Orexigen (OREX) - Hoping for a 100+% gain in OREX like Vivus?! Try back in three and half years

As most people already knew by this point, Vivus' obesity therapy, Qnexa, garnered overwhelming support from the FDA panelists yesterday, receiving a one-sided positive vote outcome (20-2).  On the great news, VVUS traded as high as $21.44 (52-week high) today, representing an amazing 103% gain from yesterday's close of $10.55. However, as expected with quick profit taking, share price steadily came down throughout the day to close at $18.73.

Meanwhile, another biotech company, Orexigen, also in the process of developing its own obesity drug, Contrave, jumped more than 20% before the opening bell today and reached a 52-week high of $3.98 (+24% from previous day's close) before reversing its course to close at $3.66.

As briefly alluded to in my blog post yesterday, I believe today's pop was a perfect short opportunity for the following reasons:


1. One-sided positive vote for its largest competitor means that Orexigen will be required to show even more convincing data to overcome the high bar set by Vivus - Not very likely based on Orexigen's past studies at least in terms of efficacy.


2. Contrave was commented on negatively by panel members during the review of Qnexa is yesterday's meeting - A sign that the drug is not favored over Vivus' Qnexa among obesity medical experts.


3. Last but not least, it will take at least three and a half years before FDA can make a decision on Contrave's fate. According to Orexigen's press release, the company will not commence an additional cardiovascular outcome trial until late 2Q2012. 

"The Company plans to initiate the Contrave outcomes trial late in the second quarter of 2012" - Orexigen

This trail is expected to take 2 years. Plus the time it requires to prepare and file an NDA resubmission as well as for the FDA to review the drug, investors are looking at an unpredictable PDUFA result some time in 3Q2015 - Not unfamiliar to seasoned biotech traders, this timeline might as well be eternity and there is no justifiable reason to stick around for this lengthy period of time.

I expect OREX to drop to the low 3's if not lower in the next few weeks. Currently Mar $4 put options are trading at $.6, which means that there is still a potential gain of $.4 per contract. Good luck with the trade as always and feel free to follow me on Twitter (@MichaelJuan01) for more trading updates.