Buy This Dip in Orexigen (OREX), RBC Capital Says

RBC Capital analyst Simos Simeonidis said with everyone pilling on against Orexigen Therapeutics (NASDAQ: OREX) they are buyers on this dip. The firm reiterated an Outperform rating and price target of $14.00.

Simeonidis said they spoke with CEO, Mike Narachi, who told them he "adamantly refutes the assertions that the company misled investors and patients." He was defiant in regards to today's news and defended Orexigen's handling of the LIGHT trial data. He told us that there was a data access plan in place, it was followed, and it actually had provisions for filing of patents; in fact, Orexigen had notified the FDA in advance and "the filing of the patent that unblinded the study was not a surprise to anyone."

The analyst said the worst case scenario would be a finding against OREX in arbitration, which would cost the company an extra $100M (total cost of the CVOT is ~$200M). "Chances of that are very difficult to handicap, since it would be up to the arbitrator to decide," Simeonidis commented. "However, if the arbitrator decided that Orexigen were somehow at fault in its conduct of the LIGHT study and thus caused a second CVOT to be required by the FDA, then it is likely that the arbitration process would go against the company and it would have to pay for the second CVOT."

Simeonidis doesn't belive Takeda really wants to terminate the agreement. Takeda can walk away from the agreement fairly easily if it wants to. "We believe Takeda may be using this as a way of getting Orexigen to pay more, for example, to pay for the entirety of the CVOT, instead of sharing its cost 50/50, as originally agreed to," he said.

The firm's five takeaways from the situation:

1) The tone of the Cleveland Clinic press release is surprising to us. It appears to be a case of an academic (committee?) wanting to make an example of a sponsor company that did not abide by their instructions regarding the design and conduct of a CVOT trial, in order to dissuade/intimidate others from doing the same.

2) The data at the 50% interim look seem pretty clear-cut in that Contrave does not increase the risk of MACE events; in order to make any further assertions, one would have to look at the full dataset (including Kaplan-Meier curves, how patients on drug do vs. patients not on drug, etc.), and not just the top-line data.

3) We believe that the full dataset of the LIGHT study will be among the most informative in the obesity space.

4) Ending the trial now results in $30–40M in cost savings, a significant plus for OREX.

5) We knew since approval that Takeda was trying to renegotiate the deal and that this was an ongoing process. According to OREX management, the two parties have been unable to reach an agreement up to this point and Takeda surprised them today by announcing they’re electing to go with the formal arbitration process to find a solution. OREX management believes the focus of the dispute is the second CVOT, not other parts of the agreement

For an analyst ratings summary and ratings history on Orexigen Therapeutics click here. For more ratings news on Orexigen Therapeutics click here.

Shares of Orexigen Therapeutics closed at $5.93 yesterday.

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