Orexo
Written by
Orexo |
Worst-case scenario averted |
Patent litigation update |
Pharma & biotech |
28 November 2016 |
Share price performance
Business description
Next events
Analysts
Orexo is a research client of Edison Investment Research Limited |
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The court ruling upholding the validity of the Orexo ’996 Zubsolv patent precludes Actavis from launching a generic before September 2019. Orexo has 30 days to decide whether to appeal the court decision that a second patent (’330 with 2032 expiry) is invalid. A worst-case scenario allowing imminent launch of Actavis generic(s) has been averted. Zubsolv’s IP portfolio includes two additional patents (’900 and ’421) that extend to 2032, which coupled with the prospect of an appeal on ’330, means that significant hurdles remain ahead of Actavis generic launch.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
570.3 |
(52.6) |
(1.6) |
0.0 |
N/A |
N/A |
12/15 |
643.2 |
(191.2) |
(5.7) |
0.0 |
N/A |
N/A |
12/16e |
728.1 |
42.8 |
1.0 |
0.0 |
36.7 |
N/A |
12/17e |
898.8 |
153.7 |
2.6 |
0.0 |
14.1 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Multi-layer IP strategy for Zubsolv
Actavis is the only company to file ANDAs for generic Zubsolv to date. The recent ruling relates to the June 2016 court hearing concerning the first ANDA (filed 2014 covering Zubsolv 1.4mg and 5.7mg); the court decision upheld the validity of the 8,454,996 US patent but found 8,940,330 invalid. Since the first ANDA filing, the FDA has approved four further Zubsolv dose strengths and two new patents have been issued (9,259,421 and 9,439,900). Actavis’s second ANDA was filed in 2015; Orexo responded by initiating two additional infringement suits. The first suit has an October 2017 trial date; the second (related to ’421) is pending a court date.
Actavis generic launch: Not until Q319 at earliest
Orexo has one valid patent to September 2019 (’996), two extending to 2032 (’421 and ’900) and is evaluating its strategy for appealing the ’330 ruling. Overlap of the various ANDA filings and patents challenged by Actavis means the court decision in this first case is likely to affect the process/outcome of the subsequent suits. An appeal outcome, plus rulings on subsequent suits is expected from 2018. The new worst-case scenario is Actavis generic launch in 2019, which gives Orexo at least three years to prepare for a switch to a branded generic marketing strategy.
Financial forecasts and valuation maintained
We maintain our financial forecasts and valuation of SEK4.54bn or SEK131/share as we continue to model Zubsolv genericisation in 2032. Management has guided that legal/admin costs for FY17 and FY18 will be in line with FY15 and FY16. The appeal process is shorter (typically 12 months) and less costly than full litigation. The ruling has no direct impact on sales and marketing costs, or negative impact on sales until at least 2020. Promotion of a branded generic typically requires lower investment. Management also confirmed the solid performance of Zubsolv so far in Q4, with both patient numbers and mgs/Rx increasing in a growing market.
Exhibit 1: Financial summary
SEKm |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
570.3 |
643.2 |
728.1 |
898.8 |
Cost of Sales |
(107.4) |
(136.1) |
(150.3) |
(161.3) |
||
Gross Profit |
462.9 |
507.1 |
577.8 |
737.5 |
||
EBITDA |
|
|
(12.5) |
(88.4) |
86.3 |
173.1 |
Operating Profit (before GW and except.) |
|
(25.0) |
(169.1) |
64.6 |
166.4 |
|
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
16.5 |
(64.6) |
15.9 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(25.0) |
(169.1) |
64.6 |
166.4 |
||
Net Interest |
(27.6) |
(22.1) |
(21.7) |
(12.6) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(52.6) |
(191.2) |
42.8 |
153.7 |
Profit Before Tax (IFRS) |
|
|
(52.6) |
(191.2) |
42.8 |
153.7 |
Tax |
(4.0) |
(6.9) |
(6.8) |
(65.8) |
||
Deferred tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(56.6) |
(198.1) |
36.1 |
88.0 |
||
Profit After Tax (IFRS) |
(56.6) |
(198.1) |
36.1 |
88.0 |
||
Average Number of Shares Outstanding (m) |
34.3 |
34.6 |
34.5 |
34.5 |
||
EPS - normalised (öre) |
|
|
(165) |
(573) |
105 |
255 |
EPS - IFRS (SEK) |
|
|
(1.6) |
(5.7) |
1.0 |
2.5 |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
81.2 |
78.8 |
79.4 |
82.1 |
||
EBITDA Margin (%) |
(2.2) |
(13.7) |
11.8 |
19.3 |
||
Operating Margin (before GW and except.) (%) |
(4.4) |
(26.3) |
8.9 |
18.5 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
289.5 |
185.9 |
163.8 |
158.0 |
Intangible Assets |
259.2 |
159.1 |
142.4 |
142.4 |
||
Tangible Assets |
29.1 |
24.7 |
21.4 |
15.6 |
||
Other |
1.2 |
2.1 |
0.0 |
0.0 |
||
Current Assets |
|
|
936.4 |
830.4 |
940.2 |
1,070.7 |
Stocks |
478.1 |
398.9 |
308.8 |
176.7 |
||
Debtors |
173.8 |
233.4 |
179.5 |
221.6 |
||
Cash |
284.5 |
198.1 |
451.9 |
672.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(268.1) |
(251.6) |
(304.8) |
(341.0) |
Creditors |
(265.6) |
(251.6) |
(304.8) |
(341.0) |
||
Short term borrowings |
(2.5) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(502.8) |
(498.3) |
(498.5) |
(498.5) |
Long term borrowings |
(493.8) |
(494.4) |
(496.1) |
(496.1) |
||
Other long term liabilities |
(9.0) |
(3.9) |
(2.4) |
(2.4) |
||
Net Assets |
|
|
455.0 |
266.4 |
300.7 |
389.2 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(455.7) |
(73.2) |
275.8 |
263.6 |
Net Interest |
(31.6) |
(29.0) |
(26.9) |
(12.6) |
||
Tax |
0.0 |
0.0 |
0.0 |
(29.5) |
||
Capex |
(71.7) |
(4.1) |
(1.6) |
(1.0) |
||
Acquisitions/disposals |
0.0 |
21.8 |
11.0 |
0.0 |
||
Financing |
341.7 |
3.8 |
2.1 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(217.3) |
(80.7) |
260.4 |
220.6 |
||
Opening net debt/(cash) |
|
|
135.4 |
211.8 |
296.3 |
44.2 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exchange rate movements |
1.5 |
4.5 |
6.7 |
0.0 |
||
Other |
139.4 |
(8.3) |
(15.0) |
0.1 |
||
Closing net debt/(cash) |
|
|
211.8 |
296.3 |
44.2 |
(176.5) |
Source: Edison Investment Research, Orexo accounts
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