Orexo AB (publ)

be earmarked to treat opioid addiction. And maybe this is the time when you can actually start digging into that pile of money. But I will also notice that Medicaid is very important for us and for the market. But the rebates that we're paying in Medicaid, that's high. It's something you see on the sales numbers for this quarter that we see some negative impact on price because we have some good development in some of the large Medicaid payers. But we're paying a higher average price on Medicaid. That means that some of these patients who might lose their Medicaid insurance move over to commercial insurance. We actually only need a percentage of these patients to move before we will have a neutral impact on our EBIT level. Then on foreign exchange, it's something that, of course, is hitting us quite dramatically with a change. I think we started the year with an exchange rate to the dollar with 11 Swedish kronor per dollar, and we ended the quarter here with 9.5%. So that is a dramatic decline in the value of the dollar. The positive part is that if you actually look at the financials and on our operational expenses, then we have nearly a full natural hedge. Of course, we will lose some money as a lot of our EBIT is coming from US dollars, but about 80% of this effect is basically neutralized by having most of our expenses in dollars also. So and that's just looking, for example, at the U.S. U.S. results is nearly on a decimal the same result as it was last year. And that is then you say this year we actually in that number include the. one-time rebate payment, which is going straight down to that bottom line. Last year, we had some depreciation of about the same amount, which is not there anymore. So we have actually mitigated a lot of the decline on EBIT from our US operations on the top line by lower expenses. Then to U.S. commercial market, what we're pleased to see is that we actually see the market is growing faster here in the second quarter than what we've seen for a while. It's up at 4% growth. It is because we are seeing actually say here that Medicaid segment is stagnating. That is true, but it has actually gone from being negative to we now see some growth in the Medicaid segment. And the commercial segment continues to show some quite healthy growth, even despite now seeing Medicaid growing. So now we have the two largest segments both growing, Medicaid a little slower, but we're actually seeing growth. What we see a decline is in the cash segment, and that's why we have the non-insured patients. For SobSolve, quarter over quarter, we have a relatively neutral development, or it's flat, basically, where we have seen growth in Medicaid. We actually see some growth in commercial also, but we've seen a continuous decline in UnitedHealthcare. And in Humana, and Humana, it's actually a combination of two. It's both the previously exclusive contract with Humana, but we've also seen that Humana Medicare, where there's a new rebate system, that has changed some of their policies, which is increasing the copay for some of the patients when they want to get sub-sub, which could make some of them switch to a generic version. So where are we to expect from SobSol? I think the good part here is that we see the market continue to grow. And we actually believe that the market will continue to grow. And that is despite the change in Medicaid. And why do we see that? First of all, we are now seeing a slight acceleration in market growth that I think is based on a continuous large unmet medical need. We also see that there are available funds which by far exceed the amount of money coming to this specific disease area that we could see reductions in Medicaid. So this is a communities act when they see funding to Medicaid go down? Will they use some of these opioid settlements to basically backfill for this specific patient segment, which could neutralize some of that effect? And when we come to sub-solve, I think there are two elements. One is on the top line, and there we're, of course, pleased to see a quarter over quarter, some increase in the Medicaid segment, slight increase in the commercial segment. Then we have some decline in the previous exclusive contract, which is more or less neutralizing the effect. Also seeing on a dollar basis, we see some increase in the sub-salt business. And on the EBIT margin, and this is really important for us, is to continue to work on the profit contribution for sub-salt. And here we are, if we exclude the one-time rebate payment, then we actually see the EBIT margin increase to nearly 40% in our U.S. commercial business. So we are very cost conscious in the way that we're approaching to ensure that we have a continued healthy contribution. And we're quite pleased to see our core markets. That is what we call the open segment where we have good coverage in both Medicaid and commercial is showing a good development in this quarter. And we've decided to reiterate our guidance for SobSol for this market, which mathematically will show you that we need to see a little increase in our sales for the second half to meet the net sales guidance. But we think that is within reach. Then coming to the products under development, we now have the device components for OX124 or now what is ICPRI. So we have a name, a trade name registered for OX124. Those of you working in the pharmaceutical industry will know that this is a... very hard one to get a name approved by FDA. You have to use letters and spelling that is unusual. And we have tried several naming combinations. Because of the small size of the cylinder where we have the device in, we have been trying to look for a name which is six letters. And that's basically what we have succeeded with iCipri. We have a conditional approval of this new brand name, and we will, moving forward, refer to ICPRI rather than OX124. We are, as I said last quarter, we are now ready to both move on to start the testing that is required by FDA, but we're also looking to move to the same device as we're using for OX640, which will reduce supply risk in the long term for ICPRI. For OX640, which is really where we believe we have a significant potential value generated for the company, we have established manufacturing. We have manufacturing capacity right now, which would be able to ramp up and basically launch for global supply of OX640. It has been FDA inspected for OX124. Our entire supply chain has been FDA inspected and has been approved for OX124. If you recall, the reason we got the complete response letter on ICIPRI was due to the actual device and not due to the supply chain. We are the only one who have a powder manufacturing, established commercial manufacturing line. And we think that's a good advantage as there are other companies in earlier states than us working on a nasal powder. And we are actually together with our supply, our contract manufacturing, we are securing that there are additional capacity ready to meet a global supply, which we think we know that one of them is building up a new facility that you can see in the corner here. And that could be ready as early as 2026. And over time, the increased capacity will help us to improve COGS and also ensure that we have enough capacity to meet the demand, both for OX1 for ICPRI and for OX640. Then where are we in the process right now? So we have done during the quarter here, we have made the final decision on the dose and the formulation, and we have now initiated the tech transfer to our contract manufacturing partners, the same ones as we use for ICPRIP. I have to learn that name. And what we will then start up basically in the end of this year is to start manufacturing clinical trial material and do the full upscaling, getting all of the data ready or the batches ready to collect the data that is needed for FDA approval in the end. And again, remember when we did our ICIPRI application, this is actually where we got some, we were asked by FDA to ensure that we manufacture in commercial scale with all of the batches that we use for stability data. So now having that in place is giving us a great advantage for our OX640 process. In parallel with this, we have some good discussions with both global and regional partners. And this is a very intense process for a small company like Orexo. So we are working over the summer in this process and hopefully we can get to an agreement later. I will say, because a lot of you will ask, what is the timeline for an agreement? I have learned that you Have an agreement the day that the ink is dry on the bottom line of the contract. And this is a little where we are right now. We have some very good discussions with partners, but I've also learned that you don't have a contract before we have a final signature on the contracts from both parties. So we will have to have some patience, but I think there's no need for concern in this process at the moment. Just to take a little brief view on why do we believe this is such a great opportunity, I actually took the liberty to compare with Narcan, which I think is a good analogue to use. And as you know, we've been in this market with opioid use disorder, and what better analogue to use than one that we really know? And in 2015, we had the first nasal spray. The brand name Narcan was launched by an Irish company, Adapt Pharma. In the beginning, this was really slow. We saw very little uptake in the first year. Adopt had to build up their commercial capabilities in the US, which I think happened during 2015, and then ready for a broader launch in 2016. And when we looked at some of the sales numbers, it was quite meager in the beginning, but Adopt Pharma and their future partners did a fantastic job of both expanding the market, so the retail growth was within a few years, several hundred percent. On top of that, you also took market share. So today, more than 90% of this market in the US is based on a nasal spray and not an injectable. And if you just look at the end of 2016, the multiple in sales up to the peak year before we had generic entrance for Narcan, was more than 10 times growth. So looking at where with Nefi, I think they had $7 million in sales in the first quarter. And that was the first quarter of sales. That's quite equal to what you had nearly in the full year for the first full year that Narcan was in the market. Or it's actually, I think it's more than the first full year if we take 2015 with us. So it's very hard for me to see that we don't have, we'll see a rather similar development in the epinephrine market Even though that NEFI is taking some time to get the same dominance, and we hear exactly the same objections by some of the doctors, are we really certain that this works? We are quite happy we know that injectable works. But the convenience factor of these nasal sprays is so superior to an injectable. So it's very hard to see that this market is not going to take the same journey as we have seen with Narcan. And I will say that OX640 is much more differentiated to the other products in the market than what we have for ICPRI. ICPRI has some of the same qualities, but due to the sensitivity of epinephrine, those qualities are much more transferable into the epinephrine market than it is for the Naloxone market, which is a relatively stable molecule. Then on Amorphox, as you know, this is a product that one of the things that we have really done is we can do some very precise particle engineering. So we can use this for a broad range of APIs. It's very stable. We have validated in several human trials. So we know it's very high by availability. We have some strong IP capabilities. And it's really a work for us is how do we expand the use of Amorphox? And during the quarter, we have also done some strategy work internally. So where do we see the focus for the company in Amorphox? And here we have three areas. One is that we, of course, want to advance our internal rescue medications. So iCipri, OX640 are really the focus. OX390, we introduced that last quarter, is a new product for overdose with an illicit drug in combination with opioids. These are the sweet spots where we are putting efforts behind right now. OX125 is ready to accelerate if we see that the market evolves for nalmophene products in the US. And then we're looking into large molecules because some of the properties that we have for Amorphox are really designed nearly for large molecules. A lot of large molecules today has to be injected. They require refrigeration, some of them even being frozen. They have quite poor stability. And all of this is something that we see is ideal for our powder formulation. So what we are working on now is first together with a partner like Apera Bioscience to generate data that we can share with Apera is on a very exciting vaccine platform. But we have other data from other partners. Some of them discussed. is public like SOPE, but we have also others which are non-disclosed where we're generating data. And for us, it's now about how do we generate more scientific data on these large molecules, which would enable us to reach partnership with even large organizations. And then we see that there is a, we have a bandwidth limitation. So we are looking to find partners, I think, primarily from the contract development and manufacturing organizations, CDMOs, where we can actually reach a broader base of customers to see how we can utilize the Amorphox in more partner with more companies. So it's a combination driving our own projects where we right now focus on rescue medications. We think there's a big opportunity in large molecules, but also work more closely with some external partners to get an even broader and accelerated reach for the Amorphox platform. That takes us into the financial section and I'll leave the word to Frederick.

Thanks, Nikolaj. On page 18, we look at revenues. If we start by looking at the top part of the page, you can see that total revenues in Q2 for the group landed at 118 million SEK. And the bulk of that, 114 million or 96%, came from subsoil within our US commercial business, which is down then with approximately 34 million SEC or 23%, primarily as a consequence of the negative FX impact of 12 million SEC. We had lower demand in net revenue terms. And then this non-recurring rebate payment we talked about earlier, which had a negative impact of 9 million SEC. If we look at other revenues within HQ and pipeline, again, abstract royalties were lower following the trend we've seen as individual country royalty agreements expire. But we did see higher EDWA royalties thanks to stronger sales in Europe. On the downside, Subsol X US revenues were lower, mainly because we didn't have any tablet sales to our partner Accor Healthcare this quarter. And that's compared to 8 million SEC in Q1. That followed a one-time build-up inventory in anticipation of starting manufacturing in Europe. If we instead focus on the quarter-over-quarter development of sub-sub-revenue, the waterfall chart on the bottom part of the page shows that, contrary to the year-over-year trend, that net revenues in local currency increased slightly by 2%, excluding this non-recurring rebate payment. The growth is primarily then driven by a modest increase in total demand in net revenue terms, approximately half a percentage point, as shown in And then further supported by significant positive inventory stocking effect of 7 million during the quarter. Moving to the next page, the P&L, we just discussed the decline in net revenues, excluding the non-recurring rebate payment of 9 million and the FX effect of 12 million. Net revenues would be 136 million instead, and that though represents still a 12% decrease compared to Q2 2024. The weakening of the U.S. dollar has, of course, also positive effect on our U.S. denominated cost, approximately 65% of total expenses. The significant decrease in COGS, as you can see, is largely attributable to this favorable FX effect within U.S. commercial, 8 million SEC actually. But the decrease in COGS was also from somewhat improved production costs for subsoil. As a result, gross margin increased from 89% in Q2 last year to 93%. If we look at our operating expenses in Q2, which came in at 131 million, we're pleased to see that our cost consciousness is still paying off. OPEX is down 14% compared to last year. Now, of course, about 3.5 million SEC in total of that reduction came from a weaker US dollar. But we also saw lower costs from a performance perspective across the board. We had lower selling expenses, mostly related to timing of pre-launch activities for OX124 or iZipri. Lower admin costs, mainly from reduced legal fees. And we had lower R&D costs. The drop in R&D is largely due to lower amortization of the impaired intangibles that we did in Q4 last year. But some of that was offset by increased development costs for OX124 or IC3. With the effect on sales of the weaker USD and the non-recurring rebate payment, EBITDA was negative for the quarter with minus 10.1 million SEK. And total EBIT came in at minus 21.5 million. Now that figure includes about 10 million in lower depreciation following the impairment of intangible assets. If we look at U.S. business specifically, as Nikolaj said, EBIT was 36 million for the quarter, even after absorbing the one-time rebate effect. That gives us a margin of 31% and a solid improvement from 24% a year ago. And excluding the negative impact, the margin would be 39%. Moving to finance. Next page, cash flow, reported a positive cash flow of 3.7 million SEK per period. After adjusting for a negative FX effect of 1.5 million, that gives us an increase in cash and cash equivalents of 2.2 million. And in that, operating cash flow was slightly negative, mainly due to the 9 million SEC again in non-recurring rebate payment. But financing activities contributed positively, primarily from the sale of 10 million SEC in nominal value of Orexo's own bond. And that was done with intention to finance this unexpected rebate payment. So by the end of Q2, cash and cash equivalents stood at 121 million. And just to remind you, we still hold 20 million second-euro bond, which could serve as an additional funding source going forward. The financial outlook on the next page, that states that we expect market growth of 2% to 5%, necessary sub-solo interval of 50 to 55 million USD, OPEX, excluding depreciation expected 460 to 500 million SEC. And finally, as we said, group EBITDA still expected to be positive for the full year. And with the actions presented today and explanations we have given, we still maintain that these metrics are re-informed. Back to you, Nikolaj.

Thank you, Fredrik. So very short legal update, because there's not that much to report. We have this subpoena issued by the Department of Justice in the US, or the DOJ investigations, we can also call it. It's been ongoing now. We have our 5th anniversary. It's very surreal, but that is how it is. It's been going a little off and on for that period of time. There have been some activities in the quarter, but what has slowed down the process, we're quite certain that that has had a negative impact in timing, is the appointment of new U.S. prosecutors. I just heard that the new U.S. prosecutor for the district that is investigating OREXO has been appointed earlier this week, so hopefully that can accelerate the process. We are looking for a resolution of this. We still believe that the investigation has no merit, but we also realize that these kind of processes often result in some kind of resolution between the two parties. Finally, our future value drivers. We still see that SobSol is an important cash contributor to the company, so maintain revenue streams and maximize the value we can get from SobSol. It's very important. To get FDA approval for ICPRI is, of course, very important for the company. And now with the delivery of the components, we are in a good position to accomplish this with a filing next summer. Then we do see it's important and a part of our business plan is to receive milestones and royalties for upcoming projects. And here we think OX640 is the one that is most near term. But we also, of course, expect to see some royalties coming in from sub-Saharan Europe, for example, when they start manufacturing in Europe, which is really with the objective of becoming more price competitive in the European market. It is important for OREXO as a part of the companies to ensure that we have access to the patients and patients have access to our products. So to continue to work with SubSolve and get expanded access is important. And the same when we're launching iCIPRI in the US, this will be a very important activity for the US team. Then on our Morphox technology, I did highlight some of the focus areas for the company on rescue medications, also work with large molecules, both partnerships and internally development of scientific proof of concept, but also to start working more with, for example, CDMOs and other partners so we can have a broader reach of the technology in a faster pace than what we can with our relatively limited bandwidth in the company. With that, Thank you for your attention and open up for questions. Thank you.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Samir Devani from RX Securities. Please go ahead.

Hi, Nikolai. Hi, Frederick. Thanks for taking my questions. I think I've just got two, and the first one I think is on OX640. I won't push you in terms of timing for the deal, but I was just wondering your thoughts on NEFI's uptake. It seems to be doing quite well according to the Scripps data that we can see, and I'm wondering whether that's having any influence on your discussions. So that's, I guess, question one, if you want to take that.

So we're, of course, monitoring NEFI with the frequency we can. And I will say the NEFI uptake has been a central part of the discussions, both before launch, after launch. The expectations from ARS Pharma has also been a topic. I think there's been several factors that are following here. One, of course, is the deal value that was presented between the Danish company ELK and ARS. It's also been the market cap and valuation of ARS, which has been relatively healthy. But in particular, the prescriptions have been a topic. And I think it is interesting because the perception for companies who have, we, of course, talked to all of the companies who have talked to ARS Pharma, and it appears it's some of the initial communication to potential partners were more bullish than some of the numbers. But looking at the capital markets, I think the uptake has been relatively good, in particular comparing to NACA. And I think the most recent data that we don't have access to on a regular basis, but also indicate that this is pointing in a good direction. And that is what we'd expect. But I will say that in this, just between them getting approved and launched, this was basically a recurring topic in all discussions we have with potential partners.

Okay, great. That's great. And then the final question, just on OX390, I think this is the first time you're talking about this product. um and i guess i don't know if you've disclosed what the active ingredient is and maybe you can just help us appreciate how um docs would recognize that a patient's taken a specific combination of illicit drugs i'm just trying to understand why they would choose this over either the high dose or just standard narcan thanks very much so

We've decided so far not to disclose that many details about the program. I think it's important for the company of many reasons, also in the US, to show that we are pursuing some new and novel treatments, treating some of the drug combinations that are coming into the market that the healthcare and particular first responders find difficult to address. And I think the The way that you would identify the patients is, if you take some of the combinations we see right now, is that the patient don't get an effect of naloxone that you would expect. They might appear to be continuously sedated, and then you can start to suspect there could be other drugs involved into this. And one way to know what it is, is actually when we talk to first responders, is that Certain combinations of drugs are well known to be very prevalent in certain areas. So in some geographic areas, for example, around Philadelphia, we know that the drug xylosine is used. Now, I think it's more than 90% of all fentanyls and others that are tested on the market or on the streets. include silasin and therefore you would actually assume that silasin is part of any overdose in that geography and that's part of of how you could identify so both you have a treatment path and i think you would always start using an opioid antagonist because that is the most life-threatening overdose so that is naloxone or nalmophene and then if you don't get a sufficient effect then you can go on and test the other ones and that of course come in with some safety work that you need to ensure that there are no serious side effects of using this other rescue medication. But it is a little scary to see how the patients are experimenting with different kind of combinations or the drug dealers are experimenting, combining different drugs. And that actually makes the It's a little helpless situation for some of the first responders that you don't really know what they've been taking. But there are ways to triangulate what it could be. I know that answers your question specifically, but I think this is the thing we have at the moment.

That's great. Thanks very much, Nikolai. Thanks.

The next question comes from Klaus Palin from Carnegie. Please go ahead.

So it appears like there's a connection error here.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Since I think there's an issue with... So we have some questions that have come in here. Why do we refer to the rebate as one-off, and why should we not expect that you will have to provide a rebate or accept a lower volume going forward? It is a one-off because this is referred to a volume that was sold back under the pandemic, so 2020. So the rebate that we had to pay was an extra rebate that was, for some reason, was not captured by our vendor in the US and our US organization back in 2020. And that was detected during a claims review that we did together with a new vendor during the quarter. So this is a It is a pure one-off that we have from that period. Then we have a question about OX640. If we don't have a partner in the near term, do we lose time because we can't continue? And here I would say that, yes, right now we have signed contracts to upscale our manufacturing. So that process is in motion with or without a partner. So I think the next step, critical step, is basically for us to take transfer from our pilot scale here in Uppsala to our partners that we have in Switzerland and Canada to start working on the OX640 project. We'll do that with or without a partner. And I think this is basically what is supposed to happen during the next six months. So I don't think a very close time is important for the partner. Where we really would like a partner in place is for the pivotal trials, which are supposed to start in the mid of next year. And of course, the financing of the activities around week 640, it would be very good to get a partner in place. And I said... We don't have a partner before we have a signature. And I can promise you when we have a signature on a contract, you will know about it through a press release. But we have some very constructive and ongoing discussions with partners for week 640. And we're quite optimistic that this process will end up with a contract. Then there's a question about our shares and whether... we increased our number of shares to this. Okay.

No, that's, I think it's referring to the long-term incentive program that we have changed settlement method going from cash-based to equity-based. And thereby we have issued C-shares that will be covered conveyed into ordinary shares as they are, that is paid out. But that is dependent on how these incentive programs are successful or not for the individual.

Okay. And then we have a last question we have here is around our OX640. And that's also about the timing. And as I said, we are in a good constructive week 640. It's something that will require time and efforts from me and most of my team during the summer. So this is what we will do when hopefully we'll get some nice summer weather here the next few weeks, but we will be working on due diligence and other partnering discussions. And Okay, we understand that the questions by Klaas Palin are some technical issues, but all of you can access his reports, which are public, from Carnegie. I would recommend you to go in and read Klaas' reports. You will see, I'm sure, they will reflect both his questions and also the answers that we provide to those questions. With that, I want to thank all of you for taking your time here on a busy Wednesday and hopefully also beautiful Wednesday where you are in terms of weather and that you can enjoy some time off during the summer. Thank you a lot and have a great day. Goodbye.