Good afternoon, ladies and gentlemen, and welcome to OREON's Earnings Conference Call and Webcast for the Financial Period of January, June 2021. My name is Tuka Hirvonen, and I'm the Head of IR here at OREON. In a few moments, our CEO, Timo Lappalainen, will present the results of the period, after which you will have the opportunity to ask Questions from him and from our CFO, Jari Karlsson. We will first take questions through the conference call lines, But you have also the option to send us your questions through the chat function of the webcast, and we will then read those questions after we have And just before I let Timo to step in, I'd like to draw your attention to this Safe Harbor statement regarding forward looking statements. But without any further delays, it's my pleasure to invite Timo on the podium.
Timo, please.
Thank you, Tuka. So if we take the highlights for the first half this year, Certainly, one can say that, of course, the period was still placood By the COVID, Orion was able to operate throughout the period without major disruptions from the COVID. In terms of the financials, we were missing a substantial milestones as we had booked those in the comparable period. Nubeka, our proprietary product continued to show strong growth with our partnership with Bayer. Furthermore, Specialty Products, they had a good start for the year despite that we had the declined sale when we compare that to the comparison period because of the hoarding effect that we saw in the first half last year.
Also, our Animal Health Business developed very favorably, had good news despite that there was a major distribution ship arrangement that ended last year. And as many organizations, We are still hampered by the pandemic in terms that how well we can operate internationally And operating expenses were such lower than continued to be lower in the first half. The good news for the animal health is that European Medicine Agency have either recommended or approved Our 2 new products for animal health, Boncat for feline and TESIA for canine anxiety in certain conditions. We also reported positive results from our digital therapy study which is studied for pain alleviation. And as mentioned, COVID, we were able to continue our operation throughout the period.
We saw no material disruptions of availability of either intermediates, products or workforce. But as of course, as the pandemic continues, we cannot outrule such events. And securing the health and safety of employees, patients and many of our co workers, partners who work on the premises is a key priority for the company. In terms of the headline numbers, so net sales North of €500,000,000 shy of last year's numbers and when we had a very strong year for the first half. Also operating profit we came down.
However, meeting our operating profit margin target of 25%, so surprised that. And the cash flow per share was lower than last year and there were a couple of reasons to that. Of course, one of the reasons is that We continue to prioritize our capability of delivering products and that means higher inventories. Now if we look at the waterfall picture of how the net sales have evolved in the last 12 months with a comparable period, Certainly, the deck store sales, those were brought down, and that's something that we've indicated as a risk for this year. On the other hand, Nubeka as it of course should continue Plow Ahead showed a strong growth.
Also, Semdax has shown negative numbers here. The SIMDOGS is going to experience and generic competition, but that has been postponed couple months from what we earlier thought. Easihaler had a rough start for the year, but now it seems like things are moving ahead. But still for the first half, It was negative 5%. And then other human pharma, which includes pretty much everything else, We had showed a positive growth.
Exchange rate had only a very small effect this time, But as said, the royalties and milestones, those were a major component. That continued also, of course, to reflect in the bottom line when we look at the operating profit. So product sales, product mix contributed about €24,000,000 downward from the last year comparable number, but the milestone and royalties, those were a bulk of that. And then of course the fixed costs as the operations continue to be a little bit on the slower mode That then improved the profitability by €15,000,000 Then the geographical breakdown of the sales, When we look at the overall numbers compared to the last year, of course, there were substantial changes, especially we saw the hoarding effect and now some of the governments they are pushing back some of the inventories that they purchased last year. But in overall Not a major change when we look at the geographical distribution.
Then when we Split the sales the other way around and look at from the product perspective, we see that the specialty products, those actually fared fairly well Over the period, proprietary products, the reasons that I mentioned were the key aspects for the negative growth. And in terms of the animal health fared very well because the major contract that we lost last year, animal health was able to make up partly that. And then Fermion contract manufacturing, no material change with the exception of Fermion is running at the full capacity at this time. Then when we look at the top leak of the products, so eAS inhaler, Certainly, we showed a negative number there. Stalivo, Comtesse, Comtesse, Comtesse at par with last year And SIMDEX and DEXTOR showing negative numbers.
Nubeka now reaching position number 5 in the product table of Orion. And then a strong first half for the animal sedatives. This typically is that we may have shipments tilted on either half and this year it is a little bit more tilted towards the first half than evenly spread out. Then when we move to the Proprietary Products business. So Certainly, the EZhalers, those had a rough start for the year.
Parkinson about flat. And then the Simdex Dxtor as anticipated we have seen there the negative growth. Nubeka strong continued growth. So here are the quarterly numbers. And you may recall that our discussion earlier that How these are calculated, so it's a royalty including the product sales.
So then the royalties are adjusted always on following quarter depending how much material we have shipped to our partner Bayer, that's why it's not a straight line curve, But you will see a little bit volatility there depending on quarter. But strong start for the first half. The easy hailer here you see that there if one wants to if one looks at the 2nd quarter that was Picking up the business in the Q1 was a tough one. That was across the board for the whole market. And we have fared with the market at least as well in some cases a little bit better, but the second quarter was an improvement in that business already.
And then steady as she goes in Parkinson's franchise and there our own sales continue to contribute more. And as we may remember that we have opened up about a year ago our operation in Southeast Asia, where we market our own products and also of course now throughout Europe. And then the trend lines especially for DEXTOR, which is still a sedative that is used in case COVID patients are in admitted in ICU. So we see there a very strong volatility, which is very, very difficult to anticipate and forecast. But I think the overall trend line is Pretty clear.
Now with the SIMDACs, we anticipate that we will see first generic launches in the 3rd quarter That would have a material impact and probably 5 generic launches as we close the year. But of course that's not in our hands. We don't have any private to that information, but that's how we expect the things turn out. Then moving on to specialty products, so that's generics, OTC, non pharma. So Even though it was a tough comparison, we had a good start for the year and we are happy with the numbers given the circumstances and in even seeing growth in some territories in Eastern Europe and Russia.
And then the generic prescription products, slight minus number there. And in self care products as we have reported earlier on, we are actually missing a good old flu season because we all take care Washing our hands, keep social distancing, so that's a big question how that will evolve as we close the year. Will we see flu season in the Northern Hemisphere. In Finland, the largest country market and the reference price products, We were able to fare better than the market, so the market declined by 6%, whereas then Orion's Sure, we increased the market by 2 percentage points. And then when we look at the overall market, we continue to command roughly 25% in self care products and in the overall market 11% market share.
In then when we look at the future research and development, So the RSNs, the time line has been now updated and we expect to see the Headline results of the study later this year are a note, there is no update on that. So that will is actually recruiting as we speak. And then Orion's own, which we are doing by ourselves, 208,209, we've indicated earlier that we expect to make our decision on which compound to continue to Phase 3 by the end of this year and that is still something that we shoot for. In EZhaler, we are also continuing our development work for COPD product, Tyotropium and also evaluating a new product opportunity for Easyhela platform. We also evaluated would it make sense for Orion to develop a new platform and that work had continued for a few years.
But then we decided against that because we still feel that Easy Hilla is a very, very good Device, very competitive device and we have already numerous products, 6 products in the EZHaler platform, so we continue to work on that. And by the way, EZ inhaler is the 1st inhaler product that we understand, dry powder inhaler, which is carbon free. Okay. Key business targets for this year as we've updated The market every quarter, so our estimate for this year is that Nubeka will continue Well, doing well. We are very happy with the business how that's going on in Europe.
Of course, the RSN trial how that will turn out that's unknown. So we'll have to wait until we see the data. And also, we are having taken the IR note trial further That is proceeding as planned. ECAiler, as said, had a rough start for the year. So we'll have to see how this year will pan out.
We still are expecting growth, but let's see if that will be modest this year. Then as I mentioned, the 208, that decision whether to proceed with 208 or 209, that will be decision will be taken later this year. In Finland, we've been able to maintain and even strengthen our market position in prescription products. But as we saw, there is work still to be done in the OTC products. And in Scandinavia, we continue to push For the generic prescription products still work underway.
There is a large Program in in licensing new products and that's bread and butter that we do all the time for generic products, OTC products. We feel very strongly about also opportunities that would be fit for us in more proprietary side. But as we move forward and hopefully close those, then we'll obviously update the market also on those. Then the portfolio and real M and A there the work systematic work that we've had initiated that continues But there is nothing to report at this time. Then our corporate responsibility, These are 2020 numbers.
So the availability of products that's of course one of the prime reasons why we exist. We're happy to report that we had a satisfactory performance there also ensuring patient safety. This includes this composite Endpoint also the potential withdrawals from the market so that's why it's labeled yellow. Then in terms of the our share of the CO2, we are continuously investing in energy efficiency And by that reducing greenhouse emissions with a substantial numbers and that work is well underway including of course then the waste in all over. And then the our taking care of our own employees, The lost time injury rate is at the high end at our end and that is something that we are working on.
And then, of course, we work in an environment where the transparency is a code. And Code of conduct is something that we have been we've trained every employee. So we did not change the outlook. So the outlook for the year is that we estimate the net sales to be slightly lower than in the previous year and the operating profit lower or clearly lower than 2020. And also when you look at the key assumptions that are behind this outlook, of course, In terms of the positives, it is Nubeka, as we have shown.
There are other growing products as well, but the milestones you've seen how those flow Almost directly to the bottom line, that's an important part of that equation. Also, DECTOR and SIMDACS, We expect especially with regard to SIMDACs intensified competition as the year closes. Also the loss of the animal health distribution ship contract was something that we flagged late last year. Then the operating profit, of course, Nubeka is a positive sign. Also that the amortization For the acquisition of Parkinson's franchise from our long term partner Novartis here in Europe, those are now absent in our P and L.
So that helps us about €12,000,000 a year. As I said milestones, Dextor and Simdax that will be the pretty much the same as for the sales. And then the big question of course is that what will happen and how will The business activity pick up after the COVID or how we will see the remaining part of the year allow us to do activities visavis as an example customers. So, then the next Our scheduled event is the interim report for the Q3, end of October 20. And then we've already announced today that we expect to release the full year numbers February 10th and expect to hold the AGM in 23rd March next year.
At this stage, I'd invite our CFO, Jari Carlson to join me here to the podium and we are happy to take your questions. And as Tuukka here said, we will entertain first the questions from the phone lines. And then after that, after we've exhausted those, should you have preferred to send your question via chat, then Tuco will moderate those questions.
We have a question from the line of Peter Smith from Bank of America.
Peter Smith from Bank of America. I'll cut back. So on your expected cost in the Q4, what are your kind of base assumptions on the COVID situation and relaxation there built into those? And then second question, on the halting of Development of the new dry powder inhaler, what changed in the market or your market view that drove this? What was the new information that caused you to hold that after developing it for years?
Thanks very much.
Thank you. For the COVID, our expectation is today That we'd anticipate that starting from the end of third quarter, Q4, the things would start to resume back to normal ish. But having said that, We do not expect that any society would fully open and remain open. But the as an example, the visits to physicians, Hospitals, pharmacies, etcetera would probably continue to be a hybrid model. Also if we look at medical conferences, we'd expect at least this year still to continue to be pretty much either remote or Max hybrid model.
The one bigger question is that would we assume the recruitment Having still been curtailed by various hospitals, and that situation seemed to be improving. So the hospitals are not any more burdened by COVID patients. Of course, one has to respect that there is actually a patient pool That did not get the normal treatment during COVID time. So there's a little backstop of that. But more or less towards the end of the year that's our planning assumption in terms of the financials.
In terms of the inhaler, that was actually so we had worked on the new platform already several years. And we were quite advanced with that. But then when we started to put the numbers all together, looked at the market, We felt that either converting the entire Easyhaler business To the new platform, that would be quite an exercise and probably would not pay off. Also when we look at the new opportunities in the business, we felt more comfortable also From the risk management perspective that we'd continue to use well defined, well serving and robust Easy Header technology.
Our next question comes from the line of Jo Walton from Credit
A few quick ones, please. Firstly, on the Easyhaler, I if you could tell us a little bit more about how you think you're developing in the market. I know that you've said that you think that the respiratory market is very weak, But the innovative companies seem to be much more optimistic about the performance of The respiratory market in Europe, is it that there's been a move to a new generation of products, maybe offered it not much more than a generic price. And therefore, there's been less demand for some of the older generic products You've been able to put in the Easyhaler? Or if you could just tell us a little bit more about how you think your share has developed?
My second question is really on costs. You've emphasized your caution on the supply A number of times, and you say that you're not seeing much disruption now. When you forecast your sort of gross margin for the year, I assume that you were expecting slightly higher costs, which appear not to be coming through. So I'm just wondering Where you might be spending extra if you're not spending it there? Certainly doesn't look like at the moment you're spending it on SG and A.
And my final question, just you've said that you're going to make a decision about taking a partner on 208 or sorry, not taking a partner, On moving 208 or 209 forwards, how far do you think you'll take those yourself versus bringing a global partner on board? Many thanks.
Okay. If I'll take the first and the last one, then I'll Mark with the easy header. So I think the comment is a very good one. And the way we see that the innovative compounds as those are launched to the market they tend to be For a very narrow patient audience and for the ones whose COPD or asthma cannot be controlled by the existing products and thus warranting a more expensive treatment. And that certainly is when we look at the how the business is evolving, I think the volume still continues to be With the compounds that we already know and are typically generic, however, the value shift is certainly something that we are seeing as well.
And of course, many of the innovative companies use marketing tactics, pricing, generics At the low end and then converting business to the innovative products. So that is certainly something that we are seeing. But in terms of the volume, I think the volume growth underlying volume growth there, especially for Products that have been developed over some 60 years ago are still going to continue to plow ahead. But we saw the about 6 months period of time or 9 months when even the volumes came down. But now we are seeing the reverse of that and the market seems to be picking up.
But I think the notion of the value shift 2 innovative products, I think that's quite correct. Jari, you want to address the cost question?
Yes. I mean, if we think of the cost of goods side, I don't really think we have seen much difference in the actual compared to what we were expecting at the beginning of the year. And even if there are some changes, their role in the overall cost structure So it's fairly limited. So the worry has been more about the availability of the materials and the availability of the logistics, Transportation and 4th. So I don't really see that there's that much difference in the cost of goods Cost structure, at least from the material point of view.
And then, of course, one is to remember that fairly large part of the cost structure is the fixed cost. And the cost of running The plans, even though cost materials are all 4 major component, but Like I said, I mean, no major differences, which would really have had a material impact on our numbers so far.
Then the last question on the 208, 209 and the potential partnering there and how We would take forward the development. We are now as we speak, we are developing the plans already, of course, for the Phase 3 and how we would go about that. And we are prepared to make the decision and enter the Phase 3. We did The similar type of exercise when we look at the Nubeka, so we initiated the Phase III and only then partnered up the product with Bayer. And here really the big question from our perspective is that what type of position Our view, we would take towards the U.
S. Market. So that's really the driver there. Would we be prepared? What's The internal situation prepared to invest not only in the development of the product, but also the market access and later commercializing the product In the U.
S. Market or would we like to see somebody to share that with us? And we don't have specific schedule for that. We are not currently we are not looking for a partner. But as a public company you never say never.
So no decisions with that regard have been taken.
Thank you. And can I just go back on the cost, The SG and A, most companies last year, their SG and A was really held back In the second quarter because you were in the absolute teeth of the COVID pandemic? And most companies have indicated that they are Being a little bit more relaxed on their SG and A costs as they move into 2Q because they're seeing more opportunity for promotion. And yet you managed to lower your SG and A from 2Q last year to 2Q this year. So just A little bit on the outlook there.
And I do apologize, a very quick housekeeping. Is there any other product left in your portfolio that has a material royalty? Or is the royalty number that we see now essentially all Nubeka?
No, I mean, no, it's not only Nubeka. We have Still several products. I mean, Presadex is probably the largest of the other ones. But In Addison's press release, we have large number of smaller products which generate royalty income for us, but the second in LUPEKA currently is the largest one. And then, I mean, the SG and A, last year, we actually if we look at our cost structure, the first and second half from the G and A point of view were fairly similar.
So it was relatively flat. Now we have seen a little bit of decline. But then when looking at those numbers, one is Remember that last year, we had €12,000,000 of the amortization of the acquisition of the Stalewo and Comtester Rice in Europe a couple of years back from Novartis. And now that is gone. So that is, in our numbers, a relatively large variable.
And that probably explains, to some extent, Why the costs were down from last year during the first half of the year? So if you add 6 Or deduct €6,000,000 from our last year's cost, that gives a better comparison. So I guess That explains it a little bit. And then when it comes to the other side, outside of sales and marketing, the administration, that's, in our case, is pretty much Salary and personnel costs. So that's why there is the COVID really hasn't had that much impact on that part of the cost structure.
Thank you very
much. Now we have a question from the line of Sami Salkamias from Maria Markets. Please go ahead.
I have two questions. Firstly, starting from guidance. What are the main reservations for the second half The year as you chose not to upgrade your guidance at this point?
Well, if I'll speak for the second half, I mean, typically, when you look at the history of Orion, the second half has always been weaker than the first half. And that varies from 20% to almost 40% in some cases. And one of the there are two main reasons there. 1 is that the we have a plant closures In the second half, they tend to be in July typically. And then starting up the plants take some time, so that's a seasonality effect.
The other seasonality effect are really the summer time and also December as we see the of the patient numbers being admitted to hospital wards and also running down the hospital capacity, in some cases even physician capacity in the Continental Europe and also in Scandinavia in some cases. So those Two aspects are the main aspect why we see always this difference in the financial outcome Of the first quarters? Two halves, sorry.
And this year, on top of TOEFL, we, of course, are expecting the competition to hit the EXPLORENCE index sales during the second half compared to the first one. But those are on top of that, that normal seasonality.
That's an excellent point. So the both SIMDEX and Dxtor, We do not expect that the 2 halves would have comparable numbers.
Okay. That's very helpful. And then my second question may have been asked already, but I mean, there are some Technical difficulties early on in the call. But I mean, just would like to know your thoughts on the market normalization for Easy Hair and generics that are still suffering from COVID-nineteen. So at which point would you expect CFE at Normal level.
And in the meanwhile, do you anticipate a step up from current run rate During the second half of the year?
Yes. When we look at the second quarter and compare that With the Q2 last year, there is a certainly pickup of the market. And that seems to be also the at least in the Last weeks, the message that we get from the market, so the market seems to be picking up. Whether that how that will Pan out for the entire year, I think that's a big question. We expect that we would see growth there, but how much Can we barely go above the threshold that is still to be seen, but the market seem to be picking up as we speak now, and we expect stronger second half certainly.
So that's our baseline assumption as we speak.
And in case of EZEHALERS, we actually had the 2nd ever best second best ever quarter in the second quarter. So the Q1 last year was even better. But then when we look at this, it was actually from Easy Hiller business, one of the best 3 month period we ever had.
Yes. And maybe a follow-up. So did I understand right that you're expecting both generics and Easy Header sales To grow on fully 11.
I'm sorry, I mixed the generic. I was talking about the easy hitters. Thank you for correcting that. On the generics side there, the big question there is actually the how will The probably the 4th quarter turn out in terms of the Upper respiratory infections in the Northern Hemisphere because we have a substantial business not only in OTC, but also in antibiotics. And of course, last year, we didn't see that disease at all or in a very small numbers.
So should that take place, then there's a good opportunity that we continue to grow. But when we compare then This year to last year, in 12 month basis, the last year was in overall pretty much a normal one, Despite the first half was very exceptional, but then it leveled out. So There is a good opportunity that we would continue to grow in generics as well.
Yes. And in Finland, which, of course, is still the major part That business, the volumes have already been growing, but prices continue to come down. So the volumes really need to continue increasing in order to also see Growing monetary values of the business. So the trend, which has been going on for many years, Stuff seems to be continuing still this year as well.
Okay. Thank you very much. I don't have any further questions.
Our next question comes from the line of Casey Aricatla from Goldman Sachs. Please go ahead.
Hello, everyone. Thanks for taking my question. On Syndax, You talked about generic competition starting in 3Q as opposed to 2Q previously. It's probably a bit unfair to ask you what the reasons for this delay, but Are you aware of any potential reasons behind the delay in generic launch? Does it have to do with any API procurement issues, please?
Just trying to understand if there is a chance for extending Sendak's position in the market beyond 3Q. Thank you.
No. We don't have any insight to the Of the chains of our competition, so we cannot comment on that. We are only basing our information on the public domain, which is Either the approvals and in some countries, the pricing information when you seek a pricing Or get into the reimbursement system that's public information. So in terms of the supply chain, we don't know that.
There are no further telephone questions registered. So I am back to the speakers.
Thank you, operator. We have few questions from the chat. These are all from Anssi Lausey from OP Markets. And let's start with a question related to Animal Health. Could you quantify the decline we should expect in Animal Health in second half of this year compared to first half of this year as the decline in the first half was only 14%, even though you have lost the Zoetis distribution agreement?
Maybe Arias, a response for the Yes.
I mean, I can't remember exact Numbers, but it will definitely be more. So like Timo said in his presentation, the timing of the Adaptive deliveries to our partners, where this year are I expected this year to be higher during the first half and during the second half. Last year, the Zoetis business was roughly 30% of our total Animal Health sales. And also, during the second half of the year, the decline is expected to be less than that but higher than the decline before in the first Q4, 5th half of the year.
Thanks, Jari. Then the second question from Anssi is, Could you give us some kind of rough estimate about how much Easyhaler was still impacted by COVID in the Q2 this year?
Very difficult to say. As Jari said, the second quarter was very good one. Whether there was a pent up demand that Patients have not renewed their prescription or they have depleted their inventory and their homes And they had to repurchase the product. Maybe that's one factor or are we back on the track? But As for the downside trend, I think all of this would speak for a positive.
So I don't think we saw any negative trend Of any material aspect.
Thanks, Timo. Then the last one from Anssi is that could you remind us was there anything special or figure out if they have to expect same kind of weaker margin this year?
Well, I can take that. There were no Individual major impacts, but last year, for example, the R and D programs were Running relatively smoothly during the Q4. And as a consequence of that, the costs were higher. And then we had maybe Some timing of the deliveries of products. And when these things just happen In the at the same time, it's almost like a coincidence that with our numbers, you can very easily see a €10,000,000 Even €15,000,000 impact.
So no specific explanation for really For the Q4, it's just that many things happened to happen in the same direction. So I don't think you can really draw a specific Conclusion. But of course, in many years, the Q4 has been a little bit weaker than maybe the beginning of the year. So that trend probably is likely to continue this year as well. But whether the Q4 how this year's Q4 really will compare The last year's Q4 is, at this point, a little bit difficult still to say because there are so many timing questions between the quarters that can have impact on those numbers.
Then moving on, we have a couple of questions from James Vane Tempest from Jefferies. And the first one is that What were the driving factors behind your significant outperformance of the Finnish market?
I'd like to say hard work. And that's what it is, especially when we look at the reference price Product, I mean, we've been working on that for years. We were able also To continue to supply the market, so our forecast accuracy in terms of sourcing, producing of the product That was right on. So we were able to supply in the market. And also as the market in reference price products, that's a Reverse auction effectively that takes place.
So we also managed in those auctions very well. So it's hard work. It's a competence of people. And of course, we have a scale benefit in the local market as well in supply in the market.
Then the second one is regarding SIMDACS and DxDAR. With SIMDACS and DxDAR generics, what levers do you have
Actually, if we look at the most markets, SIMDEX, DECTOR, there is very little anymore SG and A that we are putting on those products, of course, we continue to maintain the products, But the active promotion is in generalized markets that where it has converted actually to Nubeka or EZHaler or some other products, but the actually, the Sales and marketing effort when the product goes generic, then it becomes a normal tender type of products in hospitals. So then it's a Very limited impact what you can do with marketing. We still of course continue to work on the product and do some things. But with the injectable products of course given that the initial margins are relatively high, there is no way you can compensate for the entire decline of the gross profit. So that's impossible.
And of course, generally Speaking when there are changes in the portfolio, of course, in long mid and longer run, we try to manage our overall operations to match The current portfolio we have in our hand, whether it's sales and marketing force or whether it's the manufacturing footprint and so forth. But those are, in many cases, operations which don't change overnight. So they to some extent, we have already started a long Years back and to some extent, we will continue. But of course, we try to manage the costs So that they are the exact match with the existing portfolio we have.
Thanks, Timo and Jari. We have now exhausted all the chat questions, and I got the word that we don't have any follow ups either in the conference call lines. So I guess it's time to wrap up.
Well, thank you very much for joining the call. I appreciate it's, midst of the summer in most places. We hope all of you are safe not only from the COVID, but also from the flooding. And we are happy to report that all the Oriennees as far as we have received information, they are all safe. Have a great summer, and I hope to that you can join us in our October earnings call.