Orexigen Therapeutics (Nasdaq:OREX) Shares Demolished After Contrave Rejection

Shares of Orexigen Therapeutics (Nasdaq:OREX) are getting demolished today on news the Food and Drug Administration (NYSE:FDA) rejected Contrave as an obesity drug.

Orexion shares dropped over 72 percent on the day as of this writing.

It was thought that if the FDA rejected Contrave it would effectively kill the so-called obesity drug market, and it probably has.

That may be bad news for Orexigen, but probably good news for the public, as the idea you can take a pill to control weight, is ludicrous at best, as rejections of all entries in the segment have proven.

Since October alone three obesity drugs have been rejected, including Contrave.

The bottom line for all of this is the benefit of a weight-loss drug at this time is far outweighed by the inherent risk included with them. Risks related to heart valves was of particular concern, as well as some cancer appearing in rats in studies.

It will be years, if ever, before the attempt to develop an obesity drug is attempted again, as the prohibitive costs and high bar to meet is beyond the will of most companies, and largely a waste of time and money.

Orexion was trading at $2.55, dropping $6.54or 71.95 percent, as of 2:24 PM EST.

Orexigen's (NASDAQ:OREX) 'Contrave' Poised for Approval

After the recent positive input from an FDA panel concerning Orexigen's (NASDAQ:OREX) 'Contrave,' it was followed up by a conference call which offers more support for the probability that the drug will be approved.

Canaccord said, "Following the positive Dec. 7 FDA panel meeting, OREX hosted a conference call and provided additional details that strengthen our belief Orexigen is well prepared to navigate the regulatory and commercial landscape for its lead drug, Contrave, for the treatment of obesity. We continue to anticipate a H1/11 approval."

Canaccord Genuity reiterates a "Buy" on Orexigen Therapeutics, which was trading at $9.13, up $0.36, or 4.10 percent, as of 12:14 PM EST. They have a price target of $19 on them.

Vivus (NASDAQ:VVUS) Riding Wave of 'Contrave' Support?

With Orexigen Therapeutics (Nasdaq:OREX) finding support for 'Contrave,' prospects for Vivus (NASDAQ:VVUS) being approved for Qnexa seems to have improved.

Even so, Jefferies (NYSE:JEF) has waved a cautionary flag with Vivus, citing uncertainties over potential and probably delays.

They said, "While there is no denying that the OREX panel vote increases the prospects of Qnexa approval, we remain uncertain how to predict the FDA's next action in response to the panel vote. With VVUS shares indicated up significantly, current exuberance may not reflect the risk of a potential delay."

Jefferies maintains an "Underperform" on Vivus, which closed Wednesday at $9.00, up $1.20, or 15.38 percent. They lowered their price target on them from $4 to $3. Volume was almost six times the normal 3-month daily average.

Orexigen Therapeutics' (NASDAQ:OREX) 'Contrave' Recommendation Pushes Share Price Higher

Shares of Orexigen Therapeutics' (NASDAQ:OREX) skyrocketed Wednesday on the news they won the first U.S. panel recommendation for a prescription diet pill, which is their 'Contrave' offering.

Commenting on the positive step, Jefferies (NYSE:JEF) said, "We wouldn't bank on January final approval; there's likely a ways to go on REMS, labeling, and post-approval commitment negotiations. However, we're comfortable with 2011 approval and launch. OREX is substantially de-risked, and depending on the ultimate label, it could be an obvious partner takeout given hefty royalties and milestones."

There is no obligation on the part of the FDA to follow the recommendations of the panel, but definitely helps defuse concerns which have weight on the share price of Orexigen for some time.

EPS estimates for full year 2010 is $1.13, and for full year 2011, $1.22.

Jefferies maintains a "Buy" rating on Orexigen, which closed Wednesday at $8.77, soaring $3.90, or 80.08 percent. The daily 3-month average volume exploded from 1.5 million to 30 million. A price target of $17 is placed on them from Barclays, raising it from $12.

Orexigen Therapeutics (NASDAQ:OREX) Now at Good Entry Point

Saying Orexigen Therapeutics (NASDAQ:OREX) now offers a "great entry point," Canaccord Genuity maintains their "Buy" rating on the company.

Canaccord said, "We reiterate our rating and Top Pick designation for OREX. We believe that OREX’s Contrave for obesity will be approved by the FDA in 2011 following what we expect to be a positive FDA advisory committee meeting (ad com) on December 7. We think the current valuation reflects very low expectations and therefore offers a great entry point."

Orexigen Therapeutics closed Tuesday at $5.19, falling $0.40, or 7.16 percent. Canaccord has a price target of $14 on them.