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Orexigen Therapeutics, Inc. (NASDAQ:OREX)

Q3 2012 Earnings Call

November 07, 2012, 05:00 pm ET

Executives

Heather Turner - SVP, General Counsel & Secretary

Mike Narachi - President & CEO

Mark Booth - Chief Commercial Officer

Preston Klassen - SVP & Head, Global Development

Jay Hagan - Chief Business Officer

Analysts

Lee Kalowski - Credit Suisse

Steve Byrne - Bank of America

Operator

Welcome to the Third Quarter 2012 Orexigen Therapeutics Earnings Conference Call. My name is Loris and I will be your operator for today's call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Heather Turner, the company’s General Counsel. Heather Tuner, you may begin.

Heather Turner

Hello and thank you for joining us this afternoon. I am joined on this call by Mike Narachi, Chief Executive Officer; Mark Booth, Chief Commercial Officer; Dr. Preston Klassen, Senior Vice President of Development and Jay Hagan, our Chief Business Officer.

Please note that all of the information discussed on this call this afternoon 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 plans 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, November 7th, 2012. Orexigen takes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I will now had the call over to Mike Narachi, Orexigen’s Chief Executive Officer to provide an overview of today’s call. Mike?

Mike Narachi

Thanks Heather and thanks for joining us this afternoon. In addition to an overview of third quarter results and recent events, we’ll have Mark Booth briefly discuss the topline results we recently received from our updated market research. Jay Hagan will then discuss our financial results and the outlook for the remainder of 2012 and then we will open the call up for questions.

The last few months have been an exciting time for Orexigen. We have enrolled the Light Study far more quickly than originally expected which should result in a shorter time to accrual of the 87 MACE events needed to conduct an interim analysis.

We also announced last month that we received support from the FDA to explore a faster path for resubmission of the Contrave New Drug Application. We are working with the agency on the procedural details for this, but the plan would be for the Contrave resubmission to be under review at the time the interim analysis is provided, so that the agency can act upon the application as quickly as possible. If we are able to come to an agreement with the FDA and if the event rate in the Light Study is at or above our annualized target of 1.5%, Contrave could be approved by as early as Q4 next year.

In late October, we completed a follow-on public offering of common stock raising net proceeds of approximately $57 million. This additional capital strengthens our balance sheet as Orexigen moves in to what we hope to be a year of pivotal events.

Next year, in addition to the U.S. resubmission, we plan to submit a marketing authorization application in Europe using the centralized procedure. We met with regulators from three CHMP member states earlier this year and based on these meetings, we believe that the regulatory package we already have for Contrave supplemented with the interim data from the Light Study should be sufficient for review in Europe. We are in discussions with potential partners for rest of the world rights for Contrave and Empatic and we would aim to finalize a transaction sometime after we have the interim data from the Light Study.

I now want to turn the call over the Mark Booth, who will spend a few minutes discussing topline results of the updated market research that we recently conducted and our thoughts about how to grow the obesity therapeutics market. We plan to provide a more detailed overview of this research at an analyst event planned for December 18th in the New York City. Mark?

Mark Booth

Thanks, Mike. The market research we conducted is both extensive and insightful. We surveyed 1,000 physicians including primary care physicians, endocrinologists and OB/GYN’s and we conducted two different studies, both of which exposed the physicians to detailed product profiles of Contrave, Qsymia and Belviq. For the purposes of the research we performed for the discussion today, we assume Contrave will be approved and will be referred new obesity therapeutic to be introduced to the market.

Now the first study was a classic conjoined analysis designed to assess the impact that the Contrave Qsymia and Belviq product profiles will have on preference share. The study also evaluated the impact resourcing will have on the market. For the purposes of the study though we did not evaluate the impact on adoption that could result from the limited distribution channel, one of the colleagues is currently subject to, but we would assume that this would inhibit uptake.

Now the second study was a physician-patient profiling analysis which estimated the probability of choosing Contrave, Qsymia and Belviq based on simulated patient profiles. So for example, you could ask a physician what product they would use, they stand variables like age, sex, BMI and different co-morbidities like diabetes. Our research included 800 physicians who are current high, medium and low writers of as phentermine and Xenical as well as 200 doctors who currently prescribe none of these agents, but who write prescriptions for conditions that are co-morbidities of obesity such as dislypidimea, hypertension and diabetes.

First let me make a couple of key points about the market in general. The market research indicated that the market potential for new obesity therapeutics would be very large and that the market would be extremely sensitive to promotion. There are 100 million U.S. adults who are either obese or overweight with co-morbidities and that number is projected to grow to 130 million by the year 2020. So obesity is clearly a market of tremendous size and growth potential.

However, currently only 7.8 million scripts are written each year for phentermine or Xenical; that translates to approximately 2 million patients being treated annually with obesity therapeutics; that's less then 2% of the potential market in U.S. and prior to the approval of Belviq and Qsymia there had not been a new drug for obesity approved in 13 years. To say that the current market for weight loss drugs is under developed is an under statement. Pharma companies have not called physicians to discuss weight loss drugs in years, so awareness is low and few scripts have been written.

But on the flipside unmet need is high and so is pent-up demand. Physicians increasingly understand the benefits of weight loss of 5% to 10%. And with the new agents available, we estimate the obesity therapeutics market could grow three to five folds over the next five years.

And that's not uncommon as other therapeutic markets have also grown significantly with the introduction of new agents. The proxies would be proton pump inhibitors, SSRI’s, quinolone’s, treatments over active bladder, DTH and there are others. That's the type of market growth that can generate significant sales for all new drugs and its very feasible when you consider that even with market growth of 5x in five years still only 10% of the patient population will be treated. But I really can't stress enough that this market will not grow by itself and these drugs will not sell themselves. They will require promotion to educated broad base of physicians about the benefits and risks of pharmacologic treatments for obesity and I want to touch on that in a minute.

In terms of product attributes and preference shares, our research indicates that there is room in the market for all three products. In fact one finding from our research was that physician’s view of the efficacy of all three drugs is meaningful and that all three drugs will be used; efficacy is certainly important, but other attributes beyond efficacy differentiates the three drugs and will drive preference shares within important segments of the market.

Among the new agents we tested Contrave garnered the largest preference share, but all three agents performed pretty well. Key findings on Contrave included that because of its product profile, Contrave was positioned as an appropriate choice with perceived advantages in the most prevalent patient types such as women of child bearing age, patients with diabetes, patients with depression and patients with a wide range of BMIs.

The big picture of the market today are that its prime for growth driven by favorable impressions of all the new products. But as I mentioned, growth of the market and the individual products is contingent on resourcing. Promotion would be perhaps the most important factor that will drive market growth and the uptick of obesity drugs, and this is an area where we believe Contrave may have a very large and distinct advantage.

Along those lines we've been asked frequently to interpret the weekly sales day from Qsymia, and I will give you my opinion. From experience I can tell you its too early to judge Qsymia launch. The first five or six weeks of scripts are difficult to interpret under the best circumstances. But it’s important to note a couple of things. First of all Qsymia’s current distribution model is limited to specialty mail order pharmacies, a cumbersome channel which accounts for a very low percentage of all pharmaceutical sales and complicates access for patients.

Secondly, from what we know, they are thinking more of a specialty launch approach calling on a small portion of the addressable physician audience for primary care drugs. These two factors must be taken into account when considering the overall potential of the market. Of course if distribution is broader and promotion is increased, we would expect overall penetration to increase commensurately. As the launch progresses, we would expect these factors to continue to be optimized.

We've always viewed obesity with a $100 million potential patients in US alone, as a primary care market and tapping the potential of that market means reaching and educating not only current writers of obesity treatments, but importantly also the large universal physicians who write prescription medicines for co-mortgage conditions of obesity, such as diabetes, hypertension and dyslipidemia.

Think about it, successful launches of new diabetes medicines in recent years have reached upwards of 80,000 primary care physicians with an appropriate frequency, and when we engage potential partners in 2010 about the North America country of licensing opportunities, this was the type of commitment we were looking for and we are very pleased that Takeda as our North America partner. Takeda is committed to obesity and its primary care franchise especially in diabetes is the key strategic strength.

We structured our partnership with specific commercial diligence commitments during the first three years to be surely appropriate universal physicians is educated about Contrave. While we've not made public the details of those commitments, we believe the launch of Contrave, if the drugs approved will be very different than the launch of the other new obesity therapeutics.

Our approach will certainly focus on building share with current writers of obesity products. But importantly we will also spend considerable energy cultivating physicians that write high levels of diabetic, cholesterol and hypertensive drugs because of these physicians will drive new market growth. We look forward to our Investor Day when we are providing a more detailed overview of the market research we recently completed including a study that just came in with over 6,000 potential patients.

I will now turn the call to Jay to discuss corporate finances for the third quarter. Jay?

Jay Hagan

Thanks, Mark. For the three months ended September 30, 2012, Orexigen reported a net loss of 30.6 million, or $0.44 per share as compared to a net loss of 4.6 million or $0.10 per share for the third quarter of 2011.

Total operating expenses for the third quarter of 2012 were $31.5 million, compared to 5.4 million for the third quarter of 2011. This overall increase in operating expenses reflects an increase in research and development expense associated with the conduct of a Life Study. As of September 30, 2012, Orexigen had 56.1 million in cash and cash equivalents and an additional 52.2 million in marketable securities for a total of 108.3 million.

In addition, Orexigen completed a follow-on public offering of common stock in October 2012, raising net proceeds of approximately 57 million. As we told you earlier this year, our success accelerating enrolment in the Life Study and our plan to randomize approximately 900,000 patients will post forward expenses from 2013 in to 2012. As a result, we project full-year 2012 cash burn to be 70 million to 75 million.

To give you a better understanding of the clinical trial cost overtime, there are some easy metrics to characterize the trial activity and associated cost. Study visits account for a significant portion of the total clinical trial cost. So they are good view in to what drives our R&D expense. Since the beginning of the study, in June, there have been approximately 2000 study business in the second quarter. Approximately 16,000 study visits in the third quarter and up to approximately 20,000 study visits in the fourth quarter if we meet our targeted enrollments. That contrast with the total estimate of approximately 20,000 study visits in all of calendar year 2013 illustrating the upfront nature of the cost of the trial.

Recruitment advertising upfront [COO] despite initiation and monitoring and clinical manufacture are also similar to the statistics about study visits in terms of being very front end loaded. That was a big reason why we chose to drive to approximately 9,000 patients by year-end, given the upfront expense in establishing the enrollment infrastructure and the lower overall tool cost of the trial given faster overall timelines. For these reasons 2013 expenses are easier to predict and we would expect overall Life Study cost for 2013 to be nearly half of such costs as 2012.

Finally on the investor front, we will be presenting next week at the Lazard and Credit Suisse conferences here in the US, and also at the Jefferies European conference in London. And as a reminder our analyst day will be December 18th, in New York City. We will be forwarding invitations to that event shortly.

I will now turn the call back to Mike.

Mike Narachi

Thanks Jay. I hope this has been a useful update and we will be happy now to take any questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Cory Kasimov from JP Morgan.

Unidentified Analyst

Hi there its [Pasty Matlovan] in for Cory today. Just a few questions touching on what you mentioned I was wondering if you could tell us how many reps that Takeda plans to launch with firstly? Secondly how were the launching into a more established market potentially one (inaudible) Contrave launch do you think versus the current launches and may be any other differences versus the launch of Qsymia and Belviq that we should think about, thank you.

Mike Narachi

On the first one as Mark mentioned, we haven't disclosed the actual level of promotional commitments been commitments etcetera from the Takeda North American agreement. But as Mark indicated successful launches recently in diabetes drugs reached 80,000 plus physicians and that's the kind of launched that Takeda themselves have done and managed and so those are kind of ranges that we are looking for our agreement.

Your second question I believe was related to, what’s the situation of the dynamic going to be when we entered the market, and I think where we are going is, where some good work have been done that enables the success by the time we get there and I think the answer that is yes. Again Mark, mentioned the markets is going to grow even faster the more promotion in general for new obesity therapeutic service with two or three or four without there, it would actually help the situation overall.

So the more overall promotion education awareness, the better for all the new players; these are all different mechanisms of actions. And specifically some of the new riders people that don't write much today, they need to move down the adoption curves overtime and influence by some other peers or perhaps some other key opinion leaders. So the further down the adoption curve they get the better that is for everyone but we may be able to take advantages of some of that progress and adoption curves. I think those are the cheap questions that you asked.

There was one other question anything else. I think another key difference that we think is an advantage for Contrave is, both in the other two drugs that recently improved our DEA schedule drugs, where there will be DEA schedule drugs based on the possibility of reduced liability and that does give some restrictions in the way these products can be marketed, sampled, certain information, chain of custody depending on the state. So Contrave is not expected to be DEA scheduled. It has no issue with the business liability.

Operator

Lee Kalowski from Credit Suisse is online with a question.

Lee Kalowski - Credit Suisse

First one maybe for Preston, it sounds like you guys are saying now that you are going to go to the centralized approach in Europe, is that correct.

Preston Klassen

Yeah. Yes we are.

Lee Kalowski - Credit Suisse

And then so maybe you could just talk a little bit about what decided to go to that approach, is it confidence from the potential repertoires etcetera. Have they given you some initial indication that interim results from the light study would be good enough for approval etcetera.

Preston Klassen

Right, so I can say a few things, first as you know the centralized procedure is the typical procedure that is utilized today and it is the most efficient by far procedure. Second is that when we did go to three European countries to talk specifically with the country specific regulators in and on binding way to get it based, it was evident to us that in general as was mentioned on the call early today, that in general the package that we have supplemented with information from the Life Study would be sufficient for review.

And then third I mean probably what you are getting at is the issues that (inaudible) came up against as they went through their review and we believe that in most part those are, to be considered product specific but specifically with Contrave issues around the cardiovascular safety will be addressed with the Light Study and in terms of other issues that might be brought up trying (inaudible) cognitive effects we believe that the profile of Contrave is very sufficient in that regard. So we haven't seen anything that we believe would be a significant impediment to continuing down what is typically the appropriate procedure for MAA.

Lee Kalowski - Credit Suisse

Okay, and I mean, not to have too far in this but at least in the US there's some language about suicidality with Bupropion, is that going to be a potential issue in Europe at all do you think?

Mike Narachi

No we think that the issues about suicidality when warnings for labeling are class, anti-depressant class warnings and in fact there's nothing more specific (inaudible) Bupropion than any other anti-depressant that's utilized either in the US or in Europe. So we don't believe that there's anything specific to Bupropion per se. We do have always anticipated that the warnings that are carried in the individual labels would likely be part of the combination product Contrave, Bupropion and Naltrexone for labeling purposes.

Preston Klassen

Yeah I think the concern over suicidality has led to the class labeling, and then the (inaudible) concerns that were discovered during that development program yielded an intense measuring and third-party adjudication of events of suicidality or suicidal ideation which is part of our application. So we have data to explain and back up that really there is no difference between placebo and Contrave in that regard.

Lee Kalowski - Credit Suisse

Okay, thanks, one last question and then I will get back in the queue. I believe you mentioned that in initial research, physicians were perceiving the efficacy of all three products to be equal. I mean there are differences obviously between the three products. What information where they given that made them have that perception?

Mike Narachi

Let Mark answer that question.

Mark Booth

Yeah, Steve, I didn’t say equal, I said meaningful and there is a difference there. So, physicians knew the efficacy as meaningful seeing different patient types, these different drugs might rise to the top. So, as an example I had mentioned that Contrave and our overall profile give us a wide range of BMI patients that physicians saw that the drug could easily be used at. I can tell you when you took a look at some of our competitors, it's skewed more toward different patient type, so we would ask you to go through the research that when we were in New York. So, for instance, if like Qsymia came in doing much better in very high BMI patients. So meaningful is different than equal. Efficacy was important but it was very clear to us that all of the drugs can cost an efficacy threshold if you will and then these other attributes in their profile really drove preference in different, very large and important market segments.

Mike Narachi

This is Mike. Just adding on. One of your questions was what did we show them? We basically showed them data out of the phase 3 program and data either the packaging inserts or from the Phase 3 program. So, we didn’t paint any differently than that and I think this is an aspect that a lot of people potentially misunderstand that the market doesn’t look at placebo’s attracted weight loss. They are not looking at it in those terms. The way that the physicians are looking at it is what can I expect a patient to loss, the average patient if I put them on this product and in particular responder because it is pretty easy for me to assess response early. So what my shot at a decent amount of weight loss and the percentage is or the odds of success and how much success is the way they look at it.

Lee Kalowski - Credit Suisse

Okay, got it. Then so just to be quick you are saying that it wasn’t that, it was equal but that it was sufficiently effective amongst these of the products or something to that effect?

Mike Narachi

Correct.

Operator

(Operator Instructions) (inaudible) from Leerink Swann is online with question.

Unidentified Analyst

This is (inaudible) if you end up negotiating a (inaudible) contract US submission can you help us understand how you will plan out in associated commercial strategy before investing significantly in commercial preparations would you await for acceptance for the Contrave regulatory submission, submission of the light trial data or final approval? Thanks.

Mike Narachi

Thanks for the question. I think in general, the triggers would be the same that would be good solid data from the interim analysis. Now you are right we would be submitting in advance of having that data, so the submission itself would come only because we are confident, we will have the interim analysis during the review period and where ever we end up negotiating, but the data itself wouldn’t be known for couple of months later. However, our prediction is that this is a non-inferiority trial and all we are looking for here is the exclusion of doubling of risk from the light study, so I think that we are making assumptions there as is our partner and others.

Unidentified Analyst

Sure, can you talk a little bit more about your progress in negotiating the use of the light trial as the cardiovascular outcome trail for Empatic, when do you expect to start having more concrete communication from FDA on this?

Mike Narachi

We’ve had some that we have disclosed already and I think in the earlier call we said we would reaffirmed some of that now that more progress has been made in the space from a regulatory perspective. We will update you when we have answers from those specific questions but we are engaged on that topic in the sense we have more information we’ll let you know.

Operator

Steve Byrne from Bank of America is online with the question.

Steve Byrne - Bank of America

Hey, Mark. I wanted to drill into your [doc] survey a little bit when you did that market research and profile the three drugs and came to conclusions about the threefold to fivefold increase in the market the next few years. What kind of assumptions did you present to the docs with respect to reimbursement coverage?

Mark Booth

You know we stayed away from reimbursement in the (inaudible). The way we get to the market growth as we ask physicians a number of different questions about, how many of these patients that you think are candidates for obesity prescription, are you currently treating? And where do you think that could go? How do you think that would change with the introduction of new agents? So, there is number of qualifying questions that you can ask in your research that get out, where they think the market can grow with [order] right now and what could happened with new drugs that provide value.

Steve Byrne - Bank of America

What is your outlook for improvement in reimbursement coverage over this next couple of years?

Mark Booth

Steve, I think there is a very solid case here for reimbursement of these drugs. First of all, you had [Meridian Zenecal] at about 35% to 40% coverage often Tier 3 and Tier 2 but that's fine, that's good coverage, and then what drives reimbursement and coverage first and foremost is demand. If you can drive demand (inaudible) also take a hard look at making sure that you product is accessible to their customers. And that's why we think our partnership with Tekada on how we are going to launch this drug as why it’s so important to Contrave. We think that none of it happens by access, you've got to be out there calling on the players, you've got to be up there calling on the employers. They don't call you and Tekada has a very significant managed care organization that's very adapt to driving formulary status and coverage and then lastly, what we will explode I think coverage and reimbursement is when you get to the point where you are doing outcome trials to show that your value of the medical value of treating obesity. So we've always said it was going to be a kind of crawl, walk, run but we are optimistic that the evolution from crawling to walking to running could happen fairly quickly.

Steve Byrne - Bank of America

And you mentioned the outcomes trial in a question for Preston, when you were talking with various member states in Europe, did you have the sense that an outcome study was a nice to have or a need to have database for such a European submission?

Preston Klassen

I think it’s fair to say that the regulators know that the trial was underway and know that it is commitment requirement from the US perspective. They are going to want to see the data as part of their review for the interim.

Steve Byrne - Bank of America

And just the last one for you Preston, any update on the demographics as those 8,000 that have enrolled in the light as to whether that if that rate may have shifted up or down since your last assessment.

Preston Klassen

So what we've talked about in the past is the kind of patients that we've modeled from using epidemiology data as well as relevant literature to understand what are the kinds of patients we think we need in the study in order to generate as Mike mentioned earlier 1.5 or essentially higher annualized event rate. When we look at those demographics that we've chosen from a modeling, we are very pleased with the characteristics that we are actually enrolling in the study and I think we've covered some of that in the past but suffice it to say the proportion of cardiovascular disease, age, diabetes, hypertension and smoking status that kind of thing lines up with the modeling that we've done. It is too early to make assessment of event rates at this point and understand the how that those data would influence timing but from a modeling perspective, we are very pleased with where we are at. And the fact, that it is growing as quickly as it is. We have very efficient enrolment mechanism in place.

Operator

We have no further questions at this time. Mike Narachi do you have any further remarks?

Mike Narachi

I just want to thank everyone for your support and your interest and look forward to talking with you soon at the upcoming investor conferences and at our Analyst Day in December.

Operator

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

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