Orexigen Therapeutics, Inc.

Transcription

1 February 27, 2015 Orexigen Therapeutics, Inc. Current Recommendation NEUTRAL Prior Recommendation Outperform Date of Last Change 06/06/2012 Current Price (02/26/15) $5.87 Target Price $6.25 SUMMARY DATA SUMMARY (OREX-NASDAQ) Analyst Note Orexigen reported breakeven results in the fourth quarter of 2014, below the Zacks Consensus Estimate of earnings of $0.03 per share. The company had reported a loss of $0.21 per share in the year-ago quarter. Revenues soared to $22.9 million during the quarter as compared to a mere $0.9 million the year-ago quarter. The approval of obesity drug, Contrave, is a major positive for the company. The drug performed encouragingly in its first quarter in the market. We expect investor focus to stay on the performance of the drug and EU approval status which is expected next month. We maintain a Neutral recommendation on Orexigen. 52-Week High $ Week Low $3.27 One-Year Return (%) Beta 2.49 Average Daily Volume (sh) 1,367,281 Shares Outstanding (mil) 123 Market Capitalization ($mil) $722 Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%) 16 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2014 Estimate P/E using 2015 Estimate Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Above Average Type of Stock Small-Growth Industry Med-Biomed/Gene Zacks Industry Rank * 91 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 1 A 1 A 1 A 3 A A 1 A 31 A 23 A 56 A E 4 E 14 E 19 E 40 E E Note: Quarterly figures may not add up to the annual figure due to rounding off Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.21 A -$0.19 A -$0.19 A -$0.21 A -$0.80 A $0.23 A -$0.21 A $0.09 A $0.00 A -$0.32 A $0.13 E -$0.12 E -$0.04 E -$0.19 E -$0.48 E $0.21 E Note: Quarterly figures may not add up to the annual figure due to rounding off Projected EPS Growth - Next 5 Years % 2015 Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 RECENT NEWS Orexigen Misses Fourth Quarter Earnings, Contrave Impresses Feb 25, 2014 Orexigen Therapeutics, Inc. reported breakeven results in the fourth quarter of The Zacks Consensus Estimate was earnings of $0.03. The company had incurred a loss of $0.21 per share in the year-ago quarter. The bottom line was boosted by higher revenues during the quarter. Orexigen recorded revenues of $22.9 million as compared to $0.9 million in the year-ago quarter. The company received collaborative agreement revenues during the quarter related to the U.S. launch of Contrave. Revenues during the quarter were in line with the Zacks Consensus Estimate. Orexigen incurred a 2014 loss of $0.32 per share, wider than the Zacks Consensus Estimate loss by a penny but narrower than the year-ago loss of $0.80 per share. The company s 2014 revenues came in at $55.5 million compared with $3.4 million in Revenues fell slightly short of the Zacks Consensus Estimate of $56 million. Quarterly Details According to Takeda Pharmaceutical Company Ltd, U.S. net sales of Contrave in the fourth quarter came in at $6.5 million after the drug was launched on Oct 20, Orexigen received $1.3 million as royalties on net sales of Contrave. Contrave was approved in the U.S. as an adjunct to a healthy diet (low on calories) and physical activity for chronic weight management in obese (Body Mass Index, or BMI, 30) or overweight (BMI 27) adults suffering from at least one weight-related co-morbid condition including high blood pressure, type II diabetes and high cholesterol. Regarding the Marketing Authorisation Application for Mysimba (EU trade name for Contrave), in Dec 2014, the company received a positive nod from the European Medicines Agency s Committee for Medicinal Products for Human Use (CHMP) on the approval of the drug. A final decision on the approval of the drug in the EU is expected next month. Operating expenses decreased 5.7% year over year to $20.6 million during the fourth quarter of 2014 primarily due to lower research and development (R&D) expenses related to Contrave. R&D expenses decreased 16.2% from the year-ago period to $13.0 million. General and administrative expenses were up 19.8% to $7.6 million. Our Take Orexigen s fourth quarter results were disappointing with breakeven earnings missing our estimates. However, we are encouraged by the initial sales of Contrave. Moreover, the positive CHMP opinion enhanced the chances of the EU approval of Mysimba. We expect investor focus to stay on the performance of the drug going forward. VALUATION We note that the obesity market is already crowded with products like Qsymia and Belviq among others. Orexigen reported breakeven results in the fourth quarter of 2014, below the Zacks Consensus Estimate of earnings of $0.03 per share. The company had reported a loss of $0.21 per share in the year-ago Equity Research OREX Page 2

3 quarter. Revenues soared to $22.9 million during the quarter as compared to a mere $0.9 million the year-ago quarter. The approval of obesity drug, Contrave, is a major positive for the company. The drug performed encouragingly in its first quarter in the market. We expect investor focus to stay on the performance of the drug and EU approval status which is expected next month. We maintain a Neutral recommendation on Orexigen. Orexigen is trading at 18.1x our 2015 sales estimate, below its peer group multiple of Our target price of $6.25 per share is based on 19.2x our 2015 sales estimate. Key Indicators P/S F1 P/S F2 Est. 5-Yr EPS Gr% P/CF P/S Orexigen Therapeutics, Inc. (OREX) Peer Average P/E 5-Yr High P/E 5-Yr Low ANI Pharmaceuticals, Inc. (ANIP) Halozyme Therapeutics, Inc. (HALO) Biota Pharmaceuticals, Inc. (BOTA) Momenta Pharmaceuticals Inc. (MNTA) TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Orexigen Therapeutics, Inc. (OREX) Industry Average S&P Equity Research OREX Page 3

4 Earnings Surprise and Estimate Revision History Equity Research OREX Page 4

5 DISCLOSURES & DEFINITIONS OVERVIEW The analysts contributing to this report do not hold any shares of OREX. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1126 companies covered: Outperform %, Neutral %, Underperform 8.2%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. NOTE: THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Headquartered in La Jolla, CA, Orexigen is a biopharmaceutical company focused on the development of obesity treatments. Orexigen s only approved product is Contrave. In Sep 2014, the FDA cleared Contrave as an adjunct to a healthy diet (low on calories) and physical activity for chronic weight management in obese (body mass index or BMI, 30) or overweight (BMI 27) adults suffering from at least one weight-related co-morbid condition including high blood pressure, type II diabetes and high cholesterol. Orexigen is also looking to get Contrave (EU trade name: Mysimba) approved in Europe. The Committee for Medicinal Products For Human Use (CHMP) of the European Medicines Agency (EMA) has adopted a positive opinion for the approval of Mysimba a decision should be out shortly. In Sep 2010, Orexigen entered into a collaboration agreement with Takeda for the development and commercialization of Contrave in the U.S., Canada and Mexico. As per the agreement, Orexigen has the right to co-promote the drug in the U.S. The company has retained the marketing rights for Contrave outside the U.S., Canada and Mexico. Orexigen s pipeline includes obesity candidate, Empatic (phase II completed). The company is looking for a collaboration partner before initiating phase III studies. In 2013, revenues decreased 22.1% to $3.4 million. Revenues included sublicensing of technology and payments received under collaboration agreements. NOTE: THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Equity Research OREX Page 5

6 REASONS TO BUY Contrave has Multimillion Dollar Potential: The FDA approval of obesity drug, Contrave, is a major positive for the company. According to data provided by the Centers for Disease Control and Prevention, more than one-third of U.S. adults (34.9%) and approximately 17% (12.7 million) of children and adolescents aged 2 19 years are obese. Low rates of penetration and awareness and the lack of safe and effective treatment options make the obesity market highly lucrative for the company. Contrave could bring in multi-million dollar sales for the company. Strong Partnership: We are positive on the company s partnership with Takeda for North America. Takeda has experience in the metabolic disorder market, which should be beneficial. With 1,600 reps (including 900 from Takeda) educating physicians about the risks of obesity, the value of weight loss and how pharmaceutical options can help patients lose weight, Contrave should benefit. Orexigen has rights to Mysimba outside North America and is looking for a partner to commercialize for these territories. The approval of Mysimba should help the company find a partner for additional territories. EU approval should come shortly with the CHMP adopting a positive opinion. Encouraging Light Study Data: In Nov 2013, the company had announced encouraging results from an interim analysis of the Light study, a randomized, double-blind, placebo-controlled cardiovascular outcomes trial comparing Contrave to placebo on the occurrence of MACE (cardiovascular death, nonfatal myocardial infarction or nonfatal stroke) in overweight and obese patients. The encouraging interim Light study data should support uptake. A 50% interim analysis is scheduled for the first quarter of REASONS TO SELL Black Box Warning May Limit Potential: Contrave is a combination of two FDA approved drugs, naltrexone and bupropion, in an extended release formulation. Naltrexone is approved to treat alcohol and opioid dependence while bupropion is approved to treat depression and seasonal affective disorder and as an aid to smoking cessation treatment. Although the FDA approved Contrave, the drug will carry a boxed warning related to increased risk of suicidal thoughts and behavior associated with antidepressants like bupropion. We are concerned that the black box warning may limit the drug s potential. We remind investors that Sanofi s Acomplia was withdrawn from Europe due to the occurrence of psychiatric disorders such as depression and suicidal tendencies. The FDA stated that patients receiving the maintenance dose of Contrave should be evaluated after 12 weeks and the drug should be discontinued in those patients who fail to lose at least 5% of baseline body weight. Stiff Post-Marketing Requirements: As part of the FDA s approval requirements, Orexigen and Takeda will have to meet several post-marketing requirements including studies evaluating the safety and efficacy of Contrave for weight management in obese pediatric patients. The companies have also been asked to conduct a new randomized double-blind, placebo-controlled study to evaluate the effects of long-term treatment with Contrave on the incidence of major adverse cardiovascular (CV) events in overweight and obese subjects with CV disease or multiple CV risk factors, as well as several short-term trials including a thorough QT study, single-dose pharmacokinetic studies in renal and hepatic impairment, and a drug-drug interaction study. Negative results from these studies would have an adverse impact on Contrave s uptake. Equity Research OREX Page 6

7 Competition in Obesity Market: Contrave is a late entrant in the obesity market with products like VIVUS Qsymia and Arena s Belviq already available. Other products currently available in the market include Roche s Xenical (orlistat), Glaxo s alli (over-the-counter/otc version of orlistat) and Akrimax s Suprenza. We are concerned that stiff competition may limit the sales potential of Contrave. We are also concerned about the lack of late-stage pipeline candidates at Orexigen. Although Orexigen has another obesity candidate, Empatic (phase II completed), in its pipeline, the company is looking for a partner to develop and commercialize the candidate, before initiating phase III studies. Thus, as of now, if Contrave disappoints Orexigen has little to fall back on. Analyst Last Updated By Copy Editor - Content Editor Lead Analyst Reason for Update Neelakash Sarkar Lopamudra Bhattacharya Arpita Dutt Arpita Dutt Note Equity Research OREX Page 7