Orexigen Hits Expectations But That Is Not The Big News

| About: Orexigen Therapeutics, (OREX)


Loss of $0.21 was in line with the street expectations.

Company in high level discussions with FDA regarding Contrave Approval.

Company anticipates FDA approval and is preparing big launch strategy.

Company is responding to two additional points from European regulatory agency.

Orexigen (NASDAQ:OREX) announced its Q2 financial results this morning and the loss of $0.21 cents came in line with expectations. The equity moved up early in the session because of positive outlooks for the anti-obesity drug NB32, also known as Contrave.

Orexigen is anticipating approval of Contrave by the FDA in September and is preparing with marketing partner Takeda for a Fall launch. In many ways, it would appear that the FDA approval is a foregone conclusion, as the company is in high level discussions about post marketing requirements. In theory, there would be no need to have such discussions if the FDA was leaning toward rejection.

In June 2014, the United States Food and Drug Administration (FDA) extended its review of the resubmitted New Drug Application (NDA) for NB32. The new Prescription Drug User Fee Act (PDUFA) action date has been set for September 11, 2014. The FDA indicated that the review extension is needed to reach agreement on the post-marketing obligation related to the previously agreed upon evaluation of cardiovascular (CV) outcomes for NB32. Discussions with the Agency on the post-marketing obligation are progressing, and Orexigen is confident it can reach agreement with the FDA.

What likely had the street excited was the proposed actions of marketing partner Takeda. Takeda is committing 900 sales reps to the launch of Contrave. That represents the biggest sales force to date between the three anti-obesity players. Competitor Vivus (NASDAQ:VVUS) launched Qsymia in the Fall of 2012 and has a limited number of sales reps. Arena Pharmaceuticals (NASDAQ:ARNA) and its partner Eisai launched Belviq in the summer of 2013 with 200 sales reps. Since then Eisai has increased reps to 400 and then most recently 600. Sales of Qsymia and Belviq have been well below expectations with many watchers feeling that slow doctor education is a key reason. Personally I feel that the issues with slower sales relate to cost, patient awareness, and doctor's willingness to prescribe a weight loss pill.

While Orexigen and Takeda will need to wait some time before they can conduct Direct-To-Consumer advertising, the company will have one perceived advantage over its competitors. In theory Contrave will not be a controlled substance like Belviq and Qsymia. This will allow sales reps to deliver actual drug samples to physicians which can then be passed on to patients. Competirs Qsymia and Belviq have sample programs, but they must be applied for and filled at a pharmacy. Walking out of the doctor's office with pills in hand instead of a piece of paper could give Orexigen a leg up. Simply stated, the process is easier.

Orexigen is also already under application in Europe, a market where both Arena and Vivus have failed to win approval. Vivus received an initial rejection and then failed in its appeal of that rejection. Arena was facing rejection and elected to withdraw its application. Orexigen has received its 180 day list of questions from the authorities in Europe and the company disclosed that there were two new question which Orexigen feels can be addressed. The first relates to the benefit risk profile of NB32 and the second relates to the supply of the ingredients. Orexigen anticipates answering these issues early in the Fall. Orexigen indicated that it has supplied the authorities in Europe with more data than any other anti-obesity drug that has been submitted. Personally, I am more confident with the FDA approval than Europe, but only time will tell if the Europeans are ready to approve Contrave.

Orexigen has been trading down ever since the June delay in the FDA approval process. The stock had reached as high as $6.80 leading into the anticipated June decision but has fallen to $5.25 on the delay. As the September 11th FDA decision date approaches, I anticipate that the equity will begin to gain some traction. If approval is finally received, the stock could see some very interesting trading in the subsequent days. Unlike the more substantial run-ups that Vivus and Arena saw upon approval, I anticipate the Orexigen run to be more modest. The slower than anticipated sales of Qsymia and Belviq have tempered expectations. In the long run, tempered expectations may be the best situation for investors in this stock. Qsymia is currently selling at about 10,000 to 11,000 scripts per week at just under 2 years on the market. Belviq, with a larger sales force and television ads is selling at about 10,000 scripts per week at just over a year on the market. For perspective, phentermine (a long time anti-obesity treatment) sells about 130,000 scripts per week.

One issue that will be critical as Contrave prepares to launch is the price point. Generic phentermine is the least expensive treatment. Patients can get phentermine for about $25 per script. Qsymia is priced at over $100 per script, and Belviq is the most expensive. Even though about 70% of covered lives have some sort of anti-obesity coverage in formularies, the level of reimbursement is not on the best tiers. It will be interesting to see if the pricing strategy of Contrave is as aggressive as the dedication of 900 sales reps to the launch. If Contrave can come in at the right price it could have implications throughout the sector. Stay Tuned!

Disclosure: The author is long ARNA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Orexigen, Vivus, Eisai, or Takeda