Memorandum

Orexigen 3Q17 – Contrave sales nearly double YOY, fall 19% sequentially to $19 million; New partnership with Merck KGaA to launch obesity drug in Latin America; Obesity pooled analysis: Sales rise 51% YOY to $139 million (+31% YOY to $38 million excluding Saxenda) – December 5, 2017

Executive Highlights

  • Orexigen recently provided its 3Q17 financial update, reporting $19 million in global sales of obesity drug Contrave. This marks a near-doubling YOY but a 19% sequential decline, which management attributed to autumn being a “seasonally weak period” for weight loss drugs (we think it may also just have to do with lumpy sales – 2Q17 was particularly strong). US sales comprised 94% of Contrave’s total revenue ($18 million). Management re-affirmed Contrave’s patent exclusivity through 2030.
  • Notably, Orexigen simultaneously announced a deal with Merck KGaA to market Contrave in Latin America. Merck will shoulder all commercialization and regulatory activities, and will own marketing authorization for the region, while Orexigen will receive an upfront payment and subsequent regulatory and sales milestone payments (specific amounts not disclosed). This is a big deal to see this partnership after the entire commercial market has been so weak commercially even in the midst of strong science (Novo Nordisk’s Saxenda continues to be the exception).  
  • On a pooled basis, the obesity drug class grew 51% YOY to $139 million in 3Q17 (from $92 million in 3Q16), which also marks 4% sequential decline (from $146 million in 2Q17). Novo Nordisk’s Saxenda captured 73% of the market by value, followed by Orexigen’s Contrave with 14%, Vivus’ Qsymia with 7%, and Belviq with 6%. Excluding Saxenda, the class posted $38 million in quarterly sales, still a strong financial performance with sales rising 31% YOY and flat sequentially. That said, we see enormous room for more rapid growth of this market, given how few patients receive medical care for obesity (if they are diagnosed at all).

Orexigen recently provided its 3Q17 update in a call led by CEO Mr. Mike Narachi. Quarterly revenue for obesity drug Contrave (naltrexone/bupropion extended-release) nearly doubled YOY but fell 19% sequentially to $19 million. This sequential drop came against the difficult comparison of an impressive series of sequential gains: +23% in 2Q17, +38% in 1Q17, and +44% in 4Q16. Total volume (TRx) for Contrave grew 26% YOY in 3Q17 to ~208,000 total filled prescriptions, though this represents a decline from ~234,00o prescriptions in 2Q17. US sales in 3Q17 comprised the lion’s share of Contrave revenue at 94%, up from 78% in 1Q17 and 86% in 2Q17, rising 85% YOY but falling 14% sequentially to $18 million. Outside the US, sales fell 59% sequentially to $1 million, comprising 6% of franchise revenue. With double-digit YOY growth for three consecutive quarters now (+36% in 1Q17, +90% in 2Q17, and +97% in 3Q17), Contrave represents a bright spot in the obesity market (joining Saxenda), and we hope the product continues to do better commercially, after several quarters of YOY decline in 2016. In explaining the relatively subdued sequential performance for the Contrave business, management noted that fall is a seasonally weak period for weight management drugs – we aren’t really sure about this and are guessing (this is speculation) that a stronger 2Q17 resulted from a bit “lumpy” sales rather than quite as much strength as we had thought. Overall, however, we were glad to hear management maintain quite an optimistic outlook for Contrave’s sales trajectory and we hope this was apt. Additionally, Orexigen’s slides highlighted a recent patent decision reaffirming exclusivity for Contrave through 2030, following an Abbreviated New Drug Application (ANDA) filing by Actavis Pharmaceuticals to market a generic version of the product.

  • During the call, Orexigen announced a commercialization and distributorship agreement with Merck KGaA for bringing Contrave to Latin America, including Brazil and Mexico. We had not expected this and view this as a very positive turn. Per the terms of the agreement, Merck will handle all commercialization and regulatory activities and will own marketing authorization in the region, while Orexigen will receive an upfront payment as well as potential regulatory and sales milestone payments (no specific amounts were disclosed). By the end of 1Q18, Orexigen plans to add an ambitious 10-15 countries to the 18 (including the US) where Contrave has already launched. In particular, the company is targeting Latin America, where more than half of adults have overweight/obesity. According to Orexigen, Latin America represents ~25% of the total global prescription weight loss opportunity (we’d love to see information on pricing/reimbursement there), and the new partnership takes into account Merck’s experience in endocrinology and metabolic disease.
  • Management also highlighted Orexigen’s new “Get Contrave Now” website, a “telemedicine and home delivery channel” launched this year, allowing for discreet Contrave prescriptions through online or phone consultations. The website also offers free home delivery. The company launched new messaging in early September: “Now You Can Talk to a Doctor Online and Get Free Shipping at GetContraveNow.com.” Management implied that this seems to be driving a sharp increase in total filled prescriptions, though Contrave’s prescription volume actually declined sequentially between 2Q17 and 3Q17 (we expect we’ll need more data to really assess the impact on volume, and for this, we look forward to future quarterly updates). Orexigen seems to be slowly puzzling apart how to most effectively and efficiently get Contrave to patients, and indeed, management expressed optimism that this will grow TRx in 2018. Management continues to stand by a four-pronged approach to marketing, including (i) physician activation, (ii) patient activation, (iii) market access, and (iv) telemedicine/free home delivery. According to Orexigen’s presentation deck, direct-to-consumer marketing has increased TRx as well as the number of providers writing Contrave prescriptions. Moreover, the slides state that Contrave is the #1 prescribed branded weight loss drug (despite accounting for only 14% of the obesity market by value, as discussed below – we expect this boils down to the higher list price for Novo Nordisk’s Saxenda).
  • We heard very little on the call about coverage/reimbursement, but management did mention a value-based contract that Orexigen has signed with OptumRx. Under this agreement, UnitedHealthcare has added Contrave as a preferred agent on some formularies; the VA has also taken similar action on its national formulary. No details were given on the more specific terms of the agreement, but future strategy updates were promised. Management noted that Orexigen’s telemedicine approach receives positive feedback from patients, and 80% enroll in auto-refills, leading to better patient engagement, but we’d certainly expect the value-based contract with UnitedHealthcare to be based on hard outcomes (weight loss, BMI change, etc.). A value-based contract is a big step for Orexigen and for obesity pharmacotherapy more generally, given that one of the most significant barriers to patients receiving these medications is poor reimbursement (many providers rely on off-label use of generics like phentermine and topiramate to make weight loss medication affordable). Notably, CVS Health will also pilot an outcomes-based reimbursement scheme in 2018 – details here have also been vague, and we’re eager to unpack these innovative contracts from both Orexigen/UnitedHealthcare and CVS Health around obesity drugs.
  • On a pooled basis, the obesity drug class grew 51% YOY to $139 million in 3Q17 (from $92 million in 3Q16), which also marks 4% sequential decline (from $146 million in 2Q17). Novo Nordisk’s Saxenda (liraglutide 3.0 mg) remains the clear frontrunner, capturing 73% of the market by value ($101 million in quarterly sales), although the rise in Saxenda’s share of whole class sales has decelerated – the product also held 73% of the market by value in 2Q17 and held 63% in 1Q17. In 3Q17, Orexigen’s Contrave captured 14% of pooled revenue (on par with 16% in 2Q17 and 1Q17), Vivus’ Qsymia captured 7% (down from 15% in 1Q17, on par with 6% in 2Q17), and Arena/Eisai’s Belviq held the remaining 6% (on par with 6% in 2Q17 and 7% in 1Q17). As the market leader, Saxenda’s 7% sequential decline in 3Q17 (driven by a 14% sequential decrease in the US) drove the market’s negative sequential performance. Excluding Saxenda, the class posted $38 million in total quarterly sales ($19 from Contrave, $10 from Qsymia, and $9 million from Belviq), still a strong financial performance with sales rising 31% YOY and flat sequentially. With the exception of Qsymia, which experienced a 19% YOY revenue decline in 3Q17, all other obesity products experienced YOY growth: a near-doubling YOY for Contrave, +53% for Saxenda, and +30% for Belviq. While this is heartening in light of steep commercial challenges in the obesity market, including social stigma (and 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 note that most of these products faced easy comparisons, since the class without Saxenda showed sluggish sales in 2016. That is to say, much work remains to truly overcome these obstacles to obesity care. Pooled class revenue has potential to be much higher considering the very small proportion of patients who are receiving any medical treatment for obesity (Novo Nordisk management has estimated this at 2% of the 600 million people with obesity worldwide). Both Novo Nordisk and Orexigen have launched strategic campaigns to promote an understanding of obesity as a biological, treatable disease, which could have a favorable effect on the whole class. As we learned recently during Novo Nordisk’s Capital Markets Day, the company is investing in efforts to change people’s mindset on obesity management (e.g. through the ACTION study), to increase physician engagement in obesity pharmacotherapy (e.g. through the Rethink Obesity platform), and to improve patient access to effective agents (by supporting the Treat and Reduce Obesity Act). Orexigen’s new commercial initiative is all about reducing stigma, and DTC ads emphasize the neural mechanisms that make weight loss difficult, which we see as a crucial message for patients, providers, and the public.

Figure 1: Total Obesity Market Sales (1Q13-3Q17)

Questions and Answers

Q: Do you have any theories as to why the number of new writers hasn't rebounded as much as the number of prescriptions?

A: When you're looking at the new writer data, you're only looking at unique doctors who have prescribed for the first time. So, the 100,000 doctors that I mentioned that have already written a prescription for Contrave are no longer available: they're not in the denominator. So, over the life cycle of a product, you'd expect that to continue to decline. The prescription base is written by the entire universe of doctors who are prescribing Contrave.

Q: What drove the net revenue per unit decline to $92 from $96?

A: I think both of those are pretty consistent. The slight decline may have been driven by some of the mix we've seen in terms of the proportion of our business that are using savings cards versus not, but all-in-all we're very pleased with the general trends that we've driven in terms of driving revenue per unit. In fact, as I mentioned in my prepared remarks, it's above our guided range, so we're continuing to monitor that and we're really pleased with how that's playing out.

 

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