Memorandum

Orexigen files for bankruptcy - March 14, 2018

Executive Highlights

  • On Monday, Orexigen announced that it is filing for bankruptcy. The company plans to pursue an auction and sale process with bids to be submitted by May 21, an auction to commence by May 24, and final sale to be closed by July 2, 2018.
  • Although not a major surprise, this news comes as a disappointment, just as Orexigen’s obesity drug Contrave was beginning to emerge as an apparent bright spot in the challenging obesity market. Orexigen management did not hint at financial turmoil during recent earnings updates (from 1Q17, 2Q17, and 3Q17) but it was evident things were rocky before that, based on cash balances and the departure of Dr. Preston Klassen for Arena. Although the company was very focused on the strategic marketing campaign for Contrave, and management seemed optimistic about the drug’s rising prescription volume and plans for expansion into several international markets, in our view, it did not ever really recover from its CVOT controversy in 2015 when it was publicly admonished by FDA’s Dr. John Jenkins.
  • There is (some) good news, in that Contrave’s US patent exclusivity will extend until 2030, and launches are planned in an additional 14 countries in 2018 (for a total of 38). We hope another company is receptive to this incentive, and that whoever takes over (if any company does) continues to promote Contrave for the many people with obesity who could benefit. Certainly, this filing for bankruptcy reflects an immensely challenging market for obesity pharmacotherapy (and other treatments) – social stigma around obesity persists, patients/HCPs are reluctant to consider non-lifestyle interventions for weight loss, and there’s extremely poor reimbursement for obesity drugs and advisory.

Orexigen announced earlier this week that it is filing for bankruptcy. Notably, the company plans to pursue an auction and sale process with bids to be submitted by May 21, an auction to commence by May 24, and final sale to be closed by July 2, 2018.

This news comes as a disappointment, just as Orexigen’s Contrave (naltrexone/bupropion extended-release) was beginning to emerge as an apparent bright spot in the challenging obesity market. In 3Q17, Contrave reached the milestone of #1 prescribed branded weight loss drug, outpacing Novo Nordisk’s Saxenda (liraglutide 3.0 mg) in volume despite a much smaller value share (14% vs. 73%). Most likely, this reflects Saxenda’s significantly higher list price, but it seems like Novo Nordisk’s efforts to improve reimbursement and promote the weight loss efficacy of its product is propelling commercial success (Saxenda revenue grew 64% YOY from $233 million in 2016 to $394 million in 2017). For comparison, Orexigen reported total Contrave sales of $50 million in 2016 and $88 million in 2017, including $75 million in US sales.

Notably, Orexigen management did not hint at overt financial turmoil during recent earnings updates (from 1Q17, 2Q17, and 3Q17). The company was very focused on the strategic marketing campaign for Contrave, and management seemed optimistic about the drug’s rising prescription volume and plans for expansion into several international markets.

In our view, Orexigen’s story underscores the sheer magnitude of challenges in the obesity market, which remains plagued by deep-seated social stigma around obesity, weight-based bias from providers, under-diagnosis of obesity, patient/provider reluctance to consider non-lifestyle interventions for weight loss, and HCP concerns regarding the safety of these agents. We wonder how the news of Orexigen’s bankruptcy bodes for Vivus and Arena/Eisai, whose obesity products Qsymia (phentermine/topiramate) and Belviq (lorcaserin) have had consistently worse commercial performance than Contrave with 7% and 6% value share of the obesity market as of 3Q17.

We sincerely hope that the company that buys Orexigen (if one does) will continue to market and promote Contrave for the many people with obesity who could benefit. Orexigen’s press release notes that Contrave’s US patent exclusivity will extend until 2030, and launches are planned in an additional 14 countries in 2018 (for a total of 38).

This product could potentially have a decent ROI in a future where the climate is more favorable for obesity pharmacotherapies. We think this day is coming, although it will take a lot of work – we are particularly interested in what could happen with combination therapy. Novo Nordisk will launch the first-ever obesity CVOT this year (SELECT) to evaluate GLP-1 agonist semaglutide in ~17,500 patients with obesity. No RCT to-date has “proven” that obesity and its complications are responsive to pharmacotherapy – SELECT could be that trial. Moreover, results could help position obesity as a serious medical condition.

 

-- by Abigail Dove, Payal Marathe, and Kelly Close