Continued strong financial performance
Interim Report Q2 2017
July 11, 2017
Nasdaq Stockholm: ORX
US OTC Market: ORXOY (ADR)
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Q2 2017 at a Glance
Positive EBIT/EBITDA and even seven consecutive quarters with positive cash flow from operations Financials
• Positive net sales development of Zubsolv® with 10 percent increase compared to Q2 2016
• Positive EBIT (9.8 MSEK) and EBITDA (15 MSEK) driven by profitability of US commercial operations and milestone from AZ for OX‐CLI • Continued strong Abstral sales in Europe, triggering earlier royalty payment in Q2
• Continued positive cash flow development resulting in net debt below 50 MSEK • FY cost reduced and EBITDA guidance maintained
Zubsolv US grew 7.6 percent in volume compared to Q2 2016 and 1 percent from Q1 2017
Commercial
Progress
• Commercial primary growth driver compared to Q1, whereas Maryland agreement has positively impacted overall growth year over year
• Public market continues to be the main growth driver of the overall market, putting pressure on net price and market share for Zubsolv
• Overall market expected to continue with strong growth due to expanded prescriber base
• Market access continues to improve for 2018 with new regional exclusive agreements and several on‐going negotiations
R&D
High activity in the pipeline
• New project announced, OX382, expected to reach clinical phase I test within next 6‐9 months
• Astra Zeneca has advanced OX‐CLI into clinical phase I
• Negotiations on‐going with partners for OX‐MPI and OX51
• Zubsolv approval process in Europe progress according to plan
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Top strategic priorities
Maximize Zubsolv´s
potential
Grow Zubsolv sales
Launch Zubsolv in new markets together with Mundipharma
Improve profit contribution
Expand the commercial portfolio with revenue generating products
Expand the pipeline
Additional commercial products in the US
Developing products for the oral tract and in particular sublingual products
Out‐license products for other geographies than the USA
The products shall address patients unmet needs and create a paradigm shift
Seek collaborations with partners where values could be added
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Commercial products and development pipeline
We are now developing next generation drug delivery technologies
Discussions on‐going
Discussions on‐going
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Zubsolv growth in a challenging but expanding market
The prescription addiction market shows no indication of a slow down • Drug Addiction epidemic continues to spiral out of control driven primarily by opioid abuse
• Continued political attention, beyond the recent patient cap lift, to the problem and need for treatment will support continued growth
Still significant opportunity within our key market even with general pharma market pressures
• The key market is evolving and continued significant opportunity remains available even though overall US pharma market dynamics necessitate need for creativity and vigilance in business management • Current market growth trends predominantly related to expansion of Public (Medicaid) market and Generic growth driven by the Affordable Care Act
Market access is our core strategic driver... • Positive signs in negotiations for 2018 with new regional exclusive wins and possibility to improve position with some national health plans and PBMs
• Fast growing public segment a key focus to enable Zubsolv to compete ..and we continue to focus on strengthening our messaging and prudently managing our operations
• Simplified/targeted Zubsolv messaging based on learnings to drive greater uptake and patient retention
• Continued focus on optimizing effectiveness and marketing mix
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Drug epidemic still continues to escalate…
• Overdose leading cause of death in Americans under 50
• “Death count latest consequence of … opioid addiction…”
Source: NY Times, June 5, 2017
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
…creating continued political attention, beyond the recent cap lift, to the problem and need for treatment
•Trump announces White House Opioid Commission
‐ Looking to manage pain market via regulation/legislation; New Jersey Gov. Chris Christie to lead; Several high profile members named; Commission poised to play key role in the Administration’s effort to confront the opioid epidemic.
•New legislation to expand access to facility‐based substance abuse treatment for Medicaid beneficiaries and stop opioid over‐prescribing
‐ Bars doctors from prescribing more than a week’s supply of an opioid drug to patients suffering from acute pain. Refills prohibited, except for chronic illness and end‐of‐life care
•New FDA Commissioner Scott Gottlieb launches Opioid Policy Steering Committee ‐ Set to consider (i) mandatory education for health care professionals, focused on understanding how to get addicted patients into treatment; (ii) FDA role in appropriate dispensing; and (iii) FDA’s risk/benefit calculation on abuse/misuse for future approvals.
‐ On June 8, 2017 the FDA today told Endo Pharmaceuticals to pull its painkiller Opana ER from the market due to market surveillance indicating that the drug was significantly abused — the first time the agency has taken such an action
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Zubsolv market with slight accelerating growth driven by the public segment New legislative changes expected to increase growth rate further Strong growth in the public segment in Q2 driving overall market growth (NTRx)
1 400 000
Cash
Commercial
Public
1 200 000
1 000 000
800 000
600 000
400 000
200 000
0
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Overall market grew 9.8% in Q2 year over year, following the trend in Q1, 2017 Note: Quarterly NTRx levels =Total prescriptions adjusted to 30 tablet/film scripts
Note: Historical quarters restated due to IMS recategorization of Commercial Rx to Cash Rx
Source: Orexo analysis, IMS data 9
Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Zubsolv® maintained the market share in the profitable commercial segment
Zubsolv® Market Share per Type of Payer (rolling 4 weeks)
9%
8%
Jun'16
7,7%
7,7%
7,8%
7,4%
Sep'16
7,4%
7%
Dec'16
6%
5,1%
5,3%
5,2%
5,0%
5%
Mar'17
5,0%
4,9%
3,9%
3,6%
4%
Jun'17
4,4%
3,7%
3%
2%
1%
0%
Commercial
Cash & Vouchers
Public
Segment share of market volume
39%
15%
46%
Zubsolv access
80%
100%
27%
3.4% vs. Q1 17, 3.3% Q2 16
0.4% vs. Q1 17, ‐1.0% Q2 16
5.7% vs. Q1 17, 19.6% Q2 16
Q2 17 payer segment market growth
Note: Historical quarters restated due to IMS re‐categorization of Commercial Rx to Cash Rx
Note: Percentages may not add up due to rounding
Source: IMS XPO
Jun’16 data: R4W WE 06/24/2016
Sept’16 data: R4W WE 9/23/2016
Dec’16 data: R4W WE 12/23/2016
Mar’17 data: R4W WE 03/10/2017
Jun’17 data: R4W WE 06/23/2017
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Zubsolv® continues with growth year over year reaching 7.6% growth from Q2, 2016
Zubsolv Market share (4 week average, %)
Zubsolv Tablet Volume (rolling 4 weeks) Average weekly sales
400 000
6,0%
350 000
4,0%
3,0%
Maryland
FFS
300 000
5,0%
250 000
Tablets TRx Tablet Market Share1
Average weekly market share
7,0%
200 000
CVS Caremark
SelfRefind/ WellCare
UHG exit ACA
WellCare
contract
150 000
2,0%
100 000
1,0%
0,0%
UHG contract
50 000
0
Market share negatively impacted by significant growth in public segment
1
Market share in terms of Orexo share of the total market quantity of tablets, film and patch of Bup/Nal
Note: Weekly script data is based on extrapolation and is associated with uncertainties in the launch phase of new pharmaceuticals
Source: Orexo analysis, IMS weekly data
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Good progress in market access, although competition is increasing
• Solely positive improvements in the commercial segment especially with some regional insurance companies and PBM
‐ Blue Cross of Arizona has added Zubsolv as the only preferred branded product along with generics effective July 1, 2017. ‐ Exclusive contract with a regional pharmacy benefit management (PBM) company from January 1st 2018. ‐ Several large accounts to announce the formularies for 2018 during Q3
• All reimbursement positions maintained or strengthened in the public segment for 2018
‐ Effective July 1, 2017 the state of Wisconsin’ public fee for service Medicaid program has added Zubsolv to its preferred formulary. ‐ Two national Medicare Part D, payers intent to improve Zubsolv’s formulary position effective January 1, 2018. ‐ Several on‐going negotiations with both national and regional payers for 2018 formularies • Maryland, FFS Medicaid will be retaining Zubsolv in a preferred formulary position along all other products in the category
‐The anticipated impact to Zubsolv financially is minimal due to a significantly reduced rebate level
‐ Some negative effect on volume and market share anticipated starting July 1 2017
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About Orexo >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Net Revenues
January – June 2017
SEK million
Q2
2017
Q2
2016
H1
2017
H1
2016
Jan ‐ Dec
2016
Zubsolv US
124.1
112.8
238.2
211.2
481.8
‐
65.4
‐
65.4
65.9
124.1
178.2
238.2
276.6
547.7
9.7
5.4
18.4
13.6
100.4
‐
‐
‐
‐
2.2
Abstral® – total
9.7
5.4
18.4
13.6
102.6
Edluar® royalties
3.4
4.5
8.0
8.1
14.8
OX‐CLI
21.8
‐
21.8
40.8
40.8
TOTAL
159.1
188.2
286.4
339.2
705.9
Zubsolv RoW upfront payment
Zubsolv® – total
Abstral® royalties
Milestone payment Abstral
Net revenues for Q2 2017 declined by 15.4% versus prior year explained by higher milestone income in Q2 2016.
Excluding milestone income net revenue for Q2 2017 grew by 11.8% versus prior year.
 Zubsolv US revenues grew by 10.0% in Q2 2017 versus Q2 2016:
 Positive drivers: Increased demand, wholesaler stocking and USD/SEK exchange rate
 Negative drivers: Gross‐to‐Net ratio
 Abstral royalty growth of 80% in Q2 2017 versus Q2 2016 driven by continued strong growth in EU and RoW.


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About Orexo >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Zubsolv key trends Q2/17 vs Q2/16 1
SEK million
124.1
+7.6%
10.0%
112.8
Market growth of 9.8%, but nearly all in public segments where Zubsolv access is limited
Q2 2016
1
Demand (IMS)
Q2/17 saw a relatively higher above‐demand supply to wholesalers compared with Q2/16
Stocking
Several drivers:
+ Price increase
+ Mix change
‐ GTN
Net Price
SEK/USD AVG:
Q2/16: 8.2
Q2/17: 8.8
Currency
Q2 2017
Orexo analysis using IMS demand data plus institutional sales.
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About Orexo >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Close to EBITDA break‐even for H1 2017
P&L in Summary, April – June 2017 and January – June 2017
Q2
2017
159.1
Q2
2016
188.2
H1
2017
286.4
H1
2016
339.2
Jan ‐ Dec
2016
705.9
Cost of goods sold
‐35.8
‐33.9
‐82.0
‐66.4
‐149.6
Gross Profit
123.3
154.3
204.4
272.8
556.3
Selling expenses
‐49.7
‐56.4
‐97.9
‐117.1
‐240.6
Administrative expenses
‐22.4
‐62.7
‐48.8
‐97.8
‐161.6
‐39.1
‐28.7
‐69.4
‐73.7
‐132.3
‐2.3
5.6
‐1.9
1.8
29.9
‐113.5
‐142.2
‐218.0
‐286.8
‐504.6
EBIT
9.8
12.1
‐13.6
‐14.1
51.7
Net financial items
‐5.1
‐5.5
‐11.7
‐11.8
‐16.1
EBT
4.7
6.6
‐25.2
‐25.9
35.6
Tax
‐1.6
‐1.6
‐6.4
‐3.6
‐6.5
Net profit/loss 3.1
5.0
‐31.6
‐29.5
29.0
15.0
17.2
‐3.2
‐2.3
73.1
SEK million
Net revenues
Research & development expenses
Other operating income & expenses
Operating Costs
EBITDA

Gross Profit for the quarter lower by 20% vs prior year due to lower milestone income

Operating Costs significantly below prior year mainly driven by targeted investment strategy in US and by lower Administrative partially offset by higher R&D costs

Selling expenses reflects a targeted investment strategy with focus on geographies with good market access and potential for growth

Admin expenses includes lower costs related to ongoing IP litigations

R&D expenses are higher than previous year reflecting investments in the current pipeline of projects

Other operating inc/exp primarily relates to exchange rate gains from revaluation of balance sheet

Positive EBIT of SEK 9.8M

EBITDA positive by SEK 15M and close to break‐even for H1 2017
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About Orexo >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Financial situation further improved
Financial Position, January – June 2017
Cash flow
SEK million
Q2
2017
Q2
2016
H1
2017
H1
2016
Jan ‐ Dec
2016
Cash flow from operating activities
48.7
20.0
76.9
42.5
156.2
Investment activities
‐0.5
‐0.2
‐0.8
10.8
5.4
‐
‐
‐59.0
‐
‐90.6
48.2
19.8
17.2
53.3
71.0
294.3
252.9
294.3
252.9
282.4
Financing activities
Cash flow (excl exchange rate differences)
Liquid funds
 Positive cash flow from operating activities for the period April –

June 2017
SEK 48.7 million positive contribution from operating activities largely driven by adjustments for non‐cash items and mainly changes in provisions for payables relating to US payer rebates plus further reduction in inventory levels.
 Strong cash position at the end of Q2 with SEK 294.3 million and Net Debt reduced to 45.7 MSEK

Financing activities for the first half year included second bond buy‐back with a nominal value of SEK 59 million
 Corporate bond of SEK 500M matures in May 2018. Positive cash‐flow for 7 consecutive quarters confirms strong basis for re‐financing.
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About Orexo >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
Financial outlook 2017
The outlook for 2017 provided in the 2016 Full Year report has been updated with regards to the expected full year OPEX level. The rest of the outlook remains unchanged with the caution that Zubsolv market share might be difficult to grow if the market growth continue to favor the public segments where Zubsolv has a low level of access. • Orexo expects to deliver a positive EBITDA for the full year 2017. • Zubsolv in the US will contribute with continued year over year net revenue growth, driven by market growth and market share gains. No further milestone payments from license partners are expected in 2017.
• Full year OPEX is expected to be approximately SEK 475 million (was previously in the range of SEK 500 million to SEK 510 million).
NB: The outlook is based on January 2017 exchange rates.
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Overview >> Strategic Agenda >> Products & Pipeline >> Key Market & Sales >> Financials >> Outlook
2017 set up to be an eventful year! Development
 Announcement of new OX‐xx project, following successful
proof of principle in H2
 Approval of Zubsolv®
in Europe anticipated
in Q4
Supply
 Complete
establishment of global supply chain
and confirmation on future COGS reduction
Commercial
 Addition of commercial
product to US organization
 Increased market share
during the year and disproportionate share
capture of C275 growth
 Zubsolv revenue growth in 2017 in the US
 Decision from the appeal of the first decision in the litigation against Actavis late Q4 or early 2018
Forward looking statement:
This report includes forward‐looking statements. Actual results may differ from those stated. Internal and external factors may affect Orexo’s results.
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Q&A
For more information please visit www.Orexo.com. You can also follow Orexo at Twitter @orexoabpubl, LinkedIn and YouTube
IR Contact: Lena Wange, IR & Communications Manager [email protected]
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