Annual Report • Mar 21, 2013
Annual Report
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| Orexo – a Developing Specialty Pharma Company | 3 |
|---|---|
| The Year in Brief | 4 |
| CEO's Message | 5 |
| BOARD OF DIRECTOR'S REPORT | |
| Board of Director's Report | 7 |
| Key Events in 2012 | 8 |
| Key Events After the End of the Fiscal Year | 10 |
| Strategy | 11 |
| Portfolio | 12 |
| – Development Programs | 13 |
| – Products on the Market | 16 |
| – Collaboration Projects | 18 |
| Employees and Sustainable Development | 19 |
| The Orexo Share | 21 |
| Financial Performance in 2012 | 22 |
| FINANCIAL REPORTS 2012 | |
| Consolidated Financial Statements of Operations | 27 |
| Consolidated Statements of Comprehensive Income | 27 |
| Consolidated Balance Sheets | 28 |
| Changes in Consolidated Shareholders' Equity | 29 |
| Consolidated Cash Flow Statements | 30 |
| Parent Company Income Statements | 31 |
| Parent Company Statements of Comprehensive Income | 31 |
| Parent Company Balance Sheets | 32 |
| Changes in Parent Company's Shareholders' Equity | 33 |
| Parent Company Cash Flow Statement | 34 |
| Notes | 35 |
| Assurance of the Board of Directors and President | 65 |
| Audit Report | 66 |
| Definitions of Key Figures | 67 |
| CORPORATE GOVERNANCE REPORT | |
| Corporate Governance Report | 68 |
| Board of Directors' Report on Internal Control and Risk Management | 73 |
| Auditor's Report on the Corporate Governance Statement | 75 |
| Board of Directors | 76 |
| Management | 77 |
Financial Information in Brief 78 Other Information 80 Glossary 81
Orexo develops new and improved products by combining well-documented substances with Orexo's patented drug delivery technologies. This means that products can be developed at a lower risk and in a shorter period of time than is the case in the traditional development of new pharmaceutical substances.
The development portfolio consists of proprietary programs and clinical collaboration projects licensed to partners. Orexo has previously successfully developed commercial products that today are licensed to other companies.
The company's present commercial focus is the treatment of opioid dependence.
The strategy is to develop Orexo's own programs all the way to marketing and sales under company management. Orexo thereby aims to become a fully integrated specialty pharma company.
| Q1 |
Business operations were focused, leading to reduced costs of approximately MSEK 30 on an annual basis. The collaboration with Janssen Pharmaceuticals, Inc. regarding OX-CLI and OX-ESI was terminated and the projects were discontinued. |
|---|---|
| Q2 |
Three new Board members were elected. The license agreement with ProStrakan was renegotiated and Orexo obtained the rights to Abstral® in the USA and received MSEK 610 in fixed royalty payments. Edluar® was approved for registration in Europe. Positive results from pivotal clinical studies with Zubsolv were reported. |
| |
A New Drug Application for Zubsolv™ was submitted to the FDA. Shares to a total value of MSEK 53 were repurchased. |
| Q3 Q4 |
Guggenheim Securities LLC was hired as a financial advisor to evaluate different commercial partner alternatives for Zubsolv and Abstral in the USA. The New Drug Application for Zubsolv was accepted for review by the FDA and the planned target date for approval was set as July 6, 2013 (PDUFA date). A dose-finding phase II study for OX51 was initiated. Kyowa Hakko Kirin submitted a New Drug Application for KW-2246 (Abstral) in Japan. |
| Key figures | |||||
|---|---|---|---|---|---|
| Net revenues, MSEK | 2012 | 2011 | 2010 210.5 |
2009 236.1 |
2008 233.3 |
| Growth, % | 326.3 | 199.6 | –10.8 | 1.2 | 204.0 |
| Net earnings for the year, MSEK | 63.5 | –5.2 | –89.2 | –98.1 | –103.1 |
| Earnings per share, before dilution, SEK | –85.9 | –392.0 | –3.8 | –4.3 | –4.8 |
| Cash and cash equivalents, including short-term investments, MSEK | –2.92 | –14.43 | 135.8 | 87.4 | 188.2 |
| Shareholders' equity, MSEK | 228.1 | 246.9 | 468.2 | 548.7 | 569.8 |
| Average number of employees | 191.1 | 311.1 | 105 | 124 | 123 |
| Number of employees at year-end | 111 97 |
110 118 |
105 | 108 | 128 |
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In 2012 we made considerable progress in changing the company towards a fully integrated specialty pharma company. We increased productivity in our research and development work and focused our resources on the development of our product for opioid dependence, Zubsolv™. The renegotiation of the agreement on Abstral® with ProStrakan resulted in fixed royalty payments of MSEK 610. On March 18, 2013, Orexo announced that it sold Abstral® in the United States to Galena Biopharma, Inc. This transaction gave us approximately MSEK 98 in addition to milestone payments and royalty. Together this further strengthens the companys financial platform ahead of the forthcoming launch of Zubsolv in the USA 2013. We are now working at full steam to evaluate the best strategic partnership structures for a launch of Zubsolv. I am very confident that our activities during 2012 have laid the foundation for a successful and commercially oriented Orexo, which will become a leading player in the treatment of opioid dependence in the USA.
Zubsolv will be the first improved branded product in the opioid dependence market in the USA. There will be both patients and doctors looking for alternatives who will quickly change to a new better product. Our single most important task during the year has therefore been the rapid development of Zubsolv, thereby allowing an early submission of the New Drug Application to the U.S. Food and Drug Administration, FDA. We managed to do this. Our application was submitted in September 2012, approximately five months earlier than estimated. We anticipate approval from the FDA at the beginning of July 2013 and commercial launch in September 2013. A pre-condition for the rapid development and swift submission of the New Drug Application has been the positive study results and the fact that it was possible to use product stability data from our Swedish production site, which we are now preparing for commercial manufacturing of Zubsolv, in the registration. Furthermore, we have also set up production at a contract manufacturer in the USA following a very successful transfer of the production competence and processes. We will begin manufacturing of Zubsolv during spring 2013 and we have secured that our production capacity can handle a rapid increase of the demand for the product.
The total market value for the treatment of opioid dependence, using the same active ingredients as in Zubsolv, has developed very favorably during the latter part of 2012. It has grown to almost SEK 10 billion and has continued to display strong volume growth of almost 16 percent when measured in number of prescriptions. Furthermore, the existing competitor has announced the withdrawal of the only product that can be subjected to generic substitution in pharmacies, and this discontinuation has reduced the impact of generic products.
Orexo carried out a successful comparative preference study between Zubsolv and Suboxone® Film, the only buprenorphine/naloxone product for the treatment of opioid dependence on the US market today. The study demonstrated that 9 out of 10 participants would choose Zubsolv rather than Suboxone Film for daily treatment. This result strengthens our belief in Zubsolv's potential. To increase Zubsolv's competitiveness and secure its full potential, we have initiated development work to further differentiate the product from existing treatments. During spring 2013, clinical studies will start to investigate the use of Zubsolv upon the initiation of treatment and to demonstrate that existing treatments can be effectively replaced by Zubsolv. In parallel with this we are creating a broader product line for Zubsolv by developing new strengths and new flavors of the tablet to better match patients' needs. This latter point is important as for many patients taste is of great importance in deciding how likely it is that they will complete the treatment, and thus how good an effect it will have. With a clearly differentiated product and continuing successful development work, our aim is to gain a leading position in the market for opioid dependence in the USA and later also in other markets outside the USA.
Abstral has continued its very positive development in Europe and the product is taking further market share from its competitors. During 2012 sales in the EU amounted to MSEK 353, an increase of 40 percent compared with the previous year. Provided that the sales development continues at a similar pace in 2013, Orexo anticipates receiving royalties from sales in Europe already during 2013, over and above the MSEK 610 in fixed royalty payment that ProStrakan is paying us over a period of three years for the European rights. Our market surveys during the latter part of 2012 have clearly shown that there is a need and thereby considerable potential for Abstral in the USA.
A very exciting year lies ahead of us. As the new CEO of Orexo my primary focus will be on securing the successful launch and the additional development of Zubsolv. The achievements we made in 2012 demonstrate that Orexo has employees with the right collective expertise. This, together with their great commitment, has led us to our successes. I want to thank all employees for these efforts and I am looking forward to fruitful developments in 2013 with great expectation.
March 2013 Uppsala
Nikolaj Sørensen President and CEO
The Board of Directors and the President of Orexo AB (publ), corporate registration number 556500-0600, hereby submit the Annual Report and consolidated financial statements for the fiscal year January 1 – December 31, 2012. Orexo's registered office is in Uppsala, Sweden.
Orexo's operations Orexo is a pharmaceutical company focusing on the development of improved products using its proprietary sublingual tablet technology platform. The Company's current commercial focus is the treatment of opioid dependence. Orexo has previously launched four proprietary products on the market:
The company focuses on developing new, improved pharmaceuticals by combining well-known substances with its innovative sublingual tablet technology. This results in new, patentable products that improve patient care or offer a higher level of care not currently available in any other way. This offers the possibility of developing products with a lower level of development risk and in a shorter time compared with the development of new chemical entities.
To reduce the risk in certain development programs, Orexo has a number of licensing agreements and research collaborations with global partners. These are for development programs Novartis, Boehringer Ingelheim and Meda. To commercialize previously developed products, Orexo has licensing agreements with Meda (global), ProStrakan (EU and the rest of the world excl the USA and Japan) and Kyowa Hakko Kirin (Japan).
Orexo's revenues derive from royalties, licensing agreements, research financing as part of licensing agreements and research collaboration, sales of diagnostic products and a share in the sales of the joint venture company together with ProStrakan which was divested during the year.
During the year a number of agreements were entered into with ProStrakan whereby Orexo regains the rights to Abstral in the USA and receives amongst other things fixed royalty payments totaling MSEK 610 for sales of Abstral in the EU.
Organization During the year Orexo focused the operations on its proprietary development programs, Zubsolv™ and OX51. Other development programs are run entirely by external partners and Orexo does not provide them with any development resources.
Orexo has broad-based competence throughout the development chain, from early preclinical research and development, formulation and clinical development, to registration and pharmaceutical manufacturing. Orexo has a Good Manufacturing Practice (GMP) facility for the manufacture of products for clinical trials and small-scale production. During the year, an up-grade of the GMP facility has been made in order to be able to supply Zubsolv in the anticipation of a commercial launch in the USA in 2013. For commercial supply, manufacture is also transferred to partners or contract manufacturers.
Orexo also collaborates with contract research organizations for certain aspects of drug development, such as clinical studies. Orexo employs a project-led organization, in which skills are combined based on the specific demands of individual projects. Continuous adjustment of the organization is essential for executing the prioritized development projects and to prepare for a more commercial focus of the operations. In 2012 a re-focusing of the business was decided and, as a consequence, a downsizing of the organization was done, primarily adjusting the Company's capabilities to a firm focus on supporting the development and launch of Zubsolv in the USA.
A New Drug Application for Zubsolv was submitted to the FDA in September 2012. It is expected that Zubsolv will be approved in July 2013 and launched in the USA in September the same year. Intensive work is ongoing together with external competencies to prepare for the most value-adding and optimal commercialization strategy in the USA, including the best commercial partnership structure. This means that Orexo's expertise within marketing, distribution etc. will be strengthened. Orexo had at year-end a total of 97 employees.
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The successful development of Zubsolv™ continued at a rapid pace during 2012. The US Food and Drug Administration, FDA, accepted the New Drug Application for review and the target date for approval was set at July 6, 2013.
Zubsolv™ Positive results from pivotal studies concerning Zubsolv A number of important studies concerning Zubsolv were completed and the results were positive. A dose proportionality study showed the expected bioavailability of buprenorphine and naloxone with increasing doses of Zubsolv. In another study Zubsolv was tested against the market-leading product, Suboxone®, and the results showed the same bioavailability for the two products. A comparative acceptance study between Zubsolv and Suboxone® Film showed that 9 out of 10 participants would choose Zubsolv rather than Suboxone Film for daily treatment.
New Drug Application for Zubsolv accepted for review by the FDA In September 2012, a New Drug Application for Zubsolv in the USA was submitted to the US Food and Drug Administration, FDA. Besides positive results from studies, the early submission was due to the fact that it was possible to use the product stability data from the company's production unit in Uppsala in the registration. In November the FDA gave notification that the New Drug Application had been accepted for review. The approval date was set at July 6, 2013 and launch of Zubsolv is planned for September 2013.
License agreement with ProStrakan concerning Abstral
re-negotiated Orexo and ProStrakan Group Plc re-negotiated the conditions for the commercial collaboration with regard to Abstral®. ProStrakan acquired the rights to Abstral in Europe and Orexo's share in the joint venture company for the Nordic markets. Orexo acquired all rights to Abstral in the USA. Furthermore, ProStrakan took over all existing collaboration agreements in the rest of the world for Abstral, excluding Japan, where the product has already been licensed to ProStrakan's Parent Company, Kyowa Hakko Kirin Co., Ltd. Orexo received MSEK 610 in fixed royalty payments, as well as future royalty and milestone payments for markets outside the USA, excluding Japan. In EU, Orexo will also receive royalty payments when sales exceed certain levels. This created a stable financial platform for Orexo.
KW-2246 (Abstral) in Japan Orexo's partner Kyowa Hakko Kirin Co., Ltd. submitted a New Drug Application (NDA) in Japan for KW 2246 (Abstral). This was done after further clinical studies confirming the product's efficacy and safety. The product has already been approved in the USA, the EU and Canada for the treatment of breakthrough pain in patients being treated with opioid analgesics for underlying chronic cancer pain. KW-2246 will be marketed and sold in Japan jointly by Kyowa Hakko Kirin and Hisamitsu Pharmaceutical Co.
Commercialization plan Guggenheim Securities engaged to evaluate commercial alternatives for Zubsolv and Abstral in the USA Guggenheim Securities, LLS was engaged as a financial advisor to review and evaluate different strategic alternatives. The Board initiated this review in connection with the company's evaluation of the commercialization plans for Zubsolv and Abstral in the USA, with the aim to increase both the commercial opportunities for the company's products and shareholder value.
Share buyback program The Extraordinary General Meeting that was held on July 13, 2012 resolved to introduce a program to re-purchase the company's own shares. Up until the next Annual General Meeting a maximum of 10 percent of the shares outstanding may be repurchased. During the third quarter 1,121,124 shares were repurchased, corresponding to 3.7 percent of the number of shares outstanding, at a value of MSEK 53. No shares were re-purchased during the fourth quarter.
Edluar approved for registration in Europe Edluar was approved via the decentralized registration procedure in Europe. Edluar thereby became the second product developed by Orexo after Abstral® to reach the milestone of achieving regulatory approval in both the EU and the USA. Edluar is to be launched in Europe during 2013 by Meda AB, Orexo's global commercial partner for the product, after national registrations have been carried out in each country.
OX51
Dose-finding phase II study initiated for OX51 Orexo initiated a dose-finding study in Europe for OX51 in patients undergoing prostate biopsies. OX51 is being developed to meet the rapidly growing demand for effective pain relief in minor
surgical and diagnostic procedures. The results from the study, including approximately 200 patients, will be available during 2013.
Organization
Business operations focused and costs reduced Development activities were focused on the proprietary programs Zubsolv and OX51. The total need for resources thereby decreased and the organization was reduced by 19 positions. It is estimated that the reduction in the workforce, which will have full effect as from 2013, will lower the costs by approximately MSEK 30 on an annual basis.
OX-CLI Collaboration with Janssen Pharmaceuticals regarding OX-CLI and OX-ESI terminated and the internal Orexo-based project activities
were discontinued. Orexo AB and Janssen Pharmaceuticals, Inc. entered into an agreement to terminate their collaboration and license agreement regarding the OX-CLI and OX-ESI programs, as well as a third Janssen program. Both parties regained all commercial rights to their own research programs. The OX-CLI and OX-ESI research programs, which aimed to discover and develop new innovative treatments for asthma, chronic obstructive pulmonary disease and other inflammatory diseases, were thus discontinued.
Research agreement with AstraZeneca Orexo entered into a collaboration agreement with AstraZeneca regarding OX-CLI, a preclinical program for potential new treatment of respiratory tract diseases. Pursuant to the agreement Orexo will give AstraZeneca the rights to perform extensive preclinical research and evaluation of substances in Orexo's OX-CLI program. AstraZeneca also has an option to acquire all substances linked to the program. A transfer and license agreement will then be signed by the parties, whereby Orexo will receive milestone payments during the development phase and royalty payments based on future revenues.
New CEO Nikolaj Sørensen, Chief Commercial Officer of Orexo, was appointed new CEO and Martin Nicklasson, Chairman of the Board, was appointed Executive Chairman. Nikolaj Sørensen replaced Anders Lundström, who stepped down as Chief Executive Officer.
OX17 During February 2013, the license agreement on OX17 between Novartis AG and Orexo, entered into during 2009, was terminated. Orexo will not continue the development program.
Abstral® In March, Orexo sold Abstral® (fentanyl) Sublingual Tablets in the United States to Galena Biopharma, Inc. Under the terms of the agreement, Galena Biopharma will pay Orexo US\$10 million upfront and an additional US\$5 million within the first twelve months after signing, plus low double digit royalties and milestone payments based on pre-specified sales levels.
Orexo develops improved specialty treatments and treatments for new areas of use – at a lower cost, in a shorter period of time and at a lower risk – by combining known pharmaceutical substances with its patented proprietary sublingual (under the tongue) technologies.
Orexo has three strategic areas of focus: 1) Maximization of the commercial potential of the Company's
products – Successful launch of Zubsolv™ and Abstral® in the USA Zubsolv and Abstral offer each a highly attractive commercial potential in the USA. In order to deliver the best commercial value, and to reduce Orexo's financial exposure, Orexo has decided to evaluate and find the best commercial partnership structure for each product in the USA.
Orexo collaborates with various companies to maximize the potential of launched products and ongoing development projects. It is assessed that all launched products have considerable growth potential.
It is assessed that the potential for continued positive development of Kibion's business is good, in the light of increased use of breath tests for Helicobacter Pylori diagnosis, combined with a broadened distribution network through the Wagner acquisition and coming launches in new geographic markets.
Clinical studies have begun during the first half of 2013 to investigate the possibility of using Zubsolv in the initiation of treatment of opioid dependence and how well patients comply with treatment including health economic aspects. The broad development program also includes the development of new strengths and flavors.
– Prioritization of the development projects that have the greatest commercial potential
Today the focus is on Zubsolv and OX51.
company – Establishment of a commercial organization in the USA Several different possibilities are being investigated. However, Orexo will not build up a full sales organization of its own, but is looking at different partnership structures in the USA. In order to prepare for the launch of Zubsolv and Abstral, Orexo has currently hired several commercially experienced consultants. Furthermore, Orexo intends to expand its capabilities in the USA to ensure an
The company prioritizes Zubsolv and its further life cycle management program and OX51, which are the programs that are closest to the market.
– Further development towards continuous commercial production Zubsolv will be manufactured in both Uppsala and the USA.
Business model
Patient requirements Orexo's drug development begins with an analysis of the patients' requirements and needs. Opportunities to develop drugs that make healthcare more cost effective are also taken into consideration.
Unique expertise Orexo has unique expertise to develop and commercialize new products by combining well-known pharmaceutical substances with proprietary innovative drug-delivery technologies.
Product development Interesting project ideas are identified at the intersection between patient requirements/needs, Orexo's unique technical expertise and commercial insight. These ideas may aim to improve existing products by developing new patient-adapted preparations, or they may target new formulations of existing pharmaceutical substances which are given applications within completely new areas of use. The project ideas are evaluated on the basis of medical and commercial potential and the ones that are assessed having the greatest potential proceed to the development portfolio.
Sales and marketing Orexo today has the resources and expertise to develop an inhouse sales and marketing organization. Previously there was great dependence on partners. The aim is to actively participate in marketing and sales in the largest markets, primarily the USA. Distribution in the rest of the world will primarily be done under licensing agreements. The products that have been launched up until the present time, Abstral® and Edluar™, as well as Kibion's breath tests are mainly sold via partners through licensing agreements and to a lesser extent through distribution agreements. However, Orexo has the rights for sales of Abstral in the USA, and aims to establish a commercial presence in a partnership structure in the USA for Zubsolv.
The proprietary development programs are the most important part of Orexo's development portfolio. Orexo has a number of launched products and these are the result of previous successful development work and commercialization. These products are today out-licensed to other companies and hence sold and managed without Orexo's direct involvement. Finally, Orexo's development portfolio contains a number of collaboration projects for further clinical development of different drug candidates. The strategy going forward is to develop the proprietary development programs all the way to regulatory approval and to then market and sell under company management. Orexo thereby aspires to become a fully integrated specialty pharma company.
The principal focus of the internal development programs is directed towards on Zubsolv™ for the treatment of opioid dependence. Zubsolv is the program that is closest to market launch, and it is assessed to have the greatest sales potential. A New Drug Application for Zubsolv was submitted to the U.S. Food and Drug Administration, FDA, in September 2012, and the estimated approval date is July 6, 2013.
Furthermore, OX51 is being developed for the prevention of procedure-induced pain. It is estimated that the results from an ongoing dose-finding phase II study will be available during 2013. The OX27 program for the treatment of breakthrough pain in cancer patients is at present dormant.
Zubsolv is a product for the treatment of opioid dependence. Zubsolv is based on Orexo's broad knowledge of sublingual (under the tongue) preparations. The new product will offer a number of advantages compared with the present market leader, Suboxone®.
Active ingredients and advantages Just like its competitor Suboxone, Zubsolv consists of a combination of buprenorphine and naloxone. The active ingredient, buprenorphine, has documented good efficacy in the treatment of opioid dependence. It eases withdrawal symptoms at the same time as it blocks the "high" effects of other opioids.
Combining buprenorphine and naloxone (an opioid antidote) in a single tablet counteracts the "high" effect that may arise following inappropriate intravenous injection of a dissolved tablet. The risk of intravenous abuse is thereby reduced.
Through application of its proprietary technologies, Orexo has increased the bioavailability of the active ingredients, accelerated dissolve time, reduced tablet size and improved the taste. Preference for Zubsolv has been compared with Suboxone® Tablet and Suboxone® Film in two independent studies. Key results from these studies show that the subjects in the trials preferred Zubsolv over the competitors (80-90 percent in favor of Zubsolv). Important parameters are improved taste, mouth-feel and ease of administration.
Market potential Zubsolv is expected to be the first improved branded competitor to Reckitt Benckiser's product Suboxone®, which reached sales of USD 1.5 billion in the USA during 2012. Suboxone grew by over 20% in the USA during 2012. Zubsolv is assessed to have great market potential, as the product's unique properties, which have been confirmed during the studies performed, are expected to lead to increased acceptance by patients.
A preference study that was completed in June 2012 compared Zubsolv and Suboxone® Tablet and demonstrated that 9 out of 10
participants preferred Zubsolv. In November, Orexo completed a study to assess acceptance of Zubsolv compared to Suboxone® Film. The study was a cross-over trial in which 28 participants were given either Zubsolv or Suboxone Film in random order on separate study days. Key results indicate that Zubsolv was preferred by 9 out of 10 participants on all acceptance parameters tested, i.e. overall acceptability, taste masking, after taste experience, mouth-feel, and ease of administration. When asked specifically about which product the participants would choose for daily treatment, 9 out of 10 participants reported that they would select Zubsolv.
Reckitt Benckiser Ltd has announced that they intend to discontinue distribution of Suboxone® in tablet form in the USA during the first quarter of 2013. Suboxone will thereafter only be available from Reckitt Benckiser as a film in the USA creating yet another commercial opportunity for Zubsolv. In late February 2013, the FDA informed that two generics to Suboxone Tablet have been approved.
Based on the increasing medical and non-medical use of prescription opioid products in the USA, Orexo estimates that the American market for the treatment of opioid dependence will continue to grow and that in 2014 it will be worth USD 2 billion. In addition to this, the number of patients actually seeking treatment for opioid dependence has increased and data suggests that the treatment time for these patients is increasing. It is estimated that more than 5 million Americans are dependent on opioids. Just under 10 percent of these patients receive adequate treatment.
The societal cost of opioid dependence is today estimated to USD 55 billion, of which USD 25 billion are healthcare-related costs. According to the Institute of Addiction Medicine the health economic gains from the treatment of opioid dependence may be twelve times the cost of the treatment. Awareness of the gains from treatment is increasing all the time within healthcare.
Orexo assesses that Zubsolv's chances of success on the market are high given the unique properties of the product in a rapidly growing market with major underserved medical needs. The company estimates that the market potential of the product is in excess of MUSD 500 in annual sales.
Project status During 2012, a number of important studies were completed with positive results. A dose proportionality study documented the expected bioavailability of buprenorphine and naloxone with increasing doses of Zubsolv. In another study Zubsolv was tested and compared with the market-leading product, Suboxone®, and the results displayed the same bioavailability for both products.
In September 2012, a New Drug Application was submitted in the USA to the U.S. Food and Drug Administration, FDA. This occurred several months earlier than estimated. Beside the positive results from the two previously mentioned studies, the time gained was due to the fact that it was possible to use the product stability data from our production site in Uppsala in the registration. In addition to the work at our production site in
Uppsala, a production unit is being built up in the USA in collaboration with Orexo's CMO (Contract Manufacturing Organization).
In November the FDA gave notification that the New Drug Application for Zubsolv had been accepted for review. The planned date for notification of approval is July 6, 2013. If this time plan is followed, it is planned that the product will be launched in September 2013.
During the fourth quarter a comparative acceptance study between Zubsolv and Suboxone® Film was completed. The study showed that 9 out of 10 participants would choose Zubsolv rather than Suboxone Film for daily treatment.
In parallel with the New Drug Application in the USA, Orexo is working on further developing Zubsolv. Clinical studies will be initiated during the first half of 2013 in order to investigate whether it is possible to use Zubsolv upon initiation of treatment, how well patients comply with the Zubsolv treatment, and health economic aspects. The broad development program also includes, amongst other things, the development of new strengths and a new flavor.
The OX51 project aims to develop a new sublingual product for the prevention of acute intense pain in connection with diagnostic or therapeutic procedures.
The most important advantages of OX51 are that the active ingredient alfentanil has both rapid uptake and rapid elimination. This means that different procedures can be performed in a simpler and less painful way. It would be possible to transfer simpler procedures from hospitals to doctors' offices and in certain cases to district family practitioners, which would also be socioeconomically favorable.
Approximately 130 million painful diagnostic or therapeutic procedures are performed in the USA and Europe each year and the number is increasing. Today hospital surgical procedures are normally performed by the patient being given either a general or a local anesthetic. OX51 has the potential to offer effective relief from procedure-induced pain and reduce the need for giving patients a general anesthetic. Examples of procedures where it is desirable to achieve rapid and short-term pain relief are the relocation of fractures, prostate biopsies and other minor surgical procedures.
OX51's properties are highly suitable for pain relief in short procedures, and this has been confirmed in market surveys performed by Orexo among doctors and paying healthcare institutions.
Orexo's market surveys demonstrate that there is a definite willingness to pay for more efficient pain relief.
A meeting with the U.S. Food and Drug Administration, FDA, during 2011 confirmed that the planned development program may well meet the regulatory requirements for approval in the USA.
During the first half of 2012 a clinical study was performed, where the results confirmed the choice of the final formulation for the coming phase II study. During autumn 2012 a dose-finding phase II study was initiated in patients undergoing prostate biopsies. It is estimated that the results from this European study, including approximately 200 patients, will be available during 2013.
OX27 is designed to improve treatment of breakthrough cancer pain. This is short-term intense pain over and above otherwise wellcontrolled long-term pain, which is treated with opioids. The preparation is a fast-acting sublingual formulation of an existing treatment.
Approximately 60 percent of all cancer patients with pain experience episodes of breakthrough pain. These episodes occur three to seven times per day in affected patients. At present all approved products for breakthrough pain are fentanyl products.
These are limited to dosages of no more than four times per day, which means that there is a need for products that can be dosed more often. Studies performed demonstrate that OX27 has the potential to be dosed more often than fentanyl-based products.
The OX27 project has been temporarily dormant since spring 2012 and will most likely not be advanced during 2013. The reason is that the company's resources have to a large extent been focused on Zubsolv™ and its further development.
At present Orexo has five products on the market. Of these the breath tests for diagnosis of the gastric ulcer bacterium Helicobacter pylori, Heliprobe® System and Diabact® UBT, as well as the IRIS® analytical instrument are marketed under company management via the subsidiary Kibion. The specialty pharma company Meda has a global license for Edluar™, which is a product for the treatment of short-term insomnia. Orexo has the commercial rights in the USA for Abstral®, which gives rapid relief from breakthrough pain in cancer patients. In Europe and the rest of the world the rights have been transferred to the ProStrakan Group plc. Orexo's Japanese partner Kyowa Hakko Kirin Co., Ltd. holds the rights for KW-2246 (Abstral) in Japan.
Abstral treats breakthrough cancer pain in patients already being treated with opioids. The product contains the pain-relieving substance fentanyl. Abstral allows doses to be customized according to individual requirements, which is essential for achieving optimal pain relief.
Abstral is a rapidly disintegrating tablet that is placed under the tongue. The advantage is that the active ingredient is absorbed into the body through the mucous membrane. The effect is thereby fast and predictable. The tablet is easy to dose, store and handle.
The product was approved in 2008 for sales in Europe. Since then it has been launched in most countries in the EU. In January 2011, Abstral was approved by the U.S. Food and Drug Administration, FDA, and was subsequently launched in the USA in April 2011 by Orexo's partner ProStrakan. In February 2011 Abstral was also approved in Canada.
In November 2012, Orexo's Japanese partner Kyowa Hakko Kirin submitted a New Drug Application for KW-2246 (Abstral®) in Japan.
During the second quarter of 2012, Orexo entered into a new agreement with ProStrakan regarding Abstral, whereby Orexo takes over the product rights for Abstral in the USA during the first half of 2013. Orexo assesses that Abstral has good chances of achieving similar success in the USA to that in Europe and currently Orexo is evaluating the best commercial partnership structure in the USA. At the same time ProStrakan acquired the rights in the EU and the rest of the world, except for Japan. Orexo will, in addition to fixed royalty payments, continue to receive royalties on these sales over and above certain predetermined levels.
In the EU Abstral continues to grow rapidly and gain market share. During 2012 sales in the EU amounted to approximately MSEK 350, an increase of 40 percent compared with the previous year.
During 2012, royalty revenues from Abstral's EU sales amounted to MSEK 175.2 (70.5).
Edluar is an insomnia treatment based on the active ingredient zolpidem. Zolpidem has been used to treat insomnia for a long time. The Edluar tablet is placed under the tongue, where it rapidly dissolves and the active ingredient is absorbed through the mucous membrane.
Meda has acquired the global rights for Edluar. The product was approved by the U.S. Food and Drug Administration, FDA, in
March 2009 and in July 2011 the product was also approved in Canada. During the second quarter 2012, Edluar was approved for registration in Europe. It is estimated that the launch will take place during 2013.
Royalty revenues from Edluar™ amounted to MSEK 6.3 (2.4) during 2012.
Heliprobe System, Diabact UBT and IRIS are used in breath tests to diagnose the gastric ulcer bacterium Helicobacter pylori (Hp). It is estimated that half of the world's population carries the bacterium, which is an important factor in the occurrence of gastric ulcers. Furthermore, infected people run an increased risk of developing stomach cancer.
Heliprobe System and Diabact UBT are based on UBT (Urea Breath Test) technology by collecting a sample of the patient's exhaled breath. The products complement each other and are adapted to different market segments. The most important competitive advantages compared with other UBT tests are that the patent-protected technology enables shorter preparations before testing, lower dosages and faster and more reliable results.
IRIS is an instrument that is used for analysis of breath tests such as Diabact UBT. The combination of IRIS and Diabact UBT means that customers can be offered complete systems.
The use of breath tests is increasing and is recommended by leading experts as an excellent alternative to gastroscopy for patients under the age of 55. The diagnostic method is just as reliable, but considerably more cost-effective and convenient for
Heliprobe, Diabact and IRIS are marketed by Orexo's subsidiary Kibion. The products are sold in more than 60 countries. The German company Wagner Analysen Technik was successfully integrated during 2012. During 2012, Kibion was certified in accordance with ISO 13485, which amongst other things facilitates the registration procedure in a number of markets.
Kibion's sales during 2012 amounted to MSEK 48.3 (43.9). The Middle East and the EU are Kibion's largest markets. The global market for UBT tests amounts to approximately MEUR 250. Future growth potential is assessed to be good in the light of the increased use of breath tests, a broader distribution network due to the acquisition of Wagner and coming launches in new markets.
In the longer term there are opportunities to broaden the product range by developing breath tests for other diseases. During the year, an analysis of conceivable candidates for future breath tests was performed.
The aim is to develop a completely new class of products, based on Orexo's prostaglandin research. The collaboration with Boehringer Ingelheim, which was initiated in 2005, focuses on specific inhibition of the formation of prostaglandin E2 (PGE2) in different disease processes.
A number of challenges regarding scaling-up and formulation were solved during 2012. The project is proceeding in the
preclinical phase with the evaluation of potential clinical strategies.
Boehringer Ingelheim has sole responsibility for all research and development and commercialization of future products. Boehringer Ingelheim makes payments to Orexo when certain milestones are achieved. In addition to this there are royalties on future sales.
OX17 is being developed for the treatment of gastroesophageal reflux disease (GERD). Patients suffering from GERD have recurrent problems with acid reflux, discomfort and pain. Today's treatments provide either a fast, short-term effect or slow but lasting relief. OX17 provides an effect that is both rapid and lasting.
During February 2013 the license agreement on OX17 between Novartis AG and Orexo, entered into during 2009, was terminated. Orexo will not continue the development program.
The aim of the OX-NLA project is to develop a fast-acting nasal spray based on the antihistamine cetirizine for the treatment of allergic and non-allergic rhinitis (hay fever).
Meda has a global license for OX-NLA and is responsible for the project's continuing development.
The OX-CLI program aims to identify and develop molecules for new, innovative treatments of inflammation in the airways such as asthma and chronic obstructive pulmonary disease (COPD). At the beginning of 2013 Orexo entered into an agreement with AstraZeneca regarding OX-CLI. Under this agreement, Orexo grants to AstraZeneca rights to conduct further preclinical
research and evaluation of compounds in Orexo's OX-CLI program. AstraZeneca also has an option to acquire the compounds pertaining to the program subject to a full asset transfer agreement being executed by the parties, under which Orexo will receive development milestones and royalties on future revenues.
Orexo endeavors to be an attractive employer which recruits, retains and develops talented employees. Operations are conducted in line with the company's core values of business focus, respect and drive. Business focus requires the company's goals to be taken into account in all decision making. At Orexo, employees respect each other's skills, views and decisions. Through its drive, the company strives to be dynamic, proactive and innovative.
Employees At year-end, Orexo Group had 97 employees (118). The decrease was a consequence of operations being focused on the company's development programs Zubsolv™ and OX51. The workforce reductions were primarily carried through during the second quarter of 2012.
57 percent of the employees were women (46). Of the 8 (8) individuals in Executive Management, 3 (3) were women. Management has extensive experience of the pharmaceuticals industry and competence in pharmaceutical chemistry, pharmaceutical technology, analytical chemistry, preclinical and clinical development, regulatory affairs, project management, pharmaceutical development, commercial operations and business development.
The employees' high level of expertise is a crucial success factor for Orexo. A measure of their competence is that 25 percent of the employees hold doctorates and 58 percent have another academic degree. Approximately 63 percent of employees were active in research and development during the year.
To ensure that the employees' high level of competence constantly develops, Orexo has an active exchange of knowledge with international networks and collaboration with academic institutions such as Karolinska Institute and Uppsala University. During the year Orexo became part of a training network for pharmaceutical companies in Uppsala.
During the year, operations were conducted in Uppsala Business Park.
An employee survey was carried out during the year. An action plan was drawn up on the basis of this. One main activity in the plan is to further develop the goal process, amongst other things by further strengthening the link between the company's goals and every employee's individual goals. The action plan also includes measures to further improve internal information from Executive Management. The employee survey will be carried out each year in order to capture opinions and to identify relevant areas for improvement.
Performance Management The systematic Performance Management process is based on Orexo's core values – business focus, respect and drive. Each manager is responsible for identifying departmental objectives that support the overall strategic goals. At the beginning of each fiscal year, the managers and employees jointly set individual
targets. Training sessions were held during the year to support the managers in the work of setting relevant targets. It is the responsibility of the manager to create the conditions for, drive, follow up and evaluate the performance of each employee. The individual targets are evaluated in connection with employee performance reviews and ahead of salary reviews.
Work environment A good work environment is important to ensure work satisfaction. Together with safety officers appointed by the staff, Orexo conducts an active and systematic health and safety program. Any incidents and accidents are followed up and the appropriate measures are taken. 3 occupational injuries occurred during 2012. Training for the safety officers was carried out during the year.
Health and fitness activities During the year private healthcare and rehabilitation insurance was introduced for all employees. In addition to rapid access to care and rehabilitation, the insurance includes a preventive element. Orexo also offers contributions to fitness activities and preventive healthcare and ergonomics through the company health service.
Sustainable development Orexo strives to run its operations with the least possible impact on the environment and to be conscious in the use of nature's resources. In order to achieve this, Orexo is active in improving the company's operations in terms of sustainability. Orexo continuously endeavors to limit the use of energy and natural resources through energy efficiency, reduced consumption of disposable materials and improved waste management. In order to reduce the amount of travelling, the company encourages meetings to be held by telephone or on the web. Environmental aspects are taken into account in the procurement of all goods and services, and the aim is to give continous training to coworkers in sustainable development.
During 2012, Orexo shut down early-stage drug development in the form of chemical synthesis and work on biological test models. Orexo now focuses on developing new products on the basis of its proprietary drug-delivery technology and has its expertise in pharmaceutical formulation, in particular in the area of sublingual formulations. Manufacturing is done at the premises in Uppsala Business Park and by contract manufacturers. Since 2007, Orexo has held an environmental permit for its operations in Uppsala to manufacture products by means of physical processes. In December 2011, an application was submitted for a new environmental permit for early research. This application was withdrawn as the operations that are conducted today are covered by the previously granted permit from 2007. An environmental factor evaluation was carried out during the year to identify the most important environmental factors in all parts of the company. The result was that Orexo should focus its environmental work on product development, manufacturing and the handling of chemicals.
In order to ensure that the company follows current environmental laws and requirements and improves its internal control, an environmental management system based on ISO 14001 was introduced during 2012. There are presently no plans to certify the system. To continuously improve the work with sustainability, Orexo appointed an environmental group during the year which consisted of representatives from different parts of the company. The group will focus on environmental questions and coordinate environmental work.
The environmental objectives set for 2013 are:
Ethical practice in clinical studies Orexo conducts clinical studies in collaboration with external experts/organisations. Studies are designed in consultation with the partner in question and continuous assessment is made of risks and benefits. The studies require regulatory approval and regulations and ethical issues in the various countries are taken into account. Since the studies are based on well-known substances, the risk level is generally lower than in connection with clinical tests of new molecules.
Orexo's share is listed on NASDAQ OMX Stockholm. At year-end, Orexo had a total of 3,588 shareholders and the non-Swedish shareholding in the company amounted to 45 percent. During the year a program for repurchase of the company's own shares was introduced.
The Orexo share is listed on NASDAQ OMX Stockholm under the symbol ORX. During the year the share price rose by 79 percent and the last price paid in 2012 was SEK 49.60 (27.70). This corresponds to a market capitalization of MSEK 1,485 (827). The highest closing price during the year for the Orexo share was SEK 56.25, quoted on September 17. The lowest quotation was SEK 21.00 on May 23.
Liquidity In total, 13.9 (11.6) million shares in Orexo were traded in 2012, corresponding to a value of approximately MSEK 511 (420). The daily average trading volume was 55,600 shares, corresponding to a value of MSEK 2.2.
Ownership At year-end, Orexo had 3,588 (3,605) shareholders, of which 400 were registered as legal entities and 3,188 as private individuals. Of the share capital, 55 percent (55) is held by shareholders registered in Sweden and 45 percent (45) by non-Swedish shareholders. The largest proportion of shareholders registered outside Sweden can be found in Denmark at approximately 30 percent.
The list is by shareholder group, where a number of legal entities may be a part of each group above.
Share buyback program The Extraordinary General Meeting on July 13 resolved to introduce a buyback program regarding the company's own shares. A maximum of 10 percent of the shares outstanding may be repurchased up until the time of the next Annual General Meeting. During the third quarter, 1,121,124 shares were repurchased, corresponding to 3.7 percent of the number of shares outstanding, for a value of MSEK 53. No shares were repurchased during the fourth quarter.
| Shareholders at Dec 31, 2012 | ||
|---|---|---|
| Novo A/S | No. of shares 7,182,658 |
% 24.0% |
| HealthCap | 5,532,971 | 18.5% |
| Arbejdsmarkedets Tillaegspension (ATP) | 1,840,633 | 6.1% |
| Abingworth | 1,204,730 | 4.0% |
| Orexo AB | 1,121,124 | 3.7% |
| Försäkringsaktiebolaget Avanza pension | 939,412 | 3.1% |
| Brohuvudet AB | 900,000 | 3.0% |
| Euroclear Bank S.A/N.V | 602,776 | 2.0% |
| Lundqvist, Thomas | 495,250 | 1.7% |
| Handelsbanken (J.P. Morgan EU) | 431,289 | 1.4% |
| Nyström, Christer | 292,000 | 1.0% |
| Others | 9,403,489 | 31.4% |
| Total number of shares Known shareholders in Orexo, source: Euroclear Sweden A. |
29,946,332 | 100.0% |
| Ownership structure | |||
|---|---|---|---|
| 1–500 | No. of shareholders 2,145 |
No. of shares 408,095 |
% 1.4 |
| 501–1,000 | 565 | 474,819 | 1.6 |
| 1,001–5,000 | 610 | 1,368,016 | 4.6 |
| 5,001–10,000 | 133 | 1,027,544 | 3.4 |
| 10,001–15,000 | 36 | 463,553 | 1.6 |
| 15,001–20,000 | 13 | 240,667 | 0.8 |
| 20,001– | 86 | 25,963,638 | 86.70 |
| Total | 3,588 | 29,946,332 | 100 |
Ownership categories
Private individuals, 19% Institutions, 81%
Source: NASDAQ OMX
| 2012 | 2011 Jan–Dec |
|---|---|
| 199.6 | |
| –27.9 | –29.0 |
| –62.0 | 170.6 –50.1 |
| –82.6 | –49.6 |
| –216.2 | –194.4 |
| –17.1 | –268.0 |
| –8.2 | –391.5 –7.9 |
| 1.7 | –399.4 7.4 |
| –392.0 | |
| Condensed consolidated statement of operations Jan–Dec 326.3 298.4 –79.4 –87.6 –85.9 |
¹ Includes costs for employee stock options of MSEK 9.3 for the period January-December 2012 (MSEK 3.1 January-December 2011).
Revenues
Net revenues Net revenues for the period January–December 2012 amounted to MESK 326.3 (199.6).
Net revenues were distributed as follows:
| Net revenues MSEK |
2012 Jan–Dec |
2011 Jan–Dec |
|---|---|---|
| Abstral® – royalty (previous agreement¹) | 36.8 | 70.5 |
| Abstral® – royalty (new agreement ²) | 138.4 | - |
| One-time payment Abstral | 29.3 | - |
| Edluar™ – royalty | 6.3 | 2.4 |
| ProStrakan AB J/V 50 % | 8.0 | 15.6 |
| Kibion AB | 48.3 | 43.9 |
| Total revenues from launched products Partner-financed R&D costs |
267.1 23.8 |
132.4 35.1 |
| License revenues | 36.7 | 33.0 |
| Other | –1.3 | –0.9 |
| Total | 326.3 | 199.6 |
¹ Up until May 31, 2012. ² As from June 1, 2012.
Launched products During the year total revenues from Orexo's launched products increased by 102 percent to MSEK 267.1 (132.4).
Royalty revenues from Abstral® amounted to MSEK 175.2 (70.5). During the fourth quarter, the corresponding royalty revenues amounted, in accordance with the new agreement with ProStrakan valid as from June 1, 2012, to MSEK 59.5 (19.2). Royalty revenues from Edluar™ during the year amounted to MSEK 6.3 (2.4). During the second quarter Edluar was approved in the EU and it is estimated that it will be launched there in 2013.
Kibion's sales for the year amounted to MSEK 48.3 (43.9). The Middle East and the EU are Kibion's largest markets.
As reported during the first quarter, the earlier portion recognized as liability of the milestone payment from Janssen has been recognized in its entirety during the year as a result of the termination of the CLI project. Revenues related to development projects amounted in all to MSEK 36.7 (33.0).
Selling expenses Selling expenses amounted to MSEK 62.0 (50.1). The expenses primarily include market support activities for the coming commercialization of Zubsolv™ and Abstral® in the USA and selling expenses in the subsidiary Kibion AB.
Administrative expenses Administrative expenses amounted to MSEK 82.6 (49.6). The increased expenses are primarily attributable to legal expenses related to the company's ongoing patent litigation process regarding Edluar™ in the USA. Expenses for the renegotiation of the Abstral agreement are also part of the increased expenses.
Research and development costs Research and development costs amounted to MSEK 216.2 (194.4), of which MSEK 23.8 (35.1) was covered by partners, mainly by Janssen and Kyowa Hakko Kirin. The increase in costs in comparison with the previous year is mainly related to activities in connection with clinical studies, primarily the Zubsolv program.
Expenses for the long-term incentive program The Group's expenses for the employee stock option program totaled MSEK 9.3, in comparison with MSEK 3.1 during the previous year. The increased costs are related to the Orexo share price development during the year.
Other income and expenses Other income and expenses amounted to MSEK -17.1 (-268.0). Other expenses include expenses of MSEK 12.1 attributable to the workforce reduction that has been carried out, and the writedown of previously acquired research and development amounting to MSEK 10.2. As Zubsolv (OX219) in its entirety is based on Orexo's proprietary technology, the technology included in the acquisition of PharmaKodex has now been completely written off.
The remainder of other income and expenses primarily comprises exchange-rate gains/losses.
Depreciation and amortization Depreciation and amortization amounted to MSEK 7.1 (7.8).
Net financial items Net financial items amounted to MSEK -8.2 (–7.9). Net financial items include interest expenses of MSEK 12.0 related to convertible loans.
Income tax Income tax for the year of MSEK 1.7 (7.4) is attributable in its entirety to the reversal of deferred tax linked to the write-down of previously acquired technology concerning PKX219.
Net earnings Net earnings amounted to MSEK -79.4 (–391.5).
Financial position Cash and cash equivalents amounted to MSEK 228.1 (246.9) on December 31, 2012 and interest-bearing liabilities to MSEK 120.6 (120.9). This includes a convertible loan amounting to MSEK 111, for which the conversion price is SEK 47.50 SEK and the maturity date is March 31, 2015.
Cash flow from operating activities amounted to MSEK 28.7 (-117.2) during the year.
During the second quarter a one-time payment of MEUR 3.3 was received related to sales performance of Abstral as well as payment of MGBP 22.5 in accordance with the new agreement with ProStrakan concerning Abstral.
A resolution was adopted at the Extraordinary General Meeting of shareholders on July 13, 2012 to introduce a buy-back program of the company's own shares. A maximum of 10 percent of the shares outstanding can be bought back up until the next Annual General Meeting. Up until December 31, 1,121,124 shares, corresponding to 3.7 percent of the number of shares outstanding, had been bought back at a value of MSEK 53.
Shareholders' equity on December 31, 2012 was MSEK 191.2 (311.1). The equity/assets ratio was 40 (57) percent. The royalty payment in accordance with the Abstral® agreement, which has been received but not yet recognized as revenue, has affected the equity/assets ratio negatively by approximately 10 percentage units.
Investments Gross investments in tangible fixed assets amounted to MSEK 5.8 (4.7).
Parent Company Most of the Group's business is carried out in the Parent Company, Orexo AB. Net revenues amounted to MSEK 272.0 (140.8) and earnings after financial items were MSEK -157.1 (-443.8). Investments amounted to MSEK 5.8 (4.7). As of December 31, 2012, cash and cash equivalents in the Parent Company amounted to MSEK 216.6 (227.9). During the year, shares in subsidiaries decreased by MSEK 57.9. This decrease is attributable to the write-down of shares due to the write-down of the value of acquired technology and to the divestment of the Nordic sales company jointly owned with ProStrakan.
Significant risks and uncertainties Significant risks are essentially the same for the Parent Company and the Group. The risks may be classified as financial and operational. The financial risks are described in Note 3 on page 39. A summary description is presented below of the operational risks attributable to research and development, production, sales and other risks.
R&D does not achieve the expected results Development of a new product is by nature a complicated and risky process that requires considerable financial resources. Orexo's strategy is to develop improved products at a lower cost, in a shorter period of time and at a lower risk by combining previously known substances with proprietary technologies. The process is controlled by a multidisciplinary organization that handles all critical issues during the development period on the way to an approved product. As Orexo is a relatively small organization, it is necessary to focus on a small number of prioritized projects with high market potential.
The development of these prioritized projects towards an approved product may fail or be delayed due to several factors, such as:
Difficulties in obtaining and protecting patents Being able to obtain and maintain patents and other intellectual property rights protecting Orexo's technologies and products is an important part of Orexo's ability to create long-term value in its business. Obtaining patents related to pharmaceuticals is a complex process that involves both scientific and legal expertise. Even if a patent has been granted, it may later be challenged legally, declared invalid or by-passed, which may limit Orexo's ability to market its new products.
In addition to the development of its own products, Orexo has a number of development projects licensed to partners, where the partner in each case has complete responsibility for development. If these projects fail or for some reason are terminated, there are no future one-time payments and royalties.
Production process Production and packing of Orexo's products is done at the company's own facility in Uppsala and by various sub-suppliers in a number of different countries. This production places high demands on methods and processes which must meet "Good Manufacturing Practice" (GMP). Orexo constantly evaluates the fulfilment of GMP both internally and by all strategic subsuppliers. Orexo and its subsuppliers may be inspected by different authorities that have the power to grant approval. Orexo's production comprises highly potent control substances. There are strict rules and laws for these regarding manufacturing, storage, handling, freight, import and export, and waste management. Access to pharmaceutical ingredients may be uncertain and entail long delivery times. Orexo must therefore ensure that it can gain access to these substances at an early stage.
Effect of political and regulatory decisions The pharmaceutical market is greatly affected by political decisions that may affect, for example, reimbursement levels for pharmaceutical expenses and limits for the prescription of products.
Before new products are launched, future production volumes must be assessed and production started before final regulatory approval has been received, thus allowing marketing and sales to begin.
Competing products and companies Orexo's products are sold in a highly competitive market, with competition from both other products and other treatment methods. When patent protection has expired for a product, there is a risk of competition from generic products, with increased price competition as a result. Some competitors today have stronger finances and marketing resources than Orexo, which may constitute a risk in, for example, the launch of Orexo's new product, Zubsolv. In all markets for Orexo's products there is intensive development of new and improved treatments, which may prove to have a better clinical effect than those of today.
Orexo is constantly working to proactively analyze these risks and develop action plans for alternative market scenarios. This is being done together with local external expertise. An advisory multidisciplinary committee has been extablished for Orexo's most important product, Zubsolv, so as to be able to gain insight into future opportunities and how risks should be managed.
Dependence on key persons Orexo is dependent on a number of key persons within various different areas. The ability to recruit and retain qualified coworkers is of very great importance for ensuring that there is adequate expertise in the company. Orexo has also outsourced a number of activities critical to the business to external consultants. Where they cannot deliver services in time and of the necessary quality, this may have a negative impact on the results of the business.
Revenue and cost forecast for 2013 In March 2013, Orexo sold Abstral® in the USA to Galena Biopharma Inc. Orexo intends to launch Zubsolv in the USA during 2013. A final decision on how the product is to be commercialized has not yet been made. As the cost structure is dependent on what decision is made, the company does not intend to make a cost forecast for 2013. Providing that the time plan for regulatory approval from the FDA is kept, and that the expected launch of Zubsolv takes place in September 2013, the company can be expected to display profitability towards the end of 2013 and have a positive cash flow during 2014.
Competition Orexo faces two kinds of competition: firstly, from companies with a similar business concept and business model and, secondly, from companies active in the same medical areas. The drug delivery market is growing rapidly and is regarded as highly attractive by a number of companies with various specialist competencies. There are no direct competitors to Orexo, since the company has its own patented technologies, but a potential business partner may select another technical product solution in preference to those offered by Orexo, if such an alternative is available.
Orexo could face competition from existing marketed products for the treatment of pain, inflammation and opioid dependence. However, the treatments currently available are generally considered to be unsatisfactory and there is good potential for Orexo to produce better treatments for these indications.
Orexo licenses some of its products to companies with strong sales and marketing organizations in the respective product area. In each medical area, such as pain, insomnia and GERD, there are varying levels of product competition.
Incentive programs Orexo has introduced share-based incentive programs in the form of employee stock options, a Board shareholder program and warrants with the aim of motivating and rewarding employees through partial ownership, thereby promoting the Group's longterm interests. For more detailed information, see Long-term incentive programs on page 25.
Principles and guidelines for remuneration to senior executives The Board proposes that the Annual General Meeting resolve to approve the Board's proposal concerning principles and guidelines for the remuneration of the company's senior executives in accordance with what is stated below, to apply until the 2014 Annual General Meeting. The Board's proposal principally conforms to guidelines previously applied to the remuneration of the company's senior executives. "Management" refers to the President and other senior executives in the company, which in addition to the President comprises seven persons. The Board has appointed a Remuneration Committee to draw up proposals regarding remuneration and other terms of employment for the company's management.
Reasons Orexo shall offer terms of employment that are in line with market rates so that the company can recruit and retain skilled personnel. Remuneration to company management shall comprise a fixed salary, variable remuneration, long-term incentive programs, pensions and other customary benefits. Remuneration is based on the individual's commitment and performance in relation to previously established goals, individual goals and goals for the entire company. Individual performance is continuously evaluated.
Fixed salary Fixed salary is generally reviewed on an annual basis and shall be based on the qualitative performance of the individual. The fixed salary of the President and other senior executives shall be in line with market conditions.
Variable remuneration Variable remuneration shall take into account the individual's level of responsibility and degree of influence. The size of variable remuneration is based on the percentage of set goals met by the individual. Variable remuneration shall amount to no more than 40 percent of the fixed salary of the President and 30 percent of the fixed salary of other senior executives. Furthermore, the Board of Directors shall have the option of allocating variable nonrecurring remuneration to senior executives when the Board deems it to be appropriate.
Long-term incentive programs Orexo has adopted share-based incentive programs intended to promote the company's long-term interests by motivating and rewarding the company's senior executives, among others. For a description of the company's long-term incentive programs, please refer to Note 16, and to the company's website, www.orexo.com.
Other remuneration and terms of employment The President and other senior executives are covered by definedcontribution pension plans. The pension premiums paid by the company amount to not more than 20 percent of the President's monthly salary, while premiums for other senior executives amount to between 20 and 25 percent of fixed annual salary. The defined contribution pension premiums may be subject to review.
The employment agreement with the President may be terminated with six months' notice. Employment agreements with other senior executives may be terminated with notice of between three and 12 months. The President is entitled to severance pay equivalent to 6 months' salary if employment is terminated by the company. Other senior executives are entitled to severance pay equivalent to between zero and 12 months' salary if employment is terminated by the company. The Board is entitled, if it assesses that this is warranted in an individual case, to assign company work to a Board member over and above the Board assignment, in which case the Board member may be granted reasonable remuneration.
Divergence from guidelines 2013 The Board is entitled to deviate from the above guidelines if the Board determines that there are special reasons in an individual case that warrant such action.
Dividend The Board does not intend to propose a dividend for the 2012 fiscal year.
Proposed disposition of earnings The following earnings are available to the Annual General Meeting for appropriation:
| Retained earnings Earnings for the year |
–862,899,580 –157,072,732 |
|---|---|
| Accumulated deficit | -175,453,995 |
The Board proposes that the accumulated deficit be appropriated so that SEK -175,453,995 is carried forward.
(SEK thousands)
| Group | NOTES | 2012 | 2011 | 2010 |
|---|---|---|---|---|
| Net revenues | 6, 23 | 326,278 | 199,614 | 210,499 |
| Cost of goods sold | 24 | –27,875 | –28,997 | –26,321 |
| Gross profit | 298,403 | 170,617 | 184,178 | |
| Selling expenses | 7, 8, 9, 24, 28 | –61,983 | –50,106 | –35,223 |
| Administrative expenses | 7, 8, 9, 24, 25, 28 | –82,589 | –49,561 | –46,819 |
| Research and development costs | 7, 8, 9, 24, 28 | –216,174 | –194,411 | –161,120 |
| Other operating income | 26 | 8,726 | 8,681 | 7,746 |
| Other operating expenses | 24, 26 | –25,793 | –276,723 | –30,535 |
| Operating earnings | –79,410 | –391,503 | –81,773 | |
| Financial income | 4,082 | 4,400 | 1,456 | |
| Financial expenses | –12,250 | –12,317 | –8,942 | |
| Earnings after financial items | –87,578 | –399,420 | –89,259 | |
| Income tax | 29 | 1,715 | 7,411 | 13 |
| Net earnings for the year | –85,863 | –392,009 | –89,246 | |
| Earnings for the year attributable to: | ||||
| Parent Company shareholders | –85,863 | –392,009 | –89,246 | |
| Non-controlling interests | – | – | – | |
| Earnings per share during the year attributable to Parent Company shareholdrs (expressed in SEK) |
||||
| – before dilution | 31 | –2.92 | –14.43 | –3.81 |
| – after dilution | 31 | –2.92 | –14.43 | –3.81 |
The full loss for each year is attributable to Parent Company shareholders. There are no non-controlling interests.
| (SEK thousands) | ||||
|---|---|---|---|---|
| Group | NOTES | 2012 | 2011 | 2010 |
| Net earnings for the year | –85,863 | –392,009 | –89,246 | |
| Other comprehensive income | ||||
| Cash flow hedge | 17 | 14,435 | – | – |
| Exchange-rate differences | 17 | –545 | –671 | –3,524 |
| Other comprehensive income for the period, net after tax | 13,890 | –671 | –3,524 | |
| Total comprehensive income for the period | –71,973 | –392,680 | –92,770 | |
| Total comprehensive income attributable to: | ||||
| Parent Company shareholders | –71,973 | –392,680 | –92,770 |
The notes on pages 35–67 constitute an integral part of this Annual Report.
| (SEK thousands) | ||||
|---|---|---|---|---|
| Group | NOTES | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 |
| ASSETS | ||||
| Fixed assets | ||||
| Tangible fixed assets | ||||
| Equipment, renovation of the property of others, machinery and computers | 7, 9 | 35,123 | 39,241 | 41,666 |
| Intangible fixed assets | ||||
| Patents and intellectual property rights, acquired R & D and goodwill | 8, 9 | 135,086 | 150,867 | 407,417 |
| Financial assets | ||||
| Derivative instruments | 18,507 | – | – | |
| Total fixed assets | 188,716 | 190,108 | 449,083 | |
| Current assets | ||||
| Inventories | 13 | 28,318 | 26,689 | 7,965 |
| Accounts receivable and other receivables | 11, 14 | 36,654 | 82,445 | 119,845 |
| Cash and cash equivalents | 15 | 228,067 | 246,859 | 135,798 |
| Total current assets | 293,039 | 355,993 | 263,608 | |
| TOTAL ASSETS | 481,755 | 546,101 | 712,691 | |
| SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity attributable to Parent Company shareholders |
||||
| Share capital | 16 | 11,983 | 11,946 | 9,361 |
| Other contributed capital | 16, 18 | 1,334,789 | 1,339,757 | 1,106,798 |
| Reserves | 17 | –48,553 | –9,440 | –8,769 |
| Accumulated deficit | 16 | –1,117,025 | –1,031,162 | –639,153 |
| Total shareholders' equity | 191,194 | 311,101 | 468,237 | |
| Long-term liabilities | ||||
| Other provisions | 18 | 3,997 | 565 | 1,112 |
| Borrowing | 19 | 113,572 | 114,513 | 94,421 |
| Deferred tax liability | 29 | 4,071 | 1,807 | 8,911 |
| Total long-term liabilities | 121,640 | 116,885 | 104,444 | |
| Current liabilities | ||||
| Accounts payable and other liabilities | 19, 20 | 168,921 | 118,115 | 140,010 |
| Total liabilities | 290,561 | 235,000 | 244,454 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 481,755 | 546,101 | 712,691 |
Attributable to Parent Company shareholders¹)
(SEK thousands)
| Share | Other contri | Accumulated | Total share holders' |
|||
|---|---|---|---|---|---|---|
| Group | NOTES | capital | buted capital | deficit | Reserves | equity |
| Opening balance at January 1, 2010 | 16 | 9,360 | 1,094,453 | –549,907 | –5,245 | 548,661 |
| Comprehensive income | ||||||
| Net earnings for the year | –89,246 | –89,246 | ||||
| Other comprehensive income | ||||||
| Translation differences | –3,524 | –3,524 | ||||
| Total comprehensive income | –89,246 | –3,524 | –92,770 | |||
| Transactions with shareholders | ||||||
| Employee stock options, value of employees' services | 16 | 2,297 | 2,297 | |||
| New share issues | 16 | 1 | 43 | 44 | ||
| Convertible bonds – equity portion | 10,573 | 10,573 | ||||
| Convertible bonds – transaction costs equity portion | –568 | –568 | ||||
| Total transactions with shareholders | 1 | 12,345 | 12,346 | |||
| Opening balance at January 1, 2011 | 16 | 9,361 | 1,106,798 | –639,153 | –8,769 | 468,237 |
| Comprehensive income | ||||||
| Net earnings for the year | –392,009 | –392,009 | ||||
| Other comprehensive income | ||||||
| Translation differences | –671 | –671 | ||||
| Total comprehensive income | –392,009 | –671 | –392,680 | |||
| Transactions with shareholders | ||||||
| Employee stock options, value of employees' services | 16 | 4,139 | 4,139 | |||
| New share issues | 16 | 2,585 | 242,229 | 244,814 | ||
| Issue expenses | 16 | –13,409 | –13,409 | |||
| Total transactions with shareholders | 2,585 | 232,959 | 235,544 | |||
| Opening balance at January 1, 2012 | 16 | 11,946 | 1,339,757 –1,031,162 | –9,440 | 311,101 | |
| Comprehensive income | ||||||
| Net earnings for the year | –85,863 | –85,863 | ||||
| Other comprehensive income | ||||||
| Translation differences | -545 | –545 | ||||
| Cash flow hedge | 12 | 18,507 | 18,507 | |||
| Deferred tax | 12 | –4,071 | –4,071 | |||
| Total comprehensive income | –85,863 | 13,891 | –71,972 | |||
| Transactions with shareholders | ||||||
| Employee stock options, value of employees' services | 16 | 4,254 | 4,254 | |||
| New share issues | 16 | 37 | 778 | 815 | ||
| Buyback of company's own shares | 16 | –53,004 | –53,004 | |||
| Total transactions with shareholders | 37 | 5,032 | –53,004 | –47,935 | ||
| Closing balance at December 31, 2012 | 16 | 11,983 | 1,344,789 –1,117,025 | –48,553 | 191,194 |
1) There are no non-controlling interests.
| (SEK thousands) | ||||
|---|---|---|---|---|
| Group | NOTES | 2012 | 2011 | 2010 |
| Cash flow from operating activities | ||||
| Operating loss | –79,410 | –391,503 | –81,773 | |
| Interest received | 4,073 | 4,400 | 550 | |
| Interest paid | –9,179 | –9,297 | –8,942 | |
| Other financial items | – | –138 | 906 | |
| Adjustment for non-cash items | 34 | 23,530 | 279,354 | 39,825 |
| Cash flow from operating activities before change in working capital | –60,986 | –117,184 | –49,434 | |
| Change in working capital | ||||
| Accounts receivable | 36,986 | 42,698 | –67,453 | |
| Other current receivables | 4,860 | 2,737 | 8,275 | |
| Inventories | –6,063 | –18,147 | 475 | |
| Current liabilities | 50,439 | –26,785 | 64,871 | |
| Provisions | 3,432 | –547 | 299 | |
| Cash flow from operating activities | 28,668 | –117,228 | –42,967 | |
| Investing activities | ||||
| Acquisition of machinery and equipment | –5,767 | –4,736 | –3,438 | |
| Divestment of machinery and equipment | 613 | – | – | |
| Acquisition of subsidiaries after deductions for acquired cash and cash equivalents | – | –10,298 | – | |
| Divestment of joint venture | 12,088 | – | – | |
| Cash flow from investing activities | 6,934 | –15,034 | –3,438 | |
| Financing activities | ||||
| New share issue | 815 | 244,814 | 44 | |
| Issue expenses | – | –12,798 | – | |
| Borrowings | – | 11,743 | 111,150 | |
| Amortization of loans | –2,254 | – | –16,000 | |
| Buyback of company's own shares | 16 | –53,004 | – | – |
| Cash flow from financing activities | –54,443 | 243,759 | 95,194 | |
| Cash flow for the year | ||||
| Cash and cash equivalents at beginning of period | 246,859 | 135,798 | 87,414 | |
| Exchange-rate differences in cash and cash equivalents | 49 | –436 | –405 | |
| Change in cash and cash equivalents | –18,841 | 111,497 | 48,789 | |
| Cash and cash equivalents at end of period | 15 | 228,067 | 246,859 | 135,798 |
| NOTES | 2012 | 2011 | 2010 |
|---|---|---|---|
| 6, 23 | 272,026 | 140,772 | 112,951 |
| 272,026 | 140,772 | 112,951 | |
| –16,533 | |||
| 7, 8, 9, 24, 25, 28 | –114,198 | –76,291 | –61,605 |
| 7, 8, 9, 24, 28 | –206,709 | –182,478 | –145,395 |
| 26 | 3,482 | 3,519 | 4,136 |
| 24, 26 | –22,778 | –40,185 | –2,998 |
| –115,003 | –177,402 | –109,444 | |
| 4,274 | 3,758 | 506 | |
| –13,288 | –14,181 | –9,399 | |
| 27 | –33,056 | –255,944 | –295 |
| – | – | – | |
| –157,073 | –443,769 | –118,632 | |
| – | |||
| –157,073 | –443,769 | –118,632 | |
| 7, 8, 9, 24, 28 29 |
–46,826 – |
–22,739 – |
| (SEK thousands) | ||||
|---|---|---|---|---|
| Parent Company | NOTES | 2012 | 2011 | 2010 |
| Net loss for the period | –157,073 | –443,769 | –118,632 | |
| Other comprehensive income for the period, net after tax | – | – | – | |
| Total comprehensive income for the period | –157,073 | –443,769 | –118,632 | |
| Total comprehensive income attributable to: | – | – | – | |
| Parent Company shareholders | –157,073 | –443,769 | –118,632 |
| (SEK thousands) | ||||
|---|---|---|---|---|
| Parent Company | NOTES Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 | |||
| ASSETS | ||||
| Fixed assets | ||||
| Intangible fixed assets | ||||
| Patents and intellectual property rights | 8, 9 | 3,059 | 72 | 218 |
| Tangible fixed assets | ||||
| Equipment, renovation of the property of others, machinery and computers | 7, 9 | 34,946 | 39,060 | 41,566 |
| Financial fixed assets | ||||
| Shares and participations in subsidiaries and joint ventures | 10 | 172,168 | 230,089 | 604,763 |
| Total fixed assets | 210,173 | 269,221 | 646,547 | |
| Current assets | ||||
| Inventories | 13 | 18,489 | 15,555 | 2,529 |
| Current receivables | ||||
| Accounts receivable | 14 | 18,058 | 51,847 | 46,554 |
| Tax claims | 14 | 3,080 | 2,248 | 2,046 |
| Other receivables | 14 | 3,232 | 2,427 | 527 |
| Receivables from Group companies | 14 | 23,310 | 16,516 | 14,338 |
| Prepaid expenses and accrued income | 14 | 7,962 | 47,800 | 70,521 |
| Total current receivables | 55,642 | 120,838 | 133,986 | |
| Cash and cash equivalents Total current assets |
15 | 216,553 290,684 |
227,850 364,243 |
101,400 235,386 |
| TOTAL ASSETS | 500,857 | 633,464 | 884,462 | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||||
| Shareholders' equity | ||||
| Restricted shareholders' equity | ||||
| Share capital | 16 | 11,983 | 11,946 | 9,361 |
| Statutory reserve | 16 | 290,751 | 290,751 | 290,751 |
| 302,734 | 302,697 | 300,112 | ||
| Non-restricted shareholders' equity | ||||
| Share premium reserve | 16, 18 | 844,518 | 839,497 | 606,539 |
| Accumulated deficit | 16 | –862,899 | –366,125 | –247,493 |
| Net earnings for the year | 16 | –157,073 | –443,769 | –118,632 |
| –175,454 | 29,604 | 240,414 | ||
| Total shareholders' equity | 127,280 | 332,300 | 540,526 | |
| Long-term liabilities | ||||
| Other provisions | 18 | 3,997 | 565 | 1,135 |
| Long-term liabilities | 19 | 103,324 | 99,839 | 94,421 |
| Total long-term liabilities | 107,321 | 100,404 | 95,556 | |
| Current liabilities Accounts payable |
20 | 18,908 | 21,108 | 21,147 |
| Other liabilities | 19, 20 | 17,627 | 20,356 | 17,554 |
| Liabilities to Group companies | 20 | 104,426 | 103,119 | 123,842 |
| Accrued expenses and deferred income | 20 | 125,295 | 56,177 | 85,837 |
| Total current liabilities | 266,256 | 200,760 | 248,380 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 500,857 | 663,464 | 884,462 | |
| Pledged assets and contingent liabilities | ||||
| Pledged assets | 21 | 44,000 | 44,000 | 44,000 |
| Contingent liabilities | 22 | 8,367 | 11,295 | 6,050 |
(SEK thousands)
| Statutory | Share premium | Accumulated | Total share holders' |
|||
|---|---|---|---|---|---|---|
| Parent Company | NOTES | Share capital | reserve | reserve | deficit | equity |
| Opening shareholders' equity at January 1, 2010 | 9,360 | 290,750 | 594,523 | –247,493 | 647,140 | |
| Net earnings for the year | –118,632 | –118,632 | ||||
| Total transactions recognized directly in shareholders' equity | 0 | |||||
| Total recognized income and expenses | –118,632 | –118,632 | ||||
| Employee stock options, value of employees' services | 16 | 1,969 | 1,969 | |||
| Subscription for shares through exercise of warrants | 16 | 1 | 43 | 44 | ||
| Convertible bonds – equity portion | 16 | 10,005 | 10,005 | |||
| Opening shareholders' equity at January 1, 2011 | 9,361 | 290,750 | 606,540 | –366,125 | 540,526 | |
| Net earnings for the year | –443,769 | –443,769 | ||||
| Total transactions recognized directly in shareholders' equity | 0 | |||||
| Total recognized income and expenses | –443,769 | –443,769 | ||||
| Employee stock options, value of employees' services | 16 | 4,139 | 4,139 | |||
| New share issues | 16 | 2,585 | 242,228 | 244,813 | ||
| Issue expenses | 16 | –13,409 | –13,409 | |||
| Opening shareholders' equity at January 1, 2012 | 11,946 | 290,750 | 839,498 | –809,894 | 332,300 | |
| Net earnings for the year | –157,073 | –157,073 | ||||
| Total transactions recognized directly in shareholders' equity | 0 | |||||
| Total recognized income and expenses | –157,073 | –157,073 | ||||
| Employee stock options, value of employees' services | 16 | 4,242 | 4,242 | |||
| New share issues | 16 | 37 | 778 | 815 | ||
| Buyback of company's own shares | 16 | –53,004 | –53,004 | |||
| Closing shareholders' equity at December 31, 2012 | 11,983 | 290,750 | 844,518 | –1,019,971 | 127,280 |
| (SEK thousands) | |||
|---|---|---|---|
| Parent Company NOTES |
2012 | 2011 | 2010 |
| Operating activities | |||
| Net earnings before interest expenses and interest income | –115,003 | –177,402 | –109,444 |
| Interest received | 4,274 | 3,758 | 506 |
| Interest paid | –10,217 | –11,299 | –9,399 |
| Other financial items | –29,136 | –255,944 | –295 |
| Adjustment for items not included in the cash flow 34 |
52,115 | 382,290 | 14,867 |
| Cash flow from operating activities before change in working capital | –97,967 | –58,597 | –103,765 |
| Change in working capital | |||
| Accounts receivable | 33,789 | –5,293 | 17,977 |
| Other current receivables | 31,407 | 18,441 | –74,506 |
| Inventories | –2,934 | –13,026 | –1,144 |
| Current liabilities | 63,943 | –41,785 | 157,910 |
| Long-term liabilities | – | – | – |
| Provisions | 3,432 | –570 | 322 |
| Cash flow from operating activities | 31,670 | –100,830 | –3,206 |
| Investing activities | |||
| Acquisition of machinery and equipment | –5,767 | –4,736 | –3,378 |
| Divestment of machinery and equipment | 613 | – | – |
| Divestment of joint venture | 14,376 | – | – |
| Cash flow from investing activities | 9,222 | –4,736 | –3,378 |
| Financing activities | |||
| New share issue | 815 | 244,814 | 44 |
| Issue expenses | – | –12,798 | – |
| Borrowing | – | – | 111,150 |
| Amortization of loans | – | – | –16,000 |
| Buyback of company's own shares | –53,004 | – | – |
| Cash flow from financing activities | –52,189 | 232,016 | 95,194 |
| Cash flow for the year | |||
| Cash and cash equivalents at start of period | 227,850 | 101,400 | 12,790 |
| Change in cash and cash equivalents | –11,297 | 126,450 | 88,610 |
| Cash and cash equivalents at end of period 15 |
216,553 | 227,850 | 101,400 |
(All figures in SEK thousands, unless otherwise stated)
The principal objective of Orexo AB (publ), the Parent Company and its subsidiaries (the Group), is to develop and improve products based on proprietary drug delivery technology. Orexo has expertise in the area of reformulation and above all in sublingual formulations. Orexo has a portfolio of revenue-generating products approved in the EU and the USA, which are marketed through license agreements, and a pipeline consisting of several reformulations of approved substances in areas where there is a medical need.
Orexo also has collaboration projects with several international pharmaceutical companies.
The most significant accounting policies applied during the preparation of these consolidated financial statements are specified below. Unless otherwise stated, these policies have been applied consistently for all years presented.
The consolidated financial statements for Orexo were prepared in accordance with the Swedish Annual Accounts Act, RFR 1 Supplementary Accounting Rules for Groups, as well as International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the EU. They have been prepared in accordance with the cost method.
The Parent Company applies the same accounting policies as the Group, except in instances as specified in Note 4 "Accounting policies of the Parent Company". Any deviations that occur between the policies of the Parent Company and the Group are due to restrictions in the ability to apply IFRS to the Parent Company pursuant to the Swedish Annual Accounts Act (ÅRL) and the Pension Obligations Vesting Act and, in some instances, for tax purposes.
The consolidated financial statements for Orexo are prepared on the basis of the going concern principle. Note 3, "Financial risk management", describes Orexo's liquidity, financing and capital risks.
None of the IFRS or IFRIC interpretations that are obligatory for the first time for fiscal years commencing on or later than January 1, 2012 had any material impact on the Group.
No other IFRS or IFRIC interpretations that have not yet become effective are expected to have any material impact on the Group.
Subsidiaries are all companies in which the Group is entitled to shape financial and operational strategies in a manner that is consistent with a shareholding usually in excess of 50% of the voting rights. The existence and effect of potential voting rights that may currently be utilized or converted must be taken into account when assessing whether the Group exercises a controlling influence over another company. The Group also
The Parent Company is the limited liability company Orexo AB (publ), with its registered office in Uppsala, Sweden. The address of the company's head office is Virdings allé 32 A, Uppsala, Sweden.
The Parent Company is listed on NASDAQ OMX Nordic Exchange Stockholm.
The Board of Directors approved these consolidated financial statements for publication on March 19, 2013.
The statements of operations and balance sheets will be presented to the Annual General Meeting on April 11, 2013 for adoption.
determines that a controlling influence exists despite not having a participation in excess of 50% of the voting rights but for which it nonetheless is able to govern financial and operating strategies through de facto control. De facto control can arise under circumstances whereby the share of the Group's voting rights in relation to the size and spread of the voting rights of other shareholders enables the company to govern financial and operational strategies etc.
Subsidiaries are included in the consolidated accounts as of the date on which the controlling interest is transferred to the Group. They are excluded from the consolidated accounts as of the date on which the controlling interest ceases to apply.
The purchase method is used to recognize the Group's business combinations. The purchase price for the acquisition of a subsidiary consists of the fair value of transferred assets, liabilities and shares issued by the Group. The purchase price also includes the fair value of all assets or liabilities that are a consequence of an agreement in respect of contingent consideration. Identifiable acquired assets and assumed liabilities in a business combination are initially measured at fair value on the acquisition date. The Group determines on an acquisition by acquisition basis whether all non-controlling interests in the acquired company are recognized at fair value or at the interest's proportional share of the acquired company's net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is completed in several steps, the previous equity interests in the acquired company are remeasured at fair value on the date of acquisition. Any gain or loss arising is recognized in earnings.
Each contingent consideration to be transferred by the Group is recognized at fair value on the date of acquisition. Subsequent changes to the fair value of a contingent consideration classed as an asset or liability are recognized in line with IAS 39, either in the statement of operations or in other comprehensive income. Contingent considerations classed as equity are not remeasured and the subsequent settlement is recognized in equity.
Goodwill is initially measured as the amount by which the total purchase price and fair value of non-controlling interests exceeds the value of identifiable acquired assets and assumed liabilities. If the purchase price is lower than the fair value of the acquired company's net assets, the difference is recognized directly in the statement of operations.
Intra-Group transactions, balance-sheet items and income and expenses for intra-Group transactions are eliminated. Gains and losses resulting from intra-Group transactions and which are recognized in assets are also eliminated. Where necessary, the accounting policies for subsidiaries have been adjusted to guarantee consistent application of the Group's policies.
The Group's holdings in jointly owned units are recognized in line with the proportional method. The Group combines its share of revenues and costs, assets and liabilities, as well as cash flow in the particular joint venture with corresponding items in its own consolidated accounts. The Group recognizes the share of the profits or losses from the Group's sale of assets to a joint venture that corresponds to the other joint owner's share.
The Group also receives indirect income via the joint venture as a consequence of royalties received for products sold by ProStrakan Ltd to the joint venture. However, this income is eliminated in the Group.
The Group does not recognize its share of profits or losses in a joint venture as a result of the Group's purchase of assets from this joint venture before the assets are sold on to an independent party. However, a loss on the transaction is recognized immediately if the loss entails that an asset is recognized at an excessive value. The Group does not have any holdings in joint ventures at the end of the fiscal year. The joint venture company was divested during the year.
Operating segments are recognized in a manner that corresponds to the structure of internal reports submitted to the chief operating decision maker. The chief operating decision maker is responsible for the allocation of resources and assessment of the operating segment's results. For the Group, this function has been identified as Executive Management.
Executive Management assesses the operation in its entirety, i.e. as a segment.
Segments receive their income by selling products and through license revenues comprising lumpsum payments, remuneration for research collaboration, intermediate milestone payments and royalty revenues.
Items included in the financial reports of the different units in the Group are valued in the currency used in the economic environment in which each company mainly operates (functional currency). In the consolidated accounts SEK is used, which is the Parent Company's functional currency and reporting currency.
Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing on the transaction date. Exchange rate gains and losses arising from the payment of such transactions and in the translation of monetary assets and liabilities in foreign currency at the closing date are recognized in the statement of operations among "Other operating income" and "Other operating expenses".
The earnings and financial position of all Group companies (none of which use a high inflation currency as their functional currency) that use a functional currency other than the reporting currency are restated at the Group's reporting currency as follows:
Exchange-rate differences arising as a consequence of the translation of net investment in foreign operations and of borrowing and other currency instruments identified as hedges for such investments are recognized in other comprehensive income upon consolidation. When a foreign operation is divested either wholly or in part, the exchange rate differences recognized in shareholders' equity are transferred to the statement of operations and recognized as part of the capital gain/loss.
Goodwill and adjustments of fair value arising in the event of acquisition of a foreign operation are treated as assets and liabilities for this operation and translated at the exchange rate on the closing date.
Tangible fixed assets are recognized at cost, less depreciation. Subsequent expenditures are added to the carrying amount of the asset or recognized as a separate asset, depending on which is appropriate, only when it is probable that the future economic benefits related to the asset will accrue to the Group and the cost of the asset can be measured reliably. Expenses incurred in repairs and maintenance are recognized as costs.
Tangible fixed assets are depreciated over the estimated useful life of the asset. When the depreciation amount for assets is determined, the asset's residual value is taken into account where appropriate.
Straight-line depreciation methods are used for all types of tangible fixed assets. The following depreciation periods are applied:
| Renovation of the property of others | 20 years |
|---|---|
| Machinery and equipment | 5 years |
| Computers | 3 years |
In the event that an asset's carrying amount exceeds its estimated recoverable value, the asset is immediately impaired to its recoverable value under "Other operating income" and "Other operating expenses".
The residual value and useful life of assets are tested on every closing date and adjusted where necessary.
Gains and losses from sales are determined by means of a comparison between the sales proceeds and carrying amount and are recognized as "Other operating income" and "Other operating expenses" in the statement of operations.
Intangible assets are recognized in the balance sheet when it is probable that the future economic benefits related to the asset will accrue to the Group and the asset's value can be measured reliably. Development expenses are capitalized and recognized in the balance sheet as intangible assets if the criteria for recognition in the balance sheet as stipulated in IAS 38 Intangible Assets are satisfied. Research expenses are expensed as incurred. The R&D operations conducted by Orexo to date have been of such a nature that all R&D expenses have been recognized as an expense as incurred.
Group intangible fixed assets consist of:
Goodwill consists of the amount by which the cost exceeds the fair value of the Group's share of the acquired subsidiary's identifiable net assets on the acquisition date. Goodwill on acquisitions of subsidiaries is recognized as intangible assets. Goodwill is tested annually in order to identify any impairment requirements and in the event there are indications of a sustained decline in value. Goodwill is recognized at cost less accumulated impairment. Since goodwill recognized in the consolidated financial statements is deemed to have an indeterminate useful life, no amortization is applied.
When goodwill is impairment-tested to determine any impairment requirements, it is distributed among cash generating units.
Gains or losses arising from the sale of a unit include the remaining carrying amount of the goodwill pertaining to the divested unit.
Acquired R&D consists of acquired individual projects and the surplus values arising in conjunction with business combinations. Ongoing R&D projects acquired through business combinations are recognized at cost as "Acquired R&D". Expenses for continuing research in acquired projects are booked as they arise. Following initial recognition, the assets are recognized in line with the cost method, meaning that Acquired R&D is recognized at cost after deductions for any accumulated amortization and impairment. Amortization according to plan commences when the R&D project in question results in a product that starts to be sold on a commercial basis. See Note 8 for further information.
Patents and rights are recognized at cost. Patents and rights have a limited useful life and are recognized at cost less accumulated amortization. Amortization is applied straightline in an effort to distribute the cost of patents and rights across their estimated useful life. The following amortization periods are applied:
| Patents and rights | 5 years |
|---|---|
| IT systems | 3 years |
Assets with an indeterminate useful life are not depreciated/amortized in consolidation but are instead reviewed annually, and in the event of any indication of a sustained decline in value, to identify any impairment requirement. Assets that are depreciated/amortized are assessed in terms of the value of decline whenever events or conditions indicate that the carrying amount is perhaps no longer recoverable. An impairment loss is recognized in the amount by which the asset's carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of the asset's fair value less selling expenses and value in use. When reviewed in respect of possible impairment, goodwill is distributed among cashgenerating units, while the impairment requirement of acquired research and development is divided between the projects. In the case of assets other than financial assets and goodwill that were previously impaired, a test is conducted on the closing date to determine whether a reversal is warranted.
Inventories are recognized at the lower of cost and net sales value. Cost is determined on the basis of the first in, first out (FIFO) principle. The cost for finished products and work in progress consists of raw materials, direct salaries, other direct costs and attributable indirect manufacturing costs (based on normal manufacturing capacity). Loan expenses are not included. The net sales value is the estimated sales price in current operations, less deductions for applicable variable selling expenses.
Under IFRS 7, companies must disclose whether their financial instruments have a bearing on the company's financial position and earnings. Financial instruments are recognized in the balance sheet when the Group becomes a party in accordance with the contractual terms of the instrument. Receivables are recognized in the balance sheet once an invoice is submitted and the liability recognized once the counterparty has fulfilled its obligations and a contractual obligation to pay exists.
The purpose for which the financial asset or liability was acquired determines classification. Group financial assets and liabilities are classified in the categories shown below:
The Group's operations primarily focus on the development, production and sale of the Group's products and services. The Group does not actively trade in financial instruments that are not related to the Group's operations. Because of this, the financial assets and liabilities recognized in the balance sheet are primarily current investments, cash and cash equivalents, accounts receivable, accounts payable and borrowing.
During the year, financial instruments only consisted of accounts receivable, loan receivables and derivative instruments. Loan receivables and accounts receivable are financial assets that are not derivatives, that have determined or determinable payments and that are not listed on an active market. These are classified as current assets, if they have a due date of up to 12 months after the balance sheet date. If the due date is more than 12 months after the balance sheet date, the asset is classified as a fixed asset. Loan receivables and accounts receivable are recognized initially at their fair value plus transaction costs and, following the acquisition date, at amortized cost using the effective interest method. Refer also to Notes 11,12, 14 and 15.
Financial assets and liabilities are offset and recognized at a net amount in the balance sheet only when there is a legal right to offset the recognized amounts and an intention to settle with a net amount or simultaneously realize the asset and settle the liability.
At the end of each reporting period, the Group assesses whether there is any objective evidence for a financial asset or group of financial assets to be impaired. Impairment losses are only recognized on a financial asset or group of financial assets if objective evidence of impairment exists due to the occurrence of a number of events after initial recognition of the asset (a "loss event") and the impact of this event (or these events) on estimated future cash flows of the financial asset or group of financial assets can be reliably estimated.
Impairment losses are calculated as the difference between the carrying amount of the asset and the present value of the estimated future cash flows (excluding future credit losses that have not occurred), discounted by the financial asset's original effective interest. The carrying amount of the asset is impaired and the amount of the impairment loss is recognized in the consolidated statement of operations.
Cash and cash equivalents include cash, bank balances and other current investments that mature within three months of the date of acquisition and which are exposed only to a minor risk of value fluctuation.
Accounts receivable are initially measured at fair value and subsequently at amortized cost, using the effective interest method, less any provisions for value losses. A provision for value loss in accounts receivable is made when there is objective evidence that the Group will not receive all the amounts due pursuant to the original conditions underlying the receivables. The size of the provision is determined as the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted using an effective rate of interest. The provision amount is recognized in the statement of operations.
Provisions are recognized in the balance sheet when the Group has a legal or informal undertaking as a result of an event that has occurred and when it is probable that an outflow of resources will be required to settle the undertaking.
The provision is recognized in the amount expected to be required to settle the undertaking.
Accounts payable are obligations to pay for goods or services that were acquired from suppliers in the course of operating activities. Accounts payable are classified as current liabilities if they mature within one year or earlier (or during a normal business cycle if it is longer than one year). Otherwise, accounts payable are recognized as long-term liabilities.
Accounts payable are initially recognized at fair value and subsequently at amortized cost by applying the effective interest method.
Borrowings are initially recognized at net fair value after transaction costs. Borrowings are subsequently recognized at amortized cost and any difference between the amount received (net after transaction costs) and the repayment amount is recognized in the statement of operations allocated over the borrowing period by applying the effective interest method.
Borrowings are classified as a current liability unless the Group has an unconditional right to defer payment of the liability by at least 12 months.
The compound financial instruments issued by the Group encompass convertible bonds that the holder can demand be converted to shares and where the number of shares to be issued is not affected by changes in the fair value of the shares.
The liability portion of a compound financial instrument is initially recognized at fair value for a similar liability that does not provide entitlement to conversion to shares. The equity portion is initially recognized as the difference between the fair value of the entire compound financial instrument and the fair value of the liability portion. Directly attributable transaction costs are distributed across the liability and equity portions to their respective carrying amounts.
After the date of acquisition, the liability portion of a compound financial instrument is measured at amortized cost through the application of the effective interest method. The equity portion of a compound financial instrument is not remeasured after the date of acquisition, except in the event of conversion or redemption.
Transaction costs that may be directly attributed to the issuance of new shares or options are recognized net after tax in shareholders' equity as a deduction from the issue proceeds.
The following are recognized as "Other contributed capital":
Derivative instruments are recognized in the balance sheet on the contract day and at fair value, both initially and upon subsequent revaluations. The method for recognizing the profit or loss that arises upon revaluation depends on whether the derivative is valued as a hedging instrument, and if so, the nature of the item hedged. The Group has hedging instruments in the form of cash flow hedging, which is a hedge of particular risk associated with a recognized asset or liability.
When the transaction is entered into, the Group documents the relationship between the hedging instrument and the hedged item, and the Group's risk management objective regarding the hedge. The Group documents its assessment of whether the derivative instrument is effective with regard to counteracting changes in cash flow attributable to the hedged item. This is done both when the hedge is entered into and continuously.
The effective portion of any changes in the fair value of a cash flow hedge that meets the conditions for hedge accounting is recognized in other comprehensive income. The gain or loss that derives from the ineffective portion is recognized immediately in the statement of operations, in the item "Other gains/losses – net".
Information on the fair value of derivative instruments used for hedging purposes is to be found in note 12.
The tax expense for the period includes current and deferred tax. Tax is recognized in the statement of operations, except when the tax refers to items that are recognized directly against shareholders' equity or in other comprehensive income. In these cases, tax is also recognized in shareholders' equity or in other comprehensive income.
The current tax expense is estimated on the basis of the tax regulations on the closing date that are decided, or have essentially been decided, in the countries in which the Parent Company and its subsidiaries are active and generate taxable income. Executive Management regularly evaluates the claims made in tax returns regarding situations in which the applicable tax rules are the subject of interpretation. When deemed appropriate, a provision is made in the amounts that are likely to be paid to the tax authorities.
Deferred tax is recognized in accordance with the balance sheet method on all temporary differences that arise between carrying amounts of assets and liabilities and their value for tax purposes in the consolidated financial statements. However, deferred tax is not recognized if it arises as a result of a transaction that represents the initial recognition of an asset or a liability that is not a business combination and which, on the date of the transaction, affects neither recognized earnings nor earnings for tax purposes.
Deferred income tax is calculated using tax rates (and legislation) that have been decided or announced by the closing date and are expected to apply when the deferred tax receivable in question is realized or the deferred tax liability is settled.
Deferred tax receivables are recognized to the degree that it is likely that future surpluses for tax will be available, against which temporary differences may be utilized.
Deferred tax is calculated on temporary differences that arise on shares in subsidiaries, except where the Group can determine the date for reversal of temporary differences and it is likely that the temporary difference will not be reversed in the foreseeable future.
No value of the loss carry-forwards was recognized in the balance sheet, as it is uncertain when it will be possible to utilize this loss carryforward.
A defined-contribution pension plan is a pension plan according to which the Group pays fixed fees to a separate legal entity and for which the Group has no further payment obligations once the fees are paid.
The Group uses only defined contribution pension plans. The pension plans are financed through payments to an insurance company. Fees are recognized as personnel expenses when they fall due for
payment. Prepaid fees are recognized as an asset.
The Group has share-based payment plans in the form of employee and Board member stock options. Settlement is made in shares when the company receives services in return for the Group's equity instruments (stock options). The fair value of the service that provides entitlement to the allotment of options is expensed. The total amount that is expensed is based on the fair value of the allotted options:
Non-market-related vesting conditions are taken into account in the assumption of the number of options that are expected to be vested. The total cost is recognized over the entire vesting period, which is the period during which all of the stipulated vesting conditions are to be fulfilled. At the end of each reporting period, the company reviews its assessment of how many shares can be expected to be vested based on the non marketrelated vesting conditions. Any divergences from the original assessments prompted by the review are recognized in the statement of operations and a corresponding adjustment is made in shareholders' equity.
The company issues new shares when the stock options are exercised. Received payments, after deductions for any directly attributable transaction costs, are credited to share capital (the quotient value) and other contributed capital when the stock options are exercised.
Social security expenses on the benefits that are expected to arise in conjunction with value increases are recognized over the vesting period with due consideration of value changes, in accordance with UFR 7.
Severance payments are made when the Group serves notice to an employee prior to the normal pension date or when an employee voluntarily accepts redundancy in exchange for such remuneration. The Group recognizes severance payments when it is clearly obliged to give notice to an employee according to a detailed formal plan with no possibility of it being revoked, or to provide remuneration in conjunction with termination of employment as a result of an offer made to encourage voluntary redundancy. Benefits due more than 12 months after the closing date are discounted at their present value.
The Group has a bonus system that covers some employees. The bonus system is based on achievement of company goals and is paid out in proportion to annual salary. During the fiscal year, the estimated bonuses vested for the year are calculated and expensed. Payment of the vested bonus is made in the subsequent year, normally in February.
Revenues comprise the fair value of goods and services sold, excluding value-added tax, rebates and discounts and after eliminated intra-Group sales. Revenues are recognized as follows:
Revenues from the sale of goods are recognized on the date of delivery to the customer, that is, the date on which ownership rights are transferred to the customer, who thereby assumes the financial risk. By industry practice, pharmaceuticals may not returned to the seller.
Orexo's license agreements usually include one or more of the following types of income:
Royalties are normally received on a rolling basis when distributors recognize sales and are paid in the same period during which sales were made. When royalties are paid in advance, the revenue is recognized in the periods that payment is for.
Interest income is recognized over the term using the effective interest method.
Leasing is classified in the consolidated financial statements either as financial or operational leasing, pursuant to IAS 17, Leasing Agreements. Financial leasing is the case when the financial risks and benefits associated with ownership are essentially transferred to the lessee. In other cases, leasing is operational leasing.
In the case of agreements classified as financial leasing, the object is recognized as a fixed asset in the consolidated balance sheet. The obligation to pay future leasing fees is recognized as a long-term or current liability. At the beginning of the leasing period, the asset and liability are recognized at the lower of the leasing object's fair value and the present value of the leasing fees. The leasing fees are distributed among interest and amortization of the liability. Interest is recognized in the statement of operations, with amortization recognized in the balance sheet. The interest expense is distributed across the leasing period so that each reporting period is charged with an amount corresponding to a fixed rate of interest for the liability recognized for the specific period. The leased asset is depreciated in accordance with the rules for depreciable assets. If it cannot be ascertained that ownership will transfer to the Group at the end of the leasing period, the object is depreciated in its entirety during the leasing period or its useful life, whichever is the shorter. Depreciation is recognized in the statement of operations.
The Group's operations expose it to a number of financial risks. These risks can be categorized into operational risks and financial risks. The financial risks are described below, along with the manner in which these are managed in order to minimize the risk level.
To efficiently manage financial risks, Orexo has drawn up a series of guidelines and a detailed financial policy in respect of the manner in which such risks are to be managed and mitigated. Orexo's financial policy also establishes the distribution of responsibility and reporting instructions for Executive Management. The main purpose of Orexo's financing operation is to limit negative deviations in the financial results, shareholders' equity and cash flow as the result of fluctuations in interest rates or exchange rates.
The President of the Group is responsible for producing, implementing and following up the Group's financial policy, which is subsequently approved by the Board of Directors. The Group's Chief Financial Officer is responsible for the day-to-day financial administration and reports on a monthly basis, or when necessary, to the Group President.
The Group is exposed to currency risks through export/import transactions (flow exposure), mainly in US dollars (USD), euros (EUR) and pounds sterling (GBP). The Group has assets (accounts receivable) and liabilities (accounts payable) in foreign currencies (balance exposure), as well as investments in the form of net wealth in foreign subsidiaries (translation exposure). Orexo's financial statements are prepared in SEK and the company has its primary operations in Sweden. Accordingly, most operating expenses are in SEK. However, the company sells its products in countries other than Sweden and receives revenues in currencies other than SEK.
Assets, liabilities, revenues and expenses in foreign currency give rise to currency exposure. A decline in SEK against other currencies increases Orexo's recognized assets, liabilities, revenues and costs, while a strengthening of SEK in relation to other currencies reduces these items.
Flow exposure arises when sales are conducted in some currency other than the related costs and expenses. A substantial share of Orexo's flow exposure is attributable to the sale of Diabact UBT® and Heliprobe™ System outside Sweden, remuneration for research collaborations and license revenues and royalty income for the company's products in currencies other than SEK. The license agreements written with counterparties are frequently denominated in some other currency than SEK, primarily USD, EUR or GBP.
The company has the option of hedging revenues in foreign currency. The financial policy permits exchange-rate hedging instruments to be
The cost of goods sold comprises the materials cost for the products the Group itself sells on the market, via the Kibion AB and Wagner Analysen Technik GmbH subsidiaries and the ProStrakan AB joint venture. The cost of services sold, relating to research collaborations, is recognized as development costs.
On redemption of employee stock options issued by Orexo, the difference between the market value for the share applicable at the time and the redemption price is taxed in the income tax schedule for the employee. Similarly, Orexo must pay social security fees on this difference. The cost of these payroll overheads is set on a rolling basis during the term of the options, whilst fees are not paid until the time of redemption. To hedge itself against the liquidity effect of this, Orexo has issued options to the subsidiary Pharmacall with the intention that this subsidiary divest itself of these on the market and use this liquidity to pay the social security fees. Such hedging does not qualify for hedge accounting under IFRS, but is instead classified as a capital transaction. Corporate gains, such as an increase in shareholders' equity, arising on the divestment of options are recognized in shareholders' equity and designated "Redeemed hedge options", while liquidity that Orexo receives from the redemption of these options is recognized under "Subscription of shares through the exercising of warrants". No hedge options were redeemed during 2010, 2011 or 2012.
used to eliminate or minimize the currency risks arising in the company and this must always be linked to an underlying exposure. The permitted hedging instruments are currency futures, acquired currency options (call and put options), currency accounts and loans in foreign currency.
A substantial share of Orexo's sales is in currencies other than SEK, primarily USD, EUR and GBP. However, most of Orexo's operating expenses are in SEK. During the 2012 fiscal year, sales in USD accounted for 2 percent (18) of net revenues, with sales in EUR accounting for 36 percent (50) and sales in GBP for 40(0). During the same period, 36 percent (17) of total operating expenses were in foreign currency with 68 percent (30) in USD, 18 percent (29) in EUR and 12 percent (21) in GBP.
To limit the currency risk, concluded agreements should include a currency adjustment clause whenever possible. In currencies in which the Group has flows in the same currency, the flows are to be matched to the greatest extent possible. At present, the Group hedges royalty revenues related to the agreement with ProStrakan.
A change in value of USD against SEK of 10 percent entails a change in revenues of approximately MSEK 0.6 and in earnings of about MSEK 9.9. The corresponding change in EUR entails a change in revenues of approximately MSEK 12.6 and in earnings of about MSEK 2.6, and in GBP a change in revenues of approximately MSEK 13.0 and in earnings of about MSEK 1.2. The great effect of the change in the value of USD on earnings is due to the fact that during 2012 the Group has had large expenses in this currency. A 10 percent movement in EUR entails an impact on equity of approximately MSEK 0.5. Otherwise, the impact on equity is largely in line with the impact on earnings.
Translation exposure arises when the Group's earnings are influenced by exchange rate fluctuations when earnings for foreign subsidiaries are translated to SEK. Since foreign subsidiaries are only an insignificant part of the operations, this exposure is not hedged. The Group's shareholders' equity is affected by exchange rate fluctuations when the foreign subsidiaries' assets and liabilities are translated to SEK. This exposure is not currently hedged.
The primary objective of Orexo's interest rate risk management is to reduce the negative effects of interest rate movements on net interest income. To reduce the impact of interest rate movements on earnings, Orexo mainly uses short-term investments. At year-end, all of Orexo's cash and cash equivalents were held in bank accounts.
It shall be possible to trade all investments not in bank accounts on a second-hand market, with the maximum term for an individual investment being five years. Orexo normally retains instruments until their maturity date.
Orexo's policy is that securities purchased with surplus liquidity should have a low risk profile.
The Group had interest bearing liabilities totaling MSEK 120.6 on December 31, 2012. The interest bearing liability relates to a convertible loan with a fixed annual interest rate of 8 percent and a bank loan raised in conjunction with the acquisition of Wagner Analysen Technik GmbH with an interest rate of about 3.5 percent.
Simulations conducted show that the impact on earnings of a difference in interest rates of 0.5 percent would entail an increase/decrease of SEK 42 thousand.
The Group is not exposed to any price risk.
Credit and counterparty risk is the risk that the counterparty will not fulfill its undertakings to repay a liability or pay interest on such a liability and the risk associated with balances with credit institutions.
For the Group, there are mainly three categories of payment flows from customers in which credit risks could arise: in the subsidiaries Kibion's and Wagner Analysen Technik's sales to distributors, the payment flows from Orexo's license agreements with other parties and bank balances.
With regard to Kibion's distributors, credit risks are reviewed on an ongoing basis based on the customer's financial position, previous experiences and other factors.
An extensive evaluation of the counterparty is always undertaken prior to the signing of a license agreement.
Accounts receivable are continuously monitored, with checks performed on due customer invoices. Of total accounts receivable at December 31, 2012, the two largest customers accounted for 50 percent. No other single customer accounted for more than 5 percent of total accounts receivable. Note 14 presents the amounts due.
The Group's financial transactions shall only be carried out with banks with an official rating not below A1- (according to Standard & Poor's).
Liquidity risk is defined as the risk that Orexo will be unable to fulfill its undertakings to pay debts on time or at a reasonable cost. Liquidity risk is managed by means of the Group holding sufficient cash and cash equivalents to ensure continuing operations.
Cash flow forecasts are prepared each month. Executive Management continuously monitors the forecasts for the Group's liquidity to ensure that the Group has sufficient cash funds to meet the requirements of continuing business operations.
The table below shows the Group's contractual non-discounted cash flows from financial liabilities, distributed on the basis of the period remaining to maturity on the closing date.
| At December 31, 2012 | Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
|---|---|---|---|
| Accounts payable | 19,790 | – | – |
| Accrued costs | 9,355 | – | – |
| Borrowings | 11,356 | 11,298 | 117,500 |
| Derivative instruments | 11,388 | 7,119 | – |
| At December 31, 2011 | Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
|---|---|---|---|
| Accounts payable | 27,323 | – | – |
| Accrued costs | 51,852 | – | – |
| Borrowings | 11,621 | 11,539 | 129,130 |
| At December 31, 2010 | Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
|---|---|---|---|
| Accounts payable | 25,478 | – | – |
| Accrued costs | 78,153 | – | – |
| Borrowings | 8,892 | 8,892 | 131,157 |
Orexo AB, the Parent Company, has prepared its annual accounts in accordance with the Swedish Annual Accounts Act and the Swedish Financial Accounting Standards Council's recommendations RFR 2. RFR 2 stipulates that the Parent Company must apply International Financial
During 2012 Orexo entered into an agreement with ProStrakan regarding license rights for Abstral in Europe, the rest of the world and the USA. Pursuant to this agreement Orexo receives fixed royalty revenues of MGBP 55. Of this amount, MGBP 22.5 was received during 2012, MGBP 20 will be paid during 2013, and MGBP 12.5 will be paid in 2014.
Orexo's proprietary development programs, Zubsolv, OX51 and OX27, proceeded according to plan during the year with respect to clinical trials and contacts with regulatory bodies. Zubsolv is the development program that is closest to market launch. On the basis of such factors as anticipated royalty revenues, milestone payments and budgeted costs for development, sales and administration, as well as the cash and cash equivalents and other assets held by the company, it is the Board's assessment that the current financing level is sufficient to carry out the planned operations for a period that comfortably extends beyond the next 12 months.
The Group's objective for its capital structure is to safeguard the Group's ability to continue its operations so it can generate a return for the shareholders and benefits for other stakeholders, as well as maintain an optimum capital structure to keep capital costs down.
The Group's capital is assessed on the basis of its equity/assets ratio. The equity/assets ratio at December 31, 2012, 2011 and 2010 is presented in the table below:
| 2012 | 2011 | 2010 | |
|---|---|---|---|
| Shareholders' equity | 191,194 | 311,101 | 468,237 |
| Total assets | 481,755 | 546,101 | 712,691 |
| Equity/assets ratio | 40% | 57% | 66% |
The royalty payment in accordance with the Abstral® agreement, which has been received but not yet entered as a revenue, has negatively affected the equity/assets ratio by approximately 10 percent.
Reporting Standards (IFRS) as adopted by the EU, to the extent that this is possible within the framework of the Swedish Annual Accounts Act and the Pension Obligations Vesting Act and taking into account the relationship between accounting and taxation. The recommendation specifies the exceptions and additions to be made in relation to IFRS.
Consequently, the Parent Company applies the policies presented in Note 2 of the consolidated financial statements, with the exceptions outlined below. The policies are applied consistently to all years presented, unless otherwise stated.
Preparing financial statements that comply with applicable regulations requires the use of some important estimates for accounting purposes. Furthermore, it is required that Executive Management conducts certain assessments in the application of the company's accounting policies. The areas that involve a high degree of complex assessment or areas in which assumptions and estimates are of material importance for the company's Annual Report are outlined in Note 5.
The statement of operations and balance sheet comply with the forms set down in the Swedish Annual Accounts Act, meaning that the primary differences compared with the consolidated financial statements primarily pertain to financial income and expenses, provisions and the statement of changes in shareholders' equity.
Information is provided only on the distribution of net revenues by areas of operations and geographic markets.
Shares and participations in subsidiaries and associated companies are recognized at cost with deductions for any impairment. Additional purchase prices are recognized as payment for future services included in the cost. Dividends received are recognized as revenues insofar as they derive from profits earned after the acquisition. Dividends that exceed these profits are regarded as a repayment of investment and reduce the carrying amount of the participation.
When there are indications that shares and participations in subsidiaries or associated companies have declined in value, an estimate is made of the recoverable amount. If this is lower than the carrying amount, impairment is applied. Impairment losses are recognized in the items "Results from participations in Group companies" and "Results from participations in associated companies".
Financial assets are classified in a different manner in the Parent Company's balance sheet than in the consolidated balance sheet. The notes on the financial assets show the manner in which the items in the balance sheet relate to the classification used in the consolidated balance sheet and in the consolidated accounting policies. The company applies measurement at fair value in line with the Swedish Annual Accounts Act (ÅRL) 4: 14 a-d and the description of the accounting policies in Note 2 for the Group thus also applies to the Parent Company, except as regards accounting for the effects on earnings.
Shareholders' contributions granted are recognized as an increase in the value of shares and participations. An assessment is then made as to whether there is a need for impairment of the value of shares and participations in question.
Group contributions are recognized on the basis of their financial implications, meaning that Group contributions that are granted or received for the purpose of reducing the Group's total tax are recognized either as an appreciation of the value of shares and participations or as an expense in the statement of operations. Group contributions received and which may be compared to dividends are recognized as dividends from Group companies in the statement of operations. Group contributions granted, which may be compared to a shareholders' contribution, are recognized in line with the principle for shareholders' contributions above with due consideration of the effect on current tax.
Amounts allocated to untaxed reserves represent taxable temporary differences. Due to the relationship between accounting and taxation, however, in a legal entity deferred tax liabilities on untaxed reserves are recognized as part of untaxed reserves.
All leasing agreements, irrespective of whether they are financial or operational, are recognized as operational leasing (leasing agreements).
The Parent Company has issued a financial guarantee for the benefit of the subsidiary Kibion AB. This relates to a bank loan raised in connection with the acquisition of Wagner Analysen Technik GmbH.
Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events deemed reasonable under prevailing circumstances.
The Group makes assessments and assumptions about the future. The resulting accounting estimates will, by definition, seldom correspond to the actual results. Estimates and assumptions that entail a significant risk of material adjustment to the recognized amounts of assets and liabilities during the next fiscal year are outlined below.
Regarding goodwill, an assessment is made of the asset's annual value decline or when there is an indication that the carrying amount of goodwill exceeds the recoverable amount. Goodwill, whose value has declined, must be impaired down to the recoverable amount that goodwill is deemed to have on the basis of the information available. The recoverable amount is defined as the higher of the net sales value and the value in use. The value in use is estimated by means of a discounted cash flow method based on future expected incoming and outgoing payments. Material differences in assessments of the future anticipated cash flows and the discounted rate of interest used could result in different valuations for an asset. For further information, refer to Note 8. At December 31, 2012, goodwill amounted to 25,827 (33,448).
Research and drug development are characterized by significant operative risks. Several factors affect the probability of a drug project resulting in an approved preparation. The risk of not reaching the market diminishes after a project passes through the various phases in the research
and development process. Of the Group's acquired R&D projects, one has reached the clinical phase, while one is in the preclinical phase.
The value of acquired R&D is tested annually to ensure that the carrying amount does not exceed the recoverable amount. This impairment testing includes experience-based estimates of the amount of future incoming and outgoing payments. The probability of the occurrence of income-generating events and the probability that the projects will result in products that reach the market are estimated based on available industry statistics. These probabilities vary depending on the phase of development that the R&D projects are in. Future incoming and outgoing payments are adjusted to the level of probability and subsequently discounted by applying a rate that reflects the cost of capital and risk. If an acquired R&D project were to be discontinued, the carrying amount of the project would be immediately written down to zero and the impairment loss would be charged to earnings. For further information, refer to Note 8.
During the year, acquired R&D was impaired in accordance with the above by 10,159.
At December 31, 2012, acquired R&D amounted to 106,200 (116,610).
Royalties may be impacted by external factors, including sales limitations or price regulations initiated by authorities in the countries in which sales are conducted. This is out of the control of the company and information of this nature does not normally reach the company until it is already too late. Because of this, it can be difficult to estimate royalty revenues, which in turn can lead to erroneous allocation to a particular period.
Certain license agreements entail that global rights are transferred to a business partner. Since Orexo retains the intellectual property rights, which may be retrieved under certain circumstances, these agreements are not recognized as though the licensing agreement implies a divestment. For Orexo, this means that these assets remain in the balance sheet item "Acquired research and development".
Orexo's research, collaboration and commercialization agreements with Boehringer Ingelheim guarantee future revenues to Orexo and give Orexo the option of marketing products within the framework of the project in certain countries in conjunction with Boehringer Ingelheim. On this basis, it is the assessment of the company that the licensing agreement does not imply that the asset has been divested, which is why it remains recognized in Orexo's balance sheet.
Costs attributable to research are expensed as they arise. Costs attributable to development projects are recognized as intangible assets in the balance sheet in cases in which these costs may be expected to generate future financial benefits. Other development costs are expensed as they arise. Development costs that are expensed are not recognized as an asset in subsequent periods. For 2012, these costs amounted to 216,174 (194,411).
Executive Management is of the opinion that the development costs recognized for 2012 cannot, in any part, be recognized as an asset because it cannot be reliably determined that the ongoing projects fulfill the requirements entitling recognition as an asset. To the extent that Orexo may independently conduct and finance development projects through to later phases in the years ahead, some of the company's future development expenditures may fulfill the requirements for asset recognition.
Executive Management assesses the probability of whether future financial value will accrue to the Group on the basis of a number of factors,
such as the customer's payment history and credit worthiness. If the Group deems a receivable to be doubtful, a provision is made until it is possible to determine whether or not the Group will receive payment.
During the year, the Group received lump-sum payments from a number of collaboration partners. These payments have been in the form of payments both with and without demands for recompense from the Group. A licensing agreement permits Orexo's partners to register, market and sell the Group's patented products within a certain geographic area for a specified time. Lump-sum payments received and considered remuneration for this exclusivity are recognized directly. Wherever lumpsum payments are considered to be remuneration for future services in return, the revenue is distributed over time based on the implications of such services, e.g. when a lump sum payment is received and a research collaboration agreement is in place, remuneration is distributed straightline over the time the research collaboration continues.
A milestone payment is an item of revenue related to achieved goals specified in the agreement with the partner in question. Such goals may include the start of clinical trials or the granting of product registration approval by an authority. Revenues for intermediate milestone payments are recognized once the goal has been achieved and the Group has fulfilled its undertakings.
During the year Orexo and ProStrakan Group plc renegotiated the conditions of the commercial collaboration regarding Abstral, whereby the royalty conditions were restructured. The agreement means amongst other things that Orexo receives payments in the form of royalty revenues for sales of Abstral in ProStrakan's territories. Part of the royalty rate has been replaced by fixed one-time amounts, which are partly received earlier than what would probably have been the case otherwise. The fixed amounts that have been received have been allocated to future periods in order to reflect the financial thrust of the agreement. The agreement also includes variable royalties, which are entered as revenue as and when sales are made.
Orexo has significant loss carry-forwards. Orexo concludes that there is not a sufficiently high level of probability of them being utilized. The loss carry-forwards for tax purposes in the Group amounted to MSEK 1,139 (1,175) at December 31, 2012.
The Group has defined its operating segments based on the information used by Executive Management to make strategic decisions and management assesses the operations as a single unit, meaning that the company has only one segment.
The Group's operations are conducted primarily in the geographic areas below. Sales figures are based on the country in which the customer is located. There are no sales between geographic areas.
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Sales distributed geographically | ||||||
| Sweden | 10,798 | 12,098 | 11,803 | 54,494 | 56,411 | 41,644 |
| UK | 207,409 | 73,466 | 49,510 204,472 | 70,628 | 49,510 | |
| Other EU countries | 9,524 | 13,634 | 75,421 | – | 5,407 | 351 |
| East Asia | 14,549 | 6,641 | 20,776 | 12,233 | 5,970 | 20,716 |
| US | 48,335 | 54,637 | 27,854 | 827 | 975 | 730 |
| Other countries | 35,663 | 39,138 | 25,135 | – | 1,381 | – |
| Total | 326,278 | 199,614 | 210,499 272,026 140,772 | 112,951 |
The company's three largest customers combined account for 81 percent (81) of the company's net revenues. They contribute 63 (38) percent, 15 (32) percent and 3 (11) percent, respectively.
Assets and investments outside Sweden amount to MSEK 0.1 (0.9).
| Art and non | ||||||
|---|---|---|---|---|---|---|
| Group | Equipment and machinery |
Computers | Renovation of others' property |
depreciable equipment |
Financial leasing |
Total |
| Fiscal year 2010 | ||||||
| Opening balance | 12,532 | 955 | 31,933 | 394 | – | 45,814 |
| Purchases | 3,403 | 35 | – | – | – | 3,438 |
| Disposals | –1,322 | –1,393 | –205 | – | – | –2,920 |
| Depreciation | –4,848 | –858 | –1,623 | – | – | –7,329 |
| Disposals | 1,182 | 1,391 | 99 | – | – | 2,672 |
| Exchange-rate differences | –9 | – | – | – | – | –9 |
| Closing balance | 10,938 | 130 | 30,204 | 394 | – | 41,666 |
| At December 31, 2010 | ||||||
| Cost | 28,841 | 2,131 | 36,174 | 394 | 1,894 | 69,434 |
| Accumulated depreciation and impairment | –17,903 | –2,001 | –5,970 | – | –1,894 | –27,768 |
| Carrying amount | 10,938 | 130 | 30,204 | 394 | – | 41,666 |
| Fiscal year 2011 | ||||||
| Opening balance | 10,938 | 130 | 30,204 | – | – | 41,666 |
| Purchases | 4,100 | 673 | – | – | – | 4,773 |
| Increase through business combinations | 183 | – | – | – | – | 183 |
| Depreciation | –5,345 | –224 | –1,809 | – | – | –7,378 |
| Exchange-rate differences | –3 | – | – | – | – | –3 |
| Closing balance | 9,873 | 579 | 28,395 | 394 | – | 39,241 |
| At December 31, 2011 | – | |||||
| Cost | 33,124 | 2,804 | 36,174 | 394 | 1,894 | 74,390 |
| Accumulated depreciation and impairment | –23,251 | –2,225 | –7,779 | – | –1,894 | –35,149 |
| Carrying amount | 9,873 | 579 | 28,395 | 394 | – | 39,241 |
| Fiscal year 2012 | ||||||
| Opening balance | 9,873 | 579 | 28,395 | 394 | – | 39,241 |
| Purchases | 2,840 | – | – | – | – | 2,840 |
| Disposals | –600 | – | – | – | – | –600 |
| Depreciation | –4,306 | –236 | –1,809 | – | – | –6,351 |
| Exchange-rate differences | –7 | – | – | – | – | –7 |
| Closing balance | 7,800 | 343 | 26,586 | 394 | – | 35,123 |
| At December 31, 2012 | ||||||
| Cost | 35,964 | 2,804 | 36,174 | 394 | 1,894 | 77,230 |
| Accumulated depreciation and impairment | –28,164 | –2,461 | –9,588 | – | –1,894 | –42,107 |
| Carrying amount | 7,800 | 343 | 26,586 | 394 | 0 | 35,123 |
Leasing expenses amounted to 678 (288) (514) for the leasing of equipment, machinery and computers are included in the statement of operations.
Tangible fixed assets include leasing objects that the Group has on the basis of financial leasing agreements in the following amounts.
| 2012 | 2011 | 2010 | |
|---|---|---|---|
| Cost, capitalized financial leasing | 1,894 | 1,894 | 1,894 |
| Accumulated depreciation according to plan |
–1,894 | –1,894 | –1,894 |
| Carrying amount | – | – | – |
| Group | Goodwill | Acquired R&D Patents and rights Distribution rights | Other | Total | ||
|---|---|---|---|---|---|---|
| Fiscal year 2010 | ||||||
| Opening balance | 17,987 | 427,030 | 1,619 | 0 | 363 | 446,999 |
| Purchases | – | – | – | – | – | – |
| Increase through business combinations | – | – | – | – | – | – |
| Amortization | – | – | –495 | – | –145 | –640 |
| Impairment | – | –34,894 | – | – | – | –34,894 |
| Adjustment of additional purchase price | –308 | – | – | – | – | –308 |
| Exchange-rate differences | – | –3,649 | –91 | – | – | –3,740 |
| Closing carrying amount | 17,679 | 388,487 | 1,033 | 0 | 218 | 407,417 |
| At December 31, 2010 | ||||||
| Cost | 17,987 | 435,062 | 13,265 | 2,707 | 729 | 469,750 |
| Accumulated amortization and impairment | –308 | –46,575 | –12,232 | –2,707 | –511 | –62,333 |
| Carrying amount | 17,679 | 388,487 | 1,033 | 0 | 218 | 407,417 |
| Fiscal year 2011 | ||||||
| Opening balance | 17,679 | 388,487 | 1,033 | 0 | 218 | 407,417 |
| Purchases | – | – | – | – | – | – |
| Increase through business combinations | 16,025 | – | – | – | – | 16,025 |
| Amortization | – | – | –310 | – | –146 | –456 |
| Impairment | – | –271,238 | – | – | – | –271,238 |
| Exchange-rate differences | –256 | –639 | 14 | – | – | –881 |
| Closing carrying amount | 33,448 | 116,610 | 737 | 0 | 72 | 150,867 |
| At December 31, 2011 | ||||||
| Cost | 33,448 | 435,062 | 13,265 | 2,707 | 729 | 485,211 |
| Accumulated amortization and impairment | – | –318,452 | –12,528 | –2,707 | –657 | –334,344 |
| Carrying amount | 33,448 | 116,610 | 737 | 0 | 72 | 150,867 |
| Fiscal year 2012 | ||||||
| Opening balance | 33,448 | 116,610 | 737 | 0 | 72 | 150,867 |
| Purchases | – | – | – | – | 3,059 | 3,059 |
| Disposals | –7,042 | – | – | – | – | –7,042 |
| Amortization | – | – | –748 | – | –72 | –820 |
| Impairment | – | –10,159 | – | – | – | –10,159 |
| Exchange-rate differences | –579 | –251 | 11 | – | – | –819 |
| Closing carrying amount | 25,827 | 106,200 | 0 | 0 | 3,059 | 135,086 |
| At December 31, 2012 | ||||||
| Cost | 33,448 | 435,062 | 13,265 | 2,707 | 3,788 | 488,270 |
| Accumulated amortization and impairment | –7,621 | –328,862 | –13,265 | –2,707 | –729 | –353,184 |
| Carrying amount | 25,827 | 106,200 | 0 | 0 | 3,059 | 135,086 |
A goodwill item arose following the acquisition of Noster System AB in 2006. It corresponded to a cash-generating unit in Kibion's sale of breath tests for diagnosing the stomach ulcer bacterium Helicobacter pylori.
In August 2011, Orexo's subsidiary Kibion AB acquired the German company Wagner Analysen Technik GmbH. In connection with acquisition, an additional goodwill item arose. Wagner Analysen Technik GmbH is a leading manufacturer of IRIS instruments and substrates for diagnostic breath tests.
| Goodwill | 2012 | 2011 | 2010 |
|---|---|---|---|
| Noster System | 10,639 | 10,639 | 10,639 |
| Prostrakan | 0 | 7,042 | 7,042 |
| Wagner Analysen Technik | 15,188 | 15,767 | – |
| 25,827 | 33,448 | 17,681 |
Impairment testing for goodwill is performed annually and when there are indications of an impairment requirement. Recoverable amounts for cashgenerating units are determined based on value in use. Impairment testing is applied at the lowest level at which separable cash flows can be identified.
An annual test of the impairment requirement for the goodwill item attributable to the acquisition of Noster System AB has been carried out. Recoverable amounts for the cash-generating operations are calculated based on estimated future cash flows. Cash flow for 2013 is based on budget. Cash flows for the period 2014–2017 are based on Executive Management's forecasts, assessments and market plans. Cash flows beyond this period are extrapolated on the basis of an estimated growth rate of 2.5 percent (2.5), which is based on management's expectations for market development. The assessment of operating margins is based on previously achieved results combined with management's expectations of market trends. Future cash flows were discounted to the present value by applying a rate before tax of 10 percent (12). The estimated value in use exceeds the carrying amount by a comfortable margin.
Impairment testing of the goodwill attributable to the subsidiary acquired during the year, Wagner Analysen Technik GmbH, was carried out. Recoverable amounts for the cash-generating operations are calculated based on estimated future cash flows. Cash flow for 2013 is based on
budget. Cash flows for the period 2014–2017 are based on Executive Management's forecasts, assessments and market plans. Cash flows beyond this period are extrapolated on the basis of an estimated growth rate of 2.5 percent, which is based on management's expectations for market development. The assessment of operating margins is based on previously achieved results combined with management's expectations of market trends. Future cash flows were discounted to the present value by applying a rate before tax of 10 percent. The estimated value in use exceeds the carrying amount.
This discount rate is set based on risk-free interest with an additional risk premium for the business area in question.
The sensitivity of goodwill items to changes in estimated discount rates is low. The discount rate could be raised by 2 percentage points without leading to any impairment requirement for the goodwill items.
Acquired R&D amounting to 106,200 (116,610) is attributable to the acquisition of Biolipox AB in 2007.
When an acquired R&D project begins to generate sales revenues or royalties, planned amortization begins over the expected useful life. The acquired R&D projects have not yet begun to generate such revenues and thus no amortization was applied.
The value of acquired R&D projects is tested once a year to determine any impairment requirements, and also on other occasions if indications of impairment emerge. As with previous years, the recoverable amount was calculated per acquired R&D project. The calculations were performed on the basis of an assessment of future cash flows, with the key variables comprising license revenues, residual development costs, royalties and gross margins. Future cash flows were adjusted in line with the probability estimate applied as the available industry standard, and subsequently calculated at present value. The present value calculation was performed on the basis of a discount rate, which was set by Executive Management at 10 percent (12) before tax.
Research and drug development are characterized by significant operative risks. The risk that a project will not result in a product that
reaches the market diminishes as the project passes through the various phases of the development process. The R&D projects acquired by the company are all in the early phases. If a project is closed down, the result is impairment and removal of the project from the balance sheet. During the year, acquired R&D was impaired by MSEK 10.2.
The sensitivity to changes in certain variables was analyzed to support impairment testing. If the discount rate were to increase by 2 percentage points, the recoverable amounts would continue to exceed the carrying amounts by a healthy margin. If the SEK were to strengthen by 10 percent against the USD and EUR, the recoverable amount of the acquired R&D projects would decline, but not to the extent that any impairment would be required. Regarding the other underlying variables, Executive Management believes that these variables may change within reasonably conceivable limits without the recoverable amount falling below the carrying amount.
| Parent Company | 2012 | 2011 | 2010 |
|---|---|---|---|
| Accumulated cost | |||
| Opening cost | 9,308 | 9,308 | 9,308 |
| Rights acquired during the year | 3,059 | – | – |
| Disposals and scrapping | – | – | – |
| Closing accumulated cost | 12,367 | 9,308 | 9,308 |
| Accumulated amortization according to plan | |||
| Opening amortization according to plan | –9,236 –9,090 | –8,945 | |
| Amortization for the year according to plan | –72 | –146 | –145 |
| Disposals and scrapping | – | – | – |
| Closing accumulated amortization according to plan |
–9,308 –9,236 | –9,090 | |
| Carrying amount | 3,059 | 72 | 218 |
Parent Company intangible assets comprise patents, rights and IT systems.
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Tangible fixed assets | |||||||
| Sales | 115 | 75 | 48 | – | 8 | 12 | |
| Administration | 2,119 | 2,554 | 2,842 | 2,119 | 2,554 | 2,842 | |
| Research and development | 4,117 | 4,749 | 4,439 | 4,103 | 4,679 | 4,293 | |
| Total tangible fixed assets | 6,351 | 7,378 | 7,329 | 6,222 | 7,241 | 7,147 | |
| Intangible assets | |||||||
| Sales | – | 132 | 303 | – | – | – | |
| Administration | 72 | 146 | 145 | 72 | 146 | 145 | |
| Research and development | 749 | 178 | 193 | – | – | – | |
| Other operating expenses | 10,159 | 271,238 | 25,794 | – | – | – | |
| Total intangible assets | 10,980 | 271,694 | 26,435 | 72 | 146 | 145 | |
| Total depreciation/amortization and impairment | 17,331 | 279,072 | 33,764 | 6,294 | 7,387 | 7,292 |
| Holding Dec 31, 2012 | Corp.Reg.No. | Reg. office | Number of shares | Shareholding | Cost | Accumulated | impairment Carrying amount |
|---|---|---|---|---|---|---|---|
| Pharmacall AB | 556569-1739 | Uppsala | 1,000 | 100% | 100 | 0 | 100 |
| Kibion AB | 556610-9814 | Uppsala | 321,279 | 100% | 38,172 | 38,172 | 0 |
| Noster System AB | 556530-9217 | Uppsala | 606,520 | 100% | 10,600 | 9,888 | 712 |
| Biolipox AB | 556588-3658 | Stockholm | 12,883,944 | 100% | 505,773 | 335,944 | 169,829 |
| Orexo UK | 6619806 | UK | 1 | 100% | 0 | 0 | 0 |
| Pharmakodex Ltd | 05268159 | UK | 684,664 | 100% | 82,245 | 80,007 | 2,239 |
| Wagner Analysen Technik GmbH 20929 | Germany | 6 | 100% | 14,303 | 0 | 14,303 | |
| Orexo US | 0101013414 | USA | 100 | 100% | 0 | 0 | 0 |
Noster System AB and Wagner Analysen Technik GmbH are indirect holdings.
In 2012, shares in subsidiaries were impaired by MSEK 57.9. This decrease is attributable both to the impairment of shares due to the
impairment of the value of acquired technology and to divestment of the ProStrakan AB joint venture.
| Change in carrying amount | |||||
|---|---|---|---|---|---|
| 2010 | Opening carrying amount |
Cost | Sales | Impairment | Closing carrying amount |
| Pharmacall AB | 100 | – | – | – | 100 |
| Kibion AB | – | – | – | – | – |
| Prostrakan AB | 18,296 | – | – | – | 18,296 |
| Biolipox AB | 505,773 | – | – | – | 505,773 |
| Orexo UK | – | – | – | – | – |
| Pharmakodex Ltd | 82,245 | – | – | 1,651 | 80,594 |
| Total | 606,414 | – | – | 1,651 | 604,763 |
| 2011 | |||||
| Pharmacall AB | 100 | – | – | – | 100 |
| Kibion AB | – | – | – | – | – |
| Prostrakan AB | 18,296 | – | – | – | 18,296 |
| Biolipox AB | 505,773 | – | – | 335,944 | 169,829 |
| Orexo UK | – | – | – | – | – |
| Pharmakodex Ltd | 80,594 | – | – | 38,731 | 41,863 |
| Total | 604,763 | – | – | 374,675 | 230,088 |
| 2012 | |||||
| Pharmacall AB | 100 | – | – | – | 100 |
| Kibion AB | – | – | – | – | – |
| Prostrakan AB | 18,296 | – | 18,296 | – | – |
| Biolipox AB | 169,829 | – | – | – | 169,829 |
| Orexo UK | – | – | – | – | – |
| Pharmakodex Ltd | 41,863 | – | – | 39,624 | 2,239 |
| Total | 230,088 | – | 18,296 | 39,624 | 172,168 |
| December 31, 2012 | Derivatives used for hedging purposes |
Loans and accounts receivable |
Other financial liabilities |
Total |
|---|---|---|---|---|
| Assets in the balance sheet | ||||
| Accounts receivable and other receivables (excluding interim receivables) | 17,549 | 17,549 | ||
| Cash and cash equivalents | 228,067 | 228,067 | ||
| Derivative instruments | 18,507 | 18,507 | ||
| Total | 18,507 | 245,616 | 264,123 | |
| Liabilities in the balance sheet | ||||
| Borrowing (excluding liabilities in respect of financial leasing) | 120,642 | 120,642 | ||
| Accounts payable and other liabilities (excluding non-financial liabilities) | 127,821 | 127,821 | ||
| Total | 248,463 | 248,463 | ||
| December 31, 2011 | ||||
| Assets in the balance sheet | ||||
| Accounts receivable and other receivables (excluding interim receivables) | 56,853 | 56,853 | ||
| Cash and cash equivalents | 246,859 | 246,859 | ||
| Total | 303,712 | 303,712 | ||
| Liabilities in the balance sheet | ||||
| Borrowing (excluding liabilities in respect of financial leasing) | 120,933 | 120,933 | ||
| Accounts payable and other liabilities (excluding non-financial liabilities) | 52,479 | 52,479 | ||
| Total | 173,412 | 173,412 | ||
| December 31, 2010 | ||||
| Assets in the balance sheet | ||||
| Accounts receivable and other receivables (excluding interim receivables) | 99,211 | 99,211 | ||
| Cash and cash equivalents | 135,798 | 135,798 | ||
| Current investments | – | – | ||
| Total | 235,009 | 235,009 | ||
| Liabilities in the balance sheet | ||||
| Borrowing (excluding liabilities relating to financial leasing) | 103,900 | 103,900 | ||
| Accounts payable and other liabilities (excluding non-financial liabilities) | 103,631 | 103,631 | ||
| Liabilities in respect of financial leasing | – | – | ||
| Total | 207,531 | 207,531 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Currency future contracts – cash flow hedges | 18,507 | – | – | – | – | – |
| Total | 18,507 | – | – | – | – | – |
The entire fair value of a derivative instrument that constitutes a hedging instrument is classified as a fixed asset or long-term liability if the remaining term is longer than 12 months and as a current asset or current liability if the hedged item's remaining term is less than 12 months.
Gains and losses on currency future contracts are recorded in the statement of operations in the period during which the hedged transaction affects the statement of operations.
There is no ineffectiveness to be reported regarding the hedging of net inverstments in foreign business operations.
The hedged transactions in foreign currency occur in June 2013 and June 2014.
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Raw materials | 22,233 | 18,426 | 4,067 | 18,489 | 15,555 | 2,529 |
| Finished products | 6,085 | 8,263 | 3,898 | – | – | – |
| Total | 28,318 | 26,689 | 7,965 | 18,489 | 15,555 | 2,529 |
The cost of inventories expensed is included in the item "Cost of goods sold" and "Research and development costs" and amounted to 37,367 (43,116) (35,306). During the year, inventories were impaired in the amount of SEK 0.
The cost of inventories expensed is included in the item "Research and development costs" and amounted to 8,742 (13,603) (6,752).
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Accounts receivable | 17,549 | 56,853 | 99,211 | 18,058 | 51,847 | 46,554 | |
| VAT receivable | 6,167 | 8,906 | 6,458 | 3,231 | 1,570 | 163 | |
| Other receivables | 4,423 | 4,784 | 5,433 | 26,391 | 19,622 | 16,748 | |
| Prepaid rents | 4,917 | 5,294 | 4,922 | 4,917 | 5,270 | 4,918 | |
| Other interim receivables | 3,600 | 6,609 | 3,822 | 3,045 | 42,529 | 65,603 | |
| Total | 36,656 | 82,446 | 119,846 | 55,642 | 120,838 | 133,986 |
Impairment losses on accounts receivable amounted to 157 (53) (141). There have been no impairments of remaining accounts receivable. The carrying amount corresponds to fair value since all receivables are current and are due within one year.
Impairment losses on accounts receivable amounted to 0 (0) (69). There have been no impairments of remaining accounts receivable. The carrying amount corresponds to fair value.
Carrying amounts per currency for the Group's accounts receivable are as follows:
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| SEK | 3,507 | 3,026 | 12,612 | 15,348 | 32,511 | 34,047 | |
| USD | 1,386 | 23,263 | 7,178 | 592 | 1,009 | – | |
| EUR | 12,611 | 30,032 | 78,855 | 2,118 | 18,327 | 12,507 | |
| Other currencies | 45 | 532 | 566 | – | – | – | |
| Total | 17,549 | 56,853 | 99,211 | 18,058 | 51,847 | 46,554 |
At December 31, 2012, accounts receivable amounting to 2,983 (19,149) (10,908) fell due for payment without any impairment requirement being considered necessary. These apply to a few independent customers who have previously settled their overdue invoices. An age analysis of these accounts receivable is presented below:
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Less than 43 days | 1,268 | 3,324 | 9,614 | 63 | 814 | 0 | |
| 44 days and older | 1,715 | 15,825 | 1,294 | 64 | – | 0 | |
| Total | 2,983 | 19,149 | 10,908 | 127 | 814 | 0 |
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Cash and bank balances | 228,067 | 246,859 | 135,798 | 216,553 | 227,850 | 101,400 | |
| Total | 228,067 | 246,859 | 135,798 | 216,553 | 227,850 | 101,400 |
The credit quality of financial assets that have neither fallen due for payment nor are in need of impairment can be assessed by referring to an external credit rating (if available) or to the counterparty's payment history:
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| A1- | 228,067 | 246,859 | 135,798 | 216,553 | 227,850 | 101,400 |
| Total bank balances and short-term bank deposits | 228,067 | 246,859 | 135,798 | 216,553 | 227,850 | 101,400 |
As of December 31, 2012, the number of shares outstanding in the company was 29,946,332, of which all were common shares. All shares carry one voting right. The quotient value of each share is 0.4. The change in the number of shares during the year is shown in the table below. All shares issued have been fully paid for. The Parent Company bought back 1,121,124 Orexo shares on Nasdaq OMX Nordic Exchange Stockholm during the period July - September 2012. The total amount that was paid for the shares was MSEK 53. The shares are held as the company's own shares. The Parent Company is entitled to sell these shares at a later point in time. All shares issud by the Parent Company have been fully paid for.
| Shares outstanding on December 1, 2010 | 23,401,252 |
|---|---|
| Subscription for shares through exercise of employee stock | |
| options | 2,500 |
| Shares outstanding on December 1, 2010 | 23,403,752 |
| Subscription for shares through exercise of employee stock | |
| options | 23,555 |
| New share issue | 6,438,188 |
| Shares outstanding on December 1, 2011 | 29,865,495 |
| Subscription for shares through exercise of employee stock | |
| options | 80,837 |
| Shares outstanding on December 1, 2012 | 29,946,332 |
During the year 11,250 employee stock options were exercised. These had not yet been registered as shares at the end of the year.
At the Annual General Meeting on April 11, 2012, the Board received authorization to issue new shares against cash payment, through offsetting or by capital contributed in kind. However, such a share issue may not result in the company's registered share capital or number of shares in the company at any given time increasing by more than a total of 10 percent, or result in the company's share capital exceeding the highest share capital permitted at any given time in accordance with the Articles of Association. The authorization has not been utilized.
| Year | Transaction | Change in number of shares |
Change in share capital (SEK) |
Total number of shares |
Total share capital (SEK) |
Quotient value (SEK) |
|---|---|---|---|---|---|---|
| 1994 | Formation of company | 500 | 50,000 | 500 | 50,000 | 100 |
| 1996 | Bonus issue | 500 | 50,000 | 1,000 | 100,000 | 100 |
| 1997 | New issue | 20 | 2,000 | 1,020 | 102,000 | 100 |
| 1998 | Bonus issue | 9,180 | 918,000 | 10,200 | 1,020,000 | 100 |
| 2000 | New issue | 600 | 60,000 | 10,800 | 1,080,000 | 100 |
| 2000 | New issue | 5,400 | 540,000 | 16,200 | 1,620,000 | 100 |
| 2002 | New issue¹ | 8,830 | 883,000 | 25,030 | 2,503,000 | 100 |
| 2003 | New issue² | 6 | 600 | 25,036 | 2,503,600 | 100 |
| 2003 | New issue³ | 9,242 | 924,200 | 34,278 | 3,427,800 | 100 |
| 2004 | New issue4 | 2,298 | 229,800 | 36,576 | 3,657,600 | 100 |
| 2004 | New issue5 | 376 | 37,600 | 36,952 | 3,695,200 | 100 |
| 2005 | Nyemission6 | 1,337 | 133,700 | 38,289 | 3,828,900 | 100 |
| 2005 | Share split 7 | 9,533,961 | – | 9,572,250 | 3,828,900 | 0.4 |
| 2005 | New issue8 | 3,700,000 | 1,480,000 | 13,272,250 | 5,308,900 | 0.4 |
| 2005 | New issue9 | 20,250 | 8,100 | 13,292,500 | 5,317,000 | 0.4 |
| 2006 | New issue10 | 592,250 | 236,900 | 13,884,750 | 5,553,900 | 0.4 |
| 2007 | New issue11 | 101,750 | 40,700 | 13,986,500 | 5,594,600 | 0.4 |
| 2007 | New issue12 | 7,630,895 | 3,052,358 | 21,617,395 | 8,646,958 | 0.4 |
| 2009 | New issue13 | 6,084 | 2,434 | 21,623,479 | 8,649,392 | 0.4 |
| 2009 | New issue14 | 1,777,773 | 711,109 | 23,401,252 | 9,360,500 | 0.4 |
| 2010 | New issue15 | 2,500 | 1,000 | 23,403,752 | 9,361,500 | 0.4 |
| 2011 | New issue16 | 23,555 | 9,422 | 23,427,307 | 9,370,922 | 0.4 |
| 2011 | New issue17 | 6,438,188 | 2,575,275 | 29,865,495 | 11,946,197 | 0.4 |
| 2012 | New issue18 | 80,837 | 32,335 | 29,946,332 | 11,978,532 | 0.4 |
¹ New issue of preference shares of series P1 directed to HealthCap in connection with their initial investment in the company, at a subscription price of SEK 4,530 per share pursuant to a resolution by an Extraordinary General Meeting of Shareholders held on April 11, 2002.
Orexo has introduced share-based payments in the form of employee stock options and warrants designed to motivate and reward through ownership, thereby promoting the company's long-term interests. Since 2002, a total of just over 100 people have participated in the incentive programs of the Group companies (Orexo AB and Biolipox AB).
Ownership rights to the warrants have been transferred on commercial terms to employees or other participants in the incentive program directly through allotment, while the stock options are vested in the form of one-third, one-fourth or one-fifth of the number of allotted options on each of the first three, four or five anniversary dates of the allotment date, provided that the holder remains employed or is a Board member in Orexo on this date.
7 The 250:1 share split was adopted by the Annual General Meeting held on April 20,
2005, and was implemented in connection with the listing in November 2005. 8 New issue implemented in connection with the listing in November 2005.
At December 31, 2011, there were a total of 2,245,927 options outstanding, providing an entitlement to subscription of 2,241,624 new shares in Orexo and the exchange of 4,303 options against shares in Orexo1). Each option issued by Biolipox AB provides entitlement to exchange it for one share in Orexo AB and a corresponding number of shares are held by the independent company Pyrinox AB.
The table below shows a summary of the changes in the number of options outstanding during the period January 1, 2012 to December 31, 2012, split across each category.
| Opening Jan 1, 2012 |
Change | Closing Dec 31, 2012 |
Redeemable | |
|---|---|---|---|---|
| Options directed at employees | ||||
| Of which: | ||||
| Approved and allotted employee stock options | 1,466,416 | 1,466,416 | ||
| Exercised | –48,500 | –48,500 | ||
| Forfeited | –156,750 | –156,750 | ||
| Allotted | 235,000 | 235,000 | ||
| Total | 1,496,166 | 521,166 | ||
| Approved and allotted Board stock options | 61,006 | 61,006 | ||
| Allotted | 270,000 | 270,000 | ||
| Exercised | –42,921 | –42,921 | ||
| Total | 288,085 | 13,967 | ||
| Approved and allotted warrants | 10,000 | 10,000 | ||
| Total | 10,000 | 10,000 | ||
| Approved, unallotted employee stock options2) | 565,000 | –235,000 | 330,000 | |
| Total | 330,000 | |||
| Warrants held by subsidiaries for cash flow hedging of social | ||||
| security fees | 78,000 | 78,000 | ||
| Total | 78,000 | 78,000 | ||
| Total options directed at employees Employee stock options utilized from Biolipox (non-diluting, included in newly issued shares in conjunction with acquisition |
2,180,422 | 21,829 | 2,202,251 | |
| of Biolipox) | 74,943 | 74,943 | ||
| Forfeited | –114 | –114 | ||
| Exercised | –70,526 | –70,526 | ||
| Warrants utilized from Biolipox for cash flow hedging of social security fees (non-diluting) |
44,173 | –4,800 | 39,373 | |
| Total options from Biolipox | 119,116 | –75,440 | 43,676 | 43,676 |
| Total outstanding options | 2,299,538 | –53,611 | 2,245,927 | |
| The average exercise price during the year was SEK 4,96 per share. |
¹ All information regarding options issued by Orexo AB has been restated to take into account the 1:250 share split conducted in November 2005. The 2005 Annual Report states that older option certificates provide entitlement to subscribe for 250 shares after the split. The reported data regarding options issued by Orexo AB refer to the number of shares to which each option provides entitlement to subscribe for shares following the share split. All data regarding options issued by Biolipox AB are restated using a factor of 0.45854, which corresponds to the computed value of the options related to the share price for the Orexo share on the acquisition date. The reported data regarding the options issued by Biolipox refers to the number of shares for which each option may be exchanged after recalculation.
2 These options were approved at the General Meeting held in February 2011, but have not yet been allotted.
| Category | Outstanding, Jan 1, 2012 |
Additional | Allotted | Redeemed | Forfeited | Outstanding, Dec 31, 2012 |
Redeemable |
|---|---|---|---|---|---|---|---|
| Employee stock options ¹, Orexo AB | 45.6 | – | 25.84 | 15.84 | 55.04 | 42.46 | 51.61 |
| Board options, Orexo AB | 0.4 | 0.4 | 0.4 | 0.4 | – | 0.4 | 0.4 |
| Warrants, Orexo AB | 12.7 | – | – | – | – | 12.7 | 12.7 |
| Hedge options, Orexo AB | 9.2 | – | – | – | – | 9.2 | 9.2 |
| Employee stock options, Biolipox AB | 0.25 | – | – | 0.25 | 0.25 | 0.25 | 0.25 |
| Hedge options, Biolipox AB | 0.25 | – | – | 0.25 | – | 0.25 | 0.25 |
¹ In calculating the average exercise price, options not yet allotted have not been included as no exercise price for these has been set. 330,000 options relate to the 2011/2021 program, see the preceding table.
During the period January–December 2012, 48,500 employee stock options from Orexo's options programs were exercised. During the same period, 70,526 of Biolipox's employee share options were exercised, entailing that the holders exchanged their options for 70,526 Orexo shares, which had been held by the independent company Pyrinox AB. The exercise of options did not require the issue of additional shares by Orexo.
235,000 performance shares were allotted during 2012. Of these performance shares, 165,000 were allotted free of charge in February 2012 and 70,000 performance shares were allotted free of charge in March 2012. Of these performance shares, 117,500 are time based and 117,500 are share price based performance shares. The exercise price for the performance shares that were allotted in February was set at SEK 25.60 and the exercise price for the performance shares that were allotted in March was set at SEK 26.40. The final date for exercising the options is December 31, 2021.
The market value of the time based portion of the shares was determined using the Black&Scholes method, while a Monte Carlo simulation was used for the share price based portion. The market value of the options allotted in February is SEK 8.23 for the time based portion and SEK 6.15 for the share price based portion. For the options allotted in March, the market value is SEK 8.23 for the time based portion and SEK 6.15 for the share price based portion.
For any vesting of Share Price Based Performance Shares to occur, the increase in the Share Price shall correspond to the amounts set forth below. The increase in the Share Price as set forth below shall be calculated for a period not exceeding five years, meaning that the Share Price must have been achieved within a continuous five-year period.
| Increase in | Vesting percentage of Share Price Vested Performance Shares (also conditional upon the fulfillment |
|---|---|
| Share Price | of Performance Criterion 2 below) |
| > 60 percent | 33 percent |
| > 100 percent | 66 percent |
| > 150 percent | 100 percent |
These categories correspond to a five-year average return performance of approximately 10 percent, 15 percent and 20 per cent per annum, respectively.
In addition to satisfaction of Performance Criterion 1, for any vesting to occur the Share Price shall have outperformed the NASDAQ OMX Stockholm Biotechnology PI Index for a 90 day period immediately prior to such day when Performance Criterion 1 above is satisfied. The determination of satisfaction of Performance Criterion 2 shall be made continuously as long as Performance Criterion 1 is satisfied, where the abovementioned 90 day period shall be the period immediately prior to each such determination.
The Board shall be entitled to determine that Performance Shares have not been vested to the extent that it has been established that vesting has occurred on the basis of manifestly misstated information.
The 2012/2017 Board shareholder program was adopted in 2012. As a result of the successful acquisition of the American rights for Abstral and the continued development program process for Zubsolv, Orexo has created the foundation for establishing a successful commercial presence in the USA. In order to succeed in this work in the best possible way, it is considered necessary to tie the members of the Board closer to the company. In order to compensate, remunerate and motivate the members of the Board to assist through the extra work that this work for change involves, it was decided to adopt this Board shareholder program.
In August 270,000 Board options were allotted free of charge. These were allotted to independent members of the Board. A condition for entitlement to acquire new shares through the exercise of performance shares is that certain vesting conditions are fulfilled. The exercise price for these has been set at SEK 36.30. The final date for exercising the options is December 31, 2017.
During the year, the Board resolved to forfeit options and deregister warrants at the Swedish Companies Registration Office that provided entitlement to 156,750 shares, which reduces the dilution in conjunction with full exercise of all outstanding warrants by about 0.5 percentage points. The forfeited options refer to non-vested options to employees who terminated their employment and will thus be unable to exercise them. During 2012, 114 of Biolipox's employee stock options were also forfeited, which also involved non-vested options to employees who had terminated their employment and were thus unable to exercise the options.
Allotment of warrants for the period 2002–2012, providing entitlement to a total of 376,250 shares, is distributed as follows:
The company's expenses for the employee stock option program for the full-year 2012 amounted to MSEK 9.3 (3.1). Of these expenses, MSEK 5.3 (2.7) is attributable to the CEO and other administrative personnel, MSEK 2.9 (0.2) to research and development personnel and MSEK 1.1 (0.2) to sales-related personnel.
The expenses for the programs pertain both to estimated costs for the value of the employee vesting during the period, marked-to-market at the time of allotment, as well as the vested portion during the period of the estimated payroll overhead on the changes in value. The company will need to pay social security fees on the gain that may arise in conjunction with the exercise of employee stock options, calculated as the difference between the exercise price of the stock option and the market value of the share.
The social security fees that could arise as a result of the employee stock option program have financially and, thus, for cash flow purposes, largely been hedged through the issue of warrants to one of Orexo's subsidiaries. This hedging does not qualify for hedge accounting in accordance with IFRS.
The table below provides a detailed description of Orexo's share-based incentive program in respect of changes during the year, subscription prices, lifetimes and potential dilution.
| Number of shares to which securities provide entitlement at |
Supplement | Allotment during the |
Redeemed during the |
Forfeited during the |
Number of shares to which securities provide entitlement at |
Sub scription price Program |
Number of shares and |
|
|---|---|---|---|---|---|---|---|---|
| Type of security | Jan 1, 2012¹ | during the year | year | year | year | Dec 31, 2012 | (SEK) runs until |
voting rights² |
| Approved and allotted options | ||||||||
| Employee stock options 2002 | 38,000 | – | – | –38,000 | – | 0 | 9.2 Dec 31, 2012 | |
| Employee stock options 2003 | 2,500 | – | – | –2,500 | – | 0 | 12.7 Dec 31, 2013 | |
| Employee stock options 2004 | 62,500 | – | – | – | – | 62,500 | 18.1 Jun 6, 2014 | |
| Employee stock options 2005:I Employee stock options |
6,750 | – | – | – | – | 6,750 | 18.1 Dec 31, 2013 | |
| 2005/2006³ | 39,100 | – | – | – | –6,000 | 33,100 | 113 Dec 31, 2015 | |
| Employee stock options | ||||||||
| 2006/201644 Employee stock options |
53,275 | – | – | – | –9,500 | 43,775 | 119 Dec 31, 2016 | |
| 2007/2017 | 125,666 | – | – | –3,000 | –32,000 | 90,666 | 44 Dec 31, 2017 | |
| Board stock options 2008/2015 |
11,221 | – | – | –8,268 | – | 2,953 | 0.4 Dec 31, 2015 | |
| Employee stock options | ||||||||
| 2008/2018 | 163,625 | – | – | –5,000 | –59,250 | 99,375 | 51 Dec 31, 2018 | |
| Board stock options 2009/2016 |
16,186 | – | – | –11,927 | – | 4,259 | 0.4 Dec 31, 2016 | |
| Board stock options | ||||||||
| 2010/2017 Board stock options |
18,958 | – | – | –12,203 | – | 6,755 | 0.4 Dec 31, 2017 | |
| 2011/2018 | 14,641 | – | – | –10,523 | – | 4,118 | 0.4 Dec 31, 2018 | |
| Subscription options | 10,000 | – | – | – | – | 10,0000 | 12.7 Dec 31, 2013 | |
| Performance-based incentive program 2011/2021 |
500,000 | – | – | – | – | 500,000 | 44.4 Dec 31, 2021 | |
| Performance-based incentive | ||||||||
| program 2011/2021 | 245,000 | – | – | – | –50,000 | 195,000 | 47.8 Dec 31, 2021 | |
| Performance-based incentive program 2011/2021 Performance-based incentive |
230,000 | – | – | – | – | 230,000 | 29 Dec 31, 2021 | |
| program 2011/2021 | – | – | 165,000 | – | – | 165,000 | 25.6 Dec 31, 2021 | |
| Performance-based incentive program 2011/2021 |
– | – | 70,000 | – | – | 70,000 | 26.4 Dec 31, 2021 | |
| Board stock options 2012/2017 |
– | 270,000 | – | – | – | 270,000 | 0.4 Dec 31, 2017 | |
| Subtotal | 1,537,422 | 270,000 | 235,000 | –91,421 | –156,750 | 1,794,251 | ||
| Approved, unallotted options | ||||||||
| Performance-based incentive | ||||||||
| program 2011/2021 Hedge options intended |
565,000 | – | –235,000 | – | – | 330,000 | – Dec 31, 2021 | |
| for hedging employee stock | ||||||||
| options5 | 78,000 | – | – | – | – | 78,000 | 9.2 Dec 31, 2012 | |
| Subtotal Options attributable to the acquisition of Biolipox |
2,180,422 | 270,000 | – | –91,421 | –156,750 | 2,202,251 | ||
| Employee stock options BX OP V | 1,033 | – | – | –459 | – | 574 | 0.25 Dec 31, 2014 | Undiluted |
| Employee stock options BX OP VII | 59,120 | – | – | –59,120 | – | – | 0.25 Dec 31, 2015 | Undiluted |
| Employee stock options BX OP VIII | 12,040 | – | – | –9,401 | – | 2,639 | 0.25 Dec 31, 2015 | Undiluted |
| Employee stock options BX OP IX | 2,750 | – | – | –1,546 | –114 | 1,090 | 0.25 Dec 31, 2016 | Undiluted |
| Hedge options | 44,173 | – | – | –4,800 | – | 39,373 | 0.25 Dec 31, 2016 | Undiluted |
| Subtotal Total number of securities in |
119,116 | – | – | –75,326 | –114 | 43,676 | ||
| share-based incentive programs | 2,299,538 | 270,000 | – | –166,747 | –156,864 | 2,245,927 |
¹ The number of shares after the 250:1 share split conducted in November 2005.
² After full dilution through the exercise of warrants. ³ Options corresponding to subscription for 66,950 shares from this program were 5 Warrants held by Orexo's subsidiary Pharmacall AB and which are designed for the cash flow hedging of social security fees that may arise as a result of the employee stock option program.
transferred to the Employee stock options 2006/2016 program. 4 Options corresponding to subscription for 66,950 shares to this program were transferred from the Employee stock options 2005/2006 program.
| Options directed at employees Of which: Approved and allotted employee stock options 719,566 719,566 Exercised –9,000 –9,000 Forfeited –219,150 –219,150 Allotted 975,000 975,000 Total 1,466,416 Approved and allotted Board stock options 60,920 60,920 Allotted May 2011 14,641 14,641 Exercised –14,555 –14,555 Total 61,006 Approved and allotted warrants 10,000 10,000 |
|
|---|---|
| 436,874 | |
| 27,407 | |
| Total 10,000 |
10,000 |
| Approved, but not allotted stock options 470,000 –470,000 0 |
|
| Approved at Extraordinary General Meeting 2011² 565,000 565,000 |
|
| Total 565,000 |
– |
| Warrants held by subsidiaries for cash flow hedging of social security fees 78,000 78,000 |
|
| Total 78,000 |
78,000 |
| Total options directed at employees 1,338,486 841,936 2,180,422 |
|
| Employee stock options utilized from Biolipox (non-diluting includ ed in newly issued shares in conjunction with acquisition of |
|
| Biolipox) 117,582 117,582 |
|
| Forfeited –8,651 –8,651 |
|
| Exercised –33,988 –33,988 |
|
| Warrants utilized from Biolipox for cash flow hedging of social security fees (non-diluting) 61,873 –17,700 44,173 |
|
| Total options from Biolipox 179,455 –60,339 119,116 |
119,116 |
| Total options directed at employees 1,517,941 781,597 2,299,538 |
¹ All information regarding options issued by Orexo AB has been restated to take into account the 1:250 share split conducted in November 2005. The 2005 Annual Report states that older option certificates provide entitlement to subscribe for 250 shares after the split. The reported data regarding options issued by Orexo AB refer to the number of shares to which each option provides entitlement to subscribe for shares following the share split. All data regarding options issued by Biolipox AB are restated using a factor of 0.45854, which corresponds to the computed value of the options related to the share price for the Orexo share on the acquisition date. The reported data regarding the options issued by Biolipox refers to the number of shares for which each option may be exchanged after recalculation.
Exercised during the year
For the period January–December 2011, 23,555 employee stock options from Orexo's options programs were exercised. During the period January–December 2011, 33,988 of Biolipox's employee stock options were also exercised, whereby the holders exchanged their options for 33,988 Orexo shares, which had been held by the independent company Pyrinox AB. The exercise of options did not require Orexo to issue additional shares.
In 2011, Orexo introduced a performance-based, long-term incentive program which, prior to exercise, includes performance shares providing entitlement to subscribe for a total of 1,540,000 shares in Orexo. The right to acquire new shares through exercise of performance shares shall, for each employee, be subject to vesting criteria. Of the total number of performance shares allotted, 50 percent of the performance shares shall be vested according to time and internal operational criteria ("time based performance shares") and 50 percent shall be vested according to share price performance and relative share performance ("share price based performance shares"). Of these performance shares, 500,000 were allotted free of charge to the President in March 2011, 245,000 performance shares were allotted free of charge to senior managers in April 2011 and 230,000 performance shares were allotted to senior executives in October 2011. Of these performance shares, 487,500 are time based and 487,500 are share price based. Issue price for the performance shares allotted in March was established at SEK 44.40, the issue price for the performance shares issued in April was established at SEK 47.80 and the issue price for the performance shares issued in October was established at SEK 29. The final exercise date for the options is December 31, 2021.
The market value of the time based portion of the shares was determined using the Black&Scholes method, while a Monte Carlo simulation 2 These options were approved at the General Meeting held in February 2011, but have not yet been allotted.
was used for the share price based portion. The market value of the options allotted in March is SEK 20.25 for the time based portion and SEK 13.37 for the share price based portion. For the options allotted in April, the market value is SEK 19.19 for the time based portion and SEK 12.41 for the share price based portion and, for the options allotted in October, the market value is SEK 8.23 for the time based portion and SEK 6.15 for the share price based portion.
For any vesting of Share price Vested Performance Shares to occur, the increase in the Share Price shall correspond to the amounts set forth below. The increase in the Share Price as set forth below shall be calculated for a period not exceeding five years, meaning that the Share Price must have been achieved within a continuous five-year period.
| Increase in Share Price |
Vesting percentage of Share price Based Performance Shares (also conditional upon the fulfilment of Performance Criterion 2 below) |
|
|---|---|---|
| > 60 percent | 33 percent | |
| > 100 percent | 66 percent | |
| > 150 percent | 100 percent |
These categories correspond to a five-year average return performance of approximately 10 percent, 15 percent and 20 per cent per annum, respectively.
In addition to satisfaction of Performance Criterion 1, for any vesting to occur the Share Price shall have outperformed the NASDAQ OMX Stockholm Biotechnology PI Index for a 90 day period immediately prior to such day when Performance Criterion 1 above is satisfied. The determination of satisfaction of Performance Criterion 2 shall be made continuously as long as Performance Criterion 1 is satisfied, where the abovementioned 90 day period shall be the period immediately prior to each such determination.
The Board shall have the possibility to determine that Performance Shares have not been vested to the extent that it has been established that vesting has occurred on the basis of manifestly misstated information.
In May 2011, 14,641 Board options were allotted, providing entitlement to a total of 14,641 shares in Orexo. These Board options have been allotted free of charge to Board members elected at the 2011 Annual General Meeting. Vesting takes the form of one fourth on the date after the publication of Orexo's interim report for Q1 and one fourth after the publication of the interim reports for each of the quarters from Q2 to Q4 during the mandate period for the 2011 fiscal year. Board members' right to request exercise comes into effect from two years after the 2011 Annual General Meeting onwards. The final exercise date for Board options is December 31, 2018 and the subscription price amounts to SEK 0.40 per share. The market value, computed using the Black & Scholes method, totaled SEK 43.33 per option on the allotment date. Volatility is based on the estimated future volatility of the share at the valuation date using the historical volatility of the company and other companies with similar operations as a basis.
share price: 43.70 SEK
| Opening Jan 1, 2010 |
Change | Closing Dec 31, 2010 |
Redeemable | |
|---|---|---|---|---|
| Options directed at employees | ||||
| Of which: | ||||
| Approved and allotted employee stock options | 876,316 | 876,316 | ||
| Exercised | –2,500 | –2,500 | ||
| Forfeited | –154,250 | –154,250 | ||
| Total | 719,566 | 468,613 | ||
| Approved and allotted Board stock options | 35,207 | 35,207 | ||
| Allotted May 2010 | 25,713 | 25,713 | ||
| Total | 60,920 | 12,845 | ||
| Approved and allotted warrants | 10,000 | 10,000 | ||
| Total | 10,000 | 10,000 | ||
| Approved, but not allotted stock options | 470,000 | 470,000 | ||
| Total | 470,000 | – | ||
| Warrants held by subsidiaries for cash flow hedging of social security fees | 78,000 | 78,000 | ||
| Total | 78,000 | 78,000 | ||
| Total options directed at employees | 1,469,523 | –131,037 | 1,338,486 | 569,458 |
| Employee stock options utilized from Biolipox (non-diluting included in newly issued shares in conjunction with acquisition of Biolipox) |
196,107 | 196,107 | ||
| Forfeited | –9,454 | –9,454 | ||
| Exercised | –69,071 | –69,071 | ||
| Warrants utilized from Biolipox for cash flow hedging of social security fees (non-diluting) | 80,323 | –18,450 | 61,873 | |
| Total options from Biolipox | 276,430 | –96,975 | 179,455 | 173,668 |
| Total options directed at employees | 1,745,953 | –228,012 | 1,517,941 | 743,126 |
| Other options | ||||
| Warrants constituting supplementary purchase consideration for the acquisition of Biolipox AB | 926,000 | –926,000 | – | |
| Total outstanding options | 2,671,953 | 1,154,012 | 1,517,941 | 743,126 |
For the January–December 2010 period, 2,500 employee stock options from Orexo's options programs were exercised. Also in January–December 2010, 69,071 of Biolipox's employee stock options were exercised, entailing that the holders exchanged their options for 69,071 Orexo shares, which had been held by the independent company Pyrinox AB. The exercise of options did not require Orexo to issue additional shares.
In May 2010, 25,713 Board options were allotted, providing entitlement to a total of 25,713 shares in Orexo. These Board options were allotted free of charge to Board members elected at the 2010 Annual General Meeting. Vesting takes the form of one-fourth on the day after the publication of Orexo's interim report for Q1 and one fourth after the publication of the interim reports for each of the quarters from Q2 to Q4 during
the mandate period for the 2009 fiscal year. The Board members' right to request exercise comes into effect from two years after the 2010 Annual General Meeting onwards. The final exercise date for Board shares is December 31, 2017 and the subscription price amounts to SEK 0.40 per share. The market value, computed using the Black & Scholes method, totaled SEK 37.86. Volatility is based on the estimated future volatility of the share at the valuation date using the historical volatility of the company and other companies with similar operations as a basis.
| Translation reserve | Total | |
|---|---|---|
| Opening balance at January 1, 2010 | –5,245 | –5,245 |
| Exchange rate differences | –3,524 | –3,524 |
| Opening balance at January 1, 2011 | –8,769 | –8,769 |
| Exchange rate differences | –671 | –671 |
| Opening balance at January 1, 2012 | –9,440 | –9,440 |
| Exchange rate differences | –545 | –545 |
| Cash flow hedge | 18,507 | 18,507 |
| Tax, cash flow hedge | –4,071 | –4,071 |
| Buyback of company's own shares | –53,004 | –53,004 |
| Closing balance at December 31, 2012 | –48,553 | –48,553 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Estimated costs, social security fees, employee stock options | 3,997 | 565 | 1,112 | 3,997 | 565 | 1,135 |
| Total | 3,997 | 565 | 1,112 | 3,997 | 565 | 1,135 |
Provisions primarily refer to estimated costs for social security fees in respect of employee stock option programs, which have been recognized in accordance with UFR 7. The long-term portion of social security fees is recognized as provisions, the remaining portion recognized as a current liability.
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Bank loan, long-term portion | 10,248 | 10,456 | – | – | – | – | |
| Convertible promissory notes | 103,324 | 99,839 | 94,421 | 103,324 | 90,947 | 84,942 | |
| Total | 113,572 | 110,295 | 94,421 | 103,324 | 90,947 | 84,942 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Bank loan, long-term portion | 2,247 | 1,746 | – | – | – | – |
| Convertible promissory notes | 8,892 | 8,892 | 9,479 | 8,892 | 8,892 | 9,479 |
| Total | 11,139 | 10,638 | 9,479 | 8,892 | 8,892 | 9,479 |
The bank loan is the subsidiary Kibion AB's financing of the acquisition of Wagner Analysen Technik GmbH. The term of the bank loan ends on June 30, 2016 and the average interest rate is 3.5 percent per year. Collateral for the bank loan comprises a guarantee from the Parent Company amounting to MSEK 8.4, see Note 21. There are no covenants in the terms of lending or the Pararent Company guarantee.
The convertible issue was recognized in the liability and shareholders' equity portions, based on the fair value of the liability portion, with the division of both components being based on a commercial rate of interest amounting to 10.5 percent.
Attributable transaction costs were distributed proportionally on both these components in relation to the distribution of the issue liquidity.
The convertible loan has a conversion price of SEK 47.50, which represents a premium of about 25 percent compared with the closing price on March 12, 2010 of SEK 37.90 and is allied with an option that entitles Orexo AB to convert the loan when the share price exceeds the conversion price by 50 percent during a specific period of time. This is on condition that it does not lead to the holder of the convertible bond thereby being obliged to make a mandatory bid for the remaining shares. The convertible loan has an annual interest rate of 8 percent. If the loan is not converted to shares, it must be repaid no later than March 31, 2015.
Convertible promissory notes are recognized in the balance sheet in accordance with the following:
| Nominal value of convertible promissory notes issued April 7, 2010 | 111,150 |
|---|---|
| Shareholders' equity portion | –10,005 |
| Liability portion at issue April 7, 2010 | 95,167 |
| Interest expense | 8,733 |
| Interest paid | – |
| Liability portion at December 31, 2010 | 103,900 |
| Interest expense | 11,774 |
| Interest paid | –6,943 |
| Liability portion at December 31, 2011 | 108,731 |
| Interest expense | 11,963 |
| Interest paid | –8,479 |
| Liability portion at December 31, 2012 | 112,215 |
The fair value of the liability portion of the convertible bonds as of December 31, 2012 amounted to 112,215.
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Accounts payable | 19,790 | 27,323 | 25,478 | 18,908 | 21,108 | 21,147 |
| VAT liability | – | 129 | 225 | – | – | – |
| Employee withholding tax | 2,174 | 2,533 | 2,032 | 2,003 | 2,335 | 1,822 |
| Deduction, social security fees | 3,663 | 2,106 | 1,691 | 3,505 | 1,874 | 1,528 |
| Deduction, special salary tax | 3,491 | 3,251 | 3,612 | 3,229 | 2,993 | 3,089 |
| Other current liabilities | 12,203 | 15,247 | 11,562 | 113,318 | 116,273 | 134,957 |
| Accrued salaries | 7,377 | 3,479 | 5,910 | 7,377 | 2,828 | 5,629 |
| Accrued vacation pay | 8,336 | 8,352 | 7,121 | 7,529 | 7,553 | 6,648 |
| Accrued social security fees | 3,804 | 3,843 | 4,226 | 3,550 | 3,365 | 3,989 |
| Other interim liabilities | 9,408 | 51,852 | 78,153 | 8,162 | 42,431 | 69,571 |
| Deferred income | 98,675 | 0 | 0 | 98,675 | 0 | 0 |
| Total | 168,921 | 118,115 | 140,010 | 266,256 | 200,760 | 248,380 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Chattel mortgages for overdraft facility | 44,000 | 44,000 | 44,000 | 44,000 | 44,000 | 44,000 |
| Pledging of all shares in Kibion AB | 12,518 | 12,513 | 12,380 | – | – | – |
| Total | 56,518 | 56,513 | 56,380 | 44,000 | 44,000 | 44,000 |
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Capital adequacy guarantee, Pharmacall AB | – | – | – | – | – | 1,000 | |
| Capital adequacy guarantee, Kibion AB | – | – | – | – | – | 5,000 | |
| Guarantee, Swedish Customs | – | – | 50 | – | – | 50 | |
| Supplementary purchase consideration, Inflazyme | 44,020 | 45,503 | 45,679 | – | – | – | |
| Guarantee commitment | – | – | – | 8,367 | 11,295 | – | |
| Total | 44,020 | 45,503 | 45,729 | 8,367 | – | 6,050 |
In conjunction with the acquisition of Inflazyme, an additional purchase price was agreed that would be conditional on certain goals being achieved. This additional purchase price was initially recognized as a provision and contingent liability, as the latter was not deemed to be a likely payment in view of the development statistics for the drug. In 2010, the Inflazyme project was downgraded, which means that the full additional purchase price is now recognized as a contingent liability amounting to MSEK 44.0.
As cash flow hedging for social security fees in respect of employee stock options issued by Biolipox, warrants were issued to Pyrinox AB.
Orexo has pledged to cover any deficits over and above that covered by the warrants for the duration until December 31, 2016.
The acquisition of the UK pharmaceutical company PharmaKodex includes conditional payments based on license revenues from PharmaKodex's current programs and technologies as well as certain milestone payments. These are not recognized as a liability since it is not probable that any payment will be made.
Orexo has collateral with Nordea comprising chattel mortgages of MSEK 44 and the pledging of all shares in Kibion AB.
| Parent Company | ||||||
|---|---|---|---|---|---|---|
| Group | ||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Sales, products | 56,301 | 59,771 | 52,110 | – | 278 | – |
| Royalties | 181,466 | 72,568 | 43,492 | 181,466 | 72,568 | 43,492 |
| License revenues | 29,263 | 33,012 | 81,144 | 29,263 | 33,012 | 7,557 |
| Partner-financed R&D costs | 23,848 | 35,148 | 33,834 | 13,060 | 7,406 | 61,902 |
| Other | 35,400 | –885 | –81 | 48,237 | 27,508 | – |
| Total | 326,278 | 199,614 | 210,499 | 272,026 | 140,772 | 112,951 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Raw materials and consumables | 37,367 | 43,116 | 35,306 | 8,742 | 13,603 | 6,752 |
| Other external costs | 221,659 | 160,005 | 110,632 | 244,558 | 158,445 | 104,574 |
| Personnel costs | 138,057 | 117,605 | 120,315 | 120,758 | 103,527 | 106,261 |
| Depreciation/amortization and impairment | 17,331 | 279,072 | 33,764 | 16,453 | 46,117 | 8,944 |
| Total | 414,414 | 599,798 | 300,017 | 390,511 | 321,692 | 226,531 |
During the year, acquired R&D projects were impaired by 10,159.
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Audit assignment | |||||||
| PWC | 1,127 | 970 | 658 | 1,078 | 847 | 530 | |
| Silver Levene | 128 | 114 | 147 | – | – | – | |
| Non-auditing assignments | |||||||
| PWC | 380 | 658 | 420 | 380 | 658 | 420 | |
| Tax advice | |||||||
| PWC | 293 | 387 | 291 | 293 | 387 | 291 | |
| Deloitte | – | – | 84 | – | – | – | |
| Other services | |||||||
| PWC | 296 | 327 | 260 | 296 | 166 | 254 | |
| Total | 2,224 | 2,456 | 1,860 | 2,047 | 2,058 | 1,495 |
The statement of operations includes exchange-rate differences on operating receivables and operating liabilities as follows:
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Other operating income | 4,131 | 6,233 | 7,746 | 762 | 1,597 | 4,136 |
| Other operating expenses | –5,160 | –5,485 | –4,741 | –1,965 | –1,454 | –1,347 |
| Total | –1,029 | 748 | 3,005 | –1,203 | 143 | 2,789 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Interest expense | ||||||
| Bank loans | –285 | –177 | –196 | – | – | –196 |
| Convertible bond | –11,963 | –11,774 | –8,733 | –11,963 | –11,774 | –8,733 |
| Group | – | – | – | –1,311 | –2,231 | –456 |
| Other | –22 | –231 | –14 | –14 | –177 | –14 |
| Interest income | ||||||
| Bank | 4,120 | 4,278 | 551 | 3,973 | 3,488 | 436 |
| Group | – | – | – | 299 | 267 | 70 |
| Other | –27 | 125 | – | 2 | 4 | – |
| Financial expenses | – | |||||
| Impairment of shares in subsidiaries | – | – | – | –29,136 | –255,944 | – |
| Sale of joint venture | – | – | – | –3,920 | – | – |
| Other | – | –138 | –295 | – | – | –295 |
| Financial income | ||||||
| Exchange-rate gain, Inflazyne provision | – | – | 1,201 | – | – | – |
| Sale of joint venture | 9 | – | – | 9 | – | – |
| Total | –8,168 | –7,917 | –7,486 | -42,070 | –266,367 | –9,188 |
Financial expenses in the Parent Company are attributable to the sale of shares when the joint venture ProStrakan AB was sold and to the impairment of shares in the subsidiary Pharmakodex Ltd.
| Average number of employees | ||||||
|---|---|---|---|---|---|---|
| Group | 2012 Average number of employees |
Of whom men |
2011 Average number of employees |
Of whom men |
2010 Average number of employees |
Of whom men |
| 111 | 46 | 110 | 43 | 105 | 39 | |
| Total for Group | 111 | 46 | 110 | 43 | 105 | 39 |
| Parent Company | 2012 Average number of employees |
Of whom men |
2011 Average number of employees |
Of whom men |
2010 Average number of employees |
Of whom men |
| 92 | 36 | 96 | 36 | 92 | 32 | |
| Total for Parent Company | 92 | 36 | 96 | 36 | 92 | 32 |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| Costs and remuneration to all employees and Board | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 |
| Salaries, remuneration and social security fees | ||||||
| Salaries and other remuneration to the Board, President and executive management |
21,545 | 16,286 | 22,648 | 20,061 | 14,935 | 21,335 |
| Salaries and other remuneration to other employees | 58,592 | 56,241 | 49,962 | 46,924 | 46,723 | 40,565 |
| Pension cost for the Board, President and Executive Management¹ | 2,806 | 2,596 | 4,186 | 2,550 | 2,273 | 3,926 |
| Pension cost for other employees¹ | 11,868 | 11,412 | 9,955 | 10,811 | 10,431 | 8,805 |
| Social security fees for the Board, President and Executive Management | 7,388 | 5,616 | 7,728 | 6,922 | 5,114 | 7,252 |
| Social security fees for other employees² | 25,518 | 18,824 | 18,709 | 22,513 | 15,968 | 16,030 |
| Other personnel costs | 12,762 | 9,710 | 8,202 | 12,027 | 8,897 | 6,024 |
| Total | 140,479 | 120,685 | 121,390 | 121,808 | 104,341 | 103,937 |
¹ Pertains in its entirety to defined-contribution pension plan.
² Of which 5,025 (1,028) (1,012) pertains to estimated costs for social security fees for employee stock option program.
Board fees, including fees to the Board Chairman and remuneration for work on Board Committees, are set by the shareholders at the Annual General Meeting.
The Board's Remuneration Committee comprises Martin Nicklasson, Michael Shalmi and Raymond Hill. The Remuneration Committee convenes as needed and is charged with the task of preparing decision data for the Board regarding wages, salaries and bonuses, as well as the task of making decisions on certain issues regarding remuneration paid to the President and other senior executives who, in addition to the President, comprise seven persons. The Remuneration Committee held 1 (2) meeting during the year.
Orexo shall offer market terms so that the company can recruit and retain skilled personnel. Remuneration to Executive Management shall comprise fixed salary, variable remuneration, long-term incentive programs, pension and other customary benefits. Remuneration is based on the individual's commitment and performance in relation to previously established goals, both individual goals and company-wide goals. Individual performance is continuously evaluated.
Fixed salary is generally reviewed on an annual basis and shall be based on the qualitative performance of the individual. The fixed salary of the President and other senior executives shall be in line with market conditions.
Variable remuneration shall take into account the individual's level of responsibility and degree of influence. The size of variable remuneration is based on the percentage of set goals met by the individual. Variable remuneration shall not exceed 40 percent of fixed salary for the President and 30 percent of fixed salary for other senior executives. In addition, the Board shall have the option of deviating from these terms and make discretionary allotments of variable remuneration when the Board deems such action to be appropriate.
Orexo has adopted share-based incentive programs that are designed to promote the company's long-term interests by motivating and rewarding the company's senior executives. For a description of the company's longterm incentive programs, see Note 16 and the company website, www.orexo.com.
The President and other senior executives are covered by a definedcontribution pension plan. Pension premiums paid by the company amount to 20 percent of the President's monthly salary, while pension premiums for other senior executives amount to an average of 20 percent of fixed annual salary.
The Board is entitled to deviate from the above guidelines if the Board determines that there are special reasons in an individual case that warrant such action.
As a result of the successful acquisition of the American rights for Abstral and the planned launch of Zubsolv™, Orexo has created the foundation for establishing a successful commercial presence in the USA. In order to succeed in this work in the best possible way and thereby secure optimal returns for Orexo's shareholders, Novo A/S and HealthCap consider it necessary and desirable to tie the independent members of the Board closer to the company. These members of the Board can thus support management and Orexo can derive operative benefit from the Board members' expertise and personal networks for coming analyses and decision-making processes with regard to Orexo's future. In order to compensate, remunerate and motivate the independent members of the Board to assist through the extra work that this work for change involves, the Extraordinary General Meeting held on July 13, 2012 resolved to adopt the Board shareholder program 2012/2017.
| Costs and remuneration to the Board, President and senior executives | Basic salary/ | Variable | Other | Pension | Share-based | Other | Total |
|---|---|---|---|---|---|---|---|
| SEK thousand | Board fees | remuneration | benefits | costs | payment | remuneration | remuneration |
| Board of Directors | |||||||
| Martin Nicklasson, Chairman | 433 | 433 | |||||
| Scott Myers, Board member | 100 | 100 | |||||
| Michael Shalmi, Board member | 100 | 100 | |||||
| Raymond Hill, Board member | 144 | 20 | 164 | ||||
| Staffan Lindstrand, Board member | 136 | 136 | |||||
| Kristina Schauman, Board member | 167 | 167 | |||||
| Subtotal | 1,080 | 20 | 1,100 | ||||
| President | |||||||
| Anders Lundström, President and CEO | 3,969 | 1,224 | 45 | 622 | 1,950 | 7,810 | |
| Other senior executives (7) | 11,354 | 2,379 | 10 | 1,928 | 1,582 | 17,253 | |
| Total | 16,403 | 3,603 | 55 | 2,550 | 3,552 | 26,163 |
For 2012, provisions for variable remuneration to senior executives were made in the amount of MSEK 3.6.
Other benefits refer primarily to a company car and travel between place of residence and workplace.
Other senior executives, as of December 31, refers to the 7 people presented on page 77.
The number of shares and options held by the President and senior executives is shown in the information regarding the Board on page 76 and Management on page 77. Refer to Note 16 for a description of share-based remuneration.
Orexo has not granted loans or guarantees or provided collateral on behalf of the company's Board members, senior executives or auditors. None of the Board members, senior executives or auditors has directly or indirectly through associated companies or their immediate families been involved in business deals with Orexo on non-commercial terms.
| 2012 | 2011 | 2010 | ||||
|---|---|---|---|---|---|---|
| Number on the closing | Number on the closing | Number on the closing | ||||
| date, of whom men | date, of whom men | date, of whom men | ||||
| Group (inc. subsidiaries) | ||||||
| Board members | 12 | 92% | 11 | 91% | 11 | 91% |
| President and other senior executives | 7 | 71% | 7 | 71% | 6 | 66% |
| Parent Company | ||||||
| Board members | 6 | 84% | 6 | 100% | 8 | 88% |
| President and other senior executives | 6 | 67% | 7 | 71% | 6 | 66% |
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Current tax for the year | – | – | – | – | – | – |
| Current tax attributable to previous years | – | – | – | – | – | – |
| Deferred tax | 1,715 | 7,411 | 13 | – | – | – |
| Total | 1,715 | 7,411 | 13 | 0 | 0 | 0 |
| Difference between the Group's tax expense and tax expense based on the current tax rate |
||||||
| Recognized pre-tax earnings | –85,835 | –392,009 | –89,259 | –157,073 | –443,769 | –118,632 |
| Tax under current tax rate | 22,575 | 102,943 | 23,149 | 41,310 | 116,711 | 31,200 |
| Tax effect of non-deductible costs | –3,598 | –78,200 | –3,600 | –11,250 | –99,223 | –113 |
| Tax effect of changed tax rate | –48,956 | – | – | –37,314 | – | – |
| Tax effect of deductible costs not charged to earnings | – | 3,366 | – | – | 3,366 | – |
| Tax effect of non-deductible income | – | 2 | 150 | – | 21,041 | 150 |
| Increase in unrecognized deferred tax | 29,979 | –28,111 | –19,699 | 7,254 | –41,895 | –31,237 |
| Decrease in deferred tax liability due to temporary differences | 1,715 | 7,411 | 13 | – | – | – |
| Tax on earnings for the year according to the statement of operations | 1,715 | 7,411 | 13 | 0 | 0 | 0 |
The current tax rate is the tax rate for income tax in the Group. The tax rate is 26.3 percent (26.3).
Deferred tax assets and deferred tax liabilities are netted when there is a legal netting right. Deferred tax liabilities pertaining to temporary differences in conjunction with the acquisition of Biolipox's (2007) acquired R&D were netted against the tax-loss carry-forwards in Biolipox.
In 2011, some of the acquired R&D was impaired, resulting in a reduction in the netted loss carry-forwards in Biolipox.
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |
| Deferred income tax | ||||||
| Deferred tax assets | ||||||
| – related to loss carry-forwards in Biolipox | 27,931 | 27,931 | 94,752 | – | – | – |
| – related to other loss carry-forwards | 250,475 | 280,454 | 185,552 | 190,954 | 198,208 | 156,313 |
| Loss carry-forwards not asset recognized | –278,406 | –308,385 | –280,274 | –190,954 | –198,208 | –156,313 |
| Deferred tax liability | ||||||
| – to be paid after more than 12 months | –1,566 | –1,807 | –8,879 | – | – | – |
| – to be paid within 12 months | –2,505 | – | –33 | – | – | – |
| – to be paid after more than 12 months and related to temporary differences on acquired R&D |
–27,931 | –27,931 | –94,752 | – | – | – |
| Deferred income tax, net | 4,071 | 1,807 | 8,912 | 0 | 0 | 0 |
Recognized deferred tax liabilities amounted to 1,807 at the beginning of the year and 4,071 at year-end. The deferred tax liabilities relate to cash flow hedging.
Deferred tax assets are recognized for tax-loss carry-forwards to the extent that it is probable that they can be applied through future taxable profits. Since it is difficult to determine when loss carry-forward can be applied, no value has been recognized in the balance sheet for loss carryforwards other than the netting described above. Loss carry-forward in the Group amounted to MSEK 1,139 (1,175). There is no time limit restriction on when it can be applied.
| 2012 | 2011 | 2010 | |
|---|---|---|---|
| Opening balance | 1,807 | 8,912 | 9,791 |
| Tax on amortization of intellectual property rights in the Group | –1,807 | –7,105 | –879 |
| Tax on cash flow hedging | 4,071 | – | – |
| Closing balance | 4,071 | 1,807 | 8,912 |
Earnings per share before dilution are calculated by dividing the earnings attributable to the Parent Company by a weighted average number of
common shares outstanding during the period, as shown in the presentation below.
| Group | ||||
|---|---|---|---|---|
| 2012 | 2011 | 2010 | ||
| Earnings used for the calculation of earnings per share before dilution | –85,863 | –392,009 | –89,246 | |
| Average number of shares before dilution | 29,448,932 | 27,167,225 | 23,402,502 | |
| Loss per share before dilution (SEK per share) | –2.92 | –14.43 | –3.81 | |
| Options outstanding | 2,245,927 | 2,299,538 | 1,517,941 |
For calculating the earnings per share after dilution, the weighted average number of common shares outstanding is adjusted for the dilution effects of all potential common shares. The potential common shares in the Parent Company are represented by employee stock options, warrants and convertibles. In terms of convertibles, dilution has been increased by all shares that a convertible issue can produce.
As earnings are negative, the same earnings per share are recognized after dilution as before dilution, as shown in the table above.
No dividend was paid in 2012. The Board will propose to the Annual General Meeting on April 11, 2013 that no divided be paid for the 2012 fiscal year.
The Group leases various types of machinery and other technical plant in accordance with cancelable operational leasing agreements. Information on the leasing expenses recognized in the statement of operations during the year is shown in Note 7.
Orexo concluded a new leasing contract, effective January 1, 2007. This contract pertains to the leasing of premises for offices and production facilities.
The nominal value of future leasing fees for lease agreements that cannot be terminated are as follows:
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Falls due for payment within one year | 15,091 | 15,091 | 15,091 | 15,091 | 15,091 | 15,091 | |
| Falls due for payment later than one year but within five years | 15,091 | 30,182 | 45,276 | 15,091 | 30,182 | 45,276 | |
| Falls due for payment later than five years | – | – | – | – | – | – | |
| Total | 30,182 | 45,273 | 60,367 | 30,182 | 45,273 | 60,367 |
| Group | Parent Company | ||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Adjustment for items not included in cash flow comprise the following: | |||||||
| Depreciation/amortization and impairment | 17,331 | 279,072 | 33,764 | 16,453 | 382,061 | 8,944 | |
| Employee stock options, value of employees' services | 9,279 | 3,111 | 3,309 | 9,267 | 3,111 | 2,978 | |
| Financial expenses, convertible bonds | –3,071 | –2,882 | 2,752 | –3,071 | –2,882 | 2,752 | |
| Impairment, shares in subsidiaries | – | – | – | 29,466 | – | – | |
| Other | –9 | 53 | – | – | – | 193 | |
| Total | 23,530 | 279,354 | 39,285 | 52,115 | 382,290 | 14,867 |
| Purchases and sales between Group companies | |||
|---|---|---|---|
| The following transactions took place between companies in the Group: | 2012 | 2011 | 2010 |
| Forward invoicing of costs, which is recognized as net revenues | |||
| Biolipox AB | 45,388 | 50,869 | 35,581 |
| Prostrakan AB | 451 | 1,275 | 270 |
| Kibion AB | 3,404 | 2,986 | 3,622 |
| Sale of services | |||
| Wagner Analysen Technik GmbH | 1,182 | 322 | - |
| Orexo UK Ltd | – | 1,172 | 3,716 |
| Pharmakodex Ltd | 1,008 | 774 | 85 |
| Kibion AB | 364 | 460 | 597 |
| Pharmacall | 2 | – | – |
| Total | 51,799 | 57,858 | 43,871 |
The Group has also indirectly received income via the joint venture as a result of royalties received for products that Prostrakan Ltd sells to the joint venture. The ProStrakan AB joint venture was divested during the year.
On April 7, 2010, Orexo issued a convertible debenture to Novo A/S, which used the funds to purchase shares on the market and become one of Orexo's major shareholders. When the decision was taken to make the issue, Novo did not have a holding or a seat on the Board of Directors.
The Group has no losses or doubtful credits on receivables from related parties.
| The following transactions have taken place between Orexo and Novo A/S in respect of the convertible debenture | 2012 |
|---|---|
| At the beginning of the year | 111,802 |
| Interest paid during the year | –8,478 |
| Interest expense | 8,892 |
| At year-end | 112,216 |
Remuneration and obligations in respect of pensions and similar benefits to Board members and the President.
See Note 28. No other transactions with related parties have taken place.
On August 1, Orexo AB obtained a controlling influence and thus control over the acquired German company Wagner Analysen Technik GmbH. The company was acquired by Orexo AB's subsidiary Kibion AB and consolidated in the Orexo Group as of the same date.
The acquisition strengthens Kibion's operation and creates significant opportunities for future growth and thus a stronger independent unit.
The goodwill of MSEK 16.0 that arose through the acquisition relates to the synergy effects that are expected to be attained by Kibion AB's and the acquired company Wagner Analysen Technik GmbH's operations.
The acquired company contributed net revenues of MSEK 4.6 and a net loss of MSEK 0.2 for the period August 1 to December 31, 2011.
Had the acquisition taken place on January 1, 2011, the Group's net revenues would have been MSEK 2.6 higher and net earnings for the period MSEK 3.5 lower.
The acquisition was financed through a bank loan.
The acquisition also includes additional conditional payments based on sales revenues.
The Group has made a provision corresponding to the expected outcome. However, there is a ceiling regulating the size of the additional purchase price, which has been set at a maximum of MEUR 4.
The cost is MSEK 14.3. Costs related to the acquisition amount to MSEK 0.8 and are recognized under administrative expenses.
| net loss of MSEK 0.2 for the period August 1 to December 31, 2011. | |
|---|---|
| Acquired net assets and goodwill (MSEK): | |
| Purchase price | 10.0 |
| Additional purchase price | 4.3 |
|---|---|
| Total purchase price | 14.3 |
| Fair value of acquired net assets | –1.7 |
| Goodwill | 16.0 |
| The assets and liabilities included are as follows (MSEK): | Fair value | Acquired carrying amount |
|---|---|---|
| Tangible fixed assets | 0.1 | 0.1 |
| Inventories | 0.6 | 0.6 |
| Current receivables | 7.2 | 7.2 |
| Cash and cash equivalents | 0.2 | 0.2 |
| Current liabilities | –9.8 | –9.8 |
| Acquired net assets | –1.7 | –1.7 |
Orexo entered into an agreement with Astra Zeneca regarding OX-CLI.
Nikolaj Sørensen was appointed as the new CEO after Anders Lundström stepped down.
The license agreement on OX17 between Novartis AG and Orexo was terminated.
Orexo sold Abstral® in the USA to Galena Biopharma Inc.
Orexo AB (publ) has its registered office in Uppsala, Sweden, and the address of the company's head office is Virdings allé 32 A, SE-751 05 Uppsala, Sweden, telephone +46 (0)18 780 88 00.
The statements of operations and balance sheets will be subject to adoption at the Annual General Meeting to be held on April 11, 2013.
The Board of Directors and President hereby give their assurance that the consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, and present a true and fair view of the Group's financial position and earnings. The Annual Report has been prepared in accordance with generally accepted accounting principles and presents a true and fair view of Parent Company's financial position and earnings.
The Board of Directors' Report for the Group and the Parent Company presents a true and fair review of the Group's and the Parent Company's operations, financial positions and earnings and describes the significant risks and uncertainties facing the Parent Company and the companies included in the Group.
Uppsala, March 19, 2013
Orexo AB (publ)
Martin Nicklasson Chairman of the Board
Raymond Hill Board Member
Scott Myers Board Member
Michael Shalmi Board Member
Staffan Lindstrand Board Member
Kristina Schauman Board Member
Nikolaj Sørensen President
Our audit report was submitted on March 19, 2013.
PricewaterhouseCoopers AB
Lars Kylberg Authorized Public Accountant
To the annual meeting of the shareholders of Orexo AB (publ) Corporate identity number 556500-0600
We have audited the annual accounts and consolidated accounts of Orexo AB for the year 2012. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 7-66.
The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2012 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2012 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Orexo AB for the year 2012.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We recommend to the annual meeting of shareholders that the loss be dealt with in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.
Uppsala, March 19, 2013
PricewaterhouseCoopers AB
Lars Kylberg Authorized Public Accountant
Key figures and certain other operational information and information per share have been defined as follows:
| Number of shares after dilution | – Calculation of dilution from options issued by the company until 2005 has been made in accordance with IAS 33. |
|---|---|
| Return on total capital | – Operating profit/loss plus financial income as a percentage of average total assets. |
| Return on shareholders' equity | – Profit/loss for the period as a percentage of average shareholders' equity. |
| Return on employed capital | – Operating profit/loss plus financial income as a percentage of average capital employed. |
| Current ratio | – Current assets as a percentage of current liabilities. |
| Gross margin | – Gross profit divided by net revenues. |
| EBITDA | – Earnings before interest, taxes, depreciation, and amortization. |
| Shareholders' equity per share, before dilution |
– Shareholders' equity divided by total number of shares before dilution at the end of the period. |
| Shareholders' equity per share, after dilution |
– Shareholders' equity divided by total number of shares after dilution at the end of the period. |
| Average number of employees | – Average number of full-year employees for the period. |
| Cash flow from operating activities per share, before dilution |
– Cash flow from operating activities divided by the average number of outstanding shares before dilution. |
| Cash flow from operating activities per share, after dilution |
– Cash flow from operating activities divided by the average number of outstanding shares after dilution |
| Acid-test ratio | – Current assets, excluding inventories, as a percentage of current liabilities. |
| Capital turnover rate | – Net revenues divided by average operating capital. |
| Net debt | – Current and long-term interest-bearing liabilities, including pension liabilities, less cash and cash equivalents. |
| Operating capital | – Total assets, less non-interest-bearing liabilities and provisions less cash and cash equivalents. |
| Earnings per share, before dilution | – Profit/loss for the period divided by the average number of outstanding shares before dilution. |
| Earnings per share, after dilution | – Profit/loss for the period divided by the average number of outstanding shares after dilution. |
| Return on equity | – Profit/loss for the year divided by average shareholders' equity. |
| Interest-coverage ratio | – Profit/loss after financial items plus interest expenses and similar items, divided by interest expenses and similar items. |
| Working capital, net | – Non-interest-bearing current assets less non- interest-bearing current liabilities. |
| Working capital, net/net revenues | – Average working capital, net, divided by net revenues. |
| Operating margin | – Operating profit/loss as a percentage of net revenues. |
| Debt/equity ratio | – Interest-bearing liabilities divided by shareholders' equity. |
| Equity/assets ratio | – Shareholders' equity as a percentage of total assets. |
| Capital employed | – Interest-bearing liabilities and shareholders' equity. |
| Profit margin | – Profit/loss after financial items expressed as a percentage of net revenues. |
Orexo is a Swedish public limited liability company with registered offices in Uppsala, Sweden and its share is listed on the NASDAQ OMX (Small Cap) Stockholm. Corporate Governance in Orexo is based on applicable legislation, the Swedish Code of Corporate Governance ("the Code") and internal regulations and guidelines. The Code is available at www.corporategovernanceboard.se. Orexo applies the Code with one deviation.
The aim of corporate governance at Orexo is to create a clear division of roles and responsibilities between shareholders, the Board of Directors and Executive Management.
The company's auditors reviewed this report.
The governance, management and control of Orexo are divided between the General Meeting of Shareholders, the Board of Directors and the President.
Swedish Code of Corporate Governance
Internal rules of significance for corporate governance Articles of Association
Shareholders Orexo's share has been listed on the NASDAQ OMX Stockholm (Small Cap) since 2005. At year-end, the total number of shares amounted to 29,946,332 (239,865,495), distributed among 3,588 (3,605) shareholders. The 10 largest shareholders held 62 (62) percent of the outstanding shares, corporate management 2 (2) percent and other shareholders 36 (36) percent. At December 31, 2012, two shareholders each held shares representing 10 percent or more of the company – Novo A/S, 24.0 percent and HealthCap, 18.5 percent. Non-Swedish shareholders accounted for approximately 45 (45) percent of the total number of shares. Institutions and industrial owners hold the majority of shares. At year-end, 81 (81) percent of shares were held by legal entities, and 19 (19) percent by private individuals.
Articles of Association The Articles of Association are adopted by the General Meeting of Shareholders and outline a number of mandatory tasks of a fundamental nature to the company. Notification of the convening of the General Meetings is issued through an advertisement being placed on Orexo's website and in Post- och Inrikes Tidningar (Official Swedish Gazette). Confirmation that a General Meeting has been convened shall be announced in the Svenska Dagbladet newspaper. The Articles of Association state that Orexo shall conduct research and development, and manufacture, market and sell pharmaceuticals and diagnostic preparations. Orexo's Articles of Association also state that the Board of Directors shall have its registered office in Uppsala, Sweden, and shall consist of a minimum of three and a maximum of nine members, with a maximum of three deputies. The Articles of Association contain no special provisions on the appointment or dismissal of Board members. Amendments to the Articles of Association are made in accordance with the provisions of the Swedish Companies Act following a resolution of the General Meeting. The complete Articles of Association are available at www.orexo.com.
General Meeting of Shareholders Orexo's highest decision-making body is the General Meeting, at which every shareholder who is entered in the share register and who has provided notification of their attendance within the stipulated time is entitled to participate and vote for the amount of shares held. Shareholders can also be represented by proxy at General Meetings. One share entitles the holder to one vote at General Meetings, and there are no limits as to how many votes each shareholder can cast at a General Meeting. Resolutions at General Meetings are passed with a simple majority, unless the Companies Act stipulates a higher percentage of the shares and votes represented at the Meeting.
The Annual General Meeting elects members to the Board of Directors and sets Board fees. The other mandatory tasks of the Annual General Meeting include adopting the company's balance sheet and income statement, passing resolutions on the appropriation of earnings from operations, remuneration guidelines for senior executives and decisions concerning discharge from liability for Board members and the President. The Annual General Meeting also chooses the company's auditor and sets the auditors' fees. In accordance with the Articles of Association, the Annual General Meeting shall be held in either Uppsala or Stockholm.
Annual General Meeting 2012 The Annual General Meeting was held on Wednesday, April 11, 2012 in Uppsala. At the Meeting:
Complete information about the 2012 Annual General Meeting can be found at www.orexo.com.
Extraordinary General Meeting on July 13, 2012 An Extraordinary General Meeting of Orexo was held on Friday, July 13, 2012 in Uppsala. At the meeting:
For further information on the resolutions and all the terms and conditions of the Board shareholder program, please refer to Orexo's website, www.orexo.com.
Annual General Meeting 2013 The Annual General Meeting of Orexo will be held on Thursday, April 11, 2013, at 5:00 p.m. at the company's premises at Virdings allé 32 A, Uppsala, Sweden.
Nomination Committee The 2012 Annual General Meeting adopted a resolution that the Company should have a Nomination Committee. The Nomination Committee represents the company's shareholders. It is tasked with creating the best possible basis for the General Meeting's resolutions regarding the election of Board members and Board fees and with submitting proposals concerning, for example, the appointment of auditors and auditors' fees. The Nomination Committee comprises representatives of the four largest shareholders in terms of voting rights on the final banking day in August 2012, in addition to the Chairman of the Board. The composition of the Nomination Committee was announced on Orexo's website and in a press release on October 11, 2012. As a number of those contacted prior to the Annual General Meeting 2013 concerning participation on the Nomination Committee declined to participate, the number of representatives amounted to three, in addition to the Chairman. The Committee held 1 (1) meeting during the year.
Through the Chairman of the Board, the Nomination Committee reviewed the evaluation of the Board's work and received information regarding developments in the company. The principal requirements to be imposed on the Board of Orexo and the importance of independent Board members were discussed. No special remuneration was paid for participation in the Nomination Committee.
| Representatives |
|---|
| Novo A/S, and Chairman of the Nomination Committee |
| HealthCap |
| Arbejdsmarkedets Tillaegspension (ATP) |
| Chairman of the Board of Orexo |
Combined, the Nomination Committee represents about 49 percent of the number of shares and votes in the company, based on shareholder data at the time of appointment.
Board of Directors The Board's responsibility is regulated in the Companies Act and the formal work plan that is established annually. The formal work plan establishes the division of the Board's work between the Board in its entirety and the Board's various committees and between the Board and the President. It also sets out the items to be addressed at Board meetings and the manner in which the President provides the Board with information and reports. The Board has appointed Audit and Remuneration Committees from within its ranks.
At year-end, Orexo's Board of Directors consisted of Chairman Martin Nicklasson and Board members Raymond G. Hill, Staffan Lindstrand, Michael Shalmi, Kristina Schauman and Scott Myers. For a more detailed description of Board members, please refer to page 76.
The work of the Board The Board's formal work plan establishes the items to be addressed at the scheduled Board meetings. Following presentations by the Audit Committee and President, the Board reviews all interim reports prior to publishing. The company's long-term targets and strategy and its budget are evaluated and approved by the Board. At each Board meeting, the President or another senior executive reports on the business situation and the status of development projects.
In addition to the statutory Board meeting, at least six scheduled Board meetings must be held. At the Board meeting during which the annual audit is to be considered, the Board meets with the auditors without the presence of any employees of the company.
It is incumbent upon the Board to ensure that the guidelines for remuneration to senior executives approved by the Annual General Meeting are followed and that the Annual General Meeting proposes guidelines for remuneration to senior executives.
Each year, the Board's work is evaluated by way of discussions and through external assessment. The results of the evaluation are presented to the Board and Orexo's Nomination Committee and forms the basis for proposals for Board members.
In matters concerning ownership, Orexo is represented by the Chairman of the Board.
During the year, the Board held 15 (16) meetings, of which 6 (7) were telephone conferences or meetings by circulation. The Board mainly addressed and resolved on issues concerning the company's strategic direction, the status of projects, research collaboration, licensing of projects, the follow-up of financial performance, investment matters, external reporting, budget planning and follow-up, the program for the repurchase of the company's own shares which was initiated during the third quarter, and the restructuring of the license agreement with ProStrakan concerning Abstral®. These issues are addressed by the Board in its entirety, or in certain instances by Executive Management. Orexo's auditor participated at the Board meeting that approved the financial statements and presented the audit at this meeting.
Remuneration of the Board The Annual General Meeting resolved that Board fees should amount to SEK 1,650,000, of which SEK 600,000 was to be paid to the Chairman of the Board, SEK 300,000 to Raymond G. Hill and SEK 150,000 to each of the other Board members, and a total of SEK 150,000 to be divided among the members of the Audit Committee so that the Chairman receives SEK 100,000 and the other committee members share SEK 50,000. At the Extraordinary General Meeting held on July 13, 2012 it was resolved that the Board fee to Raymond G. Hill should be reduced by SEK 150,000 and that a Board shareholder program should be introduced for the independent Board members.
| Composition of the Board | Present at Board | Present at Remuneration |
Present at Audit | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Name Martin Nicklasson* |
Function Chairman of the Board |
Independent | Elected 2012 |
meetings 11/11 |
Committee 1/1 |
Committee 4/4 |
|||
| Håkan Åström** | Chairman of the Board | 2003 | 4/4 | 1/1 | 1/1 | ||||
| Scott Myers *** | Board member | 2012 | 9/11 | – | – | ||||
| Kristina Schauman*** | Board member | 2012 | 11/11 | – | 4/4 | ||||
| Michael Shalmi | Board member | 2010 | 14/15 | 1/2 | 1/1 | ||||
| Raymond G. Hill | Board member | 2008 | 12/15 | 1/2 | – | ||||
| Staffan Lindstrand | Board member | 2002 | 13/15 | 1/1 | 5/5 | ||||
| Bengt Samuelsson**** | Board member | 2008 | 3/4 | – | – | ||||
| Kjell Strandberg**** | Board member | 2003 | 4/4 | – | – |
* Chairman of the Board as from 2012 Annual General Meeting
** Chairman of the Board up until 2012 Annual General Meeting
*** Board member as from 2012 Annual General Meeting **** Board memeber up until 2012 Annual General Meeting
Independent in relation to Orexo and its management
Independent in relation to Orexo, its management and the company's largest shareholders
Composition of the Board Board members, their positions and whether or not they are considered to be independent in relation to Orexo, its management and the company's largest shareholders are stated in the table above. Orexo's Board of Directors is deemed to have satisfied the requirements of the Code in respect of independence, as all members elected by the Meeting have been deemed to be independent in relation to Orexo and its management and all of these members, with the exception of two, have also been deemed to be independent in relation to the company's largest shareholders.
Audit Committee Orexo's Audit Committee is primarily concerned with ensuring compliance with established principles for financial reporting and internal controls. The Audit Committee must also remain informed about the audit of the Annual Report and consolidated accounts, inspect and monitor the impartiality and independence of the auditor, paying particularly close attention to instances where the auditor provides the company with services outside the scope of the audit, and assist in the preparation of proposals to the General Meeting in respect of auditor selection. The Audit Committee presents the final version of Orexo's interim reports and of the Annual Report to the Board for approval and publication. The Audit Committee meets prior to the publication of each interim report, in connection with budget reviews and when otherwise necessary. The aforementioned issues are addressed by the Committee and the Board makes resolutions on the basis of the proposals produced. Orexo's auditor attends the meetings of the Audit Committee before the publishing of the interim reports and to carry out internal control. During the year, the Audit Committee was convened on 5 (5) occasions. At least one of the members of the Committee must be independent in relation to the company and Executive Management, and also be independent in relation
to the company's largest shareholders and have accounting or auditing expertise. The Committee is currently made up of Kristina Schauman (Chair), Martin Nicklasson and Staffan Lindstrand.
Remuneration Committee The Remuneration Committee is tasked with addressing matters concerning salaries and other terms of employment, pension benefits and bonus systems, including any allocation of warrants under the terms of approved incentive programs for the President and the managers who report directly to him, as well as remuneration issues based on principle. The Committee shall meet as often as required. The above issues are addressed by the Committee and the Board makes resolutions on the basis of the proposals from the Committee. The Committee should comprise the requisite knowledge and expertise to deal with issues related to the remuneration of senior executives. The Remuneration Committee comprises Martin Nicklasson (Chairman), Michael Shalmi and Raymond G. Hill. During the year, the Remuneration Committee was convened on 2 (2) occasions.
Evaluation of the Board's work The work of the Board, similar to that of the President, is evaluated annually in a systematic and structured process. The Nomination Committee is informed of the results of the evaluation.
President and Executive Management The President leads the work of the Executive Management team and makes decisions in consultation with the rest of the management. At the end of 2012, Executive Management consisted of eight people. The Executive Management team holds regular meetings under the supervision of the President.
Deviation from the Swedish Code of Corpoarte Governance As a result of the successful acquisition of the American rights to Abstral® and the planned launch of Zubsolv™, Orexo has created the foundation for establishing a successful commercial presence in the USA. In order to be successful in this work to the greatest possible extent and thus ensure optimal return to Orexo's shareholders, Novo A/S and HealthCap consider that it is necessary and desirable to tie the independent Board members closer to the company. The Board members can thus support management and
Orexo can draw operative benefit from the Board members' competence and personal networks in coming analyses and decision processes with regard to Orexo's future. In order to compensate, remunerate and motivate the independent Board members to assist in the extra work required by this process of change, a resolution was passed at the Extraordinary General Meeting held on July 13, 2012 to adopt the Board shareholder program 2012/2017.
Internal governance, control and risk management concerning financial reporting are fundamental factors in Orexo's business control.
The aim of Orexo's risk management systems and processes is to ensure that the shareholders can have the utmost confidence in the financial operation and presented reports, including the information given in this Annual Report and all interim reports. Orexo has established a methodology for developing, implementing, driving and evaluating internal controls and risk management in respect of all parts of the company, including financial reporting.
This methodology conforms to internationally established standards in the industry and comprises a framework with five principal components: control environment, risk assessment, control activities, information and communication, and follow-up and evaluation.
Control environment Pursuant to the Swedish Companies Act, the Board of Directors is responsible for the internal control and governance of the company. To maintain and develop a functional control environment, the Board has implemented a process of risk mapping and established a number of basic control documents and procedures that are of importance to financial reporting. These include the Formal work plan for the Board of Directors and the Terms of reference for the President, and accounting and reporting instructions, which are reviewed and approved annually by the Board.
In addition, the control environment is continuously updated and secured by means of continuous monitoring and regular evaluations of risk profiles within various functions.
Responsibility for the daily work of maintaining the control environment is primarily incumbent on the President. He reports regularly to the Board of Directors and the Audit Committee pursuant to established procedures. In addition, the Board also receives regular reports directly from the company's auditor. Company managers have defined authorities, control functions and responsibilities within their respective areas for financial and internal controls.
Risk assessment Orexo regularly conducts extensive evaluations of financial risks and other risks that may impact financial reporting. These reviews extend to all parts of the company and are carried out to ensure that there is no significant risk of errors occurring in financial reporting. There are several areas where the control of financial information is particularly important, and Orexo has established a
comprehensive risk layout that highlights a number of key potential risks in the financial reporting system.
The company continuously monitors and evaluates these areas and regularly examines other areas in order to create a comprehensive set of control procedures that will minimize the risks in these areas. In addition, new and existing risks are identified, addressed and regulated through a process of discussion in forums such as the Executive Management team, Board and Audit Committee.
Control activities In light of the risks identified in the risk layout, and the continuous monitoring of the methods used to manage financial information, Orexo has developed control activities that ensure good internal control of all aspects of financial reporting. A number of policy documents and procedures have been applied throughout the year to manage reporting and accounting. Standard procedures, attestation systems, financial guidelines and the risk layout are examples of such policy documents.
An additional level of control in the financial system has been achieved by separating the company's financial and controller functions. These units are responsible for ensuring that financial reporting is correct, complete and timely. Orexo strives to continually improve its internal control systems and has, on occasion, engaged external specialists when validating these controls.
Information and communication Orexo is a listed company in one of the most regulated markets in the world – healthcare. In addition to the highly exacting requirements that NASDAQ OMX Stockholm and the supervisory authorities impose on the scope and accuracy of information, Orexo also employs internal information and communication control functions designed to ensure that correct financial and other corporate information is communicated to employees and other stakeholders.
The Board receives monthly reports concerning financial performance, the status of Orexo's development projects and other relevant information.
The corporate intranet provides detailed information about applicable procedures in all parts of the company and describes the control functions and how they are implemented. The security of all information that may affect the market value of the company and mechanisms to ensure that such information is
communicated in a correct and timely fashion are the cornerstones of the company's undertaking as a listed company. These two factors, and the procedures for managing them, ensure that financial reports are received by all players in the financial market at the same time, and that they provide an accurate presentation of the company's financial position and performance.
Follow-up Orexo's management conducts a monthly performance follow-up, with an analysis of deviations from the budget and the preceding period. Orexo's controller function also conducts monthly controls, evaluations and follow-ups of financial reporting. Because much of the company's product development is carried out in project form, these are followed up on a continuous basis from a financial perspective. The Board of Directors and the Audit Committee review the Annual Report and interim reports prior to publication. The Audit Committee discusses special accounting policies, risks and other issues associated with the reports. The company's external auditor also participates in these discussions.
Orexo has no separate auditing function (internal audit). The Board annually evaluates the need for such a function and, considering the size and structure of the company where essentially the company's entire operations are conducted from its head office in Uppsala, Sweden, has found no basis for establishing such a separate auditing function. The Board of Director's followup of the internal control over financial reporting is mainly carried out through the Audit Committee. All of the company's interim reports are reviewed by the auditors.
Further information about Orexo's corporate governance The following information is available at www.orexo.se (in Swedish) and www.orexo.com (in English): Articles of Association
It is the Board of Directors who is responsible for the Corporate Governance Statement for the year 2012 on pages 68-74 and that it has been prepared in accordance with the Annual Accounts Act.
We have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the Corporate Governance Statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.
In our opinion, the Corporate Governance Statement has been prepared and its statutory content is consistent with the annual accounts and the consolidated accounts.
Uppsala, March 19, 2013
PricewaterhouseCoopers AB
Lars Kylberg Authorized Public Accountant
Board member since 2012 M.Sc. Pharm. PhD and Associate Professor at the Faculty of Pharmacy, Uppsala University. Other appointments: Chairman of Farma Holding AS and board member of Pozen Inc., Oasmia AB, Biocrine AB and Denator AB. Member of the Royal Academy of Engineering Sciences (IVA). Previous appointments: CEO at Swedish Orphan Biovitrum AB 2007-2010. Astra/AstraZeneca 1978–1989 and 1991–2007, among other responsible for global drug development and marketing and business development within AstraZeneca, and CEO at AstraZeneca Sweden AB. CEO at Astra Hässle AB and responsible for R&D within KABI.
Holds 3,000 shares and stock options entitling to 135,000 shares.
4. Scott Myers (b. 1966) Board member since 2012. BA in Biology and MBA in Finance. Other appointments: CEO at Aerocrine AB. Previous appointments: VP, Head of European Mid-Markets at UCB, senior positions at Johnson & Johnson including Senior Vice President and General Manager of McNeil Specialty Products. Holds stock options entitling to 45,000 shares.
B. Pharm., Ph.D., D.Sc (Hon) F. Med. Sci. Other appointments: Visiting Professor at Bristol, Surrey, Imperial and Strathclyde Universities. President Emeritus at the British Pharmacological Society; Member of Council and Trustee, Academy of Medical Sciences. Non-Executive Director of Addex, Covagen and Karolinska Development.
Previous appointments: 25 years of experience from pharmaceuticals industry, mostly in basic drug discovery research, initially for Parke Davis, followed by Smith Kline & French and then Merck. Executive Director of Pharmacology at the Neuroscience Research Centre 1990-2002, followed by a position as Executive Director, Licensing and External Research, Europe for Merck.
Holds stock options entitling to 60,688 shares.
5. Staffan Lindstrand (b. 1962) Board member sin 2002. M.Sc. in Engineering. Other major appointments: Partner of HealthCap and Board member of HealthCap AB, Aerocrine AB, PulmonX Inc. and 20/10 Perfect Vision AG. Previous appointments: Ten years in investment banking. Holds 963 shares indirect.
3. Kristina Schauman (b. 1965) Board member since 2012 B.Sc. Business and Economics. Other major appointments: Board member and Chairman of the Audit committee of Apoteket AB and ÅF AB, Board member of Skandia Liv and Member of the Advisory Board of Rädda Barnen
Sweden. Previous appointments: CFO at OMX, Carnegie, Apoteket AB, CEO at Apoteket AB and Group Treasurer at Investor AB. Board member of Vasakronan AB and Apoteket Pension Trust. Holds 10,000 shares and stock options entitling to 45,000 shares.
Board member since 2010 M.D., MBA. Other appointments: Senior Partner in Novo A/S investment unit Novo Growth Equity, Previous appointments: 15 years at Novo Nordisk; V.P. International Marketing, Corporate VP Haemostasis and Chief Medical Officer BioPharm, V.P. of Haematology Business Unit, V.P. BioPharm Business Unit, and Corporate V.P. Global Development, Clinical Operations Management at Novo Nordisk HQ. Does not hold any shares in Orexo.
1. Nikolaj Sørensen (b. 1972) Chief Executive Officer since February 2013, employed since 2011.
M.Sc. Business and Economics.
Previous appointments: International commercial experience of the pharmaceuticals industry from Pfizer and Boston Consulting Group (BCG). Board member of the Swedish Pharmaceutical Industry Association (LIF).
Holds 13,770 shares and stock options entitling to 110,000 shares.
4. Thomas Lundqvist (b. 1951) Executive Vice President and Founder of Orexo. M.Sc. Pharm.
Previous appointments: Board member 1995– 2003 and President 1997–2002 and for five months in 2003–2004. President of NeoPharma Production AB and ten years' experience of working at the Swedish Medical Products Agency.
Holds 495,250 shares and stock options entitling to 185,000 shares.
7. Eva Idén (b. 1966) Acting Chief Operating Officer since 2012. M.Sc. Chemical Engineering. Previous appointments: Extensive experience from Astra and AstraZeneca as Head of API Supply, Head of UK Operations and Head of Global Projects/Change Management. Does not hold any shares in Orexo.
2. Carl-Johan Blomberg (b. 1952) SVP & Chief Financial Officer since 2011. B.Sc. Business and Finance. Other appointments: Board Member at Pfizer Pension Trust Sweden and Alfa-Laval Pension Trust.
Previous appointments: CFO at Micronic Mydata, Corp Treasurer at Alfa-Laval, Procordia and Pharmacia & Upjohn.
Holds stock options entitling to 100,000 shares.
5. Åsa Holmgren (b. 1965) Head of Regulatory Affairs since 2008. M.Sc. Pharm.
Previous appointments: Extensive experience of several major pharmaceutical companies, including AstraZeneca, and mainly international, strategic assignments within Regulatory Affairs. Holds stock options entitling to 77,500 shares.
3. Peter Edman (b. 1954) Chief Scientific Officer since 2012. Ph.D. and Associate Professor in Biochemistry Previous appointments: Extensive experience from senior positions within research and development at Sobi, Biovitrum, AstraZeneca, Astra and Pharmacia. Director at the Swedish Medical Product Agency. Professor in Pharmaceutical Formulation and, for several years, Adjunct Professor in Drug Delivery. Holds stock options entitling to 125,000 shares.
6. Marie Zachrisson (b. 1963) Director of Human Resources since 2011. B.Sc. Human Resources. Previous appointments: Extensive HR experience from Ericsson AB, OMX and Inera AB. Holds stock options entitling to 20,000 shares.
President and Chief Executive Officer from February 2011 to February 2013. M.Sc. Pharm.
The tables below present financial information for the Orexo Group for the fiscal years 2008 to 2012.
| Statement of operations information | |||||||
|---|---|---|---|---|---|---|---|
| Net revenues | 2012 326.3 |
2011 199.6 |
2010 210.5 |
2009 236.1 |
2008 233.3 |
||
| Cost of goods sold | –27.9 | –29.0 | –26.3 | –23.6 | –17.4 | ||
| Gross profit Selling expenses |
298.4 –62.0 |
170.6 –50.1 |
184.2 –35.2 |
212.5 –39.3 |
215.9 –38.8 |
||
| Administrative expenses | –82.6 | –49.6 | –46.8 | –46.3 | –55.3 | ||
| Research and development costs | –216.2 | –194.4 | –161.1 | –222.2 | –238.1 | ||
| Other operating income and expenses | –17.1 | –268.0 | -22.8 | –3.8 | 3.8 | ||
| –79.4 | –391.5 | –81.8 | –99.1 | –112.5 | |||
| Operating earnings Net financial items |
–8.2 | –7.9 | –7.5 | 2.1 | 9.0 | ||
| Earnings after financial items Income tax |
–87.6 1.7 |
–399.4 7.4 |
–89.3 – |
–96.9 –1.1 |
–103.5 0.4 |
||
| Net earnings for the year | –85.9 | –392.0 | –89.3 | –98.1 | –103.1 |
| Balance sheet information | |||||
|---|---|---|---|---|---|
| Intangible fixed assets | 2012 135.2 |
2011 150.9 |
2010 407.4 |
2009 447.0 |
2008 392.0 |
| Tangible fixed assets | 35.1 | 39.2 | 41.7 | 45.8 | 50.3 |
| Financial fixed assets | 18.5 | – | – | – | – |
| Inventories | 28.3 | 26.7 | 8.0 | 8.4 | 14.0 |
| Accounts receivable | 17.5 | 56.9 | 99.2 | 31.8 | 28.8 |
| Other current assets | 19.1 | 25.5 | 20.6 | 28.9 | 28.7 |
| Cash and bank balances | 228.1 | 246.9 | 135.8 | 87.4 | 188.2 |
| Total assets Shareholders' equity |
481.8 191.2 |
546.1 311.1 |
712.7 468.2 |
649.3 548.6 |
702.0 569.8 |
| Interest bearing liabilities | 120.6 | 120.9 | 103.9 | 16.0 | – |
| Non interest bearing liabilities and provisions | 170.0 | 114.1 | 140.6 | 84.7 | 132.2 |
| Total shareholders' equity and liabilities | 481.8 | 546.1 | 712.7 | 649.3 | 702.0 |
| Cash flow information Cash flow from operating activities before changes in working capital |
–61.0 | –117.2 | –49.4 | –79.3 | –91.2 |
|---|---|---|---|---|---|
| Cash flow from changes in working capital | 89.7 | – | 6.4 | –54.6 | –10.3 |
| Cash flow from operating activities | 28.7 | –117.2 | –43.0 | –133.9 | –101.5 |
| Acquisition of tangible assets | –5.8 | –4.7 | –3.4 | –3.2 | –1.6 |
| Acquisition of subsidiaries | – | –10.3 | – | 24.7 | –0.3 |
| Sale of tangible assets | 0.6 | – | – | – | – |
| Sale of joint venture | 12.1 | – | – | – | – |
| Cash flow after investing activities | 35.6 | –132.3 | –46.4 | –112.4 | –103.4 |
| Funds from issue of convertible bonds | – | – | 111.2 | – | – |
| Amortization of loans | –2.3 | – | –16.0 | – | – |
| Borrowings | – | 11.7 | – | 16.0 | – |
| New share issues | 0.8 | 232.0 | – | 0.1 | – |
| Buyback of shares | –53.0 | ||||
| Cash flow for the year | –18.9 | 111.5 | 48.8 | –96.3 | –103.4 |
| Cash and cash equivalents at year-end | 228.1 | 246.9 | 135.8 | 87.4 | 188.2 |
| Key figures | |||||
|---|---|---|---|---|---|
| Growth in net revenues, % | 2012 63.5 |
2011 –5.2 |
2010 –10.8 |
2009 1.2 |
2008 204.0 |
| Margins and profitability Gross margin, % |
91.4 | 85.5 | 87.5 | 90.0 | 92.5 |
| Profit margin, % | –26.8 | –200.1 | –42.4 | –41.0 | –44.4 |
| Operating margin, % | –24.3 | –196.1 | –38.8 | –42.0 | –48.2 |
| Return on total capital, % | –13.9 | –52.7 | –11.9 | –13.7 | –13.9 |
| Return on shareholders' equity, % | –32.8 | –77.7 | –17.9 | –17.0 | –16.8 |
| Return on capital employed, % | –19.9 | –63.3 | –14.2 | –15.7 | –16.9 |
| Capital structure Working capital, net, MSEK |
–92.8 | 1.7 | –2.7 | 5.3 | –50.3 |
| Working capital, net/net revenues, % | –14.0 | –0.2 | 0.6 | –9.5 | –23.8 |
| Operating capital, MSEK | 83.7 | 185.2 | 436.3 | 477.2 | 381.6 |
| Capital turnover rate, multiple | 242.7 | 64.2 | 46.1 | 55.0 | 61.3 |
| Shareholders' equity, MSEK | 191.2 | 311.1 | 468.2 | 548.6 | 569.8 |
| Net debt, MSEK | -107.5 | –125.9 | –31.9 | –71.4 | –188.2 |
| Debt/equity ratio, multiple | 63 | 39 | 22.2 | – | – |
| Equity/assets ratio, % | 39.7 | 57.0 | 65.7 | 84.5 | 81.2 |
| Current ratio | 173.5 | 301.4 | 188.3 | 233.7 | 213.2 |
| Acid-test ratio | 156.7 | 278.8 | 182.6 | 221.1 | 201.7 |
| Interest coverage ratio, multiple | Neg | Neg | Neg | Neg | Neg |
| Employees Average number of employees |
111 | 110 | 105 | 124 | 123 |
| Number of employees at year-end | 97 | 118 | 105 | 108 | 128 |
| Personnel expenses, MSEK | 138.1 | 117.6 | 120.3 | 128.6 | 128.5 |
| Data per share Before dilution |
|||||
| Average number of shares, thousands | 29,449 | 27,167 | 23,403 | 22,715 | 21,617 |
| Number of shares at end of period, thousands | 28,825 | 29,865 | 23,404 | 23,401 | 21,617 |
| Earnings per share after tax, SEK | –2.92 | –14.43 | –3.81 | –4.3 | –4.8 |
| Shareholders' equity, SEK | 6.63 | 10.42 | 20.01 | 23.4 | 26.4 |
| Cash flow from operating activities per share, SEK | 0.97 | –4.32 | –1.84 | –5.90 | –4.69 |
| Dividend, SEK | – | – | – | – | – |
| After dilution | |||||
| Average number of shares, thousands | 32,101 | 29,706 | 25,501 | 23,801 | 22,689 |
| Number of shares at end of period, thousands | 31,645 | 32,371 | 25,943 | 24,488 | 22,685 |
| Earnings per share after tax, SEK | –2.92 | –14.43 | –3.81 | –4.3 | –4.8 |
| Shareholders' equity, SEK | 6.04 | 9.61 | 18.05 | 22.4 | 25.1 |
| Cash flow from operating activities per share, SEK | 0.89 | –4.32 | –1.84 | –5.90 | –4.69 |
2013 Annual General Meeting The Annual General Meeting of Orexo AB will be held on Wednesday, April 11, 2013 at 5:00 p.m. at Orexo AB, Virdings allé 32A in Uppsala, Sweden.
Registration, etc. Shareholders who wish to participate in the meeting must be recorded in the share register maintained by Euroclear Sweden AB on Friday April 5, 2013, and notify Orexo of their intention to attend the meeting not later than on Friday April 5, 2013 by post to Orexo AB, P.O. Box 303, SE-751 05 Uppsala, Sweden, by telephone +46 (0) 18 780 88 00, by telefax +46 (0) 18 780 88 88, or by e-mail to [email protected].
The notification shall set forth the name, personal/corporate identity number, the number of shares held, telephone number
Financial calendar 2013
| March 21, 2013 |
|---|
| April 11, 2013 |
| April 26, 2013 |
| July 12, 2013 |
| October 23, 2013 |
(daytime) and, where applicable, number of assistants (not more than two) that the shareholder intends to bring to the meeting. Shareholders to be represented by proxy should submit a power of attorney (original document) and a certificate of registration or equivalent together with the notification of attendance. A proxy form is available at www.orexo.com.
Shareholders whose shares are registered in the name of a nominee/custodian must temporarily re-register their shares in their own names to be entitled to participate in the meeting. Shareholders must inform their nominee/custodian of such reregistration well before Friday April 5, 2013 by which date such re-registration must have been executed.
Full information about the Annual General Meeting can be found on the company's website, www.orexo.com.
Contact Investor Relations Beata Augenblick +46 (0)18 780 88 00 [email protected]
A potent synthetic opioid analgesic drug, used for anaesthesia in surgery.
Procedure for lowering a patient's consciousness to enable a medical procedure to proceed without pain for the patient.
A short, intensive period of pain that occurs in addition to chronic levels of long-term pain even though these are treated by regular painkillers.
A strong, pain-relieving substance.
CLI Cysteinyl Leukotriene Inhibitor.
Studies of the safety and efficacy of a drug in human beings.
The process through which a pharmaceutical may be introduced to the patient that enables the active compound to function as intended.
An opioid with similar effect on human patients to morphine. Used mainly within anesthesia and analgesia.
Severe heartburn caused by leakage of stomach acid through the hiatus sphincter up into the oesophagus.
Examination of the stomach, oesophagus or duodenum.
Good Manufacturing Practice.
A bacterium that can infect the mucous membrane lining of the stomach.
A partnership in which companies combine assets or resources externally to form a new separate entity to work on the development of a project.
Something which sticks to the surface of the mucosa.
An opioid inverse agonist used to counter the effects of opioids.
Collective term for compounds that act via opioid receptors on nerve cells, mainly in the central nervous system.
Pain-relieving compound derived from synthetic or natural opium or morphine.
Prostaglandin (PG) E2 – biologically active mediator acting upon arachidonic acid locally in inflammatory conditions.
The processes by which a pharmaceutical is absorbed, distributed and eliminated by the body.
The characteristics or properties of a pharmaceutical, especially those which make it medically effective.
Studies mainly of the safety of a drug. Performed on healthy human volunteers.
Studies of the safety and efficacy of a drug and appropriate doses. Performed on a limited number of patients.
Studies of the safety and efficacy of a drug in a clinical situation. Performed on a large number of patients.
Studies of the safety and efficacy of a drug prior to evaluation in humans. Can be performed on animals and in various cell systems.
Hay fever.
Beneath the tongue.
Administration of a drug through the mucosa.
A pharmaceutical substance used to treat temporary or short-term insomnia.
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