COMPANY ANALYSIS 14 November 2014 Summary Orexo (orx.st) Zubsolv Rx data week 45 • Latest Rx data released today from Wolters Kluwer shows a significant jump in market share for Zubsolv tablets, reaching 5.4% for the week. The rolling four weeks average increased to 4.54% and were up 0.36 percentage points from last week. • The number of Zubsolv scripts were 9,298 (up 2,739 since last numbers), corresponding to a market share of 5.01%. The rolling for week average increased 0.36 percentage points to a market share of 4.07%. List: Market Cap: Industry: CEO: Chairman: Small cap 4,479 MSEK Healthcare Nikolaj Sörensen Martin Nicklasson OMXS 30 Orexo 200 150 100 • Buprenorphine/naloxone scripts volumes for the week were up 8,473 from the previous week to 185,500. Y/y scripts rose by 9.7%. The large increase in market share for Zubsolv in the first week of November could in part be explained by the fact that the Wellcare exclusivity now kicks in. 50 0 14-Nov 12-Feb 13-May 11-Aug 09-Nov Redeye Rating (0 – 10 points) Management Growth prospect Ownership 7,0 points 7,5 points Profitability Financial strength 0,0 points 7,5 points 3,0 points Key Financials Revenue, MSEK Growth EBITDA EBITDA margin EBIT EBIT margin Pre-tax earnings Net earnings Net margin 2012 326 2013 430 2014E 523 2015E 843 2016E 1 490 63% 32% 22% 61% 77% -60 -87 -88 93 492 -18% -20% -17% 11% 33% -79 -140 -96 57 462 -24% -33% -18% 7% 31% -88 -86 -153 -155 -124 -127 30 19 447 412 -26% -36% -24% 2% 28% 2012 Dividend/Share EPS adj. P/E adj. EV/S EV/EBITDA 2012 2013 0.00 -2.86 -17.3 4.2 -23.2 2013 2014E 0.00 -4.33 -37.9 12.9 -63.6 2014E 2015E 0.00 -3.43 -38.0 9.0 -53.1 2015E 2016E 2.00 0.51 256.6 5.6 50.5 2016E 3.60 11.09 11.8 2.9 8.9 Share information Share price (SEK) Number of shares (m) Market Cap (MSEK) Net debt (MSEK) 130,5 34,3 4,479 207 Free float (%) Daily turnover (’000) 55 % 122 Analysts: Klas Palin [email protected] Björn Olander [email protected] Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report. Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel +46 8-545 013 30. E-post: [email protected] Orexo Redeye Rating: Background and definitions The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation. Company Qualities The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth. We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 – Ownership, 3 – Growth Outlook, 4 – Profitability and 5 – Financial Strength. Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted differently according to how important they are deemed to be. Each key factor is allocated a number of points based on its rating. The assessment of each valuation key is based on the total number of points for these individual factors. The rating scale ranges from 0 to +10 points. The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of the bars therefore reflects the rating distribution between the different valuation keys. Management Our Management rating represents an assessment of the ability of the board of directors and management to manage the company in the best interests of the shareholders. A good board and management can make a mediocre business concept profitable, while a poor board and management can even lead a strong company into crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 – Communication, 4 – Experience, 5 – Leadership and 6 – Integrity. Ownership Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with a dispersed ownership structure without a clear controlling shareholder have historically performed worse than the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability. Growth Outlook Our Growth Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to assess Growth Outlook are: 1 – Strategies and business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 – Competitiveness. Profitability Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating profit margin or EBIT. Financial Strength Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term. The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 – Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary events. Company analysis 2 Orexo Increase in Zubsolv market share Weekly Rx data Zubsolv Four-week rolling average, Zubsolv market share and tablet sales 2014 5,00% 250000 4,50% 4,00% 200000 3,50% 3,00% 150000 2,50% 2,00% 100000 1,50% 1,00% 50000 0,50% 0,00% 01-03-14 03-03-14 05-03-14 07-03-14 09-03-14 11-03-14 0 01-03-14 03-03-14 05-03-14 07-03-14 09-03-14 11-03-14 Source: Wolters Kluwer Market share Zubsolv Rolling four week average Zubsolv • Zubsolv tablet market share week 45 were up 1.09 percentage points from previous week to 5.40% • Rolling four weeks tablet sales continues to show a positive trend - market share rose to 4.54% • TRx market share rose 1.30 percentage points from previous week to 5.01% • Rolling four weeks scripts reached 4.07% • Week 45 is the first week with exclusivity for Zubsolv at Wellcare Rolling four weeks average TRx market share and tablet sales 11-07-14 10-31-14 10-24-14 10-17-14 10-10-14 10-03-14 09-26-14 09-19-14 09-12-14 09-05-14 08-29-14 08-22-14 08-15-14 08-08-14 08-01-14 07-25-14 07-18-14 07-11-14 Suboxone Generics Zubsolv Film 76.78% 19.15% 4.07% 77.02% 19.26% 3.71% 77.12% 19.19% 3.69% 77.20% 19.14% 3.66% 77.27% 19.11% 3.62% 77.38% 19.05% 3.57% 77.50% 18.98% 3.53% 77.62% 18.90% 3.48% 77.70% 18.83% 3.46% 77.74% 18.80% 3.46% 77.93% 18.63% 3.45% 77.97% 18.62% 3.40% 78.05% 18.61% 3.34% 78.13% 18.56% 3.31% 78.09% 18.65% 3.25% 78.31% 18.58% 3.11% 78.52% 18.56% 2.92% 78.79% 18.52% 2.69% Bunavail 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Source: Wolters Kluwer Company analysis 3 Suboxone Film 74.32% 74.48% 74.64% 74.69% 74.73% 74.85% 74.98% 75.07% 75.20% 75.21% 75.36% 75.40% 75.40% 75.44% 75.43% 75.72% 76.01% 76.42% Generics 21.43% 21.33% 21.24% 21.22% 21.20% 21.11% 21.01% 20.96% 20.87% 20.90% 20.75% 20.75% 20.81% 20.83% 20.96% 20.92% 20.94% 20.85% Zubsolv 4.25% 4.18% 4.11% 4.08% 4.07% 4.05% 4.01% 3.96% 3.93% 3.89% 3.89% 3.85% 3.79% 3.73% 3.62% 3.36% 3.05% 2.73% Bunavail 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Orexo Tablet sales H2 2014 buprenorphine/naloxone products 11-07-14 10-31-14 10-24-14 10-17-14 10-10-14 10-03-14 09-26-14 09-19-14 09-12-14 09-05-14 08-29-14 08-22-14 08-15-14 08-08-14 08-01-14 07-25-14 07-18-14 07-11-14 07-04-14 Suboxone Film 3928420 3652991 3762294 3794982 3872482 3844991 3769049 3749894 3841375 3621365 3854946 3727597 3734568 3762243 3787240 3721519 3759624 3783316 3834739 Generics 1112807 1067368 1087390 1065289 1100473 1094257 1081949 1046036 1066023 1004171 1090615 1014280 1043144 1004865 1069110 1023877 1052053 1036623 1058026 Zubsolv 287780 212518 217219 208577 208853 207214 210847 201961 202040 186494 205257 192350 188710 192393 193814 178568 178093 171110 142218 Bunavail 651 60 178 506 180 30 Total 5329658 4932937 5067081 5069354 5181988 5146492 5061845 4997891 5109438 4812030 5150818 4934227 4966422 4959501 5050164 4923964 4989770 4991049 5034983 Source: Wolters Kluwer Scripts H2 2014 buprenorphine/naloxone products 11-07-14 10-31-14 10-24-14 10-17-14 10-10-14 10-03-14 09-26-14 09-19-14 09-12-14 09-05-14 08-29-14 08-22-14 08-15-14 08-08-14 08-01-14 07-25-14 07-18-14 07-11-14 07-04-14 Suboxone Film 141268 136116 138252 139094 139929 140697 139095 138098 140254 133371 141457 137307 137765 137639 139077 137454 138787 139245 136415 Generics 34886 34328 34875 34295 34903 34765 34548 33766 34363 32214 34383 32936 33465 31681 33706 32712 33271 32782 32210 Source: Wolters Kluwer Company analysis 4 Zubsolv 9298 6559 6827 6698 6593 6601 6619 6289 6245 5904 6377 6102 6082 5961 5927 5656 5877 5642 4752 Bunavail 26 2 5 10 6 1 Total 185478 177005 179959 180097 181431 182064 180262 178153 180862 171489 182217 176345 177312 175281 178710 175822 177935 177669 173377 Orexo Summary Redeye Rating The rating consists of five valuation keys, each constituting an overall assessment of several factors that are rated on a scale of 0 to 2 points. The maximum score for a valuation key is 10 points. Management 7.5p The management and board have solid, relevant experience of the sector. Communication with the market is good and clear. The launch of Zubsolv is lagging slightly behind the original plan. Ownership 7.0p Orexo’s major shareholders are represented and active on the board, which is a big plus. However, we would prefer to see ownership among all of the board, which would bolster the rating. Growth prospect 7.5p Growth over the next few years is governed by the success of the recently launched Zubsolv on the US market. The drug has great commercial potential and sales are expected to grow strongly over the next few years. Risk remains relatively high as the product is not yet established. Profitability 0.0p The company’s flagship product Zubsolv is in establishment phase and it will take until next year before Orexo achieves profitability. Financial strength 3.0p The financial position has improved due to issues and current financing is deemed adequate until positive cash flow can be achieved. Company analysis 5 Orexo Income statement Net sales Total operating costs EBITDA 2012 326 -386 -60 2013 430 -517 -87 2014E 523 -611 -88 2015E 843 -750 93 2016E 1 490 -998 492 Depreciation Amortization Impairment charges EBIT -7 -13 0 -79 -7 -46 0 -140 -6 -2 0 -96 -3 -33 0 57 -3 -27 0 462 Share in profits Net financial items Exchange rate dif. Pre-tax profit 0 -8 0 -88 0 -14 0 -153 0 -28 0 -124 0 -26 0 30 0 -15 0 447 Tax Net earnings 2 -86 -2 -155 -4 -127 -12 19 -36 412 2012 2013 2014E 2015E 2016E 228 37 28 0 293 106 55 383 0 544 290 105 445 0 839 289 126 489 0 905 612 194 551 0 1 357 35 19 0 26 106 3 0 189 0 33 0 0 26 62 106 0 228 0 31 0 0 26 62 166 0 286 0 33 0 0 28 62 133 0 256 0 36 0 0 30 62 106 0 235 0 482 772 1 125 1 161 1 593 Balance Assets Current assets Cash in banks Receivables Inventories Other current assets Current assets Fixed assets Tangible assets Associated comp. Investments Goodwill Cap. exp. for dev. O intangible rights O non-current assets Total fixed assets Deferred tax assets Total (assets) Liabilities Current liabilities Short-term debt Accounts payable O current liabilities Current liabilities Long-term debt O long-term liabilities Convertibles Total Liabilities Deferred tax liab Provisions Shareholders' equity Minority interest (BS) Minority & equity 11 158 0 169 10 4 103 287 0 4 191 0 191 237 360 0 597 4 0 0 601 10 0 162 0 162 3 235 0 238 494 0 0 732 8 0 384 0 384 3 253 0 256 494 0 0 750 8 0 403 0 403 3 343 0 346 494 0 0 840 7 0 746 0 746 Total liab & SE 482 772 1 125 1 161 1 593 Free cash flow Net sales Total operating costs Depreciations total EBIT Taxes on EBIT NOPLAT Depreciation Gross cash flow Change in WC Gross CAPEX 2012 326 -386 2013 430 -517 2014E 523 -611 2015E 843 -750 2016E 1 490 -998 -20 -79 2 -78 20 -58 90 0 -53 -140 -1 -141 53 -88 -201 -111 -7 -96 -3 -99 7 -91 -235 -65 -36 57 -13 44 36 80 -49 -7 -30 462 -37 425 30 455 -40 -9 32 -400 -391 24 406 Capital structure Equity ratio Debt/equity ratio Net debt Capital employed Capital turnover rate 2012 40% 65% -103 69 0.7 2013 21% 149% 135 297 0.6 2014E 34% 129% 207 591 0.5 2015E 35% 123% 208 611 0.7 2016E 47% 67% -115 631 0.9 Growth Sales growth EPS growth (adj) 2012 63% -78% 2013 32% 64% 2014E 22% -21% 2015E 61% -115% 2016E 77% 2 080% Free cash flow DCF valuation WACC (%) 13.4 % Assumptions 2015-2021 (%) Average sales growth 7.1 % EBIT margin 39.9 % Cash flow, MSEK NPV FCF (2013-2015) NPV FCF (2016-2022) NPV FCF (2023-) Non-operating assets Interest-bearing debt Fair value estimate MSEK -59 2784 2627 445 -241 5556 Fair value e. per share, SEK Share price, SEK 161.9 130.5 Profitability ROE ROCE ROIC EBITDA margin EBIT margin Net margin 2012 -34% -21% -42% -18% -24% -26% 2013 -88% -39% -204% -20% -33% -36% 2014E -47% -19% -33% -17% -18% -24% 2015E 5% 3% 7% 11% 7% 2% 2016E 72% 42% 70% 33% 31% 28% Data per share EPS EPS adj Dividend Net debt Total shares 2012 -2.86 -2.86 0.00 -3.45 30.00 2013 -4.70 -4.33 0.00 4.11 32.97 2014E -3.71 -3.43 0.00 6.02 34.33 2015E 0.55 0.51 2.00 6.05 34.33 2016E 11.99 11.09 3.60 -3.36 34.33 2012 1 384.6 -17.3 -17.3 4.6 4.2 -23.2 -17.4 7.8 2013 5 542.5 -34.9 -37.9 12.6 12.9 -63.6 -39.7 33.5 2014E 4 686.2 -35.2 -38.0 8.6 9.0 -53.1 -49.0 11.7 2015E 4 686.9 237.2 256.6 5.3 5.6 50.5 82.8 11.1 2016E 4 364.2 10.9 11.8 3.0 2.9 8.9 9.4 6.0 Valuation EV P/E P/E diluted P/Sales EV/Sales EV/EBITDA EV/EBIT P/BV Share performance 1 month 3 month 12 month Since start of the year 22.5 -5.1 -11.8 -20.4 Shareholder structure % Novo Nordisk Fonden HealthCap ATP SHB fonder Anders Walldow Avanza Pension Försäkring Andra AP-fonden Hans Sköld Thomas Lundqvist Länsförsäkringar fondförvaltning Share information Reuters code List Share price Total shares, million Market Cap, MSEK % % % % Growth/year Net sales Operating profit adj EPS. just Equity 12/14e 26.6 % 9.8 % 9.5 % 41.7 % Capital 28.1 % 11.7 % 5.4 % 4.9 % 3.4 % 2.9 % 2.2 % 1.8 % 1.4 % 1.4 % Votes 28.1 % 11.7 % 5.4 % 4.9 % 3.4 % 2.9 % 2.2 % 1.8 % 1.4 % 1.4 % orx.st Small cap 130.5 34.3 4479.4 Management & board CEO CFO IR Chairman Nikolaj Sörensen Henrik Juuel Henrik Juuel Martin Nicklasson Financial information FY 2014 Results Q1 report Q2 report Q3 report January April July October Analysts Klas Palin [email protected] Björn Olander [email protected] Company analysis 6 29, 23, 10, 22, 2015 2015 2015 2015 Redeye AB Mäster Samuelsgatan 42, 10tr 111 57 Stockholm Orexo Revenue & Growth (%) EBIT (adjusted) & Margin (%) 1600 600 500 400 300 200 100 0 -100 -200 -300 -400 -500 90,0% 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% -10,0% 1400 1200 1000 800 600 400 200 0 2011 2012 2013 2014E Net sales 2015E 2016E 0,0% -50,0% -100,0% 2011 2012 2013 2014E 2015E 2016E -150,0% -200,0% -250,0% Net sales growth EBIT adj Earnings per share EBIT margin Equity & debt-equity ratio (%) 15 15 0,6 10 10 0,5 5 5 0 0 2011 50,0% 2012 2013 2014E 2015E 2016E -5 -5 -10 -10 160,0% 140,0% 120,0% 0,4 100,0% 0,3 80,0% 60,0% 0,2 40,0% 0,1 20,0% 0 -15 -15 EPS, unadjusted EPS, adjusted 0,0% 2011 2012 2013 Equity ratio Conflict of interests Klas Palin owns shares in the company: No Björn Olander owns shares in the company: No Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this. Company analysis 7 2014E 2015E 2016E Debt-equity ratio Orexo DISCLAIMER Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory ooutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide for the safekeeping of financial instruments, accept funds with accounting responsibility, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies: • For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, effective from 30 days before its covered company comes with financial reports, such as quarterly reports, year-end reports, or the like, to the date Redeye publishes its analysis plus two trading days after this date. • An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any remuneration directly linked to such transactions. • Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis. Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decisionmaking. Redeye Rating (2014-11-14) Rating 7,5p - 10,0p 3,5p - 7,0p 0,0p - 3,0p Company N Management Ownership 23 48 1 72 28 39 5 72 Growth Prospect 11 60 1 72 Profitability 7 30 35 72 Financial Strength 16 31 25 72 Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB. Company analysis 8