Orexo

Investment summary

Orexo first generated positive EBITDA and operating cash flow in FY16 and this has continued to date. US commercial and public formulary coverage is dynamic but exclusive contracts among private insurers and state Medicaid are having a positive impact on US Zubsolv volumes and sales. The IP infringement appeal on the US Zubsolv IP was resolved in Orexo’s favor without recourse. Zubsolv generics are precluded before September 2032 and the other patent cases against Actavis are subject to Orexo’s appeal. Zubsolv was approved in Europe in 2018 and is being partnered in the EU. Orexo’s focus now shifts to business development, M&A for sales force leverage while its CoGS reduction is expected to result in a material improvement in profitability. We are cautious on the effect of multiple generic Suboxone film entries on Zubsolv’s US market share but Zubsolv was robust in Q219 and we can point to many other sources of upside in 2019.