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Orexigen Therapeutics, Inc. (OREX - Analyst Report) reported a net loss of 19 cents per share in the third quarter of 2013, which compared favorably with the year-ago loss of 44 cents. However, loss was wider than the Zacks Consensus Estimate of a loss of 17 cents per share. Revenues remained flat year over year at $0.9 million, in line with the Zacks Consensus Estimate.

Operating expenses decreased to $19.4 million during the third quarter of 2013 from $31.5 million in third quarter 2012, primarily due to lower research and development (R&D) expenses. R&D expenses decreased 49.5% from the year-ago period to $13.0 million primarily due to lower costs associated with the Light Study on the company’s obesity candidate, Contrave. General and administrative (G&A) expenses were up 13.4% to $6.4 million.

Contrave Update

Along with the third quarter 2013 results Orexigen provided an update on Contrave. The company is preparing to conduct an interim analysis of the Light Study (expected by early December). We note that a randomized, double-blind, placebo-controlled Light Study (n = 8,900) is underway to assess the risk of major adverse cardiovascular events in overweight and obese subjects treated with Contrave.The study is being conducted under a Special Protocol Assessment with the U.S. Food and Drug Administration (FDA).

Based on the outcome of the interim analysis, the company plans to re-submit the new drug application for Contrave to the FDA by the end of this year with potential approval by Jun 2014. Subject to regulatory approval, Contrave will be launched in the U.S. in the third quarter of 2014.

We remind investors that the company had received a complete response letter (CRL) from the FDA in Jan 2011 for Contrave. At the time of issuing the CRL, the FDA had expressed concerns regarding the long-term cardiovascular safety profile of Contrave, and had asked Orexigen to conduct an additional study.

Orexigen has submitted a marketing authorization application to the European Medicines Agency for Contrave with a final decision on the approval expected in late 2014. The company expects data from the Light study to be available for the Committee for Medicinal Products for Human Use Day 120 List of Questions.

Our Take

We believe that investor focus will remain on results from the Light Study, which is crucial for the company. Positive data from the study will improve the chances of Contrave being approved in both the U.S. and EU. Additionally, it will also help Orexigen secure a lucrative partnership to market Contrave in the ex- North American region.

We note that the company has a collaboration agreement with Takeda Pharmaceutical Company Limited (TKPYY) for the development and commercialization of Contrave in North America. Takeda has experience in the metabolic disorder market which should prove to be beneficial. Orexigen is looking for a partnership in the rest of the world.
However, we note that Contrave, once launched, will be a late entrant in the obesity market. Last year, two obesity drugs - Belviq and Qnexa - were approved.

Orexigen carries a Zacks Rank #3 (Hold). Companies which look attractive include Actelion Ltd. (ALIOF) and Jazz Pharmaceuticals (JAZZ - Analyst Report). Both carry a Zacks Rank #1 (Strong Buy).

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