Vorvida submitted to the FDA

Orexo 10 March 2020 Update
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Orexo

Vorvida submitted to the FDA

Regulatory update

Pharma & biotech

10 March 2020

Price

SEK50.8

Market cap

SEK1,763m

SEK9.64/US$

Net cash (SEKm) at 31 December 2019

527

Shares in issue

34.7m

Free float

54%

Code

ORX

Primary exchange

NASDAQ QMX Stockholm

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(15.8)

(18.1)

(32.7)

Rel (local)

(0.1)

(8.7)

(34.5)

52-week high/low

SEK85.70

SEK50.80

Business description

Orexo is a Swedish pharma company focused on pharmaceuticals and, recently, digital therapeutics. Its lead product is Zubsolv, an opioid dependence therapy marketed by Orexo in the US and being out-licensed to partners worldwide. It has three other clinical assets and two digital therapies, of which three are expected to be launched in the US by the end of 2021.

Next events

Capital markets day

17 March 2020

OX125 first-in-human studies

H120

OX-MPI Phase I results

H120

OX124 pivotal trial

H220

Analyst

Nathaniel Calloway

+1 646 653 7036

Orexo is a research client of Edison Investment Research Limited

Orexo announced on 6 March 2020 that it has submitted an application to the FDA for its vorvida digital therapy for the treatment of heavy drinking. It expects a hearing from the FDA on the approval status of the program in Q220 and to commercialize the product in H220 if it is cleared. The product uses cognitive behavioral therapy coupled with machine learning and has been vetted in a randomized, controlled study to reduce problematic drinking episodes.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/18

783.1

92.2

3.99

0.0

12.7

N/A

12/19

844.8

227.9

6.33

0.0

8.0

N/A

12/20e

775.4

200.3

5.62

0.0

9.0

N/A

12/21e

918.6

245.5

6.82

0.0

7.4

N/A

Note: *PBT and EPS are reported.

Clinically proven to reduce drinking

The company licensed US rights to vorvida from GAIA in Q419. The product is already launched in Germany and Switzerland by GAIA (although no details have been released). Vorvida was studied in 2015 in a randomized, controlled trial in Germany (n=608), which showed a significant reduction in alcohol consumed per day and binge drinking days per month at both three and six months (p≤0.001 for all measurements).

FDA to determine how vorvida is to be classified

The realm of digital health products is relatively new and the regulatory process is still in a state of flux. There is no well-defined pathway for devices like vorvida, but instead the FDA decides whether it should be subject to review on a case-by-case basis depending on the risk to human health. The current application submitted by the company is through a 513(g) request in which it is seeking feedback on how it will be classified, and a response is expected in the statutory 60 days.

Value highly dependent on marketing, partnering

Digital therapies face significant hurdles in the marketplace and as yet there are no clear success stories for behavioral health products like vorvida. The value of the program will be highly depending on how and to which stakeholders the product is marketed. Given that drinking is a significant drain on health resources, we can envision a scenario in which it is marketed to payors to reduce costs. The company has not provided any details regarding its strategy yet, but we expect more information at the company’s capital markets day on 17 March.

Valuation: Unchanged at SEK3.65bn

Our valuation remains unchanged at SEK3.65bn or SEK105.27 per share. We are holding off adding vorvida to our forecasts until the company achieves its initial sales, which we expect to follow its roll-out in H220, assuming the FDA review goes according to plan.

Exhibit 1: Financial summary

 

 

 

SEKm

2014

2015

2016

2017

2018

2019

2020e

2021e

Year end 31 December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

570.3

643.3

705.9

643.7

783.1

844.8

775.4

918.6

Cost of Sales

 

 

 

(107.4)

(136.1)

(149.6)

(164.4)

(171.8)

(105.6)

(74.8)

(82.5)

Gross Profit

 

 

 

462.9

507.3

556.3

479.3

611.3

739.2

700.6

836.1

Reported operating profit

 

 

(25.0)

(169.0)

51.7

57.4

95.8

231.2

164.1

199.3

Joint ventures & associates (post tax)

 

 

 

Profit before tax (reported)

 

 

(52.6)

(191.1)

35.6

29.7

92.2

227.9

200.3

245.5

Reported tax

 

 

 

(4.0)

(6.9)

(6.5)

(6.5)

45.7

(8.8)

(6.0)

(7.4)

Profit after tax (reported)

 

 

(56.6)

(198.0)

29.0

23.2

137.9

219.1

194.3

238.1

Minority interests

 

 

0.0

0.0

0.0

0.0

7.0

(3.4)

0.0

0.0

 

 

 

 

 

Basic average number of shares outstanding (m)

 

33.0

34.0

35.0

35.0

34.6

34.9

34.6

34.9

EPS - basic reported (SEK)

 

 

(1.73)

(5.74)

0.84

0.67

3.99

6.33

5.62

6.82

 

 

 

 

 

BALANCE SHEET

 

 

 

Fixed assets

 

 

 

289.5

185.9

185.1

176.5

227.1

279.9

294.3

317.5

Intangible assets

 

 

197.0

159.1

138.2

121.0

103.9

113.9

105.6

95.4

Tangible assets

 

 

29.1

24.7

22.1

20.1

20.0

22.0

44.9

78.2

Investments & other

 

 

63.4

2.1

24.8

35.4

103.2

143.9

143.9

143.9

Current assets

 

 

936.4

830.4

833.7

827.4

1,059.5

1,221.2

1,396.5

1,611.4

Stocks

 

 

 

478.1

398.9

344.2

250.2

173.6

131.8

156.1

161.5

Debtors

 

 

 

173.8

233.4

178.5

249.3

296.1

272.6

231.4

271.8

Cash & cash equivalents

 

 

284.5

198.1

282.4

327.9

589.8

816.8

1,009.0

1,178.1

Other

 

 

 

0.0

0.0

28.6

0.0

0.0

0.0

0.0

0.0

Current liabilities

 

 

(268.1)

(251.6)

(309.5)

(349.9)

(483.4)

(461.1)

(461.2)

(461.2)

Creditors

 

 

 

0.0

0.0

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

0.0

0.0

Other

 

 

 

(266.2)

(251.6)

(309.5)

(349.9)

(483.4)

(461.2)

(461.2)

(461.2)

Long-term liabilities

 

 

(502.8)

(498.3)

(399.0)

(324.9)

(327.1)

(333.6)

(333.6)

(333.6)

Long-term borrowings

 

 

(493.8)

(494.4)

(397.8)

(319.1)

(320.6)

(289.6)

(289.6)

(289.6)

Other long-term liabilities

 

 

(9.0)

(3.9)

(1.3)

(5.8)

(6.5)

(44.0)

(44.0)

(44.0)

Minority interests

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

Operating cash flow before WC and Tax

 

(31.1)

(124.7)

60.0

108.1

109.8

240.3

202.2

246.7

Working capital

 

 

(451.8)

17.2

88.7

38.5

114.1

38.4

16.9

(45.9)

Exceptional & other

 

 

(8.5)

(1.6)

0.0

0.0

0.0

0.0

0.0

0.0

Tax

 

 

 

4.0

6.9

7.5

0.0

18.1

12.2

6.0

7.4

Net operating cash flow

 

 

(487.3)

(102.2)

156.2

146.6

242.0

290.9

225.2

208.2

Capex

 

 

 

(71.7)

(4.1)

0.5

(1.6)

(3.6)

(26.4)

(33.0)

(39.1)

Acquisitions/disposals

 

 

0.0

21.8

5.0

0.0

(2.5)

0.0

0.0

0.0

Equity financing

 

 

349.3

3.8

2.2

0.1

0.0

2.0

0.0

0.0

Other

 

 

 

0.0

0.0

0.0

0.0

0.0

(55.8)

0.0

0.0

Net cash flow

 

 

 

(209.7)

(80.7)

163.9

145.1

235.8

210.8

192.2

169.1

Opening net debt/(cash)

 

 

(1.5)

209.3

296.3

115.4

(8.8)

(269.2)

(527.2)

(719.4)

Other

 

 

 

(1.2)

(6.3)

17.0

(20.9)

24.6

47.2

0.0

0.0

Closing net debt/(cash)

 

 

209.3

296.3

115.4

(8.8)

(269.2)

(527.2)

(719.4)

(888.5)

Source: Orexo reports, Edison Investment research


General disclaimer and copyright

This report has been commissioned by Orexo and prepared and issued by Edison, in consideration of a fee payable by Orexo. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Orexo and prepared and issued by Edison, in consideration of a fee payable by Orexo. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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