ITEM 1.
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LEGAL PROCEEDINGS
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In May 2013, we received a shareholder demand alleging that certain
option grants to the President and Chief Executive Officer, Michael A. Narachi, the then-current Chief Business Officer and acting-Chief Financial Officer, Joseph P. Hagan, and the then-current Senior Vice President, General Counsel and Secretary,
Heather D. Turner, in 2011 were granted in excess of the 1,500,000 share limit set forth in Section 3.3 of the Orexigen Therapeutics, Inc. 2007 Equity Incentive Award Plan, or Plan, as to the number of shares of our common stock with respect to
which one or more stock awards may be granted to any one eligible participant during any of our fiscal years. We refer to this limit as the 162(m) Award Limit. Our board of directors established a demand review committee composed of independent
directors to conduct an investigation with respect to the shareholder demand and to make recommendations to our board of directors. The demand review committee engaged independent counsel as part of its investigation and evaluated (1) the terms
of the Plan, (2) the initial issuance procedures for the option grants to Mr. Narachi, Mr. Hagan and Ms. Turner during 2011, (3) the authority available to the compensation committee of our board of directors under its charter
and the Plan, (4) the expectations of the award recipients and (5) the intent of our board of directors and the compensation committee regarding the availability of an exemption from the deductibility limitations of Section 162(m) of
the Internal Revenue Code for such option grants. Following its investigation, the demand review committee determined that the 162(m) Award Limit first became effective as of June 2, 2011, and that, therefore, awards granted under the Plan
prior to June 2, 2011, did not count toward the 162(m) Award Limit. The demand review committee determined that the awards granted to Mr. Hagan between June 2, 2011 and December 31, 2011 did not exceed the 162(m) Award Limit. The
demand review committee further determined that the options granted to Mr. Narachi and Ms. Turner, including the portion of such awards in excess of the 162(m) Award Limit, were validly approved under the Plan, although the portion of
those awards in excess of the 162(m) Award Limit does not qualify as performance-based compensation under Section 162(m). In September 2013, the compensation committee amended the Plan, with the approval of our board of directors, to take the
following actions: (1) to clarify that the 162(m) Award Limit only applies to awards or the portion thereof intended to qualify as performance-based compensation under Section 162(m); and (2) to confirm that the compensation committee
has the authority to make awards in excess of the 162(m) Award Limit, which board action we refer to as the Plan Amendment. The Plan Amendment is deemed effective as of June 10, 2011, consistent with the authority of the compensation committee
as administrator of the Plan as of that date. Any grants under the Plan in excess of the 162(m) Award Limit are not intended to qualify as performance-based compensation under Section 162(m).
On December 9, 2013, the same shareholder who made a demand on the board in May 2013 filed a derivative lawsuit purportedly on behalf of
us against certain of our officers and current and former members of our board of directors in the United States District Court for the Southern District of California, captioned Turgeman v. Narachi, et al. The lawsuit asserted claims for breach of
fiduciary duty, waste and unjust enrichment based on, among other things, the alleged grant of stock options to certain officers in excess of the 162(m) Award Limit, repricing stock options allegedly in violation of our equity incentive plan, the
board of directors conduct in responding to the May 2013 shareholder demand, and making allegedly false and misleading statements. The lawsuit sought, among other things, declaratory relief, corporate governance reforms, rescission of certain
stock option awards, rescission of the Plan Amendment, injunctive relief, damages, restitution, disgorgement and attorneys fees. On July 23, 2014, we and the individual defendants filed a motion to dismiss the Turgeman complaint. On
March 9, 2015, the court granted the motion to dismiss with thirty days leave to amend. An amended complaint was filed on April 8, 2015. The amended complaint asserted the same derivative claims as the original complaint and asserted a
putative claim on behalf of plaintiff and our shareholders for breach of
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contract for alleged violations of the 2007 Equity Incentive Plan. On May 8, 2015, we and the individual defendants filed a motion to dismiss the amended complaint. On March 31, 2017,
the Court granted the motion to dismiss, dismissing the breach of fiduciary duty claim with prejudice but granting plaintiff
twenty-one
days leave to amend the breach of contract claim. On April 21, 2017,
plaintiffs and defendants stipulated to dismissal with prejudice of the breach of contract claim. On April 24, 2017, the court entered judgment dismissing the entire action with prejudice.
On March 10, 2015, a purported class action lawsuit was filed against us and certain of our officers in the United States District Court
for the Southern District of California, captioned Colley v. Orexigen, et al. The following day, two additional putative class action lawsuits were filed in the same court, captioned Stefanko v. Orexigen, et al., and Yantz v. Orexigen, et al.,
asserting substantially similar claims. On June 22, 2015, the court consolidated the lawsuits and appointed a lead plaintiff. On August 20, 2015, the lead plaintiff filed a consolidated complaint. The consolidated complaint purports to
assert claims on behalf of a class of purchasers of our stock between March 3, 2015 and May 12, 2015. It alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by purportedly making false and
misleading statements regarding the interim results and termination of the Light Study. The consolidated complaint seeks an unspecified amount of damages, attorneys fees and equitable or injunctive relief. On October 5, 2015, defendants
filed a motion to dismiss the consolidated complaint. On May 19, 2016, the District Court granted the motion to dismiss, dismissing portions of the consolidated complaint with prejudice and portions without prejudice. The Court granted the lead
plaintiff 30 days to file an amended complaint with respect to those portions not dismissed with prejudice. On June 16, 2016, the lead plaintiff filed a notice of intent not to file an amended complaint but to proceed directly to an appeal of
the Courts decision dismissing the consolidated complaint. As a result, the court entered judgment dismissing the consolidated complaint with prejudice on June 27, 2016. The lead plaintiff filed a Notice of Appeal with the Ninth Circuit
Court of Appeals on July 26, 2016. The appeal has been fully briefed. No hearing date has been set. Although management believes that this appeal lacks merit and intends to defend against it vigorously, there are uncertainties inherent in any
litigation and we cannot predict the outcome. At this time, we are unable to estimate possible losses or ranges of losses that may result from such legal proceedings, and we have not accrued any amounts in connection with such legal proceedings
other than ongoing attorneys fees.
On June 3, 2016, plaintiff Ben Wilkin, a shareholder who had previously made a shareholder
demand to inspect certain books and records of the Company, filed a derivative lawsuit purportedly on behalf of us against certain of our current and former officers and members of our board of directors in the Delaware Chancery Court, captioned
Wilkin v. Narachi, et al. The lawsuit asserts claims for breach of fiduciary duty and waste of corporate assets based on essentially the same set of facts underlying the Colley, Stefanko and Yantz consolidated class action. The lawsuit seeks, among
other things, damages, corporate governance reforms, injunctive relief, restitution, disgorgement and attorneys fees. Orexigen and the individual defendants filed a motion to dismiss on October 31, 2016, asserting that plaintiff failed to
plead demand futility and otherwise failed to state a claim. Instead of opposing the motion to dismiss, on January 13, 2017, plaintiff filed an amended complaint pursuant to Chancery Rule 15(aaa). The amended complaint asserts nearly identical
allegations and claims as the original complaint. Orexigen and the individual defendants filed a motion to dismiss on March 27, 2017. A hearing on Orexigens and the individual defendants motion to dismiss is scheduled for
November 17, 2017. Management believes that the claims lack merit and intends to defend against them vigorously. We are unable to estimate possible losses or ranges of losses that may result from this lawsuit and we have not accrued any amounts
in connection with this suit.
It is possible that additional securities class action litigation may be brought against us following stock
price declines related to the release of information regarding Contrave or clinical trial results, including the Light Study or related to the matters alleged in the May 2013 shareholder demand and/or the Plan Amendment. Any adverse determination in
such litigation could subject the Company to significant liabilities.
In April 2015, we and Takeda received a Paragraph IV certification
notice letter regarding an abbreviated new drug application, or ANDA, submitted to the FDA by Actavis Laboratories FL, Inc., or Actavis, requesting approval to market, sell, and use a generic version of Contrave. In its notice letter, Actavis
alleges that U.S. Patent Nos. 7,375,111, 7,462,626, 8,088,786, 8,318,788, 8,722,085, 8,815,889, and 8,916,195, which are listed in the FDAs Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book, for Contrave, are
invalid, unenforceable and/or will not be infringed by Actavis manufacture, use or sale of the product described in its ANDA. In June 2015, we and Takeda filed a patent infringement lawsuit in the U.S. District Court for the District of
Delaware against Actavis and
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certain of its affiliates related to the ANDA previously filed by Actavis and described above. The lawsuit claims infringement of the seven patents that were the subject of Actavis notice
letter, as described above. In accordance with the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, as a result of having filed a patent infringement lawsuit within 45 days of receipt of Actavis
notice letter, FDA approval of the ANDA will be stayed until the earlier of (i) 30 months from the date of receipt of the notice letter or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not
infringed. In July 2015, Actavis filed an answer, affirmative defenses and counterclaim to our and Takedas complaint, and we and Takeda filed an answer to Actavis counterclaim in August 2015. Moreover, in July 2015, the court ordered a
stipulation between us, Takeda and Actavis in which we and Takeda agreed to dismiss all defendants except Actavis without prejudice, and Actavis agreed that the related Actavis entities will be bound to judgments and orders of the court against
Actavis and will be subject to discovery as if they were parties. In September 2015, the court entered a scheduling order, setting a claim construction hearing for May 2016 and a
three-day
bench trial to begin
in June 2017. After reviewing Actavis ANDA, we and Takeda subsequently dropped U.S. Patent Nos. 8,088,786, 8,318,788, 8,722,085 and 8,815,889 from the lawsuit. In April 2016, we and Takeda filed an amended complaint against Actavis asserting
newly issued U.S. Patent No. 9,125,868. In June 2016, in response to the May 2016 claim construction hearing, the court adopted our proposed constructions for the majority of the disputed claim terms. In August 2016, in connection with the end
of the transition period associated with the separation agreement entered into between us and Takeda, Takeda transferred responsibility for management of this patent infringement lawsuit to Orexigen. The bench trial for this matter commenced on
June 5, 2017, in connection with which we agreed to drop U.S. Patent No. 9,125,868 from the lawsuit. The bench trial concluded on June 7, 2017, and the parties are currently waiting the District Courts decision. Although we plan
to vigorously enforce Contrave intellectual property rights, there are uncertainties inherent in any litigation and we cannot predict the outcome.
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