Orexigen Therapeutics Inc.’s (OREX) fourth quarter 2010 loss of 24 cents per share was narrower than the year-ago loss by 8 cents and the Zacks Consensus Estimate loss by 5 cents. The narrower loss in the reported quarter was attributable to the rise in revenues coupled with a decline in operating costs.
Quarterly Results
Revenues in the final quarter of 2010 climbed to $0.88 million from $0.02 million in the final quarter of 2009. The jump was mainly attributable to revenue received from collaborative agreements in the reported quarter which were not present in the year-ago quarter. The Zacks Consensus Estimate was $1 million.
Operating expenses at Orexigen declined 18.5% to approximately $12.1 million. Both research & development (R&D) expenses (down 28% to $6.4 million) and general and administrative (G&A) expenses (down 4.3% to $5.7 million) were on the downswing in the reported quarter.
The reduction in R&D expenses was primarily attributable to the lower spend on the development of obesity candidate Contrave which has completed late-stage studies. Contrave has been co-developed with Japan’s Takeda.
Annual Results
For full-year 2010, Orexigen suffered a loss of approximately $1.10 per share as against the 2009 loss of $1.67. The narrower loss was attributable to higher revenues and lower operating expenses. The Zacks Consensus Estimate for 2010 hinted at a loss of $1.13 per share.
2010 revenues climbed to $1.2 million from $0.09 million recorded in 2009. Revenues from collaborative agreements accounted for the increase. Total operating expenses declined 19.8% to $52.6 million in 2010. A 40.7% fall in R&D expenses to $28.1 million was mainly responsible for the fall in operating costs.
The reduction in R&D costs was attributable to the completion of late-stage studies for Contrave coupled with the completion of mid-stage studies for Orexigen’s other candidate Empatic. G&A expenses climbed 35% to $24.5 million. The increase was primarily attributable to the rise in personnel-related and legal costs among other expenses.
Our View
We believe that the earnings report is a non-event for Orexigen as investor focus will be on the status of Contrave. Earlier in the year, Orexigen suffered a huge setback when the US Food and Drug Administration (FDA) issued a complete response letter (CRL) due to concerns about the long-term cardiovascular safety profile of Contrave.
Orexigen intends to meet the FDA to discuss the issues raised in the CRL. We note that Contrave is not the only obesity candidate to be rejected by the FDA in the present form. The FDA has also refused to approve obesity candidates of Arena Pharmaceuticals Inc. (ARNA) and Vivus Inc. (VVUS). Both companies have been issued CRLs.
We prefer to remain on the sidelines, with a Neutral view on Orexigen, till more visibility is obtained on Contrave’s progress. The Neutral stance is supported by the Zacks #3 Rank (Hold rating) carried by Orexigen in the short run.
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