Orexigen Insists It Can Grow Contrave After Takeda Exit
This article was originally published in Scrip
Beware the Ides of March, especially if you're an investor in the obesity drug market. Orexigen added further evidence that the market is crumbling as it hitched its wagon to a partner that is even worse off.
Orexigen did its best to put a positive spin on its big pharma partner Takeda Pharmaceutical Co. Ltd. exiting the alliance for Contrave, and announced a smaller partnership in hopes of distracting from the news. Yet, investors remain unenthused by the biotech's new strategy for its obesity drug.
The La Jolla, Calif. biotech announced March 15 that its Japanese pharma partner Takeda would be returning the rights to its obesity drug Contrave (naltrexone/bupropion), ending a five-plus year partnership. Orexigen called it an acquisition that positions the firm for growth, while Takeda claimed the exit is part of its strategy to refocus its resources.
"We have long desired to take more active role in the US commercialization of Contrave. We are pleased that we have the opportunity to acquire the asset which was in part made possible because of Takeda's desire to increase its investments and focus on its recently announced strategic therapeutic areas," Orexigen CEO Michael Narachi told a March 15 call with analysts.
"Orexigen now has the control and the capital strength to implement a focused, creative US commercialization plan designed for near-term profitability while still building and retaining value for the longer-term potential of Contrave/Mysimba," he added.
Orexigen investors weren't buying the positive spin: shares dropped 8.76% to close well below $1 apiece. The stock is far from its 52-week high of $8.24.
The deal will close at the end of the month and Takeda will transition Contrave back to Orexigen over the next six months. During that time, Takeda will continue to live up to its commitment to commercialize the drug in the US and Orexigen will continue to receive royalties on the product.
Takeda isn't merely giving the drug back though; Orexigen will pay $60m upon closing of the deal plus another $15m in the first quarter of 2017. The biotech has also agreed to pay out another $10m, $20m, $30m, $40m and $50m in milestone payments should Contrave exceed $200m, $300m, $400m or $500m in sales, respectively, in any given year (an unlikely occurrence since the drug just broke $50m in sales annually).
The Slow Goodbye
Takeda's departure shouldn't come as a surprise. The partnership was not a happy match. The original deal was struck in September 2010 when Takeda paid $50m upfront and agreed to more than $1bn in milestone payments. The partnership started to get rocky when Contrave went from being the frontrunner in the race to get a new obesity drug to market to third-to-market after several rounds with regulators.
Contrave finally garnered approval in September 2014 and Takeda began the US launch, but Orexigen was quick to accuse its partner of neglecting its commercialization responsibilities and insisted slow sales were due to a poor ramp up by the Japanese pharma.
The relationship deteriorated further when Orexigen released early data from its then-ongoing cardiovascular outcomes trial. The move widened the rift between the pair and brought criticism from FDA, which then required the companies to conduct a costly new CV outcomes trial. Orexigen said the matter with Takeda had been resolved in August 2015 when it took back Contrave rights for Mexico and Canada, as well as amending the deal agreement.
Another Bad Match?
In conjunction with the announcement about Takeda, Orexigen also announced March 15 that it has struck a deal with beleaguered Valeant Pharmaceuticals International Inc. The specialty pharma has agreed to market Contrave, known as Mysimba in Europe, in 19 Central and Eastern European countries. The pair is expected to split proceeds 50/50. Valeant is expected to launch the drug in the second half of 2016 in the 12 European countries that have already approved Mysimba, including Greece, Slovenia, Slovakia, Czech Republic, Hungary, Croatia, Lithuania, Estonia, Poland, Latvia, Bulgaria and Romania.
"Our strategy outside of the US is to secure partnerships with companies that have a strong desire to commercialize our product. Valeant has very strong capabilities in these 19 countries and we believe will make an ideal partner for the region," said Narachi.
Yet, a deal with Valeant is unlikely to quell investor concerns. The specialty pharma has been a regular in the headlines over the last several months as it came to light that Valeant had an unethical relationship with a specialty pharmacy and has faced unrelated accusations about price gouging.
We Can Do It Better
Orexigen is taking Takeda's departure as an opportunity to tell investors that it has a plan in place to increase sales of Contrave. The obesity drug is currently the market leader in the space, at least amongst the branded drugs, with a 41% share of branded prescriptions. That statistic is misleading though, because the obesity market is much smaller than analysts once hoped it would be and is currently dominated by low-cost generic amphetamines – phentermine has a 75% share of the market.
But Orexigen believes that there will be 5% to 10% growth each year for the next three years in the obesity market (despite trends pointing to the contrary) and that Contrave can capture a lot of that growth. The company also believes that marketing to the right prescribers will allow it to capture some of those phentermine prescriptions, as well as keep marketing costs down.
Orexigen is basing these assumptions on surveys it has conducted amongst physicians. "So physicians report that they would switch approximately 34% of phentermine patients to another medicine. And when asked what agent they would switch to, they reported Contrave 35% of the time, which is roughly double the intent to prescribe of any other agent in the market," Chief Commercial Officer Thomas Cannell said. "It certainly speaks to the huge potential that exists in the market and the willingness of phentermine prescribers to consider other agents."
Cannell explained that Orexigen's 160 sales reps in 15 regions will call on approximately 18,000 targeted physicians. Up until this point, Takeda has handled all US commercialization activities and provided approximately 900 sales reps to launch the drug.
"We estimate that the frequency of interactions with the right 18,000 targets will increase roughly 7%. More importantly, because our specialty organization will be dedicated only to Contrave and we estimate that there will be a roughly three-fold increase then the time spent with each target," said Cannell, who expects costs for commercialization to run between $80m to $100m annually, including $25m set aside for DTC advertising. The company admits it won't be making any Super Bowl commercials, but expects to use outlets like Facebook and Pinterest to its advantage.