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Biotech Stock Mailbag: Orexigen Therapeutics

BOSTON ( TheStreet) -- Not even another foot of snow (on top of the foot or so already on the ground) can keep the Biotech Stock Mailbag from making its appointed rounds.

HK Patel writes, "I have been following your articles since 2010 and I have learned a lot from them. My sincere thanks. Orexigen Therapeutics' (OREX - Get Report) PDUFA date is Jan. 31 for their obesity drug. Adam, could you please comment on the prospects of its FDA approval or rejection?"

I was asked the same question on Twitter this week and my reply (prediction) was that Orexigen receives a complete response letter on Contrave, its obesity drug in waiting.

Now, that's a bit of dodge on my part because a large majority of investors believe Orexigen will receive a complete response letter. Orexigen and the U.S. Food and Drug Administration have had too little time since the Dec. 7 Contravy advisory panel meeting to resolve outstanding issues.

The real question is what flavor of complete response letter is coming? I see two varieties possible:
  • The "good" complete response letter is one in which FDA tells Orexigen that Contrave is approvable without the need for new pre-approval clinical studies or new efficacy and safety data. Full approval of Contrave would be granted later in 2011 after the two sides reach agreement on a post-approval trial to assess cardiovascular safety and nailing down a risk management plan.

    A "good" complete response letter pushes Orexigen's stock price higher.
  • The "bad" complete response letter is one in which FDA tells Orexigen that pre-approval clinical trials and/or efficacy and safety data are required before Contrave can be cleared for marketing.

    A "bad" complete response letter sends Orexigen's stock lower. How low depends on how much and what type of data FDA requires for approval. If the FDA goes against the wishes of the advisory panel and asks for a pre-approval cardiovascular outcomes study, Orexigen is cooked extra crispy. If the data request can be fulfilled without a new clinical trial and still leaves open the possibility of a 2011 Contrave approval, the stock may only fall a bit or even stay relatively flat.

Obviously, a full approval for Contrave on Jan. 31 is the best possible outcome for the drug and the stock.

My prediction: Drumroll….

Orexigen will receive a "good" complete response letter.

Feel free to ignore my guess since my obesity-stock prognostication track record hasn't been very sharp. The only thing I've been consistently right about is being bearish on Arena Pharmaceuticals (ARNA).

I polled 20 buysiders for their Contrave predictions: Ten (50%) expect a "bad" complete response letter; six (30%) believe a "good" complete response letter is coming; while a single respondent (5%) said he thought FDA would punt on making a decision altogether, meaning a delay in the approval decision date.

Another three buy-siders (15%) told me that they had no prediction at all. These folks may be the smartest of the group.

Stay tuned for the Contrave approval decision on Jan. 31.

One more Orexigen note: If FDA issues a complete response letter of any flavor, I personally challenge Orexigen management to publicly disclose the letter in full. Do not summarize the contents of the FDA's response in a press release or on a conference call.
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