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Monday, August 4, 2014

How Contrave May Change The Landscape of Obesity

As Orexigen Pharmaceuticals (NASDAQ: OREX  ) once again prepares to face the FDA over its weight loss drug Contrave, we must take a look at how this may change the landscape for the weight loss drug market. Adding another competitor is not necessarily good news for the two companies who are already on the market, Vivus  (NASDAQ: VVUS  ) andArena Pharmaceuticals (NASDAQ: ARNA  ) . Orexigen will directly compete with both companies. So far both Arena and Vivus have had trouble generating meaningful amounts of revenue from their products. Arena and its partner Eisai Pharmaceuticals generated a measly $8.4 million. While this represented a substantial increase in revenue, it is nowhere near where Arena will need to be for profitability (in fact Arena lost $25.3 million last quarter). This is nowhere near profitability for Arena. The numbers for Vivus are only slightly better, with Vivus recognizing $9.1 million in net product revenue . Even though revenue increased, the amount of prescriptions written for Qsymia actually dropped when compared to the fourth quarter of 2013.
However another competitor entering the marketplace could spell trouble for both Vivus and Arena. Contrave seems to be between Belviq and Qsymia in terms of effectiveness, and should it receive FDA approval it could pose a serious problem for Arena patients who are not seeing enough weight loss or for Qsymia patients who are worried about some of the potential side effects of the drug. According to the FDA, Qsymia in clinical trials was shown to have side effects including complications during pregnancy and increased heart rate. Qsymia is also, notably, not recommended for patients who have heart disease . Should Orexigen be able to avoid label issues like these, Contrave could have a leg-up in the competitive landscape. Orexigen also has a marketing partner in Takeda, which is a notable improvement over Vivus. Orexigen and its partner are making a huge bet on the drug, as Takeda plans to market Contrave through 900 sales representatives upon approval. With this in mind they could potentially capture a large share of the market if the drug is ultimately approved. Given Orexigen's intent to grab business away from Arena and Vivus, let's take a look at the opportunities.
Clinical data
Orexigen has more extensive safety data around their product, due to the additional trials conducted after receiving a CRL on Contrave. The trials focused on the incidence of heart attack and stroke. In the cardiovascular outcomes study, an interim analysis showed that Contrave did not meaningfully increase the incidence of heart attack and stroke. Notably, both Arena and Vivus have not yet conducted their own cardiovascular outcome studies. The positive safety profile should later help Orexigen as a marketing tool as side-effects are a concern with current therapies and the cardiovascular effects of these weight loss drugs has been a concern for the FDA. While there have not been any notable cardiovascular problems with either Qsymia or Belviq, Orexigen being the only company with cardiovascular outcomes data could have an advantage in the marketplace.
EfficacyIt is important to note as Orexigen once again goes in front of the FDA that the efficacy of Contrave is largely not in doubt. While the three drugs cannot be easily compared to each other given difference in study design, all three showed effectiveness, in terms of the amount of people who lose 5% or more of their body weight. With this in mind, Contrave will be an effective option in terms of the efficacy/side-effect balance that doctors will have to do. Now, it is important to note that Contrave potentially may have a more worrisome safety profile than Belviq (regarding side effects: Contrave patients reported dizziness and increased blood pressure, while Belviq patients reported dizziness and dry mouth).
Final thoughtsOrexigen is prepared to make a significant investment in Contrave. Orexigen entering the market should help to shake up the weight loss market, as the company and its drug could gain traction assuming approval. I think the cardiovascular outcomes data could help make a crucial difference here, as will the large sales force that Takeda is prepared to deploy for this drug. Time will tell.

Disclosure: The author holds a position in Orexigen, and no position in any other stock mentioned. 

Sunday, August 3, 2014

Is There Any Hope Left For Dendreon

Dendreon Corporation  (NASDAQ: DNDN  )  shareholders have been on a rollercoaster over the past few years. Dendreon got their lead product Provenge approved for use in metastatic castration-resistant prostate cancer, but has been unable to profitably produce and market the drug, reporting net losses every year that Provenge was on the market. With this in mind, we need to ask ourselves whether this is the end of the line for Dendreon.
Dendreon's debt situation
The biggest indicator of success moving forward will be whether or not Dendreon will be able to meet its rather substantial debt obligations. Dendreon recently announced the payment of its 2014 notes, but these notes are just a tiny fraction of what they will have to pay in 2016.
The 2016 notes represent a large catalyst for shareholders, with $620 million due -- significantly more than the $155 million Dendreon has in cash. Dendreon’s cash position continues to worsen, as cash burn was around $30 million last quarter; management estimates a similar burn this coming quarter. And Provenge sales haven’t impressed – last quarter, company revenue was $68.8 million, roughly in line with revenue over the past five quarters.
Investors who still hang onto hope regarding Dendreon will point to the opening of the European market. They hope to see significant new sales in Europe, which will begin to ramp up in the fourth quarter of this year. But those sales will require infrastructure, production, and sales force investments that may further strain Dendreon’s resources.
What about other options?
The recent departure of Dendreon’s CEO John Johnson has left investors hoping for a buyout. But I don’t see an unprofitable drug and a large debt pile as attractive to a potential acquirer. Even if another company stepped in to buy Dendreon, I don’t think it would necessarily be for any sort of premium -- after all, the company doesn’t appear to have many options given its financial straits. And given Dendreon’s current market cap of under $400 million, share dilution sufficient to pay off the debt seems like an unattractive alternative for shareholders.
Bottom line
Dendreon will have a hard time meeting its 2016 debt obligations. With continuing losses and no immediate hope to turn them around, I’m not sure that Dendreon will have the cash needed to keep operating. While some investors might see this as a turnaround opportunity, I don’t see the oncoming barriers as surmountable, and I think that biotech investors have better places to park their money.