Yesterday Orexo announced the launch of Zubsolv in the EU by its partner Mundipharma, triggering a €3m (c SEK30.6m) milestone payment. Zubsolv is Orexo’s biggest product, which the company markets itself in the US. The EU launch of Zubsolv by Mundipharma may be underappreciated by investors for reasons we explain below. We have adjusted our model to include net cash including the milestone payment and exchange rate changes which amend our valuation to SEK67.8 per share from SEK63.0 per share.
Written by
Orexo |
EU launch milestone achieved |
Milestone achieved |
Pharma & biotech |
19 June 2018 |
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Orexo is a research client of Edison Investment Research Limited |
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Yesterday Orexo announced the launch of Zubsolv in the EU by its partner Mundipharma, triggering a €3m (c SEK30.6m) milestone payment. Zubsolv is Orexo’s biggest product, which the company markets itself in the US. The EU launch of Zubsolv by Mundipharma may be underappreciated by investors for reasons we explain below. We have adjusted our model to include net cash including the milestone payment and exchange rate changes which amend our valuation to SEK67.8 per share from SEK63.0 per share.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
705.9 |
35.6 |
0.8 |
0.0 |
37.9 |
N/A |
12/17 |
643.7 |
29.7 |
0.7 |
0.0 |
43.3 |
N/A |
12/18e |
736.3 |
108.9 |
2.9 |
0.0 |
10.4 |
N/A |
12/19e |
894.4 |
162.2 |
4.5 |
0.0 |
6.7 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Zubsolv comes to the EU (and other markets)
Orexo’s biggest product by sales is Zubsolv (buprenorphine and naloxone sublingual tablet), which accounted for 94% of total Q118 revenues, or SEK131m. It has now been launched in the EU by partner Mundipharma for the treatment of opioid dependence. The launch triggers a €3m (c SEK30.6m) milestone, which we have included in our model, and has a number of additional unappreciated facets. Orexo markets Zubsolv itself in the US but a partner’s launch in the EU has no operational cost to Orexo apart from the cost of goods. In any event, these will be included in a transfer price. The higher manufacturing volumes of Zubsolv produced by Orexo for itself and Mundipharma could further contribute to lowering Orexo’s cost of goods. Mundipharma’s licence is for exclusive ex-US rights, not just for the EU, so the EU launch would ease Mundipharma’s approvals in other international markets. We have forecasted EU Zubsolv royalties starting in H218.
Competitor generic launches may be an opportunity for Orexo
Last week’s FDA approvals of Mylan and Dr Reddy’s generic versions of Indivior’s Suboxone (buprenorphine and naloxone sublingual film) was not good news for Indivior’s shareholders, but we are not expecting any near-term effects on Orexo. This is because the two products are different formulations, any launches are ‘at risk’ (subject to a restraining order) and there have been sublingual generic tablet formulations available for some time against which Orexo competes, although Orexo’s continued marketing has resulted in growing Zubsolv volumes. Furthermore, we believe Orexo has contracts with US insurers with terms of a year or longer.
Valuation: Updated for milestone trigger
We have updated our model for net cash including the milestone payment and exchange rate changes. Our valuation has increased to SEK2.37bn or SEK67.8 per share from SEK2.20bn or SEK63.0 per share previously.
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 |
736.3 |
894.4 |
Cost of Sales |
|
|
|
(107.4) |
(136.1) |
(149.6) |
(164.4) |
(178.2) |
(171.7) |
Gross Profit |
|
|
|
462.9 |
507.3 |
556.3 |
479.3 |
558.1 |
722.8 |
Reported operating profit |
|
|
(25.0) |
(169.0) |
51.7 |
57.4 |
121.8 |
199.5 |
|
Net Interest |
|
|
|
(27.6) |
(22.1) |
(16.1) |
(27.7) |
(13.0) |
(37.3) |
Profit before tax (reported) |
|
|
(52.6) |
(191.1) |
35.6 |
29.7 |
108.9 |
162.2 |
|
Reported tax |
|
|
|
(4.0) |
(6.9) |
(6.5) |
(6.5) |
(6.4) |
(4.9) |
Profit after tax (reported) |
|
|
(56.6) |
(198.0) |
29.0 |
23.2 |
102.4 |
157.3 |
|
Minority interests |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Net income (reported) |
|
|
(56.6) |
(198.0) |
29.0 |
23.2 |
102.4 |
157.3 |
|
|
|
|
|
|
|
|
|
|
|
Basic average number of shares outstanding |
|
33.0 |
34.0 |
35.0 |
35.0 |
34.9 |
35.0 |
||
EPS - basic reported (SEK) |
|
|
(1.73) |
(5.74) |
0.84 |
0.67 |
2.93 |
4.50 |
|
EPS - normalised fully diluted |
|
|
(1.73) |
(5.74) |
0.84 |
0.67 |
2.93 |
4.50 |
|
Revenue growth (%) |
|
|
32.8 |
12.8 |
9.7 |
(8.8) |
14.4 |
21.5 |
|
Gross margin (%) |
|
|
81.2 |
78.8 |
78.8 |
74.5 |
75.8 |
80.8 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed assets |
|
|
|
289.5 |
185.9 |
185.1 |
176.5 |
166.5 |
158.2 |
Intangible assets |
|
|
197.0 |
159.1 |
138.2 |
121.0 |
109.3 |
98.8 |
|
Tangible assets |
|
|
29.1 |
24.7 |
22.1 |
20.1 |
21.7 |
24.0 |
|
Investments & other |
|
|
63.4 |
2.1 |
24.8 |
35.4 |
35.4 |
35.4 |
|
Current assets |
|
|
936.4 |
830.4 |
833.7 |
827.4 |
992.0 |
1,157.6 |
|
Stocks |
|
|
|
478.1 |
398.9 |
344.2 |
250.2 |
150.0 |
150.0 |
Debtors |
|
|
|
173.8 |
233.4 |
178.5 |
249.3 |
301.5 |
329.9 |
Cash & cash equivalents |
|
|
284.5 |
198.1 |
282.4 |
327.9 |
540.5 |
667.6 |
|
Other |
|
|
|
0.0 |
0.0 |
28.6 |
0.0 |
0.0 |
0.0 |
Current liabilities |
|
|
(268.1) |
(251.6) |
(309.5) |
(349.9) |
(349.9) |
(349.9) |
|
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) |
(349.9) |
(349.9) |
Long-term liabilities |
|
|
(502.8) |
(498.3) |
(399.0) |
(324.9) |
(325.3) |
(325.3) |
|
Long-term borrowings |
|
|
(493.8) |
(494.4) |
(397.8) |
(319.1) |
(319.5) |
(319.5) |
|
Other long-term liabilities |
|
|
(9.0) |
(3.9) |
(1.3) |
(5.8) |
(5.8) |
(5.8) |
|
Net assets |
|
|
|
455.0 |
266.5 |
310.3 |
329.1 |
483.2 |
640.6 |
Shareholders' equity |
|
|
455.0 |
266.5 |
310.3 |
329.1 |
433.7 |
591.0 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating cash flow before WC and Tax |
|
(35.5) |
(119.4) |
67.5 |
108.1 |
116.1 |
170.1 |
||
Working capital |
|
|
(451.8) |
17.2 |
88.7 |
0.0 |
65.1 |
(28.5) |
|
Exceptional & other |
|
|
(19.0) |
(20.6) |
(20.8) |
(37.2) |
(13.0) |
(37.3) |
|
Tax |
|
|
|
(4.0) |
(6.9) |
(7.5) |
0.0 |
(6.4) |
(4.9) |
Net operating cash flow |
|
|
(487.3) |
(102.2) |
156.2 |
146.6 |
181.2 |
141.6 |
|
Capex |
|
|
|
(71.7) |
(4.1) |
0.5 |
(1.6) |
(3.7) |
(4.5) |
Acquisitions/disposals |
|
|
0.0 |
21.8 |
5.0 |
0.0 |
0.0 |
0.0 |
|
Equity financing |
|
|
349.3 |
3.8 |
2.2 |
0.1 |
0.0 |
0.0 |
|
Other |
|
|
|
390.1 |
(1.2) |
(92.8) |
(85.5) |
0.0 |
0.0 |
Net cash flow |
|
|
|
180.4 |
(81.9) |
71.1 |
59.6 |
212.6 |
137.2 |
Opening net debt (cash) |
|
|
105.6 |
284.5 |
198.1 |
282.4 |
327.9 |
540.5 |
|
FX |
|
|
|
(1.5) |
(4.5) |
13.3 |
(14.1) |
0.0 |
0.0 |
Closing net debt (cash) |
|
|
284.5 |
198.1 |
282.4 |
327.9 |
540.5 |
677.6 |
|
Source: Orexo, Edison Investment Research
|
|
Following a stronger H2 and Abzena’s FY18 results, we have made major changes to our model across both the services business and the Abzena Inside royalty portfolio. The FY18 reported revenues of £22.0m were ahead of our forecast and up c 18% over FY17. This was driven by 60% growth in bio-manufacturing where fortunately, most of the investment in capacity was directed in FY18. Last week’s announcement of a proposed royalty monetisation will help to address the FY19 working capital requirement.