Orexo AB (publ) (ORX) Earnings Call Transcript & Summary

Welcome to the conference call. [Operator Instructions] Now, I will hand the conference over to the speakers. Please go ahead.

Good afternoon, everyone. I'm Nikolaj Sorensen. I'm the CEO of Orexo, and welcome to this third quarter interim report from Orexo. Together with me today, I have Fredrik Jarrsten, our CFO, and he will take us through some of the financial numbers in the presentation. So we labeled this quarterly report Orexo in Transformation, and it has indeed been an intensive year from a transformation perspective, and we start to see that we get into this new platform-focused company that we want to become and have made quite a lot of progress in our development plan during the quarter. And as you know, also announced a rights issue, which will support us to take the company all the way through the transformation and pass some critical timelines in our development programs. Summary a little of where we are and why do I claim that we have made important progress in our development programs is that we have for Izipry on the 29th of September, we resubmitted the file to FDA, and we expect a 6 months review time, which will take us into the end of first quarter, and we will have our next product approved in the U.S. On OX640, we had our IND accepted, which is maybe feeling like a small step, but it's incredibly important because that is the one confirming our clinical trial program that we are going to follow through the development of OX640 and other data points that we need to collect. We have also started our manufacturing, and we have manufactured 12,000 units of OX640 in commercial scale. I'll come back to that a little later. But right now, we're doing some testing before we can do the final release of these for the clinical trial. OX390, the project we have together with BARDA. BARDA agreed to extend the initial development stage and also provide an additional $3 million to the overall funding. So on each of these 3 programs, we have made good progress. When we look at our other programs, we have just went out slightly after the quarter ended with our first in vivo study results from oral semaglutide. As you know, we have done it before in nasal. The numbers were encouraging. It was our first oral formulation, and we saw that we had comparable bioavailability as the reference tablet, which is a high bar being the first formulations that we're testing in oral formulation and the reference tablet has been developed over several years or many years. On vaccines, we have a collaboration together with a well-renowned research institution in the U.S., where we are applying for nondilutive grant funding to basically test AmorphOX platform on different vaccine projects. Zubsolv in the U.S., we have in this quarter, it might pass some of you, but we -- every quarter, we are reviewing our progress and see where we believe we will be with the earn-out. And we -- based on the current trajectory of Zubsolv sales in the U.S., which is progressing well, we have come up that we have to increase our provision with SEK 21 million. So we are increasing the amount that we expect to get paid in the earn-out in early next year. We also announced that we have -- we are very close to settlement. We have agreed in principle on the main terms with the Department of Justice. It's something that we have been forced into in about 6 years. It's taking a lot of efforts, a lot of money also to get to the point we are in right now. But I'm quite pleased that we actually can see that we are ending this process and we have reached this agreement in principle with the Department of Justice. A very, very important cornerstone in this transformation we are entering into as a company. And then we have our rights issue that we announced recently and that we are now going to conclude during this quarter. The transformation that we are into, as you know, we sold the Zubsolv rights and what we're really trying to do now is we are restructuring our balance sheet. We're restructuring our operations. We're streamlining operations. That means basically cutting costs in both Sweden and in particular, in the U.S. As I mentioned before, resolving the DOJ investigation are important. And now with the rights issue, we also feel that we have the financial flexibility that we need to take this company all through the transformation. And what we really want to do is to take our existing programs into a partnership and then start development programs together with other companies based on the AmorphOX platform. And we are making some decent progress in this space, which is basically a plan that we set up for the company when we took the decision to sell off the U.S. business last year. When it comes to the rights issues, it is something that will give us the flexibility to continue the development through critical milestones. We'll come to the financials later, and I can say the financial result that you're looking at for this quarter has nothing to do with how the financials will look for the next year. We are now into the final stages of cleaning up the balance sheet and some of the payables we have from Zubsolv when we sold off Zubsolv also to streamline the U.S. operations. And with the money we have now, we feel we will be in a good place to take the company through to this transformation where we sign partnerships and get partners to both co-finance and also fully finance development programs on the basis of the AmorphOX platform. Looking at how we are allocating the funds, we are seeing the OX640 remain one of the larger expenses. It was that for this year and also in this quarter. Then we have our OX390 development where most of it is financed by BARDA, but Orexo still have to take some. But our continued project with semaglutide and other GLP agonist, we have in there vaccines. We are looking for nondilutive financing, but we will need to take some expenses for that. Izipry, we said 10%. I think that's a high number because we are now basically done with the majority of the work. But with -- as it is with any program, then we -- for Izipry, we will need to continue monitoring shelf life and also reliability data. But that's a significantly lower cost than we have right now. And then we, of course, have the DOJ and general strengthening of our working capital. So what is the focus for the company moving forward? It is really partnership, partnership, partnership. We hired a new Head of Business Development, Raheleh Nassaji, who have been very active and already now have some good leads and also been part of the program that we have in our semaglutide and get this industry partner to expand the collaboration. But we are looking now to basically expand based on the knowledge we have for the GLP agonist or semaglutide to get this partnership to expand and deepen. We are looking in vaccines to test new vaccines -- with new vaccines with partners where we basically collaborate with them supplying some of it, Orexo with some of it, and we're seeking nondilutive funding opportunities together with research institutions. And we have application processes that have started in the U.S. On the development program, it's again, that's where we have Izipry, we have OX640. We are looking for a partner. We do need to take those programs to the next critical value inflection point. That means for Izipry and approval for OX640, our next pivotal trial, but we have started the partnering programs for both of them. And then we are looking basically for companies who would like to work with our platform for whatever project they have. It's again an area that we need to build and to be stronger, but where we are getting a decent amount of interest. But before it's worth anything, we need to get a signed contract and get a signed partnership. Izipry, we resubmitted as we guided in the end of Q3. That means we have an approval expected in the end of Q1 next year. We are still waiting to get the PDUFA date confirmed by FDA that should happen relatively shortly. We will continue to test reliability and stability, but that will be a significantly reduced expense on where we are right now. One thing that is interesting in the market for Izipry is that more and more data shows that patients who are overdosing with opioids in the U.S. are administered more than one dose immediately after they are found by rescue workers, first responders and bystanders. And that's basically because you're seeing that the current low-dose liquid products that we have on the market are not enough to basically rescue a person who are overdosing on a synthetic opioid. This is helping us because the market is now recognizing that these low dose would need to go up in dose to basically be able to rescue the people. And that's where a high-dose product like Izipry comes in well with all of the other advantages we have with Izipry, including temperature, stable performance, for example. Moving to OX640. We are now on track to start our pivotal trial. It's the plan we had and we have communicated for the last year. We are following that right now. We have met a lot of milestones for the program in the quarter, both the IND acceptance, our first commercial batch. We are now doing the testing to confirm it meets the quality requirements before we can release it, and that will then take us into we can start the clinical trial. We are -- and the clinical trial we are planning is the first pivotal trial, and that's basically testing as a nasal allergy challenge study where we're testing the products on allergic rhinitis conditions, meaning that we're exposing people allergic to pollen for pollen to get a reaction in the nose and see that the product has a good uptake. We've done that before, but not with the final dose and not with the final product. So this will be an important milestone for the company also. And that's coming into these value inflection points. The next thing that will happen is that when our quality department have gone through all of the documentations from the commercial batch, we can then release it. That means that we have met the high standards that the FDA has set for the kind of rescue medications in the commercial manufacturing. This will enable us to start the pivotal trial. So we're expecting to announce that also in this quarter. And then with the results, we're saying now first half of next year, and we are expecting this to come early. But as it is with clinical trials, sometimes you need to do additional analysis, and that could push us into the beginning of Q2. But the expectation is it should be early next year, all depending on the quality of the data we get and if there's something surprising coming out of this study. Looking at the market for epinephrine products, we have some good Q2 numbers from the incumbent in the nasal market in the U.S. We are seeing good development in reimbursement with a decent price premium to some of the generic injectables in many markets. So this is promising for the market, which is still in its infancy. It will be interesting to follow how this market is evolving, which is an important impact parameter for potential partners who wants to work with Orexo on this. The market is competitive. When looking at the competitors in development and on the market, we see that there are unique profile and advantages with our AmorphOX technology that OX640 can take. For example, the rapid onset, it's very stable, extensive absorption, and we believe we can have a long shelf life on the product also. And then, of course, a value in the market is that we have a patent protection both for OX640, but also for many of our other projects, which are our technology on -- projects on the AmorphOX technology, which is reaching into the 40s. The partnering process is ongoing, and we're seeking a global partner. It could be different regions, but we are in a global process, and we are expecting that the proceeds from that will take this product all the way to the end and be the financing of the final pivotal trials. So in the forecast that we have and the expectations that we have for the company moving forward, we have not included the next round of clinical trials needed to take OX640 all the way through the end. We're expecting that is coming out of this partnering agreement. Semaglutide, we went out with a press release saying encouraging clinical results. We had -- as you know, in '25, we had our first study where we saw we had very much higher bioavailability of the AmorphOX -based product in the nasal delivery compared to the oral formulation. The study we did now was on a more advanced reference tablet. It was also an oral tablet. It's the first time we have made an oral tablet with the AmorphOX technology. We only used 4 different formulations, and this is done in a relatively short time frame and that we, in this short time frame could come up with a product that actually mirrors the -- or have comparable bioavailability as the reference tablet was encouraging. But of course, to be excellent, we need to have better bioavailability than products that are in the market and products that are in development. So this is giving us a starting point for continued development, and we're quite pleased to see that the industry partner we have worked with the oral tablet are interested in continuing the oral, but also interested in expanding into other routes of administration that we're now exploring how that project could look like and what would be the work plan for that before we can start the project. But we have a good dialogue and a strong interest, and it's basically not if we should continue, it's more about how we should continue. So to sum up, so from an operations perspective, what are we looking for in the near term? We are in a partnering focus across the company OX640 and Izipry, of course, top of the list because we think that's where we have the most value. So we are working actively to find partners, OX640 on a global scale, Izipry on a U.S. scale. We're also looking to expand our AmorphOX partnerships to both reduce our expenses, but also to reduce risk. And of course, some of them contribute positively into our profits. But it's going to give us stake into new projects by having other companies working with our AmorphOX platform. And then we want to expand into new areas, basically seeing where do we think this can work. And we are still very interested in biomolecules and very encouraged not only on the semaglutide, but how that can be applied on other peptides. It's also in vaccines, the data we have generated with Abera, but where we are now looking to expand with new partnerships to get more proof of concept and vaccines is going to be incredibly important in our efforts to expand the use of AmorphOX and with that, partnerships, cost coverage and revenues for the company. With this, I will leave the word to Fredrik to take us through the first part of the financial presentation. Fredrik, please.

Thank you, Nikolaj. So starting with the P&L for continued operations, which we, as you know, after the divestment of Zubsolv U.S. We will no longer follow that on a segment basis. The divested Zubsolv U.S. business is presented in discontinued operations in Note 10 in the report, and that will be the way for the remaining part of 2026. So on net revenues of SEK 0.8 million for the quarter, Abstral royalties were low, reflecting the continued trend of individual country royalty agreements expiring. Edluar royalties were also lower following the launch of generic products in Canada. For Zubsolv ex-U.S. royalties, we haven't received the royalty report for Q3 yet, and we haven't accrued for any growth in revenue, but we hope to start seeing the effect of Accord's increased market efforts going forward, having finalized their Zubsolv manufacturing setup in Europe this past summer. OpEx amounted to SEK 99 million for the quarter or SEK 92 million, excluding depreciation, which is up from Q3 last year, but that includes a significant nonrecurring provision of SEK 35 million for the nonbinding DOJ settlement accounted for in other operating income and expenses. We had also a positive effect from lower costs related to long-term incentive programs as a consequence of the decline in share price in the quarter. Otherwise, OpEx are lower in all functions. Selling expenses were lower than last year, mainly due to lower product strategy-related costs and from staff reductions. Lower admin explained by generally lower spending and staff reductions, although still affected by high legal costs, seeking a settlement in the DOJ investigation. R&D costs were also lower due to lower internal costs, partly offset by higher external costs for the continued development of OX640 and OX390. On the other hand, that also meant higher BARDA reimbursement of OX390 related costs of in total SEK 7 million. Net financial items nowadays after the redemption of the bond give a positive contribution, SEK 2.7 million this quarter, mainly explained by positive unrealized FX impact and higher interest income on our bank accounts. So net profit then for continued operations, minus SEK 118 million, also affected by SEK 22 million noncash reduction of tax assets in Orexo U.S. And then net earnings for discontinued operation, plus SEK 22 million, mainly explained by this positive revaluation of the expected earn-out from the divestment of Zubsolv that amounted to SEK 21 million. On the next page, we further look at normalized OpEx in Q3, which I just said totaled SEK 99 million, less depreciation SEK 92 million, and then normalize for the nonrecurring provision for the DOJ settlement and associated DOJ legal fees, also normalized for negative FX effects and the positive effect from the lower social security costs for the long-term incentive programs. Then we arrive at a normalized OpEx of SEK 55 million or SEK 18 million per month. Now this is then the current situation on OpEx when normalized, but we have taken several initiatives to further reduce expenses from this level, where we have staff reductions with expected full effect in 2027. We have decreased facility costs. We have finalized the Izipry development, and we increasingly conduct new projects with partner contribution and risk sharing. And then we also have a larger share of variable external R&D expenses, indicating flexibility. Cost efficiency efforts will also continue going forward to further reduce OpEx. On the next page, we talk about cash flow. We reported a negative cash flow in Q3 for continued operations of minus SEK 125 million, where we had a negative contribution from operating activities of SEK 118 million, primarily impacted by negative operating earnings and also negative changes in working capital. Working capital was mainly affected by payment of the GAIA settlement, SEK 28 million, which was accounted for in Q2 in relation to the termination of digital mental health products. Cash flow from discontinued operation was a negative SEK 1.7 million. This is mainly post transaction-related restructuring costs and reimbursement for those costs following the transition agreement with Dexcel. After adjusting for positive FX effect of SEK 2.3 million, total cash decreased from end of Q2 by SEK 124 million to SEK 153 million. Now under the transition agreement following the divestment to Dexcel, Orexo also continues on behalf of Dexcel to collect Zubsolv revenue from certain partners and make rebate payments to third parties, and this will continue until end of 2026. This also had an effect on working capital through account payables and other liabilities. And now this setup with Dexcel is basically just a pass-through exercise with a net 0 effect on cash flow over time. But out of the total cash and cash equivalents end of Q3 of SEK 153 million, funds payable to Dexcel was SEK 65 million and rebates on account payables related to Zubsolv amounted to SEK 26 million. And that meant that Orexo's own cash end of Q3 amounted to SEK 62 million. With that further details on the spend of cash, Nikolaj.

Thank you, Fredrik. So I'm receiving a lot of questions about the cash flow and where are we spending the money. So we have decided to break that down a little further from our normal cash flow presentation and also to show why we believe it's the current run rate and cash burn is not a predictor of the future. If you look at the Q3, just as Fredrik said, we have about 70% of the relatively large amount of cash outflows are nonrecurring and it's related to the digital mental health business closed down and also the DOJ continued negotiation of the settlement. That's really the majority of the administrative costs. We're also looking at some Zubsolv rebates. As you can see, we still have to pay that. And this is -- these are rebates that relates back to sale of Zubsolv in 2025. So we continue to get some invoices, but most of these [ SEK 10.5 million ], if not nearly everything was in July. So that was early in the quarter, and we're expecting this to more or less disappear from now on. We also have some discontinued business, as Fredrik mentioned, that has a negative, and this is basically we have had some employees working in the quarter, and that also come with the cost of running that discontinued business. And again, that now we're down to 0 employees that are dedicated to the discontinued business. So that will diminish also. When we look at our continued business, which is basically R&D and focused around the AmorphOX, a lot of the expenses in this quarter was around Izipry, that we're preparing that for filing. That cost will drop quite significant next year. The OX390, we have done a lot of activities, but we have due to some administrative processes, not received the payment from BARDA yet. And we're picking that up now as we're moving into Q4. So that will have a positive effect. But right now, all of the expenses of OX390 has been affecting our cash flow in this quarter. And then we have, of course, OX640, but where we are continuing, but where it is quite costly to produce 12,000 units of OX640 for the first time, which is also again that we're expecting to see after we have finished this pivotal trial that we're starting, we're expecting to see a drop in the cost of OX640 until we'll have a partner in place who will help financing the final steps before filing. So we are certain and the aim for the company is to reduce OpEx significantly for next year to increase the run rate. So we have the money that we get in now with the flexibility we have in our OpEx and in our cash burn that, that will increase the runway beyond 2027. When we come to the full year cash flow, where, of course, everyone remember the sale of Zubsolv in the beginning of the year. And then if we look at where we started the year and where we are today, it's, of course, a significant drop. And looking at where does the money go? So just taking some of the major items, most of them are nonrecurring. So we have administrative costs that are coming in where about half of those administrative costs are directed to DOJ and the digital mental health business. But also in that number, we have other restructuring costs of the company that is included in terms of different advisers we have used during the year and also retained resources in the company during the first part of the year and even into where we are right now, we have more admin people than we will have from the start of next year. We have our discontinued business. And when you look at all of these pools, we have Zubsolv rebates. We do have Zubsolv account receivables, where those 2 are basically related both of them to sale of Zubsolv tablets last year. Then we have a larger bucket, which is current liabilities. But even the current liabilities is also to a large degree related directly to Zubsolv sales. Actually just about [ SEK 80 million ] of that are directed to our accounts payable in the U.S. and a large share of that is also related to rebates. So all of these 3 items that you have there in the middle, Zubsolv rebates, Zubsolv account receivables and current liabilities are going to diminish as we are ending -- as we are finishing paying rebates for the market, and we are finishing collecting -- we did that in the beginning of the year, collecting sales of Zubsolv that we sold in Q4 of last year. But the biggest item, of course, that we have is the bond repayment. And that was not something we had a lot of choice with. Our bond repayment is basically our bond had a security in the Zubsolv business in the U.S. And when we sold Zubsolv, we had to repay the bond. And with that came the repayment, which is SEK 490 million, but also we had to pay for accrued interest rates, which is another SEK 26.6 million. So just looking at where we are, a lot of these significant costs that we've seen during the year has been related to Zubsolv, but also a decent investment into our pipeline in the R&D program when you get into the final stages of development as we are with OX640 and Izipry, that is a significant expense. And then when it comes to OX390, Orexo have covered the expense so far for this year, but we are expecting to catch up with the BARDA payment during the fourth quarter. So significant cash outflow, but I think there's a good explanation to these numbers that where the money have gone. Looking at forward, so where will we get our cash from? As Fredrik just said, we have our earn-out from Zubsolv in the U.S., where we're just based on the trajectory we have seen until third quarter of sales of Zubsolv, the development is looking good. We're pleased to see also that Dexcel have invested into a larger field force than what they got from Orexo. So they're investing more into the commercialization than what Orexo could do. So we are seeing that is helping our earn-out, and we decided to increase the provision with SEK 21 million, which is the majority based on the trajectory and some of it because the dollar has strengthened during the year. We also get the research contribution from BARDA, which is up to $54 million. It is something that is supporting also our internal staff. So that's an important part of financing our facilities and people. We continue to get royalty from our commercial products. And even though Abstral and Edluar are in the late autumn of their lifetime, then Zubsolv Europe, we are seeing now that our partner is gearing up their commercial activities as during the summer, could start selling their own material after having invested in building up European manufacturing capacity. Partnership for Izipry and OX640 will, of course, be an important contributor also to support the company moving forward. So we're working intensively with that. But our strategy for the development is increasingly to work with partner-funded R&D for AmorphOX-enabled projects. And that means that Orexo can continue to take some of the expense, but we are reducing both risk and cost by having the partner to take the majority. With the aim of these programs turning into real partnerships where we actually get paid for the development, get milestones and royalties when the programs get to the market. It's also important for me to build in a lot of flexibility in our cost base. And as Fredrik mentioned, we have increased our amount of external expenses in R&D. The positive part of that is that they are all activity based. That means that we can stop or delay an activity to control our cash burn and makes it easier to prioritize. So we are working to streamline our fixed cost base to have more flexibility, and we are on a good plan and have a good trajectory for that. And finally, we have our rights issue, as you're aware, that we expect to close later in this quarter. Moving into a short legal update. We mentioned the Department of Justice. We are right now in basically discussing administrative items that need to be in place. I would say this process has not been the highest priority of the Department of Justice. We also have a complexity that we have 2 individuals who worked for Orexo who have stopped working with us, but they also need to have that deal in place together with the Department of Justice and some of these administrative processes. But there's no discussion at all about the head of terms, and we just need to finalize the process as it is right now. I would say Orexo right now is not in a super hurry because we have an agreement in place. It's not just to get this over the finish line. Of course, any delay right now also delay when we have to pay our first installment. And as Fredrik presented, based on that agreement, we have -- we have the first drafts received from the Department of Justice in consultation with our auditors, we decided to make a provision for the payment of up to $4 million over several years. So as you can see here, the number is a little less than that, and that's reflecting that some of the payment is late in effect all the way back in 2029 as it looks like right now. So summarizing a little and where we are, this is a slide that we have carried with us throughout the year to say what are we aiming for this year. Zubsolv Europe, we did get a release of the product from Europe, meaning that our quality department and Accord's quality departments have released the product for sale during the summer, and they are now expanding their commercialization into new markets in Europe. We have Izipry filed in the Q3 September 29th. We are planning to start the pivotal trial for OX640, but we are not there yet, but we are planning to start it on schedule here in Q4. OX390, we presented our in vivo study in Q2. And then finally, on GLP-1 semaglutide, we have an additional in vivo study where we presented results now in Q4. From a partnering perspective, one of the most important now is that in semaglutide, the partner that we work with for the oral semaglutide are now together with Orexo, looking at how we can expand this partnership into new delivery pathways, which we think is very interesting from a company perspective. And with that, we will open up for question and answers. And we'll see if we have received the first questions. So I need to open that. Here we are.

[Operator Instructions] The next question comes from Samir Devani from Rx Securities.

I guess I've got quite a few. I'm going to start actually on what you just commented about the partner on semaglutide looking at other delivery options. Obviously, Orexo is known for its oral and nasal delivery formulation technologies. What other delivery options are there?

So we haven't specified because we are working with the partner to say which one. But of course, it's quite close by to look at some of those we have worked with. But there are other ways you can work with a powder technology, you can work it for reconstitution. So basically use it as a way to extend shelf life and avoid cold chains. You can also work with inhalable products, for example, it could be -- is another alternative. And this is where we are both seeing some project opportunities where it could be led by Orexo, but also where the AmorphOX technology could tie into other technologies that the industry partner has. But we can't specify that right now because right now, we are basically looking at which pathway should we work for, where do we see the biggest opportunity and what is the work plan moving forward. So before we have agreed on that, I won't narrow it down to where we are. But of course, it's -- the ones that we have worked with are part of that list.

Okay. That's fair enough. Then on Izipry, you're expecting a 6-month review time. And I think you indicated that you're still suggesting that you have to wait for approval before you sign a partner. Is that correct?

The partnering process is ongoing right now, and we are reaching out to potential partners for Izipry. I just think some of the experience from the U.S. market and even from Europe is that there are different set of companies who would look to a product that has been approved and one that has not been approved. And I think a very simple argument for that is when it's approved, you don't need to do the due diligence of all of the documents that you have to in the file. So the expenses for you as a company to look into that product is much lower when you have an approved product compared to looking at one where you have to weigh in whether you think there's a risk in the process. But of course, the dialogue with the companies is something that we are aiming to start and are starting before we are getting to the approval time. But I think that there are definitely a different set of companies who would be interested in products that are approved than even if the perception is that the risk for approval is relatively low, that the approval will not be -- that it will not be approved is relatively low.