Even with promising data, institutional interest and a huge potential market, a young biopharma company can have trouble getting traction for its stock.

Orexigen Therapeutics OREX finds itself in that situation. The company reformulates and combines long-known, generic drugs into new compounds -- Contrave and Empatic -- that fight obesity.

After its April initial public offering at 12, Orexigen shares had moved above 19 less than a month later. Shares bounced around over the next four months, approached the high in mid-October and have since trended down.

Needing more capital, Orexigen went to the market in January and sold 7.3 million shares. The best it could get was $11.

The good news: Institutional investors and banks snapped up all they could. They see the potential in the company, says Orexigen Chief Executive Gary Tollefson.

The problem is not the company, he says -- it's the market. He spoke with IBD.

IBD: What's the silver lining in your acceptance of $11 a share?

Tollefson: Considering the market we went into, we're pleased to get the deal done and to get the quality of the investors we did. They're good, long-term holders of the stock, well-known institutional names. The biggest holders are Fidelity and Oppenheimer.

I took it as a vote of confidence in the future of the company.

IBD: What has the company done to build value since its IPO?

Tollefson: We've reduced risk in a number of aspects and we've made substantial progress with our development program.

We were able to give one-year data on both Contrave and Empatic, our two later-stage obesity products. These were phase two results that corroborated not only a desirable amount of weight loss, but also that the trajectory of that weight loss continued out through one year.

We were successful in mitigating the effect of the weight-loss plateau which is typically seen with drugs and diet, where at 16 to 24 weeks you stop losing weight.

We saw a downward trajectory after one year, which is consistent with the mechanism of action of both Contrave and Empatic.

We started phase three trials for Contrave. And (on Jan. 31) we received a significant ruling by the U.S. Patent and Trademark Office, which extended the protection of our composition of matter for Contrave out an additional 11 years to 2024. That's a major intellectual property advance.

(Orexigen shares fell 3.5% that day and rose 4% the next day).

IBD: One might think that alone would send the stock up.

Tollefson: We would have anticipated more benefit to the stock price. We talked to investors and asked the same question. We can't come up with an answer.

We think that for all the milestones we've hit in nine months, as well as starting the phase three Contrave program, that we haven't seen the marketplace reward.

IBD: Why did you choose January to go to the market?

Tollefson: We had indicated at the time of the IPO that we'd be back in the first half of 2008 for a follow-on.

IBD: So that was always overhanging the stock.

Tollefson: That overhang has been a factor.

We chose to go out when we did to take advantage of new data on Empatic that we presented at the JPMorgan health care conference in early January. We thought that would be a good launching pad.

We made these decisions to file with the Securities and Exchange Commission back in December, when the markets were looking a lot more positive.

We thought getting out early in the year was better than waiting and not knowing what factors we'd see later.

So it was a combination of having new data, being able to launch at the JPMorgan conference, and we thought we'd avoid some of the risk of not knowing where the market would be later.

All that said, we needed to have that financing to get us through four phase-three Contrave trials.

IBD: Why do four phase-three trials?

Tollefson: The Food and Drug Administration requires a certain number of patient exposures through one year. We need to show 1,500 drug exposures and 700 placebo exposures.

We could do it in one megastudy but chose four smaller studies to strengthen the commercial launch of the product in late 2010 or 2011.

Those studies target the key populations to whom we want to market. One study investigates Contrave -- plus an aggressive diet and exercise program -- to look at the drug's benefit with behavior modification.

Another is with obese type-2 diabetics, to examine the benefits on glycemic indices.

We're blending market research and customer interest and integrating that with our outcome data. It's important to understand customers' needs and to integrate that into clinical trials.

IBD: What do you see as the market potential for Contrave and Empatic?

Tollefson: We haven't made our projections public. Americans spend over $50 billion out of pocket for weight-loss strategies. We plan to go the prescription route. This is such a huge market that anybody can do simple math and come up with staggering numbers.

It's obvious a product in this space should be very successful.