Orexo AB

STO:ORX

Earnings Call Transcript 2023-Q1

[Nikolaj Sørensen, executive]

Welcome to this first quarter report from Orexo, a quarter, which is a little mixed back, but very much in line from a cost perspective and a financial perspective with our expectations for the quarter. Of course, below the top line numbers, there are both some positive development but also some disappointments. But all in all, I'm quite pleased in the way that we have been managing the expenses and the operations during the quarter. And moving into the first section, our key achievements for the quarter. And I had a headline in the CEO comments calling a navigating troubled water. And it has been a challenging quarter, and we knew that when we ended the quarter, then we had the OX124 filing which we didn't anticipate that we had to withdraw from FDA and prepare a refiling later this year. But when we look at the revenues, we are quite a lot in line with last year. There is some support from currency effects. But I'm also quite pleased to see that our subsalt sales in U.S. dollars is actually slightly above our Q4 result last year.And this quarter-over-quarter, we had a negative because of foreign exchange fluctuations. But all in all, our net revenues are similar to last year, and subsolid if we look at Q4 versus Q1, is slightly positive in local currency. On the EBITDA, when we look at the EBITDA, of course, the reported EBITDA is very negative, but those of you who have been following us for a while know that a big focus for me and the team is to manage the EBITDA when we exclude these legal expenses that we have, in particular, the Sun IP litigation and also for the clinical trials and the filing of OX124. This quarter, we had a positive EBITDA, just if we should just take away the extraordinary legal cost. And if we remove also the clinical trial expenses, we had a positive EBITDA of SEK 20 million, but the reported EBITDA is admittedly negative. So a big event during the quarter and also very expensive was the district court hearing with Sun litigation, which was finalized in early February, and we are now expecting to have a decision coming during the summer. The 30-month stay will expire -- has expired but due to delays, with 5 months, we now expect that the decision will come with 30 months days plus 5 months, which would take us into the beginning of July. The Modia study, which is not a huge expense, but still an expense that has been going on for a while. I had the last patient out now in April, and we are expecting to see the results during the summer. Then as we reported last quarter, we decided to do a consolidation of our commercial operations. So we moved our digital therapy responsibilities into the U.S. pharma, which made it possible for us to reduce the number of employees in our digital therapy from the forma digital therapy organization, which will have a full effect next quarter as this change was done during the quarter and even some expenses associated with the restructuring was taken in this quarter. Going into the commercial update, starting with subsalt. We've seen the market growth is, I wouldn't say, really picking up, but at least it's slightly better than what we've seen in the previous quarter, and we're up to 6%, but we do still see if we're looking into the continued development that we're hovering around 4% to 6% depending on week by week. If you look below the top line numbers, it is quite clear that it's still what we call the public segment, that's Medicaid and Medicare, that is driving the growth, whereas the commercial segment is growing, but on a much slower pace, and the cash segments of patients without insurance is negative. For [indiscernible], we saw that our demand had a slight decline versus Q4. And remember, normally, we see Q4 as our strongest quarter, and then we see a decline in Q1 based on the structure of U.S. insurance, where your co-pay is set at 0 when you enter a new calendar year. So we do normally see when in the beginning of the year that we see a small dip for them growing from that. But the dip from Q4 into Q1 was minor, with 2%. And if we compare it to last year, it was 4% down. That is actually worth taking note of because if you compare to previous quarters, we have seen -- we have been used to see annual reductions of about 9%, 10%. Last quarter was 9% down, but now we actually start to see that our quarter-over-quarter development also hit the annual development. What is driving the positive is that our open segment is quite stable. We do see our new market access wins we reported last year in New York and Kentucky continued to have strong growth, both year-over-year, of course, but also quarter-over-quarter. However, UnitedHealthcare and Humana are the main explanation for the overall decline. But as they are declining, the actual impact is becoming less and less. And as New York and Kentucky are growing, the actual impact for those are getting higher and higher. So I think this will continue to support stabilization over the year that we see less impact from UnitedHealth Group and Humana and more impact from New York and Kentucky. From a market access perspective, it's quite stable. There's a small change in public access. It's down from 48% to 47%. That's not because we have lost access, but because some of the public plans, Medicaid and Medicare, where we are not reimbursed, grew more than the ones where we were reimbursed. Then we're moving, as we reported last time, with something we call Matco. So this is an illustration only and not the actual concept. But we did have our first revenue reported in Arizona, and that's actually a concept where we give patients access to both Modia, but also to Suboxone through this platform we call Matco. The development of this platform is fully financed by the grant we received in Arizona. And that is something that we are looking forward to see if we can expand to in other areas of the U.S., but I will underline that we're now doing this relatively cautious that we take it step by step without taking any significant investments into this area before we see that we have actual traction behind it. But it was positive to see that we have the first revenue recognized during the quarter, and we're now expecting to see the first patients come in through during the second quarter. Modia is why we have put most of the efforts. If you look at the expenses for our digital therapy, it is -- the vast majority, and Frederic will probably comment on that later, is based on the allocated resources. And that's basically Suboxone sales force is also bringing Modia to the doctors. And we are taking part of the cost for the field force is covered by DTx. And that is for promoting Modia and this program we call Modia 1. We continue to see a positive development in Modia 1. And during the quarter, we were active together with both Modia 1 and billing tests, we were close to 900 new patients entered the program. We did expect to see this billing test that we were running in the start of the year and actually in December, turning into commercial revenues. But the new pharma team and management who have taken over the DTx see that there are some uncertainties associated with the setup of this program. So they have decided to pause it and move forward when they have a full process ready for implementation. And that is a result of the organizational change that we concluded during the quarter is that the new team has gone through everything that has been done in the last year to see where can we find efficiencies and where do we need to change the way that we have set it up to ensure we have something that is scalable with less expenses. The Modia trial, as said before, has now had the last patients out, and we're expecting to get the results during the summer. As a recollection in the study, we are looking at a reduction in illicit drug use. So we're actually taking it every week, the patients need to leave a urine screen to see if they're using any listed drugs outside their scrip-medication. So that's one of the first if not the first clinical trial in digital therapy, which has a biological endpoint. Our main competitor, which I know some of you have noted, went into Chapter 11 in April. That has created quite a turmoil in the market, both among employees of par therapeutics, but also among patients and physicians where we now see some of those reaching out to Orexo because they are wondering how can we continue accessing to this digital therapy that several physicians have started to use as a standard in their practice. So we're, of course, looking at what opportunities can come out of this. But I also think this is a testimony to some of the issues that Orexo has been facing and all other players in digital therapy in the U.S., and that's really around how can we build an efficient reimbursement and distribution model, how to ensure that we get coverage from the insurance companies for these innovative tools where both par therapeutics, our product, Deprexis, and Vorvida and hopefully, soon also Modia, have good clinical evidence to show that these tools are efficient and help a decent amount of patients to a better recovery or the treatment of depression or alcohol issues for that sake. But we don't see that the payers are stepping up to this. One interesting aspect, and I haven't brought the data here, is that when we look at Germany, which is the first country who have universal coverage of detailed therapies, we saw, after the implementation of that, a massive increase in the number, both of digital therapies but also patients using these products. So if the reimbursement system works, we believe there is a demand. But right now, we don't have an efficient system in the U.S., and that's something we're reflecting in how we can improve the efficiencies in the organization to ensure that we are ready when we find reimbursement ways that work but also are saving expenses when that is possible. We do have 2 areas where we have been putting a lot of effort, the Veteran Affairs, which again has also been taken over by a new team. We are working within the Veterans Affairs and have a good collaboration now, or the new team has established a good collaboration with people around the Veterans Affairs system. And we're basically now setting up the ordering pathway for the precis. And one thing we have learned for Trinity Health is that these processes need to be relatively simple. You can't have processes with too many steps which are perceived to be too fragmented or too different compared to what you have done before. So this is something that's a big focus in veteran affairs is that this should be easy to use for the provider, for the patient, but also for Orexo. Finally, I will say in Veteran Affairs that Bobida actually got a similar registration by the FDA under the enforcement discretion that is similar to the practice, and that means that we can now proceed into dialogue with the VA about potential coverage of Vorvida also under a similar contract after Deprexis. With Trinity Health, we have put a lot of effort behind that, and so has Trinity Health from the top level. They have been -- had that focus on other areas as their main facilities were moving during the quarter. So here in April, they have opened up new facilities for the main hospital in North Dakota. And they have asked us to wait until they have completed this move because they need to have a full focus on that move. But the feedback we do get or the new team from pharma is getting is that the reimbursement pathway that we have tested, so it works on individual patients, but to do it on scale has been -- is difficult. It's a new process for the physicians. It requires quite a decent number of steps, but it's also quite expensive for us to maintain this process under scale. So we are looking into how we can improve efficiency in the system. The positive part of the opportunity Health is we still have very good support for the concept from Trinity's top management. But that said, we do need to get it out to the clinicians and get the support all the way out to the patients. But they are still looking to find ways for how we can implement this on a wider scale. Then into our products under the development. And this is really an area where I'm super excited, so as the Board of Directors and most of the team at Orexo, because we have more and more evidence around our amorphOX platform that this really works. We have partners coming in, where we're working on biomolecules to test that our amorphOX will work, and those products adding both new delivery pathways but also adding stability to the products. We are working with a U.S. pharmaceutical company who have been testing this in the first formulation, and now we're proceeding into additional in vivo testing with this U.S. pharmaceutical company. So the first steps have passed, and now we have taken one more step, which is a risk-sharing program we're running with that company. OX124. This is, as you know, where I was very disappointed how a few days of a pretty bad mood because we did hope and expect even after we found out we had issues with the packaging line, that FDA would accept that we would get some time to solve that. But admittedly, FDA do have a requirement that our manufacturing site should be ready for inspection when we file. We thought we had that in place. But then, after running additional tests with our secondary packaging, we found, as you can see on the red ring here, the top of that, these white arrows, that is a plastic foil that is sitting there to ensure that the bile, this is the package, is temp-resistant. So you can see that if someone has opened it and broken it, then the product has been used. That wide line with the arrows were moving down over the label when we run some of the tests in full speed at the secondary packaging machine. And we need to basically solve this. I believe we have a solution in place, but now we need to retest the entire supply chain to ensure that this problem is solved in a bigger scale. This is all outsourced to a company in Canada. So we're a little -- it's little out of Orexo, and even though we, of course, are very engaged at the moment, our Head of Operations, Cecilia Coupland is in Canada last week and this week to work with our suppliers to ensure that we solve this problem. As I said, we believe we are there. And if the new tests are successful, we now expect that we can file in Q3. Finally, we have OX640.It's, as you know, on a general rescue medication. There we are working towards partners because Orexo has not been in allergy before, and this is a new target group for Orexo.So we are talking to companies who are active in this space and are looking forward to see if we can find or agree on a partnering agreement. We have strong interest from several international players. So I'm quite optimistic that we can find a solution that is satisfactory to both parties. Then looking into OX124, a lot of things have happened in this market. And I will just give a little perspective on this as we used to in these quarterly calls, give a little deep dive into one area. And as we said many times before, Fentanyl has actually come up as the biggest course of overdose. On the line that you can see is the purple line, you can see that's the synthetic opioids, which is really now the majority -- vast majority or 80% of the opioid overdoses are -- include some kind of synthetic opioids. And that gives a rise of new challenges for all dose rescue medications. And this is really what we're targeting with OX124. But the other thing that's happened in the U.S. is with the overdose rises, we have seen the first product now [indiscernible] from merchant bio solutions have been approved as an OTC product. This is something the FDA has been pushing for. And we get a lot of questions of what would this actually mean. So try to summarize that. We expect, just like FDA, that this will improve access to naloxone. This would be something that everyone can go to the pharmacy and buy like any other OTC product. But we also expect that even though the prices probably will go down and the out-of-pocket cost is likely to increase. There's no tradition in the U.S. among insurance companies to reimburse OTC products. So out of the gate, at least, we don't expect insurance companies to provide any funding or at least have much less funding for these products than if it were a prescription product. It will move the stigma and because you can now -- everyone can enter a pharmacy and buy the products where you before had to get a prescription. So this is again something FDA has impacted. We expect that with more availability that there are more discussions about how we can work with naloxone co-prescription requirements. So we have more states today, I believe it's 17 states. They have some requirements that you need to have access to naloxone while you are on an opioid painkiller. And finally, we actually expect this will create a market of low doses and a high dose. So the low dose will be OTC market that's up to 4-milligram nascent space and a lot of the injectables, and we with a high-dose prescription market. And that's where we are with OX124. And then you can say, so how will this help Orexo? But if we look at how the overdose West communication work. We know today that synthetic opioids like pentane is a part of nearly 90% of all opioid-involved overdoses in the U.S. We also know that if you have an overdose, time is really of the essence. If you are without oxigen to your brain, brain damage and death will occur after 6 minutes. So it's really important that you have something that works fast and is strong enough to remove the fentanyl from the receptors in the brain. And here, there are more and more evidence coming out from scientific papers showing that the sentinel doses that you find in people overdosing are too high to be adequately reversed by the existing naloxone products. And people know that. So right now, the statistics in the U.S. show about 43% to 83% in different surveys of lay people who have administered naloxone is giving more than 1 dose. We also know that when we're asking those who have administered or not we, but researchers have asked the people who have used it, that they would prefer an 8-milligram. And remember, that's the [indiscernible] product that's in the market today rather than the 4 milligrams. So if you have been in an overdose situation, you actually want to have something stronger because you want to be sure it works. This is one of the selling criteria for OX124. We have a product that is more bioavailable. We have a product that works faster, and we have a product that have a higher dose than the OTC products in the market. So when we are ready to filing, we believe we have a product that is a very important contribution to the market in the U.S. With this, I will open up for Fredrik to take us through the financial review over the year.

[Frederik Jarrsten, executive]

Thank you, Nikolaj. So if we turn to Page 17, we look at our revenue. And if we start by looking at the top part of this page, you can see that our total revenue in Q1 of SEK 159 million is approximately the same as in Q1 last year. Of that revenue, obviously, Suboxone within U.S. Pharma is the main contributor with SEK 140 million for the quarter, which is up 1% from SEK 139 million in Q1 '22. And the main explanation for that stability in net revenue is the strong appreciation of the U.S. dollar. For the quarter, that effect was SEK 14 million compared to last year. So in local currency, Suboxone net revenues declined with 9% compared with Q1 last year. That is reflecting a lower demand by 4%. Net revenues was also in the quarter negatively affected by the gross to net items. And that is wholesaler destocking, the absence of a positive return adjustment that we had in Q1 2022. And then just a comment on the royalties from Abstral and Edluar. So these Q1 numbers are estimated numbers based on actuals from last quarter since we do not have the royalty report for Q1 yet. But the big difference from Q1 2022, especially in relation to Abstral royalties, is due to this 12.4% number from Q1 '22 included positive adjustments from previous quarters that was concluded from such a royalty report. So adjusted for that, Abstral royalties in Q1 are more or less in line with Q1 last year. If you look at Suboxone specifically and Q1 compared to Q4 last year, as you can see from the waterfall graph on the bottom part of the page, these gross-to-net items are also a major part of the explanation of why net revenue decreased by 1.7% quarter-over-quarter. For instance, you can see that wholesaler inventory destocking was a negative 8.8 million. Suboxone demand compared to the previous quarter, as shown in the first 3 bars in the graph, is lower with approximately 1%, but this was more than offset by a positive payer mix impact of SEK 7.5 million. The FX effect was negative quarter-over-quarter, with SEK 4.1 million. And this negative FX effect actually means that in local currency, the Suboxone's net revenue increased by 1.2% quarter-over-quarter. Going to the next page, our P&L. So I just mentioned the net revenue for Q1 being in line with Q1 last year. And so is also total COGS, even though this total of COGS include short-term high COGS for sale of products to Orexo's partner, Accord Healthcare, in the EU, but offset by lower COGS in the U.S. supply due to change in product mix and positive production variances. So the high COGS or supply to Europe, that is a consequence of, so far, lack of scale, and we expect the COGS to come down going forward with increasing volumes. The gross margin in total is also stable year-over-year at 82%, down 1% since last year. When you look at the operating expenses, we are focused on driving future opportunities, which in this quarter included higher internal R&D costs in relation to the preparation of OX124 filing with the FDA.But the major increase in OpEx comes from expenses defending our business in relation to the IP litigation. That was only partly offset by significantly lower direct operating expenses in DTx. So the allocated expenses from U.S. Pharma were on the same level in DTx. OpEx was also negatively affected by the stronger U.S. dollar in total SEK 14 million. So in conclusion, OpEx increased year-over-year from SEK 145 million to SEK 189 million. Our U.S. pharma business shows a good quarter with SEK 74 million in EBITDA. That's a margin of 53%. That's lower than Q1 last year at 60%, but in line with the last quarter in Q4, 54%. EBITDA of SEK 41 million minus. That's down from 2.8 million in Q1 last year. But as Nikolaj also mentioned, if you exclude the nonrepeating expenses, that will result in an EBITDA of SEK 21 million for Q1. In financial items, we have a negative unrealized FX impact of minus SEK 1.5 million on cash and cash equivalents held in U.S. dollars and by high costs for corporate bonds of SEK 8 million. That was partly offset, though, by earned interest on short-term cash investments of $1.6 million. Next page. We just wanted to highlight the point again. We want to make Orexo have a positive EBITDA if we separate what we define as distinct external nonrepeating costs. In Q1, these nonrepeating costs amounted to in total SEK 62 million, SEK 20 million for clinical studies, 42 million for legal processes. And our EBITDA, as we now said 3x, that would, in that case, be a positive SEK 21 million. So these extended nonrepeating costs relate to the conclusion of clinical triform filing of OX-124 as well as the cost for the legal processes, which is the IP litigation, what we call the subpoena. Now these costs will decline in the next quarters, especially as we approach the critical milestones with the decision in the District Court regarding the IP litigation and the completion of the Modia trial. The cost for resubmission of OX124 is expected to materialize in Q3. So this core EBITDA, excluding non-written cost, is a key metric for us, confirming our route to returning to profitability. Next page, moving to cash flow. We can see that liquid funds, i.e., cash and cash equivalents as well as short-term investments amounted to SEK 279 million end of Q1. Now that's a decrease by SEK 73 million from the end of Q4. Cash flow from operating activities was negative for the quarter was SEK 62 million, primarily impacted by negative operating earnings. Investment activities had a positive impact of SEK 83 million as a net effect from our short-term investments which is our invested surplus cash and certificates of deposits and in U.S. treasuries, and that totaled SEK 137 million end of Q1. Financing activities had a negative impact of SEK 8 million, and that is primarily from the buyback of the corporate bond with a nominal value of SEK 6.25 million. The next page is the financial outlook, and I can just conclude that with these metrics have not changed since introduced in the Q4 report, so they are reaffirmed. I think we don't have any more comments on that. Back to you, Nikolaj.

[Nikolaj Sørensen, executive]

Thank you. Then an update on the legal situation. So as I said before, we had the district court hearing in the quarter. We were quite pleased with our opportunity to present our case, and we believe that we had a good hearing. It's always up to the judge in the end to make a decision based on the evidence presented. But at least, we find that our case was strengthened during the week, and we have a very strong position in our patent litigations. The other area that we're updating on is what we have called subpoena before, but maybe more correctly when we -- it's a U.S. authorities investigation into the Suboxone promotion where we received the subpoena back in 2020 in July. In this area, there have been some activities during the quarter where we have been asked to submit additional information and answer some questions by the authorities, and we continue to cooperate with those moving forward, but I can't really comment that much more on this area. But again, there has been some movement during the quarter. So we hope we can get some clarity on this, but my experience for the last 2 years is that have gone very much back and forward. There have been some periods with activities and others with no activities at all. I guess that is linked to the workload at the relevant authorities. Then around our future value drivers. And just taking a step back, we call the headline of the report this time for focusing operations on Orexo's strength and just a little recollection on where are we as a company. And in many ways, I think we're unique in the Swedish setting or there are not that many companies who have a similar suggestion as we have. We have developed 4 commercial pharmaceuticals. And if you look at the sales that they have generated, we are a good part ahead of SEK 10 billion in global sales, SEK 10 billion. We have a new technology platform, which, at least from where we can see is the world-leading nascent delivery technology. We have not found anyone that has high bioavailability in clinical trials when we have comparative products, and we have not found anyone who is even remotely close to the same kind of stability as we have with our nascent technology. So this is really a unique product. And we have patents and patent applications, which is covering a very broad range of molecules, from small molecules to large molecules where the patents are going from 2039 to 2042, depending on which molecule. We're also companies that have commercial operations in the U.S. where Suboxone generated sales of close to $5 billion since the launch. We have a pretty good EBITDA margin, even though some of the expenses right now are shared with digital therapies. But even if we include those into our U.S. commercial, it is a quite profitable business we're running in the U.S. at the moment. We have a pipeline of very synergistic products. We have OX124. We have OX125, which has just acquired a similar product in the U.S. for the price of I think $120 million. We have some complementary digital health solutions in OUD where we are now working with a more comprehensive offering, which we believe will help Suboxone and in the future also OX124 and OX125, that we have a more comprehensive and integrated offering. In addition to that, of course, we have other detailed therapies. But just looking at our core, the opioid use disorder and drug delivery company, I think we have a strong base. Then we are working now with a partnering around our amorphOX technology. And looking at our track record from partnering, and that's royalties and milestones we received from Abstral, from Edluar, and from Suboxone, they are now ahead of SEK 2.3 billion, and that's royalties and milestones that have been received from Orexo counting back to 2007. And we're looking now at new partnering opportunities. I did mention OX640 with epinephrine. We have a strong interest from several large international players. So it's something that I'm optimistic that we can find a partnership around. And we also have several partnering in the feasibility stage around amorphOX in biomolecules and even one for a more traditional small molecule API that we are working on right now. And we are having discussion about several other APIs in the pipeline with other companies at a somewhat earlier stage of partnering discussion than the ones I just talked about. Then what is going to happen in the short term? We do have a strong focus on corporate profitability. It's very important for us to find that we can actually turn the company into profitability at least when we take away these nonrepetitive expenses. But as we know, the one we are aware of today will decline during the next quarters. We see that this is something we can reach relatively soon for the company. That is, of course, assuming that we don't have any other nonexpected external events. But with what we're planning and what we're operating for right now, we're looking strongly towards the profitability target, which will help us on our cash balance. It will help us on our equity balance moving forward. We have our Suboxone sales, where we -- I think we are seeing a stabilization. We do hope that the market will start growing based on some of the changes we've seen in the U.S. With a positive development in the market growth, we have seen our market share has been relatively stable for the last 6 to 9 months. And if we can see the market start to grow, that should benefit us as well. Our R&D pipeline is super exciting, and I think this is something we're also expecting that we will have some partnering progress on OX640 and/or the other amorphOX platform discussions around biomolecules. We do expect OX124 filing ready in Q3. And here, for me, this is an engineering problem. This is a packaging of a plastic foil. It's something that we just have to fix. And right now, we believe we have a fix in place, but we do need to show that after the fix is in place, that we're meeting the 99.999% reliability that is a requirement for these rescue medications. So that's a pretty high bar and requires a lot of documentation. When you have failed once, it's an integrated supply chain, you need to redo the testing. And DTx, it has been a concern. We have done some dramatic measures in reducing our expenses in the U.S. by integrating the organization. We have gone through everything that was done by the previous team to see if we can streamline operations and take a little less risk from Orexo, reduce some of the repetitive expenses, for example, for IT, but also to see if there are ways where we more efficiently can make this easier for physicians, for example, within the VA and Trinity Health to prescribe. And finally, we have our [indiscernible] IP litigation, which I find as a major overlay of the company. It's no secret that a decision positive has a significant impact on our plans moving forward. That decision should have been negative, has significant impact on our plans moving forward. And that's a little bit lympho we have been in as a company for the last few years since this IP litigation started in 2020, and I'm looking forward to a conclusion in near term, but I am optimistic that we have a very strong case. And with that, I will open up for questions. Thank you.

[Operator]

[Operator Instructions] The next question comes from Klas Palin from Erik Penser Bank.

[Klas Palin, analyst]

I would like to start with a question related to your legal costs in the Q1. You indicated that you also have had some interaction with U.S. authorities. But of the SEK 42 million that you have reported, is this mostly related to the Sun litigation process or the other one as well?

[Nikolaj Sørensen, executive]

It's by more than 90%, I believe, is for this Sun litigation.

[Klas Palin, analyst]

And do the Sun litigation process drive any costs in Q2 as well or is this now finalized from a cost perspective?

[Nikolaj Sørensen, executive]

The Sun litigation is right now very limited expenses, but it depends on when we receive the decision. So the decision could come in Q2. And when that comes in either way, that will drive some expenses for the company. But right now, the expenses are very, very limited. But there will be some expenses in either case. But if the decision comes before June or May or June, then there will be new expenses, but it's on a completely different level than what we've seen in the last quarters.

[Klas Palin, analyst]

And going to OX640. As you mentioned, you had some interest from potential partners. Is it possible to say anything if you're in active discussions or if you are intending to sort of step up activity -- parting activities going forward?

[Nikolaj Sørensen, executive]

We are in active discussions with companies. I think there's a big milestone in some of the companies that there is a natural stay with the epinephrin approval process in the U.S., and they have FDA Advisory Board on May 11. That advisory board [indiscernible] for some of these companies, whether they want to see it or not. But we have a very active response. We have a data room open for partners. So there is an active due diligence ongoing.

[Klas Palin, analyst]

And I also have some questions about the DTx business. Firstly, is it possible to share any more information about -- you mentioned something about the year oversight about the reimbursement process, what that could mean?

[Nikolaj Sørensen, executive]

No, I think the previous management of DTx had a plan for the reimbursement, which is associated with a medical benefit out in the U.S. where we say, the process from management and the legal situation for Orexo and for the provider, when we reviewed that was a context and it was a little uncertain where the border lines were from one player or the other in terms of how we should manage the process because the payment flow was going to be throughout the treatment of the product. And here, we simply took a decision from the new management that they were not comfortable with the process, and they felt that this is going to be very complex when we get to scale. We have seen that it works for individual patients. But if this is nothing to take off, it would be a complex process to manage both for us and from the providers. So what you can do [indiscernible], it's difficult to do that on a bigger scale. And that also answered by the way, the question I got online with is why we don't have any DTx revenues that we have promised is basically a decision from the new team that the billing tests that we're expecting to invoice during the quarter that we put them on hold because our uncertainty about how this will be implemented and the continuous invoicing of these as the system was set up to be invoicing when the patient views the product. So it's a little complex, as you can hear, but what's the process and that's the reason why we stopped when the new management took over, and we are now looking into how we can make this more streamlined moving forward.

[Klas Palin, analyst]

And as you mentioned, there has been a little bit tough quarter for companies in the digital health space. I mean, how does this affect you, especially when looking at Par Therapeutics that commercialized -- so, I mean, is this sort of making the space even tougher going forward or could you share some thoughts about this?

[Nikolaj Sørensen, executive]

No. So I think Par Therapeutics was a pioneer in the business. They have invested quite a lot of money into testing different pathways for reimbursement and also for the promotion of the product. While we have spent a decent amount of money, they have spent many times more money than what we have. I think the first 3 quarters last year was more than $100 million. So -- and of course, that was driving force on a national level to get this reimbursement processes working. However, we are also promoting a process that was customized to the way that their products are set up, which is in a different way than the way our product is set up. We are fully successful, we would have had it difficult because we would need to find a workaround of the processes that they have. So in one way that they are not there, that puts less pressure on payers and on authorities to come up with a process. On the other hand, the processes that we're promoting were not fully compatible with the products that we have because we have nothing regulatory route for Deprexis and Vorvida right now, also a different one for Modia, but also the way that they're integrated into the physician systems is different than us. So what I would say is, of course, it's a setback that they are leaving. I think they were the driving force with this attention on digital health in a way that there's no way we can do it and the other players in the market today are also quite cash constrained to the majority more companies have gone out of business during the quarter who are less prominent in that.

[Klas Palin, analyst]

And then my last question. I mean, you're making some progress with Veterans Affairs. Do you have any sort of timeline for 2022, if we could expect some progress in this -- and different results?

[Nikolaj Sørensen, executive]

So I must admit I have burnt my fingers a little here from some of the timelines and some of the progress that I was -- I just like everyone else also were put in that -- or the timelines I were given by the team we had in the U.S. because I'm not allowed to have direct customer interaction. So that's -- so I've, of course, just like you, I need to listen to someone else. And I must admit right now, we have taken a step back, and I'm a little cautious of putting up promises. We are putting some of our best people who have been very successful in getting a reimbursement with Abstral. They are now leading the work with Veteran Affairs. So if anyone can fix it, I'm sure that is the time we have wanted. Right now, I think they are making some very [indiscernible], but one thing is that what we can come up with because we did offer a process between the health for Modia, that on paper would work. But when we then come to the health care provider, they turned out to be more complex than we anticipated. And that's a little bit fair with [indiscernible] but they don't have an established process to do some therapies either. So even though we can come up with something, we need to see how that works out for the patients. But we are working hard to do this right now, but I will not put out a promise, but this is when we will have sales coming into [indiscernible]. But hopefully, sooner rather than later.

[Operator]

The next question comes from Samir Devani from Rx Securities.

[Samir Devani, analyst]

Maybe just kicking off on the legal costs and the expectation that they will sort of fall away a little bit in the second half. Obviously, we're all hoping for a positive outcome from the Sun case. If you win that, does Sun have the right to appeal or is it just that's a final ruling and the case is over? So I guess that's question one. Then just on Zubsolv ex U.S., there's quite a nice bump in royalties in Q1 versus Q4. I just wanted to understand a little bit more, was that like a major stocking order or are those sort of levels what we should be looking at going forward? I guess those are the first 2 questions. I might have a follow-up for you.

[Nikolaj Sørensen, executive]

Okay. On the legal cost, Sun do have the right to appeal if it goes in our favor. I think there are opportunities to win their deal, depends a little on the granularity and motivation of the judge when she comes with her decision. But in an appeal process, the expenses are significantly less than what we have seen historically. I think and if I take a very high -- an appeal process is maybe $600,000 to $1 million. So -- and if you compare, we spent close to SEK 40 million in Q1, Swedish. So that's about $4 million. So this is -- the full appeal process isn't much lighter because there's no discovery process in that. So they would have a right to appeal, but they needed to find some kind of legal reason to appeal the process, but you normally can find something at least that you can run an appeal on. But if it is in Orexo's favor, you say the odds is very much in our favor even on an appeal if that should happen. Statistically, that is very beneficial for the ones winning in the district court, even though Orexo historically have turned around a District Court decision. On the Suboxone ex U.S., the sales that we have there is all related to inventory buildup in the 9 countries where the product is now available. We have not received a royalty report from a court yet. So they have a little delay for when they can report their royalties. So right now, it's just sale of heart products, which is done, you can say, in theory, at cost, but also in the first launch material Orexo have taken on a little more risk in that pricing where we have been suffering from the inflation and unexpected expenses in that process last year, which actually means that in the quarter, if you look to the details, the cost of goods, as Fredrik was alluding to, is also quite high for this quarter, but we're expecting that cost of goods to go down in the next supply of tablets to a court. But there's no royalty included in the numbers right now. And that's simply a result of that we haven't received the first royalty reports from a court in time to include it into the quarterly report.

[Samir Devani, analyst]

Okay. That's very helpful. And then maybe just one on DTx, Nikolaj. Just Obviously, we've seen what's happened with Par, we know that reimbursement is clearly a very, very difficult process. I'm just wondering, in a worst-case scenario, is there an opportunity just to give Modia away, bundled with Zubsolv to try and grow Zubsolv sales, which, as you said, that stabilized in the quarter, but it's been on a negative trajectory. Is there the opportunity just to say, actually, we've done quite a lot of cost here, maybe if we bundle it that we could grow -- that we could potentially start to grow Zubsolv again?

[Nikolaj Sørensen, executive]

So there are some legal limitations to what you can do for the product. And I also think financial, that's a little -- there's -- you say there's a concern around that because Suboxone even though it generates a lot of revenues, it's from a lot of patients. The price for Suboxone is not that high from a per-month script. So -- but you can say the Matco concept that we're working on is actually in a way where we're making both Suboxone and Modia available, and we're using the combined -- the ability to combine the offering to get access to reimbursement that we don't have otherwise. And to take the money we received from Arizona, they are coming out of the opioid litigation funds. So the $54 billion that are now going out. And these $54 billion, they need to be put at work even though some of it would probably be channeled into other nonhealthcare-related activities like law enforcement and others. We do know that a very sizable part of it will go into health care. And looking at the total expenses for opioid use disorder treatment in the U.S. per year, $54 million is many years of total opioid use disorder treatment. So why you can't really build a business case around grants I do think there's a business model to be gained to be able to offer new innovative ways of improving treatment for patients who are otherwise difficult to reach for one reason or the other. So we are doing that with this Matco concept. And to my pleasure, the expenses for running that is relatively limited and to the most part, covered by the grants that we received. And we do have more grant applications out there right now. We do have dialogues also which is outside the grant process with other payers who are interested in the concept to reach patient groups who are difficult to reach to other channels. [Operator Instructions] So we do have one more question from the web. I had first one around DTx revenues, which were not as promised. I did address that in -- when I answered the Klas. And then we have another on why we're excluding clinical trials as they are always ongoing. That is true for large pharma companies, but it's definitely not true for Orexo. We are running clinical trials quite infrequently, and the expenses we have for that is low in most of them because they are of what you can say, exploratory character. And right now, we don't have any other clinical trials planned than the ones that are running at the moment, and that is actually only one, it's the Modia trial, where we had the last patient out in April. We will have additional expenses as the CRO. So the clinical trial organization that are running this for us will, during the summer, finalize their report and when that is received, we will have another expense. But the -- we are not planning to start any new clinical trials in the short term. And our ambition where you could say that we need a clinical trial is for OX640, but one of the ambitions to work with partners who are active in the space of allergic reactions or allergies is that we actually have them financing the next process or the next steps in the clinical development or these contribute to that. So for Orexo, a clinical trial is actually a relatively infrequent activity, but of course, there would be clinical trials for Orexo in the future also. But they are, by definition, time-limited in their characters. Okay. There's no further questions. We've been running for nearly 55 minutes. So I thank you a lot for your attention and for dialing in. It has been a tough quarter. We knew that when we ended. We knew there were a lot of expenses coming in this quarter. We had expected to file OX124. The past part is I'm very comfortable with that we will refile OX124. And if there's any advantage to the delay, it is that the market in the U.S., which are now in a quite dynamic phase with new OTC brands coming in we will have more clarity around how the market evolves. So we won't have to invest in areas which could turn out to be obsolete after a while as the market settles after the new OTC change. But that, including with our pipeline, I think there's a lot of promising activities coming in Orexo moving forward. And I hope that you will remain patient and have some confidence in this. There are clearly some big triggers for the company in the near term, which could turn our operations around and give us a lot of opportunities to grow. Thank you for your attention, and goodbye.