Afternoon. Welcome to Orion's earnings call first half 2019. My name is Timo Lappalainen, I am the President and CEO of the company. I will firstly have a few prepared remarks. Thereafter, I will invite our CFO, Jari Karlson, to join me here to the podium, and we are happy to address any questions, comments that you may have. At this stage, I want to draw your attention to the disclaimer. This presentation contains forward-looking statements which involve risks and uncertainty factors, and Orion assumes no obligation to update or revise any information included in this presentation. If we kick off by reviewing some highlights for the first half of 2019. Of course, for the company, the major event was the submission of a marketing authorization for darolutamide, a prostate cancer agent candidate in the main markets.
Those include the U.S., Japan, Europe, and now the rolling submissions in many other markets are taking place. Also, we have informed during the course of the first six months that the compound was granted priority review by the FDA in the U.S. In terms of the financials, the net sales were approximately at the same level as in the comparable period. The operating profit was lower than in the comparable period because, as we have noted earlier, there are substantial investments that we are putting forth in our growth plans. In part of that, the R&D expenses increased as we are investing more money in the future. However, we maintain our outlook for the financial year. A little bit more on the product sales. The proprietary products were approximately at par. We continue to plow ahead with Easyhaler as well as Simdax.
The specialty products, there the sales seem to flatten out as we have had the decline for a period of years now, and especially strong growth we had in Scandinavia. Another important milestone took place early this week when we informed that our REFALS, that is our ALS compound candidate, was recruited in full the trial, a phase III trial in that. That trial evaluates orally administered rivastigmine for the treatment of symptoms in ALS. Some of the key numbers for the first six months. As said, the net sales pretty much at par for EUR 93 million. Operating profit was at the lower rate. All of these numbers, by the way, with the exception of the cash flow per share, those we had eliminated the divestment of Orion Diagnostica, which took place in the first half 2018.
The operating profit was down, and the operating margin as well down from the previous year. The cash flow in the operating sense was very strong for the first half of the year, but naturally because there was a non-recurring item last year of the divestment of Orion Diagnostica that is not fully comparable. Now if we look at how we arrived in terms of the sales and the operating profit this year. When we started out the year from the comparable period, we had actually a lower shipment of Parkinson's products, Stalevo as well as entacapone to Novartis when comparing to the period before. Seems like now it is tilted a little bit towards the second half of the year. The milestones were also lower in the period as compared to last year.
The decline of the prices in the important market for Orion in Finland continued in the generic space. However, it seems like there at least the slope is declining. We are not yet flattened out there, but the decline seems to be now line straightening out here. However, we had a nice sales growth in Easyhaler as well as in Animal Health business, had a strong start for the year. As said, in Simdax, we actually had a small gain in exchange rate as opposed to the loss we had last year. In the operating profit, the product sales and the mix thereof, that took its toll. On the Forex, we had a small gain there. Royalties and milestones, those flow directly to P&L to the bottom line.
Especially on the fixed cost side, as we've indicated, we are having a fairly substantial investment to our growth plan to the magnitude of order of EUR 30 million this year. That certainly took its toll for the first half. No major change in the geographical breakdown of our sales. Finland continued to be the largest country market. However, the Finnish share is one of the lowest for a long time. Scandinavia plowed ahead, of course, the rest of Europe as well. Also some of the other markets. In terms of the sales by the divisions, the specialty products was pretty close at par for the first six months. Proprietary products was suffering from the shipments of Stalevo to our partner, Novartis. As I indicated, the Animal Health had a strong start for the year. Fermion had a good start as well.
Our largest business still continues to be the specialty products, followed by the proprietary products business. When we look at the league table of the products, Easyhaler now the number one product for the first six months, continuing strong growth there. Stalevo is the product where we acquired rights back in Europe from our partner in Novartis. There we are developing as planned pretty well. I'll have a little bit more on that. Simdax had a nice start for the year with a 17% growth. dexdor still flat, despite what we've indicated that there is a number of competitors that we understand have received marketing authorizations. Animal Health had a strong start for the growth, as we did as well with our biosimilar business.
A fairly nice start, as we've indicated several times earlier, the impact of that to the bottom line is of a different magnitude than any of the other product lines here. If we first review of the proprietary products, there the Easyhaler had a nice start. Parkinson franchise in totality, that comprises of the Stalevo as well as the Comtess Comtan products, had a decline due to the shipment pattern to our partner. dexdor flat, a nice growth in Simdax. The Precedex product, which is actually a dex, more or less same product as what we market as dexdor in Europe. It's marketed as Precedex outside Europe by our partner, Pfizer. These are royalties as well as especially API shipments to our partner. Easyhaler. Strong growth there, especially with our combination product, budesonide-formoterol.
The total franchise grew by 20%. The budesonide outgrew that currently. As we've indicated last time, it seems like the formoterol-fluticasone, that is facing a little bit tougher times in penetrating the market as what we saw with budesonide-formoterol product. We continue with a new Easyhaler version for COPD, which is the tiotropium version of Easyhaler. Here you see the change that took actually place when we look at the mix of our sales of entacapone product. For the second half, that's when our own sales kicked in Europe for the acquired territories. The shipments to Novartis, especially outside Europe, actually were much lesser than in the quarter two last year. Still, the acquisition of those rights and getting the business back, that seems to be running pretty much along the plans as what we had early part of this year.
As I mentioned, in dexdor, the sales for the first six months, pretty much it's flat. We are certainly seeing competition out there. There are numerous players who have received marketing authorizations, and there is certainly competition in some markets. In all, the overall market has grown for this class. As said, most of these numbers, what we see here, these are actually the face numbers and not the actual market pricing. If we turn to specialty products, so that is the business which comprises of generic prescription products. It has the OTC products. It has the non-pharma products. We sell some of those as well. The biosimilar products. There, the main market is the local Finnish market, especially in terms of the OTC and the prescription products. There we still saw a little bit decline there, especially in the reference price products.
However, the volume growth for Orion seems to be picking up, and we are outgrowing the market in terms of volume. In Scandinavia, we had a good start for the year, especially in terms of biosimilar products. Here you see also the split of this segment by these different product categories. Certainly the prescription products, those are the major part of that, and then the self-care products. As said, Finland continues to be a main market for our prescription generic products. The reference price products, which potentially are up for bidding that market actually shrunk by eight percentage points during the first six months.
Orion fared a little bit better with our development of - 7%, but as said, seems like our volume is picking up now. In terms of the overall pharma market here in Finland, the reference price products, we have a very strong position in that with 26%. Also a strong position in OTC self-care products with 24%, and in the overall human pharma, roughly 11%. That's sort of the split of the Orion business within the market here in Finland. Our future, the R&D. Not really changes in this picture as I guess is reasonable to also assume in every three months. It's tough to make a change in this picture because we here show our most important key clinical trials. The tiotropium is going ahead.
That development darolutamide asset, that is being reviewed for the first indication by numerous regulators around the world as our partner Bayer continues to submit the dossier. The next indication, what we've indicated is that is fully enrolled. Now we are only waiting for to have the actually the results of that trial. That will still take a couple of years. The ALS trial, that is now fully recruited, and we expect to have the final results in about a year's time or so. The protocol calls for a 48-week treatment for all of these patients. We have some earlier pipeline there as well. Mostly today what we are here demonstrating are in the area of oncology. Last time we included the ODM-209, which is a CYP11A1 inhibitor in this.
There we are running that trial as a basket trial including prostate cancer and breast cancer patients. The ALS trial was now fully recruited. Took about a year in total to randomize all 496 patients. Generally, a global trial. We had 104 sites participating there. Numerous physicians and of course, patients and their caregivers are all a very important part of this. The objective here is to demonstrate the benefit of levosimendan, especially in the respiratory function of these patients, and also using the overall ALS scoring system. For this year, when we started out the year, we gave our internal objectives for this year, and I promise that we will report the progress thereof. Of course, now the number one is the darolutamide, preparing for that commercialization. The marketing authorizations are being submitted and have been submitted in numerous markets.
It received a priority review in the U.S. Of course, the next phase is then the RFNs once that then will be reported in the next few years. The ALS now fully recruited, and we have to wait about a year before that is completed, and then some more months before that is reported. Of course, the local market here, the generics, that's an important part of our business, and we need to stay competitive there, in terms of providing the broad portfolio as we carry here. Today, we are happy to note that our volume share is actually increasing faster than the market. Of course, the assets that we have online, on stream, the Easyhaler is one of the key assets there. There we are pushing every button to make that grow and seems like that is working.
Easyhaler franchise growing by 20%. Naturally, we are also evaluating opportunities how to invest and acquire assets to be commercialized, also maybe to outfit our own R&D pipeline. That work is continuing, and we have nothing to report at this time. We also want to draw your attention to the sustainability report that we published in early part of May. Here's the link to that. orion.fi, you will find the sustainability report there. What we've called Orion's sustainability and actually under four pillars. The first one is, of course, the patient safety and having the products in the market, which is not all that evident these days as the supply chains are extremely complex, also in the sphere of medicines. Of course, the environment, how we produce, how we test our products. They have the sustainable methods being used.
Of course, taking care of our own people. All the Orionees, the 3,500 Orionees who work every day here. We also want to be transparent in dealing with the numerous stakeholders that are part of the pharma and the healthcare business in overall, and want to have a very high ethics as is demanded by us. We believe that is the cornerstone of the long-term sustainability. Here are just a couple points from our sustainability report. There are some products. API is here taken as an example of methotrexate, which is a very important medicine for rheumatoid arthritis patients and certain cancer indications. We are a major player in producing that. Of course, the quality that comes with not only by making the quality, but also controlling the quality.
Numerous audits are being performed on us, and we perform those as well. Of course, there are customer complaints. We receive those as well, and you have to have a very strict process for those. Also, we are very proud to report that we've reduced our waste, actually quite a lot in our production facilities and especially in the wastewater that has been the residuals of pharma products, and those has been reduced considerably. This was also a year when European Union implemented the serialization and anti-tampering systems and procedures in place. Orion has been one of the front runners here and investing over several years, quite a lot manpower as well as finance resources to prepare ourselves for the serialization and that work is now actually bearing fruit as we are very well prepared for that.
We've committed ourselves to the climate change and to fight that. The CO2 reduction target for ourselves is a reduction of 75% our emission of CO2 gases by 2025. The outlook, we continue to maintain our outlook. In terms of the net sales, we expect that the net sales for this year will be slightly higher than 2018. That is including the anticipated milestone to be recorded in our books once the first darolutamide sales in the U.S. take place. In a similar fashion, the operating profit, we expect that to be at the same level as 2018, again, accounting for the darolutamide milestone. This includes our substantial investments into the future and in our growth plan. Today, we also published our quarterly calendar for next year. Here you have those. The AGM is planned to take place March 25, 2020.
Next time actually, we will report on October 23rd of our third quarter events and what takes place there. At this stage, I would like to invite our CFO, Jari Karlson, to join me here at the podium, and we are happy to entertain any questions or comments that you may have. Please go ahead.
Just for the telephone audience, if you wish to ask a question, please press star one on your telephone keypad. Again, as a reminder to ask a question over the telephone, please press star one. We will take our first question from Jo Walton from Credit Suisse. Please go ahead.
Hello. I have a few questions if I could, please. Starting with the Easyhaler franchise, I wonder if you can tell us what steps you can take and give us any additional color to increase the adoption of your effective generic to Advair. Secondly, I wonder if you can tell us a little bit more about the Animal Health business. It's obviously done extremely well in the first half of the year. Is there any phasing of that, or could we expect to see similar rates of growth in the second half of the year? I wonder if you could give us an update on any more tenders that may have come up in the biosimilar side, just so that we get a sense of the full range of products that you're now allowed or able to market. An update there.
Finally, as we're coming up to a darolutamide approval in the U.S., I wonder if you could help us at all with when we should start to see an increase in your SG&A, because presumably you will opt in. Will that be something more towards perhaps the second half of next year when we could start to see your incremental marketing investment in that product? Many thanks.
Thank you. Very good questions. Let me first address the salmeterol-fluticasone penetration question. There what we see are actually the main tools available for us are the promoting the full line that we have. For the fours of the asthma or COPD patient over the course of the disease. We have a full line of products there. The pricing point is an important element. Typically, our pricing point is lower than the originator. In quite a few markets, there are one or other way you have to win a tender. I think Germany would be qualified as one of those. Sweden would be qualifying as one of those, where you have to pass the threshold in order actually even to promote your product or in a meaningful sense.
What we are currently doing is of course addressing those. As well, as we've indicated in the early part of the year, we've actually increased our sales force capacity, especially in Germany. This we are doing by having a contract sales force organization there to augment our own sales force. Animal Health. Jari is responsible in our management board for Animal Health. Maybe you want to address that.
The year started very well and when comparing the total Animal Health numbers and the top product list, one could notice that the growth has basically been driven by this Animal Health product line, which is on the other hand very much driven by sales of partners around the world. There, last year, we had a relatively weak start of the year and then much more shipments to the partner during the second half of the year. This year it's going to be a little bit the other way around. Unfortunately, we cannot expect to see the similar type of growth during the second half of the year, which was especially driven by relatively large shipments to some of our big partners.
In terms of the biosimilars, it is unlikely that we will see any major tenders materialize to shipments over the year. Pretty much what we now have in hand, they will go on, but any new tenders that would open for shipments this year to have a material impact, I think that would be a high stretch. I think that is unlikely. Still the largest product there continue to be Remsima in our part, and then of course, here locally, the darolutamide continues to plow ahead. In terms of the darolutamide, that of course means for us the sales and marketing efforts means Europe. Typically, the European approval tends to take a little bit longer time because you have to also include the reimbursement discussions there. I think there will be naturally some startup costs, when we start having some visibility on the approval timelines.
I think in terms of any major investments, I think at this stage, based on the information we have, I think the early part of 2020 would be probably too early to see any visual impact of those. It's probably then tilting towards the latter part of 2020.
Thank you. A final one, can you just confirm whether you're able to market your biosimilar Herceptin yet?
In some markets, yes.
Thank you.
Thank you. Again, as a reminder, to ask a question, please press star one on your telephone. We will now take our next question from Sami Sarkamies from Nordea Group. Please go ahead.
Hi, thanks. I have actually four questions. Starting from gross margins, these were on quite low sub 60% level in Q2. Can you open up some of the main factors behind this?
Okay, I can start that. Especially compared to last year, the gross margins definitely were lower than in 2018. There, of course, the product mix is the key driver. Last year we had 60 million more shipments of Parkinson's products than we did this year. Obviously those products generate higher margins than the average of the company. That was one key driver. It's more driven by the changes in the product mix and of course the pricing environment. Like you have seen in our report, the prices of the reference price products in Finland are roughly 10% down from year-ago during the first six months of this year. That, of course, had negative impact also on the gross margin. It's really driven by the sales mix and prices in the market, not costs as such.
Okay, then secondly on Simdax, you did mention that marketing authorizations have been filed for generic Simdax. Can you be a bit more specific regarding which countries we are talking about? Also share your planning assumptions on how you expect the generic competition to eventually ramp up.
Well, actually the way typically the generics are filed in Europe, you have a so-called mother country where you start the mutual recognition process. That's the country where you first file, and then you subsequently roll that over to the other markets. Now, in terms of the planning, we expect that these would have no material impact for this year's sales. On the contrary, we continue to, and our planning assumption is that Simdax sales continue to grow this year.
For next year, it's still a lot of uncertainty. We really don't have enough information at this stage to be able to calculate potential impact for us. There probably will be some, but how big? We'll have to wait until we really start seeing the competition emerging.
Okay, earlier regarding Finnish market, you did mention that price levels have been stable now in Q2 for the generics products. If we assume that this is the case also during the remainder of the year, what sort of pricing headwind are we talking about after roughly EUR 50 million headwind in 2017 and 2018?
Yes. I'm sorry if I hope not to mislead you. It doesn't mean that the price level has stabilized. I mean, we are still seeing decline, but the slope of the curve is actually slowing down. The second derivative is coming down. The current assumption, we started out, I think roughly EUR 15 million-EUR 17 million last year. Now we are probably looking either double digit or high single digit. I think that's an assumption that we are internally using.
Okay.
For the fiscal year of 2019.
Okay, thanks. Finally, regarding Animal Health, just wanted to check that, did you say earlier that the growth you've been experiencing there is not contributing to margins in a meaningful way?
No, my comment was on the biosimilars.
Okay. Yeah. Thanks. No more questions.
Thank you. As there are no further questions in the queue, I'll hand the conference back over to your CEO for any additional or closing remarks.
Okay. Thank you very much for joining us. We wish everybody a very nice summer. It has finally turned to be summer, at least for this afternoon here in Helsinki, and we hope to see you all joining us in our conference call in October 23.