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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Q2 2014 Earnings Conference Call

August 7, 2014 08:00 AM ET

Executives

Mike Narachi - CEO

Mark Booth - CCO

Preston Klassen - SVP of Development

Jay Hagan - CBO

McDavid Stilwell - VP of Corporate Communications and Business Development

Heather Turner - VP & General Counsel

Analysts

Charles Duncan - Piper Jaffray

Brittany Terner - JPMorgan

Tazeen Ahmad - Bank of America Merrill Lynch

Lee Kalowski - Credit Suisse

Matthew Andrews - Wells Fargo Securities

Operator

Welcome to the Second Quarter 2014 Orexigen Therapeutics Incorporated Earnings Conference Call. My name is John and 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 the conference is being recorded.

And I’ll now turn the call over to Heather Turner, General Counsel.

Heather Turner

Hello and thank you for joining us this morning. I’m 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-Q, the Company intends to file this week. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 7, 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’ll now hand the call over to Mike Narachi, Orexigen’s Chief Executive Officer. Mike?

Mike Narachi

Thank you, Heather, and thanks to all of you for joining us on the call this morning. We are making progress with the FDA on the NB32 NDA review and specifically on the post marketing obligation for the ongoing evaluation of cardiovascular outcomes. This is the issue we’re focused on with the agency in order to complete the review.

Since June, when we announced the three month review extension, we’ve had ongoing high level engagement with the FDA on this topic and we won’t preempt those ongoing discussions today. We are confident we can reach agreement on the final details.

Our partner Takeda is preparing a well resource primary care launch of NB32 for this fall. In terms of the launch, our team has been working very closely with Takeda, putting the finishing touches on an integrated comprehensive NB32 launch plan. We’ve put a three months review extension to its best use to refine the tactical plans. And as previously announced, the NB32 launch will be carried by the sales force of approximately 900 field representatives, which we believe is the type of effort needed to effectively launch a drug in the U.S primary care market.

In addition to the sale force effort, the NB32 messaging and medical information platform are fully developed, backed by extensive market research and all be supported by a large managed care effort to help establish NB32 across the payer marketplace.

These are just some of the reasons we’re excited and confident in a strong and differentiated launch in the U.S and I know Mark Booth is looking forward to sharing additional details in the future.

Regarding our European MAA, we continue to make progress. We recently received the Day 180 List of Outstanding Issues and Preston will now provide additional color on that process and our expectations for the ongoing MAA review. Preston?

Preston Klassen

Thanks, Mike. Late last month we received the Day 180 List of Outstanding Issues from the CHMP. The Day 180 Issues include two new questions, both of which we believe are addressable. Our response to the earlier Day 120 List of Issues included Light Study interim data which were tremendously helpful and adequately address those questions. The Day 180, the CHMP are asking us for broader justification of the benefit risk profile of NB32. As a reminder, the NB32 MAA was submitted in two installments. The original filing was submitted de novo last October and was based on the 4,500 patient Phase 3 program in early development work.

Prior to filing the MAA, we had discussed with CHMP that the cardiovascular risk question would be an expected question of Day 120 and at that point we would have Light Study interim data to submit in response. Accordingly, in May we submitted our responses including Light Study data which adds approximately 9,000 patients to the overall clinical program. The CHMP is now asking us to synthesize the benefit of this profile across all that we know about the efficacy, tolerability and safety profile of NB32, which is now represented by the largest preauthorization clinical program ever submitted in Europe for obesity therapeutic.

This is not necessarily a new issue or surprise. We are in the final stage of discussion prior to a likely oral hearing and our job as with any MAA review is to help regulators understand the medical need, the imperative to treat, and have the efficacy of NB32 meet that need and imperative and make sense in the context of the (indiscernible) tolerability and safety profile.

We believe that the unmet need in the medical imperative to treat are clear. Weight loss as modest as 2% to 4% of body weight has already been demonstrated to significantly reduce the risk of developing type 2 diabetes and it improves glycemic control in patients who have diabetes.

Weight loss also improves cardiovascular risk factors, improves quality of life and in at least one long-term follow-up of lifestyle modification leading to modest weight loss, improvement in survival has been documented in over 20 years of follow-up.

The weight loss efficacy seen across the NB32 program is as great or greater than any other weight loss therapeutic previously approved in Europe, and the efficacy meets CHMP guidance, including the recently released new draft guideline document.

Improvements in hemoglobin A1c among NB32 patients with diabetes is as great as commonly used DPP-4 therapies. Lipid profiles, inflammatory markers, quality of life measures, all improve. The small increases in blood pressure and heart rate among NB32 treated patients relative to placebo, have resulted in a large scale cardiovascular outcomes trial, to determine the actual impact of NB32 and cardiovascular events.

The interim results of this analysis have met the pre-specified criteria for excluding cardiovascular risk for U.S regulators and we’re confident that the data support appropriate interim exclusion of cardiovascular risk in the eyes of European regulators. Of course additional long-term stage to a final analysis should be continued after approval and can be accomplished with the ongoing Light Study.

And the tolerability and general safety profile of NB32 is well characterized by our clinical program and also is well reflected in the long standing history of the individual constituents now naltrexone NB program. As I stated earlier, the amount of preauthorization information provided to European regulators is unprecedented for an obesity therapeutic and we’re confident in our ability to present the compelling case of positive benefit risk profile of NB32.

The other issue raised with Day 180 is a question directed to our third-party suppliers of bupropion, requesting that they provide additional information regarding restarting materials for bupropion. We are confident this issue is addressable, but in order to have the time to coordinate responses from these third-party suppliers, Orexigen has requested an extension of one month. Accordingly, we will submit the response of the Day 180 issues in September, which will restart the clock and we will then expect in October to receive either CHMP opinion, notice of an oral explanation or possibly additionally questions.

I’ll now turn the call over to Jay.

Jay Hagan

Thanks, Preston. For the three months ended June 30, 2014, Orexigen reported a net loss of $24.5 million or $0.21 per share as compared to a net loss of $18.2 million or $0.19 per share for the second quarter of 2013.

Total operating expenses for the second quarter of 2014 were $23.7 million compared to $19.1 million for the second quarter of 2013. This overall increase in operating expense reflects an increase in raw materials inventory and manufacturing related expenses and in stock-based compensation expense.

While Orexigen is responsible for manufacturing NB32, Takeda will reimburse Orexigen for these manufacturing related expenses, including finished goods. As of June 30, 2014 Orexigen had $31.1 million in cash and cash equivalents and an additional $102.2 million in marketable securities for a total of $133.3 million. Orexigen is eligible to receive cash milestone payments of $100 million from Takeda, between U.S approval and first commercial sale of NB32.

On the investor front, we will be participating in the Bank of America Merrill Lynch Conference, in London on September 17th.

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

Mike Narachi

Thanks, Jay. Before opening the call to your questions, I wanted to provide a brief review of our progress towards our four key corporate goals for 2014. These key goals include U.S approval, a differentiated and strong U.S commercial launch, positive CHMP opinion leading to EU approval and a strong partnership for development and commercialization of NB32 outside of North America.

As we outlined earlier on the call, we’re making progress towards the first three goals. Regarding an ex North American partnership, we believe deal value will be maximized with approvals in the U.S and Europe. We’d expect advance our partnering process once we’ve obtained these important milestones.

With that, I’d like to open the call up now to your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from Charles Duncan from Piper Jaffray.

Charles Duncan - Piper Jaffray

Hi guys. Thanks for taking the call or questions. My question was primarily a look back on the FDA process. I know that you cant say much about what’s going on now, but was there really a change in the communication from a couple of years ago to what you received recently?

Mike Narachi

No, no change Charles, as we outlined and thanks for the question. This really is solely focused on what is the appropriate ongoing evaluation of cardiovascular outcomes for the NB32 program. And the top its complicated by the disclosure requirements regulators often have for information used for a benefit risk assessment versus the desire of any ongoing blinded study that keep the data confidential. And so that has led to complexities around exactly how and what the choices are for that ongoing evaluation. And we don’t want to preempt those discussions we have -- we’re pleased with the discussions that we’re having there -- we’ve high level engagement with the FDA and its ongoing.

Charles Duncan - Piper Jaffray

Okay. And when you consider the upcoming panel to address that topic, it seems to me that some of those complexities have either changed or were not fully appreciated. Is that panel been driven by contraries or broader FDA strategy?

Mike Narachi

Yes, its been driven by broader questions and if you look at Commissioners hearing and the questions that they’re asking, they’re very broad questions. As you I’m sure know there are many products that are have either gone through the process handful that we outlined as cases on our last call and others that are in process and others that are contemplating it. So I think FDA is just looking for input on those competing tensions between public disclosure when you use data for an approval versus typical guidance ICH-E9 etcetera that says hey when you’re running an ongoing blinded trial, you keep the data highly confidential. So I think that they’re looking for on a broad basis. In fact, we ask the agency does the panel relate to our review and do you need information from the panel in order to conclude your review and they said no.

Charles Duncan - Piper Jaffray

Okay. And then my final question is regarding the European strategy and in particular the commercial strategy. But first of all, thank you for the added color on the regulatory progress over there. Any further thoughts on commercial strategy and if that is possible to see an increased visibility before the regulatory process completes or would you point to perhaps next year after its approved?

Mike Narachi

Yes, thanks. You know we’ve been running a structured process and for the Rest of World rights. As a reminder for everyone on the call, we’ve a partner for North America and we’re seeking a partner for all other ex-North American territories. So there are a lot of -- it’s been a competitive process. There is a lot of choices that we have there and our choice right now is we feel like the deal value we maximize with both the U.S and in EU approval. A denial in Europe is problematic for some regions that prefer an European approval. Our focus -- the focus of most people in the process has not been solely on Europe, its on lots of territories around the world, particularly, some of the emerging markets where historically obesity therapeutic sales have been quite high on a per capita basis in utilization is quite good. So it is really a focus on our ROW process in total and how to optimize that. And at this moment in time, we feel the optimum deal value would come once we’re through both of those processes. Particularly because right at the end of the process in Europe anyway, [ph] [so those] will play it out. We’ve fully funded all the programs, all the data for the large program unprecedented these large program that Preston outlined and we’re just going to let that play out and then complete the process.

Charles Duncan - Piper Jaffray

Sounds good. Thank you Mike for the added color.

Operator

Our next question is from Cory Kasimov from JPMorgan.

Brittany Terner - JPMorgan

Hi. This is actually Britney on for Cory. Thanks for taking the questions. So can you provide an update on your life cycle plans for Contrave, for the diabetes and then the fixed dose combination with DPP-4. And also can you provide an update on the build up of launch supply and how quickly you guys would be ready to launch if the FDA decision is positive? Thank you.

Mike Narachi

Yes, let Jay take the launch supply question first and then I will circle back with the life cycle plans.

Jay Hagan

Yes, hi. The increase in operating expenses that we outlined on this call and our Q1 call reflect the preparation for a launch load and while we’re not going to disclose the actual amount that Takeda has ordered from us. Its captured in that and we will have a launch that’s commensurate in terms of a launch load commensurate with the effort that to get in terms to put behind it. And so that’s the external guidance that we will provide on that.

Mike Narachi

And on the life cycle, we’ve said in the past that we’re very interested in pursuing a diabetes indication for Contrave as well as the opportunity to put Contrave into a fixed dose combination with diabetes medications and have done some feasibility work with the DPP-4 plus Contrave. The progress on those plans, ongoing plans evaluation etcetera of exactly how to pursue those opportunities and its part of the dialogue obviously in the partnering process. But details on that, I think we’re going to wait until after the approvals.

Brittany Terner - JPMorgan

That’s just great. Thank you.

Operator

Our next question is from Steve Byrne from Bank of America.

Tazeen Ahmad - Bank of America Merrill Lynch

Hi. Thanks for taking the question. It’s actually Tazeen in for Steve. I guess following in the previous question for Contrave you did have some impressive data and albeit in a small group of patients on, who had issues with depression as well. I know that you’ve turned your focus on diabetes but is it on your radar to potentially pursuit this sub-indication as well?

Mike Narachi

Yes, I’ll let Preston take the question on the depression.

Preston Klassen

So, I think there is a variety of lifecycle options. This is one of the exciting things about NB32. Obviously the individual constituent’s bupropion have indications across a number of areas in the disorders (indiscernible) et cetera. And so there’s a number of options that are on the table and we are as Mike mentioned, discussing that its part of the partnering process, its also part of the ongoing discussions we have with our existing partner in North America, but at this time we’re going to wait until after approval to elucidate any further direction.

Tazeen Ahmad - Bank of America Merrill Lynch

Okay, thanks. And then for the Light trial, can you provide any color on whether you’re seeing any change in the rate of accruals other than, so as you approach your November target?

Mike Narachi

Yes, we don’t typically talk about the general kind of metrics or ongoing data collection efforts in the study. We’re very pleased. What I can say is that typically what you see at cardiovascular outcome studies or other large scale outcome studies is, particularly when it’s a large patient population like this, the event rate typically is fairly consistent over time.

Tazeen Ahmad - Bank of America Merrill Lynch

Okay. And then the last question is about partnering. Are you more focused now on trying to get a worldwide partnership for Contrave or are you still thinking of potentially including Empatic would be the best package for consideration?

Preston Klassen

Yes. As we said in the past, Empatic would only move forward if it was risk shared or cost shared with a partner. And we think the best way to develop Empatic would be keeping in mind the positioning for Contrave and thinking about ways to develop Empatic that are complementary to that positioning. So I think your question is, maybe I’ll answer your question by saying yes its included in those dialogues and part of the offering. But the focus is on Contrave. I mean Contrave near-term, its at the very end of the regulatory process in both the U.S. and in the EU. So that’s where all the focus is and that’s where the value is I think in the deal.

Tazeen Ahmad - Bank of America Merrill Lynch

Okay. Thanks very much.

Operator

Our next question is from Lee Kalowski from Credit Suisse.

Lee Kalowski - Credit Suisse

Thanks. Mike, I’m wondering if you might be able to give some additional details. You had talked about a strong and differentiated launch. Clearly one of the things you’ve talked about is Takeda’s sales force size. I’m wondering if there is anything else that you might add and particularly I guess as we think about the category, I’m sure you’ve been watching the IMS prescriptions in the category which has been a little bit soft to stride some rep ads by one of the competitors. I’m wondering if there is anything else you might be able to add as far as the differentiated launch in your view?

Mike Narachi

Yes, thanks Lee. Thanks for the question. And Mark Booth is on the call, so I’m going to let Mark handle that question.

Mark Booth

Sure, Lee. First of all I think a little perspective is in order. Couple of years ago there was literally no promotion at all in the obesity market and with Contrave approval there’ll be about close to 1,700 reps in the obesity market covering approximately 100,000 physicians. So, we certainly believe unmet need is high and just what this market needs is development and resources and that’s going to happen. To get into the specifics of your question, I think there is three things that I would point to. First of all, it’s the profile of NB32. All the research that we’ve done points to NB32 being very attractive for large important market segments. We’ve discussed some of those previously with some of the most important ones being the obese diabetic, the obese pre-diabetic, the obese depressed patients that was mentioned earlier, female patients, in addition Contrave is not scheduled, so we’re going to have the ability to sample which we believe is going to be a differentiator. And then resourcing is just so important in this market. And Takeda has the resources to effectively establish launch and grow Contrave with the 900 sales representatives we’re going to be able to call not only on a nice mix of positions that are already riders of obesity products, but also very nice group of high potential non-riders that we think will be key to growing the market. The marketing budget is going to be commensurate with the type of sales rep numbers that we gave you and then a significant managed care effort and reimbursement is important here. And then lastly I think what we’re excited about is, we think our timing is good. We think we’re coming into this market at the right time. Awareness was up with patients and physicians; the reimbursement landscape has improved significantly. The AACE guidelines that were issued emphasize the importance of weight loss. So those are ultimately, you can see those are some of the reasons we’re confident in the strong and differentiated launch.

Lee Kalowski - Credit Suisse

Okay, thanks. And as far as you know that, we’ll be ready to go assuming the approval is on time?

Mark Booth

Yes, well the launch is completely in the can, ready to go and we haven’t given a specific date, but we’ve indicated a fall launch.

Lee Kalowski - Credit Suisse

Got it. Okay, thanks. And then, maybe for you, Preston. I was just wondering if you might be able to clarify a couple of things about the CHMP process. It sounds like you’ve not yet heard whether you’ll have an oral hearing and I’m wondering if you can just sort of walk us through the timeline from the September filing I suppose. And as far as the EU partnership is the gating factor getting the CHMP [ph] [req] or is it a final EU approval?

Preston Klassen

Yes, sure, I will -- I can walk through that. So, we’re not going to hear about an oral hearing, yes, no specifically until after we actually give them our Day (indiscernible) 180 oral hearing until we actually give them the Day 180 responses. So we received those question, that list of issues last month and we elected as a result of the question to the third-party suppliers we’re going to coordinate more, we opted for a one month extension. So that puts our timeline for the response returning in our answers to the List of issues in September. That restarts the clock and then regulators have 30 days to get back to us regarding the next steps and as I outlined in my scripted statement back in the CHMP opinion outright it can be a notice of an oral explanation as when we would hear, hey its time for an oral hearing. So we would expect that oral hearing to take place later in the October or potentially November timeframe. They’re going always of course ask additional questions that’s (indiscernible). Once the CHMP then provides an opinion and at the end we believe will be a positive opinion, then there is some additional procedural events in order to get to the actual final European approval, but it’s generally predicated on that positive opinion that you receive CHMP.

Mark Booth

And the second part of your question Lee, for the partnering process the opinion is the key component there.

Lee Kalowski - Credit Suisse

Okay, got it. And so, just to clarify, if you get – if you are asked to do an oral hearing, when do you think a yes, no recommendation from the CHMP would come?

Mike Narachi

It depends upon the date of the oral hearing itself. We do believe that a positive opinion could still come in this year -- at the end of this year. There’s a chance it would be early next year. But the -- it just kind of depends upon the scheduling data for when you’re asked to go in front of CHMP.

Lee Kalowski - Credit Suisse

Got it. Okay. Thank you very much guys.

Operator

Our next question is from Matthew Andrews from Wells Fargo.

Matthew Andrews - Wells Fargo Securities

Good morning. Thanks for taking my two questions. Just following up a bit on -- how important is it to have an ex-U.S partner onboard to commence your diabetes lifecycle management plans from a harmonization of clinical design standpoint, assuming you licensed it to somebody other than Takeda. And then separately, how usual or unusual is it for the CHMP to acquire about a supplier of drug product as part of an MAA? Thank you.

Mike Narachi

Yes, thanks for the questions. I’ll take the first one and Jay will take the second. For a diabetes indication most people pursue a fairly harmonized, globally harmonized program that would be adequate for global regulators, and that’s the kind of development program that we’ve been outlining and discussing. So, I don’t think it’s important -- I don’t think it would be different really in anyway between what we would do for our U.S. regulatory process versus say in EU or other regulatory process, so comprehensive type of program. Jay, do you want to take the supplier questions?

Jay Hagan

Sure. Yes, its part of any regulators review there includes not a section on CMC and GMP quality and so forth and this is a direct dialogue amongst the agency and the third-party suppliers they maintain in the U.S. what are called DMF or Drug Master Files and its an equivalent nomenclature in Europe, its called an ASMF. And so there’s specific details of follow-up that they’ve asked of those third-party suppliers of bupropion regarding the starting materials that are used in a very simple synthesis. Recall also that bupropion has only been approved in Europe since 2007 as opposed to the U.S. where we have U.S. pharmacopoeia standard for bupropion, it’s been approved for nearly 30 years.

Mike Narachi

I think part of what's happening here is that, this is the first time that bupropion has gone through a centralized procedure and so the EU is asking information we assume likely lots of other suppliers as well. So it’s just looking further up in the supply chain for quality information on study materials.

Matthew Andrews - Wells Fargo Securities

And then Michael, just on the diabetes to wrap that up, so it sounds like partnership with -- if you license it to somebody other than Takeda outside the U.S. that’s really not a pacing item to putting together and starting a Phase 3 program next year?

Mike Narachi

No. We don’t see it as a pacing item.

Matthew Andrews - Wells Fargo Securities

Okay. Thank you.

Operator

(Operator Instructions) And I’m showing no further questions at this time.

Mike Narachi

All right. Well thank you very much operator and thanks to all of you for joining us on the call today. We look forward to providing progress reports on upcoming analyst calls, investor meetings and thanks again for your interest in Orexigen.

Operator

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

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