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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Lazard Capital Markets 9th Annual Healthcare Conference Call

November 13, 2012 1:30 PM ET

Executives

Analysts

Unidentified Company Representative

Our typical investor deck here that I'll go through very quickly, focus on a handful of slides, not the whole same, but it's been made available through previous SEC filings. I will be making forward-looking statements. Things obviously changed from time to time in our business and the full filings are also available with the SEC.

In general, we like to think of Orexigen and our first drug Contrave as poised to deliver, our regulatory path is very, very clear. We have the Light Study that's running incredibly well from an execution standpoint, which will yield interim data sometime next year that we can use for approval from the FDA.

We also think the probability of success with these non-inferiority trials is extremely high, and I'll go through some of that in the area that I'll focus on today. And then the past commercial success has some of the chief elements that you would look for in kind of a dream market large and growing, unmet need, limited competition, the differentiated product profile that conserves the needs of important segments of the population.

And then really importantly for small companies, we have a large skilled partner that owns almost all the commercialization expenses, so we don't have to bear the burden of building a market or commercializing and trending away to success in this market. I will talk about that as well in the focus area.

The Light Study, it's a large outcome study that we're after run to rule out of doubling a risk, prior to getting on the market. The paradigm that we have for approval is very similar to the diabetes drug paradigm, where you have to collect enough cardiovascular safety data to rule out risk at a certain level through approval based on an interim analysis or meta analysis, in our case an interim, and then you continue to squeeze out risk as we go forward in the marketplace.

Our complete response letter from the FDA identified this is the single approval deficiency. Everything else in the application was fine and we're heavily focused on giving the data for the study for the interim analysis, so that we can bring Contrave to patients.

The protocol for the study was based on a formal dispute resolution process with the FDA where we escalated that process up to a several levels above the review division with the Office of New Drugs, that with Dr. Jenkins sharing that meeting, who is the Director of the Office of New Drugs. We got agreement on a paradigm that's substantially the same as the diabetes drug paradigm in terms of excess risk to exclude. We must exclude the 95% confidence interval, up 2.0 or doubling of risk, with an interim analysis of this study, which will take about 90 major adverse cardiovascular events. And then we submit that with resubmission, as part of the resubmission to go forward for approval.

The study continues and once we gather about 370 events, there is the final analysis of the study, and there the hurdle is to rule out a 40% increase in risk. We've talked a lot about this paradigm for about a year, since we achieved this agreement with the FDA. We then bolstered that agreement with the special protocol assessment which was agreed toward the review division. So we've got top to bottom alignment of what is going to take for Contrave approval hurdles.

We began enrolling the clinical trial in June. A blue line is our projected enrollment which was already fast. We thought in the U.S. 300 centers we can enroll the study 7,000 or 8,000 patients in about 18 months. We've actually been able to enroll the study beyond those numbers already. We think by the end of the year, just six or seven months from starting the trial, we'll probably enroll in randomized 9,000 subjects.

The cost are front end loaded, so what we're doing is we're taking some of the cost from 2013 and putting them into the 2012, but the overall cost actually is reduced by enrolling it heavier upfront. And if you think about it this is an event driven trial. So we really need a lot of observation time of on-label patients.

We picked the higher risk subset of on-label patients. And if we observe them for about 70,000 months of our total observation time, we should get 70,000 months total. So that's 7,000 patients times 10 months or 10,000 patients into seven months, to accrue enough events, so that we can get 90 events to look at the difference between the two groups and make a resubmission.

So well on our way, the trial has some unique features that I think are not only important to understand for Orexigen, but maybe generally applicable in the overall drug development space. The most important being, that we wanted the trial to be generalizable, we did not want to do a canary in the coalmine experiment, we take the highest risk people that would never be truly eligible for the drug anyway, and stress the system to see if there is risk.

So we wanted to do is, let's work with the largest emphasize, lower rent rates, on-label population and tested in a real world way. So here the most real word element of the study is that if you don't respond to the drug, you don't continue which is a way most drugs get used.

But in a lot of safety studies, we keep people on drug even if they're non-responders. And in the absence of benefit, you can only observe risk. So we kind of know the answer to that question. Any drug that you just put it out in people and try to observe risk, you know the answer of that question. But if you allow an offsetting benefit to take place simultaneously, you answer a different and more important question I think. So that's the paradigm, we were able to reach agreement with the FDA.

Everyone who gets randomized in the trial remains in the analysis. They remain in the intent-to-treat analysis. So even if you come off a blinded study drug, we're still going to observe those people as we go forward to see how they contribute to adverse cardiovascular event.

We're targeting a population, as I said that's at the higher risk end of the general population, about a 1.5% annualized MACE event rate. And so far, we're on track for that. I'll show you some of the demographics. Again, the hurdles to exceed the upper bound of 2.0 sort of doubling of risk, we think that the trial has a high probability of success.

There has been no evidence of excess cardiovascular risk in the 25 year history of Bupropion being in thee market. That's a drug of concern in our combination. Large areas databases and looking at perspective observational studies have not indicated any increase in cardiovascular risk. And then when you throw all the factors, that related to cardiovascular risk some from the Contrave Phase 3 data into typical risk engines, you see a decrease in risk not an increase in risk. And again focusing on responders I think also helps.

The people that we targeted to enroll in the trial, as it turns out we're enrolling very close to that pollution that we did remodeling-off of. So you can see here that we didn't want too many other people on the younger age categories, the trial enrolls age 45 and 50 and above depending on male or female.

We wanted to get as close to possible to 50-50 men and women. Men have higher risk of cardiovascular events. We wanted to get a sufficient population of minorities into the trail people, people with the history of cardiovascular disease or diabetes with risk factors and smokers. We're getting into the study to write, patients-to-patients that we targeted and that's good news.

Now, people ask as us all the time, so when are you going to have the answer. And it's all based on modeling today, because we wouldn't have enough events yet with the modeling, to have confidence in exactly where is your event rate going to come in, is it going to come in 2.0, is it going out to come 1.

So you can see that even between one, and a quarter and two, the low end of what's expected around the high end of what's expected, it should give us the 87th event in that 2Q or 3Q timeframe. Of course, that will take some time to educate those events with final events, analyze the data and make the submission. But that's about when we should expect the 87th event to occur. We'll be able to update that probably with more data in the first quarter next year.

Switching now to commercialization and this expands, both regulatory and commercial. Our focus has always been on the responder population. In any weight lost trial whether it's dieting exercise, the old Atkins Diet, one of the large weight loss providers that are out there. For drug trial, you see a curve that that look similar to this. And the left hand side of this curve is uninteresting. People who gain little bit of weight or don't loose much, and then right hand side is where we wants to focus, the promise of any therapy or program is for the people who are actually responding, and that's right hand side of this curve.

Unfortunately, in a regulatory paradigm, we use means, which is in the middle of that curve and we subtract those means from placebo, which a placebo curve would be similar but just smaller on the right hand side. So that leads us to think that these therapies have very, very minor effects and I don't think that's the way they will be perceived in the market place at all.

People are going to look for the promise of a responder like we do for all drugs. Many drugs have very low effect sizes, but as we did promise we try them. And then for those responders, success looks great. You can see here this is a pie chart distribution of people who responded to Contrave therapy with a 5% weight cut off at week 16, and they go on, you can see 25% of them are loosing like 40 pounds or 36 pounds, either typically 220 pound women entering our trials. So the promise of the therapy is I think is large.

Here you can see, I won't deliver this slide, this is just showing you that all the cardio metabolic parameters, (inaudible) markers lifted, et cetera, all going in the right direction for responders to our Contrave therapy. But heart rate and blood pressure doesn't go down as much as you would like and that's probably a counterbalancing from oncology of Bupropion, which led to the question of risk.

And this is a risk engine I talked about. If you put our Phase 3 data, that I just showed into these risk engines, placebo shows a little bit of decrease in risk from doing the weight loss people exhibit in our trials. The intent-to-treat Contrave data looks good and the responder data looks great, as far as predicted decrease in tenure risk source.

On the commercial side, as I said in the introduction, big market, unmet needs, limited competition, good drug with the good profile and then really important primary care, heavy resourcing to really grow market. The markets growing and the only important point I'll make here is that a lot of the growth is coming from the emerging markets. So people are unfortunately catching up with the huge prevalence of obesity that's happened in the U.S.

Diabetes is a obvious target for therapy. So many of the people that have type 2 diabetes are suffering from comorbid obesity or probably the (inaudible) obesity, typically probably drove the diabetes that we see. So that's a great target population to focus on. In terms of the specific growth in the market, today there has been limited treatment. There is only a couple of 8 million scripts, the couple of million people treated largely with phentermine and the experience with phentermine has not been great as far as response.

So the market is undeveloped. You can see though, that we project a 3 to 5 times growth in the market, which is achievable in many, many proxy markets where that's happened before in that timeframe. Still only 2% of people are treated today. So we're not saying, we got to grow this market and get half the people treated. Pretty modest expectations of the numbers of obese patients that could be treated 3x to 5x total Rx expansion over five years, I think leaves a huge opportunity for the late stage obesity drug developers or recent commercializers.

The market is heterogeneous, like many we've worked to segment the market. These are some important segments of the market that we focus on. People with diabetes and dyslipidemia that are obese, people that have uncontrollable responses to food or food cravings kind of an addictive aspect of over eating, depression plays an important role. Two-thirds of the market has comorbid depression or depressive symptoms with their obesity. And today the majority of people seeking treatment are women. I think that will change overtime, but today it's almost three quarters women.

Some data showing that the hemoglobinA1c responses in our Phase 3 trials were very, very good. So again, a great target patient to focus on. The patient that has obesity with diabetes, if they are on Contrave, they're going to get greater improvements in their hemoglobinA1c, if they're not loosing the weight.

The lipid profile look terrific, TriCor like or Niaspan like. This is an exploratory end point that we asked on eating control scores to get out this addictive eating control issue. And we showed typically significant reductions in these visual analogue scales with Contrave. We think that the components of Contrave are uniquely suited to address that aspect. And again, half of the patients complain of uncontrollable food cravings as a cause for their obesity.

As a small open-label trial, we did in depression showing that the predicted improvements in depression scores from a full dose of Bupropion showed diminution of those moderate scores. At the same time, in the open-label study people lost almost 10% of their body weight in six month.

This is just a data from IMS showing that the majority of the markets female, the blue bars and of younger age, many of them child bearing potential. We think that there is well for our drug that does not have risk of iatrogenicity. So that segment of the market may prefer drug that doesn't have warnings for birth effects.

Quick mention for our second product Empatic, it's a combination again, of Bupropion plus the anticonvulsant zonisamide. Anticonvulsants are known to drive a significant amount of weight loss and together it's shown prudent efficacy data. It's completed Phase 2B studies and we're in the process now of clarifying exactly how we could develop that and get it partner ready as we go to partner Contrave in the rest of the world.

The some of the data that we generated quite some time ago now. We put this program on hold until we could see how regulators would deal with anticonvulsant where one of our colleagues drugs, and we've seen how the FDA has done and how the EMA has acted so far.

In a longer term chart, we saw weight loss continue on the Empatic arm. So again, we think has the potential quite dramatic efficacy. However, it will have the drawbacks of the anticonvulsants. So again, it has the risk of birth effects, and has some cognition issues on the anticonvulsant side, that hopefully are diminished by the addition of Bupropion.

I couldn't emphasize resourcing enough. I mentioned that it's going to take abilities markets and to really grow the markets, typically when people launch primary drugs base, they try to reach. But the people who write large numbers of diabetes drugs, dyslipidemia drug, hypertension drugs, it's about a 90,000 physician audience that you really want to try and target and reach effectively.

And so that takes a significant amount of commercial resources, not just the sales reps, then it also the managed markets team, it's also the commercial analytics team. So there is a whole army that need to be brought to bear for a solid primary care drug launch. When we did our North American partnering deal, we led partners compete on the basis of who could commit to resources.

And our contract, this is really important with Takeda does not just have the usual commercially reasonable efforts or best efforts in the launch, we were able to get specific contracted obligations for numbers of primary detail equivalents, dollars spend, where contracts fits in the incentive compensation plan.

So this is three-year commitment, then it reverts to the usual CRE diligence terms. This is a three-year resource commitment that is a typical primary care drug launch, and Takeda's got great experience here, commitment to obesity, create relations long-term in diabetes, very similar call pattern overlap with already calling, when they build the brand for ACTOS and now are getting ready to launch hopefully alogliptin early next year.

I just want to make sure the people understand that. The other important point is that Takeda owns the majority of all the commercialization cost. All the sales, acquired product from us, purchase the product from us and we have a small percentage of ongoing clinical trial cost obligation.

So once Contrave is approved, we're eligible for $100 million of milestones between a proven launch and then another $800 million or $900 million milestones with sales royalties that tier from 20% to 35%. So once approved, all the costs are borne by Takeda for commercialization. And of course, we're going to be on committees, et cetera, but this is not a situation where we have to find our way to success.

And wrapping up before questions, I think you can see that there is significant revenue of potential. We retain the rest of world rights. We're in a process now and to look and we'd like to combinate that deal around the time of our data from the interim analysis from the Light Study.

We've got significant cash. Our balance sheet is strong to get us through that data event and then negotiate a good deal in the rest of the world, $100 million as of September and additional $56 million in that proceeds from our recent financing. We've got a really experienced clinical advisory board on the Light Study and a great Data Monitoring Committee.

So we think we've got world experts are helping us oversee this. We've got an academic research organization, so that it can really be a goal standard trial and not be question in terms of the way we conducted the trial or the quality of the data. And then Takeda couldn't be a better partner for us in the commercialization in North America. And they've been terrific in all of our interactions with the FDA and all of our interactions planning for the commercialization, they've been absolutely terrific.

And our focused team that's got a lot of experience. And so far I think this last year we focused on execution of the Light Study and it's been going really well. So with that, I think there is five minutes left, there's any question, we'll be happy to take them.

Question-and-Answer Session

Unidentified Analyst

Maybe I'll start with the first, for Qsymia what do you think we're not seeing a bullish, we're not seeing the poll that I think maybe some of us were expecting to see, are patients not sufficiently motivated to loose weight to go out and find it or why is there some markets that's going to need time to build?

Unidentified Company Representative

I think there is a few things going on here, first, it's early. It's only been a handful of weeks. So I think judging any launch in the early stages is difficult. But there are couple of things, that are potentially handicapping. One, it is a market that has to be build. They have a restricted distribution system based on the REMS, because of the risk of birth effect. So I think that's much more cumbersome than a typical distribution system.

Second, to have a DEA scheduled drug and that adds to the complexity. And I think the two of those combined has some special complexity for drugs with reduced liabilities. We need to maintain chain of custody, you can't just have a friend pickup your script, it's a little more of a control distribution already.

And then third, its resources, it's tough to do a primary care drug launch with a small team. And so if you think about the size just to manage market teams in a big pharma company, it's 100 plus people. And that's a sales call everyday out for employers and payers. I think it's tougher for small team. But we're optimistic that the market needs new solutions. All of the drugs that are in late stage development are all very different mechanism. I think there is potential for all these, but we think we need to see simpler distribution systems. And I think we need to see more resourcing.

Unidentified Analyst

Can you help me to think about drop out rates in the Light Study?

Unidentified Company Representative

That typically in Phase 3, obesity trials about half the people discontinue, and they drop out. And the Light Study, if someone discontinues therapy for whatever reason, they're still in the study. So they still count. Their MACE events still count, so the intent-to-treat analysis is a relevant of typical drug. But now if someone says, I want to drop out, I don't want to be followed up, never contact me again, I won't answer your calls and I won't let you access my records. That's a problem in any cardiovascular outcomes trial.

We've done everything we can to minimize that. Dr. Nissans, the Chair of Executive Committee; Dr. Fleming, the Chair of the Data Monitoring Committee and they've been some of the biggest critics of missing data and safety studies and, they'll help us to everything we can to make sure that we get absolutely everything in the follow-up. So far on the study conduct basis, it's going well.

Yes. And it's early because two years out you loose more than six months. And if you think about we enrolled over 8,000 people within six months into the study, hardly anyone. So now it's the time to really motivate people to follow-up. Now, if you wanted to drop out and say hey, look I'm done taking blind of study drug. The next question is, okay, we'll still follow you. Can we call you once in month to just see how you're doing and most people would agree to that. And we put things in place to make sure people would agree to the follow-up.

Unidentified Analyst

Mike, you'd talked about kind of the formal dispute resolution process up to the Office of New Drugs for the Light Study design, which group did you agreed with? Did you agreed with for the current submissions strategy which is I think get the submission started in and then supplement with that additional data. And I'm underlining this question is who do you have buying from at the FDA if you escalate all the way up to that higher level.

Unidentified Company Representative

I didn't mentioned in the talked today, we've recently agreed with the FDA again through the dispute mechanism that we could resubmit for our approval with a six month to do for clock and then later after we made the resubmission during that six month clock throughout the interim data from the Light Study versus waiting for the data.

So it's a way to say potentially, three, four or more month in the review process. And the agency agreed with us at the level of Doctor Woodcocks office. So at the center level, so last time we were in during our dispute it was with Dr. Jenkins, the Office of New Drugs and our request was there we could be approved now in the post marketing commitment. And the answer was no, but here is clarity in the Life Study.

So than we reactivated that appeal on to the next level and Dr. Woodcock, through her deputy, Dr. Throckmorton heard that appeal and we came to an agreement that we could be efficient with the data as we already are with an interim analysis. And start to resubmission process in the administrative part of the process and then supplement the data.

So I think importantly, that means that from the level of Dr. Woodcock down, we've got alignment on that now. So we're going in to work the details out, we haven't done that, as of yet, but we're making progress towards that and as soon as we have the details, we'll tell you exactly what that means, and will let our investors know.

Unidentified Analyst

Thanks very much for joining us and then exciting year I had for Orexigen.

Unidentified Company Representative

Thank you.

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