Good afternoon, ladies and gentlemen, and welcome to Orion's earnings webcast and conference call for the financial period of January, September 2021. My name is Tuka Hironobonen, and I'm the Head of IR here at Orion. In a few moments, our CEO, Timo Lapalainen, will present the results, after which you will have the opportunity to present either to him or to our CFO, Jari Karlsson. We will first take questions from the teleconference lines. And after that, we will turn to the webcast through which you can send your questions using the chat box on the bottom of the screen.
Kindly state your name and the organization which you present represent before asking your question. And just before I let Timo to step in, I would like to draw your attention to this disclaimer. So this presentation contains forward looking statements, which involve risks and uncertainty factors, and the actual results may differ even substantially from those stated here today. However, Orion obliges no obligation to revise or correct the information in today's presentations. But with these words, I'd like to invite Timo on the podium.
Timo, please.
Thank you, Tuka, for kind introduction. Now for the first 9 months, we see that the operations are gradually shifting toward more normal, whatever the new normal may be. However, we are still seeing the effects of pandemic. When we look at the net sales and operating profit, what certainly strikes through our P and L are the milestones, which we have only 2,000,000 as compared to 37,000,000 in the previous same period. Of course, the Nubeka, which is still in the launch phase, Orion's discovery in prostate cancer that we partnered with Bayer, that showed continued to show strong growth.
Operating costs are still at a lower level than usual, and this we flagged also in our written report. We are seeing the signs that the demand for many products is recovering. And also some business development activities have taken place. We've partnered with Marinos of U. S.
And have subsequently then received the sales and marketing rights for Cannaxalone in Europe. Today, the board has also narrowed the guidance for 'twenty one outlook. Also good news from the R and D side. EMA has granted the marketing authorization for 2 new animal health products, Boncat and Tessie. The first one for feline and the other one for canine populations.
We've also initiated a new Phase I study with a molecule that's based on Orion's long term Alpha 2 research. We've also partnered with Alligator Bioscience to study certain technologies in immuno oncology. Now when we look at the COVID in totality, as said, there has been a gradual recovery In the markets, we are seeing hospitals opening. We are seeing patients entering physicians to renew their scripts and so on. Through very hard work of Orion Professionals, we've been able to avoid disruptions in our production and have secured the availability of products, raw materials, intermediates and so forth.
But however, one should not discount that this abnormal situation that we are living is that's not over yet. Subsequently, we have then increased our inventory levels of all materials, supplies and products. The key numbers for the 1st 9 months, net sales, those were roughly 7% shy of last year. Operating profit certainly was lower, and of course, the bulk of that comes from the milestone payments. Operating profit margin still meeting our 25% target.
Cash flow was lower than in the previous period. And of course, our investments in both tangible and intangible investments has been higher than in the previous period. When we look at the waterfall, how the sales have evolved from the 'twenty numbers, Dexter certainly has seen much more generic competition. Of course, that's been more or less balanced with Nubeka over the period. Semdax has seen the first signs of generic competition, but that has not taken place as rapidly as we initially thought in the beginning of the year.
Eceller suffered for the first half of the year, still from the COVID, but now we see more optimism in the space of respiratory products. Then the royalties and milestones, those are, of course, a big headline number that makes their number also known in the net sales. And then when we look at the operating profit, certainly, of course, product sales and the margin mix has paid its toll. But here, of course, the royalties and milestones, which flow almost directly to the bottom line, have made the numbers smaller for this period. But then the counterweight of that has been the fixed cost where there certainly has been saving if one says that or in some cases, a postponement of various events or processes.
Now that's how we landed at 203. Now the sales distribution, not really material change here. So the biggest single country market continues to be Finland, followed by the large markets, of course, in Europe, Scandinavia, important ones, North America being a large one for us again. And here, when one looks at the different geographies, how the territories have performed, We note that in most markets, we've actually seen a little bit on the negative side. However, We will look at a little more detail.
We saw we will see that there are also bright spots. Now In terms of the Specialty Products, that was pretty much at par compared to previous periods, which was a good catch up after the we had a very strong comparison 2020. Proprietary Products, Certainly, the loss of patents has eaten into that. In Animal Health, as we lost a major distribution ship arrangement, has taken its toll when we talk about the net sales. However, as we've indicated several times, the profitability of this lost revenue is was certainly lower than the group average.
So the bottom line effect of that is much lower. Then Permian pretty much at par compared to the previous period. And then the top leak of the products. So ECHALER continues to plow ahead. And as said, there's a little bit more optimism now in the year When the year has evolved and we are seeing that the patients are returning back, we are also seeing the first signs of the Northern Hemisphere Influenza Upper Respiratory Diseases.
And that typically has, in the past, always boost also The demand for Easy Header products. Stalivo, our Parkinson products continue to perform, and there is a little bit fluctuation Here also that one can account for the seasonality. SYMDAX, lower sales, DEXDOR as well. And the animal health sedatives are strong going. And of course, Nubeka, as one would expect, continues strongly strong performance over the period.
Now if we first move to Proprietary Products, And there, certainly, Nubeka's going. That's, of course, the highlight of the season that it continues. But however, I would like to draw attention also that the Easy Hiller is making a comeback when we look at the A little bit more on the Moody Blues story in the beginning of the year and last year. So that's coming as well. Now Nubeka, certainly, we've discussed several times that the way we account for Nubeka sales in Orion is a little bit complicated.
In the quarter 1, we would ship the product. And then as a totality, Orients return in form of the is in the form of revenue being shipped in the previous quarter. And then the that those product sales are deducted then from the royalties in the present quarter. So in that case, that means that when we look at the Q3, Q2 this year, The obvious conclusion here is that we shipped a lot of material to Bayer in quarter 2, And then that was deducted from the royalty income in quarter 3. So that's why you would see not only the Transition from quarter to quarter depending what's shipped, but then that is always deducted from the following quarter.
So that's a little bit of the math behind there. But certainly, strong performance overall, and one has to take a little bit longer view on these quarters here. Easy, Heller. As said, we see the first signs of recovery there since the COVID months, and that seems to be performing very well. And I think there are good opportunities that We'll do okay still this year.
Parkinson franchise. Here, we see that our own Oren's own sales, those continue to perform quite in a solid fashion. But then, of course, here, there is the always the Timing of our deliveries to partners and the timing of those at the end of the quarter, beginning of the quarter, end of the year, beginning of the year has introduced certainly some volatility to that. But when we look at the overall in market sales, there's hardly any change in our view there. Then, Dexter, certainly, now as we are seeing less Patients in overall admitted to ICUs.
There are multiple competitors in the space. And we are also seeing a fierce price competition. So that all eats into the deck store sales in Europe. And here, we see the results of that. That has been the trend that we've indicated several in our quarterly earnings calls.
Now in SIMDOGS, when we entered this year, we had the first view that we'd see the 1st, generics enter the market at the end of Q1 or so. And now probably, We are going to see that in this ongoing quarter. So quarter 4 in an immaterial way. We've seen in some specific countries, In some tenders, we've seen generic competition, but that still remains to be seen. And obviously, we don't have a visual to that how the competition would play out.
Now moving on to Specialty Products, and this is the category that includes our generics, our OTC products. So especially in Eastern Europe and Russia, the going was strong. And in some other markets, a little bit less so. And one of the reasons is, especially in Scandinavia, there was the stocking stockpiling effect that took place in 2020, and obviously, that we haven't seen anymore this year. And the self care products, when we look at the product split, the generic prescription products, we are a little bit lagging there behind last year, but the self care products seems like that is coming back.
And as said, should the then the influenza season, Should we see that in Northern Hemisphere, which we did not see last year, that probably would give a somewhat boost to that. Now in the local market here in Finland, the overall market for reference price products, and so these are the products that are substitutable products basically. There, the overall market declined by 5%, Which kind of also is the same, a little bit less than the price cuts that we saw or the Pricing declined. Based on the competition, it was a little bit more. However, Orion was able to increased its sales by 3%, which means that not only did we beat the pricing The price declines, but our volume share increased quite a lot in the market.
And then when we look at the overall market here, the our market share of reference price products, 24%, almost the same as in self care and in total market, 11%. So that we can be quite happy with. Then I'll move on to R and D side. So in key clinical development pipeline, So of course, RSNs is something that has been indicated that the headline results should be made available later this year. The other note that is recruiting, we know that.
And then ODM 208, 209, We have indicated in our release today that we would be making the selection of the compound, which one to move forward with and also that we are seeking to partner that compound outside Europe. Then we have initiated a new Phase I study based on a compound from our Alpha 2 research, And this is in neurological disorder space. And then on EZhalers, we continue to plow ahead with our developments in thiotropium. We are also now evaluating for intercatheterol glucoporonium product. And then as we made available our key business targets For the ongoing year, here are the traffic lights for that.
So of course, when we look at the Nubeka, the co promo here in Europe has proceeded very well. And as said, we expect that the most of the countries, maybe apart from 2 in Europe, would have launched Rebecca, when we closed the year, of course, our sense, we don't know how that's going to turn out. And the iron note that study has been initiated, then the patient enrollment is proceeding. Sales growth, seems like the growth target is a tough one this year, But we'll see how the year will end. 208, we are taking the program forward as we have planned And then making the selection sometime next year, do we take the 208 or 209 forward?
Strong market position growth here in Finland and then also in Scandinavia, especially in prescription products. Then in licensing new products, Cannaxalone, our partnership with Marinus is the first one in that. And then of course, in R and D side, also with Alligator is one of those sites. In larger acquisitions, there, we don't have anything to disclose at this time. And of course, the sustainability, that's an important element of Orion's genetic makeup.
And the it starts all with patient safety. That's the top priority. And also there, of course, making sure that the supplies are available throughout also difficult times, even what we saw in the wake of a crisis. We are working actively for environment, and we have a tough target for being carbon neutral in our own operations by 2,030. Of course, taking care of the professionals that work within the company and with our partners so that we can continue our operations without any interruptions.
And in this line of business, the ethics are an important element, and we maintain very high and strict ethical standards. So then the Specified outlook for this year, no change in our net sales. So we estimate that this year's net sales would close to be slightly lower than in 2020. Then in the operating profit, those would be lower than in 2020. And then the key assumptions behind our outlook, of course, in the net sales, we see Nubeka, strong growth plowing ahead.
But there are also some other products, especially in specialty products range that continue to go ahead. But what we are seeing is that, as discussed in milestones, those will be a drag this year. DECTOR and SIMDAX, we are also seeing there the effect of generic competition. And then, of course, in animal health, the loss of one important partnership. In operating profit, of course, Noveka is an important element there.
Then when we look at the cost side, we are missing this year. So we have fully amortized The investment in Parkinson franchise purchase and those roughly CHF 12,000,000 are missing from our P and L this year. Of course, as said, milestones, Dexstar and Simdak continue to Then flow through our P and L as well. So that's pretty much for the 1st 9 months. And then the full year results, we will discuss in our earnings call in the early February, and we expect to hold the AGM in March, and the planned date is 23rd March.
With these opening words, I now invite our CFO, Jari Karson, to join me here to the podium. And as Tuka mentioned, we are happy to Take any questions, comments that you may have, and we will take first the comments from the telephone lines and then move on to chat.
Our first question will come from the line of Jo Walton at Credit Suisse. Please go ahead. Your line is open.
Thank you. I've got 3 quick ones, please. Firstly, on Newbecca, I know that you told us how complicated the accounting is. Can we assume that the end user sales are rising Because clearly, your overall revenues didn't go up in 3Q. And you also talked about I think you said that There would be more countries where there would be a rollout of Nubeka in Europe.
I wonder if you could just tell us a little bit about your level of involvement, How much effort you're putting behind that? How we should think about that when we're thinking about your cost structure going forward? My second question would just be to ask about the costs. Again, as we're beginning to think about 2022, How much of the lower costs that you can keep in 2021 can you keep also into 2022? So Are there things that you can now do differently, things that you were going to spend on that you haven't this year that you don't think you will spend on next year?
So Just help us think about how the costs will grow next year. And just a final one on M and A. Clearly, you've identified that you're behind target in terms of looking for bigger deals. I appreciate you haven't given you much time to do that. I wonder if you could tell us, are you seeing plenty of ideas?
You're just working through them. Are you thinking that what you're seeing is just too expensive? Just give us a sense of how Close we might be to be able to do a deal. Are you seeing things that might be attractive? So would it be reasonable to assume that you might be able to do something next year?
Thank you.
All right. Thank you. Good questions. If I'll start with Nubeka and then maybe Ari will take the cost side. On Noveka, Orient's involvement is in Europe.
That's what we are putting in the sales force. Is developing the market access, so meaning pricing reimbursement and also the logistics Or organizing logistics. I think when we look at the our cost side from the How much sales force capacity we have in Nubeka? I think we have pretty much In most countries there are maybe 2 countries that would not be upstream yet, but those would not be material. So I think in overall, in the large scheme of things, we are fully deployed or have fully deployed now The resources that we expect to deploy for to support Nubeka sales in Europe and do our job there.
Again, for the in market sales here, I'm sorry, but I need to advise you to Discuss this specific question with our partner, Bayer. Cost size, do you
have So we, of course, have basically 2 major elements in our cost structure, the sales and marketing and R and D. And when it comes to sales and marketing costs, Of course, there, the big element is the personnel cost, and those, of course, will continue pretty much as they have In this year. And the main reason for the reduction in cost, of course, compared to last year, the biggest element has been the that we don't have any more The Endakapone European depreciation or amortization in our cost structure. So when you take out That's roughly €1,000,000 a month. The cost structure is not that different from what we saw or saw last year, slightly lower.
But of course, when it comes to next year, many of the conferences will probably come back to live events again. And also, some promotional related similar activities will come back. So it one should assume that we will be Some have some additional cost next year. But of course, how much, though, will be, it's still under planning because we, of also learn from the past 2 years that what kind of activities make sense, what don't make sense, What makes sense to continue virtually and so forth. But it's I think it's fair to assume that we will see some increase, but how much?
That is too early to say. Then when it comes to R and D cost, those, of course, are completely dependent on the on 2 things, The ongoing R and D programs and how they proceed. And then on the other hand, how do we see the partnering element. For example, in the 2,008 program, which is now proceeding gradually to the more expensive stages in the development. And also there, we still have, of course, plenty of open questions.
But one would assume That if the programs proceed, we will see some increase in our R and D spending next year. But there are still a lot of open questions which need to be answered. And By the time when we are then coming out with our outlook for next year, hopefully, in both of these areas, we have a clearer view of what is going to happen in 2022.
With regards to the M and A pipeline or capital allocation in Portfolio Acquisitions, there are plenty of interesting opportunities in that space. Our focus is mainly in from the geographical perspective, it's mainly in Europe. From the therapy area perspective, we've clearly identified that whilst oncology would be interesting, the Valuation in that space is out of reach. So it's more of a focus in neuroscience space and also, generics and also animal health space. And there are certainly are opportunities there.
But Like was pointing out, devaluations in this cycle at this time are very rich, And it is not easy to make the math work. That's a challenge, especially if you are, as Orion would be, A industrial buyer who does not buy and sell, but when we were to buy something, that would be part Or become part of Orion until further notice. And we don't have any specific exit target dates and so forth. So that, of course, makes it a little bit more challenging at this time. But there are interesting ideas, and we think that for Some cases, Oren would make a very good partner or a new home for an asset.
So We certainly have not given up on that. So we continue to work on those ideas as well.
Thank you.
Thank you. Our next question comes from the line of Sami Sakhanes of Nordea. Please go ahead. Your line is open.
Hi. I have three questions. Firstly, I would ask you to shed more light into the new Phase 1 program. What kind of target indication are we talking about? And how would you assess the potential relative to earlier CNS programs?
Then secondly, on ODM-two zero eight, can you please open up the various options that you will be faced with early next year when you will be making decisions? And what would be the preferred option for you then? And then thirdly, on Parkinson's, I I think you have previously indicated stable sales for the next few years. Do you still think that can be the case this year and next year?
On the Phase 1 program, we were deliberately we were a little bit vague on that, And we hope that when we release the full year results, we could be more specific On the mode of action as well as the potential target indication, of course, one has to respect that as we are Currently only in Phase I, so that's healthy volunteers. So we are getting the 1st in men data on that and that would be on tolerability. So on purpose purposely, we would invite or ask your patients for a couple of months here, and then we'll hope that we are able to discuss a little bit more on that. And I think this is in the interest of company and in the interest of shareholders that we are a little bit vague at this time. For the 208-two zero nine partnership, Here, the partnership arrangement that we are seeking for would be ex Europe.
So Europe, we would expect to hold For ourselves, we would also expect to hold certain Pacific Southeast Asian markets for ourselves Well, we are currently present. So the key markets that we're talking about is, of course, is the U. S, That will be China. That will be Japan and some other interesting larger markets, but of course, the U. S.
Would be the driver here. We'd be seeking for a partnership who could contribute with Orion to the late stage development of the compound, who would be also our commercial partner in the U. S. These are early We are in the early steps yet in that partnership discussion. So once we have a little bit more color On the prospects on the partner potential partners, we'll certainly come back to that.
On PD, On the Staliva and Comteskomten, we still stick to that, that we think It's a stable sales. The problem there is and this is a genuine problem is that how will the Shipments to our partners, will they take place at the this quarter or next quarter? And that may introduce some volatility to that. But when you look at this our own sales, that was pretty steady going. And that's how we base Our assumption because when we look at the overall market, it is there is certainly a need for this, and the demand from the in market is actually very stable.
Okay. And then maybe a Follow-up question on ODM-two zero eight. I guess you've been testing this with both Breast cancer and prostate cancer, are you planning to proceed with both indications at an ideal sort of situation? And then maybe secondly, are you ready to sort of Go along with a partner that wants to have global rights in case the deal is sort of attractive enough for you?
First part of the question, the likely indication and the next Studies are to be focused on prostate cancer. So that's where we've seen the Most of the opportunities for this product there. We've tested that in breast cancer. It's a much more complicated arena. And actually, the patients are not fully served, but they are good products there So I think the greater added value opportunity lies in prostate cancer.
In a global partner, our aim is actually that we would retain the European rights. That's our goal there. But being a public company, you can never say never, Depending, of course, what is put on the table, but that's our starting point, that we would retain the European rights And then some other rights as well outside Europe. And the key focus, of course, would be the discussions around the U. S.
Okay. Thank you. I don't have any further questions.
Thank you. Seems to be no further questions from the phones at this time.
Okay. Thank you, operator. We have few questions from the webcast platform. Let's start with the one from James Wayne Tempest from Jefferies. James is asking that the biosimilars growth of 25%.
Have you won any new tenders or had any new launches? And how should we think about this franchise and the pricing environment?
No, we have not of existing portfolios and the performance of those of that business in several countries. We think as we move forward, the biosimilar business as far as they are hospital based products, The competition will continue to be fierce in that space. We expect severe price cuts as there are multiple entries there. So the managing the cost in that business is paramount. Also, depending on the health care system, what type of a system, even if it It is an open care product.
If the pharmacy has the right to switch the product, we don't have those yet, but are there to be seen. We want to be we will be part of that game. We are not developing those by ourselves, but we will be in that business and are building that portfolio. But it's I think what the industry once thought that it's a 30% decline in prices, I think that was overly optimistic.
Thanks, Timo. Then we have one question to Jari. You basically already replied to the cost side, but maybe if there's something to add. How sustainable are the cost savings made in this quarter going forward given SM and R and D are both sequentially and year on year lower than previous periods?
Well, I guess the word cost savings is probably not Actually, the right one. The reason the costs are down is mainly due to the fact that certain activities with, in normal circumstances, would have been doing. We have not been able to do those, and that is special in the sales and marketing. And on the R and D side, it's more related to the timing of some of the Clinical studies. And of course, there's the COVID and many some other things have caused some delays and slowdown in the development of some of the programs.
So I wouldn't really call them cost savings. The costs are down. And like already discussed earlier, what will happen next year is There are still many open questions in both areas. In the R and D, of course, how the programs are Proceeding and also what type of a partnering structures we might end up doing, especially in the ODM-two A209 program. And then then on the cost side, that what type of activities we really See valuable next year, taking into account the learning we have seen over the last couple of years.
Thanks, Jari. Then we had one question regarding the new Phase I study, but actually, Timo, you already answered that. So Mikko, your question was already answered. And we will then disclose further details on the program probably in our Q4 results in early February. Then we have one Follow-up question regarding SIMDAC.
So SIMDAC didn't seem impacted by generics. Why no material decline in sales?
Well, SIMDAC's the way hospital products business in many countries work So typically, the institutional buyers, hospitals or chains of hospital, however they organize their purchasing, They start putting pressure on the originator in order to may have the business also in the future, and they Sort of preempt the expected price cuts already 4, you would see the actual entry of generics. So that's what has happened In with regard to SIMDAGS. But there has been one instance where we've seen a true generic enter the market. But as I said, that has not happened materially impact has come from the price cuts.
Thanks, Timo. And then the final one, this is regarding the specified outlook, especially regarding the operating profit. So how should we think about the term lower? What that actually means in your guidance?
Well, we haven't given Out the specific range, but if you look at historically, when we use the similar terms, then that the Outcome has been 10% to 12%, but these are not the ranges, but these have been Within the range.
I guess that would be the right term to say. Great. Thanks, Timo. And now we have exhausted all the questions we have received so far through the webcast. I would still like to turn to the operator.
Do we have any follow ups on the teleconference lines?
None so far. So once again, if there are any further questions, please dial 1 on your telephone keypads now. No, no further questions from the phones.
Okay. So then, Timo, the Closing words, please.
Thank you very much. Thanks for joining our earnings call, and I'm looking forward to seeing or hearing from you in the early February.