San Diego’s Orexigen Therapeutics looked like just another biotech on the verge of collapse at the beginning of the year. Its CEO was diagnosed with a terminal case of leukemia and soon died. Three other senior executives had just quit. The company halted development of two experimental drugs to conserve cash.
Orexigen (NASDAQ: OREX) sought salvation from a long-running clinical trial, and didn’t find it. Results from a 793-patient study of obese patients on its experimental weight-loss drug fell short of what Wall Street was expecting, and the stock dropped 15 percent the next day to $5.10.
Then Mike Narachi saw something the market didn’t see at the time. Narachi, a former vice president in charge of Amgen’s multi-billion dollar anemia drug business, heard about the Orexigen CEO opening and decided to think about it. He spent six weeks doing his homework on the obesity market, Orexigen’s pipeline, competition, and its clinical trial results.
The market potential is clear. Obesity is one of the nation’s biggest public health problems, with two-thirds of U.S. adults considered overweight or obese. There’s not a lot of great pharmaceutical competition—Big Pharma has been gun shy about this field since Wyeth was burned so badly by the multi-billion legal settlements related to fen-phen heart damage, and Sanofi-Aventis failed to win approval two years ago for a drug that was linked to rare instances of suicidal thinking. In contrast, the Orexigen drug looked like a contender. It was made through a novel combination of two existing drugs with decadelong safety records, with no evidence of heart trouble or suicidal thinking. Orexigen owned 100 percent of the worldwide rights to a drug in the final phase of clinical trials.
He came to a conclusion: I want this job.
“Here was a company that needed leadership for a product in late-stage development that can address a huge unmet medical need,” Narachi says. “Most people misunderstood it. I saw it as a unique opportunity.”
The announcement of Narachi’s hiring crossed the wire March 31, when the company was limping along at $2.61 a share. Since then, Orexigen has looked like a different company. The next time Orexigen had important clinical trial results to report to investors, the news was bundled together in a positive, detailed press release that anticipated a lot of investor questions. The conclusion was that all three studies reached their primary goals, and the data was good enough to submit an application to the FDA for approval in the first half of 2010.
The stock shot up 27 percent the following day to $7.20. Demand for the shares continued to surge, even after Orexigen issued 10 million new shares to raise capital—a move that usually dilutes the value of existing shares. By the end of July, the company had pocketed $81.6 million—more than doubling the amount of cash it had in the bank. Even with the extra supply of shares, the stock’s value has held up, closing yesterday at $7.81.
Besides bringing in Narachi, Orexigen has added a lot more management depth. It hired Jay Hagen from Amgen to be its dealmaker. It recruited Mark Booth from Takeda Pharmaceuticals North America—who has experience marketing three billion-dollar molecules, to plot the future commercial strategy for Orexigen. Michael Scaife, formerly of Chiron and Novartis, was brought in to spearhead regulatory affairs, which will be important as the company seeks FDA approval.
So that’s a good six months in anybody’s book. But where is Orexigen heading in what could be an increasingly competitive market for obesity drugs with San Diego-based Arena Pharmaceuticals and Mountain View, CA-based Vivus?
To hear Narachi tell the story, Orexigen is going to position its drug as a pharmaceutical option for really obese people trying to head off serious medical problems—not diet fad-of-the-month types who want to pop a pill to drop 10 pounds.
The way Narachi looks at the market, he sees the standard diet and exercise regimen as the starting point for most people. On the far end of the spectrum, representing more effectiveness, and more risk, is bariatric surgery. There’s not much for patients in the middle, who aren’t helped by diet and exercise, yet who face a high risk for diabetes, high cholesterol, high blood pressure, kidney disease, depression and a total of about 60 diseases, he says.
The Orexigen drug, and competing obesity drugs, are increasingly going to be evaluated not just on how many pounds they can help people shed, how safe they are, and whether people can keep the weight off, Narachi says. They are also being evaluated on these other high-risk diseases, the “co-morbidities” of obesity, which everyone agrees can cost the healthcare system a fortune. In short, these obesity drugs are not about winning beauty contests.
Especially given the prevailing political wind for reform, payers with limited budgets in the future might give a little extra scrutiny to brand-name obesity drugs that can potentially cost a lot when taken by millions of people.
If payers decide to get serious about forcing people into wellness programs to lose weight before agreeing to pay for an obesity drug, then Orexigen intends to be on its toes. That’s because of that earlier clinical trial, the one with 793 patients, that Wall Street didn’t like at first blush, Narachi says.
That trial disappointed Wall Street because it showed that patients taking the Orexigen drug, a combination of bupropion and naltrexone, when combined with intense diet and exercise, helped patients lose a median of 9.3 percent of their body weight. That outcome was just shy of 5 percentage points better than a group of patients who lost 5.1 percent of their body weight on an intense diet and exercise alone. The FDA has said that’s the sort of difference it wants to see between from a new obesity drug.
That study met another FDA criterion for effectiveness, so it wasn’t a bust. But more importantly, the study’s use of intense diet and exercise could provide an important benchmark. It showed that the Orexigen drug could help people lose weight even beyond what they can achieve in a highly disciplined, clinical setting.
Obesity drug marketing used to be about pitching a product to people who mostly just wanted to shed some pounds. Now it’s mostly about affecting all the downstream consequences of obesity, and proving that a drug is most effective when combined with diet and exercise.
“We need to change the game,” Narachi says. “I want our team to think long-term about how we’re going to change the game, and it will take creative thinking.”
At times, the Orexigen CEO sounds more like a physician than a drug salesman. “We don’t expect it to go to people who are just overweight,” Narachi says. “Those patients should continue to try diet and exercise. Any pharmacological option needs to be considered carefully.”
Orexigen isn’t the only company with this idea. San Diego-based Arena Pharmaceuticals (NASDAQ: ARNA) also contends that its obesity drug can have beneficial effects on the heart while also helping people shed some pounds. “Now everybody is doing the right thing,” Narachi says.
Orexigen also still has a long way to go before its drug is on the market—it is still working on putting together what it hopes will be a bulletproof application to the FDA in the first half of 2010. While that’s ongoing, it’s talking to potential partners about co-marketing agreements, and drawing up its own marketing plans. It could be several years from now before we know if this strategy is really going to work in the marketplace. Narachi wasn’t about to make any big predictions on sales or market share.
“One year from now, we’re going to be closer to the market launch. We’re going to have a quality NDA [new drug application] filed,” Narachi says, adding that he’ll have more market research, cost-benefit analyses, and support from governments and payers.
Culturally, he hopes to see an even bigger shift away from the relentless search to lose weight for cosmetic reasons, and toward losing weight for important health reasons.
“Five years from now,” Narachi says, “I think you’re going to see a very different treatment landscape for obesity.”
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