E 2016E 2017E. Revenue, MSEK ,252 1,679 Growth 32% 33% 45% 52% 34%

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1 E 216E 217E COMPANY ANALYSIS 13 March 215 Summary Orexo (orx.st) Zubsolv Rx Data week 1 According to latest Wolters Kluwer data, Zubsolv tablets sales were down.11 percentage points w/w to 6.8%,. The four week rolling average were also slightly lower, reaching a market share of 6.4%. List: Market Cap: Industry: CEO: Chairman: Mid cap 4,431 MSEK Healthcare Nikolaj Sörensen Martin Nicklasson Zubsolv TRx market share were 5.55% for the week. The four week rolling average TRx market share were unchanged since last week at 5.54%. Buprenorphine/naloxone TRx for the week were up 1,365 w/w to 188,52, showing a y/y growth by 5.2%. TRX growth seems to lose some ground in the beginning of 215. However unit sales have continued to show double digit y/y growth, indicating a trend toward more units per script OMXS 3 Orexo 13-Mar 11-Jun 9-Sep 8-Dec 8-Mar Redeye Rating ( 1 points) Management Ownership Growth prospect Profitability Financial strength 7.5 points 7. points 7.5 points. points 3. points Key Financials E 216E 217E Revenue, MSEK ,252 1,679 Growth 32% 33% 45% 52% 34% EBITDA EBITDA margin -2% -2% 13% 29% 4% EBIT EBIT margin -33% -4% 1% 26% 39% Pre-tax earnings Net earnings Net margin -36% -1% 6% 23% 36% Dividend/Share EPS adj P/E adj EV/S EV/EBITDA Share information Share price (SEK) 129. Number of shares (m) 34.3 Market Cap (MSEK) 4,431 Net debt (MSEK) 172 Free float (%) 55 % Daily turnover ( ) 1 Analysts: Klas Palin klas.palin@redeye.se Ulrik Trattner ulrik.trattner@redeye.se 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, 1tr, Box 7141, Stockholm. Tel E-post: info@redeye.se

2 Redeye Rating: Background and definitions Orexo 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 to +1 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. 2

3 Zubsolv market share week 1 Orexo Weekly Rx data Zubsolv 7,% 4-week rolling average, Zubsolv market share and tablet sales 35 6,% 3 5,% 25 4,% 2 3,% 15 2,% 1 1,% 5,% Source: Wolters Kluwer Market share Zubsolv w/w Zubsolv TRx increased by 394 to 1,47 scripts, which represents a market share of 5.55% Tablets sales reached a new record level of 343,831 for the week. Market share were 6.8% Rolling four week average Zubsolv TRx market share were unchanged at 5.54%. Tablet sales declined to a market share of 6.4%. Rolling four weeks average TRx market share and tablet sales Suboxone Film Generics Zubsolv Bunavail Suboxone Film Generics Zubsolv Bunavail % 18.4% 5.54%.52% 73.35% 2.19% 6.4%.42% % 18.42% 5.54%.5% 73.32% 2.21% 6.6%.41% % 18.36% 5.45%.48% 73.42% 2.18% 6.%.39% % 18.4% 5.39%.45% 73.4% 2.24% 5.99%.37% % 18.41% 5.38%.43% 73.36% 2.28% 6.%.36% % 18.42% 5.31%.4% 73.4% 2.34% 5.93%.33% % 18.59% 5.26%.37% 73.34% 2.54% 5.82%.3% % 18.72% 5.22%.33% 73.27% 2.71% 5.76%.27% % 18.85% 5.2%.31% 73.16% 2.87% 5.72%.25% % 18.96% 5.23%.3% 73.8% 2.94% 5.73%.24% % 18.93% 5.26%.28% 73.1% 2.9% 5.77%.23% % 18.93% 5.24%.26% 73.12% 2.93% 5.74%.21% % 18.93% 5.19%.21% 73.2% 2.94% 5.68%.18% % 18.91% 5.13%.16% 73.28% 2.99% 5.6%.14% % 18.89% 5.8%.11% 73.37% 21.% 5.53%.1% % 18.99% 4.75%.6% 73.57% 21.12% 5.26%.6% % 19.1% 4.42%.3% 73.85% 21.21% 4.91%.3% % 19.15% 4.7%.1% 74.21% 21.24% 4.54%.1% % 19.26% 3.71%.% 74.48% 21.33% 4.18%.% % 19.19% 3.69%.% 74.64% 21.24% 4.11%.% % 19.14% 3.66%.% 74.69% 21.22% 4.8%.% % 19.11% 3.62%.% 74.73% 21.2% 4.7%.% % 19.5% 3.57%.% 74.85% 21.11% 4.5%.% Source: Wolters Kluwer 3

4 Suboxone Film Generics Zubsolv Bunavail Total Source: Wolters Kluwer Tablet sales buprenorphine/naloxone products Suboxone Film Generics Zubsolv Bunavail Total Source: Wolters Kluwer Scripts buprenorphine/naloxone products 4

5 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 to 2 points. The maximum score for a valuation key is 1 points. Rating changes in the report 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.p 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 maintains relatively high as the product is not yet established. Profitability.p The company s flagship product Zubsolv is in establishment phase and it will take until next year before Orexo achieves profitability. Financial strength 3.p The financial position has improved due to issues and current financing is deemed adequate until positive cash flow can be achieved. 5

6 Income statement E 216E 217E Net sales ,252 1,679 Total operating costs ,1 EBITDA Depreciation Amortization Impairment charges EBIT Share in profits Net financial items Exchange rate dif. Pre-tax profit Tax Net earnings Balance E 216E 217E Assets Current assets Cash in banks Receivables Inventories Other current assets Current assets ,18 1,315 1,375 Fixed assets Tangible assets Associated comp. Investments 1 Goodwill Cap. exp. for dev O intangible rights O non-current assets Total fixed assets Deferred tax assets Total (assets) 772 1,226 1,284 1,554 1,595 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 ,292 Minority interest (BS) Minority & equity ,292 Total liab & SE 772 1,226 1,284 1,554 1,595 Free cash flow E 216E 217E Net sales ,252 1,679 Total operating ,1 costs Depreciations total EBIT Taxes on EBIT NOPLAT Depreciation Gross cash flow Change in WC Gross CAPEX Free cash flow Capital structure E 216E 217E Equity ratio 21% 37% 39% 49% 81% Debt/equity ratio 149% 19% 98% 65% % Net debt Capital employed Capital turnover rate Growth E 216E 217E Sales growth 32% 33% 45% 52% 34% EPS growth (adj) 64% -65% -192% 456% 17% DCF valuation WACC (%) 12.9 % Assumptions (%) Average sales growth 5.1 % Fair value e. per share, SEK 17. EBIT margin 41.1 % Share price, SEK 129. Profitability E 216E 217E ROE -88% -18% 11% 46% 58% ROCE -39% -8% 5% 27% 5% ROIC -24% -9% 11% 45% 97% EBITDA margin -2% -2% 13% 29% 4% EBIT margin -33% -4% 1% 26% 39% Net margin -36% -1% 6% 23% 36% Data per share E 216E 217E EPS EPS adj Dividend Net debt Total shares Valuation E 216E 217E EV 5, , ,62.3 4, ,76.8 P/E P/E diluted P/Sales EV/Sales EV/EBITDA EV/EBIT P/BV Share performance Growth/year 12/14e 1 month -3.2 % Net sales 38.6 % 3 month -2.3 % Operating profit adj 12 month % EPS, just Since start of the year -4.8 % Equity 77.2 % Shareholder structure % Capital Votes Novo Nordisk Fonden 28.1 % 28.1 % HealthCap 11.5 % 11.5 % ATP 5.4 % 5.4 % SHB fonder 4.8 % 4.8 % Anders Walldow 3.3 % 3.3 % Avanza Pension Försäkring 2.9 % 2.9 % Andra AP-fonden 2.7 % 2.7 % Länsförsäkringar fondförvaltning 1.7 % 1.7 % Danske Invest Fonder 1.5 % 1.5 % Thomas Lundqvist 1.4 % 1.4 % Share information Reuters code orx.st List Mid cap Share price 129. Total shares, million 34.3 Market Cap, MSEK Management & board CEO CFO IR Chairman Nikolaj Sörensen Henrik Juuel Henrik Juuel Martin Nicklasson Financial information Q1 report April 23, 215 Q2 report July 1, 215 Q3 report October 22, 215 Analysts Klas Palin klas.palin@redeye.se Ulrik Trattner ulrik.trattner@redeye.se Redeye AB Mäster Samuelsgatan 42, 1tr Stockholm 6

7 Revenue & Growth (%) EBIT (adjusted) & Margin (%) E 216E 217E 7,% 6,% 5,% 4,% 3,% 2,% 1,%,% E 216E 217E 5,% 4,% 3,% 2,% 1,%,% -1,% -2,% -3,% -4,% Net sales Net sales growth EBIT adj EBIT margin Earnings per share Equity & debt-equity ratio (%) E 216E 217E ,9,8,7,6,5,4,3,2, E 216E 217E 16,% 14,% 12,% 1,% 8,% 6,% 4,% 2,%,% EPS, unadjusted EPS, adjusted Equity ratio Debt-equity ratio Conflict of interests Klas Palin owns shares in the company : No Ulrik Trattner 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. 7

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