Good afternoon, everybody, and welcome to Orion's earnings conference for the financial period of 2019. My name is Tuukka Hirvonen and I'm the Head of Investor Relations here at Orion. In a few moments, our CEO, Timo Lappalainen, will present the result from 2019, after which you will have the possibility to ask questions either from him or from our CFO, Jari Karlson. We will be first take questions here from the live audience, after which we will then turn to the conference call lines. Kindly state your name and the organization you are representing before asking your question. Just before I let Timo to step in to the stage, I'd like to draw your attention to this disclaimer about the forward-looking statements. Without any further delays, I'd like to invite Timo on the stage. Timo, please.
Thank you, Tuukka. Welcome, everyone, also on the conference call lines. Let me first share some of the highlights for 2019. Of course, darolutamide, the new invention by Orion, developed and to be commercialized jointly with Bayer, that dominated the news flow of 2019. We know that the darolutamide has received the NDA already in the U.S., and has been subsequently launched in the U.S. The approval has also been granted in Brazil. After the period in January, we learned that the marketing authorization had been issued in Japan. The most latest news was that in Europe, the CHMP recommended to the European Commission for the approval of darolutamide. We shared with the markets a brief note that darolutamide showed significant improvement in overall survival in the ARAMIS setting of patients.
These data will be shared then in more detail in forthcoming scientific conference. On the more financial side, the net sales and operating profit, those developed very much as expected, also we realized quite a few of the planned growth investments, those of course reflected in our operating profit because of the increased cost burden. All our business units, they reported growth in sales. As we have reported earlier, REFALS, that is our late phase III clinical trial for ALS patients. Recruitment is completed, and we expect the top line results in the second half of this year. The board has also today proposed or will propose to the AGM a dividend proposal of EUR 1.50 a share.
The hard facts in key numbers, the net sales, there was a growth of 8%. We were topping the EUR 1 billion again after the last year. In operating profit, as we guided the market that profits will be at the same level or the similar level, we hit that pretty accurately. Operating profit margin, here our target is 25%. Last year we were a little bit shy of that target. Cash flow from last year was very good, the per share cash flow before the financial items as we report those was a little bit shy of EUR 170. Compared to the last year, the drop is significant. We had the sales proceeds from the sale of Orion Diagnostica, that's the only number where we would have that still reflected in the comparable period.
The waterfall, how did we come about that? In terms of the net sales, as we have reported and especially in the fourth quarter, we saw the decline of Dexdor sales, that is the sedative agent that Orion markets in Europe. Also, the royalty income and the shipments of API to our partner, Pfizer, in terms of the Precedex, those were lower than in the comparable period. Reference pricing, that still continued to eat into our sales, though at a much slower pace what we've seen in earlier years. Of course, last year the milestones and royalties, they were substantially higher than in earlier periods, and this was due to the first launch of the darolutamide product, Nubeqa, in the U.S. market. Easyhaler had a strong growth. We saw growth in other products, including Simdax.
Biosimilars had a strong growth last year. Here we always want to remind everybody that the profitability of biosimilars is lower than on the average, one should treat this number with caution. Also, the exchange rate, this time we had a little bit tailwind compared to last year, and that's how we arrived to the EUR 1 billion and 51. In terms of the operating profit, product sales, those were higher. However, the margin of the product mix. Due to the reference pricing, due to the decline of Dexdor business, those ate into our business almost at the same level as the product sales increased those. I said exchange rate, a little bit tailwind there. Milestones, a substantial improvement there. The fixed cost.
These are the investments that we told everybody that last year that we are making the substantial investments to speed up the growth of the company, and those were realized last year. Part of that are our depreciation that relates to the acquisition of Stalevo and Comtan rights here in Europe, which we are depreciating in two years' time and about EUR 12 million a year in the years of 2019 and 2020. That's how we ended up with an even number compared to last year. When we look at the breakdown of net sales, Finland continues to be the largest single country market. Certainly, of course, the big European countries are very important for us, and Mediterranean countries doing very well these days. Scandinavia had a very strong growth last year as well.
Rest of the world, and including the U.S. now, where we would allocate the milestone related to the U.S. In overall, strong growth across the board. As said, the business portfolio that we had a growth across the board here as well. The league table of the pharmaceutical products, Easyhaler, that continued to plow ahead with 16% growth, and first time we broke the EUR 100 million mark there. Stalevo almost at par with 2018. Very close there. Of course, the acquisition of product rights to Orion played a role there. Simdax, our acute heart failure compound, strong growth there as well. Dexdor, having now experienced the generic competition, we certainly saw there the decline in sales. The biosimilar, this is the volatile part of the business. We had a strong growth there after a slower year of 2018.
The animal sedatives in Animal Health in totality, that was a good year for us. If we switch gears to proprietary products, the Easyhaler, that was really the driver of that business. Parkinson franchise, I'd said, at the par, and Dexdor now losing a little bit of ground to the generic competition due to the price erosion in that. Simdax had a good year as well. First time, as said, Easyhaler sales exceeded EUR 100 million. That was very much on the back of budesonide formoterol Easyhaler, that's continued a very strong growth there. Overall, of course, the product family had nice growth. As we have flagged, the salmeterol-fluticasone combination product, that sales developed slower than what we had originally anticipated. We continue the development of the seventh Easyhaler version for COPD, tiotropium.
Here you see the change that has taken place in the Parkinson's disease products, namely Stalevo and Comtan, starting maybe from the third and fourth quarter, where the Orion own sales has increased in that bar quite a lot. This is obviously to the fact that we took the European sales from Novartis under Orion's helm. The sales of Dexdor, as we started to experience their generic competition in the first half and more predominantly in the second half, we certainly saw there the price erosion, as well as in some cases, we have lost a little bit of the volume, this is mainly due to the price erosion.
Overall market, of course, when we look at this at the list prices, and this is what the data is based on, we saw there the growth, but at least our own numbers do not reflect the headline number. The biggest business, what we have is the specialty products business, and there the single biggest market is Finland, close to EUR 300 million. That was very close to same level as 2018. Scandinavia had strong growth, also propelled by the biosimilars. Also we had growth in Eastern Europe and Russia. Again, a reminder for everyone that the prescription generic products, that is the bulk of the business that we have. Comes the self-care products, which some are pharmaceutical products, some are labeled as non-pharma products. The biosimilars is a smaller part of this business.
In Finland, as we have traditionally opened up that a little bit more, because that's an important market, the price competition continued. Certainly also, we had our share of the delivery issues in the market. When we look at the reference price product market, that's one of the key markets for us, that declined as well by 4 percentage points. We are a strong player there, and we have the broadest portfolio, and we saw our development there, minus 6%, partly relating to the product shortages, but also of course, price erosion. In the whole market here in Finland, where the pharma market is a little bit less than EUR 3 billion, Orion is a large player. We continue to command about 11% market share in the human pharmaceuticals. In reference price products, there we are a strong player with more than a quarter market share.
In the self-care products, we have about a 25% market share. About every third pack out of the pharmacy here in Finland is an Orion pack. What's going on in our future? The R&D, as mentioned, the tiotropium development, that is going on. Darolutamide, approved as Nubeqa in the U.S., has been launched in the U.S., is in the regulatory phase in several countries also outside Europe, Brazil and Japan. We expect, of course, further approvals in the course of the year, including then the final approvals and launches here in Europe. As we mentioned, we have also a second indication for the same compound that we are studying jointly with Bayer, and that study has been fully recruited already some time.
The ALS program, which is in phase III, fully recruited, and there we expect to have the headline results in the second half of this year, and that may be also a trigger for Orion to enter in the U.S. in the commercial sense. We have other early-stage compounds as well, where we said that we probably will prioritize our own resources in developing the ODM-208, ODM-209 family, which are the CYP11 inhibitors, and then seek partners for some of these other mechanisms. That work is ongoing. As we initiated or started the practice last year, we want to continue and share with you what we internally think are important business targets for us this year. Of course, the darolutamide, commercializing that is one of the drivers there.
As mentioned, we have received already numerous marketing approvals, and expected to continue on that trail. Then the new indication, that still waits for the data, and as we've said, it's still some years to wait that. Then the ALS program, that is, as I said, fully recruited. Here we are assessing opportunity should we commercialize the product by ourselves in the U.S., and this assessment is ongoing as we speak. Then prioritizing our resources, we've made a decision that we would be seeking partners for our earlier oncology stage programs, 203 and 207. Of course, as I said, Finland continues to be an important market for us, and we want to be the clear leader in the reference pricing prescription category here in Finland. That's an important part of the business. We are an important player in the healthcare market here in Finland.
In the self-care products, that's an important business that we have, and we think it's an important element also for our partners here in Finland. The Easyhaler. Today, the flagship of the company in terms of the sales. We continue, of course, to push those sales, not only in terms of the sales, but also that we will have follow-up products there, and the tiotropium is one of those. We have a very strong balance sheet, and of course, we want to utilize that if the right opportunity should arise. The money is not burning a hole in our pockets, but we are actively pursuing and looking for opportunities in licensing front as part of our toolbox. Sustainability is, of course, very important for any healthcare company and pharma, and it all starts for having safety and efficacious supply of medicines to the markets.
Of course, we have also the responsibility for the environment, for our colleagues here in Orion, and operating ethically and transparently. Here are some of the numbers, what we recorded last year. We always publish our sustainability report in the beginning of May, and this is sort of a snapshot of that. Some of the data in terms of the product complaints, audits, we do these almost daily everywhere around the globe. Greenhouse emissions, we are reporting this. We have a very stringent energy saving target for us for 2025, and we are well in that track as well. Unfortunately, I have to report that the injury rate, as we reported last year, that went up, and that certainly is not a good thing, and we are working on that. The financial outlook for the ongoing year.
We estimate that this year the net sales would be at the similar level as 2019. Because of the substantial investments that we continue to make, the operating profit would be lower than in 2019. Also, we flagged that the Nubeqa sales as well as the ALS sales, should those materialize, those will not have a material effect still this year, but will be in the later reporting periods. The next event in the company is our annual general meeting, which is to be held on March 25, in the afternoon. Of course, all the shareholders are more than welcome to join the meeting. That was a rundown of the key highlights for last year. At this stage, I invite our CFO, Jari Karlson, here to the podium to join me, and we are happy to take any questions.
As typically, we'll start here in the live audience in Espoo, should we have any questions here. Seems like at least at this time we would not have. Now we turn to the telephone lines. Please.
If you would like to ask a question, please press zero one on your telephone keypads. You can press zero two t o cancel. Our first question comes from the line of Dominic Lunn of Credit Suisse. Please go ahead. Your line is open.
Thank you. Dominic Lunn from Credit Suisse. Last time you said EBIT was low, this ended up being about 10%. I'm just wondering if you could give any more detail as to what lower actually means this time. Secondly, could you clarify your role with Nubeqa in Europe again, and actually when do you expect to see an impact on the P&L in terms of costs? Thank you very much.
Okay. In terms of the EBIT lower term, that is the term that we use at this stage. We have not given out a numeric guidance on that. I think if you look at some of the historical, how the company has performed and what type of wordings we've used, this is the best that we have come up today, actually. Of course, there are numerous uncertainties ongoing for this year, including how the ODM-109 and the U.S. thing will evolve here. In terms of the Nubeqa European sales, there is some P&L effect this year in terms of our own cost, but that is not material in the overall context. When we see actually the positive P&L effect, we are probably going to have to wait until 2021, 2022 when we see substantial.
Of course, the European sales will, as typical, initiate gradually country by country, depending on the reimbursement steps that different countries require.
Okay, thank you very much.
Our next question comes from the line of Harry Sefton of Jefferies. Please go ahead. Your line is now open.
Hi there. Yes, thank you for taking my questions. My first question is on the dividend. Now that you're above that 100% payout ratio, is that something that we can expect over the next few years as you've guided that profitability is likely to be impacted, prior to darolutamide and potentially ODM-109 becoming more material? My second question is on darolutamide. Can you give us an indication as to how that's progressing in the U.S.? Some of the data we're getting through tends to indicate that's particularly slow at the moment. Also any of the timing around the Japan and European launches. I also noticed that in that waterfall chart that you disclosed, there was a EUR 46 million benefit from the milestones and royalties, but only a EUR 40 million benefit to EBIT.
I'd just like if you could clarify what that EUR 8 million, sorry, that EUR 6 million cost is associated with. That's all for now. Thank you.
Okay. Let me start maybe Or do I take the dividend? I'll just take the dividend. Okay, the payout ratio, what we said at the divestment of Orion Diagnostica, and then subsequently when we launched our growth plan, we said that we are prepared to invest in the future and that means a higher cost burden, upfront cost to that, and then subsequently lower profitability. Yet, because of the strong balance sheet that the company has, also coming from the divestment of Orion Diagnostica, we are able to maintain also high dividend payout. That is we expect, of course, dividend to be a meaningful component of Orion's total shareholder return and I think company is well known for that we have actually high dividend payout.
Of course, giving any prognosis of future dividends, but maybe this sort of qualitative statement gives you a little bit flavor on our thinking here.
Yeah.
Today we are not restricted either by balance sheet and of course have not been restricted from the cash flow either on the dividend payouts. The second question related to the darolutamide, the U.S. progress. Here, of course, I hope that you appreciate that we are not there facing the customer, but all the data reports that we get is that the progress is according to the plan, it's a good progress. One should be somewhat careful in the early months when one looks at script data or other sources of data, because we are in the startup phases, so you may not capture all the sales. Of course, also there's the trial program that Bayer have launched which gives the free access to qualified patients to participate in the darolutamide treatment.
At least from our perspective, it seems like things are moving very much along the plan that we originally had. The Japanese European launches of darolutamide, I think the good educated guess is that the first half, we should see both launches at least in Japan as we have the marketing approval there. Of course, in Europe, we still don't have, but should things proceed as planned, I think the first half of this year would be a good educated guess here. There was the milestone question. Anything on that you want.
Yes, actually, it's basically more related to the fact that there's a little bit small space in the category for the 46 includes all of the service sales. It's basically all the sales not related to products which is included in the 46. It's milestones, royalties, and service sales. While in the other picture, it's actually only the royalties and services including in the 40. The difference is roughly EUR 6 million of the service sales.
Okay. Yeah, no, that's helpful. Just a few follow-ups, if I may. On Simdax, that seems to be trending particularly positively at the moment, and you've mentioned generic competition on this product for a while. From your understanding, are most of the generics currently being prevented from launching due to that formulation pattern that expires later this year? Have you seen some generic competition and actually the impact just hasn't been as much as you expected?
Yes. We actually believe that the Simdax formulations as our Simdax stays, there is a patent that is valid and that prevents anybody from commercializing the product as we speak until end of this year. We understand that there are approvals either pending or to be approved. However, should we see any generic competition this year, our estimate is that that would not have material impact in terms of our sales or profitability this year.
Brilliant. That's really helpful. Thank you.
Our next question comes from the line of Sami Sarkamies of Nordea. Please go ahead. Your line is now open.
Thanks. I have a couple of questions starting from darolutamide. You did recently flag positive overall survival data. How do you think this will benefit you in gaining market share for the product going forward?
Well, of course, we believe that this is a strong signal for the patients. We think it's an important element also for the physicians when they are making best possible choice of treatment for their patients. Then thirdly, as we are able to share these data in scientific forum and potentially thereafter also in scientific literature, I think this will give confidence also for the pricing authorities. Of course, I think we all have to respect that today what we have is basically a two-liner on this and have not shared in more depth in this data. Of course, it's a significant piece of news in the community also compared to our competitors. That's pretty much a qualitative statement that we can make at this stage.
Okay, I would continue on milestones. Is it correct to assume that in Q4 you did book EUR 4.5 million in milestones, and can you elaborate on which areas those were related to?
You want to take this?
I mean, of course, we all the time have some smaller milestones. The one slightly larger one of those stuff is related to sale or licensing of products to partners in new territories. We have had those type of milestones, of course, throughout the year, but typically they are smaller ones, so this was a little bit more significant one.
Regarding output for this year, you're assuming a EUR 35 million in milestone payments, including EUR 28 million from darolutamide. From which areas are you expecting the additional EUR 7 million to come from, and should we regard these milestones as highly certain?
Yeah, I mean, these are also related to the licensing the rights of existing products. It's basically not related at this stage to any licensing of products under development.
Okay. Finally on the pipeline, you said that you will continue the existing phase I studies on ODM-208 and ODM-209. When do you think you will have enough data to communicate something this front? How do you see the next steps for these programs?
The next stage would obviously be phase II. At this stage, we are still gathering data from the right dosing regime to move forward. We are dealing here with patient population, these patients are sick patients, very severely so. We want to have a high confidence when we move on. We hope that if at the end of the year or early part of next year, we would have news to share on this.
Thank you very much. I don't have any further questions.
Our next question comes from the line of Dominic Lunn of Credit Suisse. Please go ahead, your line is open.
Hi, thanks. Could you just outline perhaps in tiny bit more clarity why you'd not expect meaningful Nubeqa revenue until 2021 onwards? I know you just touched on the ARAMIS OS data, but do you have any speculative reasons as to why you were able to hit OS earlier than competitors despite starting a trial one year later? Were your patients sicker, or how do you explain that? Thanks.
Okay. I'll start with the easier one, where we don't have an answer is your number two question, of course, because not all the data has been published. This would be purely speculative, and I think that would be, to an extent, unprofessional for me to give any thoughts on the data that has not been even published yet. No, we don't have that. On the Nubeqa revenue, one has to remember that the arrangement that we have is that, first of all, we only get roughly 20% cut of the business on the top line revenue. As said, the European sales, they will start only this year. Before we have ramped up and launched the product, even in all key markets in Europe, it is not going to be this year. It's going to take us to the next year.
Furthermore, in the U.S., this will be the first full year of launching the product. Also in the U.S., you have to get into the payment systems. Bayer has been very successful in getting access to the payer systems, but we are not there completely yet. Of course, we start at the level we came as a third in the market, so we have to be patient here. We are very strong believers on the quality of the product, of the profile of the product that the data strongly supports. The same in Japan. The experience that Orion have from our products in different therapeutic areas is that the uptake in Japan typically is very slow, starting from the fact that typically the patients, their prescriptions are initially for a very short period of time, not maybe as what we've seen in the Western hemisphere.
It's not going to be something uptake that we will see from zero to 100 in a few seconds. It will take some time, but all the signs are very strong there. Strong belief in the product quality and the data that we are able to bring to the marketplace.
Okay. Thank you.
Our next question comes from the line of Iiris Theman of Carnegie. Please go ahead, your line is open.
Yes. Hello, this is Iiris Theman from Carnegie. A few questions, please. You are planning to set up an own sales organization in Asia and possibly also in the U.S. How many sales people would you need in the U.S. and Asia? Are the costs going to impact your 2020 numbers or more likely 2021? Secondly, what is the outlook for biosimilars in this year? Are you facing a sales decline there? Thirdly, regarding animal health, do you expect anything, or do you have anything in the pipeline that could boost the sales in the coming years? Thank you.
Okay. Thank you. Very good questions. On the U.S. sales and Asian sales, we have actually that in our outlook. You want to comment on that?
We are setting them up. Of course, like we have discussed, the U.S. is very dependent on the result of the REFALS study, which basically means that if we get the study result during the second half of this year, it means, of course, that we will initiate the operations. Once we have the market approval, gradually we will then increase the resourcing in U.S. Definitely it will have some negative impact on this year's numbers because the costs come first and the sales only starting at some point next year. The Asian operation is relatively small and will not have in the cost or the sales this year any real main impact. It's more like a starting phase of looking at the new geographical region in the world.
Gradually, of course, the idea is there also to launch more of our new products there. The Asia will initially be a relatively small impact in both lines, and U.S., of course, is completely dependent on what happens in the result studies.
Maybe as a working number, as you asked about the size of the organization. Today, our working number in the U.S. would be less than 50 persons in totality. Much of that depends how we will structure that. Not all of them will be in our own payroll, so there will be also a contract sales force and consultants that will be used, and that's pretty typical Orion, very careful planning, so we don't take fixed cost on board immediately.
Yeah. Initially, probably majority of the personnel will be third party, and then gradually when the product hopefully is in the market, then we start getting more experience. We might start kind of taking maybe a little bit more personnel in-house.
Then the-
I just-
Yes, please go ahead.
Just to clarify that, was it 50 or 15?
50.
Yes. Thank you.
In terms of the biosimilars, we expect the sales to decline this year because we have not been successful in winning the tenders, but as I cautioned in my opening remarks, one should be careful in drawing conclusions to the profitability because the biosimilar business profitability is substantially lower than our average business. There was a question on animal-
Yeah, the animal health.
Yeah
Pipeline. We are now finally in the process of launching our Clevor product, which has been approved already some time ago, but there have been certain technical reasons why it has not been yet in the market. That will come this year. It definitely will not have any significant impact on this year's numbers but hopefully can grow in the coming years. We also have some other ongoing projects which are getting in the final steps of the development program. In this year, hopefully, we can even maybe start some registration processes. Of course, it means that also in those cases, we are talking about 2021 and beyond that before we can see launches. Definitely there is a pipeline.
Of course, in terms of animal health, those hopefully can be meaningful, but of course, from the total group point of view, the impact is relatively limited.
Okay. Thank you.
Just a reminder, if you want to ask a question, please press zero one on your telephone keypads. You can press zero two at any time, and we'll have a further pause while any questions are being registered. There are no further questions at this time on the telephones. Please go ahead, speakers.
Thank you very much. Last chance, last call here in Espoo, should anybody have any questions? If not, I'll take the last opportunity to advertise our AGM on March the 25th. Please join us there. Thank you very much.