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Orexigen Therapeutics (NASDAQ:OREX)

Presentation at Morgan Stanley Healthcare Conference

September 12, 2012 10:55 a.m. ET

Executives

Michael Narachi - President and CEO

Analysts

Marshall Urist - Morgan Stanley

Marshall Urist - Morgan Stanley

Hello everyone, I’m Marshall Urist, one of the biotech analysts here at Morgan Stanley. Two quick pieces of business. Number one, all of our research disclosures can be found on our printed research or our website. And number two is this is absolutely supposed to be an interactive session, so any questions once we jump into the Q&A, please just raise your hand and there are microphones circulating.

So with that, we are excited to sit down with Mike Narachi, president and CEO of Orexigen. Mike, thanks for joining us today. Maybe the best way to start is just take a couple of minutes to talk about the strategic focus right now, what you guys are focused on, before we jump into some specifics.

Michael Narachi

Thanks, and thanks for coming, and for your interest today. First, I guess I should always say that I will be making forward looking statements, things materially change in the future from time to time in our industry, as you know. And all of our disclosures are on our website and in our SEC filings.

The obesity space in general for you, let’s just first start taking a step back, is one of our many and probably an underlying chronic disease issue that’s facing pretty much the entire developed world and developing world. And it’s a difficult problem to attack, because it’s fundamental to lots of biology and it’s a societal issue. It’s a biologic issue, it’s a personal medical issue.

So there are many approaches that are being developed right now, many in earlier stages, lots of devices, surgical approaches, and a handful of therapeutics in the late stage, and a few in the earlier stages.

And I think so far chronic disease in general has been a difficult area to really get a handle on and to create a care system than can tackle chronic disease. We’ve done a reasonable job with this dyslipidemia, hypertension, diabetes, where the therapeutic approaches have become integrated into primary care, at least in the United States.

But even in those settings, there could be a lot more effective therapy compliance, persistence, and integration of care. So when we started with the obesity therapeutic, we thought how do we not only develop an effective therapeutic that can help a lot of people, but let’s think longer term when we commercialize this product with our partner, North America Takeda, and we are seeking a partnership for the rest of the world. How do we integrate the therapeutic into a robust, chronic care maintenance program?

And so that’s something to keep in mind, and I’ll talk a little bit about a program that we’re piloting that we call Weight Mate, where we’ve got the weight loss pill, Contrave, plus a program that, together, in a hand in glove manner, can deliver a much more effective and long term change program.

The therapeutics that I’ve seen so far, including Contrave, I think enable a higher level of success if a patient is committed to change, enter into some diet and exercise program, whether it’s personal or a commercial program, the therapies enable much higher levels of success. And so that’s the approach that we’re taking.

Now, we submitted our Phase III data and our program data to the FDA for approval in early 2010. We had a positive advisory panel, the first positive panel in 13 years, but the FDA had concerns around drugs for cardiovascular safety after the results of the sibutramine large outcomes trial, which turned out negative, about a 16% increase in risk.

With the full NDA review they identified one approval deficiency, which is a large one for us, which was to rule out excess cardiovascular risk. We then took about 9 months to clearly identify with the FDA what the hurdle was, to rule out risk, and as it turns out it’s very similar to the diabetes guidance, where you can get on the market with an interim look, of a large outcomes database, and rule out a certain level of risk.

For us, that risk capping is we have to rule out a doubling of risk at the interim, and then that would warrant approval, and then you move on to the final analysis, which would rule out about a 40% increase in risk. The absolute risk that we’re ruling out is identical to what’s ruled out in a diabetes patient population, in terms of number of excess cardiovascular events.

So we went, then, and raised the capital and we’re lucky to have the institutions that put the money in to fund that large outcomes trial. That trial is about a 7,000 to 10,000 patient study, where we need about 90 events at the interim and about 370 events at the final. It’s an event-driven trial. And then we set out to rapidly enroll that trial, so that we could get the answer sooner, and pull forward the ultimate introduction of the product and the generation of the data.

We have announced two times now since we started the trial in June that it’s going faster than expected. In our last announcement, which I believe was last week, we said we’ll actually fully enroll the trial in this calendar year. So it’s an unprecedentedly fast enrolling trial. And I think one of the reasons it’s enrolling so fast, first it’s a bit of a proxy for the pent up demand in the market. Because the value proposition for the study is weight loss, value proposition.

But what we did is in the control arm, and in the active arm, for all patients, they have access to a weight loss program, an internet, interactive, state-of-the-art counseling and weight loss program. And so it’s interesting to see with our market research and our testing of the perceptions from the patients is that that, unto itself, is a value proposition. And then half of them have the chance to be on the enabling therapy, and then the other half on placebo.

So that’s where we are. Once we have the data, we will resubmit our application in the U.S. The data would also enable global approvals. We have our partner in North America in Takeda. Takeda’s an experienced and competent primary care, diabetes, blockbuster drug building company in the U.S., and they’re going to commercialize the product in North America. As I said earlier we’re seeking a commercialization partner for the rest of the world for Contrave.

Marshall Urist - Morgan Stanley

Great, so that’s a good introduction. Again, if there’s any questions, please raise your hand, and there are microphones around. Maybe we can start with the Light study, as you mentioned. So, help us understand a little bit more the piece you put in place to enroll something this quickly. We typically think of outcome studies as being sort of ponderous and slow. How have you ensured that you’re not taking any risk in terms of being more liberal than maybe others would be in terms of the patients that are enrolling?

Michael Narachi

When we clarified precisely what it was that we needed to do from a statistical and regulatory standpoint, then the team said, okay, what’s in our control about this study? It’s the speed of enrollment and the kind of people that we get in the study, and then of course monitoring and quality assurance, as you proceed through the study.

So it’s really important, as you said, not only to do it fast, but to get the right people in the study. So the target population that we aim to enroll is a population that’s generalizable. This is a really key point. So we reached agreement with the FDA that we could do something very different than most people’s studies. Most of these studies are kind of the canary in the coalmine concept, where you stress the system hard to see if anything bad happens.

And so what we said was, that’s asking a different question. Let’s ask the question if the drug were introduced, and used as per label, does it increase risk? Or does it create benefit? It’s a non-inferiority trial, so we’re really only testing the former.

And so we are targeting a population that’s on label. So people who would use the drug. We’re not allowing people at the low end of the spectrum of risk to enroll in the trial, because they wouldn’t actually generate cardiovascular events. So we’re taking what’s probably a mid-level cardiovascular risk population and enrolling them into the trial, and then they’re moving through the trial in the same way that we think that they would use the drug commercially.

So they start in the trial. They’re enrolled in this weight loss program. If they have an elevation in blood pressure at any time that’s sustainable, they discontinue the therapy. They still count in the intend to treat analysis. And then really importantly, at week 16 they’re evaluated for weight loss. And responders stay on blinded study drug and nonresponders come off. Yet those nonresponders are all still in the study for evaluation of cardiovascular risk.

So that way we were asking the question, inclusive of responders and nonresponders, in a population question, was there increased harm? And you’d predict, obviously, the people who lose weight do better. Everything goes in the right direction. Blood pressure goes down, their lipid scores improve, their blood sugar improves, their quality of life improves. So that’s the hypothesis that we’re testing. So I think that, in itself, is a paradigm changer.

Now, on the quality side, we model the population so that we can get a high enough event rate to measure a difference between the two groups in a reasonable timeframe. So we’re targeting about a 1.5% background event rate of heart attack, stroke, and cardiovascular death as a composite. And the population we’re trying to enroll is a slightly older population, 50 years and older for women, 45 and older for men. About 30% cardiovascular disease history, and then the rest diabetes with two comorbidities, dyslipidemia, hypertension, a smoking background, etc. And that population would model out slightly higher than 2%, and then we haircut it, because usually in trials the event rate is lower than predicted, and we’re planning on a 1.5% event rate.

Question-and-Answer Session

Unidentified Audience Member

I was just curious, for the absolute events that you’re collecting, what delta do you need to see between the two arms to reach a successful outcome?

Michael Narachi

The hurdle is to rule out the upper bound of a 95% confidence interval of 2.0. So it’s an event-driven trial. That means the point estimate that we can observe can float as high as 1.31 to rule out that upper bound of the 95% confidence interval. So on an absolute basis, for 87 events, it could be as bad as - against you - of 49 events on the Contrave arm and 38 on the placebo arm, and still rule out that upper bound. That’s rough math for it, but what we’re trying to do is exclude a doubling of risk with high confidence.

Unidentified Audience Member

And in terms of those data, do you think the commercial and the regulatory hurdle are different in terms of what the balance of events needs to look like?

Michael Narachi

Yeah, I think the perception for a primary care product for weight loss has to be that it’s very safe. Extremely safe. I think that’s the commercial and the regulatory hurdle. So ruling out a doubling of risk isn’t the final test. The final test is ruling out a 40% increase in risk. But really what’s being done here - the relative risk, or the percentage risk, isn’t really what’s happening here.

What the agency has said for diabetes drugs is that to get approved for a diabetes drug, you need to rule out 16 excess heart attack, stroke, and CV deaths. And then to stay on the market, it’s about 6. So that’s in that population. So they essentially said, now you’re in a lower risk population than the diabetes population, but let’s keep the absolute risk the same.

And that’s basically identically where we are. We need to rule out 16 excess events per thousand years of patient exposure. So if you put a thousand people on your therapy, let’s make sure there are less than 6 excess heart attacks, strokes, and deaths versus the benefits of lowering blood sugar or reducing weight.

So I think that’s a pretty tight hurdle to ask a therapy to prove, that you’re within that boundary. So I think we’re appropriate on the safety side. And on the efficacy side, it’s interesting, in market research, and when you approach the general primary care audience, they’re looking for a good, solid chance at meaningful weight loss.

And when you ask them, what’s meaningful weight loss? They say well, for my typical patient, that’s 25 pounds. They don’t think in percentage terms, and they’re not thinking in placebo subtracted intent to treat for sure. They’re definitely not thinking that way, which is the regulatory guidance.

So what they want to know is for my average patient - the average obese woman is about a 200 pound woman, the average obese man, average height, body composition, is probably 250 - that seeks pharmacotherapy - the majority of the market today are women, about 75% of the people seeking therapy are women, and the majority of those women are of childbearing potential.

And so what the physician is thinking in his mind, and projecting onto a patient population that he or she sees is I want to get a good shot at a 25 pound weight loss. So when you translate that back into metrics, it’s about a 10% weight loss. What’s a good shot? A good shot for an anti-inflammatory drug might be a 10% effect size, or a 15% effect size. But in obesity, I think they’re looking for a 30-60% chance at a responder. And if you’re in that window, they’re going to give it a trial.

Now, when we did our market research testing different profiles, the three late stage drugs that are either in development or now approved and then the two existing drugs on the market for short term use and long term use, phentermine and orlistat, efficacy sorted out in preference share, but they were actually fairly similar, even though there’s pretty big differences in intend to treat placebo subtracted weight loss.

So other attributes mattered a lot, and it depended on the physician. So we segmented the market into key categories. High writers of obesity therapeutics, that’s about 10,000 physicians today, maybe 15,000, depending on how you cut it. And then people who are low writers, write obesity therapeutics sometimes. And then no writers. The vast majority don’t write, of primary care, if you look at the 80,000-90,000 physicians in the U.S. that deliver cardio and metabolic care, diabetes, hypertension, dyslipidemia care. They don’t write for obesity therapeutics.

So it’s interesting. You have to look at the preferences and the behaviors of each of those groups. And then we looked at primary care, OB/GYNs and endocrinologists. Endocrinologists are key thought leaders and drive behavior, but they don’t write a lot. The primary care is the bulk of that group.

And so first they said, okay, where’s the efficacy? Do they have market-meaningful weight loss, and do I have a decent shot at it? And then, you know, there were similarities between some of the later stage drugs, slight differences. Things that really drove it then were safety, tolerability, comfort with the ease of base drugs, for the two drugs that are using existing drugs, that they’re familiar with the profile, or lack of comfort with some of those agents. And then there’s always a slower adoption curve for new chemical entities for some physicians, because they want to wait until they hear more about it.

Marshall Urist - Morgan Stanley

Sure. So maybe let’s switch gears and touch also on the progress in the EU and where your discussions are with regulators in Europe.

Michael Narachi

We’ve focused on the U.S. in our application. Obviously, it’s the only place that we’ve applied thus far. We got our complete response, now we’re generating the data. We’ve since been to three health authorities in Europe and gotten solid feedback on the package. The package that we have today is submittable, and we have this dialog that’s ongoing. Do we need to submit with the interim data from the cardiovascular study? Or can we use it in response to a clinical question?

So that hasn’t been sorted out yet, but the difference in those two scenarios is maybe 3, up to 6, months sooner if we can submit without it and then supplement, if you will, and answer questions with the data versus waiting for the data. So we’re on the track to submit without it. We’re doing all the work and the pediatric plan and continuing our discussions with the Europeans.

Essentially, those two approvals, the potential approval in the U.S. and Europe, are within either the same timeframe or maybe six months apart.

Marshall Urist - Morgan Stanley

Regardless of what happens. So then one more on Light that I meant to ask, which is as you’ve seen the kind of baseline characteristics of the patients that come into the study, even on a blinded basis, your level of confidence in the event rate that doesn’t turn out to - like we’ve seen in a lot of outcome studies - be - even though you’ve given yourself room - meaningfully lower than expected.

Michael Narachi

We don’t know yet. We haven’t heard from our data monitoring committee. You wouldn’t have predicted enough events, if we’re on track, to have high confidence in the underlying event rate. But we’re confident because of a couple of things. One, the modeling that we did. We did a lot of modeling, and some of the modeling was done with a firm that’s expert at this, Archimedes, up in Northern California. And they project onto epidemiologic databases our inclusion-exclusion criteria.

And then they tell us, well, if we enrolled those kind of people who would meet these criteria, what would their event rate be? Then the team looked at that population from their large databases and said, well, who are these? And then we iterated to define tighter our target.

So, for example, we said you could be a man or a woman. But we don’t want all women, because women have lower event rates. We were hoping to get about a 50-50 gender split. We didn’t pre-specify that, but what we did is we lowered the age for men five years younger than women so we could get a few more men.

And the age cutoff also drives risk. We wanted a certain proportion of smokers. We wanted a certain proportion with cardiovascular disease. So those proportions that we were targeting, which is in our filed deck for the conference, are coming in right where we were targeting, which matches the modeling, which was north of 2%. So the population would epidemiological model north of 2%, and we’re expecting that to come down some, maybe as low as 1.5%.

Marshall Urist - Morgan Stanley

So things are matching up well so far.

Michael Narachi

But even if the event rate were to drift as low as 1.25%, the 87th event still will occur well within 2013. So within a pretty broad range, somewhere a little bit above 1% and somewhere around 2%, it’s going to happen from middle to third quarter of next year.

Marshall Urist - Morgan Stanley

Maybe kind of a bigger picture question is, reflecting a little bit on - it seems like we’ve had a real change in the way the FDA looks at this class, so how have your discussions with them changed? And could there be any impact on the regulatory path from here, even in the U.S.?

Michael Narachi

It’s definitely changing. I think when these three applicants started there was a perception in the agency - first, the safety hurdle, the safety profile, needed to be pristine, which I think is appropriate. But second, the efficacy in weight loss, I think, is the change.

So what is the benefit of weight loss, intentional weight loss? Now, in dyslipidemia and hypertension, the benefit of lowering blood pressure and cholesterol was theorized, and unknown until sponsors did very large outcome trials, which proved that if you reduce heart attacks, strokes, and CV deaths.

That has not been done in obesity. So there really isn’t that kind of prospective, hard evidence. But everyone presumes there’s massive benefits. Not just cardiocentric. So I think where the agency was when we started was a very cardiocentric view of the benefits of weight loss, where the whole goal was to reduce heart attacks, strokes, and CV death.

But I think now there’s an evolution of thinking, that quality of life is going to improve, we can reduce pain, we can increase mobility, physical function, mood, esteem, sexual function, lots of things. Even some cancers are known to be linked, so maybe they would be reduced, but our base business nobody’s created evidence on that regard.

And so the FDA actually started a program with George Washington University where they collaborated with industry to better elucidate the benefits of weight loss. So that as we move forward, we can have more prospectively defined and validated end points that show, hey, it’s more than a cardiocentric benefit, it’s a global perspective. That’s evolving, I think. So the more you can increase the perception and the realization of benefit, then that helps in the balance of benefit and risk.

Marshall Urist - Morgan Stanley

And then maybe that’s a segue to your updated view on how this market will develop over time, between specialists who you know are there to what it’s going to take to make this truly a true core primary care class.

Michael Narachi

Good question, because it isn’t there today. There’s only 10,000-15,000 physicians in the U.S. that write a fair number of phentermine and orlistat RXs. So I think several things need to change.

Some have already changed. Ten years ago, the perception of weight loss benefits was more cosmetic than medical. Today, it’s much more medical than cosmetic. When you interview physicians and patients - I think the big change is patients - when you ask patients why do you want to lose weight, they say health.

And the expectations are more realistic. You don’t want to take somebody who for maybe a decade has struggled with obesity and set the expectation that now you’re going to look like somebody in a magazine. Some body builder man or a slender woman. But you want to set the expectation and to have the expectation that if I lose a little bit of weight it’s going to help.

And two large prospective studies have proven that. Just a small amount of weight loss, probably visceral adiposity reduction, is driving a profound change in the progression of diabetes. So I think there’s a medical awareness now that it’s a medical therapy, not a cosmetic therapy, not an aesthetic therapy. So that’s one thing that had to change, and it’s already changing.

Three products being in the market, hopefully with large resources, I think will change, because it can help drive that medicalization of obesity. And then I think the way that these products can be used is as a cornerstone of care. So in cardiometabolic disease, if you lose weight, the outcome is better. Diabetes, dyslipidemia, hypertension.

So if you had a solution for weight loss, when millions of Americans are suffering from these comorbidities, you would improve the whole care system around it. So I think that with the possibility of large promotional resources, educational resources, going out into the field, linked to the therapeutics, we can really change that.

And so I’m excited about the possibilities. When three companies are coming out with unique mechanisms of action, that will be suited to different subsets of patients, people will adopt the therapies, try it. Hopefully we all have integrated downstream care systems like Weight Mate that we’re developing - the weight loss program.

And then people will find out which patients are right for which products and which circumstances. I think there will be churn, if you will, where people try one, and if it works maybe half of the patients are going to respond to each therapy. Then, oh, that didn’t work, let me try a different mechanism. Or maybe somebody doesn’t tolerate a side effect, or maybe they’re a woman of childbearing potential. So they’re going to use a drug that has less warnings around that. Or maybe they’ve plateaued in their weight loss, and they want to change mechanisms. Maybe one product is going to be more often used for maintenance therapy than another product. So a lot of that work gets sorted out in the commercial marketplace and in periapproval and postapproval studies.

Marshall Urist - Morgan Stanley

And then maybe as we’re coming to the end here, touch on your second obesity program with Empatic. How does what’s happened on the approval side sort of changed the value proposition there, and what do you see as the next biggest step for that program?

Michael Narachi

Our second product, Empatic, is a combination of bupropion, 360 mg, same dose as in our first product, Contrave, plus an anticonvulsant, zonisamide. That product showed, on a placebo subtracted basis, at six months, about 10% weight loss, and there was an extension of the trial out to a year, which showed about 15% placebo subtracted weight loss. So profound efficacy on a placebo subtracted basis.

However, it comes with an anticonvulsant, which has more serious side effects, and also the teratogenicity of the class, the cognition, depression deficit of the class. However, when you combine it with bupropion, and we did careful Phase IIB studies, adjusting the dose of zonisamide, you can kind of zero out the cognition. And with an antidepressant, you may not have to worry about the depressive circumstances.

So I think that product, with the change in the regulatory stance and the approval of Qsymia, which is a good proxy for how the FDA is going to deal with teratogenicity in the obesity space, we can take that proxy now and put the product back into development. This drug would not be scheduled, so I think it has some advantages. So there’s not an addictive or abuse liability issue. And as a fast follower, I think we can develop it in a way that would make it very market competitive.

I still think the majority of the market would prefer Contrave. Our research shows that. It’s a safer profile. It’s got market meaningful weight loss. It’s got the craving and depression attributes of the two constituent drugs. But I think Empatic could be developed in a complementary way to Contrave. And in a rest of world partnership dialog, people would be interested in both products, so they could start to build a little portfolio in weight loss.

Marshall Urist - Morgan Stanley

Great. And with that, we’re out of time. Mike, thank you. Thanks everyone for joining us today.

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