Baupost Group’s Seth Klarman (Trades, Portfolio) disclosed this week he plunged into floundering pharmaceutical company Orexigen Therapeutics Inc. (OREX, Financial) on April 13, buying over 7 million shares.
Klarman, whose investments range from traditional value plays to distressed debt and liquidations, boosted his stake in the San Diego-based company, which focuses on weight loss and obesity, for an average price of 22 cents per share. He increased the position by 348.89% to a total of 9.9 million shares.
GuruFocus estimates Klarman has lost approximately 94% on the investment since the third quarter of 2015, when he first established the position. At that time, shares were trading around $34.26.
On Monday, the struggling company announced it has agreed to be acquired by Nalpropion Pharmaceuticals Inc., a newly formed entity that is being funded by a group of investors that includes Pernix Therapeutics Holdings Inc. (PTX, Financial), for $75 million.
The sale does not come as a surprise. Orexigen disclosed in March it had filed for a near-term sale through the Chapter 11 bankruptcy code. The deal with Nalpropion is not set in stone, though, as the company emphasized it is open to “higher and better offers” and it must be approved by the bankruptcy court. Bidding closes in June.
Orexigen has languished over the years as sales of its lead weight loss drug, Contrave, failed to pick up steam. The company raked in approximately $75 million in sales from the drug in 2017, which was an improvement from $47 million in 2016.
Regardless, Contrave, which launched in 2014, faced extreme competition from older, more established rivals and could not offset the company’s mounting debt load, which ballooned from $80.03 million in 2013 to $166.2 million in 2016.
Its stock price has not done much better, tumbling from a high of approximately $180.30 in June of 2007, several months after its initial public offering, to around 15 cents as of Friday morning, up over 11%.
GuruFocus rated the company’s financial strength 2 out of 10 and its profitability and growth 5 out of 10.
In a statement, Orexigen President and CEO Michael Narachi said the deal with Nalpropion was encouraging.
"Our goal is to ensure Contrave/Mysimba will continue to be available world-wide to help improve the health and lives of patients struggling to lose weight,” he said. “Through our interactions with the investor group and Pernix, we have seen that they recognize the value and the growth trajectory that Orexigen has created for Contrave and that we have a shared commitment to serve this patient population.”
Pending approval, and if Orexigen receives no other offers, the deal should close by mid-July.
While Klarman is, by far, the company’s largest shareholder, the stake only takes up 0.02% of his portfolio, which is composed of 33 stocks. Other pharmaceutical companies he owns include Allergan PLC (AGN, Financial), Theravance Biopharma Inc. (TBPH, Financial), Keryx Biopharmaceuticals Inc. (KERX, Financial), Atara Biotherapeutics Inc. (ATRA, Financial) Paratek Pharmaceuticals Inc. (PRTK, Financial), Cascadian Therapeutics Inc. (CASC, Financial) and Forward Pharma AS (FWP, Financial).
Disclosure: No positions.
