Orexigen 2Q Loss Wider Than Expected, Settles with Takeda - Analyst Blog
Orexigen Therapeutics, Inc. OREX reported a loss of 18 cents per share in the second quarter of 2015, wider than the Zacks Consensus Estimate of a loss of 15 cents per share but narrower than the year-ago loss of 21 cents per share.
Orexigen Therapeutics Inc. - Earnings Surprise | FindTheBest
Total revenues in the quarter increased substantially (506.1%) year over year to $5.2 million, but missed the Zacks Consensus Estimate of $6 million.
Quarterly Details
According to Takeda Pharmaceutical Company Ltd. TKPYY, U.S. net sales of obesity drug, Contrave (EU trade name: Mysimba), in the second quarter of 2015 were $16 million. Contrave recorded a 39.1% sequential increase in sales in the U.S.
Orexigen received $3.1 million as royalties on U.S. net sales of Contrave. As per IMS Health data, Contrave scrips jumped 47% sequentially to 172,050 in the second quarter of 2015. On the second quarter call, the company reported that in June, Contrave's share grew to 34.3% of the branded market compared to 32.9% in May.
Operating expenses increased 9.3% year over year to $25.9 million primarily due to higher general and administrative expense. R&D expenses decreased 9.7% from the year-ago period to $15.1 million. General and administrative expenses were up almost 56% to $10.8 million, mainly due to an increase in market research costs and stock-based compensation expense.
Resolves Takeda Dispute
Orexigen said that it has entered into an amended and restated collaboration agreement with Takeda realigning the partnership for Contrave in the U.S. Takeda returned rights to Canada and Mexico. Moreover, the companies resolved all outstanding disputes.
As per amended terms, Orexigen will pay up to $210 million for the new cardiovascular outcomes study. Any cost in excess of this will be split equally by the partners. Takeda will pay the costs for closing down the LIGHT study. Moreover, Takeda will bear 75% of the cost of all other development activities for Contrave in the U.S. including other post marketing requirements as well as future life cycle management programs.
The original terms regarding royalties and milestone payments payable to Orexigen remain unchanged with one difference - Orexigen is now eligible to receive up to $105 million in additional milestone payments depending on the fulfillment of certain conditions.
Additionally, Orexigen set up a wholly owned subsidiary, Orexigen Therapeutics Ireland Limited, with economic rights to Contrave/Mysimba outside the U.S. Ex-US manufacturing, supply chain, pharmacovigilance and other business functions performed through the subsidiary are expected to lead to a more competitive global profitability outlook for Orexigen in the long-term.
Meanwhile, the company has signed up with Kwang Dong Pharmaceutical Company, Ltd., for the distribution of Contrave in South Korea. Kwang Dong will be responsible for seeking regulatory approval and will bear all commercialization activity and expenses. Contrave will be supplied by Orexigen for a $7 million upfront payment, about 35% – 40% of net sales, potential sales-based milestone payments, and other fees.
Kwang Dong could start selling Contrave in the second half of 2016, provided it gains approval. Obesity is a growing concern in South Korea where recent statistics from the National Health Institute indicate that 38% of men and 26% of women are obese. 2014 sales of anti-obesity medicines in South Korea crossed $67 million.
Our Take
Although Orexigen’s second quarter results were disappointing with the top- and bottom-line missing expectations, the resolution of the Takeda dispute has removed an overhang on the shares. Investors can now focus on the performance of Contrave. Based on Contrave’s share in the branded market, Orexigen said that it is now the branded market leader after just eight months on the market.
Meanwhile, Orexigen’s agreement with Kwang Dong for Contrave in South Korea makes sense -- Kwang Dong is a leading pharma company in South Korea. Orexigen is currently in discussions with potential partners for the EU and other regions.
Orexigen is a Zacks Rank #4 (Sell) stock. Some better-ranked stocks in the health care sector include Corcept Therapeutics Inc. CORT and Valeant Pharmaceuticals International, Inc. VRX. Both carry a Zacks Rank #1 (Strong Buy).
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