Contrave continues rebound

Orexigen Therapeutics 16 June 2017 Outlook
Download PDF

Orexigen Therapeutics

Contrave continues rebound

Outlook

Pharma & biotech

16 June 2017

Price

US$2.84

Market cap

US$43m

Net debt ($m), including restricted, at 31 March 2017

51

Shares in issue

15.2m

Free float

64.8%

Code

OREX

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(17.7)

(31.7)

(37.9)

Rel (local)

(18.7)

(33.1)

(47.1)

52-week high/low

US$5.4

US$1.7

Business description

Orexigen Therapeutics is a biopharmaceutical company focusing on obesity treatments. It recently reacquired the rights to sell its sole product, weight management treatment Contrave, in the US from its previous partner, Takeda. Contrave was launched in the US in October 2014 and approved in the EU in March 2015 under the trade name Mysimba.

Next events

Launches in nine additional countries

2017

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Orexigen Therapeutics is a research client of Edison Investment Research Limited

Orexigen’s consumer-focused re-launch of Contrave continues to be successful with a 39% increase in prescriptions in the United States in Q117 compared to Q416. Outside of the US, progress continues as the product has launched in 14 countries, with another seven expected by the end of the year, including the Nordic countries, where Orexigen has just signed a local commercial and distribution partner.

Year
end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/15

24.5

(67.3)

(5.24)

0.0

N/A

N/A

12/16

33.7

(138.1)

(9.73)

0.0

N/A

N/A

12/17e

87.3

(139.2)

(8.23)

0.0

N/A

N/A

12/18e

160.3

(75.5)

(4.86)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Successful patient-centric campaign

A shift from previous partner Takeda’s healthcare provider-focused marketing to a campaign focused on consumers (but with continued detailing of high prescribing physicians) has yielded a dramatic increase in prescriptions. Prescriptions increased 39% in Q117 versus Q416 and they now have approximately 50% of the branded obesity market (~8% of the total) according to Symphony Health.

Telemedicine strategy has potential

Orexigen is currently engaged in a telemedicine pilot program and will be in 47 states as by the end of May. Telemedicine has two main benefits, time (as patients do not have to travel to/from a doctor and wait to be seen) and a more comfortable, less intimidating experience for those wishing assistance with weight loss. While early, this strategy has the potential to reach a significant number of patients who are currently not being treated.

Continued progress in international launches

Contrave (Mysimba outside the US), has now launched in 14 countries, including South Korea, Spain and Poland. Launches in the UK and Ireland are expected in Q217. Also, due to a recently signed commercial and distribution agreement with Navamedic ASA, a launch in four Nordic countries (Denmark, Finland, Norway and Sweden) is expected in Q417 (as well as another three launches through other partners). Orexigen is partnered in a total of 44 countries outside of the US.

Valuation: $194m or $12.76 per share

We are adjusting our valuation from $193m ($12.70/share) to $194m ($12.76/share). We increased our US Orexigen sales estimates, altered the launch trajectory for product sales outside of the US (though we left peak sales largely the same) and increased our SG&A spending estimates. Orexigen’s financing requirement is now $90m through to 2020, although this does not include the $245m in convertible debt due in that year. Also, our per-share valuation does not include any potential equity dilution to cover the financing requirement.

Investment summary

Company description: Pure play in obesity

Headquartered in La Jolla, California, Orexigen is a biopharmaceutical company focused on the treatment of obesity. In October 2014 it launched Contrave in the US as an addition to a reduced-calorie diet and increased exercise in overweight (with comorbidity factors) and obese adults. Orexigen owns the commercialization rights to Contrave in the US and is currently marketing it with a 160-person salesforce. Known as Mysimba in international markets, the product is partnered in 44 countries outside the US and has launched in 14 of them. NASDAQ-listed, Orexigen was founded in 2002 and went public in April 2007. An additional $510m in capital has been raised since then. Orexigen currently employs 132 people full-time and employs a contract sales force.

Valuation: Highly dependent on sales trajectory

We are adjusting our valuation from $193m ($12.70/share) to $194m ($12.76/share). This change is due to an increase in our US Orexigen sales estimates and is mitigated by a more conservative launch trajectory for product sales outside of the US (though peak sales are largely the same) and higher SG&A spending estimates. Our fair value is based on an NPV analysis of the FCF from Contrave/Mysimba and the company’s ongoing costs for R&D and SG&A, to which we apply a 10% discount rate, appropriate for a biotechnology company with an approved and marketed product. Our analysis is highly sensitive to Orexigen’s ability to penetrate the vast obesity market, with a large swing factor in fair value on small changes in penetration.

Financials: Heavy marketing spend expected to pay dividends

Sales of Contrave in the US were $14.8m in Q117, up 12% compared to Q116. They also booked $4.3m in sales of Contrave to international partners. Due to an aggressive consumer-focused campaign (which helped increase Contrave prescriptions by 39% in Q117 compared to Q416), operating expenses were $66.8m in the quarter, including $55.2m in SG&A. These expenses are expected to decline over the course of the year. The company is currently guiding for $180-200m in cash operating expenses for 2017. It is important to note that in 2016, the company had guided for $160-180m in cash operating expenses but spent $146m, 9-19% lower than guidance. The company had $126.6m in cash, restricted cash and marketable securities at the end of Q117 and is guiding for a cash balance of $40-50m at the end of 2017. Our estimated financing requirement is now $90m through 2020 (not including the $245m in convertible debt due in that year) and we continue to expect profitability in 2021. Also, our per share valuation does not include any potential equity dilution.

Sensitivities: Commercialization risk dominates

Orexigen is subject to the execution risks associated with a pharmaceutical company in the midst of a commercial launch. Additionally, due to under-reimbursement for medical therapies for obesity, out-of-pocket costs for Contrave are relatively high ($90 per month for those without insurance coverage for Contrave if they have a savings card) making it a tougher sell. Their main competitor, which holds over 80% on the market, is phentermine, part of the amphetamine class and currently generic. While it does have serious side effects normally associated with amphetamines, euphoria and other “feel good” effects of the drug makes it unlikely that it will lose its market leading position without regulatory action. There are also intellectual property concerns as Contrave is a combination of two generic substances, naltrexone and bupropion though it does have 11 FDA orange book listed patents that expire between 2024 and 2032. Orexigen is currently involved in Paragraph IV litigation with Actavis over their filing for approval of a generic version of Contrave. While we expect the patents to hold up, the bench trial is scheduled to begin in June 2017 and if Actavis emerges victorious, a generic Contrave could be available after Contrave’s exclusivity period expires in September 2017.

Orexigen: Taking on a big market

Orexigen offers a pure-play investment in the treatment of obesity, a rapidly growing yet relatively underserved market. It had initially been partnered in the US with Takeda who had ~900 reps detailing Contrave. Although it became the #1 branded obesity treatment thanks to its efficacy and clean safety profile, prescriptions plateaued and Orexigen announced it was re-acquiring Contrave rights in the US in March of 2016 (the acquisition was completed in August 2016). Since launching a patient-focused campaign at the beginning of 2017, prescriptions for Contrave quickly rebounded and surpassed the levels attained by Takeda, which was strictly focused on marketing to physicians. Contrave, which is known as Mysimba in most international markets, has now launched in 14 countries, including South Korea, Spain and Poland and is partnered in an additional 30.

Contrave

Contrave aims to target the behavioral mechanisms of craving and reward that can lead to overeating. The extended-release (ER) tablets combine bupropion HCI ER and naltrexone HCI ER, regulating appetite and energy expenditure through central nervous system (CNS) activity. The individual compounds work on two separate, complementary areas of the brain: the hypothalamus and the dopamine reward system (the fact that it works on two areas of the brain is at the center of their patient-focused campaign). The hypothalamus plays an important role in the regulation of the body’s appetite, satiety and metabolism (energy expenditure) receiving various chemical and hormonal stimuli including glucose, insulin, leptin and peptides secreted by the gut processing food. The dopamine reward system regulates control eating behavior and cravings.

First approved in 1985, bupropion has been widely used for treating depression under the brand Wellbutrin (typically at 400mg/day), particularly in overweight people. Although efficacy in depression looks to be comparable to the commonly prescribed SSRIs, the drug has not been associated with their weight gain (or lack of sex drive) and in fact one of the side effects of bupropion reported in clinical trials in depression was modest weight loss. Bupropion was also FDA approved for smoking cessation in 1997 under the brand Zyban. A norepinephrine dopamine reuptake inhibitor (NDRI), the compound has been shown in studies to activate the pro-opiomelanocortin (POMC) area in the hypothalamus, which looks to cause a reduction in appetite and increase in energy expenditure. The firing of POMC neurons (brought on by bupropion) appears to lead to the production of a natural opioid, beta-endorphin that can slow the POMC system equally, moderating potential weight loss. Naltrexone counters this impact by blocking opioid receptors in the brain and limiting the impact of beta-endorphin on the POMC system. Thus, when administered together in a single pill, the increase in activity of the POMC neurons is sustained over an extended period. In a separate mechanism, both bupropion and naltrexone are approved for addiction disorders through the regulation of dopamine and naturally occurring opioids and therefore, when taken together, it is expected they may also impair food craving. Naltrexone is marketed in generic fast-release form as its hydrochloride salt, naltrexone hydrochloride, under the brands ReVia and Depade and Vivitrol (1x monthly ER injectable). In the US, naltrexone was approved for opioid addiction in 1984 and in 1994 for alcoholism. Orexigen’s proprietary ER oral formulation of naltrexone alleviates the common side effect of nausea in its original immediate release form.

Contrave clinical data in obesity

Contrave was approved in September 2014 in the US and in March 2015 in the EU on the back of a large Phase III pivotal trial program, COR, evaluating the drug in 4,536 patients in four studies across three doses of naltrexone ER (16mg, 32mg and 48mg) with bupropion ER (360mg). All studies were 56-week, randomized double-blind and placebo controlled, with one focusing on the evaluation of patients with type 2 diabetes (COR-Diabetes) and another on intensive behavior modification (COR-BMOD). Co-primary endpoints for all trials were those typically used in anti-obesity studies: the proportion of patients achieving at least 5% weight loss and percentage change in body weight vs placebo. Endpoints were analyzed using a modified intent-to-treat (ITT), last observation carried forward (LOCF) on treatment. All trials met their endpoints with efficacy broadly in line with the other currently marketed anti-obesity treatments, although data suggest that Vivus’s Qsymia (phentermine/topiramate) has an edge on efficacy.

Overall, the program discontinuation rates of 42-51% for those on Contrave were similar to placebo (41-50%) with 19-29% due to adverse events (mainly moderate and transient nausea, headache, dizziness and vomiting) vs 10-15% on placebo.

Exhibit 1: Results of the COR-program

Modified intent to treat

Completers

Contrave

Placebo

Contrave

Placebo

COR-I*

56 weeks

*diff from placebo, p<0.001

n=471

n=511

n=296

n=290

Mean weight loss (%)

6.1%

1.3%

8.1%

1.8%

Mean weight loss (lbs)

13.3

3.0

17.5

4.1

≥ to 5% weight loss (%)

48%

16.4%

61.8%

23.1%

≥ to 10% weight loss (%)

24.60%

7.40%

34.5%

10.70%

COR-II**

56 weeks

**diff from placebo, p<0.001

n=702

n=456

n=434

n=267

Mean weight loss (%)

6.4%

1.2%

8.2%

1.4%

Mean weight loss (lbs)

13.8

2.9

17.5

3.4

≥ to 5% weight loss (%)

50.5%

17.1%

64.9%

21.7%

≥ to 10% weight loss (%)

28.3%

5.7%

39.4%

7.9%

COR-BEMOD***

56 weeks

***diff from placebo, p<0.001

n=482

n=193

n=301

n=106

Mean weight loss (%)

9.3%

5.1%

11.5%

7.3%

Mean weight loss (lbs)

20.3

11.0

25

16.0

≥ to 5% weight loss (%)

66.4%

42.5%

80.4%

60.4%

≥ to 10% weight loss (%)

41.5%

20.2%

55.2%

30.2%

COR-diabetes****

56 weeks

****diff from placebo, p<0.001

n=265

n=159

n=175

n=100

Mean weight loss (%)

5.0%

1.8%

5.9%

2.2%

Mean weight loss (lbs)

11.6

4.2

13.5

5.1

≥ to 5% weight loss (%)

45%

18.9%

53.1%

24.0%

≥ to 10% weight loss (%)

18.5%

5.7%

26.3%

8.0%

Source: Orexigen

Exhibit 2: Weight loss over time in the completer population – COR-I Trial

Exhibit 3: Contrave with intensive BMOD (behavior modification – COR-BMOD completer analysis

Source: Orexigen

Source: Orexigen

Exhibit 2: Weight loss over time in the completer population – COR-I Trial

Source: Orexigen

Exhibit 3: Contrave with intensive BMOD (behavior modification – COR-BMOD completer analysis

Source: Orexigen

Obesity, an attractive but difficult market

Obesity is currently recognized by the larger medical community worldwide as a serious health condition, growing in prevalence globally with decreased life expectancy and related comorbidities including type 2 diabetes, heart disease, obstructive sleep apnoea (OSA), liver and pulmonary disease and certain types of cancer. Additional comorbidities include anxiety, depression, chronic pain and substance abuse. According to the Centers for Disease Control (CDC), in the US 37.7% of adults and 17.2% of youth (~100m people) are considered obese (body mass index or BMI ≥30) and these percentages continue to grow (see Exhibit 4). If you include the overweight (body mass index or BMI ≥25), between 60-70% of US adults are in need of losing weight.1

Ng M et al., Lancet 2014 Aug 30;384(9945):766-81

Exhibit 4: Obesity rates in the US

Source: CDC. National Center for Health Statistics, National Health and Nutrition Examination Survey

This comes at an enormous cost to the US healthcare system, with obesity and related comorbidity expenses in the US estimated at over $147bn.2 Worldwide, 2.1bn people are considered overweight or obese3 with a global economic impact of $2trn annually according to the McKinsey Global Institute.

Finklestein E et al., Health Affairs 28, No.5 (2009):w822-w831

Ng M et al., Lancet 2014 Aug 30;384(9945):766-81

Due to the sheer size of the potential multi-billion dollar market for obesity, there is capacity for multiple market contenders. Although a large and growing market, the development of anti-obesity agents has been fraught with safety issues historically (see Exhibit 5).

Exhibit 5: Select drugs historically used for the treatment of obesity

Drug

Mechanism

Dates used

Issues

FDA approved?

Thyroid extract

Increase metabolic rate

1893-

Cardiotoxicity

No

Dinitrophenol

Increase metabolic rate

1918-

Cardiotoxicity, death

No

"rainbow pills"

Mainly increase metabolism

1940s-1960s

Many (including death) as rainbow pills often included amphetamines, thyroid hormones, barbiturates, diuretics and laxatives

No

Fenfluramine

Reduces appetite by increasing serotonin

1973-1997

Cardiotoxicity

Yes, withdrawn in 1997

Dexfenfluramine

Reduces appetite by increasing serotonin

1996-1997

Cardiotoxicity

Yes, withdrawn in 1997

Sibutramine

Reduces appetite by increasing serotonin and norepinephrine

1997-2010

Cardiotoxicity

Yes, withdrawn in 2010

Source: Pharmacotherapy of Obesity by John Wilding, Grundlingh J et al., Journal of Medical Toxicology 2011 Sep; 7(3): 205-212, Cohen P et al., American Journal of Public Health. 2012 September; 102(9): 1676-1686, FDA.

Despite numerous scandals and disappointments in the segment, the landscape for obesity compounds has changed with some relatively recent approvals by the FDA. This newer generation of drugs looks to be comparatively safe based on data from their respective large Phase III clinical programs.

The competitive landscape in obesity

The cause of obesity is considered to be a combination of genetic, behavioral and environmental influences and it is therefore not surprising that multi-faceted weight management programs, which consist of medication, together with diet, exercise and behavior modification, have been shown to work best – not only in weight loss but, importantly, in the ability to keep weight off. The human body uses many chemicals and hormones to protect its stores of fat – a defense mechanism likely useful to our ancestors when food was scarce – and a complete circumvention of this natural protection of stored fat must therefore be multi-faceted and complex. Hence, new solutions in the treatment of obesity rely more and more on combination drugs targeting multiple pathways. As such, current obesity drugs on the market take differing approaches to enhance behavior modification through various mechanisms, some with combination-complementary approaches, and are showing reasonably good success.

The brain acts as a regulator to functions controlling weight including decisions about how much, when and what we eat. In the obese, the brain becomes desensitized to signals to stop eating. However, the brain is sensitive to any losses in weight, at which time metabolism slows and hunger signals are communicated. Weight loss treatments therefore need to target the propensity for the body to crave food and gain weight once pounds are shed. Current and potential anti-obesity drugs may operate through various mechanisms, including appetite suppression (such as phentermine and other amphetamine-based drugs and anti-depressants), the increase of metabolism or the interference in the body’s ability to absorb certain components of food (such as orlistat or OTC fiber supplements like glucomannan and guar gum). It is generally thought that the non-CNS approach, which can initially induce weight loss, is susceptible to a weight loss plateau after several months or a year of therapy, in the absence of treating the underlying behavioral mechanisms in the body.

The main obesity treatments currently marketed in order of launch are as follows:

Phentermine (generic): FDA approved in 1959 it continues to be the most widely prescribed anti-obesity medication. Part of the amphetamine class and a controlled substance. It is only approved for short-term use (a few weeks) but it is likely that many doctors are ignoring that on the label and prescribing for longer periods, though some states like Ohio are attempting to crack down on that practice. Acts as an appetite suppressant and stimulant. One advantage of phentermine over Contrave is its price. For cash-pay patients, it is less than half the cost of Contrave for a 30-day prescription (around $35 on average according to GoodRx).

Orlistat (Xenical/Alli, Roche/GSK): FDA-approved in 1999, Orlistat acts as a lipase inhibitor, preventing the absorption of fats from the diet. Approved for long-term use, Xenical (as prescription originally sold by Roche but currently generic) and Alli (as OTC sold by GSK) have failed to make major inroads, with negligible prescription share more than likely due to infamous side effects including oily stools, fecal incontinence, stomach pain and flatulence. Orlistat has been found to modestly reduce blood pressure and in a large randomized trial reduce the incidence of diabetes by nearly 40% in the obese. All Alli products were voluntarily recalled in March 2014 due to package tampering concerns and the product didn’t return to the market until February 2015; since then sales figures have not been reported. However, in 2014 sales of Xenical and Alli were $17m and $107m respectively.

Phentermine/Topiramate ER (Qsymia, Vivus): Phentermine, as mentioned above, is a sympathomimetic amine that acts as an appetite suppressant and stimulant as well as a controlled substance. Topiramate is an anticonvulsant with weight loss properties (although the exact mechanism is unknown). Launched in September 2012, Qsymia is the only recently approved obesity treatment to show significant blood pressure benefits in Phase III trials but, conversely, was denied approval in Europe in 2013 on cardiovascular and psychiatric side effects. Net Qsymia sales were $48.5m in 2016.

Lorcaserin (Belviq/Belviq XR, Arena/Eisai): lorcaserin, an oral pill, is the only new chemical entity (NCE) of the newer oral obesity drugs. It works by promoting satiety through selective activation of 5-HT2C receptors on anorexigenic pro-opiomelanocortin neurons located in the hypothalamus. The compound was approved in June 2012 and launched in June 2013 following the completion of additional studies after an FDA advisory panel recommended against approval in 2010 on cancer-causing concerns (in rats) and marginal efficacy. Lorcaserin has shown a numeric but statistically insignificant benefit on blood pressure. In July 2016, an extended release version, Belviq XR, was approved by the FDA but according to Symphony Health prescription data has thus far mainly cannibalized their Belviq franchise. Arena sold its remaining commercialization rights to Eisai in January 2017 as it exited the obesity market. Lorcaserin is a controlled substance due to its hallucinogenic properties at higher than approved doses. Sales of Belviq/Belviq XR were $34m in 2016.

Bupropion/Naltrexone (Contrave, Orexigen): launched in the US in October 2014 and approved in Europe in March 2015, Contrave is a new formulation of two active ingredients. Bupropion, approved as Wellbutrin since 1985, increases dopamine activity thereby reducing appetite. Naltrexone, first approved in its injectable form in 1984 for addiction, inhibits addictive behavior by blocking opioid receptors. In Q117 sales of Contrave were $14.8m in the US and Orexigen is guiding towards $75-85m for the year.

Liraglutide (Saxenda, Novo Nordisk): a double-dose version of Novo’s blockbuster type 2 diabetes treatment Victoza, Saxenda was launched in April (approval in December 2014) for chronic weight management. The GLP-1 receptor agonist was evaluated in more than 4,800 patients with and without weight-related conditions. We expect Saxenda to be positioned as a niche product (there is considerable overlap between type 2 diabetes and obesity populations) given the drug’s high pricing (~$1,200 per month), as well subcutaneous injections.

We do not expect the competitive landscape to change markedly in the next few years as there appears to be only one active Phase III program in obesity following the discontinuation of Zafgen’s novel MetAP2 inhibitor, beloranib, due to an increased risk of thromboembolic events. The program belongs to a private company called Gelesis (it attempted to IPO in 2015 but withdrew the S-1, likely due to lack of investor interest). Its product, Gelesis100, consists of an oral capsule that contains thousands of hydrogel particles that expand to 100 times their usual size once in the stomach. When taken with food the idea is that this will give patients the feeling of fullness (by physically filling the stomach) so that people eat less. Data so far has been relatively lackluster. In its three-month FLOW study of 128 patients, the 2.25g dose achieved 2% placebo-adjusted weight loss and the 3.75g dose achieved only 0.4% placebo-adjusted weight loss. The company is currently running the six-month 460-patient GLOW study which has co-primary endpoints of 3% placebo-adjusted weight loss as well as 5% weight loss in at least 35% of patients (43% lost 5% of their weight in the 2.25g arm in the FLOW study). We view this study as high risk as success requires a higher placebo-adjusted weight loss than seen previously.

Contrave marketing

Contrave was approved in the US on 9 September and launched in October 2014 as an adjunct to a reduced-calorie diet and increased physical activity in adults with a BMI of 30kg/m2 or greater (obese) or 27kg/m2 or greater (overweight), with one weight-related comorbid condition. As of June 2015, Contrave became the most widely prescribed weight loss treatment in the US. Unlike lorcaserin, Contrave is not a controlled substance, although packaging does include a black box warning owing to the class-wide risk of anti-depressants increasing risk of suicidal thoughts and behaviors in adolescents, as well as bupropion’s association with serious neuropsychiatric events when used for smoking cessation. In the US, Orexigen is commercializing Contrave on its own after re-acquiring the rights from Takeda and re-launched with its own sales force in August 2016. Since, re-launching, Orexigen has changed the marketing strategy from one exclusively focused on physician-focused marketing and detailing to one with a significant consumer component (especially since the beginning of 2017), although with continued detailing of high prescribing physicians (see Exhibit 6).

Exhibit 6: The evolving Contrave marketing strategy

Source: Orexigen

The thinking behind the change in strategy is that with physicians typically not spending that much time with patients (see Exhibit 7), they are likely to note the patient’s weight and potentially mention they should lose some, but not spend the time discussing obesity medication.

Exhibit 7: Time spent with physicians per office visit by patient

Time

Number of visits (‘000s)

Percent (%)

1-5 minutes

9,880

1.1%

6-10 minutes

68,761

7.6%

11-15 minutes

297,967

32.9%

16-30 minutes

382,885

42.3%

31-60 minutes

134,857

14.9%

61+ minutes

11,455

1.3%

Total

905,805

100%

Source: National Ambulatory Medical Care Survey 2013, CDC

However, if the patient comes in asking about Contrave, the physician is more likely to spend the time to discuss the patient’s obesity and potentially prescribe medication. In a survey of physicians sponsored by Orexigen, physicians said that when a patient asks for a prescription for Contrave, they grant that request 73% of the time. Based on prescription data from Symphony Health, this strategy has been particularly effective, increasing Contrave’s market share from just under 40% to 50% in the branded obesity market (8% of the total market, which includes phentermine) since the consumer campaign started at the beginning of 2017 (see Exhibit 8).

Exhibit 8: Market share in the branded obesity market

Source: Symphony Health

When viewed through the lens of total prescriptions, the growth is even more pronounced; the weekly prescription rate is now c 80% higher than it was at the start of the year (see Exhibit 9).

Exhibit 9: Weekly prescriptions in the branded obesity market

Source: Symphony Health

One thing that remains a work in progress is the reimbursement environment. Historically, obesity medication has not been a covered indication by most insurers due to the perception that it is a “lifestyle” issue. Things have been improving however, with national coverage rates up to 73% in Q117 from just 22% at the beginning in 2015. However, besides having a health plan offer obesity drug coverage, employers also have to opt-in to that coverage, which is a factor in keeping end user coverage rates low. Currently, a little over 20% of Contrave prescriptions are covered by commercial payers.

For the most part, patients need to pay cash for their prescriptions ($90 per month with a Contrave savings card). This relatively high price for a prescription is hurting demand for the product and also is reducing the net realized price that the company collects as they need to deeply discount the product for cash pay patients. As more patients have commercial coverage for Contrave, we expect the average revenue per prescription to increase (which coupled with increasing prescriptions could cause revenue growth to accelerate). Currently, average net revenue per unit sold (including discounts and any sampling) is $89, up 22% compared to Q116 and up 15% compared to the $77 average for all of 2016.

The telemedicine strategy

In addition to the typical consumer ad-campaign and detailing of physicians, Orexigen is also pursuing a telemedicine strategy where a patient could have a consultation with a physician on-line instead of having to physically attend a doctor’s office (there were around 1.2m virtual doctor visits in the US in 2016 according to the American Telemedicine Association). There are several advantages to this:

Immediacy. Some people suddenly decide to commit to losing weight and want to start taking action immediately. Instead of having to schedule an appointment which could be several days away, they can go on-line and usually get a telemedicine doctor to speak with them the same day.

Time. The average total time that needs to be invested for a conventional doctor’s visit is estimated to be 121 minutes, including 37 minutes of travel time and 84 minutes of clinic time, all for just 20 minutes in front of the doctor4. This time commitment can be a real issue for anyone with children and/or a job. With telemedicine, the time that needs to be invested is significantly shorter, often less than 20 minutes.

Ray K et al., The American Journal of Managed Care. 2015;21(8):567-574

Lower anxiety. Many patients are embarrassed to speak with their physician about losing weight or are afraid they will get a lecture. The company estimates that a third of patients are not getting their weight loss medicines because they are uncomfortable with the traditional office visit. The online experience is thought to be less intimidating and more comfortable for many patients.

For Orexigen, a focus on telemedicine has another advantage; phentermine, Qsymia and Belviq are all controlled substances so they cannot be prescribed through telemedicine. Therefore, a patient calling to treat their obesity can only be offered Contrave and the infamously patient unfriendly Xenical. Orexigen expects to have its telemedicine pilot operational in 47 states by the end of May 2017. While we do not expect significant near-term revenues from this channel, it could become a significant driver in the future as telemedicine itself becomes more popular.

Partnering internationally

Orexigen’s strategy for Contrave, which is known as Mysimba in most international markets, is to partner the drug region by region. Currently, Orexigen is partnered in a total of 44 countries outside of the US with Contrave/Mysimba launched in 14 of them, including South Korea, Spain and Poland. Launches in the UK and Ireland are expected in Q217. Also, due to a recently signed commercial and distribution agreement with Navamedic ASA, a launch in four Nordic countries (Denmark, Finland, Norway and Sweden) is expected in Q417 (as well as another three launches through other partners. The company hopes to sign partners in a further 10-15 countries over the remainder of 2017. There is little visibility into these markets and Orexigen does not disclose sales by country but as a whole, OUS sales in Q117 were $4.3m, up 139% sequentially as compared to the $1.8m in OUS sales in Q416. Much of this was the sale of product to partners to support the launch and may not be indicative of actual demand.

Exhibit 10: International launch timelines

Country

Partner

Launch Date

Notes

South Korea

Kwangdong

Q216

Czech Republic

Valeant

Q416

Slovakia

Valeant

Q416

Hungary

Valeant

Q416

Poland

Valeant

Q416

Romania

Valeant

Q416

Spain

ROVI

Q117

Bulgaria

Valeant

Q117

Estonia

Valeant

Q117

Lithuania

Valeant

Q117

Latvia

Valeant

Q117

Croatia

Valeant

Q117

Slovenia

Valeant

Q117

Greece

Valeant

Q217

UK

Consilient Health

Q217e

Ireland

Consilient Health

Q217e

Italy

Bruno

Q417e

Denmark

Navamedic ASA

Q417e

Finland

Navamedic ASA

Q417e

Norway

Navamedic ASA

Q417e

Sweden

Navamedic ASA

Q417e

Cyprus

Valeant

Q417e

Malta

Valeant

Q417e

Serbia

Valeant

Q118e

Saudi Arabia

Biologix FZCO

Q118e

Regulatory submission expected Q217

Kuwait

Biologix FZCO

Q118e

Regulatory submission expected Q217

Lebanon

Biologix FZCO

Q118e

Regulatory submission expected Q217

UAE

Biologix FZCO

Q118e

Regulatory submission expected Q217

Canada

Valeant

2018e

Regulatory submission Q117

Australia

Valeant

2018e

Regulatory submission expected Q217

Turkey

Valeant

2018e

Regulatory submission expected Q317

South Africa

Valeant

2018e

Regulatory submission expected Q317

Source: Orexigen

Sensitivities

Orexigen is subject to the execution risks associated with a pharmaceutical company in the midst of a commercial launch. In addition, due to under-reimbursement for medical therapies for obesity, out-of-pocket costs for Contrave are relatively high ($90 per month for those without insurance coverage for Contrave if they have a savings card) making it a tougher sell. Their main competitor, which holds over 80% on the market, is phentermine, part of the amphetamine class and currently generic. While it does have serious side effects normally associated with amphetamines, euphoria and other ‘feel good’ effects of the drug mean it is unlikely to lose its market leading position without regulatory action.

There are also intellectual property concerns as Contrave is a combination of two generic substances, naltrexone and bupropion. Currently, Contrave is protected by 11 patents listed in the FDA Orange Book, each of which would need to be invalidated, uninfringed or deemed unenforceable for a generic to hit the market (see Exhibit 11).

Exhibit 11: Contrave Orange Book patents

Patent number

Title

Expiration

7,375,111

Compositions for affecting weight loss

26 March 2025

7,462,626

Compositions for affecting weight loss

20 July 2024

8,088,786

Layered pharmaceutical formulations

3 February 2029

8,318,788

Layered pharmaceutical formulations

8 November 2027

8,722,085

Layered pharmaceutical formulations

8 November 2027

8,815,889

Compositions and methods for increasing insulin sensitivity

20 July 2024

8,916,195

Sustained release formulation of naltrexone

2 February 2030

9,107,837

Sustained release formulation of naltrexone

4 June 2027

9,125,868

Methods for administering weight loss medications

8 November 2027

9,248,123

Methods of providing weight loss therapy in patients with major depression

13 January 2032

Source: FDA

Orexigen is currently involved in Paragraph IV litigation with Actavis over their filing for approval of a generic version of Contrave. In April 2015, notice of a Paragraph IV certification regarding an abbreviated new drug application (ANDA), the type of application needed to get a generic approved, was received. In June 2016, following a May 2016 claim construction hearing, the court adopted the company’s proposed constructions with regard to the majority of the disputed claim terms in a Markman ruling. While not a definitive victory, adopting one side’s claim terms over the other’s is an indicator of potential success at trial, which is currently scheduled to begin in June 2017. If Actavis emerges victorious, a generic Contrave could be available after Contrave’s exclusivity period expires in September 2017.

We currently assume a 2030 generic entry, as patent 9,248,123 only covers a subset of obesity patients. Our NPV value for the company would decrease if a generic enters the scene prior to that date. If only the 7,375,111 and 7,462,626 patents (known as the Weber/Cowley patents) hold, our valuation per share would fall to $2.07 per share. If the Weber/Cowley patents and some of the patents that expire in 2027 hold, then our NPV per share becomes $6.51 (which is almost 50% lower than our current valuation but still higher than the current share price). On the other hand, as there are Contrave patents currently pending, their issuance could potentially increase the NPV for the company if their expiration dates are after 2030.

Valuation

We are adjusting our valuation from $193m ($12.70/share) to $194m ($12.76/share). This change is due to an increase in our US Orexigen sales estimates (peak sales increased from $329m to $342m) following robust prescription growth and is mitigated by a more conservative launch trajectory for product sales outside of the US (though peak sales are largely the same) and higher SG&A spending estimates ($5.8m higher in 2017 and $5.9m higher in 2018).

Our fair value is based on a NPV analysis of the FCF from Contrave/Mysimba and the company’s ongoing costs for R&D and SG&A, to which we apply a 10% discount rate, appropriate for a biotechnology company with an approved and marketed product. Our analysis is highly sensitive to Orexigen’s ability to penetrate the vast obesity market, with a large swing factor in fair value on small changes in penetration.

In the US, we currently assume $342m in peak sales, which equates to a 0.29% penetration rate among the obesity population and assumes an eventual normalization of obesity coverage as compared to treatments for other diseases (increasing the net revenue per patient). We assume $175m in peak sales for the rest of the world. This peak sales number is lower than in the US mainly because of reduced penetration assumptions and lower expected net revenue per patient.

Exhibit 12: Orexigen valuation table

Product

Launch

Peak sales ($m)

Royalty rate

NPV

($m)

rNPV/share ($)

Contrave US

Oct-14

342

100%

1,591

104.45

Contrave W. Europe

2016

118

30%

124

8.14

Contrave C. and E. Europe

2016

27

37.5%

35

2.31

Contrave S. Korea

2016

15

37.5%

14

0.93

Contrave ROW

2017

15

37.5%

14

0.91

PV costs inc taxes

(1,533)

(100.66)

Net cash (March 31, 2017)

(51)

(3.32)

Overall valuation (per share based on 15.2m shares outstanding)

194

12.76

Source: Edison Investment Research

Financials

Sales of Contrave in the US were $14.8m in Q117, up 12% compared to Q116. They also booked $4.3m in sales of Contrave to international partners. Due to an aggressive consumer-focused campaign (which helped increase Contrave prescriptions by 39% in Q117 compared to Q416), operating expenses were $66.8m in the quarter, including $55.2m in SG&A. These expenses are expected to decline over the course of the year. The company is currently guiding for $180-200m in cash operating expenses for 2017. It is important to note that in 2016, the company had guided for $160-180m in cash operating expenses but spent $146m, 9-19% lower than guidance. Due to the recent results, we have increased our revenue estimates in 2017 and 2018. Coupled with increased SG&A estimates, our operating loss estimate is higher for 2017 but lower for 2018. The company had $126.6m in cash, restricted cash and marketable securities at the end of Q117 and is guiding for a cash balance of $40-50m at the end of 2017. Our estimated financing requirement is now $90m through 2020 (not including the $245m in convertible debt principal due in that year) and we continue to expect profitability in 2021. Note that while Orexigen currently lists $177m on its balance sheet, it actually owes $245m in principal value on these notes which will need to be paid in 2020 ($165m by 1 July 2020 and the rest on 1 December). The difference is due to rules related to the fair value accounting of convertible notes with liability and equity components.

Exhibit 13: Financial summary

$'000s

2015

2016

2017e

2018e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

24,459

33,709

87,274

160,251

Cost of Sales

0

(7,995)

(26,104)

(29,680)

Gross Profit

24,459

25,714

61,170

130,572

Research and development

(40,750)

(38,023)

(33,186)

(36,504)

Selling, general & administrative

(43,762)

(118,583)

(163,089)

(164,720)

EBITDA

 

 

(60,276)

(134,627)

(135,222)

(70,902)

Operating Profit (before GW and except.)

 

 

(60,053)

(130,892)

(135,105)

(70,653)

Intangible Amortisation

0

(3,307)

(7,936)

(5,769)

Exceptionals/Other

0

77,229

(1,400)

0

Operating Profit

(60,053)

(56,970)

(144,441)

(76,422)

Net Interest

(7,219)

(7,228)

(4,104)

(4,834)

Other (includes change in fair value of warrants)

(39)

39,807

(14,215)

0

Profit Before Tax (norm)

 

 

(67,272)

(138,120)

(139,209)

(75,487)

Profit Before Tax (FRS 3)

 

 

(67,311)

(24,391)

(162,760)

(81,256)

Tax

(1,376)

(133)

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(68,648)

(138,253)

(139,209)

(75,487)

Profit After Tax (FRS 3)

(68,687)

(24,524)

(162,760)

(81,256)

Average Number of Shares Outstanding (m)

13.1

14.6

15.2

15.5

EPS - normalised (c)

 

 

(523.81)

(972.82)

(823.44)

(485.89)

EPS - FRS 3 ($)

 

 

(5.24)

(9.73)

(8.23)

(4.86)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

2,694

79,940

71,628

65,871

Intangible Assets

0

76,061

68,125

62,356

Tangible Assets

1,284

1,044

831

843

Other

1,410

2,835

2,672

2,672

Current Assets

 

 

233,895

224,461

95,892

55,355

Stocks

10,802

23,193

20,663

20,663

Debtors

6,828

1,102

6,277

6,277

Cash

214,011

103,993

64,014

23,477

Other

2,254

96,173

4,938

4,938

Current Liabilities

 

 

(32,241)

(65,360)

(49,459)

(49,459)

Creditors

(32,241)

(65,360)

(49,459)

(49,459)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(170,970)

(178,842)

(210,992)

(230,430)

Long term borrowings

(88,129)

(166,179)

(197,167)

(217,167)

Other long term liabilities

(82,841)

(12,663)

(13,825)

(13,263)

Net Assets

 

 

33,378

60,199

(92,931)

(158,663)

CASH FLOW

Operating Cash Flow

 

 

(54,473)

(109,713)

(132,308)

(60,478)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(538)

(330)

(255)

(261)

Acquisitions/disposals

0

(63,504)

(3,414)

0

Financing

64,259

188

0

0

Dividends

0

0

0

0

Other

(3,843)

(15,424)

76,026

188

Net Cash Flow

5,405

(188,783)

(59,951)

(60,551)

Opening net debt/(cash)

 

 

(121,629)

(125,882)

62,186

133,153

HP finance leases initiated

0

0

0

0

Exchange rate movements

29

715

0

0

Other

(1,181)

0

(11,016)

(0)

Closing net debt/(cash)

 

 

(125,882)

62,186

133,153

193,704

Source: Edison Investment Research

Contact details

Revenue by geography

3344 N. Torrey Pines Court, Suite 200
La Jolla, CA 92037
US
+1 858 875 8600
www.orexigen.com

Contact details

3344 N. Torrey Pines Court, Suite 200
La Jolla, CA 92037
US
+1 858 875 8600
www.orexigen.com

Revenue by geography

Management team

CEO: Michael Narachi

Chief Commercial Officer: Thomas Cannell

Michael Narachi has been CEO of Orexigen since 2009, coming from biotechnology firm REN Pharmaceuticals, where he served as CEO from 2006 to 2009. Previously, he held various positions over a number of years at Amgen, including general manager of Amgen’s anemia business, director of clinical operations, VP of development and head of corporate strategic planning. He currently serves on the board of directors of Celladon Corporation and Ultragenyx Pharmaceuticals, as well as PhRMA (Pharmaceutical Research and Manufacturers of America) and BIO (Biotechnology Industry Organization).

Thomas Cannell recently joined Orexigen following a long tenure at Merck, where he held various positions. He has considerable experience in global commercialisation, consumer marketing, and sales operations and management. Positions held at Merck include president of Merck Canada, head of marketing and strategy for MSD Japan and general manager roles for a US sales division and as leader of a Merck business unit, managing a multi-billion dollar product portfolio. He also designed and successfully piloted the commercial model for Merck’s US business.

CFO: Jason Keyes

EVP, General Counsel: Thomas Lynch

Jason Keyes joined Orexigen in 2013 and has held various financial senior leadership positions prior to becoming CFO, including Vice President of Finance, where he led the Company's financial planning and partnership finance functions and served as a key financial advisor to executive management in setting corporate business and financial strategy. Prior to joining Orexigen, Jason was Senior Director of Finance at Amylin Pharmaceuticals, Inc., which was acquired by Bristol-Myers Squibb in 2012. Previously he worked in finance and corporate strategy at Amgen, Inc. and at Baxter Healthcare Corporation.

Tom joined Orexigen from Novartis where, since 2012, he served as senior legal counsel in two divisions, including leading global legal and compliance support for Novartis Pharma’s neuroscience franchise and advising on business development and alliance management with partners in Europe, Japan and the U.S. Earlier, Lynch spent almost ten years with Boston Scientific in a variety of legal roles and nearly six years practicing corporate law at Dorsey & Whitney LLP.

Management team

CEO: Michael Narachi

Michael Narachi has been CEO of Orexigen since 2009, coming from biotechnology firm REN Pharmaceuticals, where he served as CEO from 2006 to 2009. Previously, he held various positions over a number of years at Amgen, including general manager of Amgen’s anemia business, director of clinical operations, VP of development and head of corporate strategic planning. He currently serves on the board of directors of Celladon Corporation and Ultragenyx Pharmaceuticals, as well as PhRMA (Pharmaceutical Research and Manufacturers of America) and BIO (Biotechnology Industry Organization).

Chief Commercial Officer: Thomas Cannell

Thomas Cannell recently joined Orexigen following a long tenure at Merck, where he held various positions. He has considerable experience in global commercialisation, consumer marketing, and sales operations and management. Positions held at Merck include president of Merck Canada, head of marketing and strategy for MSD Japan and general manager roles for a US sales division and as leader of a Merck business unit, managing a multi-billion dollar product portfolio. He also designed and successfully piloted the commercial model for Merck’s US business.

CFO: Jason Keyes

Jason Keyes joined Orexigen in 2013 and has held various financial senior leadership positions prior to becoming CFO, including Vice President of Finance, where he led the Company's financial planning and partnership finance functions and served as a key financial advisor to executive management in setting corporate business and financial strategy. Prior to joining Orexigen, Jason was Senior Director of Finance at Amylin Pharmaceuticals, Inc., which was acquired by Bristol-Myers Squibb in 2012. Previously he worked in finance and corporate strategy at Amgen, Inc. and at Baxter Healthcare Corporation.

EVP, General Counsel: Thomas Lynch

Tom joined Orexigen from Novartis where, since 2012, he served as senior legal counsel in two divisions, including leading global legal and compliance support for Novartis Pharma’s neuroscience franchise and advising on business development and alliance management with partners in Europe, Japan and the U.S. Earlier, Lynch spent almost ten years with Boston Scientific in a variety of legal roles and nearly six years practicing corporate law at Dorsey & Whitney LLP.

Principal shareholders

(%)

Baupost

14.6%

Foresite Capital

6.6%

BVF

4.8%

Vanguard Group

3.7%

NEA Management

2.4%

GLG

1.6%

Credit Suisse

1.5%

Companies named in this report

Takeda (4502); Vivus (VVUS); Arena (ARNA); Eisai (4523); Roche (ROG); Novo Nordisk (NVO); GSK (GSK); Valeant (VRX); Allergan (AGN)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Orexigen Therapeutics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Orexigen Therapeutics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues