Orexigen Therapeutics' CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Orexigen Therapeutics, (OREX)

Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Q4 2012 Earnings Call

March 13, 2013, 05:00 pm ET


Heather Turner - VP & General Counsel

Mike Narachi - President & CEO

Mark Booth - Chief Commercial Officer

Preston Klassen - SVP, Global Contrave Team

Jay Hagan - SVP, Corporate Development & Strategy


Charles Duncan - Piper Jaffray

Lee Kalowski - Credit Suisse

Steve Byrne - Bank of America

Marko Kozul - Leerink Swann

Matt Lowe - JPMorgan


Welcome to the Q4 2012 Orexigen Therapeutics, Inc. Earnings Conference Call. My name is Trish and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now turn the call over to Heather Turner, General Counsel of Orexigen. You may begin.

Heather Turner

Hello and thank you for joining us this afternoon. I am joined on this call by, Mike Narachi, Chief Executive Officer; Mark Booth, Chief Commercial Officer; Dr. Preston Klassen, Senior Vice President of Development; Jay Hagan, our Chief Business Officer and McDavid Stilwell, Vice President of Corporate Communications and Business Development.

Please note that all of the information discussed on the call this afternoon is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call, the company's management will be making forward-looking statements. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's press release and the company's SEC filings including the Form 10-Q the company intends to file this week.

The content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, March, 13, 2013. Orexigen takes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I will now hand the call over to Mike Narachi, Orexigen’s Chief Executive Officer to provide an overview of today’s call. Mike?

Mike Narachi

Thanks Heather and thanks to everyone for joining us on the call. Today Mark, Preston and Jay will provide updates on commercial preparation, development and finance. But before those updates, I want to comment on recent developments that have been making the news related to the macro environment for obesity.

As we know, obesity presents enormous challenges to healthcare systems and societies around the world. We discussed some of the macro environment changes that are taking place at our Analyst Day in New York last December. We include this topic in response to many people’s questions on how large or how important a role will drugs ultimately play in the struggle against obesity?

As you know we believe that safe and effective therapeutics can play a significant and in some ways enabling role in the overall approach to obesity, but we also believe that broader socioeconomic and policy solutions need to be developed and implemented to help maximize our collective gains. As such we follow closely certain topics that we predict will advance the overall site and help make inevitable changes in the way our society thinks about and adopts productive solutions to the epidemic.

Taken individually, these items make for interesting news headlines about chronic disease, the cost of healthcare and obesity, etcetera. But collectively, they indicate to us a trend and increase our optimism about the potential for a comprehensive approach to weight loss, where weight loss can bring or weight loss can become a cornerstone of cardio metabolic care and that obesity pharmacotherapy can play an important role.

Implementation of a comprehensive approach to a medical problem is not new. Similar broad changes occurred when war was declared against cancer or smoking. We believe these changes are already underway for obesity lets talk about a few recent examples.

Earlier this month, we read with interest that the American Diabetes Association provided Congress with an update that the cost of diabetes have risen 41% in five years to $245 billion in 2012, including a $176 billion in direct medical costs and $69 billion in reduced productivity. The ADA explained that this increase is driven by rising prevalence of the disease more than changes in treatment cost, which underscores the need for prevention strategies.

Importantly, we know that in two large randomized well controlled studies that moderate weight loss of just 4% was shown to dramatically reduce the progression of diabetes. This is a very important and encouraging result that we can use to motivate many constituents to actions. Today, employers play a key role in many coverage and access programs. More and more employers, particularly large employers are implementing wellness programs that provide incentive to employees that make progress against key health issues such as smoking and obesity.

Towers Watson recently surveyed large employers in the United States and Canada and over half of U.S. respondents are currently providing financial rewards for participation in health management programs and Towers Watson expects that number to grow to 80% in the next few years. Likewise, the use of penalties is more than doubled over the last eight years from 8% to 19% and is expected to double again in the near future to more than a third of employers using penalties to drive compliance with wellness programs.

The Affordable Care Act allows employers to implement wellness programs with pricing differentials of as much as 30% and a target, a target the administration can raise to as much as 50% providing an incentive system to employees who meet certain health goals. Many of these programs are focused on body mass index; we believe pharmacotherapy can play an important role in helping employees succeed in these programs.

It’s also noteworthy that a leading consumer company such as Coke is now running advertise aimed at “Reinforcing its efforts to work together with American communities, business and government leaders to find meaningful solution to the complex challenge of obesity.” Coca-Cola, the world’s largest beverage company is now calling obesity the issue of this generation and these as of course follow actions taken across the country by public schools, cities and other institutions to focus on healthier food choices.

Many of you have asked about reimbursement for weight loss drugs and health plans; we’ve seen early progress in the market today in private payers and we expect more to follow. For public payers, there is a strong argument to overturn the current exclusion for Medicare Part D reimbursement of weight loss drugs and our view this is outdated in light of the emerging view at obesity as a serious medical issue. And while Medicare eligible patients are not likely to make up the significant portion of the patient seeking obesity pharmacotherapy, the Medicare system currently is being burdened with soaring cost of diabetes and other obesity related health issues.

Obesity related legislation was introduced in the last Congress to change the current exclusion policy, address coverage of behavior modification and to coordinate efforts of governmental agencies and we are optimistic it will be reintroduced in this Congress. There is growing bipartisan supporting Congress to find new ways to address the obesity epidemic in general. We will continue to monitor these and other important developments in the macro environment and keep you posted as appropriate.

And finally, we have been asked many times whether the extremely rapid enrollment of the Light Study last year has assigned the physicians and patients are eager for new therapies for weight loss. Yes, we do believe the interest with this last year is a strong and positive signal for this therapeutics space. However, I also want to point out that successfully screening more than 13,000 patients within seven months is also a testament of some great work of our small team at Orexigen and to the terrific investigators and numerous partners who worked so diligently together. We saved more than a year from our projected enrollment timeline and I am incredibly part of their work.

Our focus now is on planning the commercial launch of Contrave in the ongoing conduct of the Light Study and its outcome. We are working intensely with our North American partner Takeda on a comprehensive Contrave launch plan. As Mark Booth will elaborate, a primary care launch is a complex operation and we are fortunate to have an experienced, skilled, commercial partner, Takeda.

After Mark, Preston will talk about how we are assuring that the Light Study is running according to very high standards and the preparations of U.S. and EU regulatory submissions then Jay will cover the updated financials.

I will now turn the call over to Mark for a commercial update.

Mark Booth

Thanks Mike. We are working extremely well with our Takeda colleagues preparing for a potential Contrave launch and we feel our partnership with Takeda is critical and differentiating in very meaningful ways. With Takeda we have partner that’s strongly committed to Contrave and willing to resource the product at the levels we believe necessary to successfully commercialize Contrave in the primary care market.

Now along those lines, the partnership includes commercial commitments in terms of sales costs and marketing spend. In short, we plan to be able to effectively reach over 50,000 physicians and support that effort with a comprehensive and integrated strategy that includes sampling, medical education, managed markets and patient support programs just to name a few.

As many of you probably know, Takeda has a history of success in US primary care Actos and Prevacid and we are confident that Contrave will benefit from that experience. Many obese patients also struggle with diabetes and we are pleased that Takeda understands the diabetes market so well based on their history with Actos and now the (inaudible) family of products.

We believe they will be able to leverage this expertise as they market Contrave. Like obesity, diabetes is a rapidly growing market that's challenging our society and breaking the healthcare bank. From an environmental standpoint, we feel like things are at a tipping point and that weight loss is to become a cornerstone of cardio metabolic care.

The Takeda partnership is critical because no drug sells itself. You need the right strategy backed by experience, resourcing and infrastructure. Takeda checks all those boxes. In addition, you need a receptive market and of course the right drug that metes market needs. In terms of the market, the obesity market is large, growing and vastly underserved.

Today, there are about 107 million obese Americans yet only 2 million are being treated with pharmaceutical products. Our market research suggests that the market will continue to grow and that the number of patients treated will increase three to fourfold over the next five years.

This growth will be driven by effective new products and the need to treat as evidenced by the skyrocketing healthcare cost I mentioned earlier. Lastly, based on our data we feel Contrave is a very attractive profile that could position it extremely well in the market.

Our market research which we unveiled at our Analyst Day event in December reveal that Contrave had a leading preference share and it performed well in key patient segments like female patients who make up the vast majority of patients seeking treatment today, patients with BMI of 30 to 40 who represent about two-thirds of the market and the obese diabetic patient which of course plays very well into Takeda’s strengths.

To close, Orexigen and Takeda are firmly engaged in preparing for potential launch at every level. There's not a week that goes by that teammates from either side of the partnership are not talking or meeting face-to-face in Sand Diego or Deerfield and I look forward to providing further updates as things progress.

Now, I'll turn the call over to Preston for development update.

Preston Klassen

Thanks Mark. As Mike mentioned earlier, with Life Study enrolment complete we are now focused on continued rigorous execution of the trial with a very high standard for data integrity and study conduct. We are collaborating with independent academic experts of the highest caliber including Dr. Steve Nissen who heads the executive steering committee and Dr. Tom Fleming who heads the data monitoring committee. To-date, feedback we have received from these committees is that study conduct is going very well.

As we announced in January, we have gained clarity on the details of what specific trial information FDA will accept in order to begin and complete their review of the Contrave NDA resubmission. The FDA’s DMEP has proposed a resubmission procedure that would allow the independent data monitoring committee a summary report from the life study income analysis to form the basis of the resubmission of the Contrave NDA.

Week clinical study report for the interim analysis which would ordinarily form the basis for the NDA resubmission filing will be provided to FDA during its review of the NDA within 60 days of resubmission. We are also planning to submit the Contrave MAA in Europe this year. Our repertoires have not been yet assigned and once they are, we expect to meet with them and to discuss the submission timing and planning.

I am pleased to report that with the life study enrollment now complete, the final patient population reflects closely the characteristics we were targeting and which we predict would provide an event rate between 1% to 2% MACE per year. For example, the age, gender split, proportion with known cardiovascular disease or diabetes and other cardiovascular risk factors is predicted based on the epidemiological modeling to be sufficient to produce an event rate that is in line with our agreement with FDA.

Now of course the absorbed MACE rate may differ materially from these epidemiological models, and we do not yet have information on the actual observed event rate from the DMC. We do receive many questions from investors regarding the interim analysis and what information the company will receive. So in this vein, I think it's important to describe what information about the trial that Orexigen as a sponsor will or will not have direct access to as the study is conducted.

As we've seen with the number of previous high profile clinical trials, sponsor access to trial information can impact the perception of trial integrity. We've agreed with the data monitoring committee that they will oversee event rate information in the study.

This separates the company and others who are conducting the trial from information that might be viewed as informative to the overall result and could be seen as biasing the conduct of the trial. We will be interacting with the DMC periodically as the trial progresses.

The DMC will communicate with us when much information is available to understand whether the trial was on track for the timing of the interim and final analysis. Importantly, our definition of on track relates to our ability to get to the interim analysis results and file a resubmission in the second half of this year. Across a range of potential event MACE and other important assumptions for pulling in the data in the timely fashion for getting the data adjudicated, cleaning and locking the database etcetera.

Most of the scenarios with event rate assumptions in the 1% to 2% range predict resubmission in the second half of this year. However, the event rate is at or near 1% that could move resubmission out early 2014.

As of today, the data monitoring community has not had enough information to be able to indicate anything related to timing. In addition to life study and our focus on the regulatory approval process in the US and Europe, we are currently conducting an additional small clinical trials approximately 240 patients reignite study.

Leveraging the enrolment infrastructure that was created for the light study, we completed enrolment into ignite in just three days, which is another enrolment accomplishment. Ignite is an open label, randomized clinical trial evaluating Contrave in conjunction with a commercial available interactive telephone based comprehensive behaviour modification or Life style intervention program and comparing that regiment to usual care for the treatment of obesity which typically only consists of modest physician based instruction to patients.

The ignite study enrol the population that closely reflects the demographics of patients who have traditionally saw obesity pharmacotherapy in the United States. We expect that the ignite study should serve as a useful, method of use model for publication and subsequent development and research.

Finally, I would like to talk a moment about the behavioural modification for weight loss and weight maintenance programs. We are developing experience with the host of modality for delivering behavioural modification, which we believe will be important for patients given their different preferences for engagement.

The objective is to continue to ultimately provide a behavioural modification program or programs that can be easily and effectively combine with Contrave pharmacotherapy.

In Phase 3, we employed a comprehensive program with face-to-face counselling. In the Life study, we employed a different more scalable internet base modality to deliver behavioural modification through education tools and an interactive coaching. The ignite study we wanted to generate additional experience and we selected a third modality for delivering behavior modification as we prepare for commercialization, this one employing a telephone based interactive counseling system.

We think investigating this different modalities of behave the modification in clinical trails will provide important information to maximize the effectiveness of Contrave in the commercial side. I will now turn the call over to Jay to discuss our financial results, Jay.

Jay Hagan

Thanks, Preston. Our financial results are available in the press release which is posted on our website. For the three months ended December 31, 2012; Orexigen reported a net loss of $32.5 million or $0.41 per share as compared to a net loss of $4.3 million or $0.09 per share for the fourth quarter of 2011.

Total operating expenses for the fourth quarter of 2012 were $33.3 million compared to $5.2 million for the fourth quarter of 2011. This overall increase in operating expense reflects the increase in R&D expense associated with conduct of life study. For the year ended December 31, 2012; Orexigen reported the net loss of $90.1 million or $1.27 per share as compared to a net loss of $28.1 million or $0.58 per share for 2011.

Total operating expense for 2012 were $93.7 million compared to $32.3 million for 2011. This overall increase in operating expense reflects the increase in R&D expense associated to the conduct of life study.

As of December 31, 2012; Orexigen had $78.3 million in cash and cash equivalents and additional $59.1 million marketable securities for total of $137.4 million.

Cash burn for 2013 is projected to be between $70 million and $85 million where total burn dependent on the timing of the life study interim analysis and associated prelaunch expense. Regarding our guidance for 2013, the higher end of the range of cash free guidance is driven primarily by the incremental spending required to manufacture the launch load and related drug product inventory that is gated to the timing and interim analysis. This drug product material as well as all future direct manufacturing costs would be reimbursed by Takeda upon delivery.

In addition I want to remind everyone that if Contrave is approved, Orexigen is eligible for milestones of $100 million between approval of first commercial sale, after approval Orexigen will receive royalties on net sales of 20% to 35%, and sales milestones of up to $900 million. Takeda is responsible for all commercialization costs as well as the majority of post approval development expense. We retain the right to co-promote Contrave in the United States subject to certain terms and conditions. We like this overall strategic and financial profile.

On the business development front, we are engaging potential partners for the rest of world rights to Contrave and Empatic. We expect this process will be competitive and are working to culminate a deal following the positive interim analysis and related regulatory derisking; when we believe we would maximize potential deal terms. On the investor front, we will be presenting at a few upcoming conferences including the UBS, (inaudible) and Jeffries conferences in May and June.

I'll now turn the call back over to Mike for closing remarks. Mike?

Mike Narachi

Thanks Jay. 2013 has the potential to be a pivotal year for Orexigen. If events occur as expected we should receive interim data from the Life Study facilitating filing this year in the US and Europe with potential approvals in 2014. We are working closely on commercialization planning with our North America partner Takeda and we expect to make progress towards the rest of the world partnership to enable our products to be brought to markets around the world.

I look forward to updating you as the year progresses and with that we would be happy to take your questions. Operator?

Question-and-Answer Session


(Operator Instructions) And our first question comes from Charles Duncan from Piper Jaffray.

Charles Duncan - Piper Jaffray

Mike I'm kind of wondering in terms of the disclosure plans when you do hit that interim analysis if you've finalized plans along those lines and if the agency is suggested to you whether or not you’ll be able to get some actual data or do we need to wait and see if the actual re-filing of the NDA until you disclose that.

Mike Narachi

Yeah, thanks Charles for that question, it’s a question we often get and I think it is important. I'll just reiterate a point we made today about making sure we are running the trial to very high standards in terms of study conduct and maintaining study integrity. It is although we are doing an interim analysis; the trial is continuing to run through the final analysis in a blinded fashion.

So, it’s important and typical that interim results are not why we disclose or discuss, because it does have the potential to invoke criticism of biasing ongoing study conduct. So I think that the academic point of view is that those results would not be broadly disseminated obviously, when we resubmit we would be resubmitting knowing that we hit pre-specified hurdles for safety that the FDA laid out very clearly to us in numerous correspondences.

So right now I would say the default is that we would receive a top line report from the Data Monitoring Committee and assuming that that hits the pre-specified hurdle, we're within those hurdles, we will resubmit and we will be making that announcement. Our preference would be to not say anything else about ongoing study conduct and disclosure of detailed results.

However, as you mentioned, we're waiting to hear how FDA plans to handle that in any of their disclosure practices such as pathogens or summary based approval etcetera. So we will keep you posted; we had heard nothing new; and you’ve heard what our preference would be for maintaining high-quality study conducts.

Charles Duncan - Piper Jaffray

Any thoughts on when you might get clarity on that. Is that something in the next few weeks or do we have to wait until you basically have the data to know what the FDA would require?

Mike Narachi

Our queries to the agency on this subject have resulted in a reply that they are well aware of the issue that they have had numerous internal meetings and continue to debate this internally but we do not know the timing and this issue is bigger than the Contrave issue. It's a broader issue, general topic that they are addressing.

Charles Duncan - Piper Jaffray

And then, I appreciate that you don’t have any information on the actual information of events that have occurred, but do you have a sense of the estimate of the percentage of possible events versus the actual, are they inline with your original expectation?

Mike Narachi

So far, based on modeling everything inline with our original expectations. I think what you are pointing out is that our team submits suspect events, suspect major adverse cardio vascular events to an adjudication committee. Obviously someone here knows how many of those suspect events have been submitted for adjudication, but we don't know how many of those were adjudicated affirmatively as MACE or not. So that information all by itself isn’t fairly helpful, but everything right now that we know of is going well within the ranges that we laid out.

It's just too early even for the data monitoring committee who has all the information, who meets periodically and then we periodically have clinical cut off points where we gather data, clean it and submit it to them, which is too early. If you look at the modelling within those ranges and there’s just not enough information to nail with any certainty where we are.

But soon in a subsequent Data Monitoring Committee meeting they should have a lot more information and we’d be able to get a better idea whether or not we are on track from DMC at that time.

Charles Duncan - Piper Jaffray

And then my final question if we could fast forward to the commercial to the area of commercializing Contrave; you mentioned that Takeda is currently planning and targeting 50,000 physician type outreach level and the other folks that are doing work in a space are targeting around 20,000. So I guess I am kind of wondering what you think is different here in terms of a strategy or why there is a difference in strategy is that over kill, is it a belief and where the market could go or does it really represent a different market?

Mike Narachi

I let Mark take the question, but I just want to add a clarification. We have said that the plans and the commitments that are in our collaboration agreement with Takeda indicates that they will effectively cover at least 50,000 physicians. So I just want to clarify that it’s not a direct point estimate, Mark do you want to take the broader question.

Mark Booth

Sure. I think our strategy is always been to make Contrave a blockbuster type drug. We needed to approach it like a big primary care launch, much like you would a diabetes product. To put in to perspective there are about 90,000 physicians that’s our [street to tend] they write about 85 million diabetes scripts per year. Now I don't think we are going to call on 89,000 physicians, but if you are only going to call on 15,000, 20,000, 25,000 physicians you are really going to limit your potential.

Right now the market needs to be developed, but we just really feel that doctors that might not be writing a lot of obesity scripts now, but are writing a lot of drugs for diabetes and hypertension and cholesterol are going to be outstanding candidates for a drug like Contrave and again to make the drug the big drug, we feel we have to call on those targets that is our approach.


Our next question comes from Lee Kalowski from Credit Suisse. Please go ahead.

Lee Kalowski - Credit Suisse

I do have a few. For the first one, I am little bit confused by the press release and the commentary. So if I look at the reading of the press release it says that the unbinding might potentially or the resubmission may potentially happen in 2014, and on the one hand you said in the past that a 1.25% of run rate could put the timing in Q4 but on the other hand the language does seem pretty different from what you guys were saying in for example the January 7th press release. I guess just to be absolutely clear, has anything changed since then on the timing?

Mike Narachi

Yeah, thanks for the question Lee and the opportunity to clarify. We didn't mean for it to be completely obviously. The short answer is no nothing has changed. I think the clarification we were making there is simply just doing the math for you. If the event rate, the observed event rate is actually closer to 1% then that could push the timing of the resubmission into early ’14; that's really all we are trying to say.

So we've been targeting between 1% and 2% and making assumptions based on modeling that's about the middle of that range which puts it clearly in the second half of this year. So what we are doing is clarifying that if the observed event rate ends up at the low end of that range of that near 1% that that could push it into 2014.

Now keep in mind that this modeling or projections that we make is not a hardcore precise science either. From the day, the 87th or the final event occurs there are many, many other things that have to happen which take a variable, but projected amount of time; how long is it going to take to actually get the data to the adjudication committee. The adjudications are happening rapidly and obviously we can help make sure that the final adjudications happen very rapidly. And then the timing that it takes to run the analysis, the timing that it takes the DMC to look it over and give us a report and then the timing it takes us to read that report and put it into the resubmission.

So that all has a certain set of assumptions around it. So all we are really doing here is just making sure that you and other investors understand that should the actual observed rate be at the low end of that range at or near 1% then the timing could be delayed into early ’14; that's all we are saying.

Lee Kalowski - Credit Suisse

Okay. But nothing has changed as far as you are concerned or as we should be concerned that you are still in the middle of that range?

Mike Narachi

No nothing that is changed and we also wanted to make sure we clarify that at this time and actually all the way through the interim analysis, we are not going to be in possession of event rate information per se. We have agreements with the Data Monitoring Committee to keep us updated so we can run our business with respect to timing and we've given them the range and on-track for us means we are going to submit in the second half of this year to say based on models I think that that won't occur and no that is no. So that's all we are doing.

We are just clarifying because we've gotten so many questions from investors around timing; we are doing this trial perhaps a little differently than others have run these studies in the past. We are following the advice of our committee, the Data Monitoring Committee and the Steering Committee to not be privileged with the information on event rate so that we are immunized if you will to subsequent potential criticism that that information could have biased the outcome of the trial.

So we are just trying to run the trial in a very high integrity way to maintain data integrity all the way through the final analysis. And so we don't know what the event rate is. All we know is who we enrolled. They are very clearly within the demographic targets that we aim for and modeling predicts their event rate to be right in that 1% to 2% range.

Lee Kalowski - Credit Suisse

Got it; I mean that’s helpful and I appreciate that. Shifting gears a little bit, one thing you mentioned was that you've been talking to your partner Takeda every week and obviously in January they got Alogliptin approved or the family of products in that category. Does that approval change anything as far as the dynamics are concerned for how they plan to market Contrave?

Mike Narachi

Yeah, I am sure it does; I mean it’s obviously positive development for us and for Takeda; all that Mark talked about, you know, how that might fit in, but we've always thought that Contrave and weight loss can be a cornerstone of cardio metabolic care and if you are selling something that’s in that cardio metabolic disease platform, for example, and in fact to say diabetes therapy or portfolio of diabetes therapies, then the two together; Mark, do you want to talk a little bit about how you are seeing on the ground in terms of the impact on Takeda?

Mark Booth

Yeah, sure and obviously these decisions are still being made but one thing I can tell you is that Contrave and NESINA exist in the same business unit, so you’ve got people sitting around, working on synergies, trying to figure out how to maximize both products while we haven't put the sales force up, footprint together yeah, I think there is probably a reasonable chance that the same sales rep will be selling both of those projects together and so that sales force would be on a diabetes obesity footprint, which I think gives us a real strong competitive advantage over the other drugs in terms of that obese diabetic patient.

You can see, I think one easy example, you can see synergy and opportunity as they have a key opinion leader speaking on NESINA there is no recent key opinion leader can also talk about Contrave in that same presentation and vice-versa. So we again, we see this very synergistic; we were thrilled that the NESINA family of products got approved and we see it as only upsides for Contrave.

Lee Kalowski - Credit Suisse

Okay, thanks. And I guess one last question and I will get back in the queue. So one other things we have seen with obesity agent in the market is that they have resorted to putting a cap on the out-of-pocket expense, is it your expectation that if Contrave is launched that you have to compete on price, especially for your reimbursement it still and say the 20% range for 12 months from now?

Mike Narachi

Yeah. Mark why don't you go ahead and take that question on reimbursement and pricing coupon?

Mark Booth

Sure. I don't think it's, we will work out our pricing, I don't know what we will figure out what price we think is right for Contrave, we will obviously consider where the other guys coming but we will also price independently of that.

I think you will see and make sense to have tactics in place to make sure that the patient has every chance to have a good experience especially that first three or four weeks on drug because of that patient is experiencing weight loss and feeling good on the product. I think your (inaudible) rate we will go lay down certainly that’s what history shows.

So I think we will focused on that but on the reimbursement front I think you just going to see the reimbursements picture get better and better that account in (inaudible) where they were both out there being marketed at about a 40%, 45% reimbursement coverage and I think you have see some successes already from our colleagues over Vivas and I think that picture is going to continue to improve is demand build with the new products and the value of weight loss continues to be illustrated. So I think you are going to see that reimbursement and coverage fixture get better.

Mike Narachi

Yeah, Lee this is Michael. I have one point to that. Mark has often said one thing that key for reimbursement in demand and the way many companies build early demand so that you don't end up with the chicken and egg phenomenon, its sounds like for primary care and obviously its challenging under some circumstances to sample depending on like the restricted distribution system or DEA controlled substance have special challenges to sampling, we don't expect those challenges to be there for Contrave and sampling is the classic way that you can help patients get a filament without feeling that early crunch prior to being able to get all the reimbursement access coverage programs in place.


Our next question comes from Steve Byrne from Bank of America. Please go ahead.

Steve Byrne - Bank of America

I was wondering if you have been notify as the reflector and co reflector for your potential and then eight filing whether your outlook for that might be to file ahead of the interim data?

Preston Klassen

Yeah, this is Preston, I can take that, and we have not heard the (inaudible) we do expect a year of those appointment soon and as soon as do we will of course be scheduling interactions with both of them to talk about that over a planning and timing. And the development program up to including the completed phase 3 program itself should be sufficient as package for M&A submission and so it would be our assumption to submit, when already after the discussions we have to (inaudible) and be at a position to provide the interim results for the life study during the review, but we haven't had those full discussions and plan times at this point, so we just wait for the assignment.

Mike Narachi

Yeah, Steve just a put a fine point on that, we do know from informal interactions actions that the team had with three separate European authorities that already is that there is a high desire for cardiovascular outcome data to be provided in order for them to complete the review. Our goal is to submit without it but time the submission such that during the review the interim data would be available. So we are still on that window and as soon as those are signed we would be able to get specific and explicit educations of support or not for that strategy but that is our base case assumption that we've got an adequate incomplete file and we would time that file so that we are confident the interim data would be available to answer questions around CB safety.

Steve Byrne - Bank of America

And Mark, what's your estimate of how many reps Takeda will likely put on a single product platform and also wanted your thoughts on whether you think its sufficient for them to derive synergies from having both products to sell the Contrave and then the single products or whether you think there's some merit in a more formal combination study?

Mark Booth

To answer your first question it’d inappropriate for me to talk about how many reps that went to put on the scene. I think that they probably hope that that information confidentially. It definitely as I talked about I think there's going to be tremendous synergy between Contrave and the (inaudible) family of products and yeah I think its really interesting to take a look at potential follow on studies if that's what you were referring to about you know how would Contrave perform in obese diabetics when used with the DPP-4, would you see better HbA1c results and weight loss in such a situation. I think that's a very interesting topic that warrants further exploration.

Steve Byrne - Bank of America

And then a quick one for you Jay, share count at the end of the quarter and you mentioned the upper end of the cash burn range for the year had to do with some inventory build potentially at the end of the year, is cost of goods going to be a line item for you in longer term?

Jay Hagan

Yeah, so we would anticipate being reimbursed for that launch load which really drives the majority of difference in the range from $70 million to $85 million. Its just a function of timing when that launch load is complete and received by Takeda then the payable would be paid back.

In terms of how we account for it we haven't provided any guidance on that but we are working through that with Takeda and our manufacturing agreement we have in place with them. And then your first question on the shares outstanding which would be in our --- this is in our press release its $84.4 million.


(Operator Instructions) Our next question is from Marko Kozul from Leerink Swann. Please go ahead.

Marko Kozul - Leerink Swann

I wanted to start by asking about expenses associated with building the obesity market which appears to be a growing theme. How do you think about this broadly and do you have any updates or updated thoughts on a number of reps Takeda might put behind Contrave as well as additional resource and spend?

Mike Narachi

Yeah, thanks for the question Marko. Our role here in commercializing Contrave in North America is mostly as far as expenses in the pre-approval setting where we own a 100% of the expenses. There are things that are happening now in the market and as we get closer to launch there are things that Takeda will do and is obligated to do as far as prelaunch activities and is motivated to do. Some of the other things that we are doing help on policy reimbursement fronts are very small cost items and they are all embedded in the cost estimates for the year that Jay already outline.

So I think we have some lower cost, high value things that we are doing, such as incorporating behavior modification in three different modalities, in our development program and demonstrating those results in publication studies. Publication of current data and then policy brought in the forms that we participate.

The bigger spend, I think the pharma companies are going to take on their share of expense with launching the products and doing awareness etcetera, and as I noted in the introduction of the call today, I think there is an enormous movement under foot to do lots of things. Most of the expense, there is going to an educational awareness campaign like we've seen in other diseases, so I think the agencies will bear the brunt of.

So I hope that addresses your question on the spend side. On the rep side as we've indicated in the past and Mark said again today, what we are telling investors right now is that the Takeda will effectively cover at least 50,000 targets or physicians, and the details of our partnership agreements specify how many calls will be made, not how many reps. I think it's more effective actually to know exactly how many primary details equivalents will be delivered than how many reps because that’s the actual metric that you want to follow and so that’s what we pre-specify but have not disclosed from our contracts.

Marko Kozul - Leerink Swann

Mike, that’s helpful. I wanted to then ask if you could describe some of trends that you are seeing, aimed at overcoming the Medicare party, obesity, pharmacotherapy exclusion that you referred to you in your opening remarks.

Mike Narachi

Well, again, I think the trends we are seeing are broad by parts and support to do something about obesity, high awareness on the Hill, that chronic disease is the driver of the growth and healthcare cost projections into the future and that obesity is a core driver of those cost related chronic disease. So there is broad support generally, there have been bills introduced to the floor in the last Congress. We know there are others being worked on and we expect another one to come forward from this Congress.

Again I think that’s more of a bellwether than a direct impact on the market because a small proportion of the current market will be projected to be Medicare eligible patients. But it's really important, it's a bellwether for other private plants etcetera and it's odd, in my opinion it's odd that we have such an epidemic and a problem yet, the public payment system from the federal government actually formally exclude payment for obesity therapies that are FDA approved. We think that’s odd, we are one of many voices in support of changing that and let’s see what's happen as the year progresses.

Marko Kozul - Leerink Swann

Alright and finally congratulations on making progress with your Empatic related regulatory discussions. I was wondering whether you’ve considered keeping the drug proprietary and what you estimate the development expenses might be for phase III studies or at least what kind of partnering you might be seeking? Thanks.

Mike Narachi

Yeah thanks for the congratulations that was useful to get couple of those things very precisely clarified by the agency. Right now Empatic is part of the rest of world dialogue for commercialization, so to the comment on proprietary, I guess the short answer is yes, we thought about retaining some rights to that for example North American rights. But we also have said that we wouldn’t go ahead and put it back in to development and bear the expense of $100 million to $150 million development program for phase III without risk sharing or cost sharing from a commercialization partner.

So that's what we know so far, and I guess stay tuned. It would be important to know that the dose of bupropion and the [Empatic] is the same dose that’s in Contrave. So positive results from the interim analysis that we believe are also important to know before you would we do anything. So once again the data from the life study is gaining.


Our next question comes from Cory Kasimov from JP Morgan. Please go ahead.

Matt Lowe - JPMorgan

It’s Matt Lowe in for Cory today. Just a quick question, I know it maybe difficult to say precisely but assuming everything goes to plan and on the Contrave NDA has submitted some point at the back half for this year. In terms of the timing for a potential rest of the world partnership is there anything you can say in terms of how far or long any discussions are submitted or when something like that may occur, thanks?

Jay Hagan

Yeah, I want to comment on how the conversation is progressing. What we stated as our desire to try to transact a deal when the asset is derisked, so obviously the life study data and a positive interim analysis is de-risking as is we are selling rest of world rights. So as a certain regulatory feedback from Europe; so some indication of those two things coming in line would gape the timing of that such that we could get some maximum deal terms associated with that.

And parties were obviously interested in the results of this. We are not interested in doing a sort of back end loaded deal right now, where we would take it small upfront and then receive proceeds as the asset derisks, since we've already funded the entire trough.


We have no further questions in queue at this time.

Mike Narachi

Alright, well with that we will conclude the call and again I just want to thank you for your participation today and your support and we look forward to shaping up to be a very pivotal year for Orexigen.


Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participating. You may now disconnect.

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