Why Shares of Orexigen Therapeutics, Inc. Bolted Higher


What: Orexigen Therapeutics' shares continued their massive surge higher today, rising by more than 10% on extremely high volume. This fast and furious action is the result of the company publicly disclosing early results from a safety study that showed Orexigen's flagship weight-loss pill, Contrave, exhibited cardiovascular benefits independent of weight loss.

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There's only one problem, however. The Food and Drug Administration (FDA) -- along with the study's primary investigator Steve Nissen -- were quick to announce that these data were not supposed to be made public yet because the study won't wrap up until 2017. In short, the FDA is concerned that the remaining portion of the study will be tainted by the public disclosure of this information.

Furthermore, the FDA pointed out in its response to Orexigen's disclosure -- via its newly granted patent application -- that the agency is now requiring a second cardiovascular study set to run until 2022.

So what: Orexigen's management appears to have rolled the dice by making this info public early, drawing the ire of regulators in the process. That said, this result is quite literally unprecedented for an obesity drug, and it might be a huge feather in the drugmaker's cap when it comes to marketing.

Now what: None of the FDA-approved obesity medications have exactly set the world on fire in terms of sales thus far. And that fact probably played a critical role in why Orexigen decided to make Contrave's putative cardiovascular benefit public now.

What's key here is that drugmakers are allowed to discuss off-label uses for their products with doctors under the auspices of free speech, as long as they are telling the "truth". And that's perhaps one of the biggest reasons why the FDA isn't exactly happy with the drugmaker.

Orexigen may not choose to test the limits of Contrave's label, but then again, they also may not be willing to wait until the end of another long safety study to do so.

The article Why Shares of Orexigen Therapeutics, Inc. Bolted Higher originally appeared on Fool.com.

