Orexo AB

STO:ORX

Earnings Call Transcript 2019-Q2

[Operator]

Welcome to the Orexo Interim Report Q2 2019. Today, I'm pleased to present Nikolaj Sørensen, CEO; Joseph DeFeo, CFO. [Operator Instructions] Speakers, please begin.

[Nikolaj Sørensen, President & CEO]

Thank you very much, and welcome once again to the second quarter interim report presentation from Orexo, which is, once again, a report that I feel -- my team feel very proud about. Before I jump into the presentation, I just have some practicalities. We have the presentation uploaded on our web page. So it can be downloaded for those who want to follow it directly. It's also available as a videocast, but those who are listening in on the phone would see that there is a short delay between when the pages are shown on the online videocast compared to what I'm saying to you here on the phone. With that, I will start the presentation and move straight into the fourth page, which is a summary of the performance in the second quarter of 2019. For me, this is the first quarter I recall where we don't have, what I would say, extraordinary circumstances, even in terms of income streams or cost in the company you can say that disturbs the picture of the fundamental performance of the company. This time, we do have a very, very small milestone. We do have some very small legal costs to the court -- ongoing court case in the U.S., but they are insignificant in the greater picture. So what you can see here, I would say in a little bullish way, is the naked performance of the company. And the number that I do want to highlight that is making me most proud and giving me most confidence is our U.S. performance of Zubsolv where the EBIT is now $9.2 million, up from $6.4 million last year. I worked in the industry for nearly 20 years now. Also know that a 47.4% EBIT margin is definitely not the standard. That said, that is, of course, our U.S. operations, but that is like a stand-alone company, although without any investments in R&D and business development, which are all covered by the Swedish mother company. When we look at the Zubsolv performance, it has a nice growth, in particular, in Swedish krona but even have a good growth in also U.S. dollars with 6.7%. We'll come back to what is driving that, but I think for me, the positivity is very much about performance and the demand, in particular when we're excluding the WellCare contract. More about that a little later. We're seeing our EBITDA, which is the performance measure that we follow the most on profit, to increase at 19.4% from last year and the performance is good in both Swedish and U.S. dollars. The driver of this is, of course, our continued improvement in manufacturing efficiencies in combination with growing the top line. Our cash balance is just short of a few million to reach SEK 700 million in cash balance. We have a very strong, positive cash flow. And all that said, we feel today that we have a solid position to pursue whatever business development opportunity that arise and also for accelerating the -- or continued progressing the pipeline. I have received the questions now as we have announced that we're going to repay some of the bond, would that leave us in a weaker position in negotiations? Well, I think for those of you with a calculator, you could see that the cash flow in this quarter is significantly less -- or significantly more than what we're using for repaying the bond. So we even expect to continue building our cash position independent of paying off a little on the bond. When we look at the more long-term perspectives of the company, our -- broadening our pipeline has been a major focus, both through R&D but also through business development, so getting more sources of income than just Zubsolv in the U.S. Here, I'm, of course, happy to say that we just, a few days ago, announced the partnership with Mundipharma Australia. I'll come back to them a little later. And also to see that we are making progress with other partners in Europe. We are looking for additional projects all the time in the U.S. We do have some ongoing negotiations, and I can say that within the next half year, we will know whether these negotiations are win or they will disappear because there's no way the negotiations would continue for another 6 months. We are getting close, I hope, and I hope we can announce something soon. But I'm also very cautious to say that we are never going to sign a contract just because we want to sign a contract. The contract needs to be the right contract before we can sign it. Our internal progress is going well. There are no changes from the last quarter. We're still progressing according to plan. Our next major milestone will be the clinical trial of the OX338, ketorolac project, which is moving in the second half of 2019. So there we'll see in a few months, we're expecting to have the first patient in. Then moving to our pipeline picture. I'll focus on the -- that's on Page 5. I'll focus on the projects in the -- below. As you can see here, we are moving the different projects into Phase I, and then you can say, but there's a long way still to go before these projects can make it to the market. But here, I will remind you that both OX124, OX125 and OX338 are all reformulation of existing projects, where we believe that we have something that is significantly differentiated from the products that are already there. But the route to market is much shorter than with an NCE, so a new chemical compound. And we expect to run the pivotal study, for example for OX124, already next year. And if that is successful, that will lead to registration shortly thereafter. On an external development project, the OX-MPI project, which those of you who have followed for a while would know we got that from Boehringer Ingelheim, and then we have sold the rights to a company called Gesynta. It's a Swedish company. They're now starting their Phase I trial, and they expect to have the results in 2020. Moving to Page #6. Our new partnering agreement with Mundipharma Australia was announced a few days ago. So Australia is a very developed market for opioid addiction treatment. The main product today in the market is Suboxone Film, so a product that we used to compete with. It is, if you look from a size of population, the opioid addiction is definitely very prevalent in Australia. But also, I think the treatment is very advanced in Australia. So it's a good market to launch a new product, and we do -- we're happy to have Mundipharma as a partner. You would recall that we have Mundipharma on a global contract. We have been working in parallel after the termination of that contract with Mundipharma in Australia to finalize the registration for the product and preparing the price on reimbursement. So they have continued to invest in the partnership even after the global contract was terminated. However, the global contract never allowed for one product -- one region to be isolated and excluded and continued in the contract. It wouldn't have been good for us, and it wouldn't been good for Mundipharma Australia. So now we have a new agreement, where we will supply and take responsibility to supply finished and packaged goods to Australia, and they will buy their supply from us, but they will also pay a royalty. In total, it's a slightly different structure than the agreement we have before, which have more milestones but a lower royalty. This one has a higher royalty, but there are no milestones in the contract. Moving to our Zubsolv market in the U.S., and that starts on Page #8. This is a short reminder, and I like to -- I will probably use this until 2023 because we have a prognosis saying that this market will grow with 12% per year, and it was made based on the 2017 -- the growth on 2017. And just looking at where we are -- moving to the next page, on Page 9, we have seen the growth now year-to-date is 13% compared to 2018. So we're actually a little ahead of the prognosis we developed based on 2017 data. Breaking it down to the different market segments. We continue to see that the public market is the one that is really jumping up and continue to have a very strong growth with an 18% growth year-over-year. The commercial market is still growing good as well with 8%. And actually, we now have seen a slight rebound of the cash-paying patients, which is very much explained by the availability of low-priced generic tablets in the market. For Zubsolv, we're happy to see that we actually follow the market growth in the public and in the commercial segment, if we exclude the loss of the exclusive contract we have with WellCare. So excluding WellCare from the calculations, we're growing with 19% compared to the market, which is a good number if you look at the -- we actually excluded for a large share of the public market. And in the commercial segment, we actually -- it says 8% and 7%, but we're actually less than 1% between because it's all about rounding here. So we're very close to the growth of the commercial market as well. So in general, I'm happy to see that Zubsolv can compete. And then we have to live with situations where when we get larger exclusive contracts, we have a boost in revenues. And when we're losing them, it will have a negative -- or could have a negative impact. And I have a little more examples of that later. Moving to Page #10. A picture we have used many times: our rolling 4 weeks tablet volumes. And just to remind you, we are following tablet volumes because we see there are significant differences in the number of tablets per script. And I was brought to the attention by one of the analysts following the company earlier today that the number of tablets per script has actually increased with 10% compared to last year. So if you're just looking at the script data, it would look like that we are dropping in volume, but that's because in particular, the WellCare patients, where we have dropped volume, tend to have smaller scripts, the cash-paying patients have smaller scripts. And we are in -- now with the volume we are compensating for us, we actually have kept our total volume, it's predominantly in the commercial segment where we have a larger script size. Looking at the data here, it could look like we have a slight decline here in the last few months, but that's actually more explained by a boost in March where we saw, in particular, Humana had a very, very strong month, a little unusually strong month. And then comparing to that strong March, this looks like it go down a little. Then there are also some public holidays, which disturbed the picture. In May, there was a Veterans Day, which is included in some of these data. So we have a small week included in the 4-week rolling, the last -- so we are basically moving flat. And understand, we actually added our weekly data here as well so you can see how it's dropping up and down, and you can see the Memorial Day being the last dip in these data. And you can see our all-time high, which is 411,000 tablets in 1 week, and that was from end of March. I'm happy to see -- so what is moving here is WellCare. We did lose that in November last year. I have a separate slide on that. That has a negative effect on 6% on overall volume. Then we have compensated that with a 7.4% growth in other accounts. And when we look at where does that growth come? It's Caremark and Express Scripts in the commercial segment, all -- both grew double digit compared to Q2 '18. But also, we gained access in a lot of public plans early this year, where the average growth was 66% of these accounts compared -- when we look at Q2 versus Q1. So we have, when we got access in competitive plans, none of these are exclusive, we are seeing very strong growth. Moving to Page #11, and that's the WellCare data. We haven't broken down on contracts before. Here in WellCare, we have this interesting development that you can see is we are seeing the volume is increasing significantly after they allow generics to come into the market, which has a negative impact on our volume. Our volume drop was very much in the first month and then we have stabilized. And you can look at the volume and compare before and after. So we have kept about 25% of the volume with WellCare. And that means also that WellCare, on a profitability perspective, is actually now contributing more than it did when we had an exclusive contract. So as long as we can keep it, and you can see we've more or less been stable since January, we can keep it at this level. WellCare is contributing better to the bottom line than it did before. Then -- and actually, I'll just mention on WellCare, one of the things that are unique with the WellCare contract, we have kept our reimbursement. But as we wrote, when this was announced, we are less preferred than the generics. So the generics have a lower co-pay and they are supposed to be used before Zubsolv. So in this new contract, we still have access, but we don't have the same access as the generics. So we're less competitive. When we come to Humana, which is another one where we lost our exclusivity from actually the beginning of the Q2, it's on Page #12. You can see that our Humana volumes actually are slightly higher than the average we had the last year if we take away this unusual high March -- month of March. And I think what happened in March was that physicians and patients were expecting to see the changes in the formularies so that they were prescribing probably a little more than they would have done otherwise, which gave us a little boost in March, which was an unusual high. But if you look at both April and May numbers, they are actually higher than the average numbers we had earlier in the year despite being in the full competitive landscape with all of the generics. So -- but what we have seen in Humana is that, again, just like we saw with WellCare, the overall market has increased after they allowed the generics to come in, and that has a negative impact on our market share but not on our volumes. Moving to Page #13. One of the things that has happened just recently is now that the generics in combination are now the largest part of the market, as we are seeing a continued deterioration of the Suboxone Film generics on the expense of the branded Suboxone. Zubsolv has also, compared to Q3 last year, that was before we saw the generics really started, we have seen Zubsolv losing a little market share. What is the explanation of that is predominantly WellCare. As you can see, we had a 1% overall growth from last year if we include WellCare. If we exclude WellCare, that would've been 7.4% growth. And now with those 2 -- and then we saw both WellCare and Humana growing. So we're losing some market share in there. And also we see -- continue to see a very strong growth in the public segment where we have less access. So although that we're losing a little market share, we're happy to see that our volume are growing. And we also see that the volume, excluding this onetime effect of WellCare, which should be washed out of the system now, we're actually seeing a growth in the market. Moving to Page #14. This is, again, just looking at the film specifically, and we're looking at the branded film development. And we saw here in early June, the film generics [ are passing ] Suboxone Film. It is worth mentioning that the large market leader among the generic films is the authorized generic of Suboxone Film. What that tells me, both the resilience of the Suboxone Film but also the preference of the Sandoz film, which is the authorized generic, is that patient preferences matters in this market. If you have access, patients will prefer the product that they are using. And that is important because I also think that explains why Humana actually see a continuous growth despite increased competition. And when we're looking ahead, where maybe some of our other exclusive contracts are subject for increased competition, I feel convinced that we have a product that have a strong patient preference, and we have seen resilience when patients have a choice to go back to Suboxone Film. For example, we saw that in Maryland. We've seen it in Humana. We see that patients actually stay on the product. The one where we didn't see that was in WellCare because in WellCare, we did have a significant disadvantage to the generics, although we're still reimbursed. To summarize the market situation on Page 15. We see a tendency in the market towards a broader reimbursement for more treatment alternatives. So as long as we are giving a reasonable price, there's a tendency of opening up for more alternatives as a response to the opioid crisis. This either happens through insurance companies, who say, "Okay, we just opened up, and if you give us the product for this price, you are welcome to have access." So they reduce the burden of negotiating every year. We've seen that with Ohio, for example, and we've seen that now with WellCare and some of the others. Then you have some legal initiatives and where, for example, in New York, which is the second-largest Medicaid program in the U.S., and in New Jersey, both of them have a legislation that has passed the local state parliaments and now waiting for signature by the governor, which will make it mandatory for the Medicaid programs to finance all of the alternatives. Which of course, for us, would be very good because we have seen that we can grow: 66% growth in the public plans we've got access to in Q2 versus Q1. And if that happens through legislation, the rebate we would need to pay is significantly less than have been negotiated. Why? This is, of course, a major opportunity for us. I also have to flag that we do expect to see more moves like the one we've seen with Humana, in particular in the commercial segment, where some of the insurance companies might open up. One of the reasons for that could also be that some of the state legislations would force them to open up for other products, which will reduce the value of a negotiated contract. So what we do see -- and there is a slight -- there is a risk and we have flagged that in the presentation, is that UnitedHealth Group might open up for generics. But we don't expect that to hit the reimbursement status we have. So we would maintain -- just like we did with Humana, we expect to maintain exactly the same access with no restrictions. And I am quite comfortable that what United will see is a fast boost in demand, and the impact on our volume is likely to be less. But it could have a negative impact on market share though. Moving to the financials. I will invite my CFO, Joe DeFeo, to comment. And just for clarity for everyone, Joe DeFeo, is not here in Uppsala to enjoy the beautiful weather. He's in the U.S., so we're not in the same location. But Joe, please take over from here.

[Joseph DeFeo, EVP & CFO]

Good afternoon. I'm very proud to present the financials that our Orexo team has accomplished. And if you go to Slide 17, you see our net revenue. Zubsolv of course is our main growth driver of net revenues with 16.4% growth. Our Zubsolv U.S. sales continue to grow, both in U.S. dollars and in SEK, and I'll cover that on the next 2 slides. You can see in quarter 2 of last year, we had a onetime milestone for Zubsolv ex U.S. If you exclude this milestone, our net revenue grew 19.1% in Q2. And for the first half of the year, our net revenue, despite this onetime milestone, is up almost 11%. So we continue to have strong revenue growth. If you go to the next slide, we'll go over how Zubsolv has performed. We mentioned that we're up 16.4%. When you go through this waterfall slide, you can see at the beginning, we chose to separate out WellCare from our demand because overall from a net revenue standpoint, it's a very minimal negative impact. So when you exclude WellCare from our demand, our demand is up over 7%, so a strong demand growth. We also had the wholesale inventory level increase some in the second quarter. As you may recall, we had a lowering of wholesale inventories in Q1. So they've recovered, and I believe a lot of that has to do with the fact that we are -- despite the generic film being introduced, we are able to continue to grow our business, so the wholesalers have more confidence in stocking inventory. When you look at the net price position, it is a bit of a negative. However, that's due to last year, we had a prior period rebate adjustment in the results. So when you exclude that, our rebates are positive, and our net price is positive by 5.6%, which includes the 4% increase and also a favorable gross to net this year. And of course also, due to the weakening of the SEK in the first half of the year, there's an improvement there from an exchange perspective. So overall, quarter over last year, we're up 16.4%. Next slide. You can also see sequentially, for Q2, we're also up very strongly. Our net-net revenue growth was also strong with demand growing 3%, and our mix increased in that net price effect. So overall, you see all positive and 14% growth sequentially in our net revenue. So we continue to have strong growth, both year-over-year and sequentially. Next slide, our balance sheet. With the strong Zubsolv U.S. sale, we also have lower COGS per tablet and litigation expenses dropping significantly. We grew our EBIT over 19% in the quarter. So very strong financial results. Excluding the onetime Zubsolv ex U.S. milestone in Q2, gross profit grew 29%, and EBIT has more than tripled.So as you can see overall, our P&L has a very strong financial result. We're doing very well, and we continue to expect these results to continue to improve. If you go to the next slide, we'll focus on our U.S. business. You can see that our sales growth continues and also our gross profit continues at a higher rate of growth due to the cost per tablets being lower. And then even more impressive, when you go over to the operating profit side, you can see that good, strong growth that continues for our EBIT and our EBIT margin reaching 47.4%. So we continue to see acceleration of our U.S. EBIT and EBIT margin. In Q2 alone, EBIT grew 43.8% and then 91% growth in the last 12 months, so very strong growth. Our Q2 EBIT reaching 47.4% is showing our outstanding leverage of our resources to continue to grow the Zubsolv business. As I stated previously before, we do a very strong job in the U.S. of recognizing where we can grow and where we can't grow, and we spend where we can grow and we don't waste money where we can't grow. So that, as is shown here, increases our leverage and increases our EBIT margin and our profits. Next slide. Our strong cash position has grown significantly. Both our cash flow was very strong in the quarter and year-to-date, and we now have reached almost SEK 700 million of cash, which is more than double our debt position. So we had another strong quarter of cash flow, and with the strong cash position, we announced we will repay 10% of the corporate bond, which will lower interest cost and reduce our SEK/U.S. dollar exposure. This is not a material amount of our cash. It's less than 5% of our cash. So we will still have strong cash position, and this will give us the opportunity for development activity. And with also having a strong balance sheet, we'll be able to have the ability to finance any business development opportunities we have. So if you go to the next slide, the final slide from a financial standpoint. This is record-breaking performance. And 2018 was further improved in Q2. And as this whole presentation starts, all of our fundamentals are growing strongly, both globally and particularly in the U.S., both our -- so all of our revenues is growing strong, double digits. Our EBITDA is growing strong -- very strong double digits and our overall U.S. EBIT is more than double, both overall and in the U.S. And from a cash position, as I mentioned, we have more than doubled the cash of our bond. So our net cash position is a very strong SEK 375 million. So all of our indicators are very strong, and we believe that we can continue to have this good performance as the year goes on. With that, I'll pass it back to Nikolaj to conclude and give our outlook.

[Nikolaj Sørensen, President & CEO]

Thank you, Joe. So I will move to Page #25, and this is a strong summary of what we believe is the investment case into Orexo. So we are seeing a continuous growing market. It has continued to grow with 13% year-over-year. Joe just presented our financial position, which I think is unparalleled compared to basically all other, maybe with one exception, of Swedish companies. If you look at our track record of developing products, which I think is becoming more and more critical as we have projects that we're expecting we'd be able to file with the FDA already next year. We do know what it takes to get a product approved in the U.S. We have the regulatory competencies. We have the clinical development competencies. And we have received worldwide approval of other products before. And having looked at many other projects the last year for smaller companies, I think that value can't be underestimated that you actually know what it takes. From an M&A and business development perspective, we, of course, are a quite slim organization, so there's a limit to how broad our reach can be. And I'm happy to see that we have some ongoing negotiations that I hope can materialize into further products in our pipeline during the next 6 months. But again, don't see that as a promise because I also want to have the [ backbone ] to say no if the terms are not acceptable. Then we are looking at expanding our pipeline from our own development perspectives. And we have a few projects that are announced, and we have several more that are not announced because we are having them queuing up. And again, we're doing that because we want to focus our resources where we see that they have the most value. But if some of these projects show not to have the potential we expect, we have other projects that we're ready to progress. Finally, I'll move to our outlook. It's on Page 26. And for this one, there are not any major changes. There's actually none, except that we have one bullet point that we can say we have completed. Then that's the last one, where we believe to have the first new partnership to Zubsolv outside the U.S., it's expected to be initiated in 2019. This happened 2 days ago with Zubsolv Australia, but we're, of course, hoping to add more partnerships on top of this. Apart from that, we are staying with the same guidance as we have had for the full year. With that, I will open up for question-and-answers, and thank you for your attention.

[Operator]

[Operator Instructions] Our first question comes from the line of Frédéric Gomez of Pharmium Securities.

[Frédéric Gomez;Pharmium Securities;Analyst]

Congratulations for the excellent results of Zubsolv in Q2, especially the second [ trial ] increase compared to Q1. I have 3 questions for you guys, one on the commercial segment. The [ path ] in Q2 with Caremark and Express Scripts was strong compared to Q1. What's the main reason behind this performance? And what's the expectation for the second half of this year? And how we should look at this player, the result for the remaining of the year? The second question is on -- this time on the public segment. You gained additional states in Q1 and Q2. And I was wondering, how many additional states we can expect in the coming quarters and also into -- on 2020? And maybe, do you have also an explanation for the weak growth seen in Texas in Q2 because it was only plus 26%, whereas the performance in the other states was greater? And the last one is, you mentioned [ business ] activities and the strong cash position you have. I was just wondering, what kind of opportunities you're looking for. And you said that there are ongoing negotiations with companies on projects, that you want to be free not to engage if the financial terms are not acceptable for Orexo. So those distribution rights, for instance, without any upfront or milestone payments would fit your overall strategy to really leverage your sales in the U.S. without paying being too much scratch to the partner.

[Nikolaj Sørensen, President & CEO]

Thank you, Frédéric. I actually still have follow-up. On the third question, I must admit, I missed that. You said we have -- seem to have weak growth, and then I lost in what specifically?

[Frédéric Gomez;Pharmium Securities;Analyst]

The weak growth was seen in Texas in Q2 because it was only 26% compared to other states, where it was more than 70% for some of them on the public segment.

[Nikolaj Sørensen, President & CEO]

Okay, thank you. So just -- I think I can take all of these. So if you take Caremark and Express Scripts, I think in general you see that the second quarter is much stronger in the privately insured patient segment than the first quarter. And the explanation behind that is in the way the co-pays are structured in the U.S. where your co-pay is -- or what you have to pay in the beginning of the year is zeroed out. So you have to pay a certain amount before you start to get reimbursement or support from the insurance companies. Again, so what we have seen is basically, not only Orexo, but entire market in the commercial sector have a jump up in the second quarter. And for Caremark and Express Scripts, we have seen that Orexo has slowly outperformed the market for a while. And I think one of the things that we do see is that there are patients who don't want the generics, and we're, right now, the only sublingual branded alternative where you can be certain that you would get a branded product if you get it prescribed. And here, I think the strong position of Suboxone Film and the authorized generic is, of course, evidence of the preferences for the original Suboxone product. But at the same time, as a patient, you're not sure that, that is the product you will get next time you get to the pharmacy. And I think that is one of the things we can leverage in the entire market, being the only truly promoted branded product. When we get to all additional states, we do have other states that at least seem to be in the right direction to add Zubsolv into the formulary. One of the issues that we do have and still have is actually the resilience of Suboxone Film make several of the states to keep the agreement they have with Indivior because the market share, evidently for Suboxone Film is quite high, and they want the rebates that they receive from Suboxone Film. So I do see that over time, even though there is a resilience, we do see that Suboxone Film every week is losing a little, slower than most people would have expected. And I saw a press release today, slower than Indivior would have expected also. But it is something that, I think, evidently someday it will happen, that they get down to a threshold where these contracts will not make sense for the insurance companies to keep, and that I think could add up more -- open up for Zubsolv to be added to more contracts. Then I do think the general tendency right now is to add more products to the formulary and that is something that will benefit us. But how many states? I actually think that's not that important because it's more which states. And the one -- the big one I really hope we can be added to is New York State because it's so big. It's $100 million in turnover. If it's coming through legislation, it also means that we have a lower rebate than we would have, should we have negotiated ourselves to the same position. So that's really where my focus is. And if we can get New York and New Jersey, I think that would be a strong outcome for this entire year. Then when we get to the weak growth in Texas. So Texas, it's a big state but the Medicaid in Texas is really one of the smallest programs in the nation. So there are very, very few patients in Texas who do have Medicaid. Most of them who have Medicaid have Managed Medicaid, so they're using private insurance companies to manage their Medicaid programs. And Texas being a strong Republican state, I think have, in general, a stronger focus on the privately insured patients. So Medicaid Texas is simply just much, much smaller, which also means from our communication, it's difficult to find doctors who have a large share of Medicaid patients in Texas. So it never comes top of mind. So I think that can explain some of that. Ohio is maybe the other end of the scale. In Ohio, this is covering all Medicaid state patients, and it's an actually larger state than even New York. So in Ohio, we're in a completely opposite [ range ]. But in Ohio, we also perform much stronger than what we have done in Texas. Then when we get to the business development, we are what we -- I would like to say my hope is to have -- and the products that we are discussing are projects which you can say are overlapping with what -- where we are right now. But at least some of them also are what I would call a branch out. That means that we have some overlap in the terms of either the prescription base. So the same physicians are prescribing this medication. But we would probably have to expand our presence into some new target groups. That would be a branch out from where we are right now. And the closest -- and I can say some of the areas that we are looking at and where we are negotiating is within other CNS diseases. So for example, the comorbidity among people with severe depression is significant compared to those who have addiction problem. So that's our hope is to have something that both overlap but also allow us to have a slightly broader base without having to expand our organization significantly. So that's where we are -- and I think right now, we don't have -- some of the projects require, that we are discussing, have upfront payments. Some of them have less. So it's -- we are not bound to any model. It more depends on, you could say, if you have the more responsibility you take together with the partner, the more you want to share the future revenues, and they want to have a continuous income. If we're just acquiring a right, it would normally take a higher upfront payment. I hope this is answering your questions.

[Operator]

And our next question comes from the line of Andy Smith of Edison Group.

[Andy Smith, Analyst]

I have 2 questions. Can I ask them one at a time, just to make sure I get the first question the way I want to ask it? And that first question is, what's your feeling, Nikolaj, when you have insurers like UnitedHealth that will start reimbursing generic products later this year? What's your feeling that an existing Zubsolv patient, going to the pharmacy, what difference will they see? Will they be offered -- in renewing a prescription, will they be offered a Zubsolv renewal? Or will they be -- will they do -- will the pharmacist talk to them -- as mandated by the health insurer, will the pharmacist be talking to them about generics? Or do they just continue on with Zubsolv?

[Nikolaj Sørensen, President & CEO]

Okay, that one is easy to answer. I think -- and that gives a good example of the difference between WellCare and Humana. In the WellCare contract, the pharmacy would say that your co-pay has been increased, and there are generics that are available with a lower co-pay. And your physician would probably say, I have -- when I have to renew the authorization, which they often do once per year, so you get authorized that you can get access to reimbursed medication, the insurance company wants to ensure that you have considered or tried generics before you get Zubsolv. So there, you would be proactively asked, both by the pharmacy and at some point during the year also by the physician, when you have to get your authorization renewed. So that would be proactive. And when it comes to Humana, and at least where we believe it would end with United, I just like to underline that decision has not been communicated and it's not something that is -- and for that, it's not certain it will happen or when it will happen. But we do believe that it's prudent for us to just flag that we expect it to happen. What is with Humana and with United is that the patients will not be prompted by neither the pharmacy and nor the physician. Then there can be pharmacies, because they're earning more money on generics, who might say it. But there's nothing in the insurance plan that say that they would be asked and told that there is now an alternative and have you considered to take this instead? And you would actually see from most of these patients with a commercial insurance, it would be cheaper for them to stay with Zubsolv because our co-pay coupons will offset the co-pay more than what they would need to pay for the generics. And again, we don't know what the co-pay will be in the future. We expect -- we actually to stay on the same level and then where the generics are. But there will be a co-pay and there, I'm -- we know since we have co-pay coupons nearly offsetting all of the cost of the patients, it would be cheaper with Zubsolv for the patient. So -- and I think that's what -- so with Humana, we actually don't have those co-pay coupons because it's Medicare in most of the patients, so we're not allowed. But for United, we don't think that -- so the patient who has been on Zubsolv for many years, I don't see any reason why they would change to any other product. And it is interesting to see. If you look -- Humana, we just have a year and at least 2 months following the changes, we have actually increased the volume if we just exclude that extraordinary month of March. When you look at Maryland, we kept most of the patients also. And that -- and Maryland, we have even less than a year for most of these patients. With United, we have had for 5 years. All of these patients have been on Zubsolv for a long time, so I don't think that will -- for a patient and for a physician, the only thing they would know is Zubsolv is still reimbursed, and I don't see any -- there would be any rush to do something different.

[Andy Smith, Analyst]

Okay. And would that view of yours, Nikolaj, would that change for a new patient? So a new opioid use patient, who has not been on Zubsolv before, would there be any incentive at the patient level when they go to fill the prescription? I guess not because the -- it depends on your detailing of the physician on what product they get prescribed, doesn't it?

[Nikolaj Sørensen, President & CEO]

I actually think that that's an interesting question because as we don't have any competing promotion of other sublingual brands, then -- so as a patient who has come down to the doctor who for 5 years have known that the exclusive choice for a patient with United is Zubsolv, then I believe for most doctors, it would be natural to put the new patients on Zubsolv because there would not be any proactive promotion by the generic companies. And then some of them are doing mailing campaigns on others. But for this average UnitedHealth Group doctor, who get a patient in on the door who has United, he or she would probably think United, that's Zubsolv. So -- but then the patients, of course, might ask to get Suboxone, which we have seen in others. But here Suboxone-branded products, which I'm quite certain will not be reimbursed by United. So we are talking about a generic version and that's for the patient asking for a Suboxone-branded will get -- that's not reimbursed.

[Andy Smith, Analyst]

Right. Okay. And my second question concerns OX338, which looks -- when I read the -- your report today, looks like it -- there's been pipeline advancement. So it's moved ahead as it's going into Phase I before OX124. I mean OX338 is going to take a long time, through a number of studies, to come to a final product approval. Is that not the case? Has it not moved ahead because OX124, when you finally start Phase I, will just then be a bioequivalent study. And that will move to the final stages pretty quickly, won't it?

[Nikolaj Sørensen, President & CEO]

Yes, I think for OX124, we have done the Phase I studies so that one is -- what we need for OX124 is to do a pivotal study, so -- which would be the same as a Phase III study. So the study we got in Phase II, you would normally look at the dose ranges but the data -- and we have so many patients in Phase I, so we don't need to do that. So we will go straight to the pivotal Phase III study, you can say. And then what we only need to show is bioavailability. We don't need to show any big data. For OX338, there are different alternatives. There is an alternative which is just similar to OX124 is to make a bioequivalent study and follow a 505(b)(2) route, which would basically mean that we just need to do a bioavailability study also. Then the competitor product is not widely successful. So it is a balance of speed versus label, so we -- and we have not made a decision on that, and we want to look at the Phase I results before we finalize our plans for the full development. [ So wait ]. But I wouldn't say that, that require a lot of more studies. I think it's more a question about, there can always -- based on what you get from Phase I, depending on the strength of the data, how consistent it is for the different patients, we might decide to run a Phase II study. We might need to run another Phase I study after adjusting either dose or formulation. But if we assume that it's a strong data we get from phase -- from the first study, our decision is either to run a bioequivalent study or it is to run a head-to-head study, probably against a placebo or against an active comparator, which I guess, would be morphine. So -- but that again -- but that would be one study that we would need to do, to do that. But of course, if you are looking at a comparator, it needs to be a -- it would take longer time than just running a bioequivalent. But again, I would say let's talk about that when we have the Phase I results, so we know how it looks. But we're quite comfortable we have a product that will work. But exactly what would be the optimal route, we'll see when we have results.

[Andy Smith, Analyst]

Okay, and just to confirm then, from your pipeline now, Nikolaj, that the first product you expect to be approved on the pipeline today would be either OX124 or OX125?

[Nikolaj Sørensen, President & CEO]

It's no doubt, it's OX124. OX124 might be lacking with just a few -- which less than a year, could be if everything goes right. But OX124 is definitely ahead of the game.

[Operator]

Our next question comes from the line of Klas Pyk of Nordea.

[Klas Pyk, Research Analyst]

There is a question on your partnership agreement with Mundipharma in Australia. What do you think they will do differently compared to the previous agreement you had with them? And also, can you give some guidance on when to expect or where possible, a product bid? Can you give some guidance also when you expect to have additional partnering agreements with -- or outside the U.S. and Australia?

[Nikolaj Sørensen, President & CEO]

Okay. On the number first -- the first one, I actually don't think Mundipharma Australia is doing that much different. I think the way that Mundipharma is organized is, they call themselves affiliated companies. So they don't have a natural structure with one global CEO. They have a lot of individual, separate companies. And what we had was a partnership with their European company, who then basically outlicensed the products further into their own network of affiliated companies, which are all named Mundipharma with some regional surname. And we have continued to work with Mundipharma Australia basically since the termination. The thing that did take a little time to get this up -- to get the contract done was that we have to set up the supply chain because the original deal was made that Mundipharma would basically take bulk volumes after some [ bid box ], and then they would take over all of the logistics around packaging and distributing the finished package into the right markets. Now Orexo have to do that. So we have to establish the packaging. And when we looked into the setup of Mundipharma, we found that, that was not suitable for Orexo. So we had to reengineer the supply chain from what Mundipharma had established. So I would -- it's a little -- it has been a little odd. We have looked -- we have talked to other partners for Australia, but Mundipharma has simply continued to invest and to work with the agencies in Australia on their cost in an anticipation of a contract in the end. So I don't think it makes that much of a difference. The difference is that the margins that they would have paid to their sister company in the Mundipharma family are now going to Orexo instead. And then on your second question, on product deals. If it had just been me, then I'm pretty sure I could finalize the negotiations in a very short time period. But my learnings from having been in these discussions for a long time is that you find things in the contract negotiations that you, from the beginning, never saw as an issue. And then when you get further into it, it turned out to be potential showstoppers. And I think in particular, when you're talking about treatments that are targeting the U.S. market, because of the liability and because of the patent situation you have in the U.S., there are a lot of legal clauses that needs to be in the right way. So we can agree, which we have done, actually even previously on the head of terms, which mean all of the financials. But when we get into this bit of responsibilities and liabilities, which are now with some showstoppers. And I think some of these just tend to take a long time, and I'm very cautious of giving a time line. But I do find that we are in advanced discussion about the in-licensing. And then than maybe your question was about other partners for Zubsolv outside the U.S. And I can also there say, for the partnering for Zubsolv outside the U.S., we do have advanced negotiation with companies who are interested in European markets. And I hope that, that will go sooner rather than later. And of course, here, the liabilities are a little easier for Europe, but it's not insignificant. So again, we are in a situation where we have some good, advanced discussions with companies for the European reps, but we don't have any ink to any contracts. And my experience say that, that always takes a little longer than I would like to. And I don't want to give guidance, of that reason. Okay, Klas, thank you for your questions.

[Operator]

[Operator Instructions] I'm taking it there seems to be no further questions, so I'll hand back.

[Nikolaj Sørensen, President & CEO]

So thank you, everyone, who took the time on this mid-July conference call. It's truly a report that we were proud about and we are happy about to present. And I'm now looking forward to my own vacation, which will start in a very short time. But I saw here, Uppsala have gone from blue skies when we started the call to some clouds. I hope they will disappear when my vacation starts in about 36 hours. So I wish all of you a great summer, and thank you for listening to our call. Thank you.