Biotech Spec: Orexigen Therapeutics

Orexigen Therapeutics is “all about the FDA” right now, Cramer said Thursday. The Food & Drug Administration’s thumbs-up or down on a key treatment will make or break this stock, at least in the short term.

Orexigen is hoping the FDA will approve its diabetes and obesity prevention drug Contrave. Phase III trials, announced late last month, were a success, and that pushed the stock up 42%, to $8.06 from $5.69. Cramer said there’s even more upside coming if Contrave gets the official nod.

And he did expect the feds to OK Contrave. It’s a combination of two other previously approved drugs – the antidepressant Wellbutrin and Naltrexone, which is used to prevent heroin overdoses – and that should make the process easier.

The downside is that Orexigen has no other treatments close to market. Also, two competing companies, VIVUS and Arena Pharma , have obesity drugs of their own in Phase III trials. So Contrave’s approval is crucial for Orexigen.

So what’s the call? Cramer said that OREX works only as a speculation play. If investors are willing to gamble that Contrave comes out on top, then there’s a good chance they’ll see returns. Of course, they should use limit orders, buy in small increments and wait for a pullback in share price.

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