Orexigen Follows Through On Warning It May Have To Liquidate

Orexigen hoped its go-it-alone strategy would boost obesity drug Contrave's sales enough to keep the company afloat, but now it has initiated bankruptcy proceedings, following through on a warning in October that it might not meet debt holders' requirements.

Orexigen Therapeutics Inc. was the most successful among a group of three obesity-focused companies that won approval for a prescription weight-loss drug in recent years, but now the firm is making good on a warning that it might have to liquidate its assets to meet debt holders' requirements.

San Diego-based Orexigen said on March 12 that it has support from a controlling number of senior secured note holders to initiate Chapter 11 bankruptcy proceedings that will allow for an orderly sale of the company's assets, which could be completed in early July. Orexigen first informed investors in October that Contrave (naltrexone/bupropion) sales fell short of goals, increasing the likelihood that it would have to liquidate in 2018 to comply with the senior secured note requirements.

The company said in an Oct. 17 US Securities and Exchange Commission (SEC) filing that note holders would be able to redeem notes due in 2020 (valued at $146.5m as of June 30, 2017) after June 30, 2018, if net Contrave sales in 2017 totaled less than $100m.

Contrary to its competitors, Orexigen's wholly owned drug actually saw significantly increased sales in 2017, but it was not enough to satisfy the terms of the company's outstanding notes. Orexigen reported in its bankruptcy filing announcement on March 12 that Contrave sales totaled about $75m in 2017, which was up from roughly $47m in 2016. (Also see "Orexigen Begins Slow Climb Up Slippery Slope Of Obesity Drug Sales" - Scrip, 13 Oct, 2016.) Last year was the first year that the company had full control of the drug after Takeda Pharmaceutical Co. Ltd. backed out of a Contrave partnership in 2016. (Also see "Takeda Exits Contrave Deal But Orexigen Insists Drug Can Grow" - Scrip, 15 Mar, 2016.)

Orexigen did not detail how much cash it has on hand to repay its debts, but it said the note holders who support its plans to declare bankruptcy and sell its assets committed $35m to help the company get through the Chapter 11 proceedings and liquidation, and continue day-to-day business operations, including sales, manufacturing and distribution of Contrave.

Multi-Step, Quick Bankruptcy Process

The company will file a voluntary petition under Chapter 11 of the Bankruptcy Code in US Bankruptcy Court for the District of Delaware as well as a motion seeking authorization to pursue an auction and sale process under Section 363 of the US Bankruptcy Code for substantially all of its assets, free and clear of any outstanding debt, liens or interest.

Orexigen expects to accept offers from both strategic and financial bidders through May 21 with a structured auction kicking off no later than May 25 so that the sale may conclude by July 2. The company will ask the court to limit trading of its common stock by shareholders with a 4.5% or greater ownership of Orexigen stock.

"The board and management team have thoroughly assessed all of our strategic options and believe that this process represents the best possible solution for Orexigen, taking into account our financial needs," Orexigen President and CEO Michael Narachi said in the company's statement. "While we have been working closely with our note holders and have the support of a controlling number of senior secured note holders, our debt covenant requirements and near-term cash flow needs have necessitated the protection afforded by a court-driven process."

Even though Orexigen warned investors last fall that a liquidation of its assets was possible this year, the company's announcement still stunned investors. Its stock closed down 76.4% at $0.33 per share on March 12 – a new low for Orexigen, whose market cap is now just $6.23m.

Peers' Sales Stagnant Or Non-Existent

The company's peers – Arena Pharmaceuticals Inc. and Vivus Inc., both of which had obesity drugs approved in the US ahead of Contrave – closed at $40.19 (down 4.9% from the prior day) and $0.59 (up 19.4%), respectively on March 12.

Arena is working hard to refocus its portfolio outside of the weight-loss sector. Its lead drug ralinepag for pulmonary arterial hypertension (PAH) is due to start Phase III soon. (Also see "Arena Rises, But Raises Questions With Phase II Ralinepag Data In PAH" - Scrip, 11 Jul, 2017.) Partner Eisai Co. Ltd. retains the rights to Arena's obesity drug Belviq (lorcaserin), but Eisai no longer dedicates a significant sales force to market the drug. (Also see "Obesity Market Snapshot: Marketing Partners Giving Obesity The Slow Goodbye" - Scrip, 9 May, 2016.)

Vivus reported full-year 2017 sales for Qsymia (phentermine/topiramate) on March 13 with product revenue totaling $45m last year versus $48.5m in 2016, and the company was well-financed with $226.3m in cash as of Dec. 31. Similar to Arena, Vivus is focusing on a PAH drug for future revenue; its lead development candidate tacrolimus is in Phase II.

However, Vivus announced yet another leadership change in December with Seth Fischer stepping down as CEO at the end of 2017 and a permanent chief executive still has not been named. The company's leadership has been tumultuous – Fischer took over from Tony Zook in 2013. (Also see "CEO Zook exits Vivus, J&J's Fischer steps in " - Scrip, 3 Sep, 2013.) Zook was at the helm for only a few months, however, after being appointed following a squabble with Vivus' biggest shareholder. (Also see "New Vivus board appoints Zook as CEO" - Scrip, 23 Jul, 2013.)

But small biotech and big pharma firms alike continue to hunt for a magical weight-loss pill. (Also see "Obesity Market Gains Weight But Better Drugs Still Needed" - Scrip, 25 Nov, 2016.) That includes Novo Nordisk AS, which has approval for obesity for its marketed GLP-1 agonist Saxenda (liraglutide) and is moving its follow-on semaglutide into Phase III for obesity. (Also see "Novo Nordisk: Semaglutide Heralds Commercial Dawn Of Obesity Market" - Scrip, 9 Aug, 2017.)