Orexigen 1Q16 – Orexigen earns $2.6 million in royalties from Contrave sales (total sales not released); Expectations for profitability starting in 2019 - May 6, 2016

Orexigen held its 1Q16 update in a call led by CEO Mr. Michael Narachi earlier this week. The company reported that Orexigen earned $2.6 million in royalties from net sales of Contrave (naltrexone/bupropion extended-release); the total revenues from Contrave were not released but we expect Takeda to report this in its update on May 10. In 4Q15, Orexigen earned $2.6 million in royalties so we anticipate Contrave total revenues to be similar at around $13 million, which would represent a ~13% year-over-year (YOY) growth and sequentially flat, although we will have to wait for Takeda’s update for the official numbers. Due to the termination of the Amended and Restated Collaboration Agreement, we anticipate this will be the last quarter Takeda presents Contrave results. Orexigen reported $233.1 million in cash, cash equivalents, and restricted cash, and an additional $59.1 million in marketable securities, totaling $292.2 million. Regarding prescription volume, the company reported 192,005 Contrave prescriptions in 1Q16 (a 3% sequential growth). Notably, management shared anticipations that Orexigen “can achieve profitability beginning in full year 2019” and framed the acquisition of US rights to Contrave in a positive light, noting that “the capital raised in March in connection with the Contrave acquisition will be sufficient to get there.” Much of the call focused on a detailed walkthrough of Orexigen’s US commercial summary to instill greater confidence in this profitability plan, including the following components: (i) launch an effective and efficient US commercial organization; (ii) achieve strong growth of Contrave by differentiating from generic amphetamines; (iii) improve gross/net ratio through appropriate discount and pricing strategies; (iv) activate patients to drive proactive requests for new anti-obesity medicines; (v) leverage behavior modification to improve persistency and compliance; and (vi) drive reimbursement upside through innovative contracting strategies – see the call’s slides for more.

The call additionally highlighted the expansion of the senior commercial leadership team, the Valeant agreement in Central and Eastern Europe (planned launch in five of the 19 countries anticipated in 3Q16), Contrave approval in South Korea, and the appointment of Mr. Patrick Mahaffy to Chairman of the Board of Directors. The company also shared that it received a US patent for Contrave in treating patients with overweight/obesity as well as major depressive disorder. Regarding the CVOT requirement, we heard no new updates on plans following the company’s termination of the CONVENE trial: management continued to state that Orexigen plans to start a new CVOT under its IND. During Q&A, management noted that this upcoming study will likely be mostly similar to the Light Study and will use the prior protocol agreed upon with Takeda and the FDA, but did not share further details on timeline. We remain wary of the status of CVOTs within the obesity drug market, as resources within these companies appear to grow increasingly limited (see our coverage of Vivus’ 1Q16 update). To have a better understanding of Contrave’s position, we will wait for Takeda’s update and for a more complete picture of the obesity drug landscape, we will be back later with updates from Arena on May 9.

-- by Melissa An, Sarah Odeh, and Kelly Close