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Tetragon Financial Group

Positive returns from all asset classes in Q316

Update | Investment Companies | 28 Nov 2016

Tetragon Financial Group (TFG) reported fair value earnings of US$49.7m for the third quarter of 2016, with positive contributions made by all asset classes. NAV total return was 1.3% for the quarter and 7.8% for the nine months to 30 September 2016. Having completed a US$100m tender offer in June 2016, TFG commenced a US$50m tender offer on 9 November 2016, which should be meaningfully accretive to NAV per share given the current wide share price discount to NAV. Consistent with previous years, the third interim dividend was held in line with the second interim, confirming TFG’s 5.9% yield.


Worst-case scenario averted

Update | Pharmaceutical & healthcare | 28 Nov 2016

The court ruling upholding the validity of the Orexo ’996 Zubsolv patent precludes Actavis from launching a generic before September 2019. Orexo has 30 days to decide whether to appeal the court decision that a second patent (’330 with 2032 expiry) is invalid. A worst-case scenario allowing imminent launch of Actavis generic(s) has been averted. Zubsolv’s IP portfolio includes two additional patents (’900 and ’421) that extend to 2032, which coupled with the prospect of an appeal on ’330, means that significant hurdles remain ahead of Actavis generic launch.


Mundipharma to take Zubsolv global

Flash note | Pharmaceutical & healthcare | 04 Jul 2016

Mundipharma has licensed exclusive global ex-US rights to Zubsolv. Deal terms include a €7m upfront payment, in addition to further undisclosed regulatory and commercial milestones and up to low double-digit net sales royalties. Ahead of Orexo's Q216 results on 12 July pending further disclosures, we make no changes to our current forecast and valuation. Nevertheless, this is an important deal for Orexo, which will significantly expand the Zubsolv market opportunity ex-US, where c 20 million people are estimated to be afflicted by opioid dependence. Access to the global opioid dependence market is a key growth driver for Orexo, in addition to the anticipated expansion in US prescribing rights and the currently undisclosed development pipeline.


Revolving around US Zubsolv 2018 positioning

Update | Pharmaceutical & healthcare | 13 Dec 2017

Orexo’s Q3 highlighted a strong financial quarter. Zubsolv US revenue declines of 15% vs Q316 (Q316 benefited from significant one-time wholesaler stocking of Zubsolv) were offset by tight cost control, which resulted in positive EBITDA and operating cash flow generation for an eighth consecutive quarter. For 2018, US commercial and public formulary coverage has improved, which will have a positive impact on US Zubsolv sales from 1 January vs 2017 sales. However, a continued skew towards the public market segment in the US opioid dependency market class in general has led to downward revisions to our US Zubsolv peak sales forecasts. Also, the EMA has approved Zubsolv for Europe and partner Mundipharma should launch in H118. Our revised valuation is SEK2.7bn.


Zubsolv growing in a challenging environment

Update | Pharmaceutical & healthcare | 08 Aug 2017

US net sales of Zubsolv (for the treatment of opioid dependence) grew 10% y-o-y to SEK124.1m in a market where volume growth was driven by the larger (46% of all subscriptions), less profitable and more competitive public segment (Zubsolv has 27% market access). Despite a testing quarter we believe the market’s view of Zubsolv’s prospects is too pessimistic; Q3/Q417 should gain from the addition of Zubsolv to the state of Wisconsin’s preferred formulary for it Medicaid programme. Additionally, Zubsolv recently gained a preferred (now reimbursable) position on the CVS Caremark 2018 formulary, taking its access to the commercial sector to over 90%. Abstral royalties, which are loaded to H217, should aid in achieving FY17 forecasts.


More signs of pipeline promise

Update | Pharmaceutical & healthcare | 09 Jun 2017

Orexo has received a $2.5m (c SEK22m) milestone from AstraZeneca on the start of Phase I trials for respiratory programme, OX-CLI (also known as AZD9898). Orexo now has two clinical assets (the other being Phase III-ready acute pain programme OX-51) and three preclinical projects (OX-MPI [inflammation] plus two novel formulation technologies). This milestone does not impact FY17 guidance but indicates growing momentum in the early-stage development pipeline. We expect further news on new product opportunities this year; both pipeline project(s) and commercial product(s) for US promotion, in addition to potential EMA approval of Zubsolv (Q417).


The highs and lows of 2016

Outlook | Pharmaceutical & healthcare | 21 Feb 2017

Orexo made significant progress in 2016 towards becoming a sustainable speciality pharma company, with continued Zubsolv revenue growth contributing to a first full year of profitability. Key achievements included the ex-US global Mundipharma licence deal for Zubsolv (EMA filing in Q4), and the first large exclusive Medicaid FFS contract in Maryland. Despite this, and ahead of major newsflow in 2017, IP infringement litigation remains a stock overhang with Orexo trading near 52-week lows. We believe the market’s view of Zubsolv’s prospects is too pessimistic. Our new assumptions, updated for evolving market dynamics, generate a SEK3.16bn or SEK91/share valuation (vs SEK4.54bn or SEK131/share).


Zubsolv gathers momentum

Update | Pharmaceutical & healthcare | 04 Nov 2016

Orexo's Q316 results delivered positive momentum in Zubsolv revenues and market share. Exclusive preferred status on Maryland FFS Medicaid from July boosted Zubsolv's market share in the public segment by 1.4pp. In the coming quarters we expect further US market share gains. Orexo is targeting a disproportionally higher share of new patients embarking on opioid dependence treatment, enabled by continued salesforce optimisation. The impact of the US Department of Health and Human Services' (HHS) increased 275 patient cap coupled with CARA 2016 implementation from H217 and ongoing progress in improving market access will support this. Nevertheless, the share price performance remains muted ahead of a Q416 court decision on the Actavis IP litigation.


Good things come in threes

Update | Pharmaceutical & healthcare | 07 Oct 2016

Orexo has delivered on three key newsflow items, which should contribute to driving increased Zubsolv use in the treatment of opioid addiction. Submission of Zubsolv's MAA with the EMA means that first launch ex-US could come from 2018 onwards. FDA approval of a new low dose provides greater dosing flexibility. Positive data from the RESOLV real world study will be leveraged in educating new and existing prescribers to improve their treatment programmes. Ahead of Q316 results we maintain our SEK5.13bn (SEK149/share) valuation highlighting that uncertainty due to the ongoing Actavis litigation continues to weigh on the share price; resolution is expected in H216.


Margins, Maryland and Mundipharma

Update | Pharmaceutical & healthcare | 10 Aug 2016

Orexo's Q216 results pointed to positive Zubsolv momentum with evidence of net revenue growth, improving margins and encouraging market access developments. Financial discipline contributed to a Q216 SEK12.1m operating profit and a second successive quarter of positive operating cash flow. The new Maryland FFS Medicaid agreement should help boost Zubsolv's penetration into the public market segment and ongoing expansion in US prescribing rights will be a key growth driver longer term. Ex-US, the recent Mundipharma licensing deal provides access to the global opioid dependence market. In the near term, however, uncertainty due to the ongoing Actavis litigation weighs on the current share price.


Putting CVS Caremark in the past

Update | Pharmaceutical & healthcare | 09 May 2016

Orexo has successfully navigated a challenging Q116 with the loss of CVS Caremark exclusive status at restricted plans, emerging with positive operating cash flow due to working capital and a focus on cost control (total spend down 17% vs Q4). In the near term, management priorities are Zubsolv revenue growth, balanced with appropriate sales investment to target profitability. Investment will increase as Zubsolv's market access and reimbursement position improves, and federal legislation is passed significantly expanding the available market. Global expansion with a potential new ex-US partner for Zubsolv represents further upside; a deal is targeted for Q216, with European filing planned in H216.


Short-term pain; on the cusp of longer-term gains

Outlook | Pharmaceutical & healthcare | 17 Feb 2016

Zubsolv sales of SEK417m were up 83% on FY14, against overall 7.8% market growth. As expected, its 6.4% market share at end FY15 was eroded in January due to the loss of favourable reimbursement status at CVS Caremark. Nevertheless, a 5% price rise, effective February, coupled with a targeted sales effort and stronger marketing message, should help drive sales, particularly as Zubsolv's reimbursement position improves. With changes in federal legislation on the cusp of significantly increasing the available market, expanding use of medical-assisted treatment and increasing the number of prescribers, Zubsolv remains well positioned. Global expansion with a potential new partner represents further upside.