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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

JPMorgan Global Healthcare Conference Call

January 8, 2013 1:30 pm ET

Executives

Michael Narachi – President and Chief Executive Officer

Analysts

Cory Kasimov – JPMorgan

Cory Kasimov – JPMorgan

Good morning, everybody. My name is Cory Kasimov. I’m a biotech analyst at JPMorgan. It’s my pleasure to introduce Orexigen Therapeutics, obviously a very big year for the company, upcoming with some pivotal data expected later in 2013. Here to tell us more about the story is the company’s CEO Mike Narachi and please note that following Mike’s presentation, there will be a break out just down the hall in the right in the Sussex room. So with that, I’ll turn it over to Mike.

Michael Narachi

Thanks and thanks for coming. I will be making forward-looking statements and I encourage you to look at our SEC filings either on the SEC web page or the Orexigen website and look at the risk factors regarding investments in Orexigen.

2013 is going to be a pivotal year not just for Orexigen, but I think lots of new information is continuing to come in the overall obesity space with the new entrance. For us, finalizing our submission path, we had a press release recently with some progress we made with the FDA following a dispute resolution, a meeting with the review division, they clarified a path be efficient with the data, I’ll talk about that later in the talk that would then – with that clarity now, we know exactly what to do when we get our data from the Light trial that takes us through an interim analysis or resubmission. We also plan a European submission this year and major progress on commercialization partnership in an important transaction for us, for rest of the world.

I'll talk a little bit about the obesity prevalence. We all know it's a global healthcare epidemic, it's a big problem. But let's focus on the lower right hand quadrant of the slide, this is our budget problem in the United States, but look what’s really driving the percent, the spending as the percent of GDP its our healthcare. And the major driver of that dramatic increase in cost that’s unsustainable overtime is chronic illness. And most of its preventable chronic illness and obesity is at the heart of this. And I think this is important to recognize, because the recognition of this is growing, and it’s causing inevitability of change.

A lot of you have asked us, what's going to be this time about obesity therapeutics? Why are they going to be big? Why are this going to be sustainable? Why isn’t it going to be a blooming bud? This is a big part of the issue, because now I think many things, many forces are combining, political, socio-economic, personal economic, and medical forces are combining to say we have to do something about it to address this epidemic, and multi-factorial approaches are being tried, here are just some examples.

The Affordable Healthcare Act typically were allowed to charge a differential price for controllable factors of about 20%, the ACA lets you automatically now take it to 30% differential pricing. And it gives a secretary of the discretion to allow employers to take it to 50% differential pricing, that's a big deal. And now when you can exclude people for pre-existing conditions, people are going to use differential pricing for healthcare.

Most large employers already have wellness programs with barometric spending related to obesity. That trend is increasing. We had early programs from companies like Safeway that use character and stick type programs. The state of Alabama charges state employees extra money if you are a smoker and extra money if you are an obese employee and not trying to lose weight. I read yesterday in the U.K. Guardian, they are thinking about for the people that are on the [inter gent] programs, housing and food support that if you're not compliant with the diet program, it’s been prescribed by the doctor, they are going to lower your payments from the government.

So this is happening fast. In 2011, there was a bill in front of Congress addressing obesity. In 2012, there were two bills addressing obesity, this specifically called out how to pay for prescription drugs. I expect more of those bills and perhaps success, trying to get rid of the medicare exclusion, et cetera. So this change is inevitable and it's coming fast.

Contrave is poised to deliver. The path to approval has been clarified through a number of dispute cycles with the FDA. We then capitalize the company to fund the Life Study, which is a large cardiovascular outcomes trial that’s required pre-approval for us. It’s an event driven trial and non-inferiority trial. The probability of success for that study we think is very high, and I’ll talk a little bit about that today.

And then path to commercial success I think is clear, large growing market, lot of unmet need, limited competition, and we have a partnership, a fantastic partnership with Takeda, that’s going to bring not only the skills, but essential, high levels of resources to the commercialization effort.

Talk just for a minute on the Light Study, I won’t dwell on it much, because we’ve talked a lot about this over the last nine months. The complete response letter that we’ve received after the full NDA was reviewed and Contrave identified a single approval deficiency and that is exclude a certain amount of risk. Turns out they want us to exclude a doubling of risk for Contrave. So the Light Study designed as a large cardiovascular outcomes trial focused on Core MACE, heart attack, stroke and CV death and we need to exclude that doubling at the interim analysis as a gate to approval.

The probability of success of the Light Study we feel is quite high based on a few things. One the history, the drug that was of concern was bupropion in the combination of Contrave with bupropion and naltrexone, because it’s a sympathomimetic. It has a slight change elevation in heart rate and blood pressure in a benign background. If you lose weight, your blood pressure goes down from base line, but still it has that sympathomimetic property.

So the FDA has a general concern about sympathomimetics and the sibutramine experience with the SCOUT trial elevated that concern. They asked us to do study pre-approval, we disputed that. We ended up not winning that argument, but getting clarity on exactly what we needed to do. We made the approach to this as efficient as possible.

Bupropion has been well characterized, it’s been on the market for a long time, it’s been in over 50 million Americans. There has been lots of integration of databases to look for signals, none has been found. So this is a theoretical risk.

We then modeled lots of different studies and we design the study to be a real world test of safety if you use the drug according to what we predict to be the label. I think that’s really important, that lowers the risk, so only responders to Contrave therapy stay on or to therapy stay on the Light Study drug. So anyone who is a non-responder where you would only predict risk comes off-line with study drug, they’re still followed and they intent to treat analysis for the study, but you would expect equal contributions from people not on drug in terms of the event rates.

The progress of the study has been phenomenal, I'm really proud of the team how incredibly well they executed on the Light Study. We were given a very high hurdle for a pre-approval of small biotech company to overcome. And within six months, I think it's one of the fastest-growing large outcomes trials known over 13,000 people were screened, over 10,000 people enrolled, and we would expect out in the next week or so finalization of any one progressing the randomization of about 9,000 patients into the study.

The kind of patients we're looking for again and on-label population, so the result would be generalizable, but we move to the higher risk spectrum of the on-label population. So this population would be predicted to have about 1.5% annualized rate of heart attack, stroke or CV death. And the demographics of who we target and who we enroll came in very close, so our best prediction although it’s too early to tell is that we’ll have an event rate of about 1.5% per year.

If you model with that level of enrollment when will that 87th event occur between 1% or 2% event rate you see the orange bar here again it’s too early for us to tell, but patients are in, we're observing them, we’re capturing all the data and as soon as we have that 87th event it triggers the opportunity for us to resubmit.

The FDA recently proposed to us like I mentioned in the introduction from the re-division that instead of the usual pathway where you would get the data make sure the database is cleaned, an independent data monitoring committee staffs group to run an analysis, give us that analysis and then finalize the full clinical study report, the agency is saying let's work to be more efficient and faster in the review, and they’re allowing us to start the resubmission without that full report, but just the top line report from the Data Monitoring Committee, so that saves a couple of months. I think that's important, not just from the time, but it shows in clinician, and I think that's a change that we've seen across the board over the last few years.

Our trial on the Light Study or proposed label and our commercial approach all focuses on responders to therapy. This may have seem obvious, I think it typically happens anyway and any drug therapy, where a patient can tell if their responder easily, which certainly is a case in weight loss. But if you look at this chart, it's illustrious of any weight-loss program, whether it be a diet and exercise program or any other therapies. About half the people are good responders and about half the people are not so interesting responders.

If you take Phase III trials and look at the average, which is the point in the middle of this graph, and they subtracted from a similar chart for placebo with a different distribution, and that's not a very interesting result. The promise of a therapy for weight loss or any program is for the people on the right, and that's a pretty big effect size, if half the people are getting a good response, that's a good effect size. And those responders go on over a year to have meaningful weight loss, here you can see from our Phase III program, big proportions of patients over a quarter are losing over 15%, a quarter in that 10 to 15 categories. So the promise of efficacy is strong.

This chart tries to elucidate response rates because different manufacturers right now are using different cuts in our labels, the labels that have come out so far are a little bit different, 5% hurdles, or 3% hurdles, 12 weeks, 16 weeks, et cetera. Here you can see Contrave's efficacy from our core program, the core Phase III program. Well about half the people having the response of about double-digit weight-loss about 11.5%.

If you add a behavior modification program on top of that results get even better. And that's an important point, we have demonstrated that in this COR-BMOD Phase III, we put a program with a Light Study called weight made and we announced a study just a couple of days ago called the Ignite Study that also incorporates a program. We think strongly that if you take the pill and a program together you're going to get a lot better results more compliance persistence and it's a virtuous cycle, it's good for the patients, it's good for us, it's good for everyone.

The bottom box shows the different responder to definition 3%, but you can see whether it's between 50% to 70% response rates with and without programs depending on the cut. Interestingly all of the recently developed drugs have a similar kind of a 11% weight loss amongst the responder category, but there is different proportion of responders across the three different drugs. And I would propose that if you have the program to any of them, response rates would go up.

This chart, I won't elaborate just show you in the first plot that all other cardio metabolic parameters are moving in the right direction with weight loss. The one that didn't move and then typically doesn't move much with weight loss was heart rate, but for responders everything is moving in the right direction. And this is part of the story where we are all trying to medicalize obesity, the medical community is there, patient community is there, the sponsors are there, this is not cosmetic weight loss, this is therapy for important medical benefit.

The safety profile, there is a lot of information that we've already put out in plenty of disclosure forms, but profiles are consistent with the constituent drugs and Contrave bupropion’s history and naltrexone’s history.

Briefly on the Ignite Study, this is due to initiate soon, this is the unique study, it's a method of used trial, it's meant to demonstrate a few key questions that patients and providers may have. How should the drug be used? Who is it for? And what's going to happen if I try it? The Phase III trials don’t necessarily answer those questions for big important groups of patients because Phase III trials are typically constrained in their inclusion, exclusion criteria and even how they’re used.

Now that we have a better idea of the label, this trial will enroll a typical pharmacotherapy seeking population of patients, right age, BMI, gender et cetera. Willingness to change, I think that’s important, you have to be willing to change and probably have failed prior attempts; and then we are going to randomize couple of hundred patients some to usual care versus placebo I think I am on something, and the rest in an open-label fashion to Contrave plus, a commercially available behavioral modification change program.

And I think we’ll all be not necessarily surprised from a data standpoint, but the view of the efficacy here is going to be quite different than a placebo-subtracted controlled trial. Open label trials typically produce more weight loss and I think it will be nice to see a randomized comparison here. But we would expect 10% to 15% weight loss for the Contrave arm easily and the control arm we would expect de minimis if any weight loss potentially weight gain.

Our European submission plans have advanced. We submitted our pediatric proposal. We expect to hear who are [rapitor and co-rapitor] a centralized procedure of this month that will then trigger detailed discussions on the procedure for resubmission can we start it with, do we need to start it with or can we start it without the data from the Light Study and then add the data from the Light Study on questioning during the review. So that’s a key probably difference of a quarter or so. But ultimately we would expect an approval in the 2014 timeframe from the EU. So that’s great progress and we look forward to finding who our rapitor and co-rapitor are.

Our second product, Empatic, the only point I want to make here is we are doing some low cost high value work to make it partner ready and we would not initiate a full Phase III program for Empatic on our own. We would only do that on a risk sharing way with a partnership and it’s been included in discussions in our rest of world partnering process.

Switching to the commercial front, there is some key building blocks here for success, again large market, limited competition, great profile, and key resourcing and skill in the marketplace for commercialization of the primary care drug. A whole volume in the obesity market today is about market growth. There is a small percentage of patients that are actually treated of the 107 million potentially eligible patients in the U.S., only couple of million are treated with about 7 million or 8 million total (inaudible). The majority of that is phentermine.

There's been no promotion in this space for a long time, so now what we need to do with new entrance, I think it's going to fuel growth, and there is three key sources of growth, there is about 10,000, 15,000 physicians today who write a decent amount of phentermine, and the rest don't write at all.

So those physicians can write for more patients. Physicians who write a lot or the bulk of the cardio metabolic drugs in the United States, he just start writing, so those of non-writers today then he become writers, and then the duration of the therapy has been disappointingly short, and I think part of that the expectation has been set with prior launches. So now we have labels that say treat 12 or 16 weeks for therapeutic trial that’s a realistic timeframe, and realistic hurdles for success, and I think we're going to see duration of therapy increase. So we strongly feel that we can get a nice market growth over the first three or four years of Contrave's introduction and promotion is going to be a key part of that.

We unveil recent market research at an Analyst Day in New York in December, and I'll go over this briefly, but we spent over three years going through this just recently. We did a 1000 physician detail conjoint analysis were we look that typical prescribers PCPs, OB/GYNs and those. And also looked importantly at not only people who write today, enter in today, but a lot of the people who we want to become writers. And we asked important questions about market growth, adoption and preferences. We gave them the labels of the two recently approved drugs, and we gave them essentially the label that we submitted a while ago the projected label for Contrave, and asked them what they thought about the profiles.

Perhaps surprising to some of you because there has been this thesis that the highest efficacy wins, but this chart tells you that the totality of the profile or each drug about a third of the preference share, the totality of the product profile mattered. Safety, tolerability, access, convenience, knowledge, comfort all those things matter to physicians. This was amongst the whole 800 writers, when we look at the non-writers who make up the vast majority of the prescriber base that are going to build this market, who is different. These are people who don't like (inaudible), today, they don't write obesity Rxs. And they were very comfortable with the Contrave profile and I think the majority of the rationale for this is how comfortable they are with the wellbutrin and bupropion component. There are seven million Americans on bupropion today and these are the docs that write it.

So how do we get to those physicians? Typical adoption curve where you start with KOLs and early adopters and work your way down on adoption curve, that’s how and the key to this is promotion and re sourcing. Now a lot of work is being on the left-hand side of this chart today and I think with the Belviq launch that will also be true that’s going to be fantastic. And we all want to move this market to a larger number of physicians adopting obesity Rxs.

We also looked at, if you asked a physician who are you planning to use the products for. When you look that, we can look and toggle between many different patient types, gender, age, BMI, co-morbidities, here is just the few things that popped. When you look at males, the three drugs seem like their preference share was similar, but when you ask them what about females, the preference share really changed. There was less comfort with some profiles with females and more comfort with the Contrave profile with females.

This is important because the vast majority of the market today is female, like three quarters of the market of scripts aren’t females and most of them are younger childbearing age. I think this will change because the prevalence is identical in males and females, and so I think we will see growth in the treated population for males, but this is a historical trend.

BMI, this is the picture of bell shaped curve here between the lower BMI is on the left. The higher BMI is on the right. You see that the vast majority are in this middle BMI range between 30 and 40. And the green bubble is the size of the opportunity there in the preference. So you see Contrave being really strong in the majority of the BMI categories and Belviq and Qsymia are being preferred in still large groups of patients, I gosh it was 20 million on the left and 4 million on the right, but for the higher BMI more comorbid patient potentially you saw preference for Qsymia and a lower BMI preference for Belviq. But Contrave was always a close second in the categories where we didn’t win and in the big categories we had much stronger preference share.

Let’s talk about resourcing. I think this is something a lot of people miss. How important is it to heavily resource a primary care drug launch, and we are really happy with our partnership with Takeda. They were terrific in the dialogue when we consummated the partnership and we are getting ready for our launch. We had our setback with our CRL. They were right there with us, and helped us through the FDA discussions. They had lots of experience with outcomes trials and sales, lots of experience with DMET and just been a fantastic partner.

The deal set up basically to assure Contrave gets a great shot in the first three years with specific contractual commitments for heavy resourcing in those first three years. The royalties and milestones are nice. It basically approximates a value split between the two for late-stage of about 50-50.

I'll jump to a question all of you have asked us numerous times, how big is this going to be? This is not a sales forecast slide. This is what you need to believe one way that you can look at the market to believe how can get to a $1 billion. And so on the left hand side of the chart you just see diabetes physicians broken into dead tiles the top seven dead tiles, how many of them or and each of those dead tiles and they’re each riding about 10 million RXs in excess in each of those dead tiles responsible for about $10 million.

If you pickup just five RXs a month, 6% of the diabetes are excess, you can get to a billion this assumes, and again this is not a forecast nor a pricing disclosure, this model assumes a $5 per day growing annually a 4% to get just fix 33 in your six. So you can see its pretty easy just from take a small piece of the diabetes market and Takeda build act those into $3 billion brand, these are the physicians they called on, these are the physicians they are expecting them should to call on of how it looks and get approved to here in the next few weeks. And it's a perfect place for them to promote Contrave into.

A post approval cash flow gives us good visibility towards high revenue and profitability. This is unique perhaps or distinctive amongst many of the smaller cap companies, we've done this on purpose. We have a very small burn rate about 40 employees, the Light Study expenses are going down. We projected to end 2012 with about $130 million to $135 million, I guess it's a really strong cash balance to go through a critical process of the important strategic transaction for the rest of world with the data.

And it gives us a lot of runaway that there is a need for more time on that, or we want to pursue different geographies differently, et cetera. So the cash position today of the company looks strong and with the approval, cash balances start to grow with milestones and royalties, et cetera, with very little expenses Takeda owns all the commercialization expense for Contrave and we would expect the rest of the world partner not to increase our expense burn much at all if any.

So in summary, the Light Study interim analysis is the patients are enrolled, so now the events are occurring, it’s just a matter of time now and we’ll get those events that triggers a clear path to our resubmission. We feel it should be fairly straightforward to grow this market with promotion in three new entrance due to Orex. We think we have a great profile, it leads to a good preference share and if you are promoting it heavily, then you’ll earn even more than your fair share of the preference in the market share. Takeda’s skills and experience are fantastic, it’s great to have them at our side here in North American commercialization process and our post approval cash flow picture, I think is what a lot of you told is, you’d like to see and we’re the managing the company accordingly.

So thanks again for your support and attention today and we look forward to the breakout.

Question-and-Answer Session

[No Q&A session for this event]

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