I am pleased to report a solid financial performance for the first quarter with both profitability and cash improving. This reflects the progress at our US Pharma operations with an EBIT contribution margin of 46 percent. The impact of COVID-19 has, both operationally and financially, been limited at this stage. Longer-term we anticipate demand for addiction treatments will increase alongside accelerated adoption of digital therapies as a consequence of the COVID-19 pandemic.

Significant continued improvement in cash position – SEK 39 m in EBITDA and SEK 861 m in cash
Our Q1 performance is in line with expectations, with a decline in the demand for Zubsolv® due to generic competition in some previously exclusive contracts with United Health Group and Humana. The reduction in sales volume has been offset by higher average net prices, a reduction in product returns and improved gross margins. Early indicators suggest COVID-19 is impacting market dynamics, resulting in an increase in the average prescription size and an uptick in demand for Zubsolv® was seen during March. This partially reflects increased inventory build but feedback from the market also indicates a higher demand for treatment as access to illegal drugs declines. Longer-term the COVID-19 pandemic is expected to increase demand for addiction treatment, in line with previously challenging economic market conditions, which saw an increase in substance misuse.
One effect of the uncertainty caused by COVID-19 has been a weakening of the SEK. With all of our revenues and EBIT contribution from our US operations being USD denominated this translates into a positive impact on Orexo’s financial results. We have leveraged this opportunity to reduce exposure to USD, through repurchasing of our corporate bond and of 500,000 shares, and realizing an exchange rate gain of SEK 29 m.

Digital Therapies – high growth opportunity with potential to increase access to treatment
The impact from COVID-19 is already being felt by most businesses but for some it presents an opportunity to accelerate the adoption of new technologies including video conferencing and digital health. Orexo, with its increasing focus on digital therapeutics, could play an important role in providing treatments for patients at a time when COVID-19 is severely impacting access to treatment. Subject to receiving FDA clearance for vorvida®, a digital therapy designed to offer patients high quality psychotherapy to treat harmful alcohol misuse, Orexo will review opportunities for an accelerated launch.
During the quarter we hosted a Capital Markets Day and provided some additional insights on the market potential and initial investment required to develop our digital therapeutics offering. Digital therapies are still in their infancy in terms of market adoption but present an attractive market opportunity. Based on Orexo’s conservative estimates we believe vorvida® and OXD01, for the treatment of opioid use disorder, have a combined revenue potential which could exceed USD 400 m.
In light of COVID-19 and changes to market access for digital therapies, we will consider investing in an earlier and broader launch, if the opportunity exists for both vorvida® and OXD01.

R&D – promising pipeline of next wave therapeutics to address growing market opportunity
Our pipeline development remains on track at present and we plan to initiate the first exploratory study for OX125 in H1 2020 and the pivotal trial for OX124 late in H2 this year. Both projects are rescue medications for the treatment of opioid overdose and are based on new and unique technologies involving partners in different geographies. If COVID-19 continues indefinitely and travel restrictions remain in place, this could impact trial timelines.
During the Capital Markets Day we also provided analysis of the revenue potential of our pipeline, including the combined potential of OX124 and OX125, estimated at USD 110-170 m in the current market environment. The market opportunity for OX338, our phase I candidate for the treatment of pain without using opioids, is harder to estimate as it applies to a very broad market, but is conservatively valued at USD 100 m. I am pleased with our pipeline development to date and expect to file for regulatory approval of OX124 as early as next year, a product which has the potential to exceed Zubsolv® revenues and could become an important growth driver for Orexo.

Summary and Outlook
I am very proud of how the Orexo team has responded to the global crisis presented by COVID-19, minimizing to date any material negative impact on our business whilst also ensuring the safety of our employees and partners. We will continue to monitor government guidance including US lockdown measures, which may impact our financial outlook if they continue into H2 2020. That said Orexo is a profitable and well-funded business with a promising pipeline of next-generation treatments, including innovative digital therapies, and is well placed to weather the current challenges posed by COVID-19.

Uppsala, Sweden, April 28, 2020

Nikolaj Sørensen
President and CEO