Orexo AB

STO:ORX

Earnings Call Transcript 2020-Q2

[Operator]

Hello and welcome to the Orexo Interim Reports Q2 2020. [Operator Instructions] Today, I'm pleased to present Nikolaj Sørensen, CEO; and Joseph DeFeo, CFO. Please begin your meeting.

[Nikolaj Sørensen, President & CEO]

Thank you very much and welcome to the second interim report. I will also say we have received some questions through e-mails and Lena Wange, who is our Investor Relations Director, who will join the call in the end for the Q&A session and ask these questions if they have not already been asked or addressed during the presentation. So this quarter has, in many ways, been a very exciting quarter for Orexo. We have invested into a completely new area in digital therapies where we, due to the circumstances with the COVID-19 pandemic, have had an opportunity and, also both commercially and regulatory, to accelerate the launch of vorvida and for deprexis. We have also, during the quarter, seen that our R&D pipeline has progressed according to plan. And we had some very positive news in the end of the quarter with weeks 1 to 5 results coming out very positive. So in our aim and strategy to broaden our commercial base, everything has gone completely on track. Then it's safe to say that for ZUBSOLV this quarter has been a little more of a challenge. The sales in net terms have been slightly up from net sales from first quarter. But if you compare to last year, it's down, and if you look at the volume development, it's down also. Some of that is due to events that we knew before the COVID-19 pandemic. We're sitting around the introduction of generic competitors in the previous exclusive contracts with UnitedHealth Group and Humana. But it's also, I think, during the pandemic, we have seen how unemployment numbers have raised in the U.S. and where we really have our marketplaces among commercial insurance, that is insurance that's provided by your employer, and that have had a negative impact on ZUBSOLV during the quarter. On top of that, our field force have not been able to work in the normal way during the last months since mid-March. I will come back to all of this a bit later and move into the presentation. So I'll move directly into Page #4, which is an overview of the events that we are in right now. And so the headline that we've chosen for this presentation is Investing in Diversification to Drive Future Growth. And we went out -- just a few weeks back, we went out and gave some new guidance on the expenses needed for deprexis and vorvida, and we're also quite clear that some of those investments have already hit us during the second quarter. And in particular, of course, we saw a need to accelerate the launch for both vorvida and deprexis. So during the quarter, the EBIT contribution from our digital therapy was minus SEK 35.5 million. On top of that, we also see an increase in the R&D investment, partly due to the pivotal -- the first clinical trial under OX125, but primarily driven by the final preparation of OX124 to go into pivotal trial and registration next year. If we exclude those 2, I'm pretty happy to see that the core business of Orexo is still positive. We have positive EBIT, excluding those. But when we add these investments, which in accounting ways is counted as expenses, then we end up with a slightly negative EBITDA of SEK 9 million during the first quarter, and our earnings are also down. But I think in the earnings numbers, it's a little cheated by variations, in particular in foreign exchange rates, which during the quarter have gone quite a lot up, and in particular, later in the quarter, down, which have hit us on the earnings in a negative way, just like in previous quarters have been a benefit to Orexo. Our net revenues is slightly down, as I said, year-over-year for ZUBSOLV, but I also just remind you, just that we've been very transparent about the last, I think, several -- 2 years, is that Abstral will not contribute from Europe and the U.S. in 2020 and beyond. And that starts to -- that will hit the comparison year-over-year from now on. Then to a quite late news to come into the presentation or into the report, and that was on July 14, and to be transparent, it was July 14 in the evening, Swedish time, we received subpoenas by the FDA, in collaboration with Department of Justice. This is normally how it works in the U.S. We received subpoena regards to ZUBSOLV and the marketing and promotion of ZUBSOLV and other buprenorphine products. This is the only information we have received. We have not received any information about what is the background, what are the suspicions. There are no charges being made against Orexo that they shared with us, and the same goes for any of our employees. But we have transferred a quite substantial amount of information to the U.S. authorities, and we will now have to wait and see what will happen. This came as a complete surprise to me as we've been working extremely diligently to ensure that we are compliant with all legislations and follow our business conduct and ethics guidelines for the company. We even did a review with an external counsel on some aspects of the promotion in the U.S. during the autumn last year, and we had no serious findings in that review. So that we suddenly should have this subpoena on the company was a surprise to me. And unfortunately, I don't have much more information than what we have here and what we have in the report because, basically, they have asked us to handover quite a lot of information, which we have done. And now we'll have to wait and see what comes out of this. When we come to deprexis and vorvida, we have started the commercial activities for deprexis and vorvida now in July. Deprexis first and vorvida will be ready -- we had planned to be ready today, actually, but now it will be on Monday with the homepage, which will enable patients to actually use vorvida in the U.S. Well, I will remind people who'll probably read and, in particular, listen to our presentation on these 2, is the current focus is to work with market access. That's work with payers to ensure that we get reimbursement on the products and also to work with certain larger employers or health care providers to -- for them, basically, to buy access to the product. We don't have a system in place yet, which allow individual patients to go in and get a code through our channel. That will be ready in September of this year, and I'll come back to that later. We -- during the quarter, we acquired deprexis, which have had some impact on our cash flow. We have decided to accelerate our OXD01 launch, and it's now expected to be in the fourth quarter this year, and a very targeted launch with certain selected customers. And then with a broader launch in Q1 or Q2 of next year. Our DTx investments, we have previously guided on vorvida and OXD01, and we have deliberately not included our guidance to include commercial investments. We have done that now, and we are estimating the investments for this year to be around SEK 200 million on top of previous guidance. Some of that hit us now in the second quarter, but a lot of this will, of course, come in the following quarters. Then on our R&D pipeline progress, I'm quite happy but not surprised to see that our nasal formulation technology once again has delivered a very promising result. This time for OX125, which is an opioid rescue medication based on nalmefene. Basically, all 3 formulations that we were using, and comparing that to an intramuscular injection of nalmefene, showed very positive results. We are now in the process of finalizing the commercial manufacturing of OX124, which required quite a lot of investments. It's a relatively complex supply chain as we are setting up a manufacturing chain for a nonestablished device and for a new formulation technology. So this is something that we will need to work with several different suppliers, basically, from a blank sheet of paper to establish, and that is what have taken some time and investments during this quarter. What is positive is that the innovation have been recognized, and we were granted the first patent of our novel nasal delivery platform based on naloxone, which is the OX124 product. So we now have patent protection for OX124 until 2039. We're, of course, continuing to work actively with our patent strategy for our pipeline to secure that we have more patents than this generating over time, so we can have an even stronger defense. But we got the patent granted here during the second quarter. And we now have patent protection of OX124 until 2039. We, of course, also filed a patent for OX125. Moving on to a reminder on our strategy, and this is what I mean that we have really made such significant progress during this quarter into delivering on our strategic objectives. We broadened our portfolio by establishing a new business area, digital therapeutics. We are now planning to launch or we're actually in launch mode of 2 products. We've seen our own R&D products of -- development of some pharmaceuticals that basically worked throughout the year according to plan, and the most unknown in this process and, of course, the results of OX125. So we're very pleased to say they come up positive and also to say that in OX124, we -- as we're working with several different suppliers in different countries, both on this side of the Atlantic in Europe and also in North America. It's actually quite amazing that we have succeeded to keep the time lines despite the inability to travel. Then it's important for us to keep ZUBSOLV. It's, for us, the foundation that we stand on and the financing vehicle for these other ventures. And it is, of course, important to keep the profit contribution. And while I'm -- of course, we would have liked to see ZUBSOLV seeing -- growing sales during the second quarter. I'm actually quite pleased to see we have an EBIT contribution margin, which is, I think, a little more than 51% in the U.S. during the second quarter, which is, again, a testimony to how we work very prudently with our expenses. And during this quarter, when our sales reps have not been able to work in a traditional manner, that, of course, has a positive impact on the overall expense level. So looking at our pipeline on Page #19. We, today, have a pipeline of 4 internal pharmaceutical products, OX124, OX125 that I talked about, OX338 is something where we are working on the formulation. We had very good results in the clinical trial that we did with OX338, but we saw that we need to work on the formulation to secure a long-term commercial viable business. OX382 is something we've worked on for a while. We've put that a little on the side because, right now, all focus has been on OX124 and OX125, has been the closest one to market. And that's really where we have to focus our efforts at the moment. So OX382 is still worked upon by some scientists, but we are not putting a lot of resources behind that right now. OX-MPI is an -- is a former project of Orexo that we have sold to a company which is called -- a company called Gesynta, where Orexo has a financial interest in the progress of that product. And we're very pleased to see that they have passed Phase I in a very good fashion, and they've just raised a lot of money to secure that they can continue into Phase II, and they're doing that in some very exciting areas of unmet medical need. And then we have our cell therapy, OXD01, that I talked a little bit about. There, it's a little unique as you don't have the Phase I, II, III. And what we'd like to do with OXD01 is we will launch it and then we'll generate data while we have it in commercial development. So we are going to have clinical data collected for OXD01. We need that to get the right label with the FDA. But given this current situation with COVID-19 and the public health emergency, we have now a shortcut, you can say, to the market to launch it and then generate the market as we are in commercial mode. And that's the plan we have with OXD01. So far, the development of OXD01 is going completely according to plan. And we will probably rather soon be able to reveal the name of the product. So when you look at this pipeline, moving to Page #7. If you look at this pipeline -- and then I just realized that the page number have tricked us here. So before we were Page #6, and now we're going to Page #7. And I'm just looking at some of the headlines that we're seeing from the COVID-19 pandemic. And I've said that people who listen to me, I've said that every time we've seen this kind of, basically, an economic crisis -- we haven't seen a pandemic for many, many years, but an economic crisis, we have seen several times. And what we have seen in addiction is that we see more people are getting addicted to whether it's alcohol or it's opioids so I even saw an article recently that people start to eat more, so you're likely to see obesity becoming a bigger problem. It is a natural response to the uncertainty around you. And we are seeing now more and more headlines coming from Washington Post, just recently had a headline about death from opioid overdose increase. We've seen alcohol misuse increase in the U.S. We've seen the opioid misuse is increased, not only overdoses, but also more people are getting addicted to opioids. And as we saw in another news article, there's this expectation that the mental health crisis will actually be an even worse problem than what we have with the pandemic today. So -- and if you look at all of these different areas, this, of course, is very much spot on where we are with both our digital therapies and also with our pharmaceutical products. With that, I'll move into our commercial products, and it's very quite nice to see that we now can put 3 -- and I'm moving into Page #8 -- and to see that we have 3 local types on the front of our commercial products: vorvida and deprexis and ZUBSOLV. And if you look at the -- today, the revenue-generating product, ZUBSOLV, is of course, #1. I will say that Abstral, while we're receiving much less revenues from Abstral, we do still receive royalties from other markets than the U.S. and Europe. Edluar is a small product, but we also continue to receive royalties from Edluar. And now we are looking forward to the launch of deprexis and vorvida, and see the first revenues coming hopefully during this quarter. So going into vorvida and deprexis. And these slides are basically the same presentation we had recently with the Head of our Digital Therapy business area, Dennis Urbaniak. And first, just a reminder, deprexis is a fully automated digital therapy to manage or help patients to manage their symptoms of mild to severe depression. It has a multiple number of clinical trials where it's been tested scientifically and shown over and over again that it's adding value, whether it's used adjunct to other treatments or actually even in some of the studies used as the only treatment. So deprexis has definitely shown, and I think, a little as a front-runner in showing the value of digital therapy, and we're very proud that GAIA has chosen Orexo as the partner for the commercialization in the U.S.When it comes to vorvida. Vorvida is based on the same engine but this time, it's directed towards alcohol misuse. It has been launched in Europe. And it's, again, a product that has been tested scientifically and shown positive results. Both of these products have a significant net sales potential, although we have to recognize that this base digital therapy is still in its infancy, and there are a lot of infrastructure that needs to be placed. And just to give an example, so right now, we have to work through payers and health care providers to ensure that they would basically buy and pay directly to Orexo for the licenses they get or to deprexis or products -- in-lock licenses they get for deprexis and vorvida, but had it been a pharmaceutical, there's already an established distribution chain with pharmacies and wholesalers in the U.S. Here, we need to build this up basically from scratch, which, of course, is creating some uncertainty about how long time it will take. But there are a lot of very serious companies working in this, and we are -- have quite fast joined the -- an alliance together with the other companies to ensure that we can build up an infrastructure to facilitate the rollout of these very valuable tools for the patients in the U.S.So where are we right now? Basically, our focus at the moment, I'm moving to Page #9, is to work with access creation. And access creation is working with payers and basically making larger framework contracts. And the payers could both be an employer as it could be an insurance company or it can be a health care provider. And this is where we are at the moment. We haven't started to reach out to patients directly, and physicians directly because we need to create that infrastructure to be sure that we could get paid for the product. This other stage in the launch will come in September. When we'll have our homepage in place, we'll have customer support systems and others in place, and then we can start rolling it out directly towards physicians and patients. But now we have to go more to framework contracts, and that work has started. And I'm pleased to say I talked to Dennis Urbaniak yesterday, and we are making very good progress in setting up meetings with different providers, and then there are some concrete negotiations in place. But I can't say that we have sold any access to the practice so far. Right now, it's basically out there, knocking on the doors of larger payers and creating these framework contracts.So coming to Page #12. So what we have today is what you can see on the left side of the page, it's meetdeprexis.com. It's live as of July 2, and we will, on Monday, we will -- we're planning to launch meetvorvida.com, so that will also be live. That will be Orexo-controlled homepages and also be the access point for patients who would like to use the products or for patients who get a log-in number from their health care provider or from their employer or insurance company.And to give you a little sense on the positioning that we have, we have added here a preliminary vorvida advertisement material where we're kind of trying to imitating alcohol and alcohol advertisement but with the opposite message, basically saying now there's a way to take control of my drinking before it takes control of you -- me. I think some of the creative works is quite brilliant. So hopefully, we'll see that reflected in the sales of vorvida when we start this broader launch where we start using this advertising material to physicians and patients.So coming to Page #13. So the focus of us at the moment is why does it take so much time? So basically to ensure that we have a system that works for thousands of patients. We have to ensure we have all of the infrastructure behind, coming from services to patient, customer relationship management, customer support. In the U.S., as you have the insurance system, we need to have hub services to ensure that we can help the patients to get through with their insurance claim. And also to ensure that we get paid from the insurance when the patient get it recommended or prescribed by the physician. We can then basically secure that we have a money flow going with insurance companies. And this is quite novel as this is an industry that doesn't really exist today or it's very early stages. But I think we're making very good progress, and we have basically all men on deck to ensure that this is being set up. And so far, we are progressing completely according to plan towards the broader launch in September.And to give some early feedback from patients and physicians. And here, basically, what they have done is they have seen a trial version of the products. And as you can read in the citation on Page #15, I won't read all of these, but take a few selections. That it is generally pretty positive feedback. So just give one example from a caregiver, "I think this is better than live therapy, actually. People sometimes don't like to go in person or look at somebody and speak about their problems. A caregiver." But quite interesting with that is I saw in a Swedish newspaper, there was a debate article just a few days ago, it was in Svenska Dagbladet, whereas, in fact, there's 3 professors, I think, that were talking about how we need to think differently about alcohol addiction treatment and use more digital therapies because they have shown to have even better effect than live therapy. And to give another one from -- which, of course, is very important for us now is to ensure we get through to employers, and we have an employee benefit manager on the right side here saying, "Alcohol dependence is something we don't talk about. As an employee, being able to do something digitally and in the privacy of my own home seems like a great opportunity." So -- and this reflects very much some of the feedback that we're receiving right now when we start meeting customers, and actually this is from customers, of course.So just on Page #16 to round this off. We are right now focusing, as I said, on the payer models where we have something a little like the pharmaceutical model where we get reimbursement through insurance companies and employers. We're working now towards the insurance companies and employers, but we're also trying to do framework agreement models where basically they buy access to quite a few of their patients or quite a few log-in numbers. So for example, insurance company buying several thousands of licenses that they then can distribute to their clients. This is the focus at the moment. And then when we come to more patient-focused, that's when we have everything in place in September. For those of you who are interested in knowing more, I'll just refer back to the presentation Dennis Urbaniak did a few weeks back when we talked about the launch of our digital therapies. So you can find it on our homepage.Moving into ZUBSOLV on the next -- move to Page #18, directly into ZUBSOLV, where we are right now. So this quarter has been very interesting because we've seen a significant growth actually in the market. In actual numbers, this is the fastest-growing quarter since the ZUBSOLV launch in 2013. But when we look at what is it that it's growing? This growth is solely coming from Medicaid and some from Medicare. When we come into the commercial segment, we're actually seeing this -- the commercial segment, which is privately health-insured people, has been flat if you look quarter-over-quarter. But if you look at the last few months, so going through May and June, you will actually see the commercial market declining during the quarter. So while the full quarter is similar to Q1, we actually saw that the commercial market had a negative trend in the end. An explanation behind that is basically COVID-19 and the significant rise of unemployment that we've seen in the U.S. That probably also explains some of the Medicaid increases, people are moving from being covered by their commercial insurance over to Medicaid. But at the total market, we have seen a quite fast growth. And when you -- those of you who have seen my presentations before know that the open market, that's where ZUBSOLV is reimbursed. A lot of that is commercial. And where we have no reimbursement, that is predominantly Medicaid and Medicare. That is, as you can see, where we saw a quite significant growth in this market.Just looking ahead, what -- just going back to my -- one of my opening slides, we believe that, unfortunately, the issues around an addiction, opioid addiction, is something that will be growing as a result of the COVID-19. And as such, we can believe that this market will continue to show a strong development in the next few years.So a little more specific on ZUBSOLV. And if we look at ZUBSOLV, we have seen that our open market, and that's where we are reimbursed, we have basically seen a more or less flat development both quarter-over-quarter and compared to last year. So it's a mild volume decline, I think of a single percent compared to Q1. And -- but we have seen -- if you look at -- it's 4% compared to Q1. But if you look compared to last year, we have a -- in the open segment, we have seen that we're basically stable, have put a small growth in the open segment. And when we -- and when we look at what's really been driving this decline in ZUBSOLV, it is the Humana and -- or in particular, the UnitedHealth Group, where we've seen that we continue to see some decline during the quarter. This is something that has been a trend since we saw generic competition introduced last year. But this time, we haven't been able to compensate some of that decline with an increase in the open market, that we would have seen in most other quarters that the open market continue to grow. But if you look underneath the open market, you will actually see that in Medicaid, which is the growing part of the market, in the part of Medicaid where we have access, that's about 1/3 of the Medicaid market, we have seen that ZUBSOLV have grown. The problem we've had is in the commercial part where the market, even though it's quarter-over-quarter is stable, it actually shrinked throughout the latter part of Q2, which had a negative effect on ZUBSOLV also.So all in all, it's been slightly down in the quarter and both compared to last quarter and also compared to last year, a little more significant compared to last year, but we have known that. During the last few quarters, we have seen the UnitedHealth Group and Humana have a negative impact. So the positive part is that Humana part, where we now have passed 1-year anniversary of when we sold generic products being reimbursed by Humana, and we basically don't see a decline anymore. Where we have seen some decline compared to last year is still in the UnitedHealth Group.So just summing up for ZUBSOLV. So where are we right now? Is this going to continue to go down? So one uncertainty, of course, is what will happen with unemployment numbers in the U.S., do we see a continued increase in unemployment numbers? That's likely to have a negative impact on the commercial market. And as that is where we have the lion part of our market, that will make it more difficult for ZUBSOLV to grow. However, we have to be somewhat optimistic to see that the COVID-19 pandemic is lightening up, and we see more and more states in the U.S. opening up despite having some significant problems in some states with COVID-19. And if we see that the unemployment is improving, that of course will quite immediately have a positive effect on the commercial market. Another positive development is that we have been added now to Louisiana Medicaid, where we before had not have any reimbursement. From July 1, we will now have reimbursement in Louisiana Medicaid, so we increase our public access or the part of the public segment where we have access from 35% to 37%. So far, we haven't seen any changes in the commercial market, and we continue to have 98% access to commercial insurers.And when we come to our field force, as I said, we were very fast at stopping office selling on March 16, and moved over to what we call a virtual selling model through telephone, video calls and e-mails. And basically, we're listening to prescribers, how do you want to meet us? And when you were in the peak in April, we did a small survey among the physicians. More than 75% of the physicians have moved their practice over to telemedicine and not meeting physician -- patients in office. We have seen now during June that this has opened up. And today, the entire team in the U.S. are doing office-based selling. But if we again look at the number of physicians who are still doing telemedicine, we'll say that the access we have to the physicians is still about 50% of where we were before COVID-19. So while we do have the field force in the field, we see that they still have to access some of the physicians through virtual channels. And while that is a replacement, I think in this space, it can't replace a face-to-face meeting. And this is some of the uncertainty. But as we are -- basically week over week, we're seeing more and more physicians going back to normal operations, and we anticipate that will have a positive effect on ZUBSOLV moving beyond where we are right now.With that, I will open up for Joe DeFeo to take you through the financials, and I believe Joe will start on Page #22. Joe, please?

[Joseph DeFeo, EVP & CFO]

Yes. Good afternoon. Let's start on Page 22. So I'd like to start with our profitable U.S. pharma business. As you can see on the left graph, there has been a slight decline in net sales, which Nikolaj talked about. And -- but you can see that our gross profit continues to hold up very well as now we're recognizing the full impact of our lower COGS project that we completed last year. So our cost of goods sold on ZUBSOLV is significantly lower and generating more profit from us, which you can see on the right graph, that our last 12 months, our U.S. operating margin has grown to 47.8%, and in the quarter, Q2, was 51.5%. So we continue to optimize our cost base towards ZUBSOLV and generate very strong profit for the U.S.So if you then go to Slide #23, here's a look at that -- at sales. You can see, as I mentioned, ZUBSOLV had a modest decline in sales over prior year. And also, as Nikolaj mentioned before, we will no longer receive royalties on Abstral for Europe and the U.S. So there's a decline there, but we continue to get our royalties on Edluar. So overall, you could see the reduction in sales from previous year.If you go to Slide 24, this further explains the U.S. You could see that we had a modest 1% increase in the open business. And the reason this is modest is, as Nikolaj mentioned, the COVID situation and our sales force not being able to go out into the field and promote ZUBSOLV. We've had the decreases, as I mentioned, in our nonreimbursed business and also United and Humana, and that's prominently due to United. So there's 11% decline in that demand. Those were offset -- as mentioned in Q1, we had a significant drop in wholesale or inventories. Those levels have come up some, so we did have a positive impact from that. And we continue to manage our trade situation very well and our inventory at wholesaler levels. So we were able to recognize another lower return adjustment for Q2, which had a nice positive impact on net sales. Our price, which we took a 3% price increase at the beginning of the year, plus our payer mix and our favorable gross net was positive. And then we also had a slight currency improvement. So overall, a 6.4% reduction in net revenues for ZUBSOLV.You go to Slide 25. As you know, in Q1, we started reporting our financial -- our businesses in business segments. And you can see on the top one, as we talked about the profitability of U.S. pharma, you can see that the EBIT increased from SEK 83.8 million last year to SEK 88.8 million. So good profit improvement, again, for the U.S. And the next one, you can see digital therapeutics, where we're making our investment, predominantly in the launch of vorvida and deprexis where we invested a total here of SEK 35.5 million.And then finally, our headquarters and pipeline segment, where in net revenues, that's the reduction I mentioned in Abstral. And then our investment in our pipeline, you can see the increased operating expense, which overall gave us an investment level in headquarters and pipeline, significantly above -- roughly a little more than double last year.If we go to Slide 26, this is our overall P&L. Talked about the net revenue reduction. I mentioned that COGS, you can see significant reduction in cost of goods sold related to ZUBSOLV. In our operating expense, as we've guided, that our operating expenses would rise. In selling expense, the increase there is due to the deprexis and vorvida launch, predominantly, the preparation for launching vorvida. That's the increase in selling expense. Administrative expenses are up due to our long-term incentive plan. We had a very good positive development in our share price in Q2. So that led to an increase in expenses related to our long-term incentive plan. And then as I mentioned in our pipeline, that's the reason for the R&D expense increase.When you look at other operating income expenses and net financial items, that is due to the strengthening of the SEK in Q2, predominantly in the second half of the quarter versus the dollar. So we gave back some of the very strong positive exchange gains that we had in Q1. We gave back some of that in Q2. So that, overall, led to an EBIT as in -- was slightly negative at SEK 13.3 million and a net profit of SEK 32.5 million loss, but our EBITDA was, when you take out the exchange issues, was only SEK 9 million loss.If you go to Slide 27, this is our cash flow. We continue to have a very strong financial position. We did have a slight negative cash flow from operating activities due to the investing in our pipeline and also in digital therapies. And we also acquired deprexis. So that's the invest -- the predominant reason for the investing activities.And then in financing activities, we were as -- as predominantly most of it was done in Q1, but we did also acquire some additional bonds at a discount. So that is the majority of the financing activities, along with completing our share buyback in Q2. So that completes the financing activity.So we did have a negative cash flow for the quarter, but still remain with SEK 677 million liquid funds and a net cash position of 435 -- SEK 453 million. So as mentioned, we do have a very strong financial position.With that, I'll turn it back over to Nikolaj to go over the outlook.

[Nikolaj Sørensen, President & CEO]

Thank you very much, Joe. So looking at Page #29, this is basically the same page that we showed to you previously when we were coming out with our news about our increased investment in our digital therapies. And basically, as I said before, this is now the time for us to invest. We think we have a market situation that enable us to get a kick start out of the launch of these products. We've seen an opportunity to accelerate OXD01 and the digital therapy for opioid use disorder with more than a year. And basically to, right now, start being out there talking about the different products to payers, health care providers and employers. We think it's a unique opportunity given the situation with COVID 19. That said, we also recognize that like it's difficult to get access to all health care providers, the same also goes for other customers. But I think in this payer context, we are more used to have most of the interactions through more digital means like video conferencing, telephone conferencing, et cetera.So one of the things that's important is while we're investing, of course, quite significantly, we have the financial capability to increase the investments should we see that the market is receiving this better than we anticipate and vice versa, if we see some of the implementation takes a longer time. Most of these investments are, what you can say, variable cost, so we can actually pull back on some of the investments should we see they take a little longer than anticipated. But I think this is the strength that we have in Orexo and the buildup during the last few years is a very, very strong balance sheet that can enable us to do investments like this.Our financial outlook for the year. As we said before, there is some increased uncertainty due to COVID-19. And of course, we've seen exchange rate going up and down. The average during the quarter, I think it was more than -- it was around SEK 9.7. But if we look at today's exchange rate, I think we're down to SEK 9.1 per dollar. So it is very fluctuating, and we've seen in the U.S. that while the overall market is going well, the commercial segment, due to unemployment and others, have had a negative impact on the development. That said, I think this is something that would correct itself over time. So we will get back to growth.So when we come to the buprenorphine naloxone market, we already see that we have very strong double-digit growth. ZUBSOLV net sales is right now on a trajectory to go down, but we still think there's a good opportunity to -- if we see that the -- we see the commercial market rebound during the autumn, to see a more positive development quarter-over-quarter of ZUBSOLV during the remainder of this year.When we come to R&D investments, we've talked about that, we have increased our investment in both R&D and the guidance for digital therapies to a somewhat higher number, SEK 750 million to SEK 800 million. We anticipate that Abstral will decrease due to -- that the product we -- the contracts we gave in the U.S. have been terminated as completely according to plan. And we believe that the U.S. EBIT margin for the year will be between 45% and 50%. And I'm, of course, pleased to see that we actually exceeded 50% in this rather challenging second quarter of the year.So just looking ahead from where we are right now, and we're moving into Q3. And the big thing for us this quarter is, of course, the launch of vorvida and deprexis. We have a dialogue with the FDA about the fast track designation for OX124. We hope that will be resolved. That said, we do see that the FDA had quite a lot of delays due to COVID-19. So they are less responsive than what we have been used to previously. But we think with OX124, we definitely have a very strong case for get a fast track designation. And we expect to see that OXD01 technical development is finished, which will enable us to start the launch in Q4 with a targeted audience, and then a full launch probably around second quarter of next year. We are still planning to initiate the OX124 pivotal trial very late this year. But I will say that, that is a so-called PK study. So we're basically comparing in healthy volunteers the pharmacokinetic profile of the product to an injection with naloxone. And that is not on the critical time line right now. It is basically setting up the manufacturing and get stability data for commercial manufacturing or commercial product. That is on the critical time line. So should we be a little delayed in our OX124 project, that that will not have any impact on the overall time line for the project.With that, I will thank you for your attention. And operator will open up for questions.

[Operator]

[Operator Instructions] Our first question comes from Samir Devani, Rx Securities.

[Samir Devani, Research Analyst]

I appreciate there's not a huge amount that you can add on the DOJ investigation, but perhaps you can just give us a color on how many subpoenas -- how many personnel have received subpoenas? And how should -- in terms of the communication from here, these investigations can take many years. So I guess when do you think you'll be updating the market next on that process? I guess that's question one.

[Nikolaj Sørensen, President & CEO]

So I have to be a little cautious about how many subpoenas because we have restrictions on what we can say. But I can say it's very, very few members of the team who have a subpoena. And I can also say that the Head of the U.S. Operations, Bob DeLuca, has not received a subpoena. So it's not on the top level of the organization. He has not received a subpoena, but there are a few people out in -- actually, predominantly sales organization who have received some subpoena, but very few people. So -- and that's, of course, while we have no clue what this is about, it is interesting to see that the head of the overall company is not included so far in the subpoena.When it comes to the time line, I have, of course, very, very limited information. But what I have heard is from our lawyer who told us that we shouldn't expect to see any significant progress during this year.We will, of course, as we have now engaged a specialized lawyer in FDA matters, the authority who have initiated this is the FDA. And they will reach out to try to understand more about suspicion and what this is about, but we don't know at this time.And it can be a lengthy -- that's the advice we have received also, it can be a lengthy matter.

[Samir Devani, Research Analyst]

Okay. Great. And then just second question is just on ZUBSOLV. I guess Q2 was a bit harder than maybe you had originally been expecting. You've maintained guidance for the full year. And I guess -- you've also mentioned that you saw some wholesaler stocking in Q2. So I guess the question is, what do you feel needs to change in Q3 and Q4 to sort of get that revenue number up to meet guidance?

[Nikolaj Sørensen, President & CEO]

What we would need to see is basically that the commercial segment is bouncing back and going back on the same trajectory it had before, so that what we've seen is a temporary hold in the commercial market. And that is -- and then we would need to see that UnitedHealth Group, very, very soft but still bleeding quarter-over-quarter, that, that actually stops. We did see that in the end of last year, but based in Q4, we saw the United decline was -- it was softening a lot, so we had very little decline in Q4. We did expect some increased decline in Q1 because the patients, that their high deductibles are 0. So they have to pay for the full price of the product early on in the year. And that, of course, with ZUBSOLV, when you come down and pay list price, that is significantly more expensive than the generic versions. Then often for most patients, it's just 1 or 2 prescriptions, and they would have passed a high deductible. And then United will pay for them. ZUBSOLV will actually be cheaper than a generic. But this first prescriptions would be more expensive. And of course, COVID-19 could have another impact. So if you are worried about your financial situation, your willingness to pay the full price for a ZUBSOLV prescription compared to the generic is maybe not that high. So -- but we would have expected United to go down a little. And now we saw it continue in Q2. And we -- that, of course, is something we would need to see stopping. So commercial going back, we'll see United leading is basically showing the same as we saw in the end of last year. That will stop and maybe even start to grow because that's really the challenge we have, is that we are growing in some accounts, but at the same time, we're losing in some other accounts. And if we can stop the losing, then, of course, the impact of the growth would be much more.

[Joseph DeFeo, EVP & CFO]

I would just add. You mentioned the wholesaler stocking. That stocking was getting back to normalized level. So they're not carrying excess inventory. It's getting it back to normalized level. So we don't anticipate any kind of destocking or anything like that in Q3.

[Operator]

Our next question comes from Klas Pyk, Nordea.

[Klas Pyk, Research Analyst]

I have only one and that is on research and development expenses in 2021, 2022 and forward. If you could elaborate a bit on how you think expenses will develop? That's it.

[Nikolaj Sørensen, President & CEO]

So a lot of the expenses that we have right now for OX124 is for setting up the commercial manufacturing. And that, fortunately, is the same process that we need for OX125. So the cost of next year will be -- there will be a decent part of the pivotal trial cost for OX124 will come in next year. And of course, pivotal trial is bigger than the trials we've been doing right now. So I would expect R&D expenses to be about the same next year as we're looking at this year. So we will, of course, come with more specific guidance as we come closer.For 2022, that is too early to say because there would need to be other projects than the one we have most of our attention to right now, OX124 and OX125. And OX338, which is the one that would be closest, that depends on which regulatory pathway we decide and then how we end up in our formulation work right now, whether that -- how the cost will look like for 2022.

[Operator]

Next, we have a question from Gergana Almquist, Redeye.

[Gergana Almquist, Equity Analyst]

I have the same question as Klas, but about the digital therapies. Could you explain the investment there? And how long will they go on in the next -- in the future, in the next quarters?

[Nikolaj Sørensen, President & CEO]

I think the -- so if you look at the commercial expenses right now, the -- so what is it? So for the next half year, the expenses that we have for variable marketing and promotion costs, we expect that to be about SEK 100 million. And the other SEK 100 million is basically for what we say very launch-specific activities in developing the campaigns, developing their homepages, a lot of the infrastructure that I talked about. So the variable cost is around -- on an annualized basis, around SEK 200 million. And whether that will be higher or lower really depends on what kind of -- how fast uptick and how broad an uptick we see. Do we see more interest from its -- particular vorvida, we think there's a market for direct-to-patient. If that is something that we see is stricter, then we might look at promotional activities that are a little more costly, but will have a more immediate effect on patients.So it is a little early, but I think if you just look at the next half year, it's about -- the annualized is about SEK 200 million. Then we have the R&D expenses for OXD01. And that one, as we now decided to go faster into the market, we're actually planning to run some of those trials in partnership with a -- with, hopefully, with a payer. And that way, we could keep down the cost. And I have to -- you have to wait until a little later during the year when we know more about how we can run those trials before I can give you more guidance, but that would, of course, come on top of the SEK 200 million.

[Gergana Almquist, Equity Analyst]

And the follow-up question for this one is, how far did you get in building this infrastructure? Because it's quite -- I mean, it has to be very scalable and it has to be very secure. How far are you in this process?

[Nikolaj Sørensen, President & CEO]

So running the system is basically -- the infrastructure, that is on GAIA. And if you look, there was a cost of goods item on the list. That's actually the infrastructure running deprexis and vorvida. When it comes to running the payer processes, there, we are -- we're not building anything in-house. So everything is using vendors externally who are used to work with either large e-commerce platforms or in pharma and, in particular, in specialty pharma, the hub services is quite established concept, although we have to adapt the processes to digital therapies. But again, we will use a vendor and not build it up internally. And that's, of course, also important from a data privacy perspective, that we don't, as a company, have any interaction directly with the patient. So we won't know who the patients are, and that will be kept at the vendor level. And they have been approved for keeping that kind of information.

[Operator]

[Operator Instructions]

[Nikolaj Sørensen, President & CEO]

Maybe we can, maybe we can take some questions from Lena, who have collected some questions that have been sent to us by e-mail. So Lena, could you please read?

[Lena Wange]

Thank you. I have noticed that some of the questions that we have got by e-mail have already been raised. So we've covered. So of the remaining we have, they are all related to sale. The sales, the subpoenas and IT protection. So they will go over to you, Nikolaj. The first question reads, can you please provide us with an update concerning marketing of ZUBSOLV in Europe and/or other regions outside the U.S. and Australia?

[Nikolaj Sørensen, President & CEO]

Yes. So in the report, we also -- we announced that Mundipharma has not been successful of getting reimbursement of ZUBSOLV in Australia. And with that, the rights to ZUBSOLV will be returned to Orexo. Mundipharma has gone and done a good job in Australia, but the market has been genericized on the tablet side. So that has been more difficult for them to obtain price and reimbursement.When we come to other markets, one of the key aspects we have been working on for quite a while is to establish the supply chain. And that needs to be in place to be able to compete on the price level in Europe. And here, to be very transparent, we have found a site in Europe that could package our U.S.-produced material, but that site needs an inspection. And right now, the inspection has been delayed due to COVID-19. And we need to have that in place before we can hopefully finalize the negotiations we have for Europe. So we do have ongoing negotiations for the rights outside the U.S. and more particularly, in Europe. But before we can finalize that, we need to be sure that we can provide a competitive cost of goods.

[Lena Wange]

Okay. Thank you. How will you report the following progress for the DTx launch, only on the quarterly reports? Or is it possible with solutions similar to the Rx data for ZUBSOLV?

[Nikolaj Sørensen, President & CEO]

In the quarterly reports. That's the short answer.

[Lena Wange]

Okay. And then we move over to some Qs for the subpoenas. And the first goes, have your competitors been approached by FDA, too? And is that to your knowledge?

[Nikolaj Sørensen, President & CEO]

So it's quite well-known that our largest competitor, Indivior, has been in a process with the Department of Justice for quite a while. But I would say that that's -- it's very easy when you look at these processes and then you think Indivior, you think Purdue Pharma. So wow, this is a very big thing. But I will say that the vast majority of these cases are -- in comparison to these large headline stories, are much, much more smaller and the fines and penalties, even though they, of course, are money, and a significant amount of money, it's not that kind of transformative amount of money. And I just -- since I have no clue what investigation is, and actually a big question mark because I feel confident that we have good compliance structures in place. So I just went through a list of penalties that I have been given by FDA, and where there, of course, are some very, very high penalties, in the $1 billion range. All of those high penalties are associated with very, very large products and large companies. The -- when you go to the next pages, you will see that the big, big majority of the fines, we are talking single number of millions and several one in the $100,000 range. As I have no idea what this can be about from -- that we have with the subpoenas, then I would be surprised if Orexo is found to have done something that is just remotely comparable to some of these other competitors. But Indivior has been in the process for a while. And when you look at companies who are promoting controlled substance and more specifically pharmaceuticals containing opioids, I think nearly every single company in that space have been subject for these kind of investigations.

[Lena Wange]

Okay. If FDA in the end decides to do nothing after its inquiry, will they go back to Orexo and say no, or say so, or will they just do nothing, which means that they will publish no information at all?

[Nikolaj Sørensen, President & CEO]

I think there's a good chance that there won't be any published information, but being dependent on what happens. But of course, if they come with a fine, we will have to publish that. But most of the cases are basically done in settlements. And if they come, which based on how we have been working, I think there is -- I hope there's a good chance that they will find that there is no system -- systematic, at least, abuse of the compliance rules in the company. Then I think there's -- and it could even be that this has nothing to do with Orexo specifically, it could be a former, it could be a current employee. It could be partners we've been working with. And in some of these cases, we won't be informed, but I think the most likely is that they will inform us even if they decide to close the case. But again, that will take time before we get to that stage.

[Lena Wange]

Okay. Thank you. And then we have 2 remaining questions, that is for the IP protection. The first goes, the granted patent for the new nasal drug delivery, is that the same patent that you have been waiting for to be able to continue the development of OX124?

[Nikolaj Sørensen, President & CEO]

We have not been waiting for patents to be able to continue the development. This is -- we have announced that we are waiting to get a patent granted, and this is the one we have been waiting for. And that, of course, is based on an application, and that was made last year to the U.S. patent office. So this is completely according to plan and something we have expected, but it does not have any impact on the development.

[Lena Wange]

Okay. And the final question, maybe it's a bit related to what you just said, thus far, there's still an outstanding issue concerning the patent of OX124.

[Nikolaj Sørensen, President & CEO]

So maybe I just should correct my last answer. Of course, if we had not been granted a patent, that would have been a little of a headache because launching a product without patent protection would make it very difficult, even though a lot of the process development we have for manufacturing is unique and has definitely been a delicate work for my development team to establish that manufacturing in a large scale. So -- but taking that this is the first patent, and the natural path for Orexo is now to continue to work and see what are the unique value that this technology brings, and then seek to patent-protect that unique value as we can document it. So the patent protection is something that will evolve basically until 2039, more or less, for this product, as we learn more about how the product is used, what the effect is, what are some of the benefits. And I think one of the first next major times is, of course, when we have human data from the PK studies. That will tell us much more about the product and potentially lead to other IP.

[Lena Wange]

Okay. Thank you. That was everything that came from e-mail.

[Nikolaj Sørensen, President & CEO]

Okay. So all of you who are on the call, thank you so much for listening. As you understand, fantastic quarter in terms of developing our digital therapies, in terms of developing our R&D portfolio. ZUBSOLV has been a little more struggling. Some of that can definitely be explained and associated with the COVID-19 pandemic. And here, you are as educated as I am to how this pandemic will evolve as we go into the second half of 2020, and that will have an impact on ZUBSOLV. But we're doing that from a very profitable U.S. operations. We have our EBIT contribution margin north of 50% for this quarter, which is the strongest ever. And I think that's an important enabler for us to continue the investment in our portfolio of digital therapies and new R&D pipeline projects.So thank you very much for your attention, and I hope all of you will have a great rest of the evening and vacation for those of you who are planning that for July. Thank you very much.

[Operator]

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.