Is Orexigen Really Worth Over 50% More?

November 19, 2014 by 247chrislange

Merrill Lynch has released an analyst report that sees more than 50% upside for Orexigen Therapeutics Inc. (NASDAQ: OREX). The top analyst on the call was Steve Byrne, and the general focus on the report was on Contrave, a recently approved obesity drug that has the potential to propel Orexigen to the next level.

Merrill Lynch has a Buy rating for Orexigen with a $9 price target. While this sounds like big upside, Merrill Lynch may be the least bullish of the analyst teams following the obesity drug maker.

The company’s management was positive about the initial commercial response for Contrave. Orexigen attributes the success thus far to its partner Takeda’s differentiated launch with 900 reps focusing on 75,000 doctors, combined with Contrave’s efficacy and safety profile.

The company claims that physicians had sent scripts for 5,000 patients through Direct Save, the reimbursement and mail order program. At first, Orexigen expects that there will be typical high abandonment rates, but also that there will be improvement due to the benefits of Direct Save. These benefits will adjudicate insurance, provide price clarity and discretion to patients.

Takeda is resolving glitches from previous website disruptions and faxed scripts resulting from an unexpected high demand. Takeda is also using targeted sampling and peer-to-peer education to promote Contrave, with over 500 events scheduled.

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Byrne commented in the Merrill Lynch report:

Orexigen expects a positive CHMP opinion in December which will facilitate rest of world access. Partnership discussions are ongoing and we expect OREX to secure an ex-US partner post EU approval. Due to lackluster US launches for recent obesity drugs, we believe prospective partners may want to monitor the US launch progress. These partner negotiations include life cycle opportunities for Contrave including a diabetes indication and fixed dose combinations with a DPP-4 or SGLT2. The company noted its expected IP expansion from 2024/25 potentially to 2034 is important to support these life cycle investments in Contrave.

It is worth noting that even Merrill Lynch’s price target of $9 is well below the consensus analyst price target of $11.33. In fact, this appears to be the lowest of all analyst price targets. However, Merrill Lynch does see an upside from where shares are currently trading at $5.72, up over 1% on the day. Orexigen shares have a 52-week trading range of $3.11 to $7.82.