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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Q4 2013 Earnings Conference Call

March 12, 2014 17:00 ET

Executives

Heather Turner - General Counsel

Mike Narachi - Chief Executive Officer

Mark Booth - Chief Commercial Officer

Dr. Preston Klassen - Senior Vice President, Development

Jay Hagan - Chief Business Officer

McDavid Stilwell - Vice President, Corporate Communications and Business Development

Analysts

Marko Kozul - Leerink Partners

Matt Lowe - JPMorgan

Tazeen Ahmad - Bank of America

Lee Kalowski - Credit Suisse Group

Operator

Welcome to the Fourth Quarter 2013 Orexigen Therapeutics Incorporated Earnings Conference 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 will now turn the call over to Ms. Heather Turner, General Counsel. You may begin.

Heather Turner

Hello and thank you for joining us this morning. 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 morning 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-K, the company tends 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 12, 2014. Orexigen undertakes 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

Thank you, Heather. Late last year, we announced successful results of the Light Study interim analysis. We believe these results clearly address the single approval deficiency the FDA identified in the NB32 complete response letter and provide us with confidence for approval in the United States and in Europe. We are on track for a timely response to our Day 120 questions from the EMA and our U.S. PDUFA date is now just 90 days away.

Also please note that prior to approval we will be referring to our lead asset by its short and generic name, NB32. In addition to providing support for upcoming regulatory decisions, the Light Study results also unlock near-term lifecycle opportunities such as the potential to develop NB32 as a treatment for diabetes and to combine it with approved diabetes drug to create attractive, new and branded fixed dose combination drugs to treat patients with both diabetes and obesity. And important to all of these lifecycle plans, we would like to highlight that we have recently filed several additional patent applications. These are based on novel insights from the Light Study data, which assuming these patents are issued could extend NB32 intellectual property protection to 2034.

Preston, Mark and Jay will go into some depth on each of these topics that I have outlined, but before turning over the call, let me say that I am proud of the team at Orexigen for the progress that we have made and the high expectations we have set for 2014. For this year, we are focused on four key goals: U.S. approval, European approval, a differentiated and well-resourced U.S. launch by our North American partner, Takeda, and significant progress toward, if not outright consummation of a strong partnership to commercialize NB32 for all territories outside of North America.

I will now turn the call over to Preston to discuss our development program’s progress and plans. Preston?

Dr. Preston Klassen

Thanks Mike. We are extremely pleased with the interim results from the Light Study. And while the specific quantitative results will not be released while the trial is ongoing, I will reiterate that the results clearly meet the criteria laid out by FDA for approval of NB32 and we are confident that the resubmission of our NDA is appropriately fulsome and clearly supportive of an approval.

With the Light Study interim data, we resubmitted our U.S. NDA in early December and FDA has assigned a June 10 PDUFA date. We are now halfway through the U.S. review and we believe that review is proceeding well. It’s worth noting that one of the reasons why the Light Study interim analysis gives us such confidence is the size of the population with twice as much patient exposure from the single trial than the entire clinical program from the original NDA submission. We intentionally recruited a population of higher risk patients. And together with the Phase 3 clinical trial data, we have compiled a database that is highly generalizable to the anticipated real world exposure for NB32.

The Light Study includes significant representation from male patients and patients with type 2 diabetes, cardiovascular disease and other cardiovascular risk factors and importantly, patients with concurrent depression being treated with antidepressant medications. This last category is particularly relevant given the high degree of overlap between obesity and depression. Approximately, 20% of the enrolled population over 2,000 patients reported concomitant use of antidepressants predominantly, SSRIs, providing extensive information about the use of NB32 among patients with depression. This information is very useful to global regulatory authorities who are often focused on the neuropsychiatric profile of anti-obesity agents, particularly in patients with comorbid depression.

The Light Study provides other important patient segments that will reflect NB32’s use in the marketplace. Over 90% of the randomized population had hypertension and were on a variety of antihypertensive therapies. 88% of patients were taking lipid-lowering therapy and most of this was statin use. 85% of patients have type 2 diabetes and we therefore have broad representation of NB32’s use in combination with DPP-4s and GLP-1s, metformin, sulfonylureas and insulin.

Having such robust data across an older, sicker patient population receiving a broad array of concomitant medications allows us to answer many relevant questions about the real world administration of NB32 in complex patient types. We are confident in our ability based on this data to appropriately address any regulatory inquiries and defend a positive benefit risk assessment for NB32 as an obesity therapeutic. We are also in an active regulatory review process in Europe and we have received our Day 120 questions in February. The reviewers’ questions are consistent with those raised by the FDA during the course of NB32’s development covering topics such as drug product specifications, non-clinical studies, dosing regimen and most significantly cardiovascular safety. It is important to note that we believe the neuropsychiatric profile of NB32 is consistent with that of bupropion, a drug that regulators are very familiar with. And based on the Day 120 questions we do not anticipate that neuropsych issues will be a major concern as they have been for other recently reviewed obesity therapeutics. I am confident that we can successfully address all of the Day 120 questions in a timely manner that should enable a positive benefit risk assessment from the CHMP in late Q3 of this year.

Earlier Mike mentioned, the potential to pursue a diabetes indication for NB32, which we view as an exciting near-term lifecycle opportunity and Mark will speak to the commercial appeal of the strategy. As the Phase 3 program demonstrated in core diabetes, which was a dedicated study in patients with type 2 diabetes, NB32 lowers hemoglobin A1c compared to placebo by 0.7% before rescue medication and by 0.5% with rescue medications. This A1c reduction meets FDA requirements for efficacy and its similar to efficacy of many DPP-4s. We do believe we will need a confirmatory trial with hemoglobin A1c as the primary end point for NB32 as mono-therapy and in combination with other diabetes therapies and this can be accomplished in a single Phase 3 efficacy study of six months duration.

Since 2008 the rate limiting steps in pursuing a diabetes indication has been the collection of appropriate cardiovascular safety information and we believe light study data will also support the requirements for preapproval cardiovascular safety assessment for a new diabetes indication. Another important near-term lifecycle opportunity that Orexigen is excited about is fixed dose combinations with oral diabetes medications. Recently we formulated a combination tablet of NB32 plus a DPP-4 to demonstrate technical feasibility of the combination. Once approved for obesity NB32 could be combined with DPP-4 and the new combination drug could be approved on the basis of a bioequivalence study to treat patients with both obesity and diabetes. This regulatory path is relatively quick and straightforward and it’s commonly used with existing diabetes medications.

We are in discussion with a North American partner as well as potential partners in the rest of world setting regarding a number of lifecycle strategies including pursuing the diabetes indication and development of the fixed dose combination. It would clearly be possible given agreement with our partners to initiate the required clinical trial works for these opportunities later this year. In summary, we are excited to get to PDUFA on June 10. Our MAA review is proceeding as expected and we have a variety of near-term lifecycle opportunities to explore that we believe can add substantial value to NB32.

I will now turn the call over to Mark. Mark?

Mark Booth

Thanks Preston. With our June 10 PDUFA date less than three months away the joint commercial team is putting the finishing touches on the NB32 launch plan. I am very impressed with the level of market research and competitive intelligence that has been completed and gathered across physician, patient and payer audiences. When you couple all of this with the insights we have gleaned from the other anti-obesity launches, I am confident Takeda is poised to execute a differentiated and successful NB32 launch.

One of the differentiating factors will be the degree of promotion. As a reminder Takeda has made very strong contractual commitments to NB32 which includes specific multi-year commercial commitments in terms of sales calls and marketing spend. We believe these levels are consistent with the resources needed to effectively launch a cardiometabolic drug in primary care.

Takeda has approximately 2000 field based employees in the United States and assuming approval, an appropriate number of them will be detailing NB32 with market leading reach and frequency to a high potential target audience of over 50,000 physicians. In addition the sales force effort will be fully supported by Takeda’s integrated structure, which will include a comprehensive managed care effort to establish NB32 across the payer marketplace and build on the coverage gains that have already been achieved in the obesity market.

Another differentiating factor will be NB32’s unique profile. Orexigen market research indicates that NB32 was – is positioned to do very well in large patient segments. Those segments include the obese female patients, a critical patient group is women, many of childbearing age make up the majority of treatment seeking patients today. Patients in the 30 to 40 BMI range a key demographic as most of the obese patients are in this BMI range. The obese patient with depression which is significant as the obese population often has comorbid depression and very importantly the obese patient with diabetes or pre-diabetes.

Focusing on the treatment of the obese patient with pre-diabetes or diabetes is the strategy we introduced earlier this year and as Preston mentioned is the priority. Simply put, we see treating obesity and patients with diabetes for those who are at risk for diabetes as a key to unlocking the obesity market. This is a strategy that can be deployed at launch and will be strengthened through near-term lifecycle development activities. First of all, the market is huge. In the U.S., approximately 58% of obese patients have diabetes or pre-diabetes. That’s about 45 million patients. Treating this epidemic has become a global priority as healthcare cost associated with diabetes continuing to skyrocket.

Weight loss is an established cornerstone in diabetes care and an important reason why diabetes drugs that have beneficial weight management profiles are preferred. Pre-diabetes is a potentially reversible condition and has been shown that modest weight loss can reduce the relative risk of progressing to type 2 diabetes by about 40%. The opportunity for NB32 to treat obesity in both pre-diabetic and diabetic patients is clearly reflected in the recent guidelines issued by the American Association of Clinical Endocrinologist, which state that the primary goal of pre-diabetes management is weight loss, whether achieved through therapeutic lifestyle changes, pharmacotherapy, surgery or some combination thereof weight loss can effectively prevent progression to diabetes. AACE goes on to state that weight loss, including medication-assisted weight loss should be considered in all overweight and obese diabetes patients.

Again, this is a market we can impact at launch and then expand through the following near-term, high probability of success lifecycle initiatives, which can be pursued in parallel. One, obtaining the diabetes indication for NB32 will open the door to increased reimbursement, persistence and an overall increase in usage. Two, by combining NB32 with established diabetes drugs such as DPP-4s in a fixed dose combination, we have the potential to deliver impressive HBA1c reductions and weight loss all-in-one pill with one copay. As you may be aware, fixed dose combinations are a large and growing component of the diabetes market.

So in summary, the diabetes – the pre-diabetes/diabetes strategy accelerates the medicalization of weight loss. It’s a compelling call to action for patients, physicians and payers and represents a very large opportunity with high unmet need. And we believe this strategy is tailor made for NB32 with high competitive barriers to entry given that cardiovascular safety data is required to obtain the diabetes indication. And as NB32 is an unscheduled product with no potential for abuse liability, it’s the logical choice in any diabetes fixed dose combination. So, for all these reasons, we are highly confident in a strong and differentiated launch in the U.S. and the long-term growth opportunities for NB32. Similarly, we are bullish about NB32’s rest of world potential, which maybe under appreciated.

Historically, when you look at (indiscernible) obesity sales back in 2007 of approximately $1.7 billion, the majority of those sales were outside of the U.S. This trend also holds true for other therapeutic categories like diabetes, dyslipidemia and hypertension, which all enjoyed similar or greater sales outside of the U.S. In addition to Europe, there are numerous other rest of world markets that are very attractive today. For example, 2010 obesity therapeutic sales in Brazil, South Korea, Russia and Australia together totaled over $300 million. And while many rest of world markets skew off the U.S. approval, others prefer European approval. Preston just discussed our plans and confidence in both U.S. and European approval and in a minute Jay will touch on our rest of world partnering process and the progress we are making.

In closing, the teams are working extremely well together and pending approval, all systems are go for a strong launch in the U.S. We are confident in our approach and in the skills of our North American partner, Takeda and we are eager to make NB32 available to patients in the U.S. and around the world.

I will now pass the call along to Jay. Jay?

Jay Hagan

Thanks Mark. Orexigen is responsible for manufacturing NB32 and I am pleased to say that we have completed validation of our commercial scale process earlier this year and are currently manufacturing drug to meet Takeda’s requirements for a Q3 launch. Additionally, the tech ops team is busy working to prepare our second site with Sanofi to be able to provide additional and redundant capacity to meet the demand in the market generated in North America from our partner, Takeda, as well as outside North America from a potential ROW partner. Delivering the launch load is an important first step in reliably supplying quality product to the market and has financial implications for Orexigen. Recall that the $100 million in U.S. approval related milestones from Takeda are broken down as $20 million upon approval, $10 million upon delivery of the launch load, and $70 million upon first commercial sale. The first two are anticipated to be achieved at PDUFA assuming a potential approval on June 10 with the third milestone for first commercial sale once Takeda ships to wholesalers.

Moving to business development, as Mark outlined earlier, the global opportunity for NB32 is large and the Light Study data have solidified the interest in the product. Similar to the strategy we used in the North American partnering process, we have targeted global pharmaceutical companies with large cardiometabolic franchises given the natural fit of the safe and effective obesity therapeutic within those firm’s portfolios. This is a structured competitive process as well. Potential ROW partners believe in the global obesity opportunity in making weight loss and weight management a cornerstone of cardiometabolic care. We targeted firms that have the ability to resource a primary care launch around the world. While I cannot go into any specific details on timing or participants given the confidentiality of the process, I can say that our enthusiasm for the additional opportunities to pursue an outright diabetes indication together with a fixed dose combination strategy to differentiate their existing diabetes therapies is shared by others in the process.

Turning now to our financial results, for the three months ended December 31, 2013, Orexigen reported a net loss of $21.5 million or $0.21 per share as compared to a net loss of $32.5 million or $0.41 per share for the fourth quarter of 2012. Total operating expenses for the fourth quarter of 2013 were $21.8 million compared to $33.3 million for the fourth quarter of 2012. For the year ended December 31, 2013, Orexigen reported a net loss of $77.7 million or $0.80 per share as compared to a net loss of $90.1 million or $1.27 per share for 2012.

Total operating expenses for 2013 were $80.6 million compared to $93.7 million for 2012. The overall decrease in operating expenses for the quarter and the year reflects a decrease in research and development expenses associated with the conduct of the Light Study. As of December 31, 2013, Orexigen had $98.1 million in cash and cash equivalents and an additional $78.9 million in marketable securities for a total of $177 million.

Operating expenses for 2014 are projected to be between $75 million and $85 million. In addition to the current run rate for our underlying business as well as the tapering Light Study costs, the first half of the year will see a rapid expense associated with building launch supplies. Upon the potential approval, those ongoing expenses associated with manufacturing NB32 will begin to be capitalized. Recall also that as part of our collaboration agreement with Takeda, Takeda is responsible for all commercial and third-party manufacturing costs and Orexigen is responsible for the first $60 million of post-approval development expense, but is entitled to receive three anniversary milestones totaling $45 million. So we will continue to expense the ongoing Light Study trial related cost as well as any additional post-marketing requirements until we have fulfilled the responsibility for the first $60 million. After that Orexigen is generally responsible for 25% of any additional post-approval lifecycle spending that Takeda and Orexigen pursue for the North American territory.

As I outlined earlier, Orexigen is eligible to receive milestone payments of $100 million from Takeda between approval and first commercial sale of NB32. Thus, with that operating expense guidance, the company expects to end calendar year 2014 with more cash, cash equivalents and marketable securities than we started the year with. These figures though exclude any proceeds received from a potential ROW partnership. We would expect to provide more guidance related to our evolving financial picture in cash flows associated with the commercialization of NB32 shortly after the June PDUFA date.

I will now turn the call back to Mike.

Mike Narachi

Thanks Jay. In a minute, we will open the call – open the line up for questions. But first, I hope you have been able to sense the enthusiasm the team has for the NB32 opportunity and the goal that we have set for this year. The Light Study results provide an unprecedented amount of pre-approval safety data for an obesity therapeutic and give us high confidence in potential approvals in the U.S., Europe and ultimately around the globe. These results also offer the potential for an exciting new indication for the treatment of diabetes and for fixed dose combinations for the millions of patients struggling with both obesity and diabetes.

And as I highlighted in my introduction, the filing of additional patents based on insights from the Light Study could, if issued extend intellectual property protection to 2034. Finally, I want to reiterate that 2013 holds several potential catalysts for Orexigen. A U.S. approval, a well-resourced and successful U.S. primary care launch by Takeda, a positive CHMP opinion, an EU approval and progress milestones on both our diabetes strategy and a partnership to commercialize NB32 outside North America.

And with that, we’d be happy to open the line for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we have a question from Marko Kozul from Leerink Partners. Please go ahead.

Marko Kozul - Leerink Partners

Hey, guys. Good afternoon and congrats on your progress.

Mike Narachi

Thank you.

Marko Kozul - Leerink Partners

The first question, Mike, you talked about some new patent applications, could you provide us to the extent possible any additional details on what kind of patents are there?

Mike Narachi

Yeah. They are method patents that we filed based on insights we gained from the Light Study. We won’t be disclosing any of the claims or the structure of the patents for competitive reasons until they issue and publish, but obviously in order for a patent for us to have confidence in the patents issuing, the insights have to be unexpected, novel and useful and we are confident that these are going to be very useful patents for us and that their novel results were unexpected. And we have probably talked more about it as we get closer to issuing some publication next year.

Marko Kozul - Leerink Partners

I appreciate that. And for Empatic you have issued in the press release given the newly reported regarding successfully negotiating with FDA we are not needing a new CVOT for Empatic, how does this influence your views on potential Phase 3 designs and should be think about this accelerating your potential partnership discussions for Empatic as well?

Mike Narachi

I am sorry the question in total was around Empatic?

Marko Kozul - Leerink Partners

Yes, that’s correct.

Mike Narachi

Okay. I just missed the first part of the question. Yes, I mean you are right, our discussions with the FDA lead us to believe that Empatic would not need an additional cardiovascular outcomes trial and for the rest of the audience, it contains the same dose of bupropion. And the bupropion was the agent that the FDA had a concern about from a theoretical safety concern point of view. And so now that we have results from the interim analysis, we can probably be even more confident that Empatic would not need cardiovascular outcomes trial. Our view on Empatic has always been that it would be advanced in a collaboration agreement and that we would not fund additional development for Empatic on our own. And part of the reason for that is number one it can be developed in a complementary way depending on the precise positioning of the two products. And so the choices for product development could be dependent on exactly how you were going to aim NB32 and then in a complementary way develop Empatic. Second, additional investment beyond Phase 3 would typically be required in order to add new insights and seek new intellectual property protection to extend and broaden the patent portfolio for Empatic. So the level and breadth of that investment we think is best to put it in place with the partnership on NB32.

Marko Kozul - Leerink Partners

Sure. And just one last one on NB32 life cycle management certainly approval in the U.S. would be the jumpstarting milestone, what else do you need to do before initiated some of your initiatives for the lifecycle management programs?

Mike Narachi

Yes, the team is already making progress there. The first steps, as Preston outlined, are gaining more detailed alignment with our current partner and perspective partners, protocol sketches, there is a key step to talk with regulators to just nail down the specifics of the development path for approval of some of these lifecycle plans and then obviously initiation of the studies and so on and so forth. So the upfront planning phases have already begun. The dialogue has already begun. And we will keep you posted on progress as we move forward probably the next important milestone would be us either with our partners or our partners alone announcing their desire to begin those trials.

Marko Kozul - Leerink Partners

Perfect. Thanks for taking my questions.

Mike Narachi

Thank you.

Operator

Next question is from Cory Kasimov from JPMorgan. Please go ahead.

Matt Lowe - JPMorgan

Hi, there. It’s actually Matt Lowe in for Cory today. Just regarding the pilot programs with example with Aetna for some of your competitors, I guess how important do you think these programs could be for the market to kind of show the value proposition of these drugs to payers? And will NB32 be incorporated into these types of programs upon its potential approval? And then I have a quick follow up also?

Mike Narachi

Yes, thanks for the question. I think the pilot programs are interesting and valuable, essentially the way we understand it is Aetna has part of its offering, a weight loss program, perhaps is part of wellness offerings in general. And we have always felt that combining a weight loss therapeutic along with a weight loss program is a really good way to go, especially in a setting like an employer-based health plan or a wellness program. So, yes, I can see that being an element of commercialization for NB32 as well. And we encourage these kind of programs with the multiplicity or variety of approaches. And I think it’s going in the direction that we have been talking about for several years.

Matt Lowe - JPMorgan

Okay. And honestly the goal to move into the diabetes setting sounds interesting, I was just wondering what if anything to meet share with us just more for the near-term on Takeda’s commercial preparation or maybe what you specifically have been engaged in, in that process? Thanks.

Mike Narachi

Yes, I will let Mark take that call on Takeda’s preparation, but thanks for highlighting the diabetes. And the near term is as Mark stated, the imperative for weight loss in those two patient populations, diabetes and pre-diabetes is extraordinarily high, a medical imperative for weight loss. And in the buying process, if you will, of a patient trying to move through all the way to actually adopting and utilizing a weight loss therapeutic, our research is just telling us that this is a much more likely target to go all the way through that buying process versus the average overweight or a obese patient, who maybe seeing a primary care physician for any number of reasons, but the patient who is coming in to be seen for other diabetes or has recently been diagnosed for pre-diabetes or is coming in for checkup because they have all been recommended to lose weight with those diagnoses. And so those are – that’s an easier point of introduction and a more likely buying opportunity for a patient and the physician for weight loss therapeutics. Those insights that we have gained match perfectly not only with the profile for the product, but the messaging that’s being developed, the horsepower that Takeda can bring to that market for the reach and the specific targeting of the kinds of physicians that they already call on have relationships for. So, it fits quite well and I will let Mark talk about more specific preparations that our partner is undertaking to get ready for the launch.

Mark Booth

Yes. As you can imagine what they are putting the finishing touches now as everything having to do with a very strong obesity launch. Sales force team getting trained, targeting the physician audience, which physicians are they going to go after, putting together the message in positioning for Contrave and what the sales aide will look like, opinion leader developments, speaker program developments, managed care discussions, stocking the product, you name it, there is an extremely extensive launch plan that’s been fully both jointly developed by both teams, fully reviewed up through our joint steering committee which is made up from executives from both companies. And everything locked and loaded right down to when the reps will first be detailing the product.

Matt Lowe - JPMorgan

Okay. And then just one quick follow-up question if I may is what the current thinking on a panel on your expectations full one or not the one or is there anything you can say at all about that?

Mike Narachi

I will let – Preston will handle that. He and the team are covering all of the issues in the review including the question of whether or not there would be a panel.

Dr. Preston Klassen

So we are about halfway through the review process now and we have proactively reached out and to-date we have not heard that the FDA is taking by calling an advisory committee, which isn’t surprising we believe that the data provided with the interim results very clearly addresses the CRO that we received.

Matt Lowe - JPMorgan

Okay, thank you.

Operator

Our next question comes from Tazeen Ahmad from Bank of America. Please go ahead.

Tazeen Ahmad - Bank of America

Hi thanks for taking my questions. With regards to the diabetes study, would be the right to assume that you would not pursue this with out a partner, also do you have any idea of how large the study would be?

Mike Narachi

Yes, I will let Preston handle the size. But in general I think you are thinking about it the right way. This is something that a commercializing partner would want to add to their lifecycle plan and would want to own that. However, depending on the timing and the cost of this one additional Phase 2 trial would be pretty small somewhere south of less than $25 million. So I could see a scenario where potentially we want to go ahead and get that started. We already started doing the work. We would already approach regulators globally on the process, clarify the path, finalize protocols, get ready to go. So even if we did started prior to consummating the rest of world partner I am sure that this could easily be adopted and funded by our existing and future partners. So I wouldn’t put partnership necessarily on the critical path to starting because we have already started some of the early lead time activity. Preston, do you want to talk about the size and structure of the program?

Dr. Preston Klassen

Sure. It is a fairly typical trial size would be several 100 subjects per arm. And the structure would be – would likely include examining NB32 as monotherapy and then as add-on to existing diabetes medications again it’s a fairly straightforward path. And as an efficacy study hemoglobin A1c is the primary end point and is typically six months in duration.

Tazeen Ahmad - Bank of America

Okay, great. And then in terms of trying to think ahead you talked about the pre-diabetic population, how did you go about capturing that group commercially?

Mark Booth

Sure. This is Mark. First of all, it’s an extremely large group you would think about the blockbuster drugs for diabetes that exists out there today, but the pre-diabetes market dwarfs that. So it’s a huge market and if you think about the conversation that pre-diabetic patients having with their physician, it goes something like this, look if you don’t lose 15, 20 pounds by the next time I see you, you are on your way to becoming the diabetic, you are pre-diabetic now and we are going to be putting you on diabetes medication most likely metformin. That’s obviously a very motivated patient that doesn’t want to go down that road. And we think the Contrave message is going to fit into that very logically. So Contrave is going to help these patients lose weight, prevent their progression to diabetes in a number of patients, but just it makes a lot of sense. And again if you take a look at where Takeda is at, Takeda has a strong diabetes heritage with what they did with Actos and now with their launch of Nesina these are the physicians that they are calling on now.

Mike Narachi

Yes, and it’s a good question Tazeen. The pre-diabetes market is huge relative to the diabetes market globally. And we know that there are millions of dollars worth of drugs being sold in the diabetic market, but really not much in the pre-diabetes market other than for other comorbidities. The only thing we know that really impacts the outcomes of the progression vis-à-vis diabetes in the pre-diabetes market is weight loss. As the AACE guidelines just came out and make that a medical imperative to try pharmacotherapy assisted lifestyle change or pharmacotherapy alone or surgery etcetera. So let’s keep going and help curb the progress of this epidemic population towards diabetes. So that is within reach for an obesity therapeutic. The vast majority of these pre-diabetes patients are on-label. They have – they are 27 BMI and greater with diabetes or with a comorbidity, sorry with a comorbidity like hypertension, dyslipidemia, etcetera. So a lot of these pre-diabetes patients are on label for an obesity therapeutic. And the thing that can help them to a large degree is weight loss. So I think – I hope that answers your question. They are on target and that realization is important in our partner dialog, especially if you have diabetes franchise and you would like to expand it.

Mark Booth

Yes, just to put the market in their perspective and I am talking U.S. here, 79 million Americans have pre-diabetes, 36 million of them have a BMI of 30 or greater. When you turn to the diabetes side, there is about 26 million of patients with type 2 diabetes and about 10 million of them have a BMI of 30 or greater. So you will be hard pressed to find larger markets and again a compelling need.

Tazeen Ahmad - Bank of America

Okay, thanks for all the color on that one. Maybe you mentioned this already, so I am sorry if I am asking this again, when do you expect to respond to the 120 day questions?

Mike Narachi

Preston have the answers going on.

Dr. Preston Klassen

Typically, it’s about a three-month cycle and that’s what is generally considered standard in terms of a clock stoppage. So we believe we can certainly respond within that timeframe.

Tazeen Ahmad - Bank of America

Okay. And then the last one that I have for you guys is do you have any concern at all that impressive price discounting will be expected of all obesity drugs at least initially?

Mike Narachi

I am not going to comment on pricing. We haven’t released pricing at this point. We do think that with Contrave if we have got some, it’s all about getting that patient to their second script and their third script and letting them start to see the results, letting them start to lose weight, feel better. And we think once that happens we are going to enjoy good persistency especially when you combine Contrave with a weight loss program. And we think there is a number of ways to do that. Certainly, we look at sampling as the key tactic that will be open to us. And I think potentially unique to us, because we are not scheduled. I do think there is a role for coupons in this marketplace. So you definitely want to get that patient to their second and third script by the same token. You don’t want to be given the drug away for a long period of time.

Mark Booth

And as Jay mentioned, we will be giving more guidance overall financially as we proceed through the regulatory process. I think you mentioned sometime shortly after PDUFA. And we can help you understand what to expect, but obviously at launch, there will be more discounting couponing sampling. And then that will taper over time as dream builds and coverage in access builds.

Tazeen Ahmad - Bank of America

Okay, great. Thanks very much.

Operator

We have a question from Lee Kalowski from Credit Suisse Group. Please go ahead.

Lee Kalowski - Credit Suisse Group

Thank you. Question if you have any further thoughts on your option to co-promote NB32, how much lead time would you need before you hire reps and what the P&L impact might be as we think about that pre- and post-approval?

Mike Narachi

Yes. We haven’t got any near-term plans to co-promote. I think what we have said in the past obviously is if there are places where we can go which we have identified several, where we could augment the launch of NB32 that on its own would make sense. What would make even more sense is how it fit with future product opportunities that Orexigen might undertake. So and this phase right now we have got all our guns focused on the milestones I outlined today, the two approvals helping on our teams with the Takeda launch as planned, which is right now planned for them to do it without us and also on the rest of world partnership progress and now it’s exciting lifecycle plan on diabetes. So there is no near-term plan, but it’s always being considered and always being evaluated. Mark, I don’t know if you wanted to add anything to that?

Mark Booth

Yes. The only thing I was going to add is that with the deal that we have with Takeda, we feel that the marketplace is extremely well covered. While there is as Mike mentioned, there are some opportunities. There aren’t what I would call any gaping holes. And so we are very comfortable with the launch plan that Takeda is rolling out on NB32.

Lee Kalowski - Credit Suisse Group

Got it, okay. And as far as lifecycle management with fixed dose combination, can you give us some sense for how long it might take to do the TKPD study submitted an approval, etcetera? And as far as reimbursement is concerned, can you give us some sense for the difference between obesity and diabetes, it seems like there is a bit of a dichotomy and so if you were to get approval at let’s say NB32 or hopefully it’s called something better than that, would a plan simply cover it if they cover everything else in the Januvia family?

Mike Narachi

Yes. I will let Preston cover the how much it would take and then maybe Mark can cover the commercial aspects of the question on coverage. But before Preston answers that, he is going to tell you how much time it would take when we give them the drug. And so there is a variable amount of time on how much you want to spend on formulation. We have already done with the DPP4 which we haven’t disclosed the exact one we have done, but chemically they are all fairly similar. So we have already done the work to show compatibility and stability etcetera. So feasibility, technical feasibility is completed. But you can take either a very short amount of time to finalize the formulation to put into clinical manufacturing or you could take more time on the formulation. So Preston will be able to give you a timeframe, which is going to be really short once you start the trials.

Dr. Preston Klassen

Yes, exactly. The bioequivalent study is PK focused and is showing that the fixed dose combination has the same characteristics as the individual drugs when given in combination but as individual agents. And you are talking a sample size a tens of patients something not more than 100 and it’s fairly short duration of the study, because you just have to administer the drug and take some PK samples.

Mike Narachi

And on the coverage and access question, I will let Mark cover that one.

Mark Booth

Yes, sure. First of all, just to set the stage and where obesity is at right now from what we have been able to see from a market intelligent standpoint, it’s at about 50% plus coverage now, which is up about 10 points from where it was at a year ago and I saw where our colleagues over at A size feel that they are going to be at about 70% a year from now. So you are seeing nice expansion there. And my guess would be that mainly Tier 3 coverage. You take a look at without where a successful diabetes drug is at for type 2 diabetes, they enjoy closer to 85% to 90% coverage with the solid mix of Tier 2 and Tier. Now I can’t tell you we have gone out and done payer research with 10 major payers that cover 150 million lives. And we ask them the question how would you treat Contrave or NB32 if it had a diabetes indication? And the research came back very strongly that we would cover NB32 as the diabetes drug of course for those patients that are diabetic and obese. So you would see kind of a binary shift or an immediate shift in coverage on how NB32 will be covered with the diabetes indication.

Mike Narachi

Yes. I think for your question around fixed-dose combination, if it’s combined with the drug that already has great access and coverage, essentially our assumption is that you are going to have very, very similar coverage. These drugs are typically flat-priced. So we have taken a look at our Phase 3 datasets and also in the Light Study dataset. And we have a lot of patients who the natural experiment has already been run. So for example in our Phase 3 dedicated diabetes trial, we have patients who were on say a DPP-4 in the placebo arm and Contrave or NB32 plus a DPP-4 in the other arm. So we know already when those agents were taken separately, what happened to A1c, what happened to lipids, what happened to HDL, CRP, weight, etcetera. So we have got a good view of the product profile of this. And it’s attractive, it’s very attractive.

And then in the Light Study, I think there is almost 900 patients that were on DPP-4s in the Light Study. And we have got safety data there and weight loss data there that’s readily available. And picture the conversation that we could have with perspective partners when we show those profiles and when we talk about how much improved the product profile and the attributes for a current drug, whether you are playing offense or defense for those DPP-4s trying to grow a franchise or defend one. And that may see patent applications which I can’t share with you now, but for competitive reasons. They give them this FDC patent protection potentially out to 2034. It’s a very attractive strategy for this to focus on the patient with both obesity and diabetes with both indications and with fixed dose combinations than intellectual property and the safety dataset that we have, it’s very compelling.

Lee Kalowski - Credit Suisse Group

Got it. Well, hopefully you will come up with a better combination name what I used?

Mike Narachi

Yes, and I apologize maybe I should say for the whole audience, the use to switch from the brand name, Contrave to NB32, we elected to do at the beginning of this year for a couple of reasons. One there was an election to run a disease state campaign, not a pre-approval branded campaign by our partner, Takeda. Number two, just as we approach the PDUFA, we just thought it was prudent to use the shorthand for the generic name versus the brand name that has not yet fully been approved by the FDA or any other regulators. So I know it’s a little bit clumsy to switch, but we think that was the right thing to do up until the launch. Then whatever the brand name is, whether Contrave makes it through the process for the U.S. or it’s a different name, we will begin using the brand name.

Lee Kalowski - Credit Suisse Group

Got it.

Mike Narachi

So it will be fancier than NB32, we can promise you that.

Lee Kalowski - Credit Suisse Group

Okay. And I was just wondering if you could clarify a little bit around the diabetes side, is it your expectation that you are going to be doing a monotherapy trial so just NB32? And what would the background be as far as diet and exercise and around what you expect and hope to hit as far as statistical significance and clinical meaningfulness as far as reductions? And lastly, I guess, I am a little unclear is Takeda not necessarily paying for this trial and how does it work as far as potentially having a different partner at rest of world?

Mike Narachi

Yes. I will take the last part and I will let Preston handle all of the study design and goals and guidance type of questions. I think our teams are now as appropriate just a couple of months ago, we got the Light Study data are discussing lifecycle plans and reaching agreement with our partner, Takeda on what do we want to do for North America. The partnership agreement covers more or less as Jay outlined a 75%, 25% split cost split after that first 60 million of post-approval development expenses are owned by us. But ultimately, I think the big picture is depending on how Takeda wants to pursue these opportunities and depending on how others want to pursue those opportunities that will all get worked out.

Again, a bioequivalence trial is going to be inexpensive and fast relatively straightforward. A diabetes indication now that we have already harvested a quarter of the Light Study data for that $150 million total trial expense as the diabetes indication is going to be small, very low cost, new, new Phase 3 program. So starting out who is going to pay for which portion of all this I think is going to be relatively straightforward in depending on who wants to do what and how fast. So we will keep you posted on that. And if we decide to initiate anything on our own to speed timelines, we will let you know that too. Preston, there were some detailed questions on hurdles for A1c, background therapy, monotherapy, etcetera. You want to overview what’s typically done.

Dr. Preston Klassen

Yes, sure. We will start with the monotherapy question. So the guidance itself knows that therapies for type 2 diabetes should be evaluated or can be evaluated in placebo-controlled monotherapy trials, placebo-controlled add-on therapy trials and active controlled trials. It also states given the progressive nature of the disease and the requirement for multiple drug therapy, the clinical drug development program should include evaluation as monotherapy and in combination. So I wouldn’t necessarily say that monotherapy is an absolute requirement per se, but it’s a general expectation that ultimately you will have monotherapy data. And there is many reasons why that’s advantageous from a commercial perspective, but there are examples, Byetta, for example, monotherapy approval came after the initial approval with add-on therapies.

In the monotherapy arm study, you would simply look for individual patients for type 2 diabetes who have uncontrolled diabetes and that’s generally defined as a hemoglobin A1c between something like 7% and 10.5%. And those subjects would have some form of diet, but the diet therapy as prescribed would be fairly generic within these studies and you would simply randomize them to either other placebo or NB32 and that would be a monotherapy arm. Then you would take similarly patients who are already on other agents, background agents such as metformin that’s the one that’s typically done first. Again, looking for subjects who have hemoglobin A1c values in the 7 to 10.5 range, which is typically used now and randomize those individuals on metformin, on optimized metformin to either placebo or NB32 and so on and so forth.

In terms of the efficacy that you are looking for again the guidance doesn’t necessarily spell it out directly, but President says that it should be at least 0.4% or greater. We have clearly demonstrated that in our type 2 diabetes trial that was obesity focused, but in patients with type 2 diabetes, we demonstrated a 0.5% placebo-controlled. That was with rescue medication when you factor in the rescue medications that were taken more in the placebo arm, of course you actually saw in the post-doc analysis saw a delta of 0.7%. So we are very confident that in a study that is designed is a primary efficacy trial using hemoglobin A1c as the primary endpoint with the patients that have a slightly elevated hemoglobin A1c again in that 7 to 10.5 range that we would see well in excess of 0.5% lower hemoglobin A1c, something that is in the range of most DPP-4s. I think that covers most of the topics. Were there any other specific questions related to that?

Lee Kalowski - Credit Suisse Group

No, that was great Preston. Thank you.

Operator

We have no further questions at this time.

Mike Narachi

Alright, thank you very much everyone for your interest and your support, looking forwarded to delivering on these goals and milestones.

Operator

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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