The third quarter has been another important milestone in Orexo’s history as we have significantly strengthened the long-term business prospects of our company.
After 52 months of waiting we received the decision from the US Federal Court, reversing the decision by the District Court and validating our ‘330 patent. The ‘330 patent is one of three patents covering Zubsolv® until 2032 and with this confirmation of its validity in a precedential decision from the Federal Court in the US, we have significantly strengthened the patent protection around Zubsolv for another 13 years.
During the patent litigation Orexo has continued to evolve and reached several important milestones: we have delivered stable profitability since 2016, the company is net cash positive, and we have initiated three new innovative development projects.
The natural question now is what is next for Orexo. In our journey towards becoming a leading addiction company we will intensify the efforts to reach our objectives in three priority areas.
Firstly, we have an objective to maintain and improve profitability to enable increased investments in late stage R&D and business development. The main focus is on the Zubsolv business we control in the US and I am pleased to see that the twelve-month rolling EBIT margin of our Zubsolv US business has improved from 11 percent to 27 percent in one year and contributed with USD 18 million to Group EBIT during the last year. All other things equal and applying our guidance on cost of goods improvement to the current Zubsolv US business, we would reach an EBIT of USD 25 million for our Zubsolv business with current volumes and OPEX. Even when excluding all royalties and milestones from out-licensed products, Orexo is profitable with the contribution from Zubsolv in the US when excluding our current IP litigation costs. With continued strong development of Zubsolv in the US regarding both revenue and profitability we will be able to invest in the required clinical development of our own pipeline until approval and have the financial strength to compete for business development opportunities when they occur.
Secondly, with the strong foundation from our commercial operations in the US, we have intensified our R&D efforts. We currently have three on-going projects with a well-defined target profile that all address key unmet needs in areas that are complementary to our commercial infrastructure. We are currently testing which formulations will meet the desired profile. Formulations in all three projects will be tested in-vivo during the next six months with OX124 becoming the most advanced and entering a human clinical phase I trial in Q4, 2018. To further accelerate future development, we are upgrading our Uppsala site in Sweden to enable manufacturing of clinical trial material for phase I/II in-house.
Thirdly, the patent outcome enables us to intensify our business development and M&A efforts to broadening our late-stage and commercial product portfolio. With the continuously improving net-cash position, we are ready to invest when an opportunity emerges that complements Zubsolv and offers attractive synergies. With the improved confidence in Zubsolv’s long-term prospects, we have internalized our complete field force. Based on previous feedback from potential partners, this will further enhance Orexo’s attractiveness as a partner.
The financial results of the quarter continue on the positive trajectory from Q2. In particular the contribution from our US business has further improved, primarily explained by revenue growth of 24.3 percent in local currency. The most significant investment during the quarter is our legal case against Actavis for infringement of our ‘996 patent with their generic versions of Suboxone® and Subutex® tablets. The case will be associated with significant costs in the next quarters. We are confident we have a strong case and should be awarded damages for the infringement of our ‘996 patent.
As recently communicated we will host a Capital Markets Day on December 6 in Stockholm. Together with my management team I am looking forward to sharing more insights into our plans moving forward, the market we operate in and more details about our exciting R&D portfolio.
Uppsala, Sweden, October 25, 2018 Nikolaj Sørensen
President and CEO