Expert Financial Analysis and Reporting

Stock Opinion

The FDA has shown great reluctance to approve three anti-obesity agents under development: Orexigen’s ($2.11, OREX) Contrave, Vivus’ ($8.17, VVUS) Qnexa and Arena’s ($1.38, ARNA) Lorques. All three drugs received complete response letters following their NDA submissions and the companies are in the process of addressing the FDA’s concerns before refilling their NDAs.

The FDA’s issue with Contrave focused on cardiovascular risk and it requested that Orexigen structure a cardiovascular outcomes trial to address this issue. Last Thursday, Orexigen received a crushing blow when the FDA turned down the company’s proposal for this cardiovascular outcomes trial and requested a much larger study. The potential for Contrave approval in the US seems extremely low at this time. I think that the most probable outcome for Orexigen is that it merges with another late stage company that can use its $77 million of cash ($1.61 per share). The investment potential for the stock in this event is a guessing game.

The FDA decision on Contrave and the new news that an advisory committee will be scheduled for early 2012 to discuss the need for cardiovascular safety studies for obesity drugs could delay the filing of the NDA for Qnexa by three to six months from the scheduled 4Q, 2011 filing date. Lorques does not seem to be directly affected by the Contrave cardiovascular safety issue.

At this point in time, it is difficult to assess the potential for approval of Qnexa and Lorques. However, given the FDA’s emphasis on having placebo like side effect profiles, I am concerned as to whether either drug can gain approval. I am not inclined to get involved with either stock.

The Potential for Contrave Approval in the US is Very Low

The FDA issued a complete response letter to Orexigen last January 31, 2011 for Contrave primarily because of a signal of cardiovascular risk seen in the phase III programs. There was a slight increase in blood pressure and pulse rate. Because of this, the FDA asked Orexigen to propose and then conduct a cardiovascular outcomes study.

Orexigen responded with a proposal for a trial that would be slightly more rigorous than 2008 guidelines for assessing cardiovascular risk in diabetes drugs. Orexigen proposed a three to four year cardiovascular outcomes trial that would have involved 12,000 to 15,000 patients. This trial proposed an interim look in 2013 and if there was no safety signal at that time it would allow Contrave to be marketed in 2014 in a subset of patients who had low cardiovascular risk. The trial would then be allowed to continue for several more years to assess the risk, if any, in a broader population.  

The FDA informed Orexigen on Thursday June 2, 2011 that approval of Contrave would require a much larger cardiovascular trial than proposed by Orexigen. The FDA proposal would essentially require that the trial be large enough to rule out cardiovascular risk. Because the typical Contrave patient is a 40 to 50 year old woman in whom cardiovascular risk is low, this would require a 60,000 to 100,000 patient trial according to Orexigen. This is prohibitive from both a cost and time frame basis.

The FDA concern with cardiovascular risk was unexpected two years ago when hopes ran high that following successful phase III trial results, the potential for FDA approval of Contrave was excellent. Contrave is a combination of the anti-depressant drug bupropion and naltrexone, which treats alcohol and opioid dependence. Because bupropion has been used for over 35 years in over 90 million people and because naltrexone has been used in 1 million patients for over 20 years, there was little expectation among investors that there would be any safety issues.

The FDA action seems to be based on two factors. It does not view obesity as being as serious a disease as diabetes and is therefore less willing to accept as much risk. It may also be the case that the FDA is not overly impressed with the efficacy of Contrave. In its clinical trials, Contrave showed a roughly 4.2% reduction in placebo adjusted weight gain, i.e. weight loss over and above the placebo effect. Taking these two factors and perhaps others into consideration, the FDA seems to feel that the risk of Contrave therapy, given the modest efficacy, must be very low in order to show a favorable risk reward ratio.

Orexigen disagrees and will file a formal dispute resolution that should result in a meeting with the FDA within 30 days following which the FDA would have 30 days to respond. However, it is hard to believe that this meeting will cause the FDA to budge from its position. Another faint ray of hope is that the FDA just announced an advisory committee meeting for early 2012 that will discuss cardiovascular risk and appropriate studies. However, this is six months or more away. Also, the conclusions of this panel would have to be assessed by the FDA and this could take some time. Even if the advisory committee were to conclude that the FDA’s position is too harsh and the FDA were to reverse itself, it seems doubtful that Orexigen could start an outcomes trial until 2013.

Orexigen told investors in a conference call that it would not/could not go forward with the FDA proposed cardiovascular outcomes trial. It will cease development of Contrave in the US. It will try to gain approval in some international markets. At this point, the outlook for Contrave looks grim and this makes for a difficult to assess outlook for Orexigen. The primary asset of the company is that it has $77 million of cash. The most effective use of this cash would probably involve merging with a company that has a promising late stage drug with limited cash resources. This could involve a company that has been unable to come public in the difficult initial public offering market or a cash poor public company. It is not possible to determine the investment potential of this course of action.

Implications for Vivus

The Contrave situation raises the question of what are the implications for the two other obesity agents in development: Vivus’ Qnexa and Arena’s Lorques. The overriding implication that we see is the extreme FDA focus on risk in the risk reward equation for obesity drugs. The FDA is essentially requiring a placebo like side effect profile for Contrave. The efficacy of Qnexa is only moderately better than Contrave. Hence, the FDA as in the case of Contrave is likely to stress side effect issues.

FDA in its complete response letter did not request a cardiovascular outcomes trial for Qnexa. However, there was a slight cardiovascular signal with Qnexa in its clinical trials as there was a slight increase in pulse rate. There was also a mixed signal on raised LDL cholesterol, but no signal on blood pressure. The FDA requested in its complete response letter that Vivus assess cardiovascular risk in its existing trials. The company did a two year extension study called SEQUEL in 675 patients that showed no cardiovascular risk. Moreover, the cardiovascular risk in the entire 4,323 Qnexa patient base showed a cardiovascular risk similar to placebo.

The Contrave experience may have two implications for Qnexa. The just announced advisory committee meeting to consider cardiovascular risk for obesity agents is a new development. Vivus had originally planned to re-file its NDA in 4Q, 2011. However, it might decide to delay this filing to determine what comes out of the advisory committee meeting. This could result in a three to six month delay or possibly longer.

The second implication relates to the concern that the topiramate component of Qnexa might be linked to birth defects. The FDA seemed unresponsive to the suggestion that Contrave could be used in a subset of obese patients at low risk of cardiovascular events. Vivus is seeking approval to market Qnexa in a sub-set of patients who are not at risk of becoming pregnant. The Contrave decision could signal a problem with the Qnexa strategy.

Implications for Arena

The FDA has not had cardiovascular concerns with Arena’s Lorques so that the Contrave issue less directly affects it. The reason for Lorques’ complete response letter was primarily due to cancer signals seen in rat studies. The FDA has requested a 12 month rat study to further assess this issue.

The major implication for Lorques again appears to be the way that FDA is addressing the risk reward equation for obesity drugs in which it appears unwilling to accept much risk. The efficacy of Lorques, like Contrave, is not that impressive, which means that even small side effect issues are magnified.

Still lurking in the background is the fen-phen issue. Lorques has some of the same biological targets as the fenfluramine component of fen-phen. The phase III trials of Lorques looked extensively at the valvulopathy potential of Lorques and seemed to show that there was not a risk although a very small risk cannot be totally ruled out. However, given the modest efficacy of Lorques, the fen-phen issue could be lurking in the back of the FDA’s collective mind.