Orexo — One of the best ever quarters

Orexo — One of the best ever quarters

In a well-received set of quarterly results, Orexo continued to execute on Zubsolv in the US, which, for the second quarter running, continued to be the only branded product in the category that increased its market share in the face of multiple generics. Zubsolv US revenues of SEK158.4m grew by 27.6% y-o-y, driving total revenues to SEK200m. EBITDA of SEK50.6m, cash flow from operations of SEK39m and a gross cash balance of SEK494.8m made Q218 one of Orexo’s best ever quarters.

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Written by

Orexo

One of the best ever quarters

Q218 results

Pharma & biotech

13 July 2018

Price

SEK37.75

Market cap

SEK1,306m

$/SEK8.78;€/SEK10.29

Net cash (SEKm) at 30 June 2018

175

Shares in issue

34.6m

Free float

37.6%

Code

ORX

Primary exchange

NASDAQ QMX Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.2

(2.0)

23.0

Rel (local)

13.4

(4.8)

26.4

52-week high/low

SEK52.0

SEK27.8

Business description

Orexo is a Swedish speciality pharma company, with expertise in drug delivery/reformulation technologies (in particular sublingual formulations) and a US commercial infrastructure for opioid dependence therapy, Zubsolv (also filed in Europe). It also has two clinical assets and three preclinical programmes.

Next events

Actavis IP appeal

H218

Q318 results

October 2018

OX124 Phase I start

Q418

Analysts

Andy Smith

+44 (0)20 3077 5700

Daniel Wilkinson

+44 (0)20 3077 5734

Orexo is a research client of Edison Investment Research Limited

In a well-received set of quarterly results, Orexo continued to execute on Zubsolv in the US, which, for the second quarter running, continued to be the only branded product in the category that increased its market share in the face of multiple generics. Zubsolv US revenues of SEK158.4m grew by 27.6% y-o-y, driving total revenues to SEK200m. EBITDA of SEK50.6m, cash flow from operations of SEK39m and a gross cash balance of SEK494.8m made Q218 one of Orexo’s best ever quarters.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/16

705.9

35.6

0.8

0.0

47.2

N/A

12/17

643.7

29.7

0.7

0.0

53.9

N/A

12/18e

800.5

109.9

2.9

0.0

13.0

N/A

12/19e

918.1

160.8

4.5

0.0

8.4

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Zubsolv keeps on gaining market share

As Orexo’s biggest product, Zubsolv’s US sales largely dictate Orexo’s quarterly performance and Q218 was a knock-out quarter for Zubsolv. Total net revenues were SEK199.7m up 25.5% y-o-y and driven by Zubsolv US revenues of SEK158.4m (up 27.6% y-o-y in SEK terms, or 29.8% in local currencies) including a $1.4m prior period revenue adjustment. We had already included the €3m milestone from Mundipharma for the EU launch of Zubsolv (royalties have not yet been recorded for the last quarter) in our model, but this, in addition to a further quarter of cash generation, resulted in a gross cash balance of SEK494.8m (SEK294.3m at end H117). Orexo’s minor product royalty streams did not materially affect its profitability, although the SEK11.9m from Abstral was nearly double our quarterly estimate of SEK6.1m.

Operational efficiencies already benefiting

One of the biggest variances in our model was the effect of Orexo’s operating efficiency programme. CoGS for Q218 were SEK37.6m against our estimate of SEK43.0m, and SEK35.8m in Q217 on much lower Zubsolv volumes a year ago. This is important as the more expensively produced batches, which were expected to dilute margins for the rest of the year, have already been sold H118. Further margin improvement is expected to come from higher volumes being produced at a new contract manufacturer. The margin improvements were largely absorbed in Q2 by higher legal expenses on patent litigation, R&D spend on OX124 and the appreciation of the US dollar, since most sales and marketing costs are in dollars.

Valuation: Updated for cash generation

We have updated our model for net cash including operating cash flow, milestones and exchange rates. Our valuation has increased to SEK2.52bn or SEK72.0 per share from SEK2.37bn or SEK67.8 per share previously. With no decision in the Actavis patent appeal, even our worst-case scenario is softened by the multi-year contracts with managed care organisations, which have led to Zubsolv’s recent volume growth.

Exhibit 1: Financial summary

 

 

 

SEKm

2014

2015

2016

2017

2018e

2019e

Year end 31 December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

 

 

Revenue

 

 

 

570.3

643.3

705.9

643.7

800.5

918.1

Cost of Sales

 

 

 

(107.4)

(136.1)

(149.6)

(164.4)

(176.6)

(179.7)

Gross Profit

 

 

 

462.9

507.3

556.3

479.3

623.9

738.5

Reported operating profit

 

 

(25.0)

(169.0)

51.7

57.4

116.7

201.4

Net Interest

 

 

 

(27.6)

(22.1)

(16.1)

(27.7)

(6.8)

(40.6)

Profit before tax (reported)

 

 

(52.6)

(191.1)

35.6

29.7

109.9

160.8

Reported tax

 

 

 

(4.0)

(6.9)

(6.5)

(6.5)

(3.8)

(4.8)

Profit after tax (reported)

 

 

(56.6)

(198.0)

29.0

23.2

106.1

156.0

Minority interests

 

 

0.0

0.0

0.0

0.0

5.3

0.0

Net income (reported)

 

 

(56.6)

(198.0)

29.0

23.2

100.8

156.0

 

 

 

 

 

 

 

 

 

 

Basic average number of shares outstanding

 

33.0

34.0

35.0

35.0

34.6

34.6

EPS - basic reported (SEK)

 

 

(1.73)

(5.74)

0.84

0.67

2.91

4.51

EPS - normalised fully diluted (SEK) 

 

(1.73)

(5.74)

0.84

0.67

2.91

4.50

 

 

 

 

 

 

 

 

 

 

Revenue growth (%)

 

 

32.8

12.8

9.7

(8.8)

24.4

14.7

Gross margin (%)

 

 

81.2

78.8

78.8

74.5

77.9

80.4

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed assets

 

 

 

289.5

185.9

185.1

176.5

171.4

164.3

Intangible assets

 

 

197.0

159.1

138.2

121.0

106.6

96.3

Tangible assets

 

 

29.1

24.7

22.1

20.1

21.6

24.7

Investments & other

 

 

63.4

2.1

24.8

35.4

43.3

43.3

Current assets

 

 

936.4

830.4

833.7

827.4

1,084.0

1,247.1

Stocks

 

 

 

478.1

398.9

344.2

250.2

150.0

150.0

Debtors

 

 

 

173.8

233.4

178.5

249.3

381.7

400.7

Cash & cash equivalents

 

 

284.5

198.1

282.4

327.9

552.3

696.4

Other

 

 

 

0.0

0.0

28.6

0.0

0.0

0.0

Current liabilities

 

 

(268.1)

(251.6)

(309.5)

(349.9)

(488.5)

(488.5)

Creditors

 

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Short-term borrowings

 

 

(1.9)

0.0

0.0

0.0

0.0

0.0

Other

 

 

 

(266.2)

(251.6)

(309.5)

(349.9)

(488.5)

(488.5)

Long-term liabilities

 

 

(502.8)

(498.3)

(399.0)

(324.9)

(323.7)

(323.7)

Long-term borrowings

 

 

(493.8)

(494.4)

(397.8)

(319.1)

(319.8)

(319.8)

Other long-term liabilities

 

 

(9.0)

(3.9)

(1.3)

(5.8)

(3.9)

(3.9)

Net assets

 

 

 

455.0

266.5

310.3

329.1

443.2

599.2

Shareholders' equity

 

 

455.0

266.5

310.3

329.1

443.2

599.2

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating cash flow before WC and Tax

 

(35.5)

(119.4)

67.5

108.1

135.5

168.5

Working capital

 

 

(451.8)

17.2

88.7

0.0

69.2

(19.1)

Exceptional & other

 

 

(19.0)

(20.6)

(20.8)

(37.2)

(16.8)

(40.6)

Tax

 

 

 

(4.0)

(6.9)

(7.5)

0.0

(4.5)

(4.8)

Net operating cash flow

 

 

(487.3)

(102.2)

156.2

146.6

204.7

149.5

Capex

 

 

 

(71.7)

(4.1)

0.5

(1.6)

(4.7)

(5.4)

Acquisitions/disposals

 

 

0.0

21.8

5.0

0.0

0.0

0.0

Equity financing

 

 

349.3

3.8

2.2

0.1

0.1

0.0

Other

 

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Net cash flow

 

 

 

209.7

(80.7)

163.9

145.1

204.8

144.1

Opening Net debt (cash)

 

 

(1.5)

209.3

296.3

115.4

(8.8)

(232.5)

FX

 

 

 

(1.5)

(6.3)

17

(20.9)

18.9

0.0

Closing Net debt (cash)

 

 

209.3

296.3

115.4

(8.8)

(232.5)

(376.6)

Source: Orexo, Edison Investment Research


Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Orexo and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Telford Homes — Consistent messaging

Telford Homes’ latest update is consistent with management comments accompanying FY18 results and the company is on track to deliver further progress in FY19. The share price has not kept step with business performance, perhaps influenced by wider cyclical sentiment. Project portfolio newsflow is likely to remain positive, and this should serve to re-connect internal progress and investor returns in our view.

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