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 Hironen, and I'm the Head of IR here at ORION. Like in April, this time we are also holding this event from studio with no live audience here with us. But of course, you are able to follow us through the webcast and also through the conference call lines. In a few moments, our CEO, Timo Lappelainen, will represent the results of the period, after which you will have the opportunity to ask questions from him and also from our CFO, Mr.
Jarik Karlsson. We will be first taking questions through the conference call lines. And after that, we will turn to questions, which have been received through the webcast tool. And before I let Timo to step in, I'd like to draw your attention to the safe harbor statement we typically have in our presentations. But without any further delays, it's my pleasure to invite Timo to the podium.
Timo, please.
Thank you, Tukka. The first half of this year is really a tribute to Orionis, who have been, in an exemplary way, done great work, be that at the front line of the operators, in the labs, logistics, taking care of the patient safety, managing clinical trials, doing work in the back office, and actually also continuing the normal operations. So it's been a magnificent effort by the entire organization during the first half of this year. So if we look at the highlights for the period, certainly, the COVID-nineteen is in the lips of everybody, and that is in the backs of our mind all the time. And certainly, from the pharmaceutical demand perspective, we saw a spike to the end of first quarter and also in the beginning of first quarter.
Now the demand has leveled off, and we've seen that. Now for Orion, as the net sales increased, the loading of our plants increased also, we saw also the operating profit increasing simultaneously. Of course, we also for the second quarter, we recorded milestones that flow directly in our P and L. The important event was also the launch of Nubeqa that we are jointly commercializing with Bayer in Europe. And also the launch took place by Bayer in Japan.
We've also noted that there are new data that was provided in ASCO regarding the legacy study of Aramis on Lubeka. Now moving forward, the REFLS study, which is for the ALS, symptomatic treatment of ALS patients. That study has been completed, and the validation of the data is ongoing as we speak. So the full effect of COVID-nineteen is, of course, we don't know that yet. But if we look at a little bit what took place in the first half, we put utmost care in taking care of our colleagues because only by that can we then secure rest of the operation, providing products to the marketplace, responding to the customer demand and so forth.
So the continuity of the operation and the patient safety, of course, comes on the top of our minds. The March spike in the demand, especially in the generics and in OTC products, we saw that, and that is now since that has been leveling off. The strong demand for Dexter, which is used in ICU setting, and of course, for the COVID-nineteen patients especially, that there was a great demand for the product towards the March, and also that continued through April. But now that has leveled off, and we are at the normal situation. Of course, that is on the back of the COVID-nineteen situation calmly, being much more calm here in Europe.
Also at the same time, eSeeHaler, where there was a great spike, that also the demand has leveled off. Now if we try to picture what might lay lie ahead of us, so the 2020, we expect that the demand has leveled off, but also the disruptions of the global supply chain. Those are probably at the lower risk what we estimated a few months ago. That has not gone away, but it is at the lower level. So far, we've been able to manage in the second quarter the prioritization of our own production very well, and there are no bottlenecks in our supply chain or in our production at this time.
There are we expect that there will be some delays in some of the R and D programs, at least for the time being. Can we then catch up with those as the development goes on? That remains to be seen. But from our own internal targets, there is some delay. The key numbers for the first half in terms of the net sales, there was, on the back the strong demand, we recorded close to €600,000,000 so topping with 16% for the comparable period.
Operating profit, strong 180,000,000 with a 17% increase over the comparable period. Also, margins were healthy, and this is on the back of the high loading of our facilities. Cash flow was strong for the first quarter also with €0.90 a share. When we look at the waterfall, how the net sales evolved over the period, what we actually see is that most of the bars here from a comparable period then to this period are actually on the blue side. When we look at the milestones, of course, had a considerable effect.
Then the Parkinson's products, eSeehaler, also all proprietary products. Also the business here in Finland grew. Where we saw a decline or losses were in the exchange rates, but most of that €8,000,000 actually incurred also already in the first quarter. Then when we look at the operating profit line, of course, on the back of the strong sales, the overall volume and the product mix, they were the drivers for profitability, but also, of course, the milestones and royalties. In terms of the geographical split, due to the high demand of the products outside Finland.
Finland is now a little bit smaller than it traditionally maybe have been. But when we look at regionally, it's been across the board in all the regions how Orion defines the products perspective, we saw growth there. Also in proprietary products. In animal health, we were very close to the at the par compared to the very, very strong first half last And then Fermion, also a little bit higher than the year before. When we look at the league table of the products, EZHELR continues to plow ahead with 17% growth over the period.
Stalevo, strong growth, and I'll we'll come back to that. Syndax, at par. Dexter, also at par, which is a good achievement. And on animal sedatives, as said, we had a very strong first half last year, so that took a little bit of the unfair comparison to this year. And then when we look at the biosimilars, we've informed early biosimilar year will be tougher for us as we have not won any major tenders, but that is we are on the declining line on that.
And we know there are no new openings in that front this year. So if we first look at the proprietary products, what's going on there? The eSiHaler franchise, as said, had a nice growth over the period. Parkinson's products And Symdox and ExDoor maintained their position.
In terms of the others, of course, now the situation is very different compared to last year. Then we, in the second half, we have recorded milestones there, especially for the Darolutamide. Now the EZHELER products, the budesonide for METROL product continued to plow ahead, very strong. But also, that carried the rest of the portfolio with it, with 11% growth. So that was a nice overall growth for the franchise.
In terms of the Parkinson's products, we are aware that as we are changing our partnerships in a large part of the world, there is some stockpiling for the product for the first half. And the second half, I think we will see a little bit lower demand. So one should not multiply this by two. That will give you a too rosy picture for this franchise for the entire year. Then Dexdoor and Simdux.
So certainly Dexdoor, as that was used for the COVID-nineteen patients for in ICU. And actually, those many of the patients, they stayed in the ICU for extended periods of time. So the utilization of the product, which was very high, that contributed to the growth for the first and second quarters for the product. Cymdax, overall stable for the first six months. Now if we turn over to specialty products.
So that is the product category where we have the prescription products. We have the OTC products, both pharmaceutical products and non pharma products, and also the small tiny piece So in Finland, the business group, and Finland is by far the largest business for that. In Scandinavia, we suffered from the loss of tenders for biosimilars. And then in our Eastern European European and Russian business, we went plowed ahead compared to the period last year.
The market developed in Europe on a positive note for the first six months of this year. Orient's greatest business in this market is actually the reference price products. And there, we compared to the overall market, we were at par pretty much for the first six months. Then when we look at the overall structure, how Orion's business is building up here So it's actually in three facets: the self care products, reference price products and all the rest.
And the reference price products, those are our largest single category. And there, our market share is onefour, which is at the same level as for self care products. And overall, the market share of Orion products in the Finnish market was 11%, at par with the previous year. In terms of the research and development, there has not been change in statuses of the this chart, with the exception of darolutamide as the main markets, the product is now launched. It's not anymore in the regulatory phase.
Of course, there are new approvals coming along, but the key markets have already been launched. And in ALS, as I mentioned, that this data is now under validation, and we'll see how soon we can report those top line results. In the beginning of the year, we informed our key targets, business targets for this year. And of course, the commercialization of darolutamide, RSINS trial are important milestones for the company. And now we have realized the first commercial sales of darolutamide, both in Japan as well as in Europe.
We've also noted that the fully recruited ARO SENSE trial, which is the next trial, to be commenced with the darolutamide, that estimated completion has been pulled forward from 'twenty two to 'twenty one. In terms of the Rafales, we note that we are assessing the potentiality of Orion launching the product in The U. S. For ALS. And we continue the search for development partners for some of our oncology compounds.
And here in Finland, of course, we want to strengthen our position. This is an important market. The competitive portfolio is part of that, and we continue to be the leader in the self care products as well as in the reference priced products. And in the self care products, our market share actually grew in this period. And then the eS inhaler continues to plow ahead as implant.
And the larger in licensing opportunities, or be that in M and A, we have nothing to report at this time, of course, working on that. Also, in these times, of course, the sustainability is a very important part. And the patient safety, reliable supply of our products, services is an important part. And with a great, great effort, we were able to respond to the spike that we saw in demand. We had to make prioritization of our in our supply chain, use of personnel capacity, also, of course, ensuring the availability of materials for us.
And then, of course, keeping these patients safe who are enrolled in our clinical trials. Having then our employees in a safe environment, feeling safe, that has meant that there's been remote work for the people who can do that. And many, many specific measures have been taken to secure the operating environment, be that in the labs or in production lines, for people who cannot operate remotely has been done. And our sustainability report was published during the quarter, and I invite you to take a look at that. There's a lot of good data on sustainability activities of the company.
And when we look at some of these targets that we've set for ourselves, and we don't have numeric performance of this, that is readily available in our report. But we just for the convenience of visual aids here, we omitted that. So of course, the patient safety, that's an important element. I think we are there on a good track in meeting that. In terms of the environment, we are well underway there, but there's still work to be done.
Unfortunately, the lost time injury frequent, so called LTI F1, there we still have ways to go. We are not there yet, and we need to work on that. And then, of course, the business ethics and transparency, especially in our line of business, is very critical. And there, we are well underway. In terms of the outlook, we updated the outlook on July 8, we repeated the net sales.
So we expect the net sales to be at the similar level as 2019, so a little bit north of 1,000,000,000 In terms of the operating profit, we estimate now the operating profit to be slightly higher or higher than 2019 when we recorded $253,000,000. We've also published then some of the forthcoming events for the company today. So the third quarter, we will report in October, and that will be the normal scheduled conference call or webcast again. And hopefully, by that time, we are able to resume our normal way of doing this webcast. Let's see how things will evolve.
And at this time, I would invite Jarik Karsten, our Chief Financial Officer, here to the podium with me, and we are happy to take any questions, thoughts that you may have. Please.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. So presenters, we have a question already in the queue. So the first question is from Joe Wilson from Credit Suisse.
Mister Joe, please go ahead with your question.
Please.
And hear you. I wonder if you're on mute.
Definitely not on mute.
Okay. Now we can hear you.
Sorry about that. I've just got a couple of questions. So in your outlook, you say that you are putting €5,000,000 in your outlook for, possible marketing expenses for your ALS drug if the phase three comes, comes good. I wonder if you could just, expand a little bit more on, what you're thinking of doing and, whether that would be it seems a little bit early to be hiring a sales force before you've even submitted it to the FDA, but a little bit more on that, please. And secondly, you highlighted that you are expecting €40,000,000 of milestones this year, of which you had 33.
I think consensus, was for about 35 for the year. Are these, milestones that you're expecting earlier than you might otherwise have done relating to Nubeqa, or are they to do with other things? And if you could tell us a bit about that. And then finally, I'd have a question about the Finnish market, particularly for next year. Do you envisage that, you know, the the Finnish government, like all governments that pay for health care, is going to to to need to look at expenses, more critically next year?
And would you expect another ratcheting down of pricing in that market given it's important to you? Many thanks.
Thanks very much. Let's do that. I'll take the first one. Maybe Jari can take the middle one, and I'll take then again the very last one. For the potential launch of ALS in The U.
S, of course, because we don't have any infrastructure there yet. So there's none. So all of this is actually preparation for potentially setting up the infrastructure, creating contacts with the patient organizations, etcetera, etcetera. And depending how the decision goes, provided, of course, that the data supports that, we are likely not to hire sales force at this time, so that will not have an impact for the remaining part of the year. But just to build up the management capability in terms of the marketing, in terms of handling, the sales transactions, logistics, etcetera.
So this is for setting that type of infrastructure. And then the actual sales force, that's for then time to come. So that's basically the where the allocation of these funds are.
And part of that €5,000,000 is also headquarter type of expenses for the overall branding and marketing materials and so forth required to prepare for the launch. And as you know, of course, one needs to start these type of an actions already before the market authorization has been granted because it would be all too late by that to start by that time. So about the milestones. So like always, we have some big ones, which this year, like last year, are related to Nubeka. And on top of that, we typically generate some millions per year for the sales and marketing rights for our existing and old products.
And this year, bulk of the difference between the €40,000,000 we are now putting in our outlook and the Nubeka related to finding the new partner for the entacapone franchise of Stalevokomtan all around the world. So no addition on Nubeka related milestones. So the €28,000,000 we already have received is everything related to Nubeka in this €40,000,000
And then about the Finnish market. Now our main business in Finland is in reference priced products, which is actually a reverse auction every third month. So that's how that market operates. And there are some actions that the payer has taken. And one is the pricing band that was taken or narrowed some time ago.
There are, of course, some other type of systems in place for generics in some other countries. But basically, this is already a market that operates under market conditions. And also the same would go for the OTC products, which are, of course, exempt from a reimbursement or regulatory oversight for the pricing. Where potentially, which is much more easier for the regulator, of course, to put their hand on, or for the products where pricing you have genuine pricing discussions or negotiations with the payer. But that would be products exempted from the reference pricing.
So basically, those would be products under patent or in some specific indications. Epilepsya is one of those. Quite a few psychiatric products are in those as well. But mostly the reference price, those are already in the market pricing conditions. Having said all that, I think the notion is correct.
I'm sure there will be pressure on pricing across the board, including Finland. But we have we are not aware of any specific actions in regard to the pricing of the pharmaceuticals in Finland as we speak.
Thank you very much.
Thank you. So we have a second question from mister James Mister Jefferies, you may ask your question now.
Yes. Hi. It's James Vane Tempest from Jefferies. Thanks for taking my questions. Three, if I can, please.
Just a follow-up to, the pricing question. Just wondering if you can give any incremental color on what you've seen in Central, Eastern Europe and CIS countries. Second question is how much of the delays expected to come back next year in sales and marketing? And also R and D, if you mentioned that some of those programs are on hold so we can try and understand what is essentially going to catch up next year? And then the final question is you mentioned that validation is sort of ongoing on the ALS trial.
And when do you actually expect to get the data?
Thank you. In terms of the pricing in Europe, I don't know who has the crystal ball. The only thing that we've seen so far in terms of the real actions are in Norway, where for the three month period, June, July, August, there's a 15% hike continues or whether this was only for that specific period remains to be seen. We have not planned for that. Other countries, we are not aware that there would be general price increases neither for the price cuts.
So as we speak, we are not aware of that. What was the second question? I didn't quite get it. That was
I mean basically, if there are delays in the R and D and so forth this year, so how much that will be then increasing next year's cost?
Difficult to say because what actually happens is, I mean, they are just moving ahead. And of course, it depends on which phase they are. So I would say that they probably are not material when we are seeing that transition.
And in the sales and marketing, there are so many other things which have impact on that, like the life cycle of the different products that is difficult to say that if there are, for example, a little bit of less traveling this year and traveling comes back, that, of course, might increase the cost. But on the other hand, there are so many other things. But of course, it's true that if the ALS product is successful and we decide to launch it on our own in U. S, that would, of course, increase next year cost in U. S.
Quite a lot from this year. I mean not that much that it would really have a major impact on the group overall finances. But definitely, we are talking about several millions additional costs, but that's, of course, a completely different matter. So when it comes to the impact of some delays this year, it's probably very difficult to say that you could automatically see any impact for next year's cost levels.
Well, I think it's fair to assume that the SG and A is when we look at the sales and marketing, there are quite a few large events that either have been postponed, canceled or changed to virtual. And whether especially the virtual conferences, scientific meetings, meetings, if that will be part of life as we move forward, probably so. Will that have an impact on the cost level? Probably to an extent, at least as the traveling goes. But the main cost, of course, are the participation fees there.
So we'll have to see on that. In terms of the publication of the RIPOS data, we don't know that. So it would be unfair to give you any further guidance on that. Of course, as we learn how the data will be turning out, of course, we will accordingly then make that publicly available, the top line results, to save the data, of course, then for peer review for a scientific conference. But unfortunately, we don't a date to give you.
And that's why we want to guide you at least of the state where the process is going on. But unfortunately, we don't have the date yet.
Okay. Thanks very much.
So we have the next question from Sami Sakamyat from Nordea. A
couple of questions. Firstly, on costs. You mentioned lower expenditure as one driver behind your recent guidance upgrade. In which areas of the business have you seen lower costs? And do you expect the cost level to normalize during the second half of the year?
Okay. I can take that immediately. So we were basically referring to costs according to what we had estimated and planned So as you see from the numbers, there are not really that much difference in cost levels compared to last year. So we are pretty much at the same level.
But we were planned in some areas maybe to increase the cost a little bit. And that's what we are basically referring, and that has had an impact on our guidance. And of course, it's difficult at this stage to say, but at least I don't see that we would kind of increase the cost from the original plan during the second half. So whatever we have now saved most likely will be saved for the year, and that's behind the guidance. But that was only one element, so that is not a major part the changes in the outlook since the original one in February.
The main part, of course, comes from the sales and margins. So this is just a small additional feature, but that which is also pushing the end result to the same direction.
Okay. My second question would be on Fermion that saw strong growth in Q2. Was this a good profit contributor? And should we view this as COVID-nineteen related one off? Or will the strong momentum carry also into the second half of the year?
Fermi's business is two sided. Roughly half of that is external sales. And whether that was impacted by the pandemic, to a limited extent, yes, maybe. But mostly, those are ongoing relationships, and we have only a few products in the that would be used in COVID-nineteen. But then the other side of the business is for the captive use, and that's sort of the strategic part for Orion.
And really, really depending on the consumption of products, product or material in either products that we are selling online, in line products to the markets, or for the material that is utilized preparation of clinical trial samples. That affects greatly the loading of fermion. So these are the two sides of the business. And fermion's loading today is very strong. We've seen the uptake also in terms of the orders.
But the contribution of the facilities actually come mostly how well the plants are loaded up and of course also on the product portfolio there.
Of course, in the big picture, the share of Fermion of the total operating profit of the group is relatively limited. So even between a bad and good year, we are only talking about some millions, not tens of millions. So Fermion's results are not really driving the group results. But Fermion has a big role that if it cannot supply some of the active ingredients for our proprietary products, that, of course, could have a major impact on the results. But as such, what Fermion is generating as operating profit is not a major driver of the group's performance.
Okay. And then on Nubeqa, against some of your earlier comments, product didn't make it on the list yet. Do you still expect this to happen during the second half of the year?
Yes, we do.
Okay. And then housekeeping question on the milestones. I may have a bit missed your earlier answer, but can you still specify to which areas of the business are these additional milestones related to? So we know that €28,000,000 related to Nubeka, but what about the remaining €12,000,000
Like I tried to explain in the previous answer, we have many of those, but this year, the ones in addition to the €28,000,000 received from Bayer for the new PEKKA, most are related to the selling reselling the sales rights of Stalevo and Compton in many parts of the world. So that's basically where they are coming from. We have received late last year one amount earlier this year a little bit. So most of that difference between 28,000,000 and 33 coming from that. And then we still expect to receive some more during the rest of the year.
So most are related to the STALEVo business. And then we have, in addition, that some smaller ones for other products as
So there is no any further question at this time. Please go ahead, speakers.
Okay. We don't have either any questions through webcast tool unless there's somebody right now who's wanting to type a question. And then we can once more ask from the operator whether there has been any new signals about new questions.
Apparently not. So it seems like we've satisfied all the questions at this time. I thank you for joining the conference call. Wish you all a safe and great summer, and hope to meet you all in October. Thank you.