OREX

Orexigen Therapeutics, Inc. (OREX)

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Orexigen Therapeutics, Inc. (OREX)

Analyst Day Conference Call

December 18, 2012, 09:00 am ET

Executives

McDavid Stilwell - VP, Corporate Communications & Business Development

Mike Narachi - President & CEO

Mark Booth - Chief Commercial Officer

Preston Klassen - SVP, Head, Global Development

Analysts

Corey Davis - Jefferies

Lee Kalowski - Credit Suisse

Cory Kasimov - JPMorgan

Jason Zhang - Edison Investment Research

Presentation

McDavid Stilwell

Good morning. If everybody could please take their seats we will get started in just a moment. So welcome to Orexigen’s Analyst Day. I am McDavid Stilwell, Vice President of Corporate Communications and Business Development at Orexigen. And we are very happy to be here today.

We will be making forward-looking statements and please refer to our SEC filings for a more wholesome discussion of the risks and uncertainties that affect our business. We will not have any obligation to update the information that we provide today or in the future.

So today we are going to discuss the Light Study next steps and provide a discussion of the scientific underpinnings of Contrave and then Mark Booth our Chief Commercial Officer will discuss our recent market research and we look forward to providing those details to you.

So without further ado here's Mike Narachi, our CEO.

Mike Narachi

So the laptop, McDavid just tell me how do I advance these slides, is it this little button? Oh, I thought that was Preston’s laptop. Thanks for coming today and for your attention and your support throughout this entire year and many of you years prior.

First, let me talk a little bit about the team at Orexigen. As you can see in this photograph the totality of the team is quite small and we have a couple of people in our staff couldn't make the photo-shoot based on things that they were working on for Orexigen. With a total of 38 employees and it’s a really seasoned and experienced team. I know you hear that a lot but the only way that we can stay this small and do all the things that we are doing including running this 10,000 patients outcomes trials by having the experience that this team brings to bear to the lot of the challenges and opportunities that we have.

Its not just the executive team that's listed here, but also virtually all of the employees and it’s a really high performance team; we set a really high standard for ourselves and I hope the results that we've delivered over the last couple of years exemplify that starting first I think with the AdCom that we held in 2010 where Preston kind of MC-ed that event. That was a first successful obesity AdCom in 13 years and I think that was kind of an ice breaker for change in the space. We then navigated some really ambiguous and choppy waters with the regulatory authorities throughout 2011 and then we initiated the Light Study and the performance today that was announced I think is phenomenal to probably one of the fastest growing large clinical trials that we know of.

So those are the kind of performance standards that we've been holding ourselves to and the experience of the team makes us, you know, the kind of standard that we can live up to. I won't talk about everyone on the team today, but I will talk a little bit about Preston and Mark as I introduce them for their sections. Also with us today are Carol Baum and Kristin Taylor in the back of the room; Heather Turner our General Counsel is here and Jay Hagan cannot be here today. He recently had an elective surgery on his back to do a little dysectomy and so he is probably listening and recovering. Hey Jay, we need you back. See you at JPMorgan.

We also have a solid Board of Directors and the Board has been evolving since I joined the company about 3.5 years ago, anchored by our Chairman, Eckard Weber, who is actually on the founding intellectual property for the company, the Weber/ Cowley patent for Contrave.

Peter Honig recently joined the Board a couple of years ago. He was former, I guess he started at FDA. He was one of the guys instrumental in creating the Office of Safety at FDA and he was the Director of the group. He then went to Merck where he became the Global Head of Regulatory Safety and Quality and now he has had Global Regulatory Affairs at AstraZeneca and he has been really instrumental in all of our health authority interactions and helping us with the strategy there.

Wendy Dixon, former Chief Marketing Officer and President of Global Marketing for Bristol; Pat Mahaffy joined the Board shortly before I joined the company; Pat, as a successful CEO brings perspective into the board room far beyond and now recently with Clovis. Lota Zoth was an E&Y partner, and then came into Pepsi and then was a CFO at MedImmune and her financial experience and discipline helps us on the Audit Committee, etcetera.

And recently, David Endicott joined the board. This was announced just a couple of weeks ago. David as a President of Allergan Medical brings not only sort of that interesting background from medical aesthetics and sort of consumer branding campaign and global experience with responsibilities for rest of the world, Latin America and other important markets, but also with the obesity interventions that they have with Lap-Band and with gastric balloon and some other successes and challenges there. Those are really great perspectives to add into our strategy sessions.

You have probably seen a lot of these graphs before many, many times and I don’t want to belabor the global epidemic that the US is unfortunately leading for obesity. You can see from the US geographic map that the trends for the weight gain of the nation are alarming. The picture globally looks very similar in most of the developed countries around the world.

You can see on the bottom right graph and I am trying to set up here not only that we have a problem but the change is happening and it’s inevitable to pass the change. On the bottom right graph you can see the elevating blue line that shows where our percent of GDP is spent and the line that’s growing is healthcare and that line is driven by chronic disease which I believe the root cause of most of that increase in spending is obesity, lifestyle, diet, etcetera. The rest of the cost problems are not as large because they are not growing as a percent of GDP, the unsustainable part of that picture in the United States is the growth of healthcare. So we know we have to change that that’s completely unsustainable.

I think part of the solution of that is getting our head around chronic disease and it’s become a topic everywhere; we are not getting much for our expense that graph on the bottom left, the far right dot shows life expectancy relative to expense and the far right dot is the US; we are spending by far more per capita on healthcare, but we are not the highest by a long stretch in terms of life expectancy for those expenses. Some of this may be indicative of the subsidy that the US consumers paying for healthcare globally because we are one of the last pre-markets for healthcare economies, but I think it’s also just indicative of an inefficiency and really not tackling some of the problems that we need to tackle.

Last year at the Annual Pharma Meeting, chronic disease was the topic; recently at the United Nations they dedicated the whole meeting to chronic disease with obesity as a cause of that, and so it really capture the attention of elected officials and policy makers globally and I think we are poised now to capitalize on that change. And I think when a problem gets big enough and the awareness gets large enough and you know that it’s unsustainable that's when you finally make tough choices and start to do something about it, and I think pharmacotherapy is going to be part of that solution.

The only proxy I can think of where we tackle the problem like this before was smoking, so smoking a controllable risk factor, the world and the nation got behind it, largely through education and taxation solutions, pharmacotherapy played a smaller role there with, nicotine patches, Zyban and Chantix; but I think obesity is a tougher problem to challenge and recently The Economist published a special report, I think three days ago, which is a great report if you haven't seen it yet I recommend that you take a look at it, it’s a nice summary, the global economic problem and some recommended solutions many of which are already in place.

And I talked about totality of solutions that are both economic, policy related and some therapeutics in fact the both Arena and Vivus and Orexigen I mentioned with new therapeutic interventions. I think in this case obesity therapeutic interventions are going to play bigger role in smoking cessation, I think its going to be more like the therapeutic interventions that I we have had to bring the bear for dyslipidemia hypertension diabetes and we are right on the cusp of that and poised for that change to occur.

A couple of things I just want to point out hopefully to give us confidence that this change is already occurring. First, no known fact, the Affordable Healthcare Act actually allows us now by law to increase the sort of characteristics, incentives or penalties for differential pricing of healthcare based on controllable risk factors. Today its 20%, the [EACA] lets it go to 30% and it gives the secretary the discretion to take it up to 50%. So you can have a person paying 50% more for their healthcare or less based on either biometrics or performance such as smoking, overweight etcetera. There's evidence of this already happening, 60% of the large companies in America already have wellness programs. I don't know if any of you have them. We do. One of the leaders of that was Safeway, where they have a wellness program that has these characteristic incentives for people to do the right thing.

At Safeway you basically get a discount if you are not obese and some of those are set up in the reverse. The State of Alabama Healthcare used to be free for State employees. Now at $25 a month if you are a smoker and $25 extra per month if you are not compliant with the wellness program managing your weight. So people are starting to put economic and educational and program incentives in place. Interesting the Department of Transportation recently issued guidelines, that if your waist and neck circumference are over a certain size, you must go get a sleep apnea test because of all the accidents that are occurring with people falling asleep while they are driving on public highways. This sent a shockwave through the 2.5 million truckers which operate most of the transportation on the roads and they lobbied and slowed the guideline process down, but for the first time I know of where we converted it from a healthcare due to a safety issue and that catalyzed immediate change.

To go and get a sleep test I think 80% of the truckers are obese or overweight. A huge percentage of them are diabetic. Average life expectancy of a trucker in the United States is 60. It’s a real problem amongst that industry based on lifestyle. The military has done something about it, and one of the fastest growing costs in the US military spending is the related healthcare expenses. And military has said in the army so far that if you are identified as someone who is overweight then you've got to get into a program and then you have metrics and until you get off the program you are on notice and you can't get promotions, you can't get transfers etcetera. And if you don't hit your metrics to get down to the target weight, then you could be suspended and if you then hit target weight and then get re-identified as someone who is overweight its over. One strike.

So these are the kind of programs and policies that are becoming socially acceptable because of that inevitability, because of that incredibly high cost that we are driving in here and on the bottom you can see the quote from the Chief Medical Officer at United Health. It says, this is obvious, there's no way we can afford these controllable risk factors without doing something about it. So in the spirit of identifying a problem and saying change is going to happen. I want to introduce a guy who doesn't want to talk about that, he wants to talk about getting something done. Preston Klassen came to Orexigen from First Academia and then industry experience where he actually has experience with several outcomes trials. When we hired Preston we didn't think we are going to need the experience from the outcomes trials, unfortunately we had to do that, but he has been really successful in leading that charge. But he also has an interesting background. He was the clinical development leader for Amgen first small molecule, Sensipar which went on to successful commercialization and the skill that he brought to bear there was he could look forward two or three years into the launch, integrate it backward and make sure the drug and the product and the company have the information necessary to successfully commercialize the product and that’s a rare skill.

We watched Preston navigate a choppy, dicey advisory panel meeting with the FDA on EPO, on the ESAs. The panel that he led was around renal failure indications and it was successful on that it led at the time with no label changes. Then he led our own AdCom which as I said earlier was our first successful advisory panel in 13 years for obesity therapeutics. And then, since then, he has presided over a team that delivered results on the life study which are just outstanding, and we announced today the closure of the screening of the Life Study. We screened 13,192 patients in 6.5 months. Close to 11,000 of those will be enrolled in the trial and then ultimately, they will progress to about 9,000 randomized patients, and Preston will talk more about that. But just a phenomenal result; I think it's the fastest enrolling large clinical trial that any of us know about and just a tremendous result. Preston?

Preston Klassen

Thanks Mike. Nice to see everybody this morning. See if I can get everything started here. Okay, so Mike’s already talked about the rise in that healthcare cost increases driven predominantly by chronic diseases. Diseases like Type 2 diabetes and we know that diabetes patients have an annual healthcare cost that’s easily over twice that of a non-diabetic patient population. Actually if you look at the life time actuarial estimates somewhere around 10 to 13 times the cost for a diabetes patient population compared to non diabetic patient population. And obesity is clearly not only the upstream driver of the epidemic of diabetes itself; obesity is a driver of the clinical consequences that are attendant with diseases like diabetes. So on the left you see that the risk of diabetes increases exponentially above the BMI of 27 from men and even more particularly for women, and on the right the risk of death for a diabetic patient is clearly higher than that of a non diabetic reference group, but it’s far higher if one is also obese and diabetic.

Now this isn’t just true for mortality risks, it’s true for the kinds of healthcare diagnoses and procedures that drive a lot of the costs. So limb amputation a huge problem among the diabetic patient population, much higher if you are obese and diabetic. Heart attacks, coronary bypass grafting, general hospitalizations. So obesity is driving this epidemic, but it’s also very clearly in the driver seat in terms of the healthcare expenditures that are associated with this. But here is a point that’s often missed, you don’t have to eradicate or cure obesity in order to have a dramatic improvement, and here we see that multiple studies have demonstrated that even modest degrees of weight loss, we are talking 5% even less than less than 5% can significantly lower the risk of developing a chronic disease like diabetes.

There are two trials here, on the left the diabetes prevention program or DPP and on the right the XENDOS trial. So DPP was a lifestyle intervention. There are three arms, here I am graphing two of the arms; the lifestyle intervention arm aimed at weight loss and then the metformin group as the control and on the right XENDOS it was orlistat and Xenical compared to placebo both arms on top of a lifestyle modification so here is the interesting thing about both studies, the same degree of weight loss if you look at the relative differences between these two groups. Life Style compared to metformin is about 4% difference in weight loss, from baseline at one year, and its less than that in the ensuing years two, three and fours, a four year trial. So in the order of just over 2% difference between the two [grids].

Same thing with the XENDOS trial. Orlistat produced on average about 4% weight loss compared to placebo of one year, it was down to 2.4% out at year four. Both studies, same degree of weight loss, fairly small like most people say that's fairly modest it’s less than the 5% threshold that the [EACA] considers, to be the base line for clinically meaningful, and yet both studies demonstrated over that time period of 40% relative reduction in the risk of a new diagnosis of type 2 diabetes in this obese patient population at risk of developing type 2 diabetes, 40% reduction that is significant. And yet even in the phase of this clear evidence that there is benefit for even modest degrees of weight loss, we know that it’s often very difficult to achieve and sustain modest weight loss with diet and exercise alone and why is that, why is it so difficult. Well in part it’s difficult because from an evolutionary perspective our brains and our metabolism are essentially wired to conserve energy and body weight.

Read the rest of this transcript for free on seekingalpha.com