Good afternoon, ladies and gentlemen, and welcome to Orion's earnings conference call and webcast for the financial period of January-June 2020. My name is Tuukka Hirvonen, 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. 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 Lappalainen, will present the results of the period, after which you will have the opportunity to ask questions from him and also from our CFO, Mr. Jari Karlson. 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.
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. Without any further delays, it's my pleasure to invite Timo to the podium. Timo, please.
Thank you, Tuukka. The first half of this year is really a tribute to Orionees who have 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. It's been a magnificent effort by the entire organization during the first half of this year. If we look at the highlights for the period, certainly the COVID-19 is on the lips of everybody, and that is in the backs of our mind all the time. 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&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 Nubeqa. Now moving forward, the REFALS study, which is for the symptomatic treatment of ALS patients, that study has been completed and the validation of the data is ongoing as we speak.
The full effect of COVID-19 is, of course, we don't know that yet, but if we look at 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 the rest of the operation, providing products to the marketplace, responding to the customer demand and so forth. 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 Dexdor, which is used in ICU setting and of course for the COVID-19 patients especially, there was a great demand for the product towards the end of 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-19 situation being much more calm here in Europe. At the same time, Easyhaler where there was this great spike, that also the demand has leveled off. If we try to picture what might lie ahead of us, 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.
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. We expect that there will be some delays in some of the R&D programs, at least for the time being. Can we 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 of the strong demand, we recorded close to EUR 600 million, topping with 16% for the comparable period. Operating profit, strong EUR 180 with 70% increase over the comparable period. The 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 EUR 0.90 a share. 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 comparable period then to this period are actually on the blue side. We look at the milestones, of course, had a considerable effect. The Parkinson's products, Easyhaler, also all proprietary products, also the business here in Finland grew. Where we saw a decline or losses were in the exchange rates, most of that EUR 8 million actually incurred also already in the first quarter. 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 the improved profitability, also, of course, the milestones and royalties.
In terms of the geographical split, due to the high demand of the products outside Finland is now a little bit smaller than it traditionally maybe had been. When we look at regionally, it's been across the board in all the regions, how Orion defines the world, we saw growth. If we look at then the businesses and from the specialty products perspective, we saw growth there. Also, in proprietary products. In animal health, we were very close at the par compared to the very strong first half last year. Fermion also a little bit higher than the year before. When we look at the league table of the products, Easyhaler continues to plow ahead with 17% growth over the period. Stalevo, strong growth, and we'll come back to that. Simdax at par. Dexdor also at par, which is a good achievement.
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. When we look at the biosimilars, we've informed early on that the 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. If we first look at the proprietary products, what's going on there, the Easyhaler franchise, as I said, had a nice growth over the period. Parkinson's products as well, and Simdax and Dexdor maintained their position.
In terms of the others, of course, now the situation is very different compared to last year than we in the second half, we have recorded the milestones there, especially for the darolutamide. The Easyhaler products, the budesonide-formoterol product continued to plow ahead, very strong, but also that carried the rest of the portfolio with it, with 11% growth. 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 large parts 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. Dexdor and Simdax.
Certainly Dexdor, as that was used for the COVID-19 patients in ICU, and actually many of the patients, they stayed in the ICUs 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. Simdax, overall stable for the first six months. 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 of biosimilars. 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. Then in our Eastern European and Russian business, we went plowed ahead compared to the period last year.
The market developed in Europe on the positive note for the first six months of this year. Orion's the 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. When we look at the overall structure of how Orion's business is building up here in Finland, so it's actually in three facets. The self-care products, reference price products, and all the rest. The reference price products, those are our largest single category, and there our market share is 1/4, which is at the same level as for self-care products. In 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 this chart, with the exception of darolutamide as the main market. The product is now launched. It's not anymore in the regulatory phase. There are new approvals coming along, but the key markets have already been launched. 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, ARAMIS trial are important milestones for the company. 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 ARASENS trial, which is the next trial to be commenced with the darolutamide, that estimated completion has been pulled forward from 2022 to 2021. In terms of the REFALS, 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. 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 price products. In the self-care products, our market share actually grew in this period. The Easyhaler continues to plow ahead as planned.
The larger in-licensing opportunities or be that in M&A, we have nothing to report at this time, of course, working on that. 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. With a great effort, we were able to respond to the spike that we saw in demand. We had to make prioritization in our supply chain, use of personnel capacity. 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 our employees in a safe environment, feeling safe, that has meant that there has been a remote work for the people who can do that and that 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. Our sustainability report was published during the quarter, and I invite you to take a look at that. There is a lot of good data on sustainability activities of the company. When we look at some of these targets that we have set for ourselves and we do not 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. Of course, the patient safety, that is an important element.
I think we are there in 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 frequency, so-called LTIF, there we still have ways to go. We are not there yet, we need to work on that. 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 the 8th, and we repeated the net sales. We expect the net sales to be at the similar level as 2019, so a little bit north of EUR 1 billion. In terms of the operating profit, we estimate now the operating profit to be slightly higher or higher than 2019, when we recorded EUR 253 million.
We've also published some of the forthcoming events for the company today. The third quarter, we will report in October, and that will be the normal scheduled conference call or webcast again. Hopefully, by that time, we are able to resume our normal way of doing this webcast, but let's see how things will evolve. At this time, I would invite Jari Karlsson, 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. Presenters, we have a question already in the queue. The first question is from Jo Watson from Credit Suisse. Mr. Jo, please go ahead with your question. Please.
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. In your outlook, you say that you are putting EUR 5 million in your outlook for possible marketing expenses for your ALS drug if the phase III 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. A little bit more on that, please. Secondly, you highlighted that you are expecting EUR 40 million 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?
If you could tell us a bit about that. Then finally, I'd have a question about the Finnish market, particularly for next year. Do you envisage that the Finnish government, like all governments that pay for healthcare, is going to have to need to look at expenses more critically next year? 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. There's none. All of this is actually preparation for potentially setting up the infrastructure, creating contacts with the patient organizations, et cetera. Depending how the decision goes, provided of course, that the data supports that, we are likely not to hire a sales force at this time. That would not have an impact for the remaining part of the year. Just to build up the management capability in terms of the marketing, in terms of the handling the sales transactions, logistics, et cetera. This is for setting that type of infrastructure.
The actual sales force, that's for then time to come. That's basically where the allocation of these funds are.
Part of that EUR 5 million is also headquarter type of expenses for the overall branding and marketing materials and so forth, required to prepare for the launch. As you know, of course, one needs to start these type of actions already before the market authorization has been granted, because it would be all too late to start by that time. About the milestones, so like always, we have some big ones which this year, like last year, are related to Nubeqa, and on top of that, we typically generate some EUR millions per year for the sales and marketing rights for our existing and old products. This year, bulk of the difference between the EUR 40 million we are now putting in our outlook and the Nubeqa related to finding the new partners for the entacapone franchise, so Stalevo Comtan all around the world.
No additional Nubeqa related milestones. The EUR 28 million we already have received is everything related to Nubeqa in this EUR 40 million.
About the Finnish market. Now, our main business in Finland is in reference price products, which is actually a reverse auction every third month. That's how that market operates. 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. Basically this is already a market that operates under market conditions. 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 are for the products where the pricing you have genuine pricing discussions or negotiations with the payer.
That would be products exempted from the reference pricing. Basically those would be products under patent or in some specific indications. Epilepsy is one of those, quite a few psychiatric products are in those as well. 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. 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. We have the second question from Mr. James Vane from Jefferies. Mr. Wayne, you may ask your question now.
Hi, it's James Wayne Tempest from Jefferies. Thanks for taking my questions. Three if I can, please. To follow up to the pricing question, 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? Also R&D, if you mentioned that some of those programs are on hold, we can try and understand what is essentially going to catch up next year. The final question is, you mentioned that validation sort of ongoing on the ALS trial and when do you actually expect to get the data? Thank you.
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 is a 15% hike for the generic products. Whether that 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. As we speak, we are not aware of that. What was the second question? I didn't quite get it.
I mean, basically if there are delays in the R&D and so forth this year, so how much that will be then increasing next year's costs?
Difficult to say, because what actually happens is, they are just moving ahead and of course depends on which phase they are. I would say that they probably are not material when we are seeing that transition.
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. On the other hand, there are so many other things. 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 EUR millions additional costs. That's of course a completely different matter.
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.
I think it's fair to assume that the SG&A, 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. Whether, especially the virtual conferences, scientific 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. The main cost, of course, are the participation fees there. We'll have to see on that. In terms of the publication of the REFALS data, we don't know that. It would be unfair to give you any further guidance on that.
Of course, as we learn how the data will be turning out, we will accordingly then make that publicly available, the top-line results to save the data, of course, then for peer review for scientific conference. Unfortunately, we don't have a date to give you. That's why we want to guide you at least of the state where the process is going on. Unfortunately, we don't have the date yet.
Okay. Thanks very much.
Thank you. We have the next question from Sami Sarkamies from Nordea. Sami, please proceed with your question.
Hi, thanks. A couple of questions. Firstly, on costs, you mentioned lower expenditure as one driver behind your recent guidance upgrade. In which areas at least have you seen lower costs, and do you expect the cost level to normalize during the second half of the year?
I can take that immediately. We were basically referring to costs according to what we had estimated and planned for the year. As you see from the numbers, there are not really that much difference in cost levels compared to last year. We are pretty much at the same level. 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. Of course, it's difficult at this stage to say, but at least I don't see that we would increase the cost from the original plan during the second half. Whatever we have now saved, most likely will be saved for the year, and that's behind the guidance.
That was only one element, so that is not a major part of the changes in the outlook since the original one in February. The main part, of course, comes from the sales and margins. This is just a small additional feature, but which is also pushing the end result to the same direction.
Okay, thanks. 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-19 related one-off, or will the strong momentum carry also into the second half of the year?
Fermion's business is two-sided. Roughly half of that is external sales. 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 that would be used in COVID-19. The other side of the business is for the captive use, and that's sort of the strategic part for Orion. Really depending on the consumption of product or material in either products that we are selling online, inline products to the markets, or for the material that is utilized for preparation of clinical trial samples. That affects greatly the loading of Fermion. These are the two sides of the business. 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. Even between a bad and good year, we are only talking about some EUR millions, not EUR tens of millions. Fermion's results are not really driving the group results. 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. As such, what Fermion is generating as operating profit is not a major driver of the group's performance.
Okay, then on Nubeqa, against some of your earlier comments, the 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
A housekeeping question on the milestones. I may have a bit missed your earlier answer, can you still specify to which areas of the business are these additional milestones related to? We know that EUR 28 million relate to Nubeqa, what about the remaining EUR 12 million?
Like I tried to explain in the previous answer, we have many of those, but this year, the ones in addition to the EUR 28 million received from Bayer for Nubeqa, most are related to the reselling the sales rights of Stalevo and Comtan in many parts of the world. That's basically where they are coming from. We have received late last year one amount, earlier this year, a little bit, most of that difference between EUR 28 and EUR 33 is coming from that. Then we still expect to receive some more during the rest of the year. Most are related to the Stalevo business. Then we have, in addition to that, some smaller ones for other products as well.
Okay, that's clear. Thank you. I don't have any further questions.
Thank you. There is not any further question at this time. Please go ahead, speaker.
Okay, we don't have either any questions through the webcast tool, unless there's somebody right now who's wanting to type a question. We can once more ask from the operator whether there has been any new signals about new questions.
Apparently not. 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