Q2 2023 – Good progress towards profitability

During the last three years the uncertainty from the patent litigation against Sun Pharmaceutical to protect the innovation and exclusivity of ZUBSOLV®, has had significant negative impact on all areas of the Orexo business. To prevail in the patent litigation is similar to a new beginning for the company, foremost as it removes a lot of uncertainty around our main product. However, our ability to grow is equally dependent on our financial strength and our ability to innovate. I am pleased to report a considerable improvement in our financial result from Q1 2023 with a positive EBITDA of SEK 5.6 million in Q2 (SEK -32,5 million Q2, 2022, and SEK -41.1 million Q1, 2023). The improvement is a result of strengthened revenues explained by slightly increased ZUBSOLV® sales in USD and some tailwind from exchange rate effects in combination with significantly reduced expenses primarily related to the patent litigation process. I am pleased to see this financial development to be in line with our communication during the first half of 2023 and it shows how Orexo, when excluding sizeable non-recurring expenses, is approaching profitability. In addition we also see potential for income from business development in the second half of the year where we continue to see strong interest and progress from potential partners in our pipeline and technology.

Multiple iniatiatives will spark access to OUD treatment

The year started with a dramatic change and improvement in the conditions for providing treatment for opioid use disorder (OUD) with new legislation enabling more physicians to treat OUD with buprenorphine/naloxone products such as ZUBSOLV®. This change has resulted in an expansion of the number of healthcare providers prescribing buprenorphine/ naloxone, but so far with limited impact in the overall prescription pattern and market growth remains in the mid-single digit, which is in line with our guidance for 2023.

ZUBSOLV® demand showed a minor growth comparing to previous quarter. I am also pleased to report net revenues of SEK 145.4 million, an increase of 3.6 percent from Q1 2023 and the corresponding growth number versus last year was 4.2 percent. The positive development is foremost driven by a stronger USD. Stable ZUBSOLV® sales is important for the financial stability of the company and with a strong EBIT contribution of SEK 71.2 million in the quarter, ZUBSOLV® enables investments in new products and creates a solid foundation for growth. ZUBSOLV® competes in a market dominated by generic versions of our main competitor and ZUBSOLV’s stability and continued ability to grow depends primarily on our market access. During the quarter, our market access team in the US managed to further strengthen our access in the fast growing public segment with an agreement where ZUBSOLV® will be reimbursed for all patients within Medicaid in Indiana. The new position are improving our access in the public segment from 47 to 50 percent of the market volume starting July 1, 2023.

During the first half of 2023 we have worked to make an integrated approach to OUD combining all our tools and knowledge under an umbrella concept branded MATCore®. Under this umbrella, we are testing the concept in Arizona and have made several additional grant applications to test and develop the concept on a broader scale in other states. The concept is designed to meet the demand of many states to test new approaches to OUD treatment and to enable Orexo to receive financing of these new concepts through the billions of US-dollars allocated to the states from the US opioid litigation settlements. MODIA®, the digital therapy for OUD, is a cornerstone in the concept and we are looking forward to finalize the analysis of the clinical study in cooperation with our partner GAIA.

"For OX640 the main focus is on upscaling the manufacturing process to commercial scale and the first tests have been successfully completed"

Due to lack of success in the commercialization of the digital therapies, we have made a complete overhaul of the reimbursement and distribution processes and associated IT systems, to simplify the process and to reduce expenses. As reported in Q1, this has delayed the commercialization of MODIA® and the other two digital therapies, deprexis® for depression and vorvida® for alcohol misuse. There is no doubt the reimbursement and distribution processes in the US for any digital health product is a major hurdle for the entire industry and several players have closed down during the first half of this year. Orexo continues to evaluate the business opportunities, but with a ten year contract with the Veterans Affairs for deprexis®, positive feedback from many physicians and patients using MODIA® and the opportunity to combine our digital therapies with ZUBSOLV®, we continue to see value potential in digital therapies. However, to reflect the increased uncertainty we have reduced the direct costs and expect continued reductions in the second half of 2023 in administrative expenses, when the new streamlined reimbursement systems and processes are implemented.

OX124 on track to be resubmitted with the FDA in Q3

The unexpected issue in our packaging of OX124, our high-dose rescue medication for opioid overdoses, seems to be resolved. The issue was of a purely technical character and was associated with one step of the fully automated and integrated packaging process, where a plastic foil in some test runs was misplaced. With the high quality requirement of any rescue medication in the US, the entire packaging line has to be retested at full scale before resubmission is possible. The tests are being finalized during July and if successful it will enable a resubmission with the FDA in Q3 as expected.

Our development using amorphOX® with other APIs is progressing well. For OX640, our epinephrine product intended for the emergency treatment of allergic reactions including anaphylaxis, the main focus is on upscaling the manufacturing process to commercial scale and the first tests have been successfully completed. We are also pleased to see a nasal liquid spray receiving strong support from the FDA advisory board. This provides important input to the development program and reduce the overall regulatory risk. The outcome of the advisory board increased the interest from potential partners in the project and their due diligence is in the final stages. Finally, the testing of amorphOX® with biomolecules is generating strong results, where highly instable and sensitive biomolecules retain full activity following formulation with amorphOX®.

Reduced risk after winning the patent litigation

The highlight of the quarter was the decision by the District Court of New Jersey on June 30 (US time zone) and the significant reduction of the risk in the company with reconfirmed validity of our ten patents for ZUBSOLV® and more than 9 years left before patent expiry in September 2032. This is the second win and confirmation of the ZUBSOLV® patents and even with the risk that the decision will be appealed, we find our position is considerably strengthened. The decision from the District Court was completely in Orexo’s favor on both infringement and validity. Of similar importance is the opinion by the Judge, which we find is very comprehensive, and the decision is well motivated by facts and references to the evidence provided to the court by experts and test results. This collectively strengthens Orexos position substantially in a potential appeal process and should further discourage future potential generic entrants prior to patent expiry. Defending our intellectual properties is critical to the company, but it has been associated with substantial expenses since the start of the process in August 2020, these expenses declined significantly during Q2 and even in the event the decision is appealed, the expenses will be substantially lower going forward.

"On the basis of this optimism we reiterate our financial guidance for H2 and expect an EBITDA in balance, while OPEX in H2 will decline comparing to H1"

Summary and outlook

With the significant risk of the patent litigation being removed, we are now looking forward to fully focus on growing our business. I remain very optimistic that we can continue to deliver stable sales and strong profit contribution from ZUBSOLV®, finalize the business development negotiations for OX640, establish new partnerships for amorphOX®, resubmit OX124 in Q3 and we will present the results of the MODIA® study during the summer. On the basis of this optimism we reiterate our financial guidance for H2 and expect an EBITDA in balance, while OPEX in H2 will decline comparing to H1 (SEK 343 million including depreciation of SEK 37 million). I want to thank our shareholders, employees and partners for their patience since we initiated the litigation process three years ago, and I look forward to share our continued progress in the second half of 2023.

Uppsala, Sweden, July 18, 2023

Nikolaj Sørensen

President and CEO