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Orexigen Therapeutics (NASDAQ:OREX)
On Monday OREX announced plans to raise $100m through a convertible note offering. In our November 15th weekly review we suggested that:
we do not believe OREX will need to raise cash next year because they have up to $100 million in milestone payments due from Takeda by the time the first prescription for Contrave is sold.
The company has taken advantage of the current favorable market conditions, and the market's positive reaction to the interim analysis for the LIGHT study to raise additional cash before they need it. This is prudent balance sheet management. Technically speaking our prediction for next year is still intact, having raised $100 million now, and with another $100 million due from Takeda, OREX won't have to raise next year. Of course, the spirit of our thesis was that the milestones themselves would be sufficient and a cash raise was not in the cards this year or next . We were wrong in that view.
The convertible note deal closed on Friday. Investors ended up buying $115 million in notes, including the $15 million over-allotment. OREX estimates that proceeds after original issue discount and offering expenses will be approximately $110.5 million. The notes have a conversion price of $8.19 per share which represents a 32.5% premium to OREX's price on the day the offering was first announced. The fact that the over allotment option was fully exercised concurrent with the closing of the offering suggest strong demand on the buy side for these notes. We take this as a sign that the buy side feels that the Contrave NDA will be approved next June, and that the drug will perform well enough for the company to be able to pay back the notes by the December 2020 due date.
Later this month OREX will be announcing the re-submission of the Contrave NDA. This is a widely expected event, but somehow, these NDA submission announcements often result in an uptick for the company. With OREX shares trading slightly below the 50 and 20 day moving averages, keeping OREX on your watch list may be worthwhile.