May 9, 2014

Biotechnology - Company Update

FOR DISCLOSURE AND FOOTNOTE INFORMATION, REFER TO JMP FACTS AND DISCLOSURES SECTION.
Jason N. Butler, PhD
[email protected]
(212) 906-3505
Orexigen Therapeutics, Inc. (OREX)
Launch Preparations Underway Ahead of PDUFA Date
MARKET DATA
Price $5.30
52-Week Range: $4.59 - $7.84
Shares Out. (M): 125.9
Market Cap ($M): $667.3
Average Daily Vol. (000): 2,109.0
Cash (M): $155
Cash/Share: $1.20
Enterprise Value (M): $722
LT Debt (M): $80
Source: Thomson Reuters and JMP Securities LLC
FY DEC 2012A 2013A 2014E
Revenue ($M) 1Q $0.9 $0.9 $0.9A
2Q $0.9 $0.9 $101.1
3Q $0.9 $0.9 $1.1
4Q $0.9 $0.9 $1.1
FY $3.4 $3.4 $104.0
EPS 1Q ($0.16) ($0.21) ($0.23)A
2Q ($0.25) ($0.19) $0.70
3Q ($0.44) ($0.19) ($0.21)
4Q ($0.41) ($0.21) ($0.20)
FY ($1.27) ($0.81) $0.06
Previous FY NC NC $0.21
Source: Company reports and JMP Securities LLC
STOCK PRICE PERFORMANCE
$9.00
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$4.00
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Volume (mil.) Price (USD)
MARKET OUTPERFORM | Price: $5.30 | Target Price: $12.00
INVESTMENT HIGHLIGHTS
Pre-launch preparations are in place ahead of the Contrave PDUFA date in June
2014; we reiterate our Market Outperform rating and $12 price target on Orexigen
Therapeutics. Orexigen reported 1Q14 earnings below our and consensus estimates,
primarily due to higher than expected operating expenses, and ended the quarter with
cash of $155MM. We continue to expect U.S. approval of Contrave by the June 10,
2014 PDUFA date. Orexigens partner, Takeda, has made extensive pre-launch plans.
Recall, Orexigen is eligible to receive cash milestone payments of $100 million from
Takeda Pharmaceuticals, between U.S. approval and first commercial sale of Contrave.
Additionally, regarding the European approval process, management stated that it will
submit a response to the CHMPs Day 120 List of Questions by the end of May 2014. Our
$12 price target is based on 8x our 2018 U.S. royalty estimate of $345MM, discounted
at 15%.
Pre-launch plans for Contrave underway. Orexigens partner Takeda has a sales
force of ~900 sales reps in place which will focus their marketing efforts for Contrave
on primary care physicians. In addition, Takeda has assembled a medical liaison team,
and initiated a disease awareness campaign designed to educate prescribers on the
science of obesity and its clinical management.
Ex-U.S. partnership possible this year. Orexigen continues to conduct partnership
discussions for Contrave outside of the U.S. The company mentioned that since most
obesity drugs have, historically, had the majority of sales outside the U.S., Contrave may
have particular potential in ROW. Orexigen aims to finalize a partnership agreement
during 2014. We note that we anticipate ~10 years of market exclusivity will be granted
for Contrave in Europe as a new product, building on the products patent protection.
Progressing with plans to pursue Contrave in diabetes. Orexigen plans to pursue
life-cycle management opportunities for Contrave, focusing on diabetes in obese
patients. The company believes that data from the Light Study, which includes
approximately 7,600 patients with Type 2 diabetes, would provide the preapproval safety
data for Contrave that is required by FDA of new diabetes medications. Additionally,
a fixed-dose combination of Contrave with other diabetes therapies may provide
both improved glycemic control and weight loss for obese patients with diabetes.
Management mentioned utilizing the cardiovascular safety data from the LIGHT study
to bolster and expedite the safety profile for regulatory agencies.
1Q14 FINANCIAL SUMMARY
Orexigen reported 1Q14 EPS loss of ($0.23), slightly below our estimates of ($0.19) and consensus of
($0.23). Revenues of $0.9MM were in line with consensus and below our expectations of ($1.1M). Total
operating expenses were $24MM, slightly higher than our estimate of $19.6MM, driven by higher-than-
expected R&D spend. R&D expenses were $17MM, compared to our estimate of $13.9MM. SG&A
expenses were $7.0MM versus our estimate of $6.7MM. Cash, cash equivalents and marketable
securities were $155MM as of March 31, 2014. We note that the company did not provide guidance for
YE2014.
We have updated our model to include 1Q14 financial results and updated guidance as summarized in
Figure 1.

FIGURE 1. 1Q14 Earnings Summary and Changes to Our Model
OREX 1Q14
JMP est Cons Actual JMP est Cons JMP new JMP old Cons JMP new
Revenue 1.1 0.9 0.9 104.2 99.0 104.0 78.5 59.4 78.5
R&D 13.9 17.0 54.9 67.0 60.4 73.7
SG&A 6.7 7.0 27.4 28.9 31.5 33.2
Total operating expense 20.6 24.0 82.3 95.9 91.9 106.9
Net income (loss) (19.6) (20.4) (24.9) 21.5 11.1 6.1 (13.8) (13.7) (28.8)
Shares outstanding (diluted) 102.8 109.2 104.3 110.9 107.5 114.2
EPS (diluted) ($0.19) ($0.20) ($0.23) $0.21 ($0.02) $0.06 ($0.13) ($0.13) ($0.25)
FY 2014 est FY 2015 est

Source: JMP Securities LLC, Company reports


Orexigen Therapeutics, Inc. (OREX)
May 9, 2014 2
Company Description
Orexigen Therapeutics, Inc. is a biopharmaceutical company focused on the development of pharmaceutical product candidates for the
treatment of central nervous system disorders with an initial focus on obesity. Orexigen's two lead pipeline products, Contrave and Empatic,
are being developed for the treatment of obesity. Orexigen filed the Contrave U.S. NDA in March 2010 and received a Complete Response
Letter from the FDA in 1Q11, requesting that the company perform a pre-approval trial to rule out an unacceptable risk of major adverse
cardiovascular outcomes. The company and the FDA agreed to the design of this trial, in concept, in September 2011. In November 2013,
Orexigen announced successful results of the interim analysis of the Light Study. In December 2013, Orexigen resubmitted the NDA for
Contrave, or NB32 as it will be known going forward, to the FDA which assigned a PDUFA date of June 10, 2014.
Investment Risks
Clinical development risk. Drug development is a risky business. Historically, approximately one of every ten drugs that enter clinical trials
makes it to the market.
Regulatory risk. Orexigen, like all other drug development companies, is reliant on the FDA's pace for evaluating new drugs and the agency's
willingness to approve new drugs.
Competitive risk. Orexigen's development-stage products face significant competition that could negatively impact its sales.
Partnership risk. Orexigen's partnership strategy may include establishing commercial partnerships in ex-U.S. territories. If it is unable to
establish and maintain these relationships, it may have to bear the full cost associated with its ex-U.S. developmental and marketing programs.
Sector risk. Valuation of biotechnology stocks is subject to both investor assessment of the prospects of the underlying companies as well
as investor tolerance for risk and confidence in the prospects of biotechnology stocks as a group. Therefore, Orexigen's stock may fall even
while it meets or exceeds investor expectations.
Orexigen Therapeutics, Inc. (OREX)
May 9, 2014 3
JMP FACTS AND DISCLOSURES
Analyst Certification:
The research analyst(s) who prepared this report does/do hereby certify that the views presented in this report are in accordance with my/our
personal views on the securities and issuers discussed in this report. As mandated by SEC Regulation AC no part of my/our compensation
was, is or will be directly or indirectly related to the specific views or recommendations expressed herein. This certification is made under the
obligations set forth in SEC Regulation AC. Any other person or entity may not use it for any other purpose. This certification is made based on
my/our analysis on the date of this reports publication. I/We assume no obligation to update this certification to reflect any facts,circumstances
or events that may subsequently come to my/our attention. Signed Jason N. Butler
JMP Securities Disclosures:
JMP Securities currently makes a market in the security of Orexigen Therapeutics, Inc.
JMP Securities Investment Opinion Definitions:
Market Outperform (MO): JMP Securities expects the stock price to outperform relevant market indices over the next 12 months.
Market Perform (MP): JMP Securities expects the stock price to perform in line with relevant market indices over the next 12 months.
Market Underperform (MU): JMP Securities expects the stock price to underperform relevant market indices over the next 12 months.
JMP Securities Research Ratings and Investment Banking Services: (as of May 8, 2014)
JMP Rating
Regulatory
Equivalent
# Co's
Under
Coverage
%
of
Total
Regulatory
Equivalent
# Co's
Under
Coverage
%
of
Total
# Co's
Receiving
IB
Services in
Past 12
Months
% of Co's
With This
Rating
MARKET OUTPERFORM Buy 254 58.12% Buy 254 58.12% 102 40.16%
MARKET PERFORM Hold 135 30.89% Hold 135 30.89% 17 12.59%
MARKET UNDERPERFORM Sell 5 1.14% Sell 5 1.14% 0 0%
COVERAGE IN TRANSITION 43 9.84% 43 9.84% 0 0%
TOTAL: 437 100% 437 100% 119 27.23%
Stock Price Chart of Rating and Target Price Changes:
Note: First annotation denotes initiation of coverage or 3 years, whichever is shorter. If no target price is listed, then the target price is N/A. In
accordance with NASD Rule 2711, the chart(s) below reflect(s) price range and any changes to the rating or price target as of the end of the
most recent calendar quarter. The action reflected in this note is not annotated in the stock price chart. Source: JMP Securities.
Orexigen Therapeutics, Inc. (OREX)
May 9, 2014 4
JMP Disclaimer:
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revenues from the Firms institutional sales, trading, and investment banking departments as well as on the quality of the services and activities
performed that are intended to benefit the Firms institutional clients. These data have been prepared by JMP Securities LLC for informational
purposes only and are based on information available to the public from sources that we believe to be reliable, but we do not guarantee
their accuracy or completeness. Any opinions and projections expressed herein reflect our judgment at this date and are subject to change
without notice. These data are neither intended nor should be considered as an offer to sell or a solicitation or a basis for any contract for
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Orexigen Therapeutics, Inc. (OREX)
May 9, 2014 5
Jeffrey H. Spurr
Director of Research
(415) 835-3903
RESEARCH PROFESSIONALS
FINANCIAL SERVICES
Alternative Asset Managers
Devin Ryan (212) 906-3578
Brian McKenna (212) 906-3545
Commercial & Specialty Finance
Christopher York (415) 835-8965
Hannah Kim, CFA (415) 835-8962
Consumer Finance
David M. Scharf (415) 835-8942
Jeremy Frazer (312) 768-1796
Financial Processing & Outsourcing
David M. Scharf (415) 835-8942
Jeremy Frazer (312) 768-1796
Insurance
Matthew J. Carletti (312) 768-1784
Christine Worley (312) 768-1786
Investment Banks & Brokers
Devin Ryan (212) 906-3578
Brian McKenna (212) 906-3545
Mortgage Operating Companies
REITs: Agency, Hybrid, & Commercial Mortgage
Steven C. DeLaney (404) 848-7773
Trevor Cranston, CFA (415) 869-4431
Charter Robinson (757) 613-8955
Benjamin Zucker (212) 906-3529
HEALTHCARE
Biotechnology
Liisa A. Bayko (312) 768-1785
Heather Behanna, PhD (312) 768-1795
Andrew Prigodich (312) 768-1788
Jason N. Butler, PhD (212) 906-3505
Caroline Palomeque (212) 906-3509
Michael G. King, Jr. (212) 906-3520
Eric Joseph, PhD (212) 906-3514
Joseph A. Knowles (212) 906-3525
Healthcare Services & Facilities
Peter L. Martin, CFA (415) 835-8904
Aaron Hecht (415) 835-3963
Arthur Kwok (415) 835-8908
Life Science Tools & Diagnostics
J. T. Haresco, III, PhD (415) 869-4477
Marie T. Casey, PhD (415) 835-3955
Medical Devices
J. T. Haresco, III, PhD (415) 869-4477
Marie T. Casey, PhD (415) 835-3955
Medical Devices & Supplies
David Turkaly (212) 906-3563
John Gillings (212) 906-3564
REAL ESTATE
Housing & Land Development
Peter L. Martin, CFA (415) 835-8904
Aaron Hecht (415) 835-3963
Bharathwajan Iyengar (415) 835-3902
Lodging & Leisure
Robert A. LaFleur (212) 906-3510
Whitney Stevenson (212) 906-3538
Property Services
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Peter Lunenburg (212) 906-3537
REITs: Healthcare, Residential, & Specialty
Peter L. Martin, CFA (415) 835-8904
Aaron Hecht (415) 835-3963
Arthur Kwok (415) 835-8908
REITs: Office, Industrial, & Diversified
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Residential Services
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TECHNOLOGY
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Internet & Digital Media
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Software
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Wireless & Cloud Computing Technologies
Alex Gauna (415) 835-8998
ADDITIONAL CONTACTS
Thomas R. Wright
Director of Equities
(212) 906-3599
Dan Wychulis
Director of Institutional Sales
(617) 235-8530
600 Montgomery Street, Suite 1100
San Francisco, CA 94111
www.jmpsecurities.com
Orexigen Therapeutics, Inc. (OREX)