Orexo — A robust Q1 despite a seasonally weak market

Orexo — A robust Q1 despite a seasonally weak market

Orexo’s Q119 results reinforced its continuing profitability with total revenues rising 25% y-o-y to SEK174.3m. Zubsolv led the revenue charge comprising 93% of total revenues and growing 23% y-o-y despite the seasonally weak first quarter of the opioid use dependency market. The effect on US Zubsolv (which increased in price by 4% from January 2019) from four Suboxone film generic entrants is so far minor.

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Orexo

A robust Q1 despite a seasonally weak market

Q119 results

Pharma & biotech

8 May 2019

Price

SEK67.5

Market cap

SEK2336m

SEK9.50/$; SEK10.65/€

Net cash (SEKm) at end Q119

326.4

Shares in issue

34.6m

Free float

53.8%

Code

ORX

Primary exchange

NASDAQ QMX Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.9)

(8.2)

89.6

Rel (local)

(6.3)

(13.4)

83.9

52-week high/low

SEK85.70

SEK29.10

Business description

Orexo is a Swedish speciality pharma company, with expertise in drug delivery/reformulation technologies (in particular, sublingual formulations) and a US commercial infrastructure for its opioid dependence therapy, Zubsolv (marketed by Orexo in the US and being out-licensed to partners ex-US). It also has three other clinical assets including OX124, which has reported positive Phase I results.

Next events

Q2 results

11 July 2019

Outlicensing of Zubsolv ex-US

Ongoing

Q3 results

24 October 2019

FY19 results

30 January 2020

Analyst

Andy Smith

+44 (0)20 3077 5700

Orexo is a research client of Edison Investment Research Limited

Orexo’s Q119 results reinforced its continuing profitability with total revenues rising 25% y-o-y to SEK174.3m. Zubsolv led the revenue charge comprising 93% of total revenues and growing 23% y-o-y despite the seasonally weak first quarter of the opioid use dependency market. The effect on US Zubsolv (which increased in price by 4% from January 2019) from four Suboxone film generic entrants is so far minor.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/17

643.7

29.7

0.67

0.0

100.7

N/A

12/18

783.1

92.2

3.99

0.0

16.9

N/A

12/19e

877.9

224.9

6.55

0.0

10.3

N/A

12/20e

854.1

195.1

5.47

0.0

12.3

N/A

Note: *PBT and EPS are as reported.

No real surprises in Q119

Growth of 23.3% in US Q119 Zubsolv revenues to SEK161.7m (SEK131.1m in Q118) continues to dominate Orexo’s investment case with a growing product despite an increasingly genericised market. Cost control continues to be a focus, with Orexo’s gross margin rising to 85% from 65% in Q118. This helped Q119 profit after tax rise to SEK14.1m compared to SEK25.9m in Q118, when traditionally Q1 is a loss-making quarter. This Q1 result was despite R&D investment in the pipeline and SEK49m in IP litigation costs. Orexo’s cash balance increased to SEK647.4m (SEK437.5m at the end of Q118). With litigation costs now expected to have a minor role for the rest of this year, the use of Orexo’s growing cash balance in M&A and in-licensing transactions will play an important role in diversifying the company’s future. The impact of the four generic Suboxone entrants on Zubsolv has been thankfully minor, but the changing market share dynamics will need to be closely watched. Ex-US Zubsolv partnerships in 2019 should be expected.

Litigation costs to decline in an appeal process

The earlier decision taken by the US District Court regarding patent ‘996 is unchanged. The court’s recent decision held that Actavis does not infringe patent ‘996 for its generic versions of Subutex and Suboxone, and we did not include any award for damages in our model. We have increased our FY19 total operational cost estimate mainly driven by a one-off SG&A expense to SEK538m, which remains close to Orexo’s c SEK500m guidance. Irrespective of declining IP legal costs for the remainder of FY19, Orexo’s ‘330 and ‘996 patents remain in force, ensuring US Zubsolv exclusivity until 2032.

Valuation: A number of moving parts

Our valuation takes into account a number of changes in the quarter and moves from SEK3.42bn or SEK97.7 per share to SEK3.52bn or SEK98.62 per share. Foreign exchange rates carried forward largely cancelled out the increased FY19e administrative expenses, while the reduction in FY19e CoGS from SEK115m to SEK112m and our introduction of a flat total market between Q4 and Q1 for future years resulted in the c 1% increase in our valuation.

Exhibit 1: Financial summary

 

 

 

SEKm

2017

2018

2019e

2020e

2021e

Year end 31 December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

 

Revenue

 

 

 

643.7

783.1

877.9

854.1

928.2

Cost of Sales

 

 

 

(164.4)

(171.8)

(112.0)

(100.1)

(107.3)

Gross Profit

 

 

 

479.3

611.3

765.9

754.0

820.8

Reported operating profit

 

 

57.4

95.8

227.5

211.6

231.5

Joint ventures & associates (post tax)

 

 

 

 

 

Profit before tax (reported)

 

 

29.7

92.2

224.9

195.1

208.8

Reported tax

 

 

 

(6.5)

45.7

1.6

(5.9)

(6.3)

Profit after tax (reported)

 

 

23.2

137.9

226.5

189.3

202.6

Minority interests

 

 

0.0

7.0

0.0

0.0

0.0

 

 

 

 

 

 

 

 

 

Basic average number of shares outstanding ('m)

 

35.0

34.6

34.6

34.6

34.6

EPS - basic reported (SEK)

 

 

0.67

3.99

6.55

5.47

5.85

EPS - normalised fully diluted

 

 

0.67

3.93

6.45

5.39

1.42

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Fixed assets

 

 

 

176.5

227.1

228.4

221.1

214.9

Intangible assets

 

 

121.0

103.9

92.4

83.5

75.5

Tangible assets

 

 

20.1

20.0

21.9

23.5

25.3

Investments & other

 

 

35.4

103.2

182.3

182.3

182.3

Current assets

 

 

827.4

1,059.5

1,283.1

1,479.6

1,688.4

Stocks

 

 

 

250.2

173.6

150.0

159.2

159.2

Debtors

 

 

 

249.3

296.1

374.0

317.5

344.8

Cash & cash equivalents

 

 

327.9

589.8

759.0

1,003.0

1,184.4

Other

 

 

 

0.0

0.0

0.0

0.0

0.0

Current liabilities

 

 

(349.9)

(483.4)

(496.9)

(496.9)

(496.9)

Creditors

 

 

 

0.0

0.0

0.0

0.0

0.0

Short-term borrowings

 

 

0.0

0.0

0.0

0.0

0.0

Other

 

 

 

(349.9)

(483.4)

(496.9)

(496.9)

(496.9)

Long-term liabilities

 

 

(324.9)

(327.1)

(374.0)

(374.0)

(374.0)

Long-term borrowings

 

 

(319.1)

(320.6)

(321.0)

(321.0)

(321.0)

Other long-term liabilities

 

 

(5.8)

(6.5)

(53.0)

(53.0)

(53.0)

Minority interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating cash flow before WC and Tax

 

108.1

70.6

243.5

200.4

213.0

Working capital

 

 

0.0

116.7

(131.6)

47.4

(27.4)

Exceptional & other

 

 

(37.2)

(14.3)

(9.1)

(16.5)

(22.6)

Tax

 

 

 

0.0

(18.1)

(6.6)

(5.9)

(6.3)

Net operating cash flow

 

 

146.6

187.3

111.9

247.8

185.6

Capex

 

 

 

(1.6)

(6.8)

(4.0)

(3.9)

(4.2)

Acquisitions/disposals

 

 

0.0

0.0

0.0

0.0

0.0

Equity financing

 

 

0.1

0.0

0.0

0.0

0.0

Other

 

 

 

0.0

0.4

(10.7)

0.0

0.0

Net cash flow

 

 

 

145.1

261.9

152.0

244.0

181.4

Opening Net debt (cash)

 

 

115.4

(8.8)

(269.2)

(438.0)

(682.0)

Other

 

 

 

(20.9)

18.9

17.3

0.0

0.0

Closing Net debt (cash)

 

 

(8.8)

(269.2)

(438.0)

(682.0)

(863.4)

Source: Company accounts, Edison Investment Research 


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This report has been commissioned by Orexo and prepared and issued by Edison, in consideration of a fee payable by Orexo. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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1,185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

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