Expert Financial Analysis and Reporting

Orexigen reported second quarter results on August 8, 2011 in a press release, but did not hold a conference call. The CEO of the company, Mike Narachi, stated that the company is continuing the dispute resolution process with the FDA to try to reach an agreement on identifying a patient population for its anti-obesity drug Contrave in which the risk to benefit profile justifies approval. I think that reaching an agreement with the FDA that would establish a path forward for Contrave has a very low probability of happening and that the company should use its cash to acquire products.

Investors are focused on the cash position and burn rate. Orexigen ended the quarter with $70 million of cash or $1.45 per share. The burn rate in the quarter was $8 million and could be reduced further in upcoming quarters. The company has two broad options to use its cash position to bring in new products. This could be in the form of a reverse merger of a private company or under-capitalized public company into Orexigen in order to obtain a promising late stage product. Alternatively, the company might just acquire a product outright. Time is of the essence. At this point in time, there is no way for me to make an intelligent investment judgment on the potential for the stock and I remain on the sidelines.

For the record, I agree with the FDA advisory committee that recommended to the FDA that Contrave should be approved. I believe that there is a substantial unmet medical need for anti-obesity agents to combat the obesity epidemic. However, the FDA is setting incredibly high hurdles for establishing an acceptable side effect profile. It seems almost philosophically opposed to approving a drug for obesity unless it has a near placebo like side effect profile.

On December 7, 2010 the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee voted 13 to 7 that the available data adequately demonstrated that the potential benefits of Contrave outweighed the potential risks when used long-term in a population of overweight and obese individuals and supported approval. The Committee also voted 11 to 8 that a dedicated study to examine the drug's effect on risk for major adverse cardiac events should be conducted as a post-approval requirement versus pre-approval.

The FDA ignored the advisory committee recommendation and issued a complete response letter to Orexigen last January 31, 2011 for Contrave citing 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 FDA guidelines for assessing cardiovascular risk in diabetes drugs. Orexigen proposed a three to four year cardiovascular outcomes trial that would involve 12,000 to 15,000 patients. This trial proposal called for an interim look in 2013 and if there was no safety signal at that time it might 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.