Good afternoon, ladies and gentlemen, and welcome to Orion's earnings conference call and webcast for the financial period of January 2020. My name is Dukka Hirbanen, and I'm Head of Investor Relations here at Orion. In a few moments, our CEO, Timo Lappelainen, present the results, after which you will have the opportunity to ask questions either from him or from our CFO, Jarik Carlson. We will first take questions from the conference call lines. And after that, we will then read questions, which we have received through the webcast tool.
So you see on the bottom of the screen a form where you can type in your questions and then we will read those after we have finalized with the teleconference lines. And we kindly ask you to state your name and the company you are representing before asking your question. And just before I let Timo to step in, I'd like to take a moment for a short commercial. So Orion is holding Capital Markets Day this year in May 26 here in Helsinki. And even though we so much would like to see all of you face to face due to the COVID-nineteen pandemic situation, we are not able to do that, so the event will be fully virtual.
Further information will be available later on, but you can now pencil in the date to your calendars if you are interested in attending the event. Then finally, just a disclaimer regarding the forward looking statements. And with this, it's my pleasure to invite Timo on the podium. Timo, please.
Thank you, Dukka. It's my pleasure to discuss the highlights for the past year. And, of course, what else could we start with than COVID nineteen? The three points that we've strived for the entire year was naturally to secure the continuity of our operations throughout the company. That meant that we paid specific attention to the health and safety of all Orionese and also the patients who were enrolled in our ongoing trials.
That was the foundation how we were able to maintain the continuity of operation. Also, due to the hard work by Aurionese, our partners, there were no material disruptions in terms of the availability of products, starting or raw materials. Of course, the, when we look at the what was the bottom line of the year in terms of the financials, we saw that, there was the, increase of demand of certain products. Also, saw, of course, the decline of certain products due to the COVID situation. But overall, the net result was satisfactory.
Of course, when we look at the impact of the COVID, the operating profit would have been roughly £40,000,000 or so lower than what we thought in the beginning of twenty twenty. The board is proposing a dividend of 1.5 a share to the forthcoming AGM. And of course in R and D, that's the future lifeblood of the industry and also for Orion, we had a setback where our ALS trial did not meet its pre specified aim points. However, there were no safety concerns to the compound either, which is also marketed under a different brand name for a different indication. We were happy to announce a new leader, Professor Otti Varala, to lead our R and D organisation.
And, she has taken swift action also to make sure that we will continue to have a progression in our clinical trials and in early pipeline. So the key figures. The net sales were: we had an increase of 3%, so north of 1,000,000,000. The operating profit ended up at $280,000,000, so substantial hike from the 2019. Operating margin was we met our target that we've set ourselves or our goal, financial goal of 25%, so with 26%.
And also we had a strong cash flow per share, 1.85, with a 10% increase over the comparable period. If we look at the waterfall from the perspective of net sales, how those developed, we had a setback which was pre even across the, last year in terms of the net sales. So there we saw 16,000,000 that we took a hit in terms of the net sales. Our products, EZHaler, continued to plow ahead throughout the year. Nubeqa, first time made to the top 10 as this was, of course, a little bit of a question for some of you, but with a CHF14 million increase over the year, and this includes the product sales as well as royalties.
We were able to increase our business in the reference priced market, is one of the main market segments for us in Finland. In biosimilars, we lost some tenders in Scandinavia, and we, informed you throughout the year that we expect the biosimilar business to be lower, last year than it was in the comparable period 2019. And then when we look at all the rest of the products, there was a substantial increase in those. Also our Thermion contract manufacturing fared well last year. Then the royalties and milestones excluding the royalties related to Nubeqa, there we that that part of the sales contracted by 7,000,000, and that's how we ended up in then in North of £1,000,000,000 Then when we look at the operating profit, certainly of course the volume, that was product volume, that was the major factor plowing ahead our sales.
Then the, margin product mix, how that varied, had a positive effect. The exchange rate, so we got burned, 16,000,000 in sales and roughly 14,000,000 in operating profit. Milestone certainly had an impact as well. And then the fixed cost, of course, we saw that especially in the beginning of the year. We saw a decline in fixed cost because there was less operational activity.
And that's how we landed in at two eighty for last year. Now happy to note that, when we look at the sales, no major changes. So Finland plowed ahead in a difficult environment, very volatile environment. Scandinavia reached a plateau, which is, and we'll discuss that a little bit more, in very exceptional circumstances where the biosimilars took a substantial hit. Then the rest of the Europe, certainly fared well.
North America, the decline there is mainly due to the, Nubeqa milestone that we recorded in 2019. And then the rest of the world, many things going on, of course, in that, there. Happy to note that all our businesses, they all, reported growth, be that specialty products, it's our generic business, both in terms of prescription products, OTC products and biosimilars. Proprietary products as well. Animal health had a strong year again, And then, Fermion and contract manufacturing, did excellent, work also throughout the year.
So the league table of the products, eSeehaler, the entire product portfolio continued to grow by 10%, so two digit number. Stalevo, Comtescomten, our Parkinson's franchise, flat for the year. In Syndax, we saw a decline towards the end of the year. The patent expired, as we remember, at the end of the third quarter. Then DxDOR, this certainly was a different what was realised throughout the year, how we entered into the year and we'll have a couple of graphs on that.
Animal sedatives had a strong year as well. And then number 10, make the league table is, Nubeqa, and of course the growth percentages are great. So if we flip then to, proprietary products, There, of course, the main new item is Nubeqa. But let's turn first to the old workhorses. So eSeehaler, here you see the difference that the initial COVID did.
That was for the first quarter when there was a hoarding effect, and then we came back to the more stable growth path for the remaining of the year. And of course in this, as we reported several times, the budesonide for METROL, that has been the growth item that has been pulling the entire portfolio with it. Then the Parkinson's franchise, and this, of course, today is a little bit more balanced in terms of what we do our own sales and how much we deliver to our partners across the globe. Today, Orion markets, the, Parkinson's products by ourselves in Europe and also in, certain, Southeast Asian countries where we've taken over the business. And now it's, pretty balanced.
We, informed and discussed that in the beginning of the year towards the end of last year, there was stockpiling effect because of these changes of our partners and, then that took a toll when we moved to the latter part of last year. So then, the story of Dextor, which is a sedative agent used in, ICU setting, and this is the left hand, chart here. And here we really see the volatility of that for the first and second quarters when there was a substantial demand of the product throughout Europe. Then the situation calmed down a little bit for the third quarter, and we also saw many generic players in next door space, having their capacity available. And then the second or third wave, depending how you count those, that hit again Europe and we saw the increase of the demand of next door products in the fourth quarter, so towards the end of the year.
In SIMDACS, here as the, we started to move to the post patent area or the era, we saw the decline of the product. And this, of course, we've informed you duly how this, we expect this to develop. So then moving on to our largest business, which is the, specialty products, and, that when we look at the first the right hand pie here, we see that Finland continues to be a substantial part of the business and had a nice growth of 3% there. Scandinavia suffered, from the, biosimilar business, but in in the, when we look at the business without it, it did a very good job. And Eastern Europe as well as the rest of Europe, showed, growth for the past year.
And then the COVID, of course, had an impact, but the biosimilars really took a toll because, we lost some tenders. And here you see the, more than 50% decrease over the twelve month period, which, of course, is, substantial. But on the other hand then, these businesses where there is more durability in terms of the prescription products or self care products, there we saw healthy growth. And to illustrate this a little bit more, we have here made a slide which gives you quarter to quarter and of course this band being presented to you now it's just pulled together, what is actually the changes of the, different, parts of the, specialty products? So you see there the substantial decline of the biosimilars.
However, then the prescription products as well as the OTC in overall continued to, provide a healthy growth in the business. And as said, Finland is by far the largest, country market for our specialty products. And here in Finland, the market was more or less flat, for the last year, and we had a slight growth, especially strong for the reference priced market because that is the key market for us. And the overall market, was a little bit on the negative side, for the, reference price market. The overall market, when we look at that, we continue to plow ahead.
And, as said, with the reference price market, we had a 25% market share. Here, the baseline actually varies from year to year. And you have to understand that the baseline is calculated based on a certain point of time, which products are in this group. And this group may change or evolve as the time goes by. In the self care products, you know, strong growth.
We had a 26% growth. And in overall, in the human pharmaceuticals, we had an 11% market share as we did last year. Then moving on to research and development. And of course what we are all looking forward this year is the results, the data of RSENSE, our darolutamide study, which we expect to report in the course of the summertime. And then, we recently announced a new study for darolutamide aiming to the same patient group, however, with a different underlying treatment, ARNOTE, and that we expect to start recruiting still in the first half of this year.
We continue to plow ahead with our two zero eight, which is indicated for our study for prostate cancer. This is the CYP11 inhibitor, and here we are moving to phase two. We have, from the same mechanism of action, we have a sister compound two zero nine that we are studying for a little bit broader basket indications including breast cancer that's still in phase one. Then the eS inhaler thiotropium is in the bioequivalence study and we also informed that, we are initiating a new dry powder inhaler platform development with the first new compound. And as we did last year, we've now taken, a practice that we give you as a little bit of guidance how we think internally, what are the important milestones, events that we look at internally.
And certainly in all of our ellipses, of course, the performance of Nubeqa, and here we can, how we can, do that is, be a good partner with Bayer and do the co promotion and see that the, adequate patient population gets access to the product in Europe. Of course, as mentioned, the RSENS trial results will be an important data point. And then that we get smoothly, build up and start recruiting patients for the Arinold trial. ESeehaler, of course, we are pushing hard that entire product portfolio. As we said, we still have follow-up products to that and we have a continuum to the entire eSeehaler platform.
Then 02/2008, we expect, as I said, to start to recruit patients to the phase two trial in that and of course we want to move that, expediently, forward. In Finland, this is the largest country market for us, we are working hard to maintain and strengthening our market position, as well as in Scandinavia to make certain that, we grow our business in generic prescription products as well as in self care. We are also investing a lot to enable future growth through an inorganic growth, and that in our case means in licensing new products. We do that all the time. That's our bread and butter in generic business, in animal health business, but here we make a reference to a little bit larger deals.
And of course we are evaluating also opportunities to get access to in line products or through mergers or acquisitions. We are very strong in sustainability. We have a commitment to ensure the patient's safety and of course the reliable supply of medications. That's been paramount. I think that's been substantiated over the past year.
And that all starts with our responsibility for employees, the environment, the ethics and the transparency of our operations. And some of the key data from last year, some of the, key indicators, how we look at the performance against our goals, we put forth here customer complaints, and this we measure as per million. We are at the same level as 2019 despite the increase in volume. We perform substantial number of, audits. These are good clinical practice, sorry, good manufacturing, good clinical, good laboratory, related practices or even good distribution practices.
Of course, last year took a toll, and, we were not able to do physical audits as we have had in the past. We're also, working hard on the, c o two gas emissions with the scopes one and two and are making headway in there throughout also through the energy saving targets which we set for ourselves. And, here we are in good, path as well. We've had also a hefty target to reduce our, work related injuries. And here this measure is, per million working hours, the absentee days per million working hours.
And, last year, the number that we had on the, on this same, event was six point, six, and that certainly was not a good number. There's still a lot of work to be done, but, we've improved ourselves, and I'm very proud to see this number because, it's been hard work throughout the entire organisation. And of course, then we need to operate ethically and the code of conduct training covers pretty much the entire organisation. So then if we move on to, ongoing year, so the outlook for 2021, we estimate that the net sales will be slightly lower than 2020, and in terms of the operating profit estimated to be lower or clearly lower than 2020. And to give you a little bit background how we're thinking of this, we are putting forth here the key assumptions behind our outlook.
Of course, the growth businesses are Nubeqa, we know that. There are other growing products that we've introduced in the generic space, of course the E Z inhalers. But we are going to see a lower number for milestones. We expect also Dexter to be lower than last year. Of course, much will depend here how the COVID situation emerges out, but it is very unlikely that we will see such a surge as we saw in the 2019 as there are now product available, they are stockpiling in the countries.
In terms of the Syndax, we are in the post patent era now and we expect those sales to be lower. Also in terms of the animal health, we informed last year that our long time partner in Scandinavia decided to set up their own operation and we lost those sales. Of course the question mark that is on specialty products, we expect that to be lower. How much lower? How will that pan out throughout the year?
That remains to be seen. But we expect that due to the some of the hoarding effects that we saw last year, there is a possibility that some of that hoarding will, of course, not anymore. We will not see that. However, will there be, then the working down of the inventories in the countries? That is highly unlikely.
Of course, it is possible, but we don't expect to see that this year. Then in terms of the profitability development, of course, the Nubeqa sales, that's an important driver there. Also, the Parkinson franchise that the product rights that we acquired in Europe, we will not anymore have those depreciations in our books. Milestones, those flow pretty much directly, to the p and l. Dexter and Simdocs, as well.
And also, of course, the, cost level. We, are by no means giving up. We are plowing in full force ahead, be that in R and D or be that in sales and marketing. Of course, especially in sales and marketing, depending on the circumstances in, specific countries. There are some countries where we can meet our customers, face to face, but of course in quite a few countries, it is virtual today.
And of course then depending, on the, sales development of specialty products, that certainly, of course, will have an impact on the overall profitability. And then, to assist you in looking at this year, we also put here a graph discussing the royalties and milestones and especially royalties ex Nubeqa that are ongoing business. But here you see the milestone impact from the various years, of, how that has evolved. And as we've said, that is substantially volatile component of, Orion's final results for any given year, not to talk about any given quarter. So we hope that these two, slides opens up a little bit our thinking here behind how we are looking forward to this year.
Then, of course, the overarching goal for ourselves is the 25 growth target with over 1,500,000,000. We're working hard to meet that. We think we have a very good opportunity still despite the setback of the ALS compound or the ALS program. Of course, there's a lot that rests with, Nubeqa, and there we've flagged already the, important studies of, RSNs and RNode. E inhaler, of course, important part of the growth story of the company.
The, animal health continues to plow ahead with new product introductions. And of course, we are continuously looking also for opportunities, outside Orion sphere for in licensing or acquiring in line products. And then, of course, there are also challenges. We see that with some of the products with the generic competition. There's the pricing pressure, which is a big question, of course, as we move move on probably beyond, '21 to '22, '23, how Europe is going to cope with the all the, QE.
So we'll see that. And then, of course, for this year, the expiry of our Scandinavia distribution ship agreement for animal health partner, that will take its toll to the, top line. And then inherent risk, of course, in our line of business is always the success of the RMP programmes. With these, I note that the, AGM, we expect to have that on March 25, and then the, first regular, update of the company situation in terms of the first quarter report is on, April 27. And, as Touk already said, please pencil in the our CMD, May 26, and, we will hold that virtually so you will have an access to that without the need to travel.
And with that, I'll invite to the podium our CFO, Jarik Osson, to take any questions you may have. And as Tuca here said, we will first take the questions from the webcast lines. And, once we've exhausted that, you can type your question to the question box, and then Tuca will here moderate and, read out those questions. So
Conference call first.
Sorry, conference call first. Yes.
Thank you. Our first question is from Peter Smith of Bank of America. Please go ahead.
Hello. Yes, Peter Smith from Bank of America. Thank you for taking my questions. So on operating profit margin in 2021, can you give just some sense of the relative margins of Dextro and Syndax being lost versus EZHaler and Newbaker growing? And just any other points as you can of how we should be thinking about margin decline?
And then on Newbaker, the Aranoke trial, what drove initiation of the trial? And then I know completion is in 2024 on clinicaltrials.gov. But can we expect any interim readouts from that? And then are there any potential plans for further trials of new vapour to expand its coverage of the prostate cancer treatment paradigm? Thanks.
You want to take I'll take the iron ore.
Yes, I can start. So obviously, like we have indicated for years, Dexdoor and SimDux are the type of the products which are on the top ranking in terms of the product margins. So when we lose sales in these products, it's very difficult to compensate with anything else we have in our product line. Nubeqa, of course, is different because there is the royalty component. But then when it comes to eSeehalers and, of course, the generic products and so forth, they will generate lower margins.
So very likely, the impact, especially on the product margins, will be negative as if Simdux and Dexter will decline as we currently expect.
Okay. In terms of the iron ore trial, firstly, there is in the current protocol, there is no plans for the interim readouts. Of course, as I said, that's in the current protocol. The reason for setting up that trial is that, of course we want to, see that the product is made available to the treating physicians for different patient populations, how those, patients are treated. There are some patients who are treated with both androgen deprivation therapy and docetaxel.
And then there is a group of patients who are treated only with androgen deprivation therapy. And these depending a little bit on the patient category. And that's why we wanted to expand also to have a trial where, Nubeqa is studied against, the, androgen deprivation therapy. So having these alternatives that we can, have for the patients for treating patients in a different manner, depending, on the physician's preference. Whether this will, drive into new treatment paradigm, I think one has to be careful here.
But, nevertheless, we are offering here a new treatment options for different, patient groups, different patient populations to the physicians.
Our next question is from Sami Sarkamis of Nordea Markets. Please go ahead.
Hi, thanks for taking my questions. I would start from the Q4 report. I think you raised the guidance ahead of third quarter results, and we're expecting about 15% EBIT growth last year. But now you have ended the year with only 11% growth. So can you elaborate on the reasons why Q4 came in below your expectations?
Just looking at some of the sales areas, Parkinson's, Syndax and EasyHailer look clearly soft, while then costs may be on the high side?
Well, in terms of the sales, there's always seasonality from quarter to quarter as we've many times have highlighted, and I think many of these graphs that we also provide those show that there's seasonality in in those. There was nothing specific, I think, on fourth quarter in terms of the sales, except for, you know, shipments, moving here or there, something from the third quarter to fourth quarter and vice versa and and from the for the next year. So nothing specific in in terms of the sales. We saw in some markets really, really, strong pickup towards the end of the year and some, were softer, but, nothing that, you know, would highlight across the board even as per product.
Then also on the cost side, we actually were very happy to see that some of our programs actually started getting speed during towards the end of the year. So I think from that point of view, the fact that we were able to spend as much on R and D as we did was actually a positive sign after a little bit slower period during the earlier parts of the year. Then also, I think it's fair to remember that the fourth quarter in twenty nineteen was one of the all time highest quarters in Orion's history. Only the first quarter in twenty twenty, because of the COVID, actually was higher. So the comparison period when to which the sales are compared in the end of last year was very, very tough targets.
So the sales actually were fairly normal level when looking at the product sales quarters we have experienced over the last few years.
Okay. Then I'd like to understand your thinking behind assumed cost structure this year. Regarding for higher sales and marketing costs, what is driving this increase? And then secondly, could you explain how R and D costs will remain flat as you ended the ALS study last year and the starting Aeronaut study looks smaller than ending ARROW Sense study?
Okay, thanks. Very good questions. In terms of the sales and marketing, you may recall that we are actually co promoting Nubeka, and of course we are taking our share of that part. And when we compare that to the last year, we actually started the co promotion effectively only in Germany. Towards the end of the last year, there were, two other countries, including Finland, but that bore into that.
And this year, we expect, of course, more countries to come on stream. Our planning assumption for the ongoing year is also that after the summer break, we'd be able to resume to more normal sales and marketing, whatever that might mean, but at least, it is more normal than what we are experiencing today. In terms of the R and D, whilst we expect to have the headline results in the summertime, unfortunately, from the financial perspective, the study still carries on, which is good for the patients because there is still patients on the trial that we continue to monitor those patients, but this is, where we, take account for the deaths. So those costs carry on still for a period of time. Also, of course, the iron ore ramp up starts this year, so we will have a little bit of those at the same time on our in our books.
And in addition to that, we, of course, are now moving the two zero eight program to Phase II, and we have now initiated some of the new EZ HALE related or respiratory studies. So even though none of those as individual studies as large as the ALS study was, but when you count all these together, they pretty much come up with more or less the same clinical trial type of cost than the ALS was. And of course, one needs to always remember that the clinical trials are not the only part of our R and D expenses. So there is the infrastructure, there is the preclinical research. So all of those contribute as well.
So that pretty much explains. And in the sales and marketing cost, of course, one needs to remember that last year was not a normal year. So the costs were somewhat artificially low because the activities were much below the normal level. So the assumption now is that gradually during this year, we will get back to the normal level, which then, of course, shows up in the cost line as well.
We're actually pretty excited that we have opportunities good investment opportunities in late stage clinical programs as well as in early part. So we are pretty fired up on that.
Okay, thanks. That's very helpful. And then on Specialty Products outlook this year, can you still repeat why you were negative on that one? Because I think the message was also that you were not overly concerned with supply chain distortions, And you also made the point about non biosimilar part of the business having turned the corner last year.
That's true. This your notion of the biosimilars is exactly correct. We saw the big correction last year because we lost the tenders. There's still a little bit of a spillover for this year, but nothing compared to last year. What the the way we look at the specialty products business in overall, we, today, the way we look at the supply chain, we believe that we are fairly well established for at least for the first half of the year.
Of course, this is all subject to that, our colleagues, remain and stay healthy. But from that perspective, we think that is well covered. But, of course, also last year, despite that, we saw this hoarding effect, which by and large was a bump, and then it leveled down. However, there were some countries who actually stockpiled material for forthcoming purposes. And and this is not really all that material, but, of course, if you don't have this this year, you're seeing, you know, this much last year and then this much this year.
And then when you add those up, it adds up a little bit. So that's that's one of the reasons for that.
Okay. And then finally, on the ARANALD study that we discussed earlier, could you somehow explain how that broadens the market potential for Nubeqa, for example, relative to earlier RMS or RSN studies? Just trying to understand what could be the patient population benefiting from this type of treatment path.
Well, we continue to be very careful here and can only refer to the Bayer's statement for the entire potential for Nubeqa exceeding $1,000,000,000 So I'm sorry, but that's the arrangement that
we have. But like Timo explained earlier, the AraSEN study, we have a little bit different underlining treatments than now in the Ara node. So combining these together should kind of give data showing that more or less all the patients in that group can benefit from our product. And of course, from the Aramis, the difference is that this is the metastatic, while Aramis was non metastatic. So there is this clear difference in the patient population.
Okay, thanks. I don't have any further questions.
Our next question is from James Fane Tempest of Jefferies. Please go ahead.
Yes, hi. Thanks for taking my questions, please. First one is just regarding your longer term €1,500,000,000 revenue target. Just wondering how we should think about the balance to get there in terms of capital return and investment. And as we progress over the next few years, I'm just wondering at what point Orion might have to decide if they're going to need to do more M and A to reach its target and thus consider its dividend policy or maintain its current capital allocation policy?
The second question is, what are your assumptions please on any changes on European pricing this year? And what are you hearing from your country teams about the various European markets? And then the third question is you mentioned about the depreciation of the Stileo portfolio being a benefit in 2021. Please can you just remind us what that would be? Many thanks indeed.
Thank you. The 1,500,000,000.0 target and and the funding to reach that. So far, when we look at the cash generation of the company, the payment of the dividend is not a cash flow issue. It is actually a balance sheet issue from the perspective of distributable funds. And this is a little bit of a specific issue relating to the corporate law in Finland, because you can only distribute basically a retained earnings and not even all of those, from the parent company.
And that is actually what is restricting the possibility of returning capital to the owners. Now, we received a substantial win, a book gain, when we divested Orion Diagnostic and as we have now for the past two or three years, have informed, the market that we expect that there will be a bump on our way to the, 1,500,000,000.0. However, we can bridge that from the return of the capital from the perspective of dividends to the shareholders because we have this gain in our books. So so far, it is not a cash flow issue. It is more from the distributable equity, but even that we have bridged.
But of course, you know, should we make a very, very large investment, then we have to see if that has impact, for the dividend paying capability. But so far, we're nowhere reaching that as as of yet. But, of course, then the other side of the coin is, should there be other opportunities, be that in, running late stage clinical trial by ourselves, and and, potentially then gaining the fruit of those trial, that trial and those data and also with the upside, that, of course, would then eat in our annual profit that would then limit potentially our dividend paying capability. Anything you want to add on this topic or follow-up?
No. I think for the time being, as we see it, is that the M and A should not make that much difference in our capability to pay dividends. But of course, if the MFA results in a growing company, which hopefully then results in a growing profitability, it might have some impact on the payout ratio, which we have seen in the past by maybe lowering that a little bit. But in the absolute terms, at least, we are fairly confident that we can continue and, over the time, also grow even the absolute dividend.
Okay. Then we have the second question on the European pricing scenery and what is our basing assumption. We are not aware as of today that there would be material change system changes in any of the key markets important for us in the product categories where we are present. That we we are not aware. And as such, we have not factored those in.
What we are seeing, though, is actually we we had two opposite effects, last year. For Norway, we saw a couple months a systematic change when Norway, decided to increase the prices of, generic products for a short short period of time, for a three month period, just to make make certain that the country was able to access the product. Of course, it is fair to assume that, COVID has had an impact on the timings of the reimbursement. And, as we've probably indicated earlier, we've seen delays in some cases, in timings of reaching reimbursement. It has nothing to do with the data, but just the availability of personnel in the countries.
So, we as said, we are not aware of any material impact to our pricing scenarios.
And then your question about the Parkinson's depreciation and why that had an impact. We acquired the European rights for the SPALAVO and Comtes Comtank a couple of years back and depreciated that acquisition price over two years. And that depreciation is now basically ended, which basically means that we don't have any more this roughly €1,000,000 a month amortization of that acquisition any more this year. So that has a positive impact of more than €10,000,000 on the EBIT line.
That's great. Thank you. And if I can just have a quick follow-up to my first question regarding the guidance. I understand it's not a cash flow issue and your 2025 target is a top line rather than a profit target. So clearly, investments can be made.
But I guess I was just curious in the release how it talks about investments currently being made will be delivering beyond 2025. So perhaps I can ask my question a different way, and that is, you know, what level of product acquisitions do you think the business can support at the moment so that you could still maintain the current dividend policy? Just to give us an understanding of the the flex in the cash flow statement in terms of what you could potentially additionally require to maintain both as a balance. If I could ask you as a follow-up. Thanks very
thanks. Of course, one question is from the cash flow perspective that if we are able to acquire products or product portfolios or companies to that matter that are generating cash, then, of course, we always have the opportunity to raise cash through issuing debt. And the it's when you look at our numbers, we certainly have a debt capacity of several hundreds of millions that we could do. And if then those acquired assets generate cash, I think we are okay from that perspective. The, other side is of course that if we were to acquire or invest in, product development programmes that only potentially yield results you know, after several years of development and we have to contribute into those development efforts, that of course may be a different issue because that's then the P and L issue rather than the cash flow issue.
But, I'm a little bit circling back to the same, answer that, from the cash flow perspective, as we have a substantial debt capacity that is untapped, we we don't think that at at least of the assets that, of course, we are interested in, that, we would be hampered by our, cash flow or, raising cash, funding capability from that perspective.
Thank you very much.
Our next question is from Jo Walton of Credit Suisse. Please go ahead.
Thank you. I've got a few questions, a couple of financial, a couple of products and a couple of strategic ones. So just starting on the financial one simply, you say that your CapEx is going to be higher in 2021 than the 49,000,000 that it was in 2020. On the cash flow, I can only find 40,000,000 in 2020. Can you just tell us what sort of things you'll be spending that money on?
And while we're on the cash flow, you've had two years where you had working capital, in, 27,000,000 in in 2020, which is obviously very strong. With your growing business next year, particularly with things like Nubeqa, should we expect working capital to be a positive again in 2021? And the final financial one is just if you can help us a little bit more on the gross margin as we go forward. You you talk about operating expenses being broadly flat. I'm not sure if cost of goods part of that operating expense or is that seen as, something different.
My two product related questions are your just to get a sense of your enthusiasm about your tiotropium EZHaler development. We can see that EZHaler has been growing, but it's really been grown very strongly off your bufamix, your, you know, effective Symbicort product. As far as I can see, the Advair product really hasn't taken off, So so perhaps you could tell us a little bit about that. And given that that was your most recent EZHaler launch, why should we think that your tiotropium EZHaler launch should be materially different? My second product related question is just, the Syndax decline that we saw in the third quart in the fourth quarter, which was about 30 odd percent.
Is that a good guide for the rate of decline that we should be experiencing in 2021? And I have two strategic questions. One, if you could just help us on any level of incremental infrastructure you are putting in place, to help you with the co marketing of Nubeqa, whether the fact that you're being effectively funded by Bayer to be able to do that co marketing, you're able to to capitalize on that and you're actually building your net infrastructure across Europe. And, the final one really, comes back to to questions that we've been hearing from others about your ability to do deals going forwards. I know you've talked about in licensing a lot, you've wanted to get, products, maybe companies.
In in what you've looked at through 2020, because you've been talking about this for a long time and you haven't actually done much, Have you found things that you've wanted to do but they haven't met your stringent commercial threshold and so you've walked away from things you would otherwise like to have done or have you just not found anything that you've wanted to do yet? Thank you.
Okay. Good questions. All right.
Okay. I can start from the financial ones. So I was not quite sure about CapEx question, but of course, typically, there is a difference between cash flow and the capital expenditure based on the timing when you get the invoices in. So we had a few in licensing cases towards the end of the year where the invoice actually came so late that we didn't pay yet those invoices in 2020. So that explains a little bit of the difference why the investments were higher than the cash flow for the investment.
So that's kind of a normal. And in the way how we report the cash flow statement, that's not included in the net working capital, but that is included in the investment capital expenditure cash flow part. So the net working capital, yes, we are very happy that we have seen the decrease in the net working capital over the last couple of years. And there are various reasons for that. Inventories have gone up, but on the other hand, we have seen a reduction in our accounts receivables, which is very much due to hard work all around the organization to collect money, get the customers pay time, and so forth.
And then there is a little bit more of a coincidence type of element that when do we purchase some materials, what type of non interest bearing liabilities we happen to have in our balance sheet at end of the year. But I think it's fair to say that we don't assume the same trend releasing tens of millions working capital continues. So we probably have done the easy part. One thing which might be beneficial for us in the coming year is the fact that if the COVID situation improves, we probably will not have the need to maintain as high safety stocks as we did last year. And then coming to the gross margin, no, the operating expenses are not included in the gross margin.
So the gross margin development is probably in our case more dependent on the development of the pricing environment in the market and then the product mix. And especially in the coming year, when we see, for example, Simdocs starting to face generic competition, the assumption is that we will see a fairly fast decline in the pricing of Simdacs, which will then definitely hit more the gross margin percentage than would be only losing volumes of Cimdac's business. So it's not a question of cost structure going up. Definitely, we are all the time working to streamline our operations, so it's more the product mix and market pricing question, which is hitting the gross margin.
Okay. Then on the future E Z HALO products, on the thiotropium, we don't expect thiotropium to be such a big product for us than the budesonide for METROL. However, we expect that to be bigger product than salmeterofluticasone. So somewhere in in the in in in that in that region. But the plan we don't expect that to hit such a number than bufomix at least initially.
So I think a point well taken there. Syndax, what is the development for the ongoing year? Really, really tough question. What we've assumed is not too far off the mark, what you proposed here from the based on the fourth quarter. But really, one should be really, really cautious with this because we don't know how many competitors, generic players, are able to, firstly, get the product approved or to get their supply chain ready, or how will they then price their products?
So that's a big unknown, for us us today. And, in our, some of the, how how we substantiated the outlook for this year, you saw that we just put a negative number there. I think that's a safe bet. But anything beyond that is is a pretty guesstimate. But I think the fourth quarter number is is not a bad guesstimate.
In terms of the infrastructure for, co promoting Nubeqa, there are, I think, least one country where we are recruiting additional personnel because we had a very small operation in the country. In most of the countries, there is no material impact in terms of the headcount. In quite a few countries, we are retraining people. In some countries, there are some people who have left the organization and we have hired oncology experts. So in the overall scheme of things, there is no really new infrastructure being put in.
But your point is exactly correct. We are now focusing our capability towards the oncology, and of course, we expect that Nubeqa to be followed up by our two zero eight later. Then on the M and A or the targets, have we found anything? I think the point that you raised is extremely correct, is that we have very stringent, financial criteria. And and certainly, have been, some cases where, we would have been happy to be the new owners, but the it was not a meeting of minds or or or we we did not feel that comfortable with the valuations, and we all know how the valuations have gone, in the past.
But, we are by no means, giving up. There are, you know, stuff cooking in the pipeline, and we'll we'll have to see if, we'll find enough synergies or new thoughts how to develop these assets in our hands.
And and, of course, one needs to remember that that looking at the valuations in this industry, any meaningful size, Addison, whether it's purchasing of product portfolio or a company, would very easily require 100 plus 200 plus million type of investment, which means that we anyway will not be able to do too many of those, which means that we need to be very careful that when we then decide to move, that we really find a target which fits our needs.
Thank you very much. Our next question is from Tobias Rappoli from SEB. Please go ahead.
Hi, and thanks for taking my question. I basically have two two questions relating to to the product. So firstly, on the EasyHaler product, You you you mentioned some lower activity during q four due due to the COVID nineteen pandemic. Could you could you give us something some some outlook for for q one and how how are things developing thus far? And then then maybe some expectations from from the new pipeline product on the inhaler or the dry dry powder inhaler product that you that you mentioned in in the report.
Then the second question relating to the animal health business and and relating to to the Zoetis deal that you are now losing in in in 2021. So so how how much do you expect the clever launch and the new deal with Vethaquinol to be able to offset the declines? Thank you. That's all from my side.
Okay. I'll take the EZHaler. So the EZHaler activity in the Q4, I don't know how much it was really impacted by the COVID situation. It was more of a seasonal effect, that we saw the quarter to quarter variance. And as we've announced, we expect the easy header to continue to plow ahead.
And as was with the previous question, the budesonide formoterol is certainly the product that is taking with it the entire portfolio. So we expect that to carry on this year with the substantial growth in our books. With regard to the new invention for the dry powder technology, we really don't want to disclose anything on that in terms of the technology and it is still quite, it's still a few years ahead, so it would not have any impact on the sales this year. Certainly it will have an impact on the profitability because we are investing in that, in R and D and other capabilities for the new platform. In animal health, Jarius,
Yes. So the you're responsible sales, for of course, was a very, very large portfolio in the Scandinavia, close to €30,000,000 in top line last year. And it's clear that from the top line perspective, the Vetokinol deal is very, very different. So we are there talking about one niche type of a product. In the long run, we, of course, believe that the clever product is going to generate a lot of sales, but still, it's very unlikely that any individual product in the near future will be able to compensate for the loss of this very large portfolio we had with Soytis.
And of course, one is to remember that the Vetto Kinol is now only starting to launch the product. So it gradually will take market, but it will take a longer period. So the answer is that it definitely is not going to able to compensate as an individual deal. So it is not in short term and very unlikely even in long term. It's very different type of an arrangement and considering only one product instead of a very large portfolio.
All right. Thank you very much for taking the questions.
Our next question is from Iris Thurman of Carnegie. Please go ahead. Hi. Thank you for taking my questions. I have still two questions left.
So firstly, still on your EBIT guidance. I understand your EBIT could be down by 10% or even over 20% based on your previous guidance. So the guidance range seems to be very wide. So could you give us still more color on that? And what are the main answers on this or moving parts in your guidance range?
And then secondly, in terms of r and d costs for this year, do you have any other programs or projects pending than Phase three for RFENS that could decrease the R and D costs? Thank you.
Okay. Some of the key elements for the EBIT or the drivers there if one takes the, product perspective, of course, is the, Dexdoor, how that will pan out this year. Do we still, see the continued, demand on the back of COVID? Are we, or will there be, other, generic players in that space? Of course, then, we discuss the Cymdax and then how the Cymdax generic competition will affect this.
This would be then of course one. And then of course, is also the if we see then the buildup of the inventories for generic, products in in some markets, which so far we have not seen if if that takes place. And then, of course, fourthly, then the, Nubeqa sales are important, to follow for all of us. So those certainly would be some of the key elements how we look at this year and also unfortunately gives a little
bit
broad range when starting out the year. In terms of the anything to add there, Yare?
No. I mean, it's just that in all of those, there are quite a lot of uncertainty involved in Dexdoor because of the COVID and seem that's because of the competition, which is not yet launched. So we are only estimating when we will see the competing products in the market. And then, of course, NUPEKA is still only starting a journey in most markets outside of U. S.
And even in U. S, it's in very early stage of the life cycle of the product. So there are a lot of these fairly big question marks, and that's why the range is relatively wide at this stage.
In terms of the some of the Phase three studies that would be ending, the only one, that we expect to have headline results this year is RSNs. And as I mentioned, the study is not ending, the study will carry on. But, other than that, we do not have, any other phase three trials, and because that's the only Phase III trial that we are currently involved in.
There are no further questions at this time, so I'll hand back over to the speakers.
Okay, great. We have quite a few questions coming through the webcast. So if I start to read these out in the order of appearance. The first one is regarding AraNote and Arasens trials. How should we differentiate the trials and what was the need to initiate the AraNote trial?
But actually, Timo, you already answered that earlier. So I guess we can move on. Then we have a question from Ansi Raussi, OP Markets. What kind of progress you are expecting from Newpeka regarding your 2021 guidance?
Well sales. Yes, absolutely. Growing sales, but unfortunately, like I said earlier, we cannot really indicate anything more specifically because Bayer is the one responsible for selling the product in the market.
Sure. Then continuing with Ansi and ARANOTE questions, could you give us any comments regarding the potential of ARANOTE Phase III study on darolutamide?
Well, we discussed, it's a little bit difficult. This is a different treatment, for, the same type of condition of the patients but for, as the physician has to make a decision, so we are comparing that to a different competitor. And it will be unfair to give an estimate this year because we have to remember that we are not alone in the space. There are also competing products. So, this gives an alternative and we can then, demonstrate that the product has utility for the patients in different settings.
That's really the purpose of that.
Great. Then continuing to ODM-two zero eight with Anders, he has a couple of questions. How much it has cost so far? And how much will it require R and D expenses in the future? And then can you comment on the future potential of this drug at this point?
We are currently ending the Phase I. And typically, going into the program specifics, typically taking the product to phase one, you are roughly talking 15,000,000 to 20,000,000 over the life of the program. So that gives you a little bit of the perspective. Then when, moving on to this year, as we've, discussed that we expect the, how we expect the R and D program to develop. Of course, this will be an important part of this year's R and D, investment.
But it is too early to, discuss about the potential of the product. The reason for that is not that we want to hide anything, but the reason is that because only once we have phase two completed and we have genuine efficacy signal and then we can develop the protocol for phase three, that gives us some indication of the, potential patient population that would be, treatable with this, agent. So unfortunately, you know, it will be far, far too broad a range to provide you any meaningful estimate at this time because we know that you would be we would be hanged with that. So we would rather, defer that to the later date when we have some data to substantiate our thoughts as well.
Then we have a last one from Ansi. Have you lowered your return on investment requirements or expectations when you look at the potential MSA targets? And he's asking because our 2025 sales target is probably more dependable on M and A than it was before REFEL study failure last summer.
Fair question. We have not yet, but we have to see when the opportunities present themselves. Of course, what we, certainly will see that, we want to see incremental profitability, but whether we can reach at least in the short term, the return, objectives that we set for ourselves, I think we have to be careful with that so that we will not destroy long term value creation. But the point well taken, and I think that's a fair point.
Great. Then going back to Aranot, this is a question from Named Sasma. Hi. How will the ARANOTE data to be read out this year impact the plans for the ARANOTE trial? So probably how the ARANOTE reads out, does it have an impact on the ARANOTE?
No. No, these are two independent trials, two independent recruitment patterns. So no, we don't expect anything from that perspective.
Great. Then moving forward, we have a question from Vilis Hu from Zayo Capital. Can you please discuss why pension asset dropped to zero from €55,800,000
Yes, we can.
Yes, mean, can take that. So when the pension calculations are made, one of the main components is the discount rate used when discounting the future liabilities and assets. And the because of the current ongoing very low interest rates, we lowered the discount rate quite a lot from last year, and that ended up increasing the value of the liability significantly. So actually, we now have an asset liability on the other side of the balance sheet instead of the pension we did have last year and the years before that. On the other hand, going a few years back, we had exactly the same situation when the interest rates started going down.
So this is not an unheard of situation, but really the main explanation is the decrease in the interest rate used in the calculations.
Okay. Thanks, Jari. Then moving forward, we have question. Where do you see the biggest upside opportunity for the bottom line this year? And how large would it be?
Without going into quantification, I think these four elements that we discussed that are, the main drivers also for the broad range that we provided this year, and that means the uptake of, Dexter, how that will evolve. Syndax competition with generic players, of course, Nubeqa sales, how those will evolve, not only in Europe but also in The US and then the generic business, how that evolves. Those would be the key drivers, but, we can all speculate about quantifying a single event of those, but, those are the four elements.
And a couple of more still. What would be needed to see share buybacks from Oregon?
Well, firstly, the board would need to propose that to the AGM, and the AGM would need to take a pass of resolution on that. So currently, we do not have that sort of authorization for the Board.
Then lastly, we have a couple of ones from Diana now from Goldman Sachs. On your 2021 guidance, could you perhaps be more specific around what you mean by lower versus clearly lower on operating profit versus last year? Judging by historical guidance issuances, the guidance seems to imply a minus 20% to minus 10% change. Is that the right way to think about it?
Well, what we can say is that, of course, significantly is more than, just without that prefix. But we have never actually said the exact, numbers. But of course, we also monitor as we go, into the year, is that how our guidance reflects, the consensus, not quarter to quarter. I mean, are great variances and all of you analysts, you are doing a very difficult job, so we all have all the respect. But, I think so far, if we look at the outcome of any given financial year, actually the analysts, you, have been probably more often right than the company itself.
So either the communication readout by yourselves has been excellent or for some other reason, but you have been, quite on the mark when we look at the consensus.
Then Diana had follow-up. What are the main pushes and pulls to get to the higher end versus low end of the guidance, please? But I guess we have covered
that Yes. By think, yes, I would focus on these four elements that we discussed.
Yes, exactly. And then last one is that could you perhaps provide more color around the phase two trial design for ODM-two zero eight and the specific target population you'll be testing?
Well, these are end stage prostate cancer patients who typically have, multiple courses of treatment behind themselves. But other than that, I think we will be publishing, the protocols and other data on the compound in the forthcoming months. So, please bear with us.
Thank you, Timo. Now we have exhausted all the questions through the webcast, And I will hand back to operator if there's any follow ups on the conference call lines.
There are no follow-up questions on the conference call lines.
Thank you.
Okay. At this stage, then, it is my pleasure to thank you very much for extremely active questions. And we will meet, hopefully, most of you in our virtual forthcoming CMD. And then, of course, shareholders, we hope you to participate virtually in in our AGM and then, quarter one earnings call in, April. Thank you very much.
Everybody, have a safe day.
Thank you.