Orexo AB

Thank you very much. And my clock went a little early, so I will take a slow start here. So welcome to the OREXO first quarter result. As our headline indicate, we think one of the main items for this quarter is this is the first real quarter where we can show that our guidance and our monitoring of our underlying profitability is actually correct. And we have some significant non-recurring expenses during 23 and early in the beginning of 23 and in 2022 and now here in the first quarter a lot of these expenses have gone away so we have seen the EBITDA improving compared to last year with 57 million Swedish kronor which is very much in line with our guidance and acts a little better than I think both we and the market have expected however the the um This quarter also had a little mixed back because our subsoil sales, and I'll come back to that, was not fully meeting our expectations. But I believe there are some good explanations to that. And on top of that, we have an R&D development where some have gone very good and others, we have some small setbacks, but I think they're manageable. But that takes me to the conference. I will present today with Fredrik Jastein, who will go through the financials of the company, and I will end up with the future drivers of the company. But first, a little highlight of our key achievements for the first quarter. As I said, we had a positive EBITDA with 16 million Swedish. It's a quite good result, in particular internally based on the Subsol sales where we saw Subsol had a significant destocking and I will come back to that shortly. But also in looking at comparator year, last year we had a first stocking from Accord. So last year there was a higher sales in Europe due to our supply to Accord. They're right now using the supply that we've sent to them earlier and therefore we didn't see that come back in this quarter. But of course we expect sales to a court coming again in future quarters. So the sub-salt decline was very much due to a destocking. And we have seen this slight underlying development in demand. But looking at, for example, sales to pharmacies, we actually had a positive trend in the first quarter. So the price increase we had in the beginning of the year is definitely helping us from a sales perspective. But we are not in control of the inventory levels at the wholesalers and in this quarter. We had a quite unusual situation which lowered the inventory quite significantly. And I will come back to that in more detail. Our costs are down 31% from our first quarter last year. That puts us quite good ahead of our guidance of 530 million for depreciations across the company. So we are in a good situation on the cost side. We did during the quarter refinance our corporate bond. We did that for the first time under sustainability framework. What I was quite pleased to see was it was nearly oversubscribed with 100% and we had a lot of new investors coming in, in particular from internationally, both from the US and continental Europe. Our FDA review with OX124 is going well on many accounts. Our review of our supply chain has been completed with the external manufacturer. It appears to have gone well. However, there are some questions that we received recently from FDA around the use of the device and the instructions for use that indicate that we need to go back and complement our applications. And if that is the case, that will drive a delay. But we believe that this can be done within the timeframe we have guided about before, which has been 10 to 13 months and a launch late in 2024. and or early 2025. So while it's a little setback, it is something that we had built into our guidance previously. Our partnership with SOBI, which we today can say was one of the companies we worked with last year on the feasibility study, we have worked on the partnership or collaboration with SOBI and advanced it now into a more formal partnership where we are testing their molecule in Amofox on several different dimensions. We have also started a new collaboration with a vaccine company where we're testing one more vaccine on Amofox. We believe that Amofox is quite well suited for vaccines. So this is important for us to generate data on this. And we are quite pleased to start up a new collaboration with a vaccine company to test a different type of vaccines. We have tested other vaccines in the platform before with good results, but this is a new type of vaccines that we will test. That takes us to our US commercial update. So there are a little uniqueness during this quarter that have had, and actually starting last year, some of it that have had impact on SubSol. The first and most significant for this individual quarter is that we did see a quite significant decline in inventory from the large wholesalers in February, March. And when they're declining their inventory, that means that we don't sell to the wholesalers. What is unique is that we haven't seen the same change on demand. We haven't seen the same change in sales to pharmacies. And we have seen this abnormal decline. It's actually reported from other companies active in the same areas we are with controlled substances. have also seen a decline in the same period of time. So we think this is a little more systemic, probably more focused on control substances, but we have seen a quite unusual development in the first quarter, which of course has a direct impact on SobSol as we report our sales to wholesalers. Another thing that has happened, which is a real trend break, starting last summer, we have seen the otherwise main driver of growth has been Medicaid for many years. But during last summer, we saw the growth slowing down. And in Q3, we started to see Medicaid decline. And this has accelerated into a quite rapid decline in Medicaid here in the first quarter with nearly 10%. In parallel, we have seen a growth in the commercial sector. So we've seen this disenrollment with Medicaid for the last, say, three quarters, where more than 20 million people have left Medicaid. And this, we believe, is very much connected to COVID, where we saw an increase in enrollment in Medicaid, and people are now leaving Medicaid. And also, I believe it's tightly connected to the unemployment situation in the US, where the unemployment rates are very low, meaning that more people get a job and can then get commercial insurance. This has a lot of impact on the market dynamic, as we see the largest segment is declining with nearly 10%, In parallel, we see the commercial increasing with the same number. A lot of the increase in commercial is Medicaid patients moving over to commercial. But we also see right now it is the commercial segment and Medicare where we see some growth. The third thing that has happened in the quarter is excellent. February 20th, in the middle of that abnormal inventory in the week where we saw the largest decline in inventory. United Health Group had its subsidiary Change Health, which is managing the claims processes between physicians, patients, and pharmacists. They had a ransomware attack, which means that a lot of physicians didn't get paid for their patients. We have seen pharmacies not getting paid for their pharmaceuticals. And we believe that have had some impact on some physicians. We definitely know some physicians have not taken in the same amount of patients. It's very hard to see exactly where it is, but it does coincide with some of the changes we've seen in the market, for example, on the inventory. And Change Health is managing about a third of the claims in the U.S. as a subsidiary. So it's by far the largest claims processing center that has been impacted by this cyber attack. So coming back to soft salt and the sales and here, these are new numbers. We haven't shared those before, but if you look at the graph here, the green line is the stable line. If you have different coloring, that is the sales to pharmacies. And we have averaged it out over four weeks. So these are not individual weeks and you can see the sales to pharmacies is quite stable and actually have a quite little upward trend during the second half of last year and coming into the early start of this year. So sales to pharmacies, has gone quite well. And we actually, this first quarter, we have seen higher sales to pharmacies than we did first quarter last year. That would normally be followed by a sales to wholesalers at the same level. But because over time, those two numbers, of course, have to be exactly the same. So we need to sell to the wholesalers what they sell to pharmacies. But if you look at the dip that we see here in February, March, there's a significant dip in our sales to wholesalers, which has not been followed by so far by an increase in the sales to wholesalers. That's, of course, not something you can't see that continuing down. So it needs to normalize over time. And we have we're seeing right now here in the second quarter that the sales to pharmacies and to wholesalers is quite it's much more aligned than it was under these few weeks in February where we saw this significant drop in sales to wholesalers. And just for comparison, you can see last year we had a much more normal tendency where you can see I included the numbers for December, where you can see there's an increase in December in both in sales to wholesalers and also sales to pharmacies, and that is followed by a dip in the early Q1. We see a little the same here, 23, 24, where we see a little increase in December in sales to pharmacies. We see sales to pharmacies dipping a little further and then coming back up. But we have never seen that kind of adjustment that we saw here in the first quarter. And again, this is not unique to Rexo. We have seen that in other companies' quarterly reports also. So a unique situation, but it will normalize. And that gave us confidence to say that we believe that our sales in the next quarters will be better than what we report here in the first quarter. sales in general we continue to see a quite good development in medicaid where we have outperformed the market this quarter as you just said in the beginning medicaid have actually declined quite dramatically with nine percent compared to last year whereas we are seeing a year-over-year of about zero percent so we don't grow but we're not losing and our driver in in medicaid is definitely our new contracts where we continue to see very good growth in new york which is actually now passing our First year anniversary, that was from December last year. Kentucky, same thing, also double digit growth. And Indiana, where we actually see an accelerating increase. Last quarter, it's 196%, but now we're actually more than 200% increase in Indiana, where we received reimbursement in July last year. We have increased the prices with 4% from January 1st. So that's something that in sales to pharmacies and wholesalers will impact. Overall, the market continues with a relatively low growth. It's just below 3%. And that is really right now, we see similar decline percentage-wise in Medicaid as we see growth in commercial. But since Medicaid is a larger segment, the growth in commercial is not good enough to drive it up. But we also see good numbers in Medicare, which is growing. Medicaid remains the largest segment. in the space right now. Digital mental health program, it is a difficult market and while I see a significant need for this, it's a view that is shared by the Center for Medicaid Services, CMS. We have not seen any scalable solution on the reimbursement and distribution and that is a problem for REC, so it's also a problem for other parties We could drive sales, but what we've seen previously is when we did start to see some sales, the cost needed to drive sales were not feasible long run. We had to invest many more dollars in for the sales that we got out. So we have decided to right now approach this in a very cost-conscious way where we continue working with pilots and we're only pushing expenses when we see that we will have some traction in the market. So in Veteran Affairs, where we have been reimbursed from the 1st of January, we are now working together with an external vendor to start up some pilot programs. We are also more on MoDiA, but could include some of the other digital therapies. We are collaborating with leading healthcare providers in several states where we have made shared grant applications to these opioid abatement funds, which are now more than $50 billion. to see if we can start up programs where we integrate, in particular, our digital health solutions to improve treatment of opioid use disorder. But we continue to approach this in a very cost-conscious way. It's a very small team at Orexo who work with that right now. But we are working actively together with the Center for Medicaid Services to see if we can establish a reimbursement model. And if that comes in place and we can see that there are opportunities, we would be ready to invest more into the market. But before we see that, we are holding back on our expenses in this space. That takes us to our products under development, starting with Amorphix and our new collaboration, so we did start a collaboration with SOBI earlier this year where we continued the work we did last year with them to optimize the formulation work, to extend the stability studies to see that we can, with the formulation work we are doing, get more stability data. We're also looking together with SOBI on what is the optimal route of administration, how are we going to use our amorphox powder in the best way. on their molecule. So a good collaborative partnership, but we are still in an early stage, but of course something where we expect if this materializes in a good way, it will end up in a more normal licensing and co-development partnership. Then we started up a new collaboration with a vaccine company where we are testing Amorphox on a new vaccine to again strengthen our documentation and understanding of how Amorphox could be used on vaccines. OX124, as I said, we have some good promising results. We never know the outcome before we have received the final decision by FDA. So we have seen an audit of our external suppliers. There are always observations, but right now we believe that that was completed with good results. But what we have received and that this is basically within more or less as we speak, we have received some inquiries and questions from FDA regarding the instructions for use. And this is back to what we can call human factor studies. So we need to show that the actual users or actually not the people who get it prescribed, but a bystander on the street needs to understand exactly how they're going to use the product. And here FDA had some observations and comments to our suggested instructions for use. And they also asked us to make changes on the device to improve the instructions for a particular bystander. And this is something we are implementing as we speak and where, but we can see before we get data, this will put the due for date on 15th of July most likely will be in jeopardy. We haven't received any final decision from FDA, but we, again, being transparent, looking into the questions we received, we expect this could lead to a delay. However, it's not unexpected, as we have seen similar situations for basically all other rescue medications. There are none recently who have been approved in the timeframe of 10 months. So this is not completely surprising, and this is something that we have put into the guidance when we have said we have seen 10 to 13 months. And we still, based on what we have right now, if everything goes well with these updates, we still believe that we can be in a position where we could launch late this year or early 2025. OECD 640, we have been going to FDA. that in our last quarterly report we have now received the feeding feedback from fda on our briefing book where we outlined our clinical development program this is of course something we're now bringing into the partner discussions that we have ongoing and something that has been been anticipated for in the discussions we've had because this is giving clarity about the development cost that you have to expect for the program we presented the results from ox640 at the AAAI annual meeting so this is the largest meeting with an allergy in the US and we received a lot of spontaneous positive feedback on the unique properties of OX640 which give us more confidence that we have a product that has a meaningful differentiation in this market. On OX124 just to remind us this is still coming we hope late this year or early next year from a launch perspective and it is a high dose Naloxone product. What is unique is the powder base where we have seen before that our bioavailability is very high, but we also believe that the stability of the product makes it important in particular in certain regions. For example, being a powder, you are not subject to freeze. So if you're liquid and you get into freezing temperatures, the product will freeze and not be able to use. But with OX124 being a powder, we have tested our powder down to minus 18 degrees Celsius and it still works nicely without any impact on the functionality of the product. The market that we enter is very dynamic and part of our going to market strategy has been all the time to ensure we have people in place who understand the market. And I'm very pleased to say here from May 1st, we have a commercial lead starting in the US. who will lead the commercialization of OX124. She has worked previously with the leading brand in the market. She has been working with this rescue market for several years. She's both been working with a product on the market, but also been looking into new product developments into the market. So has been an integral part of this opioid rescue medication market for several years. And I can say already now, after a few days, we are receiving a lot of positive input from our newest employee in the US. That takes us to the financial and legal overview, and I will let Fredrik take over the presentation.

Thank you, Nicolai. So on page 16, we look at our revenue. I start by looking at the top part of the page. you can see a total revenue in Q1 amounted to 139 million. Of that revenue, obviously, subsole within U.S. commercial is the main contributor with 129 million SEC for the quarter, which is down year over year with 8%. Now, the main explanation for that decline is the higher wholesale destocking effect, which, as Nikolaj explained earlier, it's a normal seasonal effect in Q1 after an inventory buildup in Q4 the previous year, and that usually normalized the next quarter. But this year, the destocking was quite substantial. This was just partly offset by a favorable payer mix then, and the FX impact from a weaker USD exchange rate was also negative in the quarter. Now in relation to subsoil ex-US revenues in Q1 from supply of tablets to our partner Accord, the reason for the major difference in revenues compared to Q1 last year is the previous inventory buildup at Accord that had a very positive effect on net revenue back then. And this year also lack of revenue is affected by timing of deliveries to respective European markets. So the revenues we are royalties from Accord on their product sales, which are on a low level, reflecting still an early phase in the rollout on respective European markets. If you look at Subsol specifically and Q1 compared to Q4 last year, you can see in the waterfall graph on the bottom part of the page, higher wholesale inventory stocking of almost 21 million is also from a quarter of a quarter perspective, the main explanation of why net revenue decreased. The demand for SUBSOL expressed in net revenue terms declined with a total of approximately 2% as shown in the first three bars, while the market for buprenorphine naloxone grew 1% quarter over quarter. There is also slightly favorable pay-mix effect in the quarter. In conclusion, you can see in the graph that in local currency, SUBSOL net revenue decreased by Approximately 12% between the quarters. Going to the next page, our P&L. Very happy to show such a strong start of the year in relation to a profitability or EBTA, which in the quarter, despite lower net revenues, improved by 57 million SEC, as Nikolaj said, to 15.9 million compared to Q1 last year. And when doing the exercise that we usually do of adjusting for non-repeating costs, That would imply an even more positive EBITDA of 24 million SEK. Now, to explain this strong result, first of all, when it comes to cost of goods sold, the majority of the 13 million is related to US commercial, or to be more specific, that is 12.7 million. And compared to Q1 last year, we were actually able to improve our gross margin in US commercial from 89 to 90%. But now the decrease in the absolute amount of COGS since last year from 29 to 30 million is though reflecting the lack of sale of SubSol X US tablets to Accord this quarter. Second of all, when you look at our operating expenses in Q1, we have significantly lower OPEX compared to Q1 last year, following lower expenses for the IP litigation, coming down from 37 million to 2.3 million. We had lower expenses in U.S. commercial, or more specifically within digital mental health products and its leaner organization and more cost-efficient processes. And then also within R&D and the MoDiA study, which was finalized in Q3 last year, and together with lower development costs for OX124, that means a big save in expenses this quarter. The US dollar weakened slightly in the first quarter compared to last year, and the total FX effect on EBIT was a positive 2 million. So in summary, OPEX came in at 131 million this quarter, which is 59 million or 31% lower than Q1 last year. Now following US commercial as a segment, the EBITDA contribution from a US business amounted to 43 million for the quarter, which is a margin of 33%, and that is slightly down from 35% last year. Finally, financial items. We have an unrealized FX impact of 2 million SEC on our cash held in US dollars and lower cost for the old corporate bond of CX 7.7 million compared to last year as a result of the purchase we did of 49 million in nominal value of the old bond. Moving to the next page on cash flow, you can see that liquid funds, which is cash, cash equivalents, that amounted to 198 million SEK end of Q1. That is an increase by 27 million from end of Q4. So where does that come from? Well, following the strong EBTA development in Q1, cash flow from operating activities before changes in working capital was positive for the quarter with 4.3 million SEK. That's an improvement by 53 million compared to Q1 last year. Otherwise, cash flow for the quarter was heavily affected by the settlement of the first part of the refinancing of the bond that we completed in the quarter. So just a few words on that. Orexo issued 500 million of a four-year senior secure bond at a price of three months TBR plus 650 basis points. which today after the central bank's message would be an interest rate of approximately 10.35% per annum. So the first part of the transaction was recognized in Q1 and that had a negative impact on changes in working capital. That's due to the fact that we prepaid for Orexo's own purchase of the new bond loan of 25 million. Now financing activities on the other hand were positively impacted by this sale of 49 million worth of the old OREXO bond. So in summary, the first part of the transaction added a net of 24 million to our liquidity. The second part of the settlement will be recognized in Q2. In the cash flow, we also had investment activities, 1.2 million, and that's from investments in equipment to the development organization. And total cash flow for the period ended up at 23.2 million. and then adding the FX effect on cash of 3.8 million, that ups to the increase in cash of 27 million that I mentioned before. With interest bearing liabilities of 498 approximately million, our net debt end of Q1 was 299.8 million. I just want to mention that in the table of key figures on page 20 in the report, there is a different number for the net debt, and this will be corrected in the report published on our webpage. On the next page, our financial outlook for 2024, we put that up for the first time in the Q4 report. We stated that we expect market growth at 2 to 5 percent, subsole net sales in line with 2023 in US dollars, OPEX below 520 million and a positive EBITDA. Now, with the actuals presented today and the explanations given, especially on the subsole net sales, we can conclude that these metrics are reaffirmed. And with that, I give back to Nicolai for the legal update.

Thank you very much, Fredrik. And of course, let's just refer to the financial outlook that we, in the sub-sale net sales built in here, is that we expect to see a normalization of the inventory levels as we proceed. Right now, they are, with some of the wholesalers, actually at the record low level, nearly a week less of inventory than we've seen historically. And when we come to the Q1 legal update, we have not seen anything on the patent dispute. It's surprising to us, to be honest, that we have not received a date for the hearing with the Court of Appeal. The Court of Appeal would normally have hearings or they have hearings in the first week of every month. So we are now expecting that the hearing is probably coming in the early autumn. But we haven't received a date yet for when the appeal is. But we do actually see some faster development based on some recent decisions made by the federal court on some similar questions as have been used in the appeal by Sun. They have ruled in favor in another case in a way that we believe is applicable on our case also, which further strengthen our case. Coming to our U.S. government investigations of SubSov, nothing really has happened. We do receive some questions. They are still talking to some of our employees or former employees. We can see that the focus is on certain historic marketing messages and campaigns we've been running. But I will say that all of our marketing messages have been going through medical, legal, and regulatory review, and the legal review is actually done by an external lawyer. So it's very, very hard for us to see that we've done anything wrong, and we've not been presented with something where we can see, okay, this is something we should have done differently. But we, of course, still collaborating with the authorities when they're asking for information. We're sharing that. But it is now approaching its fourth anniversary and something that I would really like to see that we can put behind us. So Orexo have reached out to see if there are opportunities to seek a settlement on this matter, as we are still paying a decent amount of legal fees to have this case running. We think it would be favorable for the company to put it behind us, even though that would mean that we have to do a settlement. A little short on our future drivers, I will say that I'm fully aware that our share price and our value creation is not based on our ability to tighten the belt and lower our expenses. I do find it's incredibly important for Rexel to show that we can tighten the belt when needed to ensure stability for the company. We can reach positive EBITDA numbers, I would say we are very close to say we have our fourth quarter in a row with positive EBITDA. We did have a little dip in the third quarter last year, but if you recall, that was when we had to pay the fee to FDA for the application for weeks one to four. Without that, this would have been our fourth quarter with a positive EBITDA. And we see that improves also, even when we are adjusting for these non-recurring items. But what is important for the company is, of course, our top line. And to drive our top line, there's basically ensuring that our foundation subsoil is stabilized, that we will have stable, decent development of subsoil moving forward. But where the real growth is supposed to come is from the pipeline. It is from the launch of OX124. So, of course, any delay in the launch plan of OX124 is delaying that possible launch. At the same time, you could say every delay will also delay some of the expenses that we need to take around the launch of OX124. we are seeing that launch of new products is important to grow our commercial revenues. And we in particular have high expectations on the launch of new pharmaceuticals or digital therapies or digital mental health programs. We still think it's an interesting opportunity, but right now we see that more like an option than something we're really putting a lot of money behind to drive. Our Amorphox technology is something that we believe can drive not only income from our own commercialization, but also from partnership. And here, too, are partnerships within, in particular, biomolecules, where we believe that the Amorphix technology is very well suited to solve some of the issues that have been seen with biomolecules around stability and also around the other delivery methods of the product. You can move from an injectable to a nasal spray. or you can take away some of the inconvenience or pain that is felt with some of the injections due to some of the preservatives that are put into the product. So Amalfox is broadening the opportunity for more efficient drug delivery for biomolecules. So partnership like the one we have with Soapy is something that we believe long-term could be a very nice driver of growth for the company. And then we have OX640, which again, where we have been A little in the vacuum here because of the uncertainty around of the development program, but now when we have more clarity, we believe there are strengthened opportunity for us to find a partnership for OX640. It's still an opportunity in particular based on the feedback we got from physicians at the conference in the US that gave us even more confidence that we have a product that has a meaningful differentiation in the eyes of the physicians and of the patients. So summarizing, growing commercial revenues and profit contribution is important and we see that will happen through capitalizing on our drug delivery technology and of course improving access to treatment for all of our products. So for us growth is important but while we're waiting for these next growth drivers it is incredibly important to secure a strong profitability and balance sheet or strengthening the profitability from where we are right now. With that I will leave it over to questions and thank you for your attention.