- Coming up on June 10th, 2014, Orexigen Therapeutics expects a Food and Drug Administration (FDA) for it’s weight loss drug NB32 (Contrave).
- Contrave was initially rejected by the FDA due to a single issue cardiovascular safety concern and requested the company engage a study to provide data to address the concern.
- Orexigen's "Light Study" was successfully completed on 8900 patients and showed Contrave did not increase the risk of major adverse cardiovascular events (MACE).
- Because of an FDA Special Protocol Assessment (SPA) designation and the positive Light Study, it's virtually certain that Contrave will win FDA approval on June 10th.
- Because Contrave has safety data that other weight loss drugs do not have, notwithstanding excellent efficacy, we believe it will be the drug of choice prescribed by doctors for patients.
The prediction of the FDA approving Contrave is an easy one. If Orexigen (OREX) has followed the agreed protocols in the SPA and the company has not deviated from the agreement, the FDA is bound to issue an approval.
The FDA decision for Contrave is expected on June 10th, so about two weeks from now. With overall market conditions improving and the focus on additional stimulus from the Bank of Japan and the European Central Bank meeting in early June, we expect to see biotech catalyst traders come onboard here and drive the stock price up considerably over this time frame.
But, is Orexigen worth a longer term hold for investors?
The weight loss drug segment is not without a few other players in the game. Arena's (ARNA) Belviq gained FDA approval in June of 2012. Belviq is approved for use in adults with a body mass index of 30 or greater, or adults with a BMI of 27 or greater who have at least one weight-related condition such as high blood pressure, type II diabetes, or high cholesterol.
Belviq is thought to selectively activate serotonin 2C receptors in the brain, which may help a patients eat less and feel full after eating smaller amounts of food.
What is interesting about Belviq is that it comes with limitations on how it can be prescribed. The drug cannot be prescribed if a patient is taking other products intended for weight loss, so a patient cannot "mix" Belviq with other weight loss drugs. This limitation can potentially affect overall weight loss for a patient, and could dissuade both patients and doctors from prescribing Belviq.
Additionally, the effect of the drug on cardiovascular morbidity and mortality have not been established, which is a very important factor for both patients and their doctors who might be inclined to prescribe Belviq over other weight loss drugs. Remember, Belviq cannot be proscribed with other weight loss drugs, so the drug is an "either/or" choice. We think Orexigen's Contrave has at least one big advantage over Belviq; its "Light Study" data.
The Light Study was successfully completed on 8900 patients and showed Contrave did not increase the risk of MACE. We believe Doctors will be more inclined to prescribe Contrave over Belviq because an extensive cardiovascular study was completed showing that Contrave is safe – there is no such study with Arena's Belviq.
Even without this data, Belviq script sales in this quarter are 51% higher than in the previous quarter, which shows its marketing partner Eisai Pharma (OTCPK:ESALY) has been doing a decent job getting the word out. However, free scripts have increased by over 300%.
Vivus's (VVUS) Qsymia was approved by the FDA in July of 2012. However, Qsymia was approved with a Risk Evaluation and Mitigation Strategy (REMS), which informs doctors and female patients of reproductive potential about an increased risk of orofacial clefts in infants exposed to Qsymia during the first trimester of pregnancy.
Again, we see another approved weight loss drug that could potentially carry significant risks to a certain population of patients, which in Qsymia's case are women who are pregnant, or might be planning a pregnancy.
Even with this warning, Qsymia has been seeing decent script numbers of late. Starting in 2013, Qsymia scripts saw 81k in quarter two of 2013, 109k in Q3, 2013, 124k in Q4, 2013, and 121k in Q1, 2014, respectively.
However, of all the Qsymia scripts, 54% are discounted, of which 33% are sold at a discounted price along with 21% given away for free. We feel this is a bad way to do business with the safety issues that could arise from Qsymia for women.
It seems to us that both Arena (via Eisai) and Vivus are engaged in heavy promotion to get scripts up by giving away so many discounted and free scripts. There is no question that the demand is there from people who are clinically defined as being obese. The greater question we have is the longer term safety of both Belviq and Qsymia.
One final player in the weight loss field that should be mentioned is EnteroMedics (ETRM). EnteroMedics has an FDA advisory committee (ADCOM) coming up on May 29th for its pacemaker-like device called the Maestro Rechargeable System. This system is supposed to block vagal nerve impulses, which the company believes will suppress hunger. However, its Phase III study failed to meet the predefined primary endpoint.
It's likely the upcoming Adcom will vote against recommending this systems approval by the FDA in our strongest opinion. There are just too many questions regarding long term safety with the device, and the efficacy of the device is poor as clearly shown in the Phase III data results and subsequent commentary. However, when it comes to Adcom's it's never certain how participants will vote, so there is a chance for a positive vote, albeit a very slim one.
- Contrave efficacy
In clinical trials in excess of 4,500 people, 53% of those taking Contrave and 21% of those taking placebo lost five percent or more of their body weight over the twelve month trial duration, with many patients seeing improvements in cholesterol levels and blood sugar control. For those who actually went on a proper diet and properly exercised, the results were predictably better.
Once Contrave is approved, it will be marketed by Takeda Pharma (OTCPK:TKPHF), a large Japanese company worth in excess of $35B. We feel because of the extensive safety studies Orexigen has engaged in and the SPA agreement, it will become the weight loss drug choice of doctors. Doctors want to feel comfortable knowing they are prescribing drugs that are proven safe for patients. Cardiovascular issues seems to be the number one concern with these weight loss drugs. Belviq and Qsymia are unknowns in this regard while Contrave has the positive safety data from the Light Study.
We feel this data will tip the scripts in favor of Contrave in a large way.
It’s worth mentioning tone very important factor with Contrave over Belviq and Qsymia that should be noted; with the light study in hand, Contrave has the necessary Cardiovascular safety data needed for European approval. This where both Vivus and Arena failed (Arena withdrew Belviq application when it was apparent it would not receive EU approval) -- their safety data was not good enough for approval in Europe.
The European approval decision for Contrave is expected in late August or early September. This is yet an additional price driver for Orexigen.
Additionally, Orexigen has another potential near-term catalyst that should be considered in terms of short term stock price appreciation, notwithstanding the upcoming FDA approval date for Contrave on June 10th;
Orexigen is developing another weight loss drug called Empatic, which is a fixed-dose combination of a proprietary formulation of zonisamide sustained release (SR) and bupropion SR.
“In a Phase IIB clinical trial of Empatic 360 mg, patients completing 24 weeks of therapy, lost 9.9% of their baseline body weight, or 22 pounds, compared to 1.7% for placebo patients (p<0.001). Additionally, 82.6% of these patients lost at least 5% of their baseline body weight and 47.7% lost at least 10% of their baseline body weight compared to 18.9% and 5.7% of placebo patients, respectively (p<0.001 for both).”
Orexigen has been waiting to engage a Phase III trial of Empatic, as the Phase II clinical has been completed as shown above. We believe that once Contrave is approved June 10th that Orexigen is likely to gain a partner for Empatic which should add additional upside to Orexigen's stock price.
- Conclusion
As mentioned prior, with overall market conditions improving and the focus on additional stimulus from the Bank of Japan and the European Central Bank meeting in early June, we expect to see biotech catalyst traders come onboard here and drive the stock price upwards. Also mentioned is Orexigen's compliance with the SPA designation from the FDA. The company was asked to engage a cardiovascular study and went above and beyond the request with an 8900 person study that proved Contrave to be safe in this regard.
Contrave has a unique advantage over both Belviq and Qsymia with this extensive and large cardiovascular study. We feel this will give most doctors the confidence in prescribing Contrave.
Also, it's likely that Orexigen's Empatic gains a larger pharma partner soon after the likely Contrave approval, which would serve as an additional stock price catalyst.
Additionally, the iShares Nasdaq Biotechnology (IBB), the benchmark index used to track biotech, is on the verge of breaking through its resistance level of $235. The IBB saw a good deal of technical damage done over the last few weeks due to geopolitical risks and uncertain Federal Reserve policy. With a "risk on" trade coming back to the market, we feel both biotech and small cap names that have been beaten down will lead a rally moving forward into the summer.
On the insider transactions, it’s worth noting that Orexigen board of director Brian Dovey executed an option to receive 4,691,470 sharesin April, of which he disposed (sold) only 886 shares. This shows us a good deal of insider confidence in the company's chances in our opinion. Mr. Dovey currently holds 7,580,065 shares of Orexigen.
We think Orexigen will ultimately be a successful company and that Contrave will lead the weight loss drug market. Considering the factors mentioned in this article, our one year price target opinion on Orexigen is $12. We strongly feel with the short term catalysts in focus, the stock can reach a price of $7+.
The risks we see with Orexigen are more concerned with downside pressure to the stock caused by geopolitical and stimulus concerns from Japan and Europe. Additional concerns from these would mean the IBB and small caps in general would take a hit again, and could cause Orexigen shares to "run down" before June 10th. As mentioned, we feel these risks are behind the market at least for now.
Disclosure: Long $OREX
Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.
