A few quick thoughts on Orexigen's (OREX) anticipated PDUFA (FDA decision) date scheduled for January 31.
First of all, we may not hear from the FDA on time at all, which isn't necessarily all bad. By some counts, the FDA has been missing up to 40% of its PDUFA deadlines in recent years, and the bad weather on the East Coast may not help it any this time.
The best possible outcome for OREX would, of course, be approval. In this case look for the stock price to rise. I have seen price targets of $11 to $18, which differ mostly in the size of the assumed market for Contrave once it reaches its peak and the extent to which Empatic is expected to cannabalize it. I actually think there is room for more than one drug, particularly since different patients will respond differently to different drugs, but I am feeling less confident in the $1 billion market for every drug that was being bandied about a few years ago.
A more likely outcome, and a good one, would be a "conditional response letter" setting forth conditions for Contrave's approval relating to the scope of post-approval safety studies as discussed in the advisory panel.
While the price may well rise above its current levels in this scenario, it's important to bear in mind that the value should decrease not only by the discount for the expected delay, but also for dilution associated with the capital raise OREX will need -- it has burn of about $60 million a year and cash to last through about the middle of this year. If the stock is trading at about $8 and six months of cash are needed at $30 million, that will represent about 13% dilution.
There are also some bad scenarios, such as a worse CRL (perhaps even specifying pre-approval safety studies, which some in the field believe could be prohibitive to further development of any obesity drugs) or outright disapproval. No point in modeling these, I think, since they are pretty darn bad and the stock price falls off a cliff.
Disclosure: Long OREX