Why Orexigen Therapeutics, Inc. Lost a Sixth of Its Value in April

OREX data by YCharts

What: Shares of Orexigen Therapeutics , a biopharmaceutical company engaged in the development of therapies for chronic weight management, lost 16% in April, or a sixth of its market value according to data from S&P Capital IQ, after it and its partner Takeda Pharmaceuticals announced the receipt of a Paragraph IV certification notice on April 22.

So what: Most of you are probably scratching your head right now wondering what that sentence means. In simple terms, the certification Orexigen received states that Actavis has taken steps to file an abbreviated new drug application for a generic version of Contrave, Orexigen's and Takeda's weight control management drug approved last year. In short, Actavis is challenging Orexigen's patents, which means Orexigen now needs to go on the defensive and protect its intellectual property rights.

Adding salt to the wound, Orexigen is facing numerous class action lawsuits stemming from its premature announcement that Contrave may improve cardiovascular outcomes based on its Light Study in early March. The Food and Drug Administration was none too pleased with Orexigen for sharing this premature information, and investors who purchased Orexigen during its initial spike higher are now probably down by a double-digit percentage.

Now what: This was certainly not the best month for Orexigen Therapeutics, but skepticism has been the name of the game for three years for weight control management stocks.

Source: Orexigen Therapeutics.

In spite of its setback in April, I continue to believe that Contrave has the clearest path to success in the United States and Europe. Although its safety profile and clinical weight loss data won't wow consumers or physicians, its proactive Light Study demonstrates the safety of Contrave over the long term and is the key puzzle piece that could have physicians and the EU throwing their support behind Contrave.

Of course, investors should also keep in mind that anti-obesity drugmakers have a very poor history of successfully launching their products; thus, sitting back and waiting for strong sales results from Contrave may not be such a bad idea.

Still, a consensus full-year profit of $0.78 per share expected by 2018 with a closing price of $6.50 on Wednesday does paint a picture of a very cheap stock if Contrave is even half as good as it's being portrayed. I'm of the opinion that those investors looking to dip their toes into the water and hold on for at least the next five years will probably be handsomely rewarded for their patience.

The article Why Orexigen Therapeutics, Inc. Lost a Sixth of Its Value in April originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.