Good afternoon, ladies and gentlemen, welcome to Orion earnings presentation for the financial period of January-September 2019. My name is Tuukka Hirvonen and I'm the Head of Investor Relations here at Orion. Shortly, our CEO, Timo Lappalainen, will walk you through with the first nine months of this year, after which you will have the possibility to ask questions either from him or from our CFO, Mr. Jari Karlson. We will first take questions here in Espoo 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 take the floor, I'd like to draw your attention to the safe harbor disclaimer statement. Now, without any further delays, I'd like to invite Timo on the podium.
Thank you, Tuukka. Of course, the key highlight for this period was the NDA approval of darolutamide, the brand name Nubeqa, in the U.S. darolutamide additional marketing authorization applications, those have been submitted throughout globe, and the most important ones, the review period is ongoing in Japan and in Europe, and quite a few other core markets as well. For the nine months, the net sales as well as the operating profit, those were higher than in the comparable period. The both net sales as well as the operating profit, those include the milestone that was related to the darolutamide Nubeqa first commercial sales in the U.S. The outlook for the year remains unchanged.
Apart from that key event, the proprietary product sales, especially in terms of the Easyhaler and Simdax, those performed very well for the first nine months. Specialty products also had a growth, especially in Scandinavia, that continued. However, our generic business is affected by the price competition that has been continuing, and also the product shortages that the entire industry is facing. Another important event was, for us, was the recruitment of the REFALS study, which is our ALS program, where we are studying the orally administered levosimendan for the symptomatic treatment of ALS patients, and that recruitment was completed. Highlights of the key numbers. The net sales we were about 9% higher than in the comparable period, so nice growth in that. In operating profit, EUR 198 also ahead of last year with that regard.
The operating profit margin actually right on the money in terms of the target, what we've set to ourselves as a minimum of 25%. The cash flow per share, when we look at that before the financial items, that was also very favorable. Of course, last year, the comparable period, that includes the divestment of Orion Diagnostika. Apart from that, all the other numbers, those are only continued operations. The how we've evolved then in the nine months to where we are today. When starting with 2018, then some of the drawbacks that we had for the first nine months, certainly in terms of the sales, Parkinson's disease products, as well as the reference pricing in Finland, those ate into our sales, roughly EUR 10 million.
The royalties in the comparable period, those were higher, of course, boosted by the milestone event in the U.S. relating to Nubeqa. Easyhalers had also strong growth continued. Animal health also nice growth, exchange rates were favorable for us for a little bit. That's how we ended up at EUR 776 in terms of the sales. When we look at the operating profit there, certainly the product sales, those helped us and we had a increase in that. The margin and the product mix, so how that evolved, that ate up into quite a bit of that gain. Exchange rate, those assisted us there. Milestones and royalties as those flow directly through the P&L was of course a major event in that.
As we have said, we are investing this year roughly EUR 30 million in growth initiatives, and we've broken that now down for your convenience and highlighting that the EUR 9 million out of those investments for this first nine months are differentiation relating to the product acquisition of Stalevo and COMT rights. That's how we ended up into EUR 2 million shy of EUR 200 million in terms of the operating profit. When we look at the geographical breakdown of the sales, not much change in there. Finland continues to be the largest country market with a little bit less than a third of our sales.
Scandinavia growing very nicely, of course, the large European markets, Mediterranean countries, Italy, Spain, Portugal, and Greece, important markets for us as, of course, in Germany, the U.K. and France growingly especially with Stalevo. North America also, of course, boosted by the milestone, has again taken a share of this pie. The rest of the world where a couple of Latin American countries and most notably, of course, Japan is an important market. When we look at how the sales have evolved in those markets, so in most of the markets, we see actually positive gains with the exception of the rest of the world and Finland. If that was a geographical breakdown, then when we break the sales by businesses, then we note that all the businesses had gain in the first nine months.
Specialty products today, our largest business, was a little bit higher than the bar, so that was important. Of course, the proprietary products that enjoyed the milestone event. Animal health, strong growth there for the first nine months. Fermion, which is our API production unit, had also nice growth. Also in contract manufacturing, we saw a slight growth. When we look at the products, the league table of the products, Easyhaler has plowed its way to the top of the league here and continue to grow with the 16% growth over the last nine months. In Parkinson's disease, we'll discuss that a little bit more. We had a slight decline, seems like that is more of a timing event. In Simdax, our heart failure compound, continued to strong growth.
Dexdor, facing generic competition, yet in this nine-month period, very close to last year's numbers. Strong growth in biosimilars. With biosimilars, we've often flagged that, of course, the profitability of that business is lower than the group average, so one should treat this with caution. As said, the animal sedatives, strong growth there. Now, if we move to the divisions, how we report, so take first the proprietary products, and there, especially the Easyhaler, that's the growth engine for this part of the business today. Then also Simdax enjoyed a nice growth in this period. Easyhaler, really the growth has been catapulted over the years by the introduction of budesonide formoterol Easyhaler combination product that continues to drive the growth there and affects the entire product family, because we have a number of products there, six altogether, both combination products as well as mono products.
As we have flagged the competition and the competitive situation with our other combination product, salmeterol fluticasone, has been tougher than what we initially anticipated, and especially compared to the budesonide formoterol. The seventh product in that family, the tiotropium development continues. The message of this picture is really when we look at the darker part of the bar here, our own sales reflect the acquisition of product rights from Novartis in Southern Europe, and that part then of the business is growing substantially now as we've seen that. As we've given the estimate for this year, is pretty much what we had last year in terms of the sales.
The Dexdor, here we are facing generic competition in quite a few European markets, that is also visible in our numbers now, although the entire market for the European sedatives, that continued to grow by 4 percentage points. The Dexdor as a brand product has about EUR 72 million out of that half a billion market. Turning over to specialty products. These are the products that include generic prescription products, OTC products, non-pharma products that we sell through a pharmacy channel, as well as biosimilars. Here our largest single country market is Finland, there was a slight drawback, pretty much at the last year's numbers, but still a little bit lower. Scandinavia had a strong nine-month period for this. As well, we had also enjoyed growth in Eastern Europe and Russia.
Here we see also on the right-hand side a pie here is that the generic drugs, so those are prescription products, that's the bulk of the business. The self-care products is about one-quarter, and the biosimilars is less than 10%. In Finland, where the specialty products have an important role in our business, and especially in the reference priced prescription product category, there the entire market shrunk over the nine-month period by 7%, we shrunk less than the entire market, which of course meant that our market share of the entire pie grew. When we look over the nine-month period, our share of the entire reference priced products category is 27%. We continued the strong market share development also in self-care products with 25%.
Of the overall market here in Finland, our business commanded 11% market share, about the same level as last year. Which is a good performance in a declining market. In research and development, this is the future of the company, where we continue to invest strongly, both in terms of monetary assets as well as brainpower. When we look at what is going on here, this is pretty much the same picture what we had here last time. Obviously, there's a strong internal development here. Easyhaler tiotropium, we continue to develop that. darolutamide, as said, that has been filed in numerous countries, and the first approval, the U.S. NDA, is now at hand. The follow-up trials is ongoing. The ARASENS trial, which is fully recruited, and that's an event-based trial, we expect that still to take a few years to report out.
As I mentioned, the ALS program, that is fully recruited now, and we expect to have some of the headline results probably around this year, next year. As we've earlier flagged, in the earlier pipeline, there are interesting opportunities, and one of them is the 208, 209 family, which is a CYP11A1 inhibitor. I guess our belief in that molecule family is demonstrated by the fact that we have two out of that family at the same time in clinic. In the beginning of the year, we wanted to share our thoughts, what are the important milestones, how we drive our growth toward the EUR 1.5 billion that we set as a yardstick for ourselves. Obviously, the first one there is the successful commercialization of darolutamide compound, and then continue to develop that compound. So far, we are on track.
The submission has taken place. The marketing authorization was granted in a faster than, I think, most of us expected by the U.S. FDA in July, and the launch took place very soon thereafter. The ARASENS trial is fully recruited, and that trial continues as planned. The ALS, which is an important opportunity for patients suffering from ALS disease, that was fully recruited in July. We've also now initiated an assessment of the potentially launching the product by ourselves in the largest market, the U.S. Of course, the Finnish market is important for us, and we continue to invest in that. We certainly saw that the volume share of our business continued to grow faster than the market. The Easyhaler family is an important growth driver, and that continued to plow ahead with 16% growth over the nine-month period.
The new in-licensing opportunities that would augment and add on onto our own pipeline. There the work continues, and we don't have anything to report in public at this time. One theme that has created a lot of discussions throughout Europe this year are the product shortages in terms of the supply of especially generic products. This is not only a European issue, we see the same effect in North America, but it landed in Europe maybe more severely in recent times than what we've seen earlier. Of course, there are many reasons to this. One is that the generic compounds, we have seen a substantial consolidation of the industry there. The price pressure has driven much of the industry to consolidate not only the finished dosage form manufacturing, not only the API production, but especially when we go to the starting materials and intermediates.
Any disturbance in that very complex supply chain will then result to potentially product shortages. When we take the sample here in Finland, we always have to remember that actually what we are talking about, of course, is mainly generic products that get affected by this. It is always, of course, not a desirable situation when the prescription doesn't get fulfilled. That's a loss to the patient, loss to the pharmacy or the distribution chain, and loss to the company. At the end of the day, we are actually discussing quite a rare event. As an example, here in Finland, most of the prescriptions actually get filled at 98% rate at the first time. When you go to the next day, we are talking about more than 99%. It is a rare event. It's not a desirable event.
Should we have product shortages, that's a rare event. Of course, we take it very seriously. We work with our partners throughout the globe here to have our products available as well as possible. Our availability of products here in the local market, where we have major and generic business here, is 97%. Of course, that we start with. We need to have safe, efficacious medicines for the patients when they need it. That is an important task that all the Orion take very seriously. Turning to the financial outlook. As said, we have not changed that, we estimate for the net sales that this year's net sales will be slightly higher than 2018, including than the EUR 45 million milestone payment related to the commercialization of darolutamide in the U.S.
While this is still in a conditional form, we know now that that event has taken place, but we did not want to change the wording of this because that would have triggered then a profit warning. Operating profit, the same thing here. The operating profit is estimated to be at the same level as 2018, including then the realized EUR 45 million milestone payment. Continuing our investments in growth. The next scheduled events, the full year release is going to take place February 5, and the AGM has been planned to be held March 25. At this stage, I'd invite our CFO, Jari Karlson, to join me here at the podium, and we are happy to take your questions.
As Tuukka said in his opening message, is that we'll take first questions here in Espoo in the auditorium, and then we'll turn to the telephone lines. Please, should you have any thoughts, we are happy to take your questions at this time. Okay. Seems like we are first turning to the telephone lines.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will take our first question from Jo Walton of Credit Suisse. Please go ahead. Your line is open.
Thank you. If I could start with three brief ones. Firstly, as we're beginning to think about 2020, I wonder if you can help us on some of the pushes and pulls that we should be considering for next year. For example, are there any further milestones in 2020, or material ones, that you might earn from Bayer, for example, for a European approval of darolutamide? If you could give us any sense of when any sales-related milestones might come in. On the cost side, presumably as you will be expecting European approvals, you may be investing a little more because we would be expecting you to co-promote the drug in Europe. Just some help on the level of investment there.
My second question would be specifically around oral levosimendan, where you have said that you are looking at the possibility of launching this on your own in the U.S. I wonder if you could tell us, and I know this probably wouldn't impact next year, it would be the year after. What sort of level of expense do you think would be appropriate for you to invest to do this yourself rather than to take a partner? Presumably, and maybe I'm wrong, you don't have any infrastructure available to do that yourself at the moment. Finally, could you just expand a little bit more on the product shortages commentary that you made? Is this already impacting your P&L, and if so, how? Is it impacting it through lower sales than you might expect or higher costs and therefore lower profitability?
Is this something that we should be thinking of as a materially different and worse impact for 2020? Thank you.
Okay, good deal. Do you want to take the milestone question? Something that was stated earlier.
Yes. As we have already stated earlier, there are two approval milestones or first commercial sales milestone to be expected. EUR 20 million for approval in the EU and EUR 8 million for Japan. Currently, of course, assuming that the approval timelines of roughly one year from filing are valid in these cases as well, both of those of course then should materialize next year. Those are major events and like we have stated, there are sales-related milestones, but those assume clearly higher sales than to be expected in the near future. Those are for the more distant future to be expected.
Of course, in terms of especially the European timing, we have to appreciate that the trigger for that is the first commercial sale. Then we'll have to see what countries are there in the first line. Bayer will take care of the market access. As we know, there are countries where the market access or the pricing discussions will take a longer period of time than in some other markets. In terms of the investment in co-promotion activities, actually relatively little will be taking place next year. There will be, of course, preparation for the major launches and probably we will see back end loading of those costs, especially to the second half, and depending how the approval and pricing discussions will go on.
At least the early part of the year, it is fairly limited what either company will invest in terms of the sales infrastructure. Of course, there will be many other related activities, but those probably are not financially cost side relevant to discuss at this time. There was the question on our plans to the U.S. with relating to the ALS or the oral levosimendan. As we stated, we've initiated now the evaluation of that. I think it would be premature to discuss any numbers at this stage. Obviously, when we look at the numbers for next year, those would then include that type of expenses should that development be mature enough that we would be prepared to discuss that. Of course, that depends also on our view of the filing of that.
Especially for the next year, they probably will not be material that we need to specifically flag those. Although, if the push comes to shove, we may have to, if you're very interested in those. Shouldn't be material for next year. The third question was on the product shortages. This was mainly what we wanted to bring our view to the general discussion, because this has become a topic, especially in Northern Europe, Germany, Scandinavia, and also what we see in some other countries. Of course, the impact for Orion in some cases has been that we are not able to deliver the product. Many of us are aware of the situation relating to Sartan family of products, and there Orion has also faced shortages in that. We've lost the sales and of course, subsequently, then the margin.
When moving forward, if we knew that, what is coming up, that would be easier maybe to run the business. Of course, we, all the players in the industry, we do our utmost and sometimes a little bit more to secure the supply. Nobody's planning for that, but unfortunately, sometimes science actually evolves, as we knew or noticed in the case of sartans where new chemical synthetic science was created in that. At this stage, we don't see that we would be any more affected by this in 2020, at least that's not in our plans. We fight very seriously against product shortages, be those products that we manufacture or if there are partners who are involved in the supply chain.
Thank you.
We will take our next question from Harry Sutton of Jefferies. Please go ahead. Your line is open.
Hi there. Thank you for taking my questions. I just have three. Can you firstly give us some detail on what some of the challenges have been for your salmeterol fluticasone Easyhaler product and what your expectations for potentially reversing some of those challenges could be going into 2020? My second question is on the darolutamide launch. I understand that you have little involvement and this is outside of your control, could you provide any feedback that you've had from Bayer from the launch year to date? My third question, on your entacapone franchise, I've noticed that your year-to-date own sales haven't offset the declines that you've had from your deliveries to partners. Do you still expect that those sales can deliver flat as you've guided for 2019? That's all. Thank you.
Okay. Thank you. Very good questions. The challenges in fluticasone salmeterol, of course, what we faced in the marketplace was that there is already some other players in the generic space of the product. The originator, we've seen that there is a very aggressive move to switch patients from the current treatment to newer versions. Probably that aggressiveness of those activities were a little bit more than what we had anticipated. In how to then offset that, we believe very strongly that in pharma, this is the longevity, what you do, you do the right thing. We believe we have a very good product in our hands. We have a good product family. We have it attractively priced. Once we get into the tenders, especially in the larger markets, I'm sure we will see growth there.
It's probably the curve was not initially as steep as we thought. Darolutamide, the launch so far, of course, we have to remember that our partner, Bayer, in order to assist patients, they have initiated a two-month free trial for the eligible patients in the U.S. where they have access to a product at no cost to the patient. What we understand so far, the program has been well-received, and there are numerous patients in that. Based on that, it's probably too early to draw conclusions to either way. The question on the entacapone sales, really, I think that was properly stated. The sales or the supply to Novartis, our partner, those are now a little bit back and loaded towards the end of the year versus then last year when we had the very, very strong second quarter in respect to deliveries to Novartis.
I think we are still on the track to meet that guidance. Of course, there is always this last day event. Should the shipment leave here at the end of the year or beginning of the year, there are always some deviation possibility to that. In the broad strokes, I think we are still looking forward to having the sales at the comparable level to last year.
Yes. The sales in our own countries have proceeded pretty much as anticipated. The fluctuation is really coming to the timing of deliveries to partners.
Yes.
That's really helpful, thank you. I actually have just two further questions on the timing of some of the launches of your pipeline. To start with the tiotropium Easyhaler launch, what's the latest on your expectations for that potentially coming to market?
I think it is too early to discuss. We try to refrain from anticipating those until we have the data to submit the product. As we stated, the product is still under development, that would be probably too early.
Okay, also on the REFALS trial for ODM-109, you mentioned that's expected to be completed by summer of 2020. What are your sort of expectations around providing a data readout on that and any potential submission?
Second half next year. That's the best, what we have today.
Okay, thank you. That's all for me.
Thank you very much.
Thank you. As a reminder, if you wish to ask a question, please press star one and please do unmute your line. We will now take our next question from Sami Sarkamies from Nordea. Please go ahead. Your line is open.
Thanks. I would first come back to sales and marketing expenditure that we discussed earlier. Just wanted to check if I understood right, that even though you will be investing into darolutamide co-promotion in Europe and ALS market entry, these costs will not kick in materially before second half next year or even 2021?
That is correct in terms of the field force. Absolutely, yes. Of course, there will be some costs related to that, but they are more in the volatility of the cost.
Of course, in overall, there are some other changes all the time taking place. For example, now when the generic competition for Dexdor is increasing, that of course has impact on the effort on that product, lowering some cost there, which then, of course, to some extent will be redirected to darolutamide. So the overall impact of these changes shouldn't be too large.
Okay. Secondly, how to then think about the level of R&D costs going forward? Next year you will have ending ALS program, will that be offset with other programs such as ODM-208 and ODM-209 that are still in the earlier phase?
Well, I think we hope so, that we are able to accelerate these programs. Of course, we have to remember that for 109, next half year or 2020 first half, we will have the fully loaded cost. We have all the patients in for the trial, whereas still in the beginning of this year, we did not have all the patients recruited. That's one fact. The continuation of the next set of trials really depends how fast we are able to move with the current phase in where those programs are in phase I. We'll see how this data pan out then. Are there opportunities to accelerate the program or do we need to do some more studies? Certainly, there are no plans to cutting back on R&D and we plow full force ahead.
Okay. Then finally on Easyhaler combination product that we have also discussed already. I think you have previously talked about EUR 100 million to EUR 150 million peak sales potential for these products. Do you still believe in this target? What could be the timeline for this? Sales growth doesn't seem to pick up despite your efforts and investments.
Well, we certainly still do. I mean, the product is growing, there's no question about that. In terms of the timing, I don't think we ever said any years for that, but that's the potential and certainly we are geared towards that, including that our belief, I think is demonstrated by the fact that we've invested in production capacity to support that. Certainly we are driving business to that. That will then of course require that we will be successful in penetrating the market. In some markets it requires tendering and winning in toughly competed tenders. In some markets it is more a sales force question. It really varies in Europe market by market. Certainly we're still driving the business towards that goal.
Yes. The goal was EUR 100 million combined for these two businesses. The EUR 150 million was then these included the size of the total Easyhaler business including also all the older products. Of course, originally the idea maybe was that these two products would be about same size and now it looks like that the budesonide formoterol combination will clearly be the larger one of those. As a total we definitely are still aiming at that EUR 100 million. Okay, thank you very much.
Thank you.
Thank you. We will take our final question from Jo Walton of Credit Suisse. Please go ahead. Your line is open.
Thank you. I just wonder if you could give us an update on when we might expect generics for Simdax. Still haven't had anything there yet. Also, could you tell us a little bit more about the biosimilar market? Is there anything that we should know about material contracts that will make a difference that you have some visibility for next year? Update us on the timing of your ability to launch a generic Herceptin. Thank you.
Okay. Generic Simdax, we expect that there is a filing for that in Europe. Should that be successful, also in terms of creating a supply chain, probably we will see competition in that regard, at least in some markets, towards the end of next year. That's where we are today with that. In biosimilars, the market where we operate, now we operate in the Nordic market and the Estonian market. The market for the existing biosimilars is tough, especially for the products that are being tendered to hospitals. We certainly have seen their continued price pressure. How low we will see then the pricing, future will tell, but that continues. In terms of the next year's sales for the tenders, we now are supplying, especially in Norway and Denmark, to their large tenders. Also, the business is doing well in Sweden.
We know that in Finland, we lost a couple tenders now. In Finland, those are each tender are much smaller, they are not countrywide tenders. As we said, flagged earlier, the profitability of biosimilars is lower than the group average, that should be taken a little bit with a grain of salt, how those sales are developing in terms of the profitability. The ongoing sales or the future launches. Some of these markets are tough markets, we don't even expect that we will launch all the products in all markets. So far, the biosimilar for Herceptin, it probably has disappointed quite a few players, including ourselves, in terms of the sales.
You have the ability to launch it just hasn't had material sales yet.
Yeah
if it ever will.
I-
Could I just also ask, please, an update on any Finnish reform. We've had two years of a negative EUR 15 million. We've got one year this year of a negative EUR 10 million. How should we be thinking of any continuing drag for 2020? Or has the situation sort of stabilized so you're not expecting such a significant negative drag for 2020?
Well, I think when we look at now as the prices are bid every third month, we've seen the deceleration of the price decline. It's not still bottomed out, we certainly have seen that the second derivate of the price decline has now gone away. It is slowly decelerating. I think once we move forward, the impact of the price decline, all other things being equal, should be lower next year than this year. We'll have to see that with more analysis once we come out with the next year's outlook.
Of course, it's very difficult to predict because it's of course what we are doing, but also very much what the competitors are doing in the market, and in which product the pricing impact is largest, and how large those products are in our portfolio, of course, has a big impact. Even today, we already are in a situation where most of the impact is coming from a relatively small number of the products, and then the large part of the portfolio actually is doing okay. What will happen next year? Very difficult to know, of course.
Of course, if I may continue on this, on Jari's remark, is that we are not aware of any regulatory changes in the marketplace that would impact that. Those are not in the air, at least as far as we understand.
I suspect I'm not going to get an answer to this, but I'll try it anyway. If we look at the consensus numbers for next year, they do show an increase, albeit not a very significant one, but they show an increase in your revenues and in your operating profits for next year. Given that you will have a much smaller potential milestone, which is obviously 100% profit, coming in next year, and you've also identified further pressures on the business, is it still reasonable that we should be expecting an increase in both revenue and profitability next year? Thank you.
You started out that with the safe harbor statement. Of course, we will come out next year when we report the full year results. I think the items that you flagged, we are fully aligned with those items that you flagged. There is nothing in our visibility that would reduce the pricing pressure than those we've seen, and also the milestones, as Jari already alluded, which are sort of contractually secured. Those are the ones that Jari mentioned, and those are lower than this year.
Of course, we are still committed in our longer term growth target towards EUR 1.5 billion, and how that time-wise impacts next year remains to be seen. Definitely in long term, we are still working towards that type of a top line with continuously good profitability.
Thank you very much.
Thank you.
Thank you. There are no further questions at this time. I'd like to hand the conference back to your host for any additional or closing remarks.
Thank you very much. I don't see any hands raising up here in Espoo. At this time, it is my pleasure to thank you, everybody. Thanks for joining the call. Thanks for excellent questions, and we will see all of you or hear from you again on February the 5th. Thank you.
Thank you.