by Steven Breazzano, Ning Yang, Ph.D., and Andrew McDonald
After nearly being left for dead in 2011, stock of obesity companies OREX, VVUS, and ARNA have soared 200%, 200%, and 400%, respectively, in the past 12 months, even after the recent sell-off. Since many patients may take these drugs for an extended period of time, these companies have faced significant regulatory hurdles in developing their drugs, and each company's drug was rejected at one point by the FDA. The first of these companies, ARNA, finally received FDA approval last month, and marketing partner Eisai hopes to launch BELVIQ (lorcaserin) in late 2012 or early 2013. This follows a positive Advisory Committee vote of 18-4 with one abstention when asked if the potential benefits of lorcaserin outweigh the potential risks. Competitor Vivus also received approval on July 17, 2012 for its weight-loss candidate, Qnexa, and will be marketing it under the name Qsymia in the US in Q4 2012. This follows a positive Advisory Committee vote of 20-2. Orexigen's weight-loss candidate, Contrave, is furthest behind due to a complete response letter (CRL) from the FDA requiring a substantial, cardiovascular outcome trial (CVOT) with a positive interim analysis prior to approval. The objective of the trial is to demonstrate that Contrave does not unacceptably increase the risk of major adverse cardiovascular events (MACE). Orexigen has stated that they expect the interim analysis of the Phase III should occur in 2H13, so if it’s early 2H13, then Contrave could potentially be approved in the first half of 2014. The next catalyst for OREX is the completion of enrollment of the study by 1Q13 and that the 87th event trigger of the interim is expected to come 2H13.
Arena Pharmaceuticals (ARNA) - As the first company to receive FDA approval, all eyes will be on Arena and its marketing partner Eisai as they launch their new drug, BELVIQ (lorcaserin HCl). BELVIQ is a new chemical entity (NCE) and is a selective serotonin 2C receptor agonist indicated for chronic weight management in adult patients with an initial body mass index of 30 or greater, or 27 or greater in the presence of at least 1 weight related co-morbid indication (e.g. hypertension, dyslipidemia, or type 2 diabetes) in conjunction with diet and exercise. It is believed to increase satiety and decrease food consumption. Although similar to fenfluramine (the "fen" in fen-phen), which also targeted 2C receptors, off-target effects on the serotonin 2b receptors caused the weight loss drug pulled from the market in 1997 for heart-valve problems (valvulopathy). Arena designed a selective 2C receptor agonist to overcome this issue, and in clinical trials of 1-year duration, 2.4% of patients receiving BELVIQ and 2.0% of patients receiving placebo developed echocardiographic criteria for valvular regurgitation at one year, but none were symptomatic. The drug was not tested in combination with phentermine, which is currently approved for the short-term treatment of obesity.
In its approval, the FDA recommended schedule 4 designation for a controlled substance, and the DEA will be reviewing this designation and will make a final decision. Arena estimates this process may take 4 to 6 months, although they cautioned it may take longer. Notably, BELVIQ will not require a REMS (risk evaluation and mitigation strategy). In addition, Arena and partner Eisai (ESALY - OTC) are committed to conducting significant post-marketing studies, including a series of studies to assess the safety and efficacy of BELVIQ for weight management in obese pediatric patients. In addition, they will also perform a study to evaluate the long term treatment with BELVIQ on the incidence of MACE in obese and overweight patients with cardiovascular disease, or multiple cardiovascular risk factors. Electrocardiograph assessments will be part of this cardiovascular outcomes trial. Arena's marketing authorization application was accepted in the EU on March 26, 2012. Day 120 questions are set to occur in July, and depending on how quickly ARNA addresses any concerns, approval may occur as early as 1H 2013.
Marketing Deal with Eisai - Terms of the deal signed with Eisai in 2010 include both royalties and milestone payments for US sales, and the expanded marketing deal also includes South America and the rest of North America on terms similar to the US. Arena will receive a $20 MM milestone payment because the prescribing information includes the safety and efficacy from the BLOOM DM trial in patients with type 2 diabetes. An additional $5 MM will be received following DEA schedule designation, and a further $60 MM will be received following DEA scheduling and delivery of launch supply. Arena is also eligible to receive up to $1.2 BB in one time purchase price adjustment and other payments based on Eisai's net sales of BELVIQ. The first purchase price adjustment of $25 MM plus a milestone payment of $30 MM are due if annual sales reach $250 MM. Arena will sell BELVIQ to Eisai for a purchase price starting at 31.5% of Eisai's annual aggregate net sales. The purchase price will increase on a tiered basis to as high as 36.5% on aggregate annual net sales exceeding $750 MM. In addition, Eisai is committed to funding 90% of the cardiovascular outcomes trial, and 50% of the pediatric trial. Arena is responsible for the rest. Arena still retains rights in the EU and is currently seeking a partner for commercialization.
Intellectual Property - Unlike the competitor obesity candidates (OREX and VVUS), Arena's drug is a new chemical entity, and Arena is entitled to 5 years exclusivity under Hatch-Waxman guidelines. Currently, composition of matter protects the compound until 2023, subject to extension. Arena owns issued patents that cover compositions of matter for lorcaserin and related compounds and methods of treatment utilizing lorcaserin in 69 jurisdictions, including the United States, Japan, China, Germany, France, the United Kingdom, Italy, Spain and Canada. The patents on lorcaserin issued by the US Patent and Trademark Office have serial numbers US 6,953,787, US 7,514,422 and US 7,977,329, while the corresponding patent granted by the European Patent Office has serial number EP 1 411 881 B1. The earliest priority date for the patents on lorcaserin is 2002.
Fundamentals - Arena ended the first quarter of 2012 with cash and cash equivalents of approximately $88.2 MM. Since then, Arena has received $5 MM from the expanded Eisai collaboration, and gross proceeds of approximately $69.6 MM from a public offering of common stock. In addition, ARNA prepaid all outstanding debt to Deerfield, which totaled approximately $10.5 MM, and received $12.8 MM from Deerfield's exercise of 7.6 MM warrants. Currently outstanding shares total 205 MM with 14.8 MM warrants, and the fully diluted market capitalization stands at $1.5 BB, with a pro-forma EV (enterprise value) of $1.3 BB. Management expects to have cash and cash equivalents of approximately $143 MM at June 30, which does not include the recently achieved $20 MM milestone payment. Management recently stated that they have no plans to raise additional capital at this time.
Vivus (VVUS) - Although Vivus already received FDA approval in April for Stendra (avanafil), a PDE5 inhibitor for the treatment of erectile dysfunction, VVUS currently plans to partner the asset. Receiving the most attention, however, is the recent approval of Qsymia (formerly Qnexa) for the treatment of obesity. Investors understandably remain focused on the upcoming launch, which as of now, Vivus plans to do alone in the United States in Q4 2012. This approval, which occurred on July 17, 2012, follows a positive Advisory Committee vote of 20-2, and a previous CRL on October 28, 2010. Like Arena's drug, Qsymia is contraindicated for pregnant women and is labeled category X. Unlike Arena's new chemical entity (NCE), Vivus' Qsymia is a combination of two already approved drugs: topiramate and phentermine. Topirimate is an anti-convulsant and is already approved for epilepsy and prevention of migraine headache, and sees most of its use in women. The dose for epilepsy is significantly higher (400 mg) than the dose for migraines (100 mg), but both are higher than the dosages that Vivus received approval for, which are (3.75mg/23 mg, phentermine/topiramate, titration dose), 7.5/46 (titration dose), and 11.25/69, and 15/92 in the highest dose. Phentermine is a stimulant and appetite suppressant that affects the central nervous system, and was approved for short-term use in obesity. Of the two components, topiramate is a known teratogen, i.e. it causes birth defects (oral cleft in this case). With a "diet pill" potentially causing birth defects, the FDA understandably wants to ensure that women do not become pregnant while using the drug. Based on the FORTRESS study, for Fetal Outcome Retrospective TopiRamate ExpoSure Study, which Vivus initiated following the CRL, the Advisory Committee evidently felt comfortable enough with Vivus' proposed REMS and the teratogenic risk to overwhelming vote for approval (20-2). In addition, there were issues with increased heart rate in some patients with increasing doses of Qsymia. Similar to ARNA, package labeling advises that patients on Qsymia who do not lose 3% of their body weight in 12 weeks should discontinue or titrate up to a higher dose. Patients who fail to lose 5% of their body weight at this higher dose should discontinue treatment altogether. Vivus does not need to go through the DEA scheduling process before launching the drug. Similar to ARNA, VVUS will run post-marketing studies including pediatric trials and a cardiovascular outcomes trial (CVOT). VVUS plans to begin the CVOT trial by the end of the year. In the EU, a CHMP opinion is expected later this year in Q4 2012, following Vivus' request for additional time. Vivus plans on partnering Qsymia in Europe and the rest of the world.
Marketing and REMS - Vivus plans to launch the drug in the US with its own sales force, and the REMS will inform prescribers and patients of the risks associated with Qsymia, in particular the pregnancy risks. There is no patient registry or pregnancy registry, and although no pregnancy tests will be required, they are strongly recommended. The focus of the REMS is education and there should not be large obstacles for patients. Qsymia will be available through large mail-order pharmacies with national reach. Qsymia will be launched in Q4 2012 with a sales force of approximately 150 sales reps, many of whom have experience in metabolic disease. These sales reps will be calling approximately 25,000 physicians. Initially, VVUS expects cash pay from patients, and will try to achieve formulary status as the launch progresses. Notably, VVUS does not intend to use DTC (direct to consumer) advertising at launch. Pricing details have not been released.
Intellectual Property - Since Qsymia is a combination of two already approved drugs, Vivus is expected to receive 3 years of exclusivity under Hatch-Waxman. VVUS owns or is the exclusive licensee of 31 patents and 13 published patent applications in the U.S. and Canada. 4 of these issued patents are for Qsymia and expire on June 14, 2020. An additional 7 are pending. The patents listed on the US label are US Patent Numbers: 7,056,890 and 7,553,818. There are some concerns with the prior art in the space, which could invalidate Vivus' patents due to obviousness. Vivus believes the patents are strong, and the burden of overturning the patent is placed on the infringers.
Fundamentals - Vivus ended the first quarter of 2012 with cash and cash equivalents of approximately $333 MM. Cash operating expenses for Q1 2012 were approximately $13.7 MM. The large capital raise earlier this year significantly reduces the likelihood of another common stock offering in the near term, but launching an obesity drug in the US without a partner is an expensive undertaking, and may cost over $100 MM annually. In addition, the post-approval studies will add significant costs as well over the next few years. Shares outstanding total 99.7 MM and the fully diluted market capitalization is $2.3 BB with an EV of $1.96 BB.
Orexigen (OREX) - With the FDA requiring a cardiovascular outcomes trial to demonstrate that Contrave is safe and does not increase the risk of major cardiovascular events, the earliest that Orexigen can resubmit the NDA to the FDA is middle to late 2013. Following a 6 month, class 2 resubmission to reflect the new clinical data, the earliest Contrave would hit the market is mid to late 2014; over 2 years from now. The trial is being conducted under a special protocol assessment (SPA) with the FDA, and is designed to show in an interim analysis that Contrave does not double the risk of MACE. OREX believes that with 87 MACE events, the interim analysis will occur in 1Q 2013, earlier than originally thought. Orexigen is targeting to enroll a patient population with a 1.5% annualized background rate of MACE. Importantly, Orexigen received a positive Advisory Committee vote of 13-7 before receiving a CRL. Even though OREX presented modest efficacy data, the FDA wanted to see an interim analysis before the drug hits the market to rule an unacceptable increase in MACE.
Contrave is a sustained release formulation of two established drugs: naltrexone and bupropion. Buproprion is currently used as a treatment for depression and for smoking cessation. It is well characterized, having been used for over 25 years and has been prescribed to over 50 MM patients. Notable, there has been no increased risk of cardiovascular events, which bodes well for the ongoing CVOT study. Patients have been shown to have mild to moderate weight loss, which is why Orexigen likely decided to investigate its potential as a weight loss therapy. Naltrexone is an opiate antagonist, and is used for the treatment of alcohol and opioid dependence by reducing cravings.
Marketing Deal with Takeda - Terms of the deal signed with Takeda in 2010 include both royalties and milestone payments for North American sales of Contrave. Orexigen retains the right to co-promote with Takeda in the United States. Orexigen will be eligible to receive payments of over $1 BB upon achieving certain regulatory and sales-based milestones. Assuming Contrave is commercialized, Takeda will pay tiered double-digit royalty payments on net sales in the territory. Takeda will also cover post-approval studies.
Intellectual Property - Like VVUS' Qsymia, Contrave is a combination of two already approved drugs, and Orexigen is expected to receive 3 years of exclusivity under Hatch-Waxman. Contrave is currently protected, in part, by U.S. patent number 5,512,593 issued in April 1996 and U.S. patent number 5,817,665 issued in October 1998. These patents (the Dante patents) are expected to expire in April and March of 2013, respectively, and cover compositions of certain specified opioid antagonists (including naltrexone) combined with certain specified antidepressants (including bupropion), and thus provide coverage for Contrave. In addition to these Dante patents, Contrave is also currently protected by U.S. patent number 7,375,111, which Orexigen refers to as the Weber/Cowley composition patent, and U.S. patent number 7,462,626, which Orexigen refers to as the Weber/Cowley methods patent. These patents expected to expire in March, 2025 and July 2024, respectively. Orexigen licenses the Weber/Crowley patents from Oregon Health & Science University.
Fundamentals - Orexigen ended the first quarter of 2012 with cash and cash equivalents of approximately $138.6 MM. Although cash burn was approximately $9 MM during the quarter, this can be expected to increase going forward as the CV outcomes trial ramps up to full enrollment of nearly 10,000 patients at 300 sites nationwide. Management expects the trial to cost upward of $100 MM until the point of the interim analysis. Although OREX does not need capital in the near-term, management may take advantage of all the optimism and raise additional equity capital. However, the December, 2011 financing was extremely expensive. The offering consisted of 5.6 MM units. Each unit consisted of one share of common stock and a warrant to purchase ten shares of common stock, at a price to the public of $1.45 per share of common stock and $1.449 per warrant to purchase each share of common stock, which together comprised the purchase price of $15.94 per unit. Net cash proceeds from the public offering were $86.9 MM. The warrants issued in the transaction have an exercise price equal to $0.001 per share. Each warrant is exercisable in whole or in part for a period of 10 years. There are 42.4 MM of these warrants outstanding now. Currently there are 67.8 MM shares outstanding, and including the warrants the fully-diluted market cap stands at nearly $500 MM with an EV of approximately $360 MM.