Orexigen 3Q14 – Contrave (naltrexone/bupropion) milestones bring $31 million in revenue; European approval progresses with CHMP opinion expected in December – November 10, 2014

This morning, Orexigen provided its 3Q14 financial update in a call led by CEO Mr. Michael Narachi. Below are our top five highlights from the presentation, followed by Q&A.

1. Orexigen reported revenues of $30.9 million in 3Q14, mostly from Contrave’s regulatory/development milestones; notably, Contrave’s associated savings program, Direct Save, has experienced technical difficulties due to an “overwhelming” number of incoming prescriptions.  

2. Orexigen remains optimistic about Contrave’s progress toward European approval, with no oral hearing required and a CHMP opinion expected in December.

3. Management expressed excitement about Contrave’s FDA approval and launch, emphasizing that it is confident that a strong sales force effort, a broad targeting and messaging strategy, and the “three Ps” of product, program, and price will lead to a successful launch for the drug.

4. Management is evaluating “options to add products” that are “complementary to Contrave” and expressed continued interest in pursuing a diabetes indication or a fixed-dose combination for diabetes as part of a future partnership.  

5. Orexigen and Takeda have begun planning for a second CVOT for Contrave (as required by the FDA when the drug was approved) with a finalized protocol expected in April 2015; in addition, the Light Study (Contrave’s original CVOT) remains ongoing and will reach its 50% interim analysis benchmark in 1Q15.   

Top Five Highlights

1. Orexigen reported revenues of $30.9 million in 3Q14, a 259% increase from  $857,000 in 3Q13 due to regulatory/development milestones for Contrave. Revenues also grew 132% sequentially from $133 million in 2Q14. Specifically in 3Q14, Orexigen earned $20 million from Takeda for Contrave’s FDA approval and $10 million for the delivery of launch supplies to Takeda. In October, Orexigen also earned a $70 million milestone payment from Takeda when Contrave was first shipped to pharmacy wholesalers.

• Notably, Contrave’s savings program, Direct Save, has experienced technical difficulties due to an “overwhelming” number of incoming prescriptions. Management noted that demand for the program has far exceeded expectations, and that prescriptions for over 5,000 patients were submitted to Direct Save within the first three weeks of the launch. Orexigen acknowledged that the program therefore is experiencing technical glitches that are unfortunately delaying the processing of incoming prescriptions, mostly due to website registration issues. Management reassured analysts that Takeda is working to resolve these issues by increasing the capacity of the call center and ensuring that the website is functioning properly. During Q&A, management theorized that the reliability of Contrave’s price is partly what attracted such a large response. In addition, we believe that Direct Save’s loyalty program feature (read about this in our coverage of the launch) may have also contributed to the positive response. Although these initial technical challenges are frustrating, we believe this is ultimately a positive sign of widespread acceptance of Contrave among patients and providers.  

2. Orexigen remains optimistic about Contrave’s progress toward European approval, with news that no oral hearing will be needed and that a CHMP opinion is expected in December. Orexigen management met with EMA representatives in October to discuss responses to the Day 180 List of Outstanding Issues (LOI) the company received in July; a revised and final list of issues did not include any major objections. As a reminder, the initial LOI raised two key questions: (i) further validation of Contrave’s benefit-risk profile and (ii) additional information regarding third party suppliers’ study materials for bupropion. As of Orexigen’s 2Q14 update, management planned to respond to these questions in September after communicating with suppliers and anticipated a response from CHMP in October about an opinion or oral hearing. After receiving no major objections at this October meeting, Orexigen plans to submit responses “shortly” and expects to receive a CHMP opinion at the December meeting.

3. Management expressed continued confidence in a strong launch for Contrave. As a reminder, Contrave received FDA approval on September 10 and was launched on October 20. Management provided three reasons why the company believes Contrave’s launch will be more successful than those for other obesity medications: (i) a large sales force effort; (ii) a broad targeting and messaging strategy; and (iii) the “three Ps” of product, program, and price.

• Takeda’s sales force for Contrave includes 900 sales representatives. This is the largest sales force we’ve seen for an obesity drug; Eisai has 600 representatives for Belviq (lorcaserin) and Vivus has 150 representatives for Qsymia (phentermine/topiramate).
• Takeda plans to market Contrave to both frequent and infrequent prescribers of obesity medications. Orexigen management noted that “low writers” for obesity medications are typically frequent prescribers of type 2 diabetes drugs, and phase 3 data for Contrave has shown beneficial effects in patients with type 2 diabetes. For comparison, Vivus’ sales reps are only targeting physicians who are already productive prescribers of anti-obesity medications.
• Orexigen/Takeda’s overarching commercial strategy for Contrave focuses on the “three Ps” of product, program, and price. The emphasis on “product” describes a planned marketing focus on Contrave’s benefits in specific populations such as obese women or, notably, obese patients with diabetes or pre-diabetes (management has also expressed interest in a diabetes indication – see # 4 below). “Program” stands for Contrave’s patient support program, Scale Down, which involves a free wireless smart scale and personalized text messages. Lastly, “pricing” focuses on the drug’s savings program, Direct Save, which aims to provide both insured and uninsured patients with the lowest possible price – please see our coverage of Contrave’s launch to learn more about the Scale Down and Direct Save programs.

4. Management is evaluating “options to add products” that are “complementary to Contrave” and expressed continued interest in pursuing a diabetes indication or a fixed-dose combination for diabetes as part of a future partnership. During prepared remarks, Orexigen stated that the company is in a strong financial position and is thus evaluating options to add products that would drive shareholder value, with a specific focus on assets that would complement Contrave. During Q&A, management proposed women’s health, neuropsychiatry, or cardiology as potential areas. With the marketing emphasis on Contrave’s benefits in people with diabetes, we are also optimistic about future efforts in that area – see our coverage from Obesity Week to hear additional commentary on the drug’s beneficial effects on glycemic control.

• Specifically, management explained during Q&A that a potential plan would be to co-fund a diabetes indication or fixed-dose combination for diabetes as part of a future partnership and that such dialogue is ongoing with Takeda and other prospective partners. They also pointed out that such a program would be relatively inexpensive, estimating that a 26-week phase 3 trial would cost about $25 million. Notably, management also commented that a diabetes indication for Contrave would greatly increase coverage in national healthcare markets around the world.
• Management emphasized that Orexigen would not pursue an additional indication on its own without a partner. Similar to sentiments expressed in the 2Q14 update, they noted that the rest-of-world partnering process continues and will  move forward more rapidly once Contrave receives EU approval.

5. Orexigen and Takeda have begun planning for a second CVOT for Contrave (as required by the FDA when the drug was approved) with a finalized protocol expected in April 2015; in addition, the Light Study (Contrave’s original CVOT) remains ongoing and will reach its 50% interim analysis benchmark in 1Q15. As a reminder, the FDA’s approval of Contrave in September came with a post-marketing requirement to conduct a new CVOT, largely due to concerns about interim data disclosure from the ongoing Light Study. In the conference call following the approval, Orexigen stated that a final protocol would be determined by April 2015 with study results expected in January 2022. During Q&A, management fielded a question about whether the interim data disclosure could potentially result in the cancellation of this second CVOT by responding that this would need to be “assessed at that time.”

Questions and Answers

Q: I understand why prescription data is not necessarily predictive of current demand but what are some of the other operating metrics that you watch to give you insights on the launch such as perhaps rep visits and how these are going?

A: Again, it's early, but we're hearing very good things. And I can tell you we've got our finger on the pulse of this launch. We work very closely with Takeda, and we have a host of reports that we were eligible to receive from Takeda per our agreement. These keep us in the loop on calls per day, calls by decile, how writers are doing versus non-writers. We're very close to the launch.

And again, it's too early to make too many conclusions except the excitement that we're hearing from the field. And then of course, we talked a little bit about the prescriptions and maybe I can just touch a little bit on that. I get a dashboard report every day so I can see how many scripts are coming into Contrave Direct Save, how many come in each day, how many go out each day. And so looking at the data that's being projected now, we believe it's understated. I think those projections are going to get better over time, and we're also in discussions with Takeda and the pharmacy on ways to improve that transparency.

Q: Regarding some of the safety warnings or highlights on the label, they appear pretty consistent with other bupropion containing labels. I'm just wondering if you have any feedback from the market or from the in-field efforts about whether or not those warnings are impacting interest in writing for Contrave?

A: The warnings are there because of observations that were made across the whole class of antidepressants, not just bupropion. And that warning was added to many antidepressant labels, and also with smoking cessation drugs. So that's the first part, and I think the warning is appropriate based on those observations. And there was a sort of class labeling effect. Because we have 360 mg of bupropion in Contrave, those warnings carried into the Contrave label. They're not indicative, obviously, of things that we're seeing on Contrave in the market. It's only been a couple of weeks since the product's been available. And as far as feedback from physicians, I'm not aware from the daily dashboards and the anecdotes that we hear from the field of anything significant there. I'd also just point out that bupropion is well known by physicians and they feel comfortable with it. So, I view it as an asset.

Q: In Europe regarding the kind of patients or physicians that you would target if you saw an approval, would you wait for reimbursement or do you think that it is perhaps a good market opportunity to target just a cash-pay customer over there?

A: As part of what we've been learning is that of the markets where we could get Contrave approved, some of those are medical markets where there is good coverage and access, and they have socialized payment policies where they've decided to cover obesity drugs historically like the UK and Australia. And others are large opportunities for cash-pay markets like Brazil and South Korea, Middle East, North African countries, Russia, etc.

So it's a mixed model and I think in Europe, in particular, that will be mixed. I think in the northern regions, cash-paying customers is probably a decent opportunity. And so, we need to carefully evaluate how to commercialize Contrave globally and therefore, what's the correct partnering strategy globally. And we continue to learn. A really important milestone here is securing that European approval. If we could secure the European approval in addition to the US approval, I think that we, or our partners, could rapidly file for approvals in the important markets around the world. We'd be crazy to consummate a deal prior to receiving that value-enhancing approval.

Q: You mentioned 5,000 scripts or so sent to Direct Save. Do you have a sense of what the retail numbers look like and if the retail data is being correctly presented in IMS?

A: The top-line answer is yes, we have a sense. But we're seeing the same data that you have. Early weekly data is highly variable. I don't want to say unreliable because it's based on probably the best possible projection methodology. But most people in the business wait until you have three months of monthly demand numbers, which are more accurate.

And so what I'm saying is with a fourth month of monthly demand numbers, we would expect a lot more accuracy in the projection methodology. That said, we're all going to track every data point and be addicted to the weekly sales numbers and try to interpret what they mean. We will be helping investors as much as possible to share our interpretation of the information.

We know how many scripts are sitting in Contrave Direct Save. The vast majority has not gone out so they can't be projected. And so, until this gets cleared up, which we're working on day and night, it's difficult to read into those weekly projections.

Q: In terms of the Scale Down program, how many patients are using the scale so far?

A: I don't think we have an accurate read out on that. I do know that they're focused on delivering a program, vis-à-vis the relationship with Takeda and Contrave as a company. And the demands obviously stepped up considerably. This program is commercially available in the market. So, anyone can go to the Scale Down website and learn about it and sign up if you wanted to. But they too are experiencing high demand, and I think they're shunting preferentially patients to the Scale Down program that's offered with Contrave.

Physicians really like to be able to give patients this total package. And let's face it, the diet and exercise – that's how all these products are labeled. It's how they need to be promoted, so the physicians are looking for an effective, easy-to-implement program and that's how they are perceiving Scale Down.

Q: On the cardiovascular outcomes trial, you talked about the Light Study’s second interim analysis in the first quarter of 2015. Would it be possible that there could be enough data from these two interim analyses to argue that there is no cardiovascular signal and potentially no need to conduct another study?

A: I think that that conclusion would need to take into account discussions with the FDA. It's the FDA's requirement that the upper bound of hazard ratio must be 1.4. And so we would need to just assess at the time.

Currently, the plan is to continue the Light Study, and of course as I mentioned, we are initiating the planning with Takeda on the second trial.

Q: On the European approval process, can you give us any color based on what you know today from your interactions with your rapporteurs? Any meaningful similarities or differences you would expect from a label in Europe vs. the US? And if so, how could that impact your marketing focus?

A: Yeah, I don't think there's anything meaningfully different. As far as the discussions around the label, the type of approval, and risk management plan on a go-forward basis have been going, it looks kind of pretty straightforward. A couple of minor differences maybe on some of the follow-up drug-drug interaction studies or effects on renally impaired patients, but not anything major. So assuming a positive outcome, I think we basically have the decisions I discussed around reimbursement in markets. Are they cash markets? Are they going to have national healthcare coverage markets? One way to increase coverage in access in national healthcare markets is to get a diabetes indication and get focused more on the medicalized approach vs. the cash market approach. But we won't have that obviously at the time of a potential approval. So, we're evaluating the current label with the lifecycle plan.

Q: On the Direct Save program, obviously the data is too early to say what proportion of patients are going through Direct Save vs. not, but can you talk about what your or Takeda's assumptions were going in? Were they that the vast majority of patients would use the Direct Save program or more of an even split?

A: What I can tell you is that I think it's safe to say we underestimated the demand that will be going through Contrave Direct Save and that quite frankly led to some of the issues we're having with Contrave Direct Save. People were a lot more interested in the program than projected. And this is speculation on my part, but I think it's because of the reliability of price. I mean imagine a situation in a typical launch where a physician writes an prescription, the patient goes to the pharmacy and then finds out what it costs them given the particulars of their coverage and reimbursement with their plan or whether or not the retail pharmacy market is up 50%, 20% or nothing. So, very unpredictable cost to the patients and then oftentimes, the patient is disappointed, finds a surprise at the pharmacy, calls the physician back and says, “what the heck is going on?”

Here, the physician can reliably say, “look, if you enroll in this program, here's what it's going to cost.” And I think that drove a lot of interest in the program and the higher percentage of prescriptions going through that channel than was expected. And that's good news, great demand; and the bad news is they needed to be more ready for it and they're working on making sure they can handle that higher demand.

Q: In your prepared comments, you mentioned business development activities and potentially starting to look at additional assets. Could you maybe characterize what you would be looking for there in terms of stage of development, therapeutic area, i.e., metabolic or other?

A: In general, we'd be really careful about that next step. We want to make sure that it's got clear strategic and financial sense that we believe would build a tremendous amount of shareowner value by adding additional assets.

So, as you know, we have a co-promote right in the U.S. with Contrave. In order for us to want to trigger it, it would have to have a higher ROI. So, there could be physician audiences where Takeda is not heavily promoting Contrave, such as women's health or neuropsych or cardiology where we could, by adding some additional sales reps, drive incremental demand for Contrave. That financial equation gets a lot easier to drive a higher ROI if you added a second product to that sales force.

So, that's an example. If we could find one of those audiences and a product, whether that's commercially available or very late-stage development, then it would start to make sense and we would be able to make good solid financial projections of why that makes sense. So, that's probably as far as I want to go because until we're ready to move forward with any particular transaction, I think it's way too early to forecast what that might be.

Q: In your interactions with the CHMP, can you give us an idea to what extent the FDA's public hearing on August 11 related to CVOT interim data had any impact on the review?

A: Regarding the August 11 hearing, EMA and CHMP are aware generally of what is going on in the US and on the regulatory front in obesity. And we have general discussions with CHMP and with our rapporteurs about harmonizing the approach to evaluating cardiovascular risk. But it's not a one-to-one analogy.

The August 11 hearing was around how best to use interim data and maintain confidentiality of interim data for ongoing outcomes trials when that information is used for regulatory approval. And this is a work-in-progress. However, in Europe, it's quite different. Europe has adopted new policies around data transparency, which mandates that any information you turn in for a regulatory application is made publicly available, which would include the interim analysis.

So, the interim analysis is a special case and I think those need to be worked through on a case-by-case basis, whether or not interim data would be disclosed or kept confidential. So, those decisions still need to get made n the Contrave application and I think for any other applications that have been submitted. And that policy is in the process of going through revision and delays because implementing that data transparency policy has already proven to have some controversy and difficult aspects to it. So, it's wrapped up in that whole change in the European data transparency initiative, and we'll just have to see how this case plays out.

Q: Due to the availability of the bupropion in Europe, how do you think that is helping the review in Europe making the case for a positive risk-benefit?

A: On the comfort of benefit-risk, which I think is important with Contrave, both naltrexone and bupropion are approved in the EU and are available. So there's already pharmacovigilance information and they understand the patient populations that they're currently used in and what the risks and benefits are. The question is around risk-benefit in obesity, but I think the most important thing that is that in the final list of outstanding issues, there are no major objections.

Q: At what point can we learn more about when you're going to initiate the type 2 diabetes program?

A: On lifecycle, our plan would be to co-fund a diabetes indication or obviously fixed-dose combination development plans for diabetes with our partners. So there's an active and structured dialogue going on with Takeda to evaluate the business opportunity there and the medical opportunity there. And it's part of the dialogue with prospective rest-of-the-world partners as well. So I wouldn't want investors to think that Orexigen, on its own, would go and start that new indication approach. On timing, we're just going to have to wait as those evaluations move forward for the exact timing, the exact nature of that program, and what the cost of that might be. As we mentioned earlier, though, it's relatively inexpensive because a 26-week phase 3 program for diabetes with a reasonable patient population would cost about a projected $25 million. As for who's going to bear those costs across the globe and how much of that would that fall back on Orexigen, that all remains to be seen.

Q: What's the original price for the Scale Down wireless balance?

A: I want to refer you to the website for that, but if I remember correctly, I think it was about $100 for the first three months.

Q: On the answers of the LOI from EMA, what category did those main questions belong to?

A: There are always a variety of questions or issues to be clarified before the final opinion. We're not going to go into the details on a blow-by-blow basis in terms of those. But we have characterized them as not being major objections. So major objections are quite important because if you don't get them addressed appropriately, it's going to result in a non-approval decision. There's still a handful of items we need to address, and we've said that we believe we can do that readily in the timeframe that we need. So we're wrapping that up now. We'll get it in this month, and then our rapporteurs will have some time to look at it, and then the full CHMP committee deliberates and comes up with their final opinion in the December timeframe.

Q: You said that you believe the data for prescriptions is understated. Can you just maybe quantify or qualify that further? Is it dramatically understated in your opinion? Or is it slightly?

A: The IMS uses a projection methodology by sampling pharmacies in all the channels and data that they have, which is a proprietary methodology that they use to try to project demand. And that sampling methodology is notoriously variable with weekly data at a launch. So, just imagine you sample pharmacies and not all pharmacies have stock. So that would give underestimation. Or perhaps you pick pharmacies that have stock. That would overestimate demand. So early on, it's variable. It starts to get a lot more accurate once you get into your third monthly look, not the weekly looks. So, that's just the overall caveat for any early weekly data on any launch.

Q: Are they just totally missing the mail channel?

A: Yes, this channel is going to be even more difficult for them to project. Takeda and the pharmacy are working on ways to make that more accurate as a projection. But, yes, they're essentially missing it. Now, for some of it, they wouldn't even be able to pick up because scripts that called in need to get filled. And the fulfillment rate right now is lower than we want. We want those scripts to get filled immediately, and because of the demand and issues that we're trying to solve with the website and the call center, it's just not even possible to capture them. All we know is how many scripts have been called in or electronically submitted through the Direct Save program and that's what's encouraging.

Q: How long will it take to work through the backlog in the Direct Save program?

A: I can't give you specific data. I can just tell you that there are daily meetings and a task force set up on this. It's the top priority within Takeda, and we're working on it as hard as we can.

Q: Regarding the EU process, you mentioned that in October, you were not asked to make a more expansive participation. I'm wondering if you believe that that is reflective of the fact that the issues were not substantive or was there some other reason for that lack of oral presentation needed.

A: No, we read it as a good sign. I guess it can go both ways. For example, they could think, “it's so obviously negative that we don't need to hear from you.” That's not the case here since there are no major objections. It's obviously trending positively, which is what has given us confidence in the outcome of this process. So I would just look at it as, “hey, the issues that were there didn't rise to the level of importance and need.” It's a busy committee. They have a busy agenda, and they're focusing on the things that they really need to get done and need to hear from sponsors on. And in this case, they came out and said, “Hey, thanks for standing by. We don't need to go in for a full oral explanation. Let's work on this. These are the rapporteurs with the team and we’ll get you the final list of outstanding issues.” And that's what happened.

Q: I'm wondering if you have any goals with regard to bringing in another asset or doing something along those lines. Is this something that we should keep asking you about periodically throughout 2015 or is it by the end of 2015 or into 2016 that we could see another asset being brought in?

A: I think it wouldn't be unreasonable for you to keep asking. We do have internal goals and objectives around this. But this is something that you need to do. I think an unintended consequence of setting too hard of a firm goal is you'll get a deal done for sure. But we want to make sure it's the right deal. And the right deal needs to be done when we finish diligence on it and we can agree on terms. So, I just want to make sure that our investors understand that we're focused on opportunities that would make a lot of sense to our shareowners to build value, not just any deal.

And those are difficult to find, but we're working hard on it. And I think this is going to be a source of new value if we can identify that. We'd love to find a product that would allow us to trigger our co-promote right and tell a story to you around how it's going to drive value because not only can we sell more Contrave and earn more royalties and participate in the commercialization in the US and perhaps other markets, but we could also find assets that are complementary to that approach. We're also looking at transactions that would improve our long-term projected tax structure. So we're going to have to be patient, but we're working hard on it.

-- by Melissa An, Emily Regier, and Kelly Close