Orexigen Therapeutics' (OREX) CEO Mike Narachi Presents at Bank of America Merrill Lynch 2014 Health Care Conference (Transcript)

| About: Orexigen Therapeutics, (OREX)

Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Bank of America Merrill Lynch 2014 Health Care Conference Call

May 14, 2014 06:00 PM ET

Executives

Mike Narachi - President and CEO

Analysts

Tazeen Ahmad - Bank of America Merrill Lynch

Tazeen Ahmad - Bank of America Merrill Lynch

Everyone, good afternoon and thanks for coming to the session. I am Tazeen Ahmad, I'm one of the Biotech Analysts here at Bank of America Merrill Lynch. I work on the Midcap team with the Steve Byrne. It's my pleasure to introduce today Mike Narachi, who is President and Chief Executive Officer of Orexigen Therapeutics. Mr. Narachi has been a member of the Board of Directors here since March of 2009 and has several years of experience in the pharmaceutical industry including at Amgen where in 2004 he retired as an Officer and Vice President. He had at that time served as General Manager of Amgen's Anemia Business from 1999 to 2003.

Today, he is going to talk about Orexigen's obesity platform and upcoming catalysts for the company. And without further ado I will turn the podium over to Mike.

Mike Narachi

Thanks Tazeen. And thanks for your interest and attendance. I will be making forward-looking statements today and as you know in our industry in particular things materially change as events and circumstances move forward, if you want to see the full disclosure of the risk factors please look at the SEC website or our website.

One point I want to make, we know that the obesity epidemic is global and growing and it's delivering flesh and blood to our healthcare system both on the medical side and on the cost side. But it really is global and you can see the numbers that are increasing in other geographies it is not westernized only now it's really a global epidemic (inaudible) that are shocking even more severe on a percentage basis in the U.S.

And more importantly now the medical imperative and the health policy imperative to do something about it has increased. So it's on the table for all the health policy makers around the world and the medical professionals around the world.

And I'll tell you why that's relevant, because I think right now most people think about the U.S. market for obesity. And we and our perspective partner are not thinking about it only that way and that's something in our future that I will put out there as a milestone.

So medical epidemiology shows clearly that there is a huge correlation and related cost bases where when you have multiple comorbidities obesity is kind of a cost and a risk multiplier. And a lot of the focus has been driven on diabetes and diabetes being chronic long-term dramatically increased cost of the diabetes patient in the healthcare systems, almost all of it being driven by obesity.

Now how do we translate, the call the action I think is pretty clear to reduce weight and help people with obesity, but how these translate that into a blockbuster category. And here we just list a few of, we think are critical elements, global approvals are important. U.S. approval is great, but the absence of a European approval or a negative decision in another made jurisdiction causes concern, I think in some other geographies where either they prefer European approval or they wonder while U.S., say, yes; or Europe say no; or why or what was the basics for the negative scientific opinion.

So I think it is going to important to get U.S. and an EU approval and then cascading approvals around the globe in order to really capitalize on the global opportunity. All the regulators are asking for an effective drug, but very, very safe drug where they have a lot of confidence in safety, partly because of the history, but also partly because of the large population exposure of these drugs could ultimately achieve. It’s going to take large primary care marketing efforts with skill. And more and more pharma are getting out of primary care. And scale, scale matters a lot, not only on individual launches, but I think if you're going to stay in primary care, it’s a large effort.

Obviously coverage and access, and that varies around the globe depending on the reimbursement model that you’re in but that’s critical; and then continued investment. You can’t just get the approvals but all the other large categories that have ever been created continue to invest not only in new indications but long-term outcomes data.

So right now, most people say yes, losing weight is good, and it should translate to decreased cardiovascular diseases. But when we will have the proof of that? And so I think that kind of proof is going to be important for the long-term big category creator.

I want to pause just for a second on this slide; this is old historic data of factorial Phase 2 design. Our drug, our lead drug is a combination of naltrexone and bupropion. And it led to a very unexpected result in preclinical model based on historic, scientific discovery in hypothalamus and the way the [secretary] of the brand really works here to drive energy expense.

We knew that bupropion signals the MC-4 pathway and we knew that bupropion drove a little bit of weight loss. And you can see in this Phase 2 data with placebo on the far left bar and then naltrexone essentially driving that weight loss, and bupropion in small amount of weight loss. And when you put the two together, they gave almost the synergistic effect, the dramatic and unexpected and useful results that when you put the two together you get a lot more weight loss and it’s sustained. And that was based on the discovery that inside the (inaudible) there appear to be a functional receptor that acted as an auto inhibitory feedback switch to turn off the signal (inaudible). And so the hypothesis was what stimulates that signaling and blocks the auto inhibitory off switch with naltrexone.

So that was a discovery; it’s not a combination of two weight loss drugs that I think on let’s say some people may think was obvious but that was a founding method claim and then it lead to composition claims and then many other claims. Since that time, you see on the bottom of this chart the Weber/Cowley patent that I just mentioned from those observations. That patent issued in most geographies and it’s set for exclusivity out to 2024-25 and since then we filed many other patents, some of them issued, some of them pending. It could extend our period of exclusivity all the way out beyond 2030 and that also I think is important if you are going to make those large long-term lifecycle investments if you have time to reap the benefits of those when you are up there on the sales trajectory.

So to-date we studied Contrave in over 13,000 patients. The bulk of the investigation started in Phase 3 and Phase 2 clinical trials of about 4,500 patients and there we demonstrated all the expected benefits from weight loss, improvement in all the cardiometabolic parameters. In the Light Study, the cardiovascular outcomes trial that FDA asked us to run prior to approval, we had an additional 8,900 patients in a trial, half of them exposed to Contrave, the other half placebo and there we cleared the preset risk exclusion hurdle and observed no new safety signals and I will go into that in greater detail in a minute but this is what changed the game for us in terms of our confidence in global approval and a long-term confidence in a safety profile.

On the efficacy side, the response for obesity therapeutics has shifted and I think was shifting that way over time to focus on the responders. And like many drugs, you have an effect sizes large, about half the people are solid responders and the other half is kind of an uninteresting respond, some weight gainers didn’t work and some people have an unimpressive amount of weight loss. So the treatment goal here is identifying early responders, get them to stay on and people who are non-responders, they try something else.

Amongst those responders you can see impressive amounts of weight loss. And most physicians want to see about 10% weight loss. So here you can see that large percentages of patients are losing 10% to 15% of their bodyweight. And if you add a behavior change program with that, coaching counseling of how to change your reading habits and track your weight and make long-term sustainable changes, you get your more dramatic results; that’s the pie chart on the right.

So these are amongst the responders an impressive amount of weight loss and what physicians want to know is what’s my shot out of good response and you can say look about half the time you get a really good respond and if you add a program to that you will get even better results. That translates into the way we think the drugs will be sold and will be adopted.

The Light Study, the 10,000 patient outcomes trial that we ran (inaudible) led by the FDA to see the outcomes in the real safety. And a little bit of a detail there, it’s not just a couple of numbers that we turned in, it’s a huge dataset where we look at the data in a lot of different ways, sometime that first occurred of hardcore main stroke heart attack and death of each of the three components you look at to make sure there is no disproportionality there early hazards, late hazard. You have so many causes, lots of cardiovascular ultimate outcomes and then expected comparisons between the placebo group and drug group they are all serious adverse events.

And we’ve seen outcome trials come before where it looks okay or good, but there is always some little imbalance that causes a concern or worries. And thankfully from this dataset there was nothing in any of the organ system class interrogations of [SAE] either that arose a new suspected safety signal that causes regulators thought. So in addition to the solid cardiovascular outcomes data that clears the hurdles and satisfy the complete response data that we received; the SAE data was very clean.

The other thing that gives us confidence from this study and I believe will give regulators confidence is how generalizable this data is now to the broader population in the key fragile patient segment. So in the past we usually study in a Phase 3 population, we target population and the sicker, older, more comorbid population, you get a less representation in your trials. But here in this trial you can see we had about 10% of patients were smokers, a lot of them had depression, they were on antidepressants in the trial, vast majority of them had Type 2 diabetes with our without a history of cardiovascular disease, almost all of them were on dyslipidemia, hypertension drugs, diabetes drugs.

So, this isn’t a population where when we get out the safety question we can tell we haven't checked in that group yet. Now we can tell we have studied that group. And I think that one of the biggest categories of patients that was missing from almost all Phase 3 datasets for all the historic obesity drug patients suffering from depression and on anti-depression and then, [at] Contrave, was added on top of all of these drug categories. So we're able to look at safety data in the context of a heavily treated comorbid population and that's the group I'm telling you (inaudible) anything of concern. So this gave us a tremendous amount of confidence in both U.S. and the EU regulatory process.

On the timeline for U.S. and EU approvals, we have a PDUFA date coming up; June 10 for the U.S. Day one 20 questions for us for Europe, we'll receive in February, our answers are going in this month which puts Day 180 responses in late July, which with or without an overall explanation process in the EU we would expect the third quarter CHMP opinion and potentially a fourth quarter approval out of the EU, the first in a very long time in Europe.

Shifting gears now to commercial, so that’s the regulatory the data on the efficacy side a little snapshot there and then the safety data that gives us the confidence how are you going to make it to big market. And so these are some of the building blocks, big market unmet need and limited competition and a differentiated profile and last and really importantly for primary care a skilled partner was very heavy resourcing.

What's tractable target in obesity, you got half to U.S. population essentially on label and you're not going to go out and ask for them all, you're not going to say I have a weight loss drug [everyone’s over why don’t you try it], that’s just not going to work. So the tractable target where the call, the action is high where there is already an established medical imperative to lose weight is diabetes, and right behind that is pre-diabetes. So when a primary care patient goes in to see a physician, if they are going in to see a physician to get a checkout for the diabetes, for the diabetes parameters waits on the table all the time and they are preferentially choosing drug to have a better weight management profile.

And then on pre-diabetes, waits on the table, because the same physicians want to pre-diabetic patients to lose weight or next time they see him, they're going to be writing diabetes drugs for that patient. So those are the two most tractable targets we see, and you can see that it’s not a small segment of the population, it's a huge group. And we think that could be the key unlocking global obesity opportunity.

Here I won’t go into the detail, it's in our public deck, but we quote some of the recent guidance that came out of the American College of Endocrinology that’s saying weight loss is the imperative and you should consider using pharmacotherapy drugs or anything all the above, surgery drugs lifestyle change to do something about weight for these patients, so that's the driver of the downstream condition in diabetes. We did a little market research to checked that what seems obvious, but adoption would indeed be faster amongst the obese diabetic patients and pre-diabetes patients of an obesity therapeutics then in the general obesity business diabetic or having being diagnosed pre-diabetic.

And so to capitalize on that right now our strategy would be to position the product amongst and ask for the diabetes and pre-diabetes obese patients. And then later add in fix those combinations of diabetes drug plus Contrave and let outright diabetes indications with Contrave. We’ve done a little work already and done the formulation of stability work of Contrave plus DPP 4 and show that that’s very feasible and we already have a partner in North America that has some of these agents and we’re seeking the rest of the world partner that could also leverage this opportunity to put Contrave in and use it as a franchise extender or diabetes drug franchise extender or differentiator either in the defensive or offensive way for market share.

On the U.S. launch we’ve recently disclosed the Takeda is planning to deploy 900 sales representatives at launch against the opportunity for Contrave and make that deep experience in the diabetes space, they’re already calling on a very large number of the physicians that writes the vast majority of diabetes drugs. So these are the physicians that are treating patients with diabetes and pre-diabetes and they’re writing the majority of all the cardio metabolic drug in dyslipidemia, hypertension in diabetes. We think that’s the right call point with the deep reach down deep in the docile for primary care and then with a great frequency that the 900 reps can deliver to make sure the message gets delivered is consistent and then leads to adoption.

Accessing coverage is critical, people ask us well, there is not much coverage yet for obesity and how you’re going to get the sales if there is not much coverage. But we think that typically good coverage follows strong demand. And if you are a payer, the payer isn’t really our customer, it is a broker of coverage to our customer; the customer is a patient or the employer that’s representing the patient. So unless there is a lot of patients who want the product, why should I have add expense to my formula.

So you got to drive demand and you do that first of all lot of sampling, discounting, couponing to drive early demand, get the coverage and then overtime hold back the discounting and the couponing so that you can increase your margins. Particularly we think that demand is what’s really going to crack open the coverage market. It’s pretty good today, but it only would have expected we will be launching into a market that’s about 60% of commercialized mostly Tier 3 some Tier 2 coverage.

That’s a good place to start. And Takeda now only has the 900 field-based representatives, but they have also got a very large field-based marketing team that will be deployed immediately on this, in fact they are already out doing the work that they can do in the prelaunch phase.

I covered some of this with some review of the terms that the royalty arrangement where we have none of the expenses of the launch. Takeda pays 100% of the commercial expenses and for the product that we manufacture. And the royalties here in starting at $20 one and worked the way up to $35, there is about $1 billion in milestones that essentially solves for a value share of about half the value between us and Takeda once they have generated sales to cover their expenses.

There is $100 million in milestones that we are eligible to receive between approval and launch, so that should come in this year. And the contract also calls this effort that Takeda is putting on that isn’t based only on their instinct to their ROI or their estimate of what it will take the contractual obligations to minimum over multiple years that they must deployed against the market. So dollars spent primary details we are going to sales call and then competition spend.

So that’s the U.S. North America partnership with Takeda. You and the rest of the world opportunity to -- as I said earlier, often as I look and you can see with historic ‘07 obesity sales at about $1.7 billion in pharmaceutical sales. You can see is the how rate against the globe; U.S. was the fraction of that.

So there are sales, a lot of profits in the U.S., but there is a significant amount of sales opportunity. And here we highlighted just a few countries among seven you can see Brazil $530 million in sales for obesity Rx. And Australia is surprising given the population $53 million with obesity Rx.

So when we think about rest of world opportunity and dialogue with respective partners, the emerging market opportunity is there and some of the more established market the opportunity is there.

In conclusion just letting you know what our cash position is, it’s strong. We had $155 million at the close of the quarter. We are going to earn that $100 million, we expect to earn the $100 million in milestones this year from Takeda. And I think we guided the burn is below $90 million. So we expect to bring in milestone from the North American agreement more than we would spend this year and that doesn’t include any potential proceeds for the rest of the world partnership that we could also bring in.

We were lean about 50 employees, so this is a real turning point here. Well, we don’t own expense for the launch; Takeda is going to invest heavily. We get to also try and bring in a solid rest of the world partnership deal this year or early next. And so it’s a turning point not only in the regulatory and medical success of the company, but also in the financial successes of it.

So with that I think I’ll end and let Tazeen or anyone else [fire] away with questions.

Question-and-Answer Session

Tazeen Ahmad - Bank of America Merrill Lynch

Hi, any questions from the floor. I have a few. So Mike further comments that we get about Orexigen is that got a great experienced management team, a great drug, follow-on pipeline. But commercially how am I represent that there is really (inaudible) market. The two other dataset have launched recently have not had good progressive result.

So, can you maybe take us through a couple of things that you think would be stand out areas where Orexigen executed would handle the launches differently? And also what are a couple of things that you think would help by the time you’re ready to launch?

Mike Narachi

Okay. I think ultimately, lots of sales; I mean that's the truth. So, I can give lots of thoughts why we think that that will occur and how we're going to measure progress along the way short of lots of sales. But ultimately, I think people are going to be skeptical enough now, they are going to say well let's see how your sales are actually going.

So the expectation we try to set by studying lots of proxy launches in primary care are and this kind of effort and this kind of spend in a market that needs to be built, only 2% of the adjustable patients today are even getting an Rx obesity. So we need to build that market. A lot of people with that larger the sales force, currently don't write any obesity Rx. So it's not stealing share from an older drug or a drug with a worst profile.

So I think it's going to go slow. I think the first couple of quarters are going to slow, but I would expect by Q3 to start seeing good evidence in Q4 beyond the trajectory that will give you confidence or give investors confidence that this has a good chart at the end of blockbuster drug.

I won’t quantify that right now; Jay is here and probably closer to launch, they're shortly after the launch will give you some of those intermediate metrics. But I think based on the research that we've done, productivity on a sales reps basis, the knowledge that Takeda has on the field and all the research that they've done.

The diabetes, pre-diabetes focus, the preference share that we know we can earn amongst physicians, the comfort that they already have with one switch to another drug Buproprion, there are 7 million Americans currently on Buproprion and those are Rx are written by the same physician. So they’re really comfortable writing Buproprion adding it on top of this et cetera.

The total profile of the drug and kind of a halo although we won’t to be able to say anything much about the safety profile because that data won’t be revealed until the study concludes, it’s an ongoing blended trial. But the fact that 13,000 patients where the safety data has been reviewed by the regulators and given sort of (inaudible) seal of approval I think will also help. So I know I'm not giving you anything specific. But it's the first time in a long, long time we're going to see a large effort deployed against an obesity drug launch.

I think what do we have in the market, just a few weeks ago we had -- or a few months ago we had what 500 or so, actually we have 350 sales reps and in a few more months we're going to have 1,600 sales reps in the market.

So I think driving market growth and adoption and awareness that maybe I should consider pharmacotherapy as a solution for weight loss and then preference share and market share from the larger selling from Takeda. We’ll know soon.

Tazeen Ahmad - Bank of America Merrill Lynch

Can you talk in a little bit more detail about plans for when DTC would start, when after the PDUFA Takeda would be ready to launch? And maybe talk on a couple of points on what discussion, what feedback you’re hearing on discussions with some with payers on putting drug on formulary?

Mike Narachi

Well as I said earlier on the formulary coverage and access, right now it looks like from independent survey, it was about 60% of commercial lives have some coverage and access mostly tier 3, some tier 2, so $50 co-pays or $30 to $20 co-pay. And then on top of that people are running discount and couponing programs. Takeda will be able to stand more in the market so that helps with the first RX, the fulfillment first RX. I am sure there will also be and we’re not going to disclose details but couponing and discounting programs. Takeda’s effort is large in managed markets, and most pharma companies with primary care efforts get those important externally facing sales force if you will, the work with all the payers and in some cases employers. So, I think it will build. And then with the demand and working with payers directly, I think will build from that 50%. Frankly I am impressed that our colleagues have gotten; 50% with relatively low demand that’s a great start for us to launch into. And I think it will just help build that as time goes on.

I think getting a diabetes indication is going to swing at not only the higher levels of access but shifting from tier 3 to tier 2, like most diabetes drugs, that will help a lot, amongst the patients that have both obesity and diabetes.

Another component of your question was that was a coverage and access part, but the first was, remind me.

Tazeen Ahmad - Bank of America Merrill Lynch

I think you already answered everything I asked. About Empatic, sometimes you get asked well if Empatic has better weight loss than NB32, how are you seeing Empatic fit into the market price, could there be direct competition with NB32 or do you think it could be aimed at a specific subset of patients that would be different?

Mike Narachi

Yes, if I were investing totally in the program of running it which we said that we wouldn’t put Empatic in the Phase 3 unless one or more of our partners wanted to co-invest and risk share with us on that program, I think there are opportunities there. And the way I would about think it is position it in a complementary way to Contrave. So Contrave based on the market research appears to appeal to the vast majority of the market which is today its women who seek treatment, about 70 something percent of the market, mostly at child bearing age. So safety for pregnancy risk I think is a really important component. And it appears to appeal for the sort of the middle BMI, the 66% of the patients that are between 30 and 40 BMI. The lighter patients that seems like they call the action is lower and the higher BMI patients to call the action is high that they often are dealing with other more significant issues in the very high 40 and above BMI patients. However with greater weight loss profile which you are right, when you combine it some of these drugs and [finance] like involve in terms of weight loss is pretty dramatic. You also carry with it the risk of the anticonvulsant on both cognition and pregnancy warning.

So with the way we think about our potential positioning for Empatic would be to focus either in older patients or women that are past child bearing age, and men higher BMI or shorter term view another way of limit risk where you might drive a phase of weight loss and then shift to a drug like Contrave or plateau on Contrave and then pulse in period of time on Empatic different mechanism bupropion but then Zonisamide that can bolt in. So there are number of ways choices you could do, but in addition to how exactly we want to study and get it approved, we also think that the drugs going to need extension of its exclusivity date, which means investment in some of this ideas and find out that is something novel that we can file additional IP and get longer life span on so that it makes these investments not only development but the commercial investment worthwhile.

All that together means, let’s do this together with some results and that are going to commercialize, and I think it’s fixed with Contrave’s we have that out.

Tazeen Ahmad - Bank of America Merrill Lynch

Any other questions from the floor?

Unidentified Analyst

So you guys put up legislation in one of the slides, any comments on or any updates there?

Mike Narachi

Yes, when Medicare Part D went into effect there were couple of categories of drugs that were excluded specifically from coverage. There was smoking sensation drugs and weight loss drugs. Since then, the exclusion for smoking sensation drugs was removed through a [lobbying] effort. And we are in the process of also trying to remove the exclusion for coverage, not a coverage decision but at least remove the mandatory exclusion to coverage from Medicare Part D for weight loss drugs.

Our target market is not Medicare patients, it’s younger patients but it’s a cloud that commercial payers can point to and say well, Medicare doesn’t pay, so why do we pay, it’s a lifestyle drug and that so far from the truth today that makes no sense. And so when we talk to legislators and we’ve got I think about 80 co-sponsors on the bill already. And this is a multi company effort not just obesity drug people helping the effort, but people interested across the board, patient groups, physician groups, medical groups and pharmaceutical groups are all trying to get this done and the bill has three components.

First, the Secretary of Health and Human Services need to have a plan for obesity. This is the likes of one smoking are the lung cancer; I mean it’s huge public health issue. So, let's get a plan. A plan in itself doesn’t do anything but asking for a plan to be delivered and then have a chance to officials ask questions around the plan is a great sort of hopeful point. What are you going to do about obesity? So that's the first part.

The second part is Medicare recently a couple of years ago started to pay for weight loss program which is a foundational part of the whole therapy, behavior change program. But only physicians delivered them. And we are asking that to be modified, so that physician extenders, most practitioners, counselors, dieticians can also get reimbursed at some rate for delivering behavior change program that's an industry on to itself and I think it's really an important one and that's probably the most important part of the bill.

And then the third part is, remove the exclusion that doesn't make any sense. Why should it be excluded, we're not asking for a coverage decision to make to ask Medicare to cover them, we are just saying run it normal course for coverage decisions. There is a lot of bipartisan support for that, but even everyone agrees, will take time to get something done in Washington. So, we're chipping away at it. And one of these days it’s going to get out to do bill and we've got enough support so I think it will ultimately go.

Unidentified Analyst

(Inaudible).

Mike Narachi

You know how these things go, I mean it all takes to somebody to put it up and get it discussed and are there votes and was it attached to the right bill that was going to go anyway and is the cost small if you score it on the short period, or the saving largest, scored on a long period. So it could happen any time or it could take the next congress.

Tazeen Ahmad - Bank of America Merrill Lynch

Okay. We are out of time. So thanks everyone for coming and thanks Mike.

Mike Narachi

All right. Thank you.

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