Here's Why Orexigen Therapeutics' Stock Briefly Spiked Today

What : Shares of Orexigen Therapeutics , a biotech company focusing on the development of anti-obesity medicines, saw its shares briefly rise by as much as 23% on exceptional volume today. This rocket-like rise was sparked by the announcement that the company struck a private placement deal with The Baupost Group, L.L.C. to purchase 20 million shares of common stock at $3 a share and warrants for 5 million shares. The warrants are reportedly exercisable for five years at $6 per share. Overall, this deal raised $60 million for the company, according to the press release.

So what : Orexigen is attempting to strengthen its balance sheet as it works toward finding a marketing partner for its fat-fighting pill Contrave/Mysimba in ex-U.S. territories, according to the company. In other words, management apparently wants to be able to approach these negotiations from a position of financial strength, rather than having to hurriedly ink a deal due to problems with its cash runway. That being said, this deal also appears to be tied to Orexigen's restated collaboration agreement with Takeda Pharmaceuticals , wherein Orexigen is now responsible for the first $210 million of funding for Contrave's upcoming cardiovascular outcomes trial.

Now what : Even after striking this private placement, Orexigen isn't in a great financial position, given its amended collaboration agreement with Takeda. Specifically, this latest influx of funds should give the company around $230 million in cash, cash equivalents, and marketable securities. That won't be enough to cover its long-term financial obligations, and Contrave's sales aren't substantial enough -- at least not yet -- to pick up the slack. As such, I'm perfectly fine sitting this one out for the time being.

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