2012-10-25 20:38:46 -

By Jake King

Word from Orexigen Therapeutics (NASDAQ:OREX) Wednesday that it will be raising
capital in the form of an equity offering came as little surprise to investors,
and the market is taking the news positively during Thursday's trading session.
OREX gapped up from $5.52 at the open and trades at $5.75 in the early afternoon
as investors take confidence in the drug-developer's newly-fortified cash
position. The company announced three days ago that Contrave - the third weight-
loss drug facing the FDA this year - may be eligible for an accelerated review
and approval process. The stock traded off 7% in Monday's session regardless, as
investors feared a capital raise may be on the horizon after OREX initiated a
$150M shelf registration in September.

As of September 30, OREX had   108.3M in cash, equivalents and marketable
securities (Orexigen also reported preliminary 3Q financials), and this week's
stock offering may raise as much as $65M in net proceeds. The company is on
solid ground financially - hence Thursday's gains - and OREX price action now
relies heavily on the company's discussions with the FDA. Any concrete evidence
that Orexigen will be permitted to resubmit the Contrave New Drug Application
ahead of an interim analysis from the Light Study will galvanize investors. With
all of this excitement, its easy to forget that Contrave is still in the clinic.
The drug lacks safety data from the ongoing Light Study - pivotal information -
and will then need an FDA approval to make that final leap from the clinic to
the market. And while obesity is a growing issue, Contrave's slice of the cake
is slowly shrinking with predecessors Belviq and Qsymia - from Arena
(NASDAQ:ARNA) and Vivus (NASDAQ:VVUS) - already on the market.

We're talking about at least a year before the doctor starts writing out
Contrave prescriptions, so playing OREX predominantly for short-term gains makes
the most sense. Management sounded confident that the FDA would allow some sort
of fast-track review for Contrave, and details on that agreement might appear
before the end of the year. Interim safety data from the Light Study should come
in the first half of 2013, most likely in the second quarter if enrollment
continues at a good pace. That said, these are binary events and require a
healthy appetite for risk. OREX's recent weakness and bounce might make for a
fast technical trade, but quick profit-taking is wise with this volatile stock.
Take a look at PropThink's report on Merge Healthcare (NASDAQ:MRGE) for an
undervalued opportunity in the healthcare IT industry that has some more
fundamental substance.

Read this article in its original form.

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