Orexo AB

STO:ORX

Earnings Call Transcript 2022-Q3

[Operator]

Welcome to Orexo's Quarter Report 2020. [Operator Instructions] Today, I'm pleased to present CEO, Nikolaj Sorensen and CFO, Fredrik Jarrsten; and SVP, Head of Research and Development, Robert Ronn. Please begin the meeting.

[Nikolaj Sørensen, executive]

Thank you very much, and welcome to this third quarter results of Orexo 2022. Together, as you just mentioned, with me I have with Fredrik Jarrsten, our new CFO, this will be his debut presenting in his first quarter with Orexo and I also have [Robert Ronn], head of R&D. We will talk a little more about the Orexo 640 results, which came in the fourth quarter, but the study was conducted during the third quarter.

We, as usual, have a short update on the business and moving into the financial and legal and also some perspective on the future. [indiscernible] I present is a legal disclaimer, but I do find that we are in a time right now with quite a lot of uncertainty in society moving out of the pandemic also with the more macro, both economic but also security issues we have in Europe. So a lot of stuff moving right now, but we think at the moment, we don't see that having a major impact.

So our third quarter achievements. If we look at our different business areas, we are having our headquarter pipeline, U.S. pharma and digital service. We had the headline of this quarter [sort of] advancing the pipeline, facilitating future growth. And this is really an area where we made good progress in the quarter. We have the OX124 project that is to continue like a train towards the ambition of filing in the end of this fourth quarter. And we also had [OX640] study which was conducted successfully, we got the results in early Q4.

But we also see that our new technology platform amorphOX continues to deliver very strong data both on small and large molecule, both in terms of bioavailability, but also in terms of stability of the platform. In our U.S. pharma, we have seen ZUBSOLV in a quite stable sales development. There's a minimal decline quarter-over-quarter, a good development and a slight increase in USD and a very good development in SEK, of course. And we continue to have a quite strong financial performance in the quarter. It's a little bit in the EBITDA profitability, I will come back to that later, but we don't see that as something that is more than a one-time event.

Our digital therapies, we have started with Trinity, as announced, the broader rollout in the middle of September. We've seen the first patients coming through. It is a slight of a step-wise rollout in Trinity to help create certainty about how the product is to be used. So it's a little slower than we anticipated when we had our second quarter call, but now we have started.

We continue to see a very good uptake in our modiaONE trial. So that's where we set our [trial conductors] with [Sisal Promotion] test MODIA. So some of the patients where we have seen a 130% increase in the number of MODIA patients during this quarter. But that is in a free price. What's positive is that we're now also seeing the first clinic and moving into our conversion state contracting, where we're expecting to see the first patients coming through in this quarter.

One of the things that is important, I think, in particular in today's environment is with the uncertainty we have on the financials sector, in particular in life science, we have a strong focus on profitability in the company. And what we are working on, of course, is we're working on the top-line, where we are pleased to see ZUBSOLV on sales. It's a little inflated so to say, have good tailwinds from the development of the USD since most of our sectors' [ZUBSOLV] are in USD. It helped to mitigate some of the increase we saw in OpEx because most of our operating expenses are also part of the denominator. But those 2 together are creating a very strong and solid financial ground from our U.S. Pharma business.

Where we have seen quite high investments during the last 2 years and expenses is in our digital therapies. And this is an area where we have gone through all of the direct expenses within digital therapies to see: how can we improve efficiency, how can we leverage more of our shared resources that we have with U.S. Pharma. And we have managed to bring down the direct expenses in our digital service with 75% if we look at the same quarter a year ago. We still have a decent expense to the therapy, but now the majority of these expenses are actually expenses that share with our U.S. Pharma business.

An area that I have mentioned in several calls is how we are focusing on our ability to control our profitability. And with that, we mean how we're controlling large earning expenses that are what we call of non-repeating on non-recurring nature. This is legal expenses, and we also got clinical trials because we can decide whether we want to start a clinic time or not start a clinical trial. And if you take the fixed expenses, we are profitability at an EBITDA level, and we actually been for the last year. This is something we follow very closely, and in particular now as we see some of these major external expenses will diminish during the next 6 to 9 months. We are aiming at a profitability situation for Orexo with the knowledge we have about the market today.

So our U.S. Pharma business, as I said, we have seen a relatively stable volume development. We're seeing good development in both New York and Kentucky with a double-digit growth in both New York and Kentucky after we were added into the pulmonary in these 2 Medicaid regions. However, that is, compensated a little by a decline that we've seen in UnitedHealth Group and Humana. So all in all, we are seeing a slight negative demand, but we actually see a very slight increase in our open business, and that's where we have most of the business today. But we have continued to see some decline in UnitedHealth Group and Humana.

One of the things that have happened during the third quarter is that we now have the full [indiscernible] place in New York so that is putting a little string on the expenses in our U.S. Pharma, but we're expecting to see that to be paid off by a continuous loan growth in New York. I have mentioned that COVID-19 has been impeding and reducing the productivity that we have seen from our field force because it has been difficult to access the physicians in the same degree as we saw before COVID. This has started to improve, but we are still below pre-COVID level, but we are now actually seeing the number of sales calls for the field force very close to what it was before COVID. But we still see that in several clinics, the doctors are now open to speak to sales representatives.

Then I'm very pleased to say that so far, everything that has been published for ZUBSOLV market access next year, we will see that we will maintain all of our market access. And that's important, of course, if we see a market growth beyond what we have today, that would be very helpful, and we have strong market access. And we have seen a market growth of about 5% for the last 2 quarters.

One of the reasons it's definitely been COVID is that now when we're taking into the data and we're talking to more and more physicians, we see that Fentanyl has basically moved during COVID. We have received very few patients who are using pure heroin or pure painkillers. Fentanyl is basically mixed into most opioids that we buy illegally in the U.S. What we hear from physicians is that Fentanyl patients are more difficult to control. So we have a higher degree of relapse and these at the start of treatment, more patients are falling back into misuse than what we have seen before.

So this has made the patient population even more difficult to work with. We know a lot of doctors are working with different methods of how they can improve the induction phase for these patients. And here, in particular, access to counseling is very important because you need to help the patients more during the induction phase than what we have seen previously. This is, of course, as long as we see the Fentanyl plotting the market as we're doing right now. That will continue to be an issue for the physicians, but we'll also see more decisions getting better at treating this. And here, we believe our dosage range will actually be healthier because they need to work much more actively with the dosing of the patients than what they used to do.

One of the things that we believe will trigger growth is that we're not seeing the settlements that we have for what we call the OpCo litigations in the U.S. That's where big wholesalers, pharmacy chains and pharmaceutical companies are paying damages for the damage caused by the opioid epidemic. The segment number is actually now up at $54 billion; $54 billion have been agreed in Cellnex, which is to be paid out some of that in labs and some of that during a certain period of time. And we are now seeing the first states in the U.S. are making this money available for improving treatment. We see that as an opportunity for Orexo to actively pursue opportunities where there are grants financing.

There are initiatives on a state level where with our comprehensive offering, consisting of ZUBSOLVE and will be soon also OX124 and our knowledge from the market, we can act to create solutions together with stakeholders in different states and take part of the settlement money. And I think Orexo is uniquely positioned to do that. We are the really only company who have both the counseling part with the pharmaceutical partner, with ZUBSOLVE, soon we'll have a rescue part with OX124 and we have a field force which is represented in most of the U.S. So I think this is an exciting opportunity where we really have an opportunity to support the market and help patients from our perspective.

Moving into the headquarter pipeline. I'll just take the headlines before Robert will go more into the details of 640. So on OX124, everything is on track with our data expected filing with the FDA during the fourth quarter. All the data we have collected and tests we have done right now is basically following the plan that we have for the filing. And with the current requirement for FDA, we are optimistic that we will make this target.

OX640, we had our Phase 1 trial that we tried successfully that Robert will talk to you about shortly. And we are now looking on a partnering perspective for how we can find partners to continue the development and who can work with Orexo during the commercial [and organizational] phase. And we have some active dialogue ongoing in this speed also.

Then finally, as we see the positive results in OX124 towards filing, we see the past results from OX640. We also made the decision that we need to focus and prioritize our resources. So we will continue to keep OX125 in a slow development: we collect data from stability and so forth we are ready to accelerate with OX125 when we see the market opportunity exist. But our project OX338, which has been a little paused for a few years, we've decided now to stop completely. And if we're doing something in [indiscernible] in the future, it will be in new products. So OX338 has not been prioritized.

Then very fast on OX640 before [I give over] to Robert. So why do you think this is an opportunity? This is a market where we have seen quite solid growth for close to double digits for a long time, we are seeing an expectation for continued double-digit growth. It's an issue which is global. So we see an opportunity, which is going beyond the U.S. The market size today is more than $4 billion with the U.S. being the largest market, with Europe being second largest. The market leader is EpiPen which is an auto-injector. We've seen other auto-injectors coming into market, and now we see some new [formulations] coming in also some new nations have [indiscernible] in the U.S.

However, when we look at the unique properties of OX640, we still believe that we have something that differentiates towards growth. It depends of course on if we immediately have a solution. But we also see that from compared to some of the other solutions that are on pipeline, we find that we have a much more stable and robust formulation plan than what others have. Another big advantage we have both towards EpiPen and some of the other competing products is that we have to have a manufacturing process already in place, so it's OX124. And it's much cheaper than what is needed for the auto-injectors. So we expect that our cost of goods for exporting will be much lower and much cheaper than, for example, EpiPen.

And then we have a product that has no antioxidants and preservatives, which is also known to cause allergic shocks. So when you are using products with antioxidants and preservatives, you get secondary allergic shock. So all in all, we believe we have a strong product that has a differentiated profile entering into this market. And as I said before, we are looking actively for development partners who can take some of the commercialization responsibility for this product. With that, I will leave the word to [Robert] to talk a little about our results and the data we have.

[Robert Ronn, executive]

Thank you, Nikolaj. So I would like to start to go into some of the stability data that we have for our OX640 product. And as Nikolaj said, I mean, this is a very important differentiator for our products compared to what it is today and also what is being developed at other companies.

What we see here on the page to the left is a comparative stability study between OX640 and EpiPen. The graph to the left shows the Adrenalin in content in the formulation or in the product after a certain time of storage. For EpiPen in blue, we can see that almost 20% of the API has been lost after 6-month storage, whereas for 640, we still have 100% of our Epinephrine left even after 18 months of storage under the same conditions. The graph to the right shows the degradation of Adrenalin, another way to look at stability. Once again, we can see EpiPen bars in blue and after 6 months, more than 25% of the Adrenalin in EpiPen has been degraded whereas in 640, only 1.8% has degraded after 18 months. So the stability in the OX640 is on a completely different level compared to EpiPen and also other injection solutions. This is worth mentioning in that these are properties that we have seen for our more OX technology. We have seen it for many other small molecules and lately also for larger molecules.

Next slide, please. And then turning into the clinical results from the first clinical study that we performed for 640. Very positive results. We saw excellent bioavailability of 640 formulations. What we can see here on the graph is actually the plasma levels of Adrenalin over time. The red curve, that's 1 of the 640 formulations that we tested in the study in all recessive formulation. The solid black line at the EpiPen product, and that's the one that we use as a comparator in our clinical study. Included in this slide are also the doctored lines, which are other approved Adrenalin products. These are also intramuscular injection products but not auto-injectors.

What we see on an overall basis is that we got both very rapid and very good exposure of 640. And the whole objective and the strategy with this program is to get pharmacokinetic properties that are within the space of other approved products. And if we look at some parameters that are important for regulatory approval of this type of product, you can look at the total exposure of Adrenalin. And here, we can see that we are within the space of the other accrued products. The same thing goes with peak exposure, which sometimes is referred to as Cmax.

We also see, as this is an emergency type of product, the early exposure is another very important parameter. And also here, we can see that we are comparable or even faster than other approved products. To conclude, we met the primary objectives of our study, and we have identified a candidate that we will advance into product development.

Next slide. And this is just a high-level time plan or a development pipeline. Right now, with the positive results from the first study, we will continue the pharmaceutical development, and this will also include the initial upscaling of this product. And again, here we can capitalize on the supply chain that we have established for OX124. 2024 will include additional clinical studies. It's worth mentioning that the studies will be not large safety or efficacy studies, they will mostly be PK-based studies, similar size to the one study that we did perform and we are targeting for NDA submission towards end of 2025.

[Nikolaj Sørensen, executive]

Thank you, Robert. Moving into digital therapies. We are looking at particular at MODIA, where we have seen a very fast uptake among our ZUBSOLV users. So we had nearly 1,200 users who are using [indiscernible] during Q3, which is a 130% increase from Q2 and leave us with more than 3,700 users in total who have tested some of our digital therapies. And this is important for us because some of the things that we have seen is still some scepticism and some basically lack of education and understanding among healthcare professionals, but also among patients that this actually has a positive effect. So to have this awareness and get very positive feedback from the users, that is incredibly important, and I'm happy to see that several of the users of MODIA in the doctors who are using MODIA as [indiscernible] and now want to do a commercial contract with Orexo to start a more business-based collaboration.

One thing that is important for MODIA is to have the clinical trial. Today, we are promoting MODIA was called the emergency use authorization, but the ambition is to have a 510(k) application filed with FDA after we get the clinical trial results. And here, again, during the fourth quarter, early fourth quarter, we finalized the study based on a pretty rapid uptake in the number of patients during Q3. So we basically have the last patient recruited and we'll now expect to have the results in 6 months from now and then we can start maybe able to take the final section to a 510(k) application with the FDA. With a 510(k) approval we see an opportunity to come in as a prescription partner, but we know there are some formularies that insurance companies today who have formularies of prescription digital therapies. And we also know that, for example, the VA, where we have an agreement with Deprexis will only include products that have been formally approved by the FDA. So this will be a trigger for us to expand the market access for MODIA.

When it comes to Trinity Health, this is an area where we were ready to start new patients in July. It took a little longer than we anticipated because Trinity wanted to run some additional billing tests with some patients before they were able to roll it out. They had the announcement in - I think it was around 7th of September - where they announced that they're now starting to roll this out. We do have the first 2 patients on the Deprexis within Trinity Health. And what will happen is that we have patients decide that we will recognize the revenue we get when we see that the insurance companies have accepted the reimbursement request. So we are expecting some revenue in Trinity Health during the fourth quarter.

But something that we see in Trinity Health is that doctors, even though Trinity as a corporation have decided to roll this out and reacted together with John Kutch, the CEO, to present this to other healthcare networks during this weekend that is coming now. So they are very committed on a corporate level, but we also need to get the buy-in on an individual patient physician level and clinic level. And there every clinic and physician, we have seen that they want to test some patients before they are rolling it out broader. So this is a step-wise approach, but we have a very strong buy-in and support from the entire leadership team of Trinity Health and also from the clinic. But they are implementing in a more controlled and a little slower pace than I, of course, personally would have liked. It's understandable of course from an implementation perspective.

We still believe that digital therapy is something that is going to be a big part of life science and health care in the [indiscernible]. The feedback we get from patients on all of the 3 products is generally very positive. We don't have any direct contacts with patients, I should say, so the information we get is from the caregivers. But particularly with MODIA where we have a close relationship with all of the physicians from our [indiscernible] times, we get a lot of positive feedback and a lot of the MODIA clinics are now moving into commercial contracts. However, we do see that this is taking some time.

The reimbursement pathway we have with Trinity Health is what is called collaborative care model, which is including primary care and specialty care. It's something that is new to Trinity Health. It's new to the decision. So there's something that they need to get educated and get comfortable with. We also get the feedback that digital therapies is something that each individual doctor would like to test before they find out on how to move on what patients they want to use it at and when to give it to those patients. And what we have seen is an interesting observation as we see more and more patients coming through.

It's actually even on the patient-doctor relationship: some of the patients who are more most satisfied with the digital therapies are so eager that they actually complete the digital therapy much faster than what is expected. And that's something that is creating a little bit of a problem because that is based on a longer sort of treatment plan for the patients. So they've done the digital therapies in a few weeks, and that is basically misaligned with the overall cap for that patient. And we need to work here with education of patients, education of the caregivers, how they're going to inform each individual patient. But we have a very strong collaboration with Trinity and as I said, a very high buy-in on the highest level in the organization.

But we also as a corporation from an Orexo perspective needs to accept that this is going slower and have gone slower during 2021 and 2022 than what we anticipated. So we have decided to continue to focus our resources to where we think we have most effect. And this is why we see good reimbursement pathways to the Trinity Health model and get this one scalable and implemented to other health systems and apply authorities. Veteran advance implementation is a high priority, and then to work with our MODIA doctors is a high priority.

By focusing on these fewer channels, we have been able to lower the number of staff working with digital therapy and also, in general, decline the direct cost that we have in the [indiscernible] leading to a 75% reduction in direct expenses within digital compared to a year ago. And some of you might read the report and say, yes, but you haven't really lowered the cost and detects but not to that extent. But this is active because we now, with the promotion of MODIA, are allocating the cost of the sales reps in the U.S. Pharma organization based on how much time they're using on each product to either U.S. Pharma or to take this is synergistic or allocated resources rather than direct expenses.

Before we increase our expenses in digital therapies, we want to see concrete steps forward. So new health systems, all products within [indiscernible]. We see more commercial rollout in MODIA that could trigger an increased investment. But now we will basically expand our cost base as we see revenues come in rather than taking the investment of [Pharma], which is a slightly different projection in the beginning. With that, I will leave over to Fredrik to take us through the financial update.

[Frederik Jarrsten, executive]

Thanks, Nikolaj. We are now on Page 22. So if we look at our revenue, [indiscernible] on the top part of this page, you can see our total revenue in Q3, SEK 161 million, which is 2.3% higher than Q3 last year. And of that revenue, obviously ZUBSOLV is the main contributor with SEK 150 million for the quarter, and that's up 10.1% from Q3 2021. Now the main explanation for that, that is the strong depreciation of the U.S. dollar.

So if you look at ZUBSOLV specifically in Q3 compared to Q2 this year, you can see from the [indiscernible] [graph] at the bottom part of the page. The FX effect is also the main explanation behind growth quarter-over-quarter by 7.9%. The FX effect was a positive SEK 10.3 million. So we're happy to conclude that ZUBSOLV demand is still stable, as shown in the first 3 bars in the graph, just a slight reduction of 1.1% and as compared to the overall market growth quarter-over-quarter of plus 1%.

We do have some negative impact from the [indiscernible] following, among other things, the growth in Medicaid volume in New York and Kentucky. But an overall positive effect from a positive return adjustment following a trend of less returns in general, which made it possible to reduce our returns [indiscernible]. In conclusion on this page, you can see that in local currencies, the [US Pharma] net revenue is stable between the quarters at 0.2 factor.

Next page. Our P&L. I just mentioned the growth in total net revenues for the quarter and for the first 9 months, that growth is 11%, up to SEK 468 million, again, with the majority of that being an effect of a strong U.S. dollar. Increase in COGS is to a large extend the reflection of the strong U.S. dollar. And when you look at our operating expenses, we are focused on driving future opportunities, as we have talked about, which in this quarter include progressing OX124 towards filing with the FDA later this year as well as completing the first clinical study of OX640. We have increased expenses withstanding our business in relation to the IP indication, but more than offset by significantly lower selling expenses in UTA. And, as I said, all [nets] [indiscernible] is negatively affected by the strong U.S. dollars.

And if you just pause there from a moment commenting on the net effect on EBIT from the stronger U.S. dollar. We can conclude that even though the effect is significant on net revenue, we do have matching costs in U.S. dollars, which obviously also are affected by the strong U.S. dollar. So this results in an almost perfect balance between income and cost in U.S. dollars, and if you will, create a natural hedge when it comes to the currency effect on EBIT. And if you do that exercise, the net currency effect on EBIT this quarter was only a positive SEK 1.7 million.

Our U.S. Pharma business showed a good quarter of SEK 70 million in EBIT which is an EBIT margin of 47%. Now that is down from 54% last year. That reflects a negative impact on the margin following one-time adjustments in July and also the increased investment in [indiscernible] in New York. Then in financial items, we have a very positive currency effect on our cash and cash equivalents and in U.S. dollars. That was SEK 33 million. We also earned interest on short-term investment of SEK 1.4 million, offset in part by higher costs for the corporate bond, SEK 6.6 million. So in conclusion on this page, EBITDA for the quarter minus SEK 32 million.

So on the next page, we just wanted to highlight again the point made of being EBITDA positive. If we separate what we define as things that are non-rent costs. In Q3, those amounted to a total of SEK 47 million, and our EBITDA in that case would be a positive SEK 14 million. Now you can see the external non-repeating costs on the right-hand side of this page. So they relate to clinical trials, MODIA phase 3, OX640 phase 1, OX124 HF studies and then we have Sun litigation and [subpoena] litigation trial which will happen in Q1 2023. We will have the clinical trial that's now completed until Q2 2023. So that actually means obviously that after the first half of the year we will no longer have these costs, which, again, is why we emphasize this key metric confirming the move to returning to profitability.

Next page, please. So there we have the cash flow. We can see the cash flow from operating activities negative for the quarter with SEK 61 million, primarily impacted by negative operating line. As you followed the waterfall graph on the bottom part of the page, moving towards the change in total liquid funds. We invested SEK 69 million of our surplus cash in certificate deposits and U.S. treasuries. We have amortization of leasing the SEK 5 million. That's an IFRS adjustment. We had an FX circa SEK 30 million in cash assets. USP-bank accounts also had a positive change in maturing short-term investments of [SEK] 98 [million] today. So that resulted in a total negative change in cash and investment funds of SEK 24 million in Q3. So that meant that we had SEK 444 million in liquid funds as of 30th September 2022. And out of that, SEK 322 million in short-term investment and SEK 122 million in cash.

And then we move on to the next page where we show the financial outlook. So we can ensure that we reaffirm 3 out of 4 metrics, and we do revise the metric on OpEx. So from the top key market development still showing growth pace in line with 2021, although at the lower end of [indiscernible] 5% to 8%. So we're happy to include the stability quarter-over-quarter this year. And on a full year basis, we still believe the objective of increasing user base in the second half of the year in season also based on that Q4 usually is a good quarter for ZUBSOLV.

The U.S. Pharma EBIT margin as it stands, 47% for the quarter. That is an average. July stood out. We had a lower margin there. August and September, on the other hand, well above the 50% margin objective, we're pretty confident now in reaffirming this metric. But we have revised the group OpEx metrics from SEK 650 million to SEK 700 million to SEK 700 million to SEK 725 million. That is mostly due to the depreciation of the U.S. dollar. If, in fact, we had us previous exchange rate from Q2, OpEx estimates would have been reaffirmed. And with that, I'll hand over to Nikolaj for the legal update.

[Nikolaj Sørensen, executive]

Thank you. So we had anticipated that our Sun litigation process would go into the district court actually in the beginning of November due to a very busy schedule with the judge. This has now been moved into January, but we also recognize that this is a moving target. So our expectation now is that the district court hearing will happen sometime during Q1 with the results as expected during the summer of 2023. This is, of course, a little unfortunate as we would like to have this behind us. But really still feel that we have a very strong patent position. We've been doing this before, and I'm certain that we would prepay again at this time.

When it comes to the subpoena, there has been a little work done because the U.S. authorities have asked us for some clarifications and are asking us to complement some of the materials that they have received previously, but we still have no clarity or indication as to what they are looking at. So all in all, the legal expenses, in particular for the Sun litigation, will now continue during Q4 and also into Q1.

So looking ahead for Orexo. So why Orexo? I just want to remind a little on what is the core business for Orexo and where we start this opioid use disorder treatment with ZUBSOLV. That's why we started with MODIA, that's why we developed a new rescue medication because we saw the need to [indiscernible] treatment of Fentanyl overdose in the U.S. And these 3 legs of product categories is giving us a very comprehensive offering that we can promote in the U.S., leveraging the network we have already, in particular now we see the new opioid indication settlement funds becoming available. This is an advantage fast when we're seeking collaborations and access to some of these settlements funds to enable the improved treatment of patients.

But coming from this focus on the core business, we also see from the MODIA that we needed a reimbursement platform; we needed a solution for this. And we saw a lot of synergies of expanding into other products within mental health where we have a lot of overlaps for both the customer base and also the patients. So we expand into VORVIDA Deprexis and together we now have 3 products making us a pretty large player in the digital services space in mental health issues in the U.S.

Likewise, from OX124 and OX125, we developed a technology to solve the issue that we saw from patients over dosing from Fentanyl. That technology led to amorphOX, and now we have seen that that is applicable on other APIs like nephron [indiscernible]. But actually, the technology in itself with an amorphous powder has shown to have an absolutely excellent stability on both small and large molecules. And this opens up new doors for Orexo to generate revenues and partnerships for the company or spinning out of the core business of Orexo.

So looking ahead, so where are we right now? And we believe that we have corporate profitability in sight. We see that the main external cost drivers will diminish during the next half year. We are seeing that in the current environment in the financial markets, we need to be adopting our activities to where we see revenue opportunities and active confirmed revenue opportunities for the company.

Our R&D pipeline is something where we expect to see some revenue-generating partnerships next year. That is becoming both from OX640 from amorphOX partnerships and even from OX124 where we could also find partners outside the U.S., but of course, we're also looking to get approved with the FDA next year. One thing we have decided, however, is to slow down some of the manufacturing that we would need to do at risk before the approval in the U.S. if we should start commercializing already in the autumn of next year and do that after the approval in the U.S. to avoid having to write [out] in the case of FDA needing to change order or to change the label. But OX124, OX640 and amorphOX are all likely to generate some kind of revenues during the next year.

On DTx, we are now seeing that, we expect to see the first, but I would not call it material revenues in Q4, but we do expect now to see [indiscernible] as starting to expand to more patients. We are expecting to see [new] patients coming through. And we even have some other partnerships that we think generate some revenues in DTx. But this will be a slower build than we anticipated initially. And of that reason, we have also adopted our cost base and continue to work with the cost base in DTx to be able to sustain the pace in our top-line to match it with the cost on OpEx.

Then finally on ZUBSOLV we see we have stabilized sales. We haven't seen a lot of improvement in volume during the year, and we see a lot of opportunities to grow in the market. It is still a relatively slow pace in the market growth. As Fredrik said, it's in the lower part of the range that we guided on in the beginning of the year. And if we see this market start to take off with this very strong market access we have, we believe that we have a good opportunity to grow this market next year. With that, I want to thank you for your participation and open up for questions.

[Operator]

[Operator Instructions] The first question comes from a number that we, unfortunately, didn't get your name or your phone number. Would you please introduce yourself and ask your question.

[Klas Palin, analyst]

I'm Klas Palin from Erik Penser Bank. Maybe to start with a question when it comes to Trinity Health. Maybe I didn't quite understanding what you're saying, but we just wonder a little bit about the implementation and what this will lead to eventually. Will it be mandatory for all the doctors and physicians that treat the present patients and patients with alcohol abuse to use in some way, the practice and VORVIDA eventually? That's my first question, I guess.

[Nikolaj Sørensen, executive]

So we can take that the question is whether it would be mandatory to use, to practice of VORVIDA for...?

[Klas Palin, analyst]

Yes, to implement that in the treatment programs? Or will that be up to the doctor to judge themselves?

[Nikolaj Sørensen, executive]

There's a strong run wish on the management of Trinity Health to have it implemented as a standard part of the treatment change. But in the end, it is every doctor will at least make their own decision on which treatment is the most suitable for each patient. And that, of course, requires that we educate the doctors and make them comfortable of using the Deprexis and MODIA on their patients. So even though it's now available, all the processes are in place, there is what we call pull-through that we need to do in Trinity Health.

So we don't have sales reps in place in North Dakota, but we have decided to reallocate some resources who will be there on a frequent basis to work with the doctors to ensure implementation of the products. But it will not be mandatory for the doctors to prescribe it for all patients with either depression or opioid misuse.

[Klas Palin, analyst]

And just on the curiosity: Have you seen any increased interest from other healthcare providers in a new sort of a model to provide reimbursement for patients since you went live with Trinity Health?

[Nikolaj Sørensen, executive]

So actually, this weekend or today, Dennis Urbaniak and I are leaving for a conference in Arizona in the U.S. together with the CEO of Trinity Health to present in front of a larger group of CEOs of other similar networks, who have signed up to basically come and listen to them with sending together the learnings that they have from Trinity Health. And this is an active participation, so they have decided to come and listen to this and the purpose of the meeting is to present our Swedish [indiscernible]. So the answer to that is absolutely yes. There's some interest in this. And we are promoting it together with John Kutch, who's the CEO of Trinity Health.

[Klas Palin, analyst]

Great. And your new main goal to have a positive core EBITDA levels. Does that mean when we are coming into 2023, that would include all that you need to do in the OX640 program, or do you need a partner to finance further development?

[Nikolaj Sørensen, executive]

So we do have the resources to finance, but we want to make comfortable before we start any new initiatives that this financing is in place. We do see a quite significant reduction in other expenses in the company. So when we're weighing things together, it's not like we don't have space to do anything. We still believe we will have space to run and pursue some of the development steps we need to take in OX640. But we are, of course, looking for a partner, and I think that would enable us to accelerate the development of OX640 together with a partner compared to if we should do everything on our own.

I'm happy that we have a quite strong interest. Our business development team has participated in BIO-Europe just a week ago, and some of them is [indiscernible] this week. So there's a good interest in OX640 and we have some concrete discussions ongoing with potential partners. But we do have the ability and we basically have all the knowledge we need to take it to the next stage. But it would be great to have a commercialization partner on board for that.

[Klas Palin, analyst]

Great. And as also mentioned in the report that you have seen a strong interest in the amorphOX platform. Just wondering, are there any companies that actually [evaluating] the platform today? Or are you in discussions of such evaluation efforts?

[Nikolaj Sørensen, executive]

We have run feasibility studies with an external company. But the luxury we have from Orexo, is that we can use some of the synergies in some of our existing resources. So we do some feasibility studies without having any formal contract in place. But we do have other discussions ongoing, which are a little more holistic in their nature.

And then there is a quite large interest in the sense that we actually from Orexo need to prioritize which one do we want to pursue because there are several smaller companies have an interest and have issues that we think we can solve together with an amorphOX expert. We are prioritizing the big opportunities in terms of partnering because it is some of the same resources we use for OX640 and OX124, we also need to work with these interim partnerships. We also have one external partner where we have already done formulation, and we have others where there are very concrete discussions ongoing.

[Operator]

The next question comes from a telephone number that ends with 265. Would you please like to introduce yourself and ask your question.

[Nikolaj Sørensen, executive]

Okay. Nothing there. We got it. We've got a question online, so I can take that while we wait for someone coming in. "It seems that you're downsizing your clinical ambitions going forward. Will it lead to redundancies in the [IT] organization going forward?"

The short answer is no. In Sweden, we have worked a lot with consultants in the process of OX124 and the [last space], which is cost-cutting some expenses also. And then some of these consultants are specialized in the effects of OX124 and would not be needed in work on in OX640. So in that sense, we are downsizing because we don't need the same amount of consultants, but digital costs have been higher to very specific projects. But from our cost, that's not the plan.

[Operator]

We have received a question here from our telephone number that ends with 2625. Would you please like to introduce yourself and ask your question.

[Ethel Luvall, analyst]

Can you hear me?

[Nikolaj Sørensen, executive]

Yes.

[Ethel Luvall, analyst]

Yes. I'm sorry, I believe that must be some sort of the mistake with the number. But however, I'm Ethel Luvall from Redeye. And I have a few questions that relates to OX640. And it is with regard to the clinical results from the study. So how would you describe the power and the intermodal confidence of the study?

[Robert Ronn, executive]

Thanks, Ethel. So with regards to the power, there were 40 subjects included in the study. And I mean, to the comparator EpiPen product, it depends on which specific parameter you have in mind. But looking at, for example, the total exposure we saw, we did see a significant difference in the total exposure. So which is obviously, as you can see from the mean graph that we had a higher exposure of 640 compared to EpiPen, and that's statically significant.

[Ethel Luvall, analyst]

When you do mention the significant, what size of that number is it?

[Robert Ronn, executive]

The size of that number? What I refer to statistically significant is within the 95% component interval comparing total exposure.

[Ethel Luvall, analyst]

And so although the FDA requires additional subs would you say that the target product profile for OX640 has been raised?

[Robert Ronn, executive]

So far, I would say yes, because as I mentioned during the presentation, the target is to be able to bracket our product from pharmacokinetic parameters between the already approved products both in relation to approved water injectors, but also injecting intramuscular solutions. So from that perspective, I would say that we have reached our target profile. Obviously, there will be additional studies that we need to perform, but so far, so good.

[Ethel Luvall, analyst]

How would you describe the ultimate partnership with regards to OX640 and in terms of continued development, manufacturing, consultation and all the all?

[Nikolaj Sørensen, executive]

I think the optimal partnership is someone who have some knowledge in this field and have an established commercial infrastructure, which is relevant for the promoting OX640, whether it's in the U.S. or outside the U.S. we're persuing partnerships on a global scale. We think the partner will have a lot of benefit of leveraging the manufacturing supply chain that we have established, which will shorten the time line dramatically. And, we believe, also in the long term, [leveraging] the expenses to the project. So we see that Orexo will still be an active part of both the development and the supply chain. I will then evolve over time when you have a final product that depends on the partner and the interest. But I think the most important is someone who knows about the space and has an established commercial infrastructure which is relevant to this partnership.

[Operator]

The next question comes from a telephone number that we didn't receive, and we didn't get your name either, unfortunately. Would you please like to introduce yourself and ask your question.

[Samir Devani, analyst]

This is Samir Devani. Can you hear me?

[Nikolaj Sørensen, executive]

Yes.

[Samir Devani, analyst]

My questions are actually also on OX640, maybe just one on the legal cost as well. The data looks very encouraging, and particularly your bioavailability plot, Slide 14. I was just wondering if you could comment on the interpatient variability you're seeing with your formulation versus the auto-injector? And if you could also just clarify how many [mgs] of epinephrine is in this chosen formulation that you're presenting. So I guess that's the questions on OX640. And then just on the legal costs, I'm just wondering, is Q3 a good run rate to use now for Q4 and Q1 next year? Or will the expenses likely be higher? And then maybe just in terms of your EBITDA discussion today, could you just clarify which clinical trials will be ongoing in 2023 that you would consider outside of your EBITDA metric.

[Robert Ronn, executive]

Thanks, Samir. This is Robert, I will answer your first question when it comes to interpatient variability. And I would say, generally, OX640 shows comparable variability to our reference product. And to your second question regarding those, this is not something that we have disclosed. So that's the short answer.

[Nikolaj Sørensen, executive]

When it comes to the legal expenses, that is a little of a moving target depending on what kind of motions that are coming in, but we do expect slightly higher expenses in Q3 and Q4 because this is where the final evidence base is presented on both parties, and we also have a Markman hearing coming up that was not scheduled before. And then in the next quarter, we'll have the district court ongoing. So I think slightly higher than what we've seen in Q3.

On the EBITDA target, there's no clinical price, which are not outlined on the slide that we have here. We have no other clinical trials that we have planned right now for and all of the [indiscernible].

We have received quite a few questions on the chat. And unless we are sitting here for several hours, it will be difficult to respond to all of them. But I can say some of them very quickly, it will be short and not so elaborate.

"What sort of sales in Europe can we expect for Q4?" We do see some sales. However, we have had some issues in the supply chain, which is to the slowdown in some of the rollout in Europe more associated to our supplier in the U.S., but we are solving that together with the court. But we do see that we expect some sales to increase somewhat.

We have a question here, which is "when would you expect the first DTx revenue in?" I think the answer is that we do believe to see some revenues in Q4, but I don't think this will be material.

It's been a question around Orexo and our spending on DTx and if we are basically just the distributor? Both yes and no, because quite a lot of investments have gone into building a reimbursement data system. We're not allowed to have data on individual patients outside the U.S. and basically, the system that is needed to run the reimbursement process and work with the individual patients' access to the system has to be in the U.S. and have to be IP compliant. But we basically mean we need to deliver on the same patient or data privacy levels that you see normally in medical record system of journal systems.

DTx revenues, again, we won't provide more guidance than we have right now. We had hoped to see some more revenues in Q3 from Trinity Health. It was a little slower than anticipated. But we are expecting to see more revenues coming out of Trinity and also from MODIA coming in.

"Is the partnership with a multiplatform focused mainly on the OX640 or could it also include OX124?" We just have discussions with potential partners on OX124 outside the U.S. We think that there are some concerns around the strength of OX124 compared to ones needed in Europe, so it might need some brief population because we used on-site U.S. but sentiment problems are expanding [indiscernible] have a platform or should have a platform outside the U.S. But our partnerships on a [OX] platform is actually more related to other companies who have APIs where we could benefit from the platform's properties.

And then a question on gross targets for tax next year. We will come back to our guidance for next year in the Q4 report. Then I have a lot of questions and details again here around the reduction in direct DTx expenses: "How much of that this is reinvested in other indices within DTx and how much is permanent?" So the reduction that we seen is permanent based on the level of activities we have right now. We have not reinvested those expenses but on our total selling base, what we have done is we're taking... We have seen some positive effect on ZUBSOLV compared to last year. Compared to Q2, we actually have the same amount of people working in the ZUBSOLV field force with MODIA as we have in Q3, but compared to last year, we have moved more expenses from our U.S. Pharma business into DTx. So the reductions we see is real in detecting just moved around to other initiatives.

"What multiple initiatives are going on to improve access to MAT and the timing of these?" There are a lot of initiatives right now among others that are suggestions of removing the waivers that is needed to prescribe. However, as we know, there's a midterm election coming up in the U.S. more or less imminently. And a lot of this has been frozen until that. So we think there are several suggestions that this basically could become a prescription product like anything else. There is all of this money coming in from the litigation that we expect will drive additional sales coming in. I would say that there's no lack of proposes, but it is moving slow through the political system in the U.S.

Then there's a question about the Sober Grid contract and Sober Grid will sometime have decent expectations too, but they have been through a lot of internal leadership changes during the year, the CEO basically went missing in the beginning or in the end of last year. So the on who was basically driving Sober Grid missing, and is still missing, literally, and they have had to change the entire leadership team in the U.S. And he was the entrepreneur behind Sober Grid, and that has somehow had a negative impact on that relationship. We still have a contract in place of Sober Grid. We can still work with them, but we have decided not to invest additional money into the partnership.

With that, I apologize, there are some more questions and some of them are very lengthy, which I won't respond to; I think that we will respond to them individually in more detail as we recognize some of the names on them. So thank you so much for joining us for this one hour and I hope you see the same confidence I have in both our ability to stabilize and grow our U.S. Pharma business.

Our DTx business is moving in the right direction, but we're doing that with a more reduced cost base than what we have before. And finally, on our R&D and our pipeline, I think we have made great progress during the last quarter, and we see a lot of opportunities to both get more revenues out of the pipeline, but also more products and the broadening of our commercial base as time goes. With that, I would say thank you, and all of you will have a great day.