Orexo Interim Report Q3 2020
The new future starts to take shape
Q3 2020 highlights
- Total net revenues of SEK 150.3 m (231.2), 189.7 excluding Abstral® EU and US
- Net earnings of SEK -84.9 m (111.7), net earnings of SEK -22.4 m excluding DTx launch. Net earnings also impacted by a material one-time tax adjustment of SEK -43.5 m.
- EBITDA of SEK -12.2 m (114.1), EBITDA of SEK 50.3 m excluding DTx launch
- US Pharma segment (ZUBSOLV® US) net revenues of SEK 143.8 m (182.7), EBIT of SEK 72.4 m (90.9)
- DTx segment EBIT of SEK -62.5 m (-), including US launch of the scientifically proven digital therapies deprexis® and vorvida®
- Cash flow from operating activities of SEK -12.9 m (135.7), a cash balance of SEK 593.3 m (812.9)
- Orexo US received subpoenas to provide US authorities with certain information with regards to ZUBSOLV® and other buprenorphine products
- Infringement litigation against Sun Pharmaceutical was commenced in response to Sun Pharmaceutical, that has filed an Abbreviated New Drug Application with the US FDA for ZUBSOLV® in the US
- Finalized development of a scalable proprietary platform to manage payment and reimbursement processes for current and future DTx products
Important events after the period
- Secured a preferred position for ZUBSOLV® as the only branded product on national commercial and Medicare Part D formularies of the largest PBM in the commercial segment in the US, Express Script, from January 1 2021
- Updated financial outlook 2020
|SEK m, unless otherwise stated||2020
|Cost of goods sold||-14.5||-25.9||-54.3||-82.5||-105.6||-44%|
|EBIT margin, %||-19.7||45.8||-1.8||26.3||27.4||-65,5 ppt|
|Earnings per share, before dilution, SEK||-2.45||3.22||-1.00||5.21||6.33||-137%|
|Earnings per share, after dilution, SEK||-2.45||3.16||-1.00||5.10||6.20||-138%|
|Cash flow from operating activities||-12.9||135.7||28.0||230.7||287.0||-110%|
|Cash and cash equivalents||593.3||812.9||593.3||812.9||816.8||-27%|
Keeping focus and maximizing business opportunities in a challenging environment
It has been an eventful third quarter for Orexo, with good progress made in establishing our new business area in digital therapeutics. The quarter also brought some new challenges, primarily from new legal processes and impact from Covid-19. I am pleased that we have shown agility and determination in responding to these challenges, which I am certain we will manage with a limited impact on our core strategies and most importantly our future value drivers, Digital therapies and OX124. While Digital therapies and OX124 have significant future potential, ZUBSOLV® remains our main profit contributor and I am proud of the progress we have made with improving ZUBSOLV® market access and to announce we have secured a position for ZUBSOLV® as the only branded product on the preferred national Commercial and Medicare Part D formularies of the largest PBM in the Commercial segment in the US, Express Scripts, from January 1, 2021.
Focusing investments on main value drivers
During my nearly eight years as CEO of Orexo, strengthening our financial position has been and remains a key priority. A strong balance sheet enables investment when opportunities arise and ensures we can continue to pursue our long term goals, even when we are facing unexpected challenges. I am proud of what we have accomplished since we turned profitable in 2016, and with SEK 593 million in cash, we have the financial resources required to invest in developing digital therapies and to continue the prioritized development of the pharmaceutical pipeline.
During the quarter we conducted a strategic review of the business and decided to prioritize our efforts on the launch of our three digital therapies and our most advanced pharmaceutical pipeline project, OX124, a naloxone rescue medication for opioid overdose. We have already re-allocated resources from the ZUBSOLV® commercial team to Digital Therapeutics and will increase this re-allocation of resources and further investments in Digital Therapeutics as we secure market access and reimbursement by payors. In our pharmaceutical pipeline, therefore, we will focus most of our resources on the final stages of OX124 development and temporarily slow the development of OX125 and OX338. The development of our oral formulation of buprenorphine, OX382, will be put on hold while we continue to explore new formulation opportunities. These changes in prioritization have been made to ensure we have all the resources needed to secure a successful launch of the digital therapies and to ensure OX124 development is finalized and meet FDA’s requirement. As a consequence of this prioritization, continuous prudent expense management, and a weakening US dollar, we reduce our full year OPEX guidance for 2020 to SEK 675-725 million from
SEK 750-800 million and increase EBIT contribution margin guidance in US Pharma from 45-50 percent to exceeding 50 percent.
Establishing Orexo as a leading player in Digital Therapeutics
Entering a new business arena is a major undertaking for Orexo, and we have invested significant resources both in terms of time and money into building the infrastructure needed to make our digital therapies accessible to patients. The launch of deprexis® and vorvida® in the US in July was fully focused on creating access and establishing a working payer model in dialog with insurance companies and institutional healthcare providers. Whilst we are making good progress, we continue to see that the market for digital therapies is in its infancy, despite the huge unmet need in this area.
I am proud we have managed to build a customer support system capable of managing the entire payment and reimbursement process, particularly in light of the accelerated launch of vorvida®. We finalized the development of Orexo’s proprietary system as planned at the end of Q3 and are now ready to manage the payment
processing for all patients, independent of our financing
model, i.e. from cash to insurance coverage. Orexo will launch an opportunity for patients to make payments in monthly installments, and we are establishing partnerships with healthcare providers who can take responsibility for the treatment if patients want to combine digital therapy with access to a healthcare provider. We believe this investment in a customer support system will be a significant competitive advantage for our current products and when we expand our Digital Therapeutics business.
Our first two partnership agreements, with GoGoMeds and Trinity Health ND (North Dakota), were announced during the quarter. GoGoMeds will make our digital therapies available to their clients in their system, which will go live during Q4 2020, initially with a focus on the court system in the US and people with a DUI (Driving Under the Influence) offense. Trinity Health ND will initially make products available to their employees, which Orexo is proud to sponsor, as a response to the Covid-19 crisis. We will continue to work with Trinity Health ND to broaden the commercial partnership. In addition to these frontrunners, we have several ongoing discussions with other payors and distribution partners, which we expect will result in additional agreements being signed during Q4 2020.
When we entered digital therapeutics, the foundation for this decision was the ability to leverage our existing commercial organization to promote these products. We continue to see significant synergies between our digital therapies and the customers for ZUBSOLV® and the re-allocation of resources is reflecting how our entire customer facing organization from October 2020 will promote the digital therapies in parallel with ZUBSOLV®. With a successful launch of the digital therapies and reimbursement of the products, we intend to increase our commercial organization which will benefit both ZUBSOLV® and Digital Therapeutics.
ZUBSOLV® demonstrated resilience, but is impacted by Covid-19
During the Covid-19 pandemic, we have seen a surge in all issues related to opioid addiction as more patients are relapsing and overdosing, which in turn has increased the number of patients seeking treatment. In the quarter, the number of prescriptions in the market increased by 13 percent, the highest actual increase since the launch of ZUBSOLV® in September 2013. However, the increase is solely in the cash paying and Public segment i.e. Medicaid and Medicare. The Commercial segment, where ZUBSOLV® is nearly fully reimbursed and less rebated, declined during Q2 and Q3, which partly explain the modest 4 percent decline in ZUBSOLV® demand from Q2. The Commercial segment development is explained by increased unemployment in the US as a result of Covid-19. We expect the Commercial segment’s share of the total market to normalize and show growth, as unemployment rates improve again, and as a result of the significant rise in opioid addication in the wake of the pandemic. With ZUBSOLV® as the only preferred branded product on the top three commercial PBMs’ (ESI, Caremark & Optum) national formularies as of January 1, 2021, we expect sales to regain momentum as the Commercial segment grows again.
Our field force has and continues to play an important role in capturing the new improved market access position, and while we continue to have reduced access to the physicians/prescribers, we have seen a gradual improvement during Q3 2020. However, access to physicians remains tightly correlated with the development of the Covid-19 pandemic and the situation remains uncertain. Promoting the only branded daily buprenorphine/naloxone treatment, the continuous relationship, and dialogue with the customers is critical to maintaining the market position and we remain optimistic about the role ZUBSOLV® can play when the situation normalizes.
Summary and Outlook
The global crisis presented by Covid-19 has continued and we are now experiencing how it impacts dynamics in the opioid addiction market and the subsequent significant rise in patients suffering from mental illness such as opioid addiction, alcohol misuse, and depression. These are all indications where Orexo is uniquely positioned to help with both pharmaceuticals and new innovative digital therapies. While the effect of the pandemic on global economics and unemployment is unlikely to diminish in the short term, the need and access to treatment for patients with mental illness will remain long term. With ZUBSOLV’s significantly improved market access, our progressing pipeline, and launch of three digital therapies in the US, I am very excited about our future journey.
Uppsala, Sweden, November 4, 2020
President and CEO
For further information, please contact
Nikolaj Sørensen, President and CEO, Joseph DeFeo, EVP and CFO, or Lena Wange, IR & Communications Director
At 2.00 pm CET, the same day as the announcement of the report, Orexo invites analysts, investors and media to attend an audiocast with a web presentation where Nikolaj Sørensen, CEO, and Joseph DeFeo, CFO, will present the report. After the presentation a Q&A will be held. Questions can also be sent in advance to firstname.lastname@example.org, no later than 11.00 am CET. Please view the instructions below on how to participate.
Telephone: SE +46 8 56 642 706 UK +44 3 333 009 031 US +1 8 335 268 397
The presentation material will be available on Orexo´s website prior to the audiocast.
Tel: +46 18 780 88 00, +1 855 982 7658, Email: email@example.com
This information is information that Orexo AB (publ.) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 8.00 am CET on November 4, 2020.