The growing US Zubsolv franchise continues to drive Orexo’s quarterly performance. Total Q3 revenue growth of c 30% puts Orexo in an attractive position with potential business development partners. Orexo’s Q318 results were the first since Zubsolv’s exclusivity was strengthened for another 13 years in the US, so with Zubsolv sales growing by 1.2% q-o-q in Q3, against the backdrop of a 0.3% decline in the buprenorphine/naloxone market volumes, and continued material CoGS improvements, Orexo is moving from strength to strength.
Written by
Orexo |
Blue Skies |
Q3 results |
Pharma & biotech |
29 October 2018 |
Share price performance
Business description
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Analyst
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The growing US Zubsolv franchise continues to drive Orexo’s quarterly performance. Total Q3 revenue growth of c 30% puts Orexo in an attractive position with potential business development partners. Orexo’s Q318 results were the first since Zubsolv’s exclusivity was strengthened for another 13 years in the US, so with Zubsolv sales growing by 1.2% q-o-q in Q3, against the backdrop of a 0.3% decline in the buprenorphine/naloxone market volumes, and continued material CoGS improvements, Orexo is moving from strength to strength.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
705.9 |
35.6 |
0.84 |
0.0 |
74.4 |
N/A |
12/17 |
643.7 |
29.7 |
0.67 |
0.0 |
93.3 |
N/A |
12/18e |
860.7 |
163.4 |
5.38 |
0.0 |
11.6 |
N/A |
12/19e |
948.6 |
154.1 |
4.32 |
0.0 |
14.5 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q318 results
Total net revenues in Q318 were SEK216.6m, a 30.3% y-o-y increase, slightly below our estimates due to lower royalties from Abstral and Edluar. The main event – Zubsolv US revenue – was SEK165.4m (up 36.6% y-o-y in SEK terms, 24.3% in local currency), SEK4.4m above our estimates. The manufacturing efficiency programme reduced CoGS to SEK42.4m; lower than our recently reduced Q3 estimates of SEK49.6m and including a SEK1.5m stability testing cost. Gross cash balance at end-Q3 was SEK516.6m (SEK494.8m at end-Q218). Selling expenses of SEK51.5m were one-third lower than our estimates (despite integrating the US contract salesforce), as were R&D expenses, which, at SEK37.5m, were c 18% below our estimates. Administrative expenses of SEK50.8m were 60% higher than our estimates due to the SEK31.2m legal expense for the IP litigations. We have made adjustments accordingly but keep to FY18 opex guidance of c SEK500m. Profitability was enhanced by a SEK31.8m tax adjustment, which we are assuming was not a one-off and in Q318, it more than offset the IP litigation costs.
New CFO, same company
Joseph DeFeo’s promotion to CFO from head of finance and operations at Orexo US should be positively received by investors. The next strategic steps for Orexo are in-licensing of products and M&A to complement Orexo’s US commercial operation (c 76% of total sales in Q318). These business development activities are crucial for Orexo’s future success, as the wrong product, or overpaying for complementary products, could damage returns. The new CFO is as close to the US operations as anyone can be and should be cognisant of juggling these issues.
Valuation: Virtually unchanged
We have revised our model for net cash and exchange rates. Our valuation increases only slightly to SEK3.4bn or SEK97.1 per share from SEK3.3bn or SEK94.5 per share previously.
Exhibit 1: Financial summary
SEKm |
2015 |
2016 |
2017 |
2018e |
2019e |
|||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
INCOME STATEMENT |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
643.3 |
705.9 |
643.7 |
860.7 |
948.6 |
Cost of Sales |
|
|
|
(136.1) |
(149.6) |
(164.4) |
(178.2) |
(196.0) |
Gross Profit |
|
|
|
507.3 |
556.3 |
479.3 |
682.5 |
752.6 |
Reported operating profit |
|
|
(169.0) |
51.7 |
57.4 |
170.6 |
197.7 |
|
Net Interest |
|
|
|
(22.1) |
(16.1) |
(27.7) |
(7.1) |
(43.6) |
Profit before tax (reported) |
|
|
(191.1) |
35.6 |
29.7 |
163.4 |
154.1 |
|
Reported tax |
|
|
|
(6.9) |
(6.5) |
(6.5) |
27.2 |
(4.6) |
Profit after tax (reported) |
|
|
(198.0) |
29.0 |
23.2 |
190.6 |
149.5 |
|
Minority interests |
|
|
0.0 |
0.0 |
0.0 |
4.6 |
0.0 |
|
Net income (reported) |
|
|
(198.0) |
29.0 |
23.2 |
186.0 |
149.5 |
|
Basic average number of shares outstanding |
|
34.0 |
35.0 |
35.0 |
34.6 |
34.6 |
||
EPS - basic reported (SEK) |
|
|
(5.74) |
0.84 |
0.67 |
5.38 |
4.32 |
|
EPS - normalised fully diluted |
|
|
(5.74) |
0.84 |
0.67 |
5.33 |
4.25 |
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
|
185.9 |
185.1 |
176.5 |
212.2 |
204.8 |
Intangible assets |
|
|
159.1 |
138.2 |
121.0 |
105.6 |
95.4 |
|
Tangible assets |
|
|
24.7 |
22.1 |
20.1 |
20.5 |
23.2 |
|
Investments & other |
|
|
2.1 |
24.8 |
35.4 |
86.1 |
86.1 |
|
Current assets |
|
|
830.4 |
833.7 |
827.4 |
1,100.3 |
1,257.2 |
|
Stocks |
|
|
|
398.9 |
344.2 |
250.2 |
150.0 |
150.0 |
Debtors |
|
|
|
233.4 |
178.5 |
249.3 |
415.0 |
366.7 |
Cash & cash equivalents |
|
|
198.1 |
282.4 |
327.9 |
535.3 |
740.6 |
|
Other |
|
|
|
0.0 |
28.6 |
0.0 |
0.0 |
0.0 |
Current liabilities |
|
|
(251.6) |
(309.5) |
(349.9) |
(457.1) |
(457.1) |
|
Creditors |
|
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Short-term borrowings |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Other |
|
|
|
(251.6) |
(309.5) |
(349.9) |
(457.1) |
(457.1) |
Long-term liabilities |
|
|
(498.3) |
(399.0) |
(324.9) |
(326.8) |
(326.8) |
|
Long-term borrowings |
|
|
(494.4) |
(397.8) |
(319.1) |
(320.2) |
(320.2) |
|
Other long-term liabilities |
|
|
(3.9) |
(1.3) |
(5.8) |
(6.6) |
(6.6) |
|
Net assets |
|
|
|
266.5 |
310.3 |
329.1 |
528.6 |
678.1 |
Shareholders' equity |
|
|
266.5 |
310.3 |
329.1 |
528.6 |
678.1 |
|
CASH FLOW |
|
|
|
|
|
|
|
|
Operating cash flow before WC and Tax |
|
(119.4) |
67.5 |
108.1 |
145.9 |
161.8 |
||
Working capital |
|
|
17.2 |
88.7 |
0.0 |
78.8 |
48.3 |
|
Exceptional & other |
|
|
(20.6) |
(20.8) |
(37.2) |
(15.4) |
(43.6) |
|
Tax |
|
|
|
(6.9) |
(7.5) |
0.0 |
(16.3) |
(4.6) |
Net operating cash flow |
|
|
(102.2) |
156.2 |
146.6 |
224.7 |
210.1 |
|
Capex |
|
|
|
(4.1) |
0.5 |
(1.6) |
(4.4) |
(4.9) |
Acquisitions/disposals |
|
|
21.8 |
5.0 |
0.0 |
0.0 |
0.0 |
|
Equity financing |
|
|
3.8 |
2.2 |
0.1 |
0.0 |
0.0 |
|
Other |
|
|
|
0.0 |
0.0 |
0.0 |
0.4 |
0.0 |
Net cash flow |
|
|
|
(80.7) |
163.9 |
145.1 |
189.9 |
205.3 |
Opening Net debt (cash) |
|
|
209.3 |
296.3 |
115.4 |
(8.8) |
(215.1) |
|
Other |
|
|
|
(6.4) |
17.0 |
(20.9) |
18.9 |
0.0 |
Closing Net debt (cash) |
|
|
296.3 |
115.4 |
(8.8) |
(215.1) |
(420.4) |
|
Source: Orexo, Edison Investment Research
|
|
Research: Healthcare
Kazia has added two further indications to the development program for its brain-penetrant PI3K inhibitor GDC-0084 through collaborations with prestigious US-based cancer centers. The collaborations further validate the potential of GDC-0084, which was in-licensed from Genentech in 2016. Importantly, the two additional indications will provide alternative pathways to a potential first marketing approval for GDC-0084, increasing the overall likelihood of success. Kazia’s ongoing Phase IIa study of GDC-0084 in glioblastoma (GBM) is expected to report first data in early 2019. Kazia raised $2.6m through a recent share placement and has a share purchase plan (SPP) underway to raise additional funds. We increase our valuation range to between $63m and $105m.