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OTCQX:ORXOY | STO:ORX
John Viglotti: Hello and welcome to Virtual Investor Conferences. My name is John Viglotti, and on behalf of OTC Markets, as well as our co-host Zacks Small Cap Research, we're very pleased you joined us for our next presentation from Orexo. Their session will be moderated by Brad Sorensen. He's a senior equity research analyst with Zacks Small Cap Research. Please note, you can submit questions for Orexo in the box to the left of the slides. At this point, I'm very pleased to welcome Nikolaj Sorensen. He's the president and chief executive officer of OrexoAB, which trades on the OTCQX Best Market under the symbol ORXOY, and on the STO under the symbol ORX. Welcome back, Nikolaj and Brad.
Nikolaj Sorensen: Thank you very much, and thank you for inviting us. I'm very pleased to be able here to present Orexo. It's a very exciting company and at a transformative time in the evolution of the company. Orexo is a Swedish pharmaceutical company, but the majority of our operations are in the US. In that way, you can say we are kind of a Swedish-American pharmaceutical company. I'll jump ahead here and give you a short introduction to Orexo. We're a company founded back in the 90s. So, we have more than 25 years in the pharmaceutical industry. We've been focusing on drug delivery technologies and formulation technologies, which has led to the launch of four different products from the company. The big focus for the company in the last 10 years during my tenure as CEO has been on opioid use disorder and adjacent diseases. Most of our commercial revenues today are for the treatment of opioid use disorder, in particular, a product called Zubsolv. What is interesting with Orexo is that we have commercial platform sales in the US, generating a decent amount of profits that we're now investing into our R&D pipeline.
NS: We’re really at a crossroads at the moment with our technology called AmorphOX. We have the first product based on this technology under FDA review at the moment for rescue medication for opioid overdose. But we also have a broad portfolio of other opportunities based on the same technology. We are a company today with revenues from Zubsolv, about $60 million. We have positive EBITDA, improving also during the last year, and we have decent liquidity in the company. So, Orexo is a company with a strong foundation in our opioid use disorder treatment, Zubsolv, but with significant potential upsides from our pipeline. Our main product, Zubsolv, is promoted by Orexo in the US. Interestingly, as a Swedish company, we decided to partner with Accord Pharmaceutical in Europe. Accord is primarily a European and Asian company. We also have Abstral, a treatment for breakthrough cancer pain, which is promoted by the Japanese company Kyowa Kirin.
NS: It's not promoted actively in the US anymore. The majority of the revenues we receive are from some European markets and Asia. Then we have Edluar, which is today promoted globally by Viatris. It's an insomnia product that is generating some quite nice royalties to Orexo, but we're not involved in promoting that product, the same goes for Abstral. It's also a royalty-based deal. During the last five years, we have invested into digital health together with a German partner called Gaia. We have worked with some complementary digital health programs that, for example, within opioid use disorder, could complement Zubsolv. That's not generating a lot of revenue right now, but it is something we're working on to create a bundle of treatment opportunities for patients with opioid use disorder. Looking into the pipeline, our main product right now is OX124. It's a rescue medication for opioid overdose. It's a high-dose rescue medication. It is something that we've seen is acting faster than the market, leading alternatives in the market today. Where we see the death from fentanyl is what we're targeting with OX124. We know today that if you're overdosing on fentanyl, there's a big chance that the existing overdose treatments are not sufficient.
NS: OX125 is a nalmefene-based product. We put that a little on hold because we believe there's more potential in the naloxone treatment. Should we proceed with the nalmefene product, we could do that within a relatively short timeframe and ready it for filing with the FDA. We have positive clinical data behind both OX124 and OX125. Where we see a lot of opportunity for the company is in OX640. That's an adrenaline or an epinephrine-based product, anaphylactic reactions or allergic reactions. Today, the market leader is EpiPen, which is an injection product. There are other products in development with a nasal profile. What we're looking at here is to provide a nasal powder. That comes with a lot of advantages for the patients and caregivers. Outside of that, we have several other projects based on the same technology, both internal projects but also in collaborations with other companies. For example, we're working with a Swedish company, SOBI, Swedish Orphan Bivitrum, which has a biomolecule. By putting it into AmorphOX, we see that we could add stability, we can add bioavailability, we can add new drug delivery technologies, and we can add patent times, because the AmorphOX technology, depending on the molecule we put into the technology platform we have patents until 2039 to 2044.
NS: Finally, we have a product for endometriosis treatment. We call it OX-MPI, which is under development in partnership with a Swedish biotech company, Gesynta.
NS: So, looking at the big focus area for us, opioid use disorder. This is an unfortunate area that goes in waves with the attention. There has not been a lot of progress in the number of people overdosing. There was a spike from 2020 into 2021, which is very much driven by the availability of fentanyl. Unfortunately, you won't be able to rescue people with a fentanyl overdose if you're using the existing products that are widely available now over the counter in the US. You often need to use more than one dose to reverse a person who has an overdose of fentanyl. This is really what we're targeting with our new rescue medication. But parallel, we have the maintenance treatment with Zubsolv, which is targeting these 8.9 million we know today is misusing opioids. Misuse of opioids is defined as someone taking an opioid that was not prescribed by the doctor. Out of the 8.9, we know more than 6 million are dependent on opioids.
NS: That means that you will have withdrawal symptoms if you stop. But only about a third of that is in some kind of current treatment. We know one of the issues with that is the availability of physicians and treatment options and that's where we come in with our digital mental health program, which makes it easier for physicians to provide a complete treatment range, both pharmaceutical and psychosocial support. You can use that digital mental health program, Modia, to complement the pharmaceutical treatment. We developed that to have a more full package and to improve access to treatment for the patients. So, Zubsolv is an important cash generator. The revenues in the US since launch are more than $500 million. The annual revenue is about $60 million. We have, like everyone else, been able to, just looking at Q1, we were able to have a price increase. It's a very peculiar development in the market we've seen the last year where before, Medicaid was really the main driver behind the growth in the market. But in the last year, we have seen Medicaid go down. And in parallel the number of people in commercials going up. I think that's something that's seen in other disease areas also.
NS: But for Orexo, that's quite important because we do have very broad reimbursement in the commercial sector. More than 98% of the patients who have commercial or private health insurance have access to Zubsolv on similar terms as they have access to the generics in the market. In Medicaid, the same number is about 51%. So, having growth in the private health insurance segment is important for us to generate growth in the market. We did see a decline in the fourth quarter in demand. It's mainly due to the development in the UnitedHealth Group and Humana, where back in 2019, we had a market share with these two large insurance companies of more than 90%. But at that time, we saw the main competitor, Suboxone Film, lose its exclusivity. So there was a tsunami of generic alternatives coming into the market, and that made these two large insurance companies decide to make Orexo nonexclusive. We've been quite resilient and still keep a quite high market share within both United and Humana. But, that has been declining year over year. Back in 2019, that was more than half of our revenues. So, it has been a tough ride for a few years.
NS: But what we have seen in the last year is more and more stabilization, and we also see that we've been able to outperform some of the segments, for example, in the Medicaid segment. In the long term, we know that opioid dependency or opioid-use disorder is an issue where a lot of patients are not receiving appropriate care. There is a lot of stuff happening on a federal level to address this. There is new money coming in from opioid settlements, resulting in more than $50 billion in abatement funds available to states and municipalities. We believe much of this money will be channeled into improved treatment, which we can capitalize on with Zubsolv, our digital health program Modia, and our new rescue medication. Zubsolv serves as a platform generating profit and revenue, but the significant equity opportunity lies in our new platform, AmorphOX, which we consider the best intranasal platform available today.
NS: We have superior stability. That means that you can have a longer shelf life. You don't need cold chains, for example, in distribution across every single molecule we have tested, compared to the original formulation. We seen superior bioavailability in every clinical trial we have run with the AmorphOX platform. It's faster and it's more bioavailable than the often liquid alternatives that exist in the market. The main focus currently is on naloxone. It's on FDA review right now, nalmefene, and epinephrine. But, there are multiple other opportunities, in particular within biologics, where we know there's a need for cold chains and need for new drug delivery technologies. That's something we're working on, among others, with the Swedish company, SOBI. We have also worked with a couple of vaccine companies to test their vaccines on the same platform. And I've seen the same as we've seen in this picture, that even in high degrees, so 40 degrees Celsius, I guess that's up in the 90s in Fahrenheit, we have seen that we are more stable compared to cold chain storage of the product. The first product we have is OX124.
NS: It's a product with quite unique properties. It's a powder-based nasal spray compared to the ones in the market today, which are all liquid. What comes with the powder is high bioavailability. We also have a higher dose than those who are over the counter today. There are other high-dose liquid alternatives in the market, but with the powder, we also come with shelf life. This is quite interesting, because for example, if it freezes and you have something that's liquid, the product will freeze. But here, based on the powder, we can actually have wide variations of temperatures. It can be stored in freezing temperatures, it could also be stored in quite high temperatures and it's not vulnerable to temperature changes. Then it is a quite small device. It's easy to carry and from an equity perspective, we have patents up to 2039. So we have quite a long time on the market with exclusivity if we succeed in getting approval by FDA later this year. Our expected approval date is during the second half of the year, which will enable a launch early next year.
NS: What is even more exciting, I think, is epinephrine. Today, there is one product ahead of us called Neffy, which is also a liquid and nasal formulation of epinephrine. Ours is a powder, but what we see that we have higher bioavailability. We have tested in a stability study where we have much better resistance and stability to different temperature ranges. Even at normal room temperature, we have superior stability compared to other products in the market. So even with very high temperatures after nine months, there have been no degradations of the epinephrine in Ox640. This is a project where we're looking for a partner, and we're currently in discussions with several global and regional companies that are interested in taking this to market together with Orexo.
NS: So where are we financially? The first quarter this year was a little down in net revenues compared to last year. That was due to changes in inventory at some of the large wholesalers in the US. In underlying demand, and sales to pharmacies, we have actually seen a very stable development compared to last year.
NS: And sales to pharmacies we have actually seen an increase, explained both by the stable demand but also due to the price increase we had earlier this year. But even though we have more than a million dollars less in sales for the US pharma, our gross profit, where most of it is from Zubsolv is nearly constant. That's because we're working quite actively as a company on reducing the cost of goods. Even 10 years into the product, we can see there are ways for us to reduce the cost of goods in the product, improving gross profit. We're working on the operating expenses and we have had a dramatic decline compared to last year. We are guiding positive EBITDA for the year, and we're quite close also to reaching the positive EBIT number. We had positive EBITDA in the quarter, and we expect to see improved EBITDA and sales in the quarters to come. In particular, Q1 had this one-time headwind of an inventory reduction, sitting with the wholesalers. So they bought less from Orexo during the quarter. But that's something we have seen normalize more during Q2, and we expect it to continue to normalize over the year.
NS: From a financial perspective, in Sweden, we have access to quite a good bond market for corporate bonds. We issued a secured corporate bond of 500 million SEK. It's close to $50 million under a social financing framework earlier this year. The financing of the corporate bond is now secured for the next four years. That puts our liquid position, and our liquid finances, more than sufficient to finance the operations we have in the company today. To summarize our strategic initiatives and direction, Orexo is focused on stabilizing Zubsolv revenues and optimizing profit contributions from Zubsolv to enable the launch of OX124 and further pipeline development. We currently have Zubsolv, but we plan to launch OX124, which will generate sales next year. We've hired an experienced team for OX124, previously working with a competitor, to kickstart its launch in the US. Access and market access, meaning reimbursement by the public sector, continue to be increasingly important in the pharmaceutical industry.
NS: When you're an opioid use disorder, that's incredibly important because Medicaid and Medicare account for the largest part of the market, but also to maintain very good access to private health insurance, where we get paid better for the products than what we do in the public space. When we get approval, the first thing we need to do is to secure that we can get reimbursement for OX124. That's one of the advantages we have compared to the over-the-counter alternatives there in the US, that most insurance companies do not reimburse a product that is not prescribed. So, if you get it over the counter, you must pay cash. If you get a non-prescription, there's an opportunity for you to get financed by your insurance companies. We’re also working on leveraging the full platform. Both our maintenance treatment, Zubsolv, our rescue medication, OX124, and our digital therapy, Modia, under what we call an umbrella concept with MatCore, to see how we can provide a more comprehensive treatment option for the patients and also for the caregivers in the US. So, improving access is core for us.
NS: And of course, working with a very vulnerable patient population, we have multiple different support programs to ensure that the patients can access our products even without having the financial means to do so. But the commercial part is important to capitalize on our R&D pipeline. The AmorphOX technology, is a powder that can be used for nasal development, but it can also be used for oral tablets, it can be used as a reconstitution agent. For example, biologics often need a cold chain, but by putting it into AmorphOX, you can store it at room temperature. Then when you need to inject it, you can mix it with a liquid. That will increase stability, it will reduce the need for a cold chain, and give us more opportunities for us to work a little on the convenience for the patients. I know from personal experience and my closest family that some of the biologics often have a lot of injection site pain. That's often based on the pH values of the product and if you can work with the pH, you can reduce that.
NS: That's something we can do with AmorphOX. It’s often difficult because you need to work with the pH to keep the product stable when it's in a liquid. We also have a lot of opportunities to outline both partnering around AmorphOX, but our OX640, we are in the due diligence process right now as we speak. Even today, there were several meetings with different companies on OX640, the epinephrine product. We believe we are well set to find a partner to work with us to take that product to market. Then, this entire platform enables us to broaden our commercial platform, both to develop new products for our organization in the US within opioid use disorder and mental health, but also to work with partners who see a value in the technology for their API.
NS: This is an overview, basically, of Orexo. It's all about a solid foundation from Zubsolv, our commercial products, and moving that money into developing new, exciting products. We are really at a crossroads right now with several partnerships about to materialize. And with that, I will open up to Brad for questions. Thank you very much.
Brad Sorensen: Thank you. Yeah, great to be here. There is a lot to talk about, it’s an exciting company. I've been researching it for a few days and the product line is very interesting. I want to let investors know that while Nikolaj and I happen to have the same last name, we are not related. So just full disclosure there. I think we'll start with financials, because this is an investor forum, and you had been, the previous couple of years have been rough financially, it looks like you've been losing money, pushing negative profits, and you are projecting that to shift going forward, moving into profitability. Could you flesh out a little more? What's the change? Are the investments changing? Are you bringing more things to revenue coming to fruition that are going to bring in revenue? Is it a combination? Letting investors know specific programs or cost cuts, those kind of things.
NS: To reach our goals, we're focusing on both increasing revenue and managing expenses. Currently, our position is a result of managing expenses. In recent investor talks, we've emphasized that our fixed costs are significantly lower than our profit contribution from Zubsolv. We've also had non-recurring expenses, primarily investments in finalizing the development of OX124. These investments include the manufacturing process in North America and clinical trials for other pipeline projects like OX125 and the nalmefene and epinephrine products. Additionally, we've incurred legal expenses related to patent litigation for Zubsolv, which we successfully won last summer in the District Court of New Jersey on all accounts.
NS: So we kind of put that a little aside by now. That was a lot of expenses to run for a small company in these patent litigations, and the last activity in that was in the first quarter of last year. So a combination of these kinds of one-time events has been quite expensive for us for the last few years. We are working on the cost also. We invested a lot in digital mental health programs, DTX, as it's also called, DTL therapies. That market is not really taking off in the US, and we're taking the consequences and reducing the investments quite dramatically in the first half of last year. So it is a combination of different activities. But right now we are at a place where we can still invest in the pipeline. We can still invest in the launch of Ox124 because we have a lot of synergies with our existing organization, and we can do that with confidence. We can at least stay on a positive EBITDA, very close to positive EBIT. But what's really going to trigger revenues forward is the launch of Ox124.
NS: It is a business development agreement. These agreements, we expect, would both cover some of our existing expenses, but also generate upfront payments and milestone payments. We are in late-stage discussions with several companies and we're confident that we have some good opportunities moving forward to deliver on that goal to reach profitability.
BS: Yeah, I definitely agree with that. Looking at your company, there are a lot of great opportunities coming forward that you are targeting, I want to touch on one and then we'll talk about the other. You're targeting two big things in the United States that people are focusing on: Mental health, which you mentioned and then the tragic opioid situation here in the United States that most people know about, that hundreds of thousands of people are dying annually from that. That's sad and we need help with that. I appreciate your company providing that. On the mental health really quickly, it is ramping up here in the United States. Insurance companies are doing more with it. The government is looking more at it. So the investments that you've made, they haven't gone to waste. The platform is still in place, the investments are still there, and they can be reignited once, I think, the revenues start to show themselves. Is that true?
NS: Yeah, we invested a lot in the platform. It's a little catch-22 situation here. You want to show demand and you want to show there's a need at the same time, and that's from the insurance company. So show us that there is a need. At the same time, we need to have a process in place for reimbursement. That's the unique part in pharma or life science, is that you have a patient who's often not paying, at least not the full amount of the product, and you have an insurance company and you have a prescriber. Somehow getting that triangle to work between the payer, the caregiver, and the patient is hard. There's an established system for pharmaceuticals, but not really for these digital health solutions. We've seen several other companies who believe they have great products showing great value for patients going under because that is not there. But we are working closely with CMS. CMS, has gone out saying we want to find a system that works. And that's what we're hearing from the private health insurance companies.
NS: We want to see that federal initiative set up a structure and process for how we should look at these products. And then they will follow. We have a lot of confidence that where once there is a system where we transparently know what it takes to get reimbursement, we can start delivering on that. One fortunate thing for Orexo is we do have revenues coming in from Zubsolv, whereas some of these other pure digital players, didn't get any revenues coming in, so they have been forced to cut down or even close as some of the more noteworthy have done that. So we have the endurance and persistence to be in the market for the long term.
BS: Yeah, that diversification is very attractive because it does provide the buffers and allows you to invest in those things that are coming down the pipe. You're a Swedish company, but you do have people in the United States working with the insurance companies and I imagine talking to the government to get reimbursement for those things as well.
NS: Yeah, we have more people in the US than Sweden. We do have a full-fledged organization, our Chief Medical Officer sitting in the US. We have people working a lot with the government because when you work with opioid use disorder, it is very much a public issue. We need to emphasize that we've played a crucial role in improving access to reimbursement for patients with opioid use disorder. As a small company, we've had better access to the political level in the US, which is not common. It sometimes feels like we're alone in this fight, as there aren't many other companies investing in new products and solutions for this issue.
BS: Yeah, I agree. And it's very important. As you say, the government is the key to that because they treat a lot of the overdoses when first responders get out there. I want to end with this. The drug delivery system seems like it has huge potential here in the US for a lot of different things. How big do you see that getting? Are you promoting it a lot over here to other big pharma companies to deliver their drugs better? Just a little bit more on that.
NS: Yeah, I think we're very active in promoting our solutions. Our head of business development is based in the US, and we're actively working on partnerships. We've had some promising collaborations with biotech companies, though some early-stage trials didn't meet our expectations. Nevertheless, we're receiving impressive feedback from the departments we work with. Currently, we're in the process of getting a readout for one of the biologics we've been testing on our platform. This company had been struggling for 15 years to improve the stability of their product, which is crucial for reaching patients with the highest potential. Now, with our intervention, we have a stable product that doesn't require a cold chain, and we can enhance the product properties to make it more comfortable for patients to use.
NS: That's a company much, much bigger than Orexo worked for this for many, many years to find a formulation solution to the API and the biomolecule. And here we come. With this product, we have solved it. I think that's applicable to so many other products.
BS: Yeah. And that's great, and that's exciting. And I wish we had more time because there's so much more to talk about. But I do urge investors to submit their questions. The company will get back to you. They do want to reach out to you because they do have an exciting platform and I'm really excited about their opportunities there. I want to thank everybody for coming and listening to this. And again, please submit your questions and thank you for coming.
NS: Thank you.
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