Orexo AB

STO:ORX

Earnings Call Analysis

Orexo navigates challenges while stabilizing ZUBSOLV and managing OX124 hurdles

In Q3, Orexo reported revenues of SEK 136 million, with ZUBSOLV contributing SEK 131 million, reflecting a year-over-year decline of 6.7%. The company expects a slight recovery in the fourth quarter following recent inventory adjustments. EBITDA was marginally negative at SEK 0.7 million, impacted by lower revenues. For 2024, Orexo maintains guidance anticipating ZUBSOLV sales growth of 2-5% and operational expenses below SEK 530 million. However, potential increased R&D costs associated with OX124’s delayed approval could challenge these targets. Encouragingly, the gross margin remained stable at 86%, and operating expenses decreased by 15%, indicating improved cost control.

Revenue Overview: A Decrease but Stabilization in Demand

In Q3, Orexo reported total revenues of approximately SEK 136 million. The primary driver was ZUBSOLV, contributing SEK 131 million, which reflects a year-over-year decrease of 6.7%. This decline is attributed to a weaker U.S. dollar impacting revenues negatively by SEK 5 million and a reduction in demand from public segments, particularly affecting partnerships with UnitedHealth Group and Humana. However, a favorable payer mix and slight price adjustments in January are expected to support revenue stabilization going forward.

Cost Management and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

The EBITDA for the quarter was marginally negative at SEK 0.7 million, primarily due to a SEK 20 million drop in net revenues. Adjusting for one-time legal and other non-recurring costs, the effective EBITDA would be around SEK 9 million. On the positive side, Orexo has maintained a high gross margin of 86%. Operating expenses decreased significantly by 15% compared to the previous year, largely due to lower administrative costs associated with digital health projects.

Cash Flow Dynamics

As of the end of Q3, Orexo had liquid funds amounting to SEK 115 million, a SEK 25 million decrease from Q2. Negative cash flow from operations was SEK 13.4 million, driven by reduced operating earnings and legal costs. However, a positive working capital adjustment of SEK 8 million helped mitigate some of this decrease. The total cash flow, accounting for other factors including foreign exchange effects, summed up to a drop of SEK 25 million.

Guidance and Market Outlook for 2024

Looking ahead to 2024, Orexo anticipates ZUBSOLV net sales to grow between 2% to 5% in U.S. dollars, aligned with performance in 2023, while operating expenses are expected to remain below SEK 530 million. However, risks remain, primarily due to potential inventory adjustments and the ongoing DOJ investigation, which could affect both top-line and bottom-line projections.

Future Product Innovations: OX124 and Market Potential

The launch of OX124 has encountered delays following an FDA complete response letter. A meeting is scheduled for November to discuss necessary adjustments and testing, which may shift the timelines for potential approvals. However, there's confidence that OX124 will eventually hit the market. Orexo also continues to explore feasibility studies around its AmorphOX platform, which could provide additional growth avenues.

Strategic Review and Equity Strengthening Initiatives

Orexo is conducting a comprehensive review of its business strategy, with particular attention to strengthening equity. This involves assessing all operational aspects and potential partnerships, especially in light of upcoming resolutions in patent litigations. The management aims to identify pathways that maximize long-term shareholder value while navigating current market pressures.

Market Dynamics: Commercial Segment Growth and Pricing Power

Despite challenges in the Medicaid segment, the commercial segment is showing positive growth, increasing by 22% year-over-year, even amid broader market pressures. Orexo aims to boost profitability through this segment, noted for its favorable reimbursement rates. Management views anticipated adjustments in the Medicare and Medicaid sectors with caution but maintains optimism for ongoing commercial expansion.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Orexo Q3 Report 2024. [Operator Instructions]

Now I will hand the conference over to CEO, Nikolaj Sorensen; and CFO, Fredrik Jarrsten. Please go ahead.

[Nikolaj Sørensen, executive]

Hello, everyone. Welcome to this third quarter result update from Orexo. It's what in Sweden is called a super Thursday in terms of report. So those of you who have chosen to dial into our call, I appreciate that a lot as I understand we are in tight competition with other companies here at 2 o'clock Swedish time.

I am joined today by Fredrik Jarrsten, who will take us through the details in the financial development, where I will give a business update and also close out about our future value drivers.

So just to start the presentation, I'll give a little brief. I think we call the presentation a quarter with setbacks and achievements. And the achievement, I think, in this quarter is actually around ZUBSOLV. Even though when you look at the headlines and look at the net revenues, you could easily see, okay, this is dropping compared to last year and compared to last quarter.

But I think looking behind the data, we're quite pleased to see where we are headed with ZUBSOLV and in particular when breaking down on different segments, where we see growth and our most important segment, and we also see a stabilization in the ZUBSOLV demand. So that's, I think, is very important and something we have been talking about for quite a while is how we are looking forward to stabilization of ZUBSOLV. And we actually see that from a volume perspective. Then we'll come back to why we don't really see that coming through on the net revenue side.

The main setback is around OX124 and the approval of OX124. Just before the last, our Q2 report, we received a complete response letter from FDA. We've been working during this quarter to come up with a briefing book. And it's been sent and shared with the FDA. And we now have a meeting scheduled in November, where we'll get the feedback to this briefing book. I will come back to that a little later also. But as we've gone through the details, we also recognize that we need to run some additional tests and some additional manufacturing, which is going to take some time.

On the AmorphOX, we are doing a decent amount of feasibility projects, both with some internal assets and molecules, but also with partners. And I have some examples in the report here of what we're doing and what are the things that we are looking for in these partnership projects. And then, finally, we talk a little about what is going to happen next when we look into 2025. And what we know is that we will have a resolution of at least 1 of the legal disputes, the 1 with Sun on our IP. But we're also working very hard. And there's been a decent amount of expenses in this quarter also to work on the other 1, which is around the Subpoena and the investigation associated with the Subpoena, something we would like to resolve.

And then the question comes, when that certainty has been created, what are we going to do next in the company? And this is an initiative we're taking together with the Board, where we are basically overlooking the entire company and say, what is the path forward when we have these results under certain assumptions about how they result? What we do know is that we have an R&D in Sweden, which has some exciting opportunities around the AmorphOX platform. A lot of that is not in the direction of opioid use disorder. At the same time, we also have a commercial unit in the U.S. where we will have a second product.

I'm pretty convinced that OX124 will get to the market, although it is being delayed a little. So we will have a launch product. We'll have a bigger portfolio. And I'm also very confident that we will have a good outcome of the Sun litigation, which will give us a long time left on the ZUBSOLV patent. What are we going to do with that? What are we going to do with Sweden to ensure that we have the resources needed to grow around AmorphOX, but also the resources needed to launch the U.S. -- the OX124 and continue to grow the ZUBSOLV business in the U.S.

A little on the U.S. Commercial. So, I actually think here, in the shadows of the net revenues, there are some good development here. We have seen market growth has been down in the 2% to 3% for a while. We saw in this quarter that it bumped up to 5%. Some of that is due to non-retail revenues, but most of it is due to the Commercial segment continue to show very strong growth. It's growing with 22% from last year. Even Medicare is growing. That is compensated a little by a decline in Medicaid, but the decline in Medicaid is actually slowing when we look from a year-over-year perspective.

Medicaid continues to be the largest segment, but Commercial is coming closer and closer when we continue to see this growth gap. And that is important for us because the Commercial segment is more profitable to us than both Medicaid and Medicare. And as we see growth in Commercial, that will have a good posture impact long-term in Orexo.

And when we look at ZUBSOLV, this is actually -- we just look through every quarter back to 2019 when we lost UnitedHealth Group and Humana. This is the best development we have had year-over-year since 2019 with, you can say, it's still minus, but it's only minus 1%. The year-over-year is still affected by UnitedHealth Group and Humana, but when we look at the quarter-over-quarter, we actually see those 2 be completely stable and even growing a little.

We do see growth in the Commercial segment also year-over-year and quarter-over-quarter. And when we go into the quarter-over-quarter, we actually see all of the different segments is basically stable, with Commercial, for example, being up a little, Medicaid being down with a fraction of a percent. But all in all, we see a very stable development, and also the effect of UnitedHealth Group and Humana, I think we're coming to a conclusion of that now from a volumetric perspective.

Then looking ahead, we know that in Medicaid and Medicare, there is a significant pressure on the price. They're very prone to use generic. And in Medicare, there are some new rules about pricing, which actually affected our net revenues this quarter quite a lot. And that's regarding what in the Medicare called the doughnut hole, which is kicking in now on ZUBSOLV. So for us, growth in Commercial is really important for profitability. And long-term, we continue to have excellent reimbursement in the Commercial segment with access to 98% of the patients, whereas in the public segment, Medicare and Medicaid has access to a little more than 50%. With all of the published formularies for next year, they have kept ZUBSOLV in reimbursement. We're not seeing any changes, but there will be some changes, I think, in the Medicaid and Medicare segment, which could, in that segment, put a little pressure on the profitability.

Then coming -- turning these volumetric into money. What is the volume numbers you see in prescriptions? That is collected by a company called [ ECREA ]. And that is based on them basically asking the pharmacist, what prescriptions have you seen? So there is -- a lot of this is based on fact, but there is also both a lack and there's a need for them to basically fill the gap between those who are not reported for some reason week-over-week. So there are a level of estimates into this. So what's really important is, of course, what are the money coming into Orexo.

And where we are selling, we are selling to wholesalers. And wholesalers is then selling to pharmacists. What we have seen is that pharmacists is the best predictor of the development. It's quite stable. We don't see big variations week-over-week. But with wholesalers, it's basically 4 large wholesalers or 3 large wholesalers in the U.S. We see quite dramatic variations week-over-week and even quarter-over-quarter.

And as those of you who have been following us for a while, so in Q1, as you can see here, the dark line is the wholesaler sales. When that's below the little lighter line, that means that the inventory is reduced. When it's over the lighter line, that means the inventory is building at the wholesalers. And we've seen for most of this year, it has been below. Q2, we had a peak in the end, which basically took inventory up a little. But then we saw that drop coming in, in Q3. And Q3, after the drop in the beginning of the quarter, has been slightly below the sales to pharmacies. And that means that we also in this quarter saw a decline in our inventory levels. And Fredrik will come back to that a little later in terms of how that impact our sales.

But just recall, when you look at Orexo numbers, and I think all pharma numbers, 1 thing is prescriptions. That's, of course, the most important that we see people prescribe our products to patients. Then we have to convert it into sales. And when Fredrik showed his number, that's actually based on reported sales. And the numbers I refer to here are these volumetrics and prescriptions, except for this picture.

Then coming into our products under development. And OEX124 is, of course, the main thing here right now, where we knew that from earlier this year that we had an issue, according to FDA, with our instructions for use. We have in the beginning of the last quarter or this quarter, we completed a new Human Factor study, which was very successful. So we believe we have addressed that issue. But FDA also raised issues around technical data. We shared that at our last report. And what they are looking at is technical data related to the device and the packaging. So basically, it's not the actual powder, it's not the clinical effect. It's how the device and the packaging influence the use of the product. And that means basically that the device should work as intended under a lot of different circumstances.

And what they want us to do is to test that the device and the packaging meet the requirements even after being produced in commercial scale. We can't see from Orexo that that should have an impact. But this is the request of FDA. But it also means that we need to set up -- we have set up the commercial line, but now we need to produce the batches according to the specification of what we need to show the data that FDA is requesting. And that is done through our third-party manufacturing partners. And we have to get the supply also of these test tubes from our device manufacturer. And as it looks like right now, we have started the process. But to finish this, we will do that in the beginning of next year. But then we need to complete the test that they are asking for.

And some of these tests is basically that we require time. So we need to do a test over a longer period of time to meet those specifications. We are talking to FDA later this month. And that will give us a final feedback about how we're going -- what test and how much data. And what is really critical for us is how much time data do they want. That means stability data. Do we need to test this after a certain period of time? That's already in the original process. There is a time element put into the testing, but there could be more with FDA. And we have to ask them about that. From our perspective, we haven't seen any impact on time when we're looking into the data that we have from the pilot scale.

Then going into the market for OX124. It is an interesting market because it was converted into an OTC market with Narcan and the lead brand being OTC, going from a prescription product to an OTC product. And what we've seen is a remarkable growth in the demand in the market. So the access to these overdose medications has been much broader. You can today find it in all kind of shops across the U.S. And that, of course, makes it much more accessible for those who are at risk of an overdose. And I think that can explain slowdown in the number of overdoses that we see in the U.S.

But based on the feedback we have received when we've been out talking to customers or potential customers during the quarter, we do see that quite a lot of them see a need for high dose option. And there are some examples here from a physician who says that about 30% of his patients should be considering this high dose because they are exposed to synthetic opioids. We have a firefighter who is saying basically we consistently have to give patients multiple doses of Narcan because they have overdosed with a synthetic opioid or they have a risk of residual overdose. That's kind of the same. Residual overdose come when you're overdosing with a synthetic opioid, which has a much longer half-life. That means it stays in the body for a longer period of time than heroin, for example.

So, our interviews with the customers confirm that there is a need, and it is really related to this high dose. It's also related to the temperature resistance. As it's a powder, we don't have a risk of freezing, which for a lot of [indiscernible] concern that they have with the current products available, which are all based on a liquid.

OX640, we have seen during the quarter that our competing product or the first mover in making this segment moving the same way as we're seeing with naloxone going from injection to nasal sprays has received approval both in the U.S. and in Europe. We have -- from an Orexo perspective, we have talked both with the FDA where we have a briefing book accepted, but we also had consultations with relevant authorities in Europe where we have a confirmed regulatory pathway and clinical program required to get approved in the U.S. -- in U.S. and Europe.

We do see OX640 has a lot of advantages compared to the new entrant into the market, neffy. It's around stability, it's temperature resistance. We don't have any preservatives in OX640. We have a dose conformity that we haven't seen in any other product in the space. So we think that there's a lot of opportunities and value for OX640. But some of the concerns that have been flagged when we've been out talking to other companies has been around how the powder will react when you have allergic rhinitis.

That means when you have an allergic shock, it's quite often that you will have a swallowing feeling in the nose, you will have a running nose, and we are now going to test how that will affect these participants in a small study conducted here in Uppsala, Sweden, which has basically started here on the 22nd of October when we have the first 6 participants being dosed into this small study. We expect the completion of the study in the end of the quarter, and we'll have results early next year. It's, of course, cost some. It's about $1 million or SEK 11 million for the entire study. And that is included in the cost guidance that we're provided to the market.

We also have continued discussions with partners, both on a global basis, but particularly lately also with regional partners. So it's something we are looking into what is the best portfolio and approach moving forward with OX640. But we do believe that the new study will further strengthen the case and the differentiation opportunities to other products and pipeline and the one that was recently approved.

Then taking our AmorphOX platform, and I'm taking in a little more molecules to show some of the stuff that we have been working on. So here, some of this, we have active projects around, for example, epinephrine, naloxone. We have some of the partner projects on the right side, which are also active at the moment. Some of them are more projects that we have done to test the effect of different types of chemical structures or molecules on AmorphOX. But what we consistently see is a very, very stable formulation, both in small molecule peptides and biologics. And when you see some of the biologics, particularly the vaccines we have here, which are partner projects, so a virus-like particle, which is a type of vaccine, attenuated virus. What we've seen here is that when being processed in the AmorphOX technology, we still see that the molecule works as intended. And this gives us some good -- it's good reason for us to continue in with these larger molecules where we see the AmorphOX platform has a lot of value to create.

And to show some examples of what is the value that we believe we can create for potential partners. We have shown that we can formulate very sensitive APIs in different sizes. We can work with lifecycle management. So basically when you have, for example, an injectable, you can go to a nasal product, and that's a needle-free alternative for administration rather than injection. We can work with cost reductions because some of the big costs, in particular, large molecule is associated with the cold chain.

And here we have a few examples of some. It's not exhaustive by a long way, but these are some examples of different companies been working with a biomolecule. There are 2 vaccines that are NCE where we can say each of them are looking for different properties with the product from improved stability. This could be a new product opportunity. Basically, you can expand into new areas or you can work. So a completely new product, you could also work with new indications. So basically, take your existing indications and work in a new way. For example, when you move from injectable to a nasal administration. Speed of onset is important, for example, for the partner we have with an NCE project. Patient convenience is important. And of course, IP is very important. And we have patents for AmorphOX in different molecules from 2039 to 2044. And then when you start working with a partner, that could very well give -- there could well be new patents coming out of that collaboration.

Then moving to the finance and legal update, I'm going to leave the word to Fredrik, please.

[Frederik Jarrsten, executive]

Thank you, Nikolaj. So, going to Page 16. So we look at the revenue. And if we start by looking at the top part of the page, you can see that our total revenue in Q3 amounted to approximately SEK 136 million. And of that revenue, obviously, ZUBSOLV within U.S. Commercial is the main contributor with SEK 131 million for the quarter. That's down year-over-year with 6.7%, following a negative impact of SEK 5 million from a weaker USD FX rate and a decline in demand from the public part of the Open segment, as well as within Humana. Now, this was partly offset by favorable payer mix following a price increase in January this year.

In relation to HQ and pipeline revenues, we had substantially lower Abstral royalties for the quarter due to retroactive onetime adjustment of Q3 and Q4 2023 royalties, which in turn is due to the adjustments in partner reported royalties. Now this adjustment is partly set by accrual for Q3 royalties, but the net effect on Abstral royalties amounted to negative SEK 1.4 million. As of Q4, there will be no more retroactive adjustments of this kind, but the royalties will, as we talked about last quarter, they will gradually decline as we now see agreements for individual countries expire.

Also commenting on ZUBSOLV ex U.S. revenues, which show a decline from last year. But what we see here is a shift from low margin product sales of tablets to our partner core healthcare towards increasing high-margin royalties from Accord on their own sales of ZUBSOLV. We expect this trend to continue, potentially offsetting the margin effect from lower Abstral royalties.

If you look at ZUBSOLV specifically and Q3 compared to Q2, you can see in the waterfall graph on the bottom part of the page that the decrease in net revenues of 11.4% is to a minor degree a consequence of less demand expressed in SEK and which is solely in the public part. And quarter-over-quarter, we can now also see stabilized demand in UnitedHealth Group and Humana.

As Nikolaj mentioned, the main reasons for the decline from a strong quarter 2 is primarily then a higher inventory destocking effect. That was almost SEK 8 million. As well as we have a negative FX effect quarter-over-quarter of SEK 3 million, that is partly offset by favorable payer mix. In conclusion, you can also see in the graph in local currencies, ZUBSOLV net revenue decreased by 9.4% between the quarters.

Going to the next page, our P&L, we have a marginally negative EBITDA for the third quarter, SEK 0.7 million negative. Main reason is the SEK 20 million less in net revenues. But during the exercise that we usually do, adjusting for legal and other non-repeating costs, that would actually imply an EBITDA of approximately SEK 9 million. 9 months EBITDA is positive with SEK 20 million. So that gives us confidence that we can reaffirm the outlook of reaching a positive EBITDA for the full year.

On the positive side, we have been able to keep our high gross margin of 86% from last year. And the majority of the SEK 20 million in cost of goods sold is related to U.S. Commercial. If we look at our operating expenses in Q3, they are significantly lower by 15% compared to last year, with especially lower admin expenses in relation to digital mental health products in U.S. Commercial and lower R&D costs due to lower costs for OX124 and digital mental health products development.

Now these lower expenses though, partly offset by higher expenses for OX124 launch preparations in the U.S. Commercial and higher legal costs for the DOJ investigation. The U.S. dollar weakened in the third quarter compared to last year. And the total FX effect on EBIT was a negative SEK 8 million. In summary, OpEx came in at SEK 138 million.

Now following the U.S. Commercial segment, EBIT contribution from a U.S. business was SEK 25 million for the quarter, which is a margin of 19.3%. And finally, in financial items, we had high bond loan costs of SEK 30 million due to higher interest expenses for the new bond. We also have an unrealized FX impact of SEK 2.9 million on our cash held in U.S. dollar.

Yes, going to the next page, cash flow. We can see the liquid funds, cash and cash equivalents amounted to SEK 115 million end of Q3 and decreased by SEK 25 million from end of Q2. We should not forget though that we have SEK 30 million in exposure in our own bond as a potential source of fund. So we had cash flow from operating activities of minus SEK 13.4 million. That was primarily impacted by negative operating earnings, which in turn was affected by these legal and other non-repeating expenses of SEK 9 million.

We paid interest of SEK 13.7 million for the new bond loan, and that was SEK 3.6 million higher than last year and SEK 20 million higher year-to-date. Then, adjustments for non-cash items. That includes changes in provisions in the U.S. And this quarter, there was a negative effect of SEK 13.6 million from these changes in provisions following timing of payments of payer rebates. Operating cash flow was also affected by a positive change in working capital of SEK 8 million. Total cash flow for the period ended up at minus SEK 20 million and then adding an FX effect on cash of negative SEK 4.7 million, then that adds up to the decrease in cash of SEK 25 million.

And then, the financial outlook. We show here on this page the outlook for 2024 that we put up for the first time in Q4 2023. Report stating that we expected market growth of 2% to 5% ZUBSOLV net sales in line with 2023 in U.S. dollar, and OpEx below SEK 530 million and positive EBITDA.

Now, based on the current circumstances, we maintain our guidance for 2024 on these metrics. We do see some risk to the ZUBSOLV revenue guidance due to inventory adjustment. We've seen among the wholesalers affecting the entire market. In addition, a potential settlement of the ongoing DOJ investigation and increased R&D expenses related to the resubmission of OX124 may affect our cost projections and financial results.

And with that, I leave for Nikolaj for the legal update.

[Nikolaj Sørensen, executive]

Thank you very much. Maybe just to give a short-term outlook, and I mentioned that in the CEO comments, we do expect that this negative effect of inventory will not be there in the fourth quarter. Normally, we do see the opposite in the fourth quarter. That means that we see an increase in the inventory with the wholesalers. So we have an anticipation that this net effect you saw in the waterfall graph between Q2 and Q3 is actually going to be the opposite in the fourth quarter. And that will, of course, have a positive effect on the financial results all the way down to the cash flow also.

So, this third quarter was a little problematic from that perspective. But underlying, the most important for us is to see the ZUBSOLV over time is stable. That will have a positive impact on inventory level. It will have a stabilizing effect on inventory levels. And of course, when we see the Commercial segment growing, that could have a positive effect on profitability.

On the legal update, that's not that much to say except that we, of course, would like to see these results as soon as possible. And we have worked in particular on the second part here, the U.S. government agency investigations related to ZUBSOLV marketing. We have been working with our lawyers to see if there are pathways to a resolution. It's very much out of our control, But we are working actively to see if there's a solution.

On the ZUBSOLV patent dispute, we have not received a date for federal hearing. I know we were anticipating that this would happen this year. We have not heard about that. We just saw the dates last night coming out for December. So we were not on the schedule for December either. We would like to see a solution on this one also, so there could be opportunities for us to find a resolution ahead of time. But we are very confident in the strong decision that we see in the District Court that we would have a favorable outcome also of Federal Court. But of course, in all of these legal processes, there are risks of an unfavorable outcome.

Just rounding up with where we are right now moving forward, it is, of course, very important for us to see growing revenues. It's a disappointment that the launch of OX124 has been delayed because that would be a good growth driver for the revenues. However, we are encouraged by seeing the stabilization and demand with ZUBSOLV. It's very important next year to see growth in the Commercial segment because we also anticipate some adjustments on the negative side, in particular in the Medicare segment next year.

We are looking to continue to work what is the core of what we do in the U.S. and to ensure that our products have access. And we are working actually to see if we can expand access to ZUBSOLV to more patients. It is quite remarkable that since 2019 when we saw a big inflow of generics have actually managed to increase our market access for ZUBSOLV from about 30% to more than 50%. So there are pathways, but it's not cheap when you're improving in public. But we do think that the volume coming in is important for the company long-term, despite being on the higher rebates.

And then, we have the AmorphOX platform. These processes do take time, but what I'm encouraged is to see that we have more and more companies that we work with on different early stage projects. The big thing, of course, and proof-of-concept from a financial perspective is when we can convert these early stage projects into actual license agreements or large scale development programs. But what I will say is that several of these projects that we've been running, we actually have received payments. So we've received payments for some of the work that we're doing, which is covering most, if not all, of our expenses.

With that, I will open up for questions, and thank you for listening to me and Fredrik.

[Operator]

[Operator Instructions] The next question comes from Klas Palin from Carnegie.

[Klas Palin, analyst]

My first question would be related to OX124, your next scheduled meeting in November with the FDA. Does that include sort of a discussion about when to refile and if you need to await the testing of the commercial batches? Or is it other stuff you are going to discuss as well?

[Nikolaj Sørensen, executive]

So just to address that question, the meeting with FDA is basically, we received a complete response letter and we have made a response to all of the items in the letter. Several of them we believe we have addressed already and have results. And then, we have one, we could say, open question, and that's around this technical data that I referred to.

The meeting with FDA will give us a guideline of what data that they would require before we can submit. And that will, of course, be driving the timeline for when we can submit this complementary data. You can say the file is still open with FDA, so we don't have to refile, but we have to complement our existing file. So that is the important output of that meeting is how much testing do we need to do? And in particular, do they need more stability data? That means that we need to wait a certain amount of time doing new tests under certain conditions or can we submit right after having done the first tests.

[Klas Palin, analyst]

So I interpret you that you don't want to give sort of a guide when OX124 could be approved at this point. We should await this meeting then.

[Nikolaj Sørensen, executive]

I think there are 2 drivers of the approval timeline. So 1 is when we can submit the complementary data. As I said right now, as we expect to do the manufacturing in the early part of next year, then we need to do the testing. And the testing is time consuming because it needs to be, there's a lot of, it needs to be preconditions. We need to test with a certain time -- after a certain time, so that it is not something you can just go back and then do in the laboratory. You need to do activities between the manufacturing before we can start the testing. So that one we expect to do more in the second quarter of next year.

And then depending on how smooth it works, that will be right when we think we're ready to submit. If the FDA comes and requests even longer data that we have to redo the testing after what you call stability, so it's been on the shelf for a period of time, then that could impact. We don't see that that should be needed. But it is FDA who is taking that decision on the timing. So that's the first thing. And then when FDA receive it, they need to make a decision on what review time do they put on this. Is it 2 months or is it 6 months? And we won't know that before we have submitted the data.

[Klas Palin, analyst]

Okay, perfect. And just if you could comment anything about the additional cost this testing could lead to?

[Frederik Jarrsten, executive]

We haven't put a guidance. I think most of the expenses, there will be some expenses this year, which is within the guidance we have already. The other, we haven't put out a guidance for yet. And I think we would need to see what FDA is coming back with. But maybe I can say so much. It's over the full period, maybe around 20 million.

[Klas Palin, analyst]

Okay, perfect. And my next question then would be with -- around OX640 and the study that you recently initiated. How important is this study to close the partnering deal? What do you say?

[Frederik Jarrsten, executive]

Well, maybe just one thing to be clear, Klas. There's of course been expenses to OX124 this year also. So when we talk about the additional cost, I still believe that we can see improved cost next year, even with those extra costs. But OX640, so this has come up in most of the talks. Those of you who have been following the space of epinephrine, remember the FDA Advisory Committee was putting a lot of focus on neffy's request on the allergen challenge and the effect of that. So it has come up in basically all partnering meetings. Whether that is the 1 that will trigger a signature is very hard to say. Because I would say, the partnering discussions is depending on a lot of factors that are out of our control. Everything from prioritizations from the partners, we have seen management changes in one of the lead companies that we're working with, which basically put a stop on the process. So there are factors that are completely out of our control.

So to sit here and say, okay, when we have that data, if it's successful, we will have an agreement. I can't do that. But I do know that this has come up in every single discussions we have had with potential partners. So it will be important. And I think some of the data we're collecting could further strengthen the differentiations to neffy that are already approved in the market.

[Klas Palin, analyst]

And is it perhaps possible to give some sort of idea of what could be the next step if this study goes well?

[Frederik Jarrsten, executive]

The next step would be for us to basically finalize the commercial version of the product. I mean, right now, the testing is done, you can say, in the clinical -- early clinical version. And then to do the pivotal studies, which would be the next clinical trials you need to do, that would need to be done on the commercial product. So it needs to be upscaled. That means that we have to produce it in larger batches than what we have today on larger machines than what we have done today. And we will, of course, do that in the same supply chain that has already been established for weeks 1 to 4. But that would be the next step is upscaling and then wanting to start the pivotal trials. The pivotal trials is not that many, because you need to show that your bioavailability is equivalent to the products that are approved in the market.

[Klas Palin, analyst]

Perfect. you. And my last question then is related to AmorphOX that you seem quite upbeat, I think, in the report about this platform. If you just -- I mean, reading your CEO comment, you're alluding to that you are starting new studies. How many collaborations do you have running at the moment? Is it possible to give some sort of idea for us?

[Nikolaj Sørensen, executive]

That we have not disclosed. But I can say, the number of companies that we've been working with are more than we have here on the paper right now. And then it depends on what you call a collaboration, because we have companies that we have a co-project with where we are basically together looking at how it works in different molecules. We have also those who come with a molecule to us and present, but we have not disclosed it. But I can say, the total amount is more than we had on the picture.

[Operator]

The next question comes from Samir Devani from Rx Securities.

[Samir Devani, analyst]

In the report, you've alluded to -- and in your comments, you've alluded to a broader strategic review of the business next year. So I'm just wondering, in light of that, does that impact how you're thinking about potentially partnering with OX640, assuming any part of that review will look at things like spinning off AmorphOX into a separate business, in which case it would seem that having OX640 as part of that spin-off would be wiser. So is it fair to assume that, that review will be done before the conclusion of the review before the conclusion of any partnering discussions?

[Nikolaj Sørensen, executive]

I would say that if the right partner comes, we will proceed with that partnership. I think that will be an important factor into this. But of course, it has an impact on maybe partnerships which are less attractive. And I would just say, we will start a process to see how we can make the different parts evolve in the best possible way both for our shareholders and also for the patients in the ends and for the opportunities around the AmorphOX. We have not locked ourselves into any solution. But I think basically we're looking at all the opportunities. But one thing that is certain is that 1 of the main drivers is where do we think we can create most value long-term for the shareholders in such a process.

And I think all of the different projects, we have to take that in light. I think the main trigger for this is, as long as we have the uncertainty around ZUBSOLV, in particular for the patent litigation, it doesn't really make sense to start a broader project because for someone who's not in the process, it's very hard to understand the risks and opportunities in such a patent litigation. So when you have that certainty, that is a good time to go back and say, how do we ensure that we have the best platform for our U.S. opioid use disorder portfolio to evolve and grow and meet more patients? It's very clear, Orexo today is subscale with 1 product and the pipeline is not efficiently from a market and commercial perspective. And the same how to ensure that AmorphOX can actually develop some of the projects.

And I think OX640, there's nothing that has happened during the last half year, which is telling me that this product does not have a fantastic opportunity in the market for epinephrine. With the approval of neffy, which of course increased the competition, but it also takes away a lot of the risk that has been in the regulatory pathway for these products. And we know that our product have a lot of advantages compared to that product when we come to market with it. So I think OX640 is a very important project for the company. If we find the right partner, we will of course proceed with that. I think that will take away a lot of risk and give us an opportunity to get revenues. If it's something that is less attractive, that could be a factor into the strategic review.

[Samir Devani, analyst]

And then, my final question is just on the -- you mentioned that for the commercial manufacturing that you're now doing for OX120, that you may require some stability data for that. And typically, am I right, that's typically 12 months that the FDA requires. So, would that potentially delay the filing until 2026, if that's the case?

[Nikolaj Sørensen, executive]

I sincerely hope it's not 12 months. We have not had that on the table. I think this is not related to the powder. If it had been the powder, I think you're right. With 12 months, this is related to the functionality of the device. As the device is already on the market with a different product, FDA is quite aware about the functionality. And of course, there could be some effect of the device and the powder, but we can't see what that would be. We have a lot of stability data on the device and the secondary package of the tube where we have the device in from our pilot scale. And we have not seen any effect of aging from that. So we don't expect that to happen, but it is the FDA. And in the end, it's up to their decision. But this is definitely not our going in assumption.

[Operator]

[Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and for the closing comments.

[Nikolaj Sørensen, executive]

We have also received some written questions. And the first question I've received here is about the pricing power for ZUBSOLV. How sensitive is volume and price? And if we believe that revenues can increase through pricing also in Q4, we can't increase the prices within the quarter. What has an impact is what we call the payer mix. So if we see more growth in the Commercial segment where we have less rebate, that will have a positive effect on pricing. If we see more growth in Medicare and Medicaid, that would have a negative effect on pricing. Right now, the trend is that the Commercial segment is growing, and Medicaid for Orexo is quite stable, even if the market is dropping. But that can change quarter-over-quarter. The next normal pricing opportunity is in the beginning of next year. And that is something that our U.S. colleagues are looking at, at the moment. What kind of potential price increase do they see that is possible or should be in there next year.

Then there's a comment around, you have a growing concern update in your report. And then could you kindly comment on this? Have you established a control balance sheet? And the -- we have not established a control balance sheet. Our growing concern is related to the equity on a group level. We don't have our equity on a parent group -- parent level, which is what you're looking at in Sweden is positive. But we have, of course, discussed with the Board. We're looking at our financials and we see that our financials, our cash is enabling the company to continue for the next 12 months. As we talked about here, we do see a lot of improvement opportunities from a cost side. We hope to see some good progress, also business development, which could support the business. But as a prudent comment, we put this into our comments around the growing concern.

I don't know, Fredrik, do you have any further comments on this?

[Frederik Jarrsten, executive]

That's correct. So we conclude that this report is prepared on the assumption of growing concerns. So that was the main message that we want to send with this comment.

[Nikolaj Sørensen, executive]

And then, we have a comment here, which is, you state you're working on opportunities to strengthen the equity of the company while also giving some hints on the structural things that can happen. Can you talk a bit about this and be more concrete on what kind of measures to consider? What I can say is, we have started the process right now. And we think, again, that the clarity on the legal process, in particular, the patent litigation is a trigger point where we should, I think, taking the responsibility as management and Board of Directors to review what is the right path forward. And in that, we think that strengthening equity of the company can come from both improving the results. So you basically have a better result in the company. And that could come through cost measures. So that is one area.

Another area is, of course, looking into where we are with business development, what kind of structure are we looking for in the business development phase that could help us and that could have an impact how you design these business development, looking at the equity position. And then, of course, we have all the way to on1 of the opportunities to strengthen the way we can work with either our R&D function or U.S. business by other types of partnering with other companies.

And then, of course, as always, we also have to look continuously at the capital structure of the company to see if this is optimal for the operations we have. And that comes in looking into different financing opportunities. So we have not locked ourselves with anything. But as we are approaching, we believe some resolution and at least the largest legal process in our mind is to some litigation. Then that is a good trigger point. But of course, we would also like to have clarity on the other legal process, which would be another major input into such a process for the company.

With that, we have not received any further questions. And I thank you for taking your time today on this very busy Thursday from a reporting perspective, and I wish you a great day. Thank you a lot. Goodbye.