Check the details out yourself. But as you know my bottom line is that stock picking is actually the technique of buying and shorting ARGUMENTS rather than companies. And the argument that brought this stock back down to $7.75 after going up to 9.30 and possibly eventually much higher is not going to prevail in my opinion. I'll let others elaborate.

Up 31.85% in one day. I guess they like the idea of reduced heart attacks too. So unlike phen phen, may actual have added benefits. They technically are now slightly profitable however revenues did drop in last quarter. The question I ask they can get $120 million in revenues, but can they get to $120 million in profits to earn a $1 (I think so). Also are the heart benefits real, these are preliminary findings. Highly shorted stock and they are usually right.

http://seekingalpha.com/symbol/OREX
http://seekingalpha.com/article/2955...g-market-share

The table below gives the total prescriptions for Contrave for the months of November, December and January.

TRx

November 10935
December 25027
January 31765

Source; IMS Data, Orexigen Conference Call

In the first two weeks of February, Contrave TRxs were 17642. Based on these, February TRxs should be around 35000, representing an increase of around 10% from January.

Importantly, Contrave could soon get an approval in Europe, making it one of the first obesity treatments approved on the continent.

Contrave (naltrexone HCl / bupropion HCl extended release):

Orexigen's partner for North America, Takeda Pharmaceuticals, launched Contrave in the United States on October 20, 2014. U.S. net sales for the fourth quarter, recorded by Takeda, were $6.5 million, for which Orexigen earned $1.3 million in royalties. Gross sales for the quarter were $12.3 million. (Quarterly)

Looks like a 20% royalty.

I estimate next quarter royalty at $4 million.

Too many unknowns, that is why I stick to herbalife.

David,
If you never put forward a thesis, you can never be proven correct until you reach a statistically significant sample. Which is a huge number of stocks given the volatile stocks you pick.

A thesis looks something like this:
OREX was sold because of: ........
This thesis is wrong because: .........
Evidence that this thesis is wrong will be provided by: ...........

If you don't provide this, your blind picks won't become meaningful until many picks are in.

As it stands their sole drug (and the basis of their patent) is the combination of two generics to create a weight loss drug. Such simple combination drugs have typically done very poorly. As have weight loss drugs generally. Sales of this particular drug have been very disappointing. The potential is apparently $1.2 billion/year in revenue if things go to plan (minus no doubt an expensive sales campaign). This is in a market filled with existing competitors with similar efficacy, and moving fast on new products. This is for a company with a $700mm market cap.

I don't see what you have here. Looks like standard overpriced biotech with nothing special. Looks like low odds for:

- Major short term success
- Major medium term success
- Long term cash cow (which is where the payoff upside potential tends to be)

Not sure what you have here. And why did you post it after it ran up 30% in a day, yet provide no thesis? It looks like you're fishing for winners.

$1.2 billion in revenue at 20% is $240 million. Thus as at 120 million shares, it is worth $2 a share or about $20 (P/E 10) not considering rest of pipeline. Seems if it reduces risk of death and weight at same time it is a no brainer to use. Do they have to do marketing if it is a royalty?

It released preliminary data that it prevents heart attacks and went up to 9.30 It dropped to 7.70 because critics saw problems with the early release of the data. I am shorting the argument that the early release is a big problem.. Why is that not clear?

david, very nice call

BUT..... i think 99.9% of people have no clue what you are talking about from your 1st post. a little more color would have been nice and would have resulted in a few more congratulatory messages here.

i saw someone mention phen phen. i think that's the same as ionamin..... is that back on the market in the USA? i think so but not sure. i know it was taken off the market. and i see signs that it's back (i don't live in USA otherwise i'd just ask my doctor/pharmacist)..

i lost so much weight so quickly on ionamin (phen phen). if i hadn't know, i would have worried i had some deadly disease causing the weight loss. and i didn't feel any bad side effects and i would gladly take whatever risk it was the FDA worried about

The highly shorted aspect is completely negated because of the surprise findings that came out after the shorters shorted.

And your comment that shorters are usually right can't be true to any large extent. Do you see why?

The fact that the findings are preliminary is a good thing, not a bad thing. If the findings were a slam dunk, this stock would go to $30 since it would get almost all its competitor's business plus more. The small numbers being spouted are pretty clear though and are being under emphasized by the statistically illiterate. So that is the second argument I am shorting.

The third argument is that there are too many unknowns. I am not so sure about that one, but I wouldn't be surprised is this is not yet another reason to suspect positive EV. Lots of unknowns are probably good (since they dissuade buyers), except when you think that those unknowns are in fact known to some of the traders you are playing against.

I do have one concern though. Which is that doctors appear to be baffled by why this drug is reducing heart problems. In cases like that it becomes more likely that the statistics are a fluke.

According to Forbes, they probably didn't do themselves any favor with the FDA by releasing this data. Seems like an attempt to pump and dump.

http://www.forbes.com/sites/matthewh...ost-its-stock/

The data could be good to them and merit an increase price but these little biotechs sometimes pre release data in order to fit in with scheduled insider sales or their plans to dilute the stock.

That being said the only thesis I traded on was that OREX was a very crowded short. High short interest before the data and a lot of people stepping in short after the data when it was up a few points.

The short sellers of drug stocks most likely have analysts and spies at all the drug testing labs. Heavily shorted stocks underperform their peers by 1% a month (Beyond the Random Walk, p302). Note: My own analysis shows about a 1% annual underperformance, sp500 stocks may overperform a little bit.

Yes the small numbers are pretty clear. Furthermore, I love the new type of test because it simplify things. I stopped drinking so much coffee after this test.

http://www.medicalnewstoday.com/articles/264778.php

The government should force everyone to list the drugs they take and the foods/diet they eat and the day you die and in the long run all the dangerous foods and drugs could be eliminated.

I decided to buy a little because the results look good and I don't think the public which bases their decision on herd or gossip realizes it. However it is possible similar drugs will also show similar drops due to the lost weight.

There is still question whether the CEO and directors are good money managers. Thus, even having a good drug could be worthless if they blow it on themselves.

OREX tanking in the after hours. FDA pretty much clowned them.

lol Pre-release of data was definitely legit. I hope longs keep chasing these PRs

They are saying the data was "likely false". If that is an accurate statement then of course all bets are off.

But that would mean in this case (if the data isn't made up,) that they wouldn't have been short.

See now that they didn't actually say this.

http://www.forbes.com/sites/matthewh...-likely-false/

Hopefully twoplustwoers will realize that this guy is confused. Anyone want 6-5 that the eventual result (heartwise)will be at least slightly positive?

Thanks for making the thesis clear. It's quite clear to me that the early data release is a huge negative. A few points (which are uncontested among intelligent people)

- Most medical related, published, peer-reviewed study data is wrong. This is the baseline from which you start. This data is narrow scoped, self selected, preliminary, unpublished, non-peer reviewed. The data becomes highly likely to be wrong when it is self-selecting preliminary data without blinding and other controls. Weird stuff pops up all the time in studies (and even in repeated published studies) that is later shown to be a statistical artifact or the result of various strong biases (which blinding, etc try to correct)

- It is bizarre to release this information early, as it works against their long term interest by poisoning the study. The only reason for releasing and publicizing it so far from completion is that they want to use to boost flagging sales of their already-approved obesity usage in a competitive market.

- Overall, given the very low probability that the effect is real (probably <5%), this early information release is a negative for the long term outcome of the drug, given that it poisons a study already well underway.

Thus it will give it a pump and dump news type result, but that's all.

The data is extremely likely to be false. That doesn't mean fabricated. It means that if this was studied in depth, 95+% of the time, the effect preliminarily reported will be shown to be non existent.

If you're going to bet on biotech, you need to understand at least a little of medicine and science. Basically: Research is a clown show. Most data is wrong. Most conclusions are wrong. Much established wisdom is wrong, even repeated multiple times and published in the most prestigious peer reviewed journals (see, for example, saturated fat). Science is the best clown show we have, but it's still a clown show. Thus when some research comes out, the smart money is made by betting against it. When it's preliminary, selection biased, company controlled, it's nearly certain to be wrong. How this comes about is a fascinating topic. There are good books written by Harvard (and Jewish, David!) scholars on the issue.

Research in the low-effect drug industry is even worse. Fraud and misinterpretation and selection bias is rampant in the drug industry. That's the nature of trying to find statistical significance where most products have zero efficacy or do net harm. In this case they were investigating net harm, and some selection-biased data came through that they might do minor net good. That data is extremely likely to be false. I'll let others elaborate.

The multi-billion dollar question for most companies is whether they can find a way to get a worthless drug (most low effect drugs are actually worthless) to statistical significance. Many companies use fraud, publication bias, cohort shopping, subtle fiddling or simple luck (lots of drugs * lots of conditions * lots of cohorts * small effects) to get this outcome. OREX have shot themselves in the foot by releasing early. What could have been an excellent study for them has now been poisoned. This data which favored them (by luck or fraud - it's almost certainly not real) has to be thrown away because they've poisoned the study and brought scrutiny onto themselves. All of this is bad for their long term earnings.

There is the image from seeking alpha. Why is the study void? It is a blind study, it should make the users happy that they might live longer too. Hope they run a big study with 4 drugs and 1 placebo, as I refuse most prescription drugs as doctors are the 3rd leading cause of death in the country (hospital infections, prescription drugs, poor surgery, mis diagnosis, ...).

I more worried (I am now a bagholder) about the other weight loss drugs on drugs.com and webmd.com that seem to rate better and the field is getting crowded. Might switch to a leaps option. But basically so far everything is gossip. There is even talk on yahoo finance that pfizer is going to buy them out.

http://seekingalpha.com/article/2973...a-breakthrough

The problem with releasing data early is two fold. The study was to last until 2017. What if what appears to be a positive effect would have reverted to the mean? The second problem is, if you are participating in a trial and don't know if you are getting the drug or the placebo, you may just drop out of the study and start taking the drug directly, rather than risk that you are in the placebo group.

It's even more insidious than that. If there are hundreds of drug companies doing trials on drugs that don't work, the only ones that will release early are those that, via luck or fraud or error (i.e. lack of actual blinding as appears to be the case here given how information was bizarrely widely disseminated), produce statistical artifacts. And if you can choose your end point, the number of statistical artifacts will be huge. Combined with the fact that one of the drugs already had adverse cardiac effects -which was why this study was being undertaken in the first place - and it's extremely likely that this result is simply wrong as the FDA believes.

You're comparing P(bizarre synergy between these drugs not previously seen that reverses the negative impact of one of them) vs P(company produced a statistical artifact).

The first is a tiny number. The second is a huge number. Over 25% under ideal conditions (fully double blinded, study completed, published and peer reviewed in the most reputable journals), over 50% under normal conditions, over 95% under these conditions. Which is why the FDA says this is nearly certain to be wrong.

In particular, see this:
Why most published research findings are false

We're in the very low pre-study odds area of the curve:



It's less than 5% that this result is real.

http://seekingalpha.com/article/2980...&uprof=45&dr=1

While your general point is correct, you don't seem to be taking into account two facts:

1. The magnitude of the statistical significance of the early results.

2. The giant pot odds you are getting, ie paying a buck and a half more than you otherwise would have for this stock, in return for the chance of a perhaps thirty dollar unanticipated upside.

Also I am now reading that there were in fact medical reasons to suspect this result as a small possibility, which changes all the Baye's theory equations.

They have a long position in OREX. There is always an article defending on thing or another. And this is a ridiculous spin piece, with no discussion of the huge negatives (and why this is likely to be false given prior results).

But let's get away from the BS and consider this: we're talking about a difference of 40 people out of 9000. In a study with a very high dropout rate, where patients were kicked off due to lack of compliance with the diet guidelines. Where information about early results was widely disseminated to a large number of parties, indicating extreme leakiness of information. For a company who is live-or-die based on this study. There are dozens of reasons why this result could be found despite the drug being harmful. A few are:

- Weight loss was greater on the drug than an placebo (this is established as it is an approved weight loss drug like others), and those that were kicked off from the drug were those that didn't lose weight. This effect would be stronger in the drug group as they lose more weight if they follow the guidelines, lowering cardiac risk.
- Fraud. The early release and wide dissemination and patent application makes fraud quite likely. There are billions of dollars in an all-or-nothing scenario riding on this
- Lack of blinding. Non double blinded studies are worthless. Given how leaky this was, we can assume that the study is tainted. Perhaps an early statistical artifact created strong excitement. The fact is that in most studies, both doctors and patients often know who's taking what, despite the claim of double blinding.
- A selection mechanism within the drug (given that it's psychoactive), where the most sick stop taking it and drop out because of how it makes them feel (as one of the drugs increases blood pressure, for example - where the effect is strongest, they have dropped out)
- A placebo response given that the drug has identifiable psychoactive effects
- A reduction is risky behavior given that the drug inhibits pleasure seeking activities (smoking, etc).

This is why you let studies run their course. You need to check if follow up is reliable and if these biases are occurring. These are biases more likely to occur at the start of the study than at the end, and the run of the statistics over the course of trial will weed out a lot of the nonsense that can happen.

This is just dodgy on so many levels and why the FDA is all over this. Don't believe the analysis of shills with a long position to protect.

All good reasons to turn down five or ten to one odds. Not so much 20 or 50 to one.