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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Q1 2014 Earnings Conference Call

May 08, 2014 05:00 PM ET

Executives

Heather Turner - VP & General Counsel

Mike Narachi - CEO

Mark Booth - CCO

Dr. Preston Klassen - SVP of Development

Jay Hagan - CBO

McDavid Stilwell - VP of Corporate Communications and Business Development

Analysts

Steve Byrne - Bank of America Merrill Lynch

Matt Lowe - JPMorgan

Matthew Andrews - Wells Fargo Securities

Charles Duncan - Piper Jaffray

Operator

Hello and welcome to the Q1 2014 Orexigen Therapeutics Earnings Conference Call. My name is Erik. I’ll 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 will now turn the call over to Heather Turner. Heather, 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-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, May 8, 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 want to remind you that prior to approval we will be referring to our lead asset by its short and generic name, NB32. We have received confirmation from FDA however that if NB32 is approved the trade name Contrave has been accepted until then however we’ll use NB32.

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

Mike Narachi

Thank you, Heather. And thank you for joining us today. The NB32 PDUFA date is now a short 4.5 weeks away and I hope we successfully convey to you today our excitement for the events in 2014. We are confident in the prospects for approval in the U.S. next month and for a positive benefit risk assessment by the CHMP this summer. The successful interim result of the Light Study which announced last fall clearly address single approval deficiency of the FDA’s complete response letter and together with our Phase 3 program provide a regulatory submission with an unprecedented amount of preapproval safety data for obesity therapeutic.

Additionally, Light Study cardiovascular data has the potential to unlock exciting lifecycle development opportunities especially in diabetes which we believe would strengthen NB32’s profile, specifically address the needs of obese patients with diabetes. We are also excited that Takeda, our commercial partner in North America will execute a differentiated launch for NB32. Takeda plans to deploy approximately 900 sales representatives which we believe will deliver the scale, scope, and expertise to successfully reach a large and high potential audience of primary care physicians.

Finally, discussions with prospective partners for NB32 rights outside of the North America have moved forward given the availability of Light Study interim results to support regulatory actions and potential lifecycle development opportunities. We expect to make substantial progress and possibly even consummate ROW commercialization agreement later this year.

I will now turn the call over to Preston to discuss progress with our regulatory submission and NB32 development plans. Preston?

Preston Klassen

Thanks Mike. As we near June 10 PDUFA date, we continue to anticipate a positive action from FDA. As we have noted on previous call, we are confident that the results of the interim analysis of the Light Study meet the criteria laid out by the FDA for approval of NB32 and we believe that the resubmission of our NDA is probably fulsome and clearly supportive of an approval. In the Europe, we’re also confident in a positive benefit risk assessment. In late March, we met with our rapid tours for productive clarification meeting regarding their day 120 questions. At this meeting, we were able to present the Light Study interim analysis results. We are confident that Light Study cardiovascular safety data in combination with our Phase 3 clinical data can successfully address their questions.

We are finalizing this submission of our responses today 120 questions which we expect to complete this month. This will restart the review clock and we’ll put the day 180 response from regulators in late July. As we continue to work with U.S. and E.U. regulatory authorities to facilitate their review of NB32. We are also actively planning for potential lifecycle development opportunities including the potential pursuit of an indication for diabetes in the obese population. As Mike mentioned, this is made possible because we believe the data from the Light Study which includes approximately 7600 subjects with type 2 diabetes would also provide a preapproval cardiovascular safety data that is required of new diabetes medications.

Our Phase 3 program has already demonstrated that NB32 lowers hemoglobin A1c compared to placebo by 0.5% when including the use of rescue medications and 0.7% excluding the impact of rescue medications. This A1c reduction is in line with FDA benchmark for approval efficacy and similar to be efficacy of many other oral diabetes medications. In addition to an indication for diabetes, we believe the fixed dose combination of NB32 with other diabetes medicines represent another exciting near term lifecycle opportunity. We have already demonstrated that we can formulate the combination tablet of NB32 plus a DPP-4 with appropriate chemical and stability characteristic and we believe NB32 can also be formulated successfully with SGLT2.

Given the trends in diabetes treatment paradigms and the increasing utilization of fixed dose combination around the world, we believe an NB32; fixed dose combination would represent another potentially important tool for physicians looking for both improved glycemic control and weight loss for obese patients with diabetes.

Turning to recent publications and upcoming presentations, our paper detailing NB32 is a mechanism of action along with supportive pre-clinical and clinical data was published last month in the journal pharmacological research.

We have the upcoming ADA meeting in June Dr. Priscilla Hollander will be presenting a poster detailing effects on vaccine about glucose, insulin and insulin sensitivity among pre-diabetic patients treated with NB32 across the Phase III program. Third party independent reviews are also starting to be published about NB32 including a recent publication and expert opinion through our safety evaluation.

In summary, we’re looking forward to a busy schedule during the rest of 2014. We’re all excited for our PDUFA date on June 10, our MAA review is proceeding as expected and we have variety of near term life cycle opportunities to explore in a context of partnerships that we believe can add substantial value to NB32. I will now turn the call over to Mark.

Mark Booth

Thank you, Preston. We have been working very closely with the Takeda putting the finishing touches on a strategic comprehensive NB32 launch plan and Takeda’s initiated appropriate pre-launched activities including the implementation of a medical science liaison team, quite on opinion leaders as our managed care organization as we leave and profiling peers.

Takeda is also kicked off an extensive disease state awareness campaign designed to educate prescribers on the science of obesity and its clinical management. The campaign which is ongoing includes live events with top tier obesity key opinion leaders presenting to interest it’s out care provider in major natural areas of the United States.

From a sales and marketing standpoint the NB32 message has been developed through extensive market research and such gains from the recent launches of our obesity therapeutics. Targeting is being refined for launch and it’s benefitted heavily from new analysis which indicates the most significant parameters and protecting obesity writing potential, in additional to current obesity writing habits are the usage of diabetes and depression drugs.

I think these make sense given the line to choose between obesity and diabetes and obesity and depression. And it’s worth noting that the diabetes and depression indicators match up well with Takeda’s current product portfolio.

Now in the past we’ve talked extensively about our NB32 profile position sensitive very well for weight loss and weight management at the obese patient with pre-diabetes, and the obese with the depression.

In terms of the sales force, we announced in our press release this afternoon. That NB32 will be promoted by our sales force of approximately 900 sales representatives and we believe this is the type of effort needed to effectively launch the drug and its developing primary care market. And if this sales force size and structure will provide market leading share of voice and optimize physician region frequency to a large and high potential audience.

Addition to sales force’s effort it will be supported by a significant marketing budget and Takeda’s integrated structure which will include a comprehensive managed care effort to establish NB32 across the prepared market place and build on the coverage gains that have already been achieved in the obesity markets.

So both this reasons we are excited and confident in as strong and differentiated NB32 launch in the U.S. Looking globally or equally enthusiastic about NB32 rest of world potential which may gender appreciated. Historically, the majority of obesity sales that occurred outside of the U.S. and this is the trend holds true for other cardio metabolic categories like diabetes, dyslipidemia and hypertension which all enjoy similar or greater sale outside of the U.S.

Obesity is a global epidemic and the potential and needs is great and established rejoins like Europe, as well as emerging markets like Brazil, South Korea and Russia. Well, many rest of the world market key of the U.S. approval others prefer European approval.

In summary, the NB32 launch strategy has been forged by an experienced team its well thought out and highly integrated, importantly we feel that Takeda is committed resources needed to execute on strategy as evidence probably approximately 900 sales reps who will be detailing NB32.

I hope and anticipate, I will be giving you some early color on the MB32 launch soon. And I’d like to turn the call over to Jay.

Jay Hagan

Thanks Mark. For the three months ended March 31, 2014, Orexigen reported a net loss of $24.9 million or $0.23 per share as compared to a net loss of $19.4 million or $0.21 per share for the first quarter of 2013.

Total operating expenses for the first quarter of 2014 were $24.0 million compared to $20.3 million for the first quarter of 2013. This overall increase in operating expense reflects an increase in raw materials inventory and manufacturing related expenses and an increase in personal related costs.

While Orexigen's responsible for manufacturing MB32 Takeda will reimburse Orexigen for third party manufacturing related costs. Included in the first quarter R&D expenses were approximately $6 million of raw material inventory in third party manufacturing related expenses a portion of this incremental manufacturer expenses incurred in the first quarter will be reimbursed upon approval.

We are also building an API inventory it’d be compared to address near term commercial forecast needs. These expenses can ultimately be reimbursed once converted into finished goods inventory subject commercial orders. We have also recently completed demonstration batches with Sanofi in France, our second manufacturing site in preparing materials for requisite bioequivalent studies in support other various regulatory approvals.

As of March 31, 2014, Orexigen had $37.6 million in cash and cash equivalents and an additional $117.5 million in marketable securities, for a total of $155.1 million. Orexigen is eligible to receive cash milestone payments of $100 million from Takeda, between US approval and first commercial sale of NB32.

On the partnership front, the gullibility of Light Study interim data that supports potential global approvals have allowed us to world partnering talks to move to the next stage of process. The fit with global pharmaceutical companies with cardiometabolic franchisees is well understood especially given the potential to add a diabetes indication and to combine NB32 with other diabetes meds, both of which have driven additional recent interest. We’re making good progress in our rest of world partnering discussions and expect the regulatory decisions to see will be keyed in process both in terms of timing and value.

On the investor front, we will be speaking at the BoA Merrill Conference in Las Vegas on May 14 and at the Jefferies Conference in New York on June 3rd. Later in June, we will speak at Wells Fargo Conference in Boston

I’ll now turn the call to Mike for closing remarks. Mike?

Mike Narachi

Thanks, Jay. In closing, I want to again convey our confidence around the upcoming PDUFA date and the review of the MAA in Europe. We’ve also provided some detail today of the resourcing level Takeda has committed to for a strong U.S. launch and we remain optimistic for our partnering prospects for right outside of North America. Clearly, we have a number of important milestones and catalyst ahead of us this year and the Orexigen team is highly focused on delivering these key positive results.

We’ll now open the call to Q&A. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from Steve Byrne. Please go ahead.

Steve Byrne - Bank of America Merrill Lynch

So regarding those 7600 patients with diabetes in the Light Study, did you collect data on A1c levels and use of diabetes meds over the course of their treatment?

Mark Booth

Over the course of treatment again the Light Study we do not collect ongoing, we have as you know from the Phase 3 program a dedicated trial in patients with type 2 diabetes. We do have information on baseline use of medications in the Light Study, so we have a variety of ways to get at information regarding the cardiovascular profile that comes from the Light Study and then the hemoglobin A1c efficacy profile which is covered in the type 2 diabetes chart on page 3.

Mike Narachi

I think the point we’re trying to make is with one Phase 3 trial where hemoglobin A1c was carefully tracked and an additional one or two Phase 3 trial depending on how you want to design the program could complete the efficacy package for diabetes application. But the challenging, costly and lengthy part of any diabetes application today is demonstrating the exclusion of the certain amount of cardiovascular risk and that’s why we’re emphasizing that we already have 7600 patients with cardiovascular risk data on where we feel we could easily satisfy the guidance on risk exclusion for approval.

Steve Byrne - Bank of America Merrill Lynch

And two follow-ups to that comments of Mike, first one would be, something came out of the Light data that they were due to file some patent applications and I was just wondering if any of that has been public?

Mike Narachi

No, we haven’t made the claim structure or anything of details of those patents public. All of we said so far is that we’re confident in the issuance of those patents in their orange book exclusion, inclusion and which could potentially extend the loss of exclusivity dating after 2034.

Steve Byrne - Bank of America Merrill Lynch

And then the other being, are you inclined to start your own diabetes study with NB32 versus various combos before you had a partner or is that something you might consider?

Mike Narachi

Yes, all the lifecycle opportunities that Preston outlined today are being considered in the context of the partnerships that we have. So already with Takeda in North America and discussions for someone to the rest of the world, so the way we look at is if we and one or more of our partners are interested in commercializing new indications fixed those combinations et cetera then funding would for those new indication of lifecycle opportunities would be as per the terms of the agreement. So and then just do it all on our own big that scenario would be unlikely unless someone say prove it me first and we had high conviction, but we would want to see indications that they would put commercial efforts behind those new opportunities as well. Now we see some of those like fixed dose combinations some one that provided the proprietary half of one of those combinations would need to be interested in play.

Steve Byrne - Bank of America Merrill Lynch

Okay. And then just one more from me and, it’s for Mark. Just any thoughts you have about how long that you think it might take to get formulary coverage post approval and for the payers that have already put [Indiscernible] formulary is that essentially low hanging fruit?

Mark Booth

Steve, I would think that, the payers have already added obesity there are few to coverage that would be low hanging fruit. For those that haven’t as you know it’s a process, most payers will take a few months to evaluate the drug and the big reason they are doing that is to see what kind of demand there is for your product and that drives a lot of their interest if they want to have you on formulary or not. And you know our launch is designed, what we’re launching big. And we’re looking to drive as much earlier demand is possible.

Operator

The next question comes from Cory Kasimov. Please go ahead.

Matt Lowe - JPMorgan

Hi, there it’s actually Matt Lowe for Corey today. I guess just a couple of question to start with, in times with the size that sale force could you just put that into context for us in terms of how that compares to other weight loss drugs historically. Not necessarily the two new ones on the market that maybe going back up over the course of time. And then are you prepared to take how many people does Takeda have to vote it to payer services in patient access?

Mark Booth

Yeah. I couldn’t go back in time and tell you what some of the older therapeutics had one their drug at launch that was quite some time ago I think what’s reported to point out is that 900 sales reps are going to be carrying contract that’s the kind of effort you want in a developing primary care market like obesity. So I think the key question is do we have critical mass for our launch and the answer to that is clearly yes.

Matt Lowe - JPMorgan

Okay. And then the second part of that question in terms of how many people Takeda has devoted to pay incentive patient access?

Mark Booth

You know we don’t have, we’re not giving out a specific number on that but suffice to say Takeda has got a very large managed share organization they have, if you take a look the access that they’ve been unable to drive with other drugs like [Indiscernible] that if you got the expertise and the infrastructure needed to do a great job there. And that infrastructure will be applied to contract.

Matt Lowe - JPMorgan

Okay. And then I’ll try for this one although it may be hard to say at this point are there any directional comment you’re prepared to give on pricing at this point?

Mark Booth

No, stay tuned.

Matt Lowe - JPMorgan

Okay. All right. Thank you.

Operator

The next question comes from Matthew Andrews. Please go ahead.

Matthew Andrews - Wells Fargo Securities

Good afternoon, thanks for the questions. So since Takeda has North American rights assuming FDA approval for obesity in June. How soon can we expect them to move forward with the Phase III monotherapy in add-on study and diabetes to discuss your earnings call? And also how important it is that -- you have the ex-U.S. partner lined up as well, when you consider the study design and use those data, I guess for approval both in the U.S. and Europe? Thank you.

Mark Booth

Yes. Thanks for the question. I think that the -- we don’t comment on exactly how soon for the timing on this things, but there being actively and very rigorously discussed since down to lot of details planning for regulatory dialogue on these things et cetera. You’re right to ask how would you design those trials and how important is it to also secure or identify who is going to commercialize the rest of the world because there are some important choices to make in terms of the arms of say diabetes trial. But I will say that the opportunity is such a high from our estimates, high ROI positive opportunity, that if you want to you can run programs in different geographies. And then it would be more presume the opportunity for the U.S. market alone.

Operator

Our next question comes from Charles Duncan. Please go ahead.

Charles Duncan - Piper Jaffray

Hi, guys. Just waiting for a turns, thanks for taking the question. This is the cost of -- sorry if this has been address but can you just discuss a little bit any MIT missing opportunity inside you’re working on?

Mark Booth

Yes. Thanks for the question. I won’t discuss it in detail but we do get out this question often, as investors see this year being loaded with catalyst in near term milestones related to the contrive. And so the question in general that we get is, what are you option are what is the next steps who want Orexigen has partnered NB32 globally and we find ourselves with growing cash balances from royalties in milestone. And the part of the strategic assessment for our future where we’re evaluating all the alternative our base case is maximizing the value of NB32 royalties and milestone, including under what circumstances we may co-promote NB32. But we’re excited about the opportunity to leverage the team in the foundation NB32 will build to grow the company through transaction end up bringing in new commercial or development state assets. The nature in the details of the transaction that we contemplate for North American commercial partnership is also going to help to find some of the options in our preferences there. So I guess it’s more of stay tuned to answer but we’re active, we’re evaluating things and whatever builds the most value and leverages what we have it, clearly beats the base case of their line, of being just inefficient throughout the under milestone earner. Anything that clearly beats that base case is the scenarios that we’re pursuing and evaluating. So I -- sorry I can’t share details with -- yes, but I am excited for us to be looking to the future on building on a successful contract program.

Charles Duncan - Piper Jaffray

Okay. And can you remind me the U.S. approval milestone?

Mark Booth

The milestone between approval and launch that we’re eligible to receive from dictate our total of 100 million.

Operator

At this time we have no further questions.

Mike Narachi

All right. Well, thank you very much everyone for joining us on the call today. And we look forward to providing progress reports on upcoming analyst call, investor meeting. And again as always thank you for your interest.

Operator

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

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Source: Orexigen Therapeutics' (OREX) CEO Mike Narachi on Q1 2014 Results - Earnings Call Transcript

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