Orexigen Therapeutics: Market Research Bodes Well For Contrave

With the screening completed of 13,192 patients for the cardiovascular outcome trial (CVOT), LIGHT, Orexigen (OREX) is on track to enroll c 10,400 and randomise c 9,000 patients by 1 January and 15 January 2013 respectively. An interim analysis of the trial could occur in between Q2-Q413, making the data available for FDA two to three months thereafter. We believe the LIGHT study has a high probability of generating positive outcome and ultimately leading to an approval in the US.

Market research data bodes well for Contrave
At the analyst day, management shared in-depth market analysis of the US obesity market and how Contrave would fare in a three way competitive landscape, the other two drugs being Vivus’ Qsymia and Arena’s Belviq. These data are likely to guide the company and its partner, Takeda, to position Contrave to female patients, age 20-39, and with BMI of ≥30 and <40, a segment that is c 65% of the total market. Contrave’s appeal to a wide patient segment also suggests that the
company’s partner choice of Takeda, a major player in the US PC market with potentially the largest sales force among the three drug’s promoters, makes sense as heavy promotion and abundant resources is required to push a obesity drug across the blockbuster threshold.

LIGHT at the end of tunnel
Orexigen was required by the FDA to conduct a COVT trial for Contrave’s approval, hence, it was put at a disadvantage in terms of approval timeline compared to Vivus and Arena. However, the company has executed the LIGHT trial well, moving up the timeline several times in the last year and now expects to reach 87 required events for interim analysis in mid-2013 and then trigger a submission two to three months thereafter. Assuming the interim analysis does exclude a doubling of major adverse cardiac events (MACEs), Contrave could be approved by early 2014. This will make Contrave the third to market, but with potentially the strongest promotional backing and a balanced efficacy and safety product profile among the three obesity drugs.

Valuation: Cheapest (relatively) obesity company
Orexigen’s EV of $272m, pales in comparison to Arena’s (EV of $1,959m) and Vivus’ (EV of $1,096m), probably reflecting Contrave’s later entry to market and some risks of the LIGHT study outcome. We believe the shares have upside potential going into LIGHT interim analysis (mid-2013) and Contrave approval (2013/14).

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