After a strong Q119, which is seasonally the weakest quarter, Orexo also had a higher bar to beat Q218 due to milestone income making it one of its best ever quarters. Nevertheless, total Q219 revenues rose 0.8% to SEK201.2m. Zubsolv continued to perform well with Q219 sales of SEK184.4m, even against generic film and sublingual tablet competition.
Orexo’s financial results are driven by US Zubsolv sales, which were SEK184.4m in Q219 (SEK158.4m in Q218). Total Q219 sales rose by 0.8% to SEK201.2m (vs SEK199.7m in Q218 which included c SEK31m in milestone income), while costs were reduced over Q119 (which had included one-off IP litigation costs) and helped Q219 profit after tax increase to SEK54.6m (vs SEK50.1m in Q218). Our estimate of total operating expense in FY19 remains at SEK545m, just above Orexo’s guidance of c SEK500m. Another profitable quarter increased Orexo’s gross cash balance to SEK697m, above our SEK683m estimate. An increasing cash balance remains key to Orexo’s stated aim of in-licensing or M&A to gain new products. Conversely, the re-partnering of ex-US Zubsolv rights may also increase Orexo’s cash balance, although the quality of the partner and terms are more important than the quantum of any upfront payment.
The sales volume of Zubsolv in the US continues to increase, while the launch of five generics to Indivior’s Suboxone film seems to have mainly shifted the market between branded and generic sublingual films, and has not materially affected sublingual tablets. Nevertheless, with market share shifts for a product that previously comprised more than half of the total opioid use disorders market, this developing dynamic bears watching.
We have made minor changes to our model to include revenue growth, profitability, the small debt reduction in August and the strength of the US dollar. These changes almost cancel each other out and our valuation is virtually unchanged at SEK3.46bn, or SEK98.79 per share. There is a strategic tension between Orexo’s continued profitability, its investment in the pipeline and the acquisition of new products from outside the company. Since last summer when Orexo won the patent litigation against Actavis, the expansion of its product portfolio has become increasingly important. This will continue over the next year as its minor products lose exclusivity and we trust Orexo’s prudence in this important diversification of revenues.