.2%, PBO <0.1%), seizure (<0.1%, 0%) and major cardiovascular events (<0.1%, <0.1%).


Orexigen Therapeutics, Inc. (OREX) Contrave(R) Obesity Research Phase 3 Program Meets Co-Primary and Key Secondary Endpoints; Exceeds FDA Efficacy Benchmark for Obesity Treatments

2009-07-20, Source: Orexigen Therapeutics, Inc.

Orexigen(R) Therapeutics, Inc. today announced that all three remaining Phase 3 trials evaluating Contrave(R) (bupropion SR/naltrexone SR), its investigational drug for the treatment of obesity, met their co-primary endpoints. The results from the successfully completed Contrave Obesity Research, or COR, program of more than 4,500 patients exceed the FDA categorical efficacy benchmark for clinically significant weight loss, supporting the Company's plan to file a New Drug Application (NDA) with the US Food and Drug Administration (FDA) in the first half of 2010.

Key top-line data from the COR Phase 3 program include the following:

"The successful completion of the COR Phase 3 program is a major milestone for Orexigen, and the results demonstrate the potential for Contrave to help patients in their battle against obesity," said Mike Narachi, President and CEO of Orexigen. "These results highlight the benefits of Contrave, a novel combination that was specifically designed to address the behavior and reward pathways in the brain that impact one's ability to initiate and sustain weight loss."


Company Background

Orexigen Therapeutics, Inc. (OREX:NASDAQ),  is an emerging biopharmaceutical company focused on the development of pharmaceutical product candidates for the treatment of obesity. Its combination product candidates targeted for obesity are Contrave which has completed Phase III clinical trials, and Empatic, which has completed Phase II clinical trials. Contrave is a combination of two drugs, bupropion and naltrexone, in a sustained release (SR) formulation. Bupropion is a prescribed antidepressant and smoking cessation medication; naltrexone is a treatment for alcohol and opioid addiction. Empatic is a combination of bupropion SR and zonisamide SR. Zonisamide, in a release formulation, was approved in the United States for the adjunctive treatment of partial seizures, a form of epilepsy. These product candidates regulate appetite and energy expenditure through the central nervous system (CNS).

Contrave

Contrave is a fixed dose combination of bupropion SR and naltrexone SR. Naltrexone was chosen as a complement to bupropion in order to block compensating mechanisms. Naltrexone is marketed under the brand names Trexan, Depade, ReVia, and in an injectable extended release formulation, Vivitrol. Naltrexone works by blocking opioid receptors in the brain and inhibits the reinforcing aspects of addictive substances. Nausea is a side effect associated with naltrexone immediate release. Bupropion is marketed for depression under the brand name Wellbutrin, and for smoking cessation it is marketed under the brand name Zyban. Bupropion is active at the neuronal uptake site for the neurotransmitters dopamine and norepinephrine.

The Company conducted Phase II and Phase IIb clinical trials for Contrave in 657 patients across 16 United States centers. Contrave showed efficacy, as compared to each individual monotherapy and placebo and an acceptable safety and tolerability profile to warrant continued development in pivotal Phase III clinical trials. Its Phase III program for Contrave was comprised of four distinct clinical trials that evaluated more than 4,500 patients. These four Phase III clinical trials in the COR program were designed to assess three doses of naltrexone SR (16mg, 32mg and 48mg) in combination with a 360mg dose of bupropion SR.

Empatic

Empatic is a fixed dose combination of bupropion SR and zonisamide SR. Zonisamide was approved for the treatment of partial seizures, a form of epilepsy. It is marketed under the brand name Zonegran by Eisai Inc. Zonisamide has a number of pharmacologic mechanisms, including sodium-channel modulation and enhancement of dopamine and serotonin neurotransmission. Zonisamide, given alone, has also shown weight loss in prior clinical trials conducted at Duke University.

The Company conducted initial Phase II proof-of-concept clinical trial for Empatic. Based on the results that enrolled 127 patients across five United States centers, it concluded that Empatic showed efficacy and an acceptable safety and tolerability profile to warrant continued development. In June 2006, it proceeded to study Empatic in a larger randomized, double-blind, placebo-controlled Phase IIb clinical trial exploring several different dosage combinations of bupropion and zonisamide in 623 patients with a body mass index (BMI) between 30 and 43 across 15 United States centers.

Company Website http://www.orexigen.com


Chart and Technical Analysis 

Orexigen Therapeutics Inc OREX:NASDAQ

Bollinger Bands
OREX is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold, but the tightening of the band does suggest a weak bullish signal.

Volume
The mederate volume increase over the past 2 weeks indicates accumulation and is exerting upward price pressure.

MACD
OREX's MACD is indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, when it crosses above 0 it will become a strong bullish indicator.

Stochastics
The Stochastic Oscillator is registering a strong bullish signal as the %K has crossed above the %D and the oscillator recently moved above the critical value of 20 and OREX is no longer oversold.

On Balance Volume
The (OBV) On Balance Volume indicator shows that longer term selling pressure has given way to near term accumulation.

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