Orion Corp New B Shs

Oike hyvää iltapäivää ja tervetuloa seuraamaan Orionin tulosjulkistustilaisuutta katsauskaudelta tammi-maaliskuu 2023. Minun nimeni on Tuukka Hirvonen ja vastaan meillä Orionilla sijoittajasuhteista. Hetkisen kulttua. Toimitusjohtajamme Liisa Hurme esittelee katsauskauden tuloksen, jonka jälkeen teillä on mahdollisuus esittää kysymyksiä hänelle sekä talousjohtaja Jari Karlssonille. Kysymyksiä voi joko lähettää webcast through the portal or through the question box, or if you are on the phone, you can also ask questions in Finnish. Even though the official language of the event is English, you can also ask questions in Finnish. In addition, later this afternoon, you will receive the Finnish-language interview results of the CEO Liisa Hurme from the Orion website. Good afternoon, ladies and gentlemen, and welcome to Orion's earnings conference call and webcast for the financial period of January-March 2023. My name is Tuukka Hirvonen. I'm the head of IR here at Orion. Like normally, today we start with a presentation from our CEO, Liisa Hurme, after which you will have the opportunity to ask questions either from Liisa or from our CFO, Jari Karlsson. We will be first taking questions through the teleconference call lines, and after that, we will then turn to the webcast questions, which you may type in using the box below the screen in the webcast view. When you are presenting questions through the conference call lines, kindly please state your name and the organization you are representing before asking your question. And just before I let Liisa to take over, I'd like to draw your attention to the disclaimer regarding any future looking statements in this presentation. But with these four words, it's my pleasure to invite on the podium Liisa. Liisa, please, the stage is yours.

Thank you, Tuukka. And good afternoon on my behalf as well. And welcome to Orion Q1 2023 webcast. For the first time, Nubeca darolutamide is now Orion's top-selling product. Also, there are news regarding NUPECA lately. We started with Bayer a new phase three study called Arastep, and I will talk more about that later. And also we have received approvals for additional indication for the metastatic hormone sensitive prostate cancer in Japan, European Union and China. Year 2023 has largely started in line with our expectations. Net sales was 277.9 million euros, and that grew 2.7% from the previous year. The main positives were of course Nubeca and also animal health after the acquisition of Inovet. Also, the base portfolio in general performed well. However, there were some negatives like Intercapone, Effect of Russia, and Dexmedetomidine and Simdex. Operating profit was 55.5 million euros. Decline was 22.4%. However, the decline in the operating profit was in line with our expectations and forecasts, and the full year outlook is the same as previously. The factors behind the declining operating profit was the increase of fixed costs by 9 million euros. The effect of the contraction of the Russian business alone was 7 million euros. And then the lower gross margin was a result of price declines, product mix and increased cost of goods. Cash flow from operating activities declined 87.9%. This is due to the decline, of course, in operating profit. Also, our working capital increased and was much higher than in the comparative period, mainly resulting in regarding the Nubeka and darolutamide. When we look at the net sales in more detail, we can see Nubeka sales, which actually was 18 million euros higher than in the previous year. And then also Easyhaler and other base portfolio developed very well. And then, of course, animal health, as we can see on the last column here, together with fermium, performed excellently. However, there were the declines of 12 million of the Russian operations. The environment is very challenging at the moment. And then some decline on entacapone, This is a timing issue related to the shipments to our partners, so this should sort out during the year. Exchange rates, very little effect from that part, stable quarter compared to the previous last year. Operating profit decline here on 27 million is partly due to the product mix and cost increase. However, when we look at the price decreases, the very significant part of that is explained by the fact that Orion has supplied Nubeka with the lower price than in the comparative period in Q1 2022. This will be a temporary effect as the prices to bear changed actually in the middle of the year 2022. So it's been in effect already for a while, some quarters, but it wasn't in effect last year's quarter one. So to the comparative period, you can clearly see the difference. And however, even though the transfer price of the tablets is lower to bear, as those payments on those tablets will be reduced on the quarter's royalties, the final income doesn't really have the effect on that income. Actually, it has a positive effect on royalties. Then we also see here the effect of exchanges and nothing significant there. No significant milestones. We also see fixed cost increase, and that's mainly due to the increased costs in our sales and marketing. We almost don't remember that last year, this time, the pandemic was still heavily impacting our lives. And last year, we were not able to meet our customers as this year. So, though, we are kind of getting back to normal on the sales front. Innovate is, of course, included here. That wasn't in our fixed cost base last year at this time. When we look at all the business divisions, and now for the first time, we are reporting the new business division according to the new business division structure. We can see here on the columns that animal health and innovative medicines performed very well compared to the previous year. And we can see the division or the sales split between the divisions. Generics and consumer health still almost half of the revenues. Branded products 21% and innovative medicines 15%. Just to remind that the previous year, I think innovative medicines was less than 10, somewhere around 7%. So it's really hiking up here. And of course, animal health is already 10% of the revenues. On top 10 list, Nubeca as the first one with 93% of growth. Easyhaler, a solid performance during the Q1. Then the usual suspects to the generic competition, SIMDACS and Dextor, and rather steep decline in Entacapone with the 37.1%, but this is really a timing issue that just hit us on the first quarter and should be sorted out as we go along. Divina here and Solomet have declined mainly due to the contraction of the Russian business. They were rather big products in that market. When we look at the Nubeka and here we of course look at the Orion sales, the trend is extremely positive, but we can still be prepared that there might be fluctuations between the quarters due to the product supply to Bayer. We are in a launch phase, especially with the new indication, and some quarters we might deliver extremely big quantities to Bayer, and as I said, those are then deducted from the previous quarter's royalties. Branded products, due to decline in Entacapone, almost 20% down, Sales is balanced nicely between Easyhaler portfolio and Entacapone products, which actually should be more than 40, if the deliveries would have been made. And then a smaller portion of HRT products, Divichel being the biggest of those. Generics and consumer health business performed well, even though it shows minus here. But looking at the environment where division operates, I think this is an extremely good achievement. Simdex sector, we know what's happening there. Russia actually has been a significant, somewhat significant part of this business and maturity of that decline is significant. is actually seen in generics and consumer health. In Finland, we performed again very well. Finnish market grew 3.4%, the whole Finnish pharmaceutical market, and Orion was able to grow 5.4%. The growth was even more visible with the reference-priced prescription products where Orion grew 8.3% and the whole market went down with the two digit numbers. Again, I can't resist to underline that we've been really able to create a competitive edge with our service level, which is the best in Finland and very good also in Scandinavian countries. Animal health doubled its revenues due to the acquisition of Inovet VMD. Also the companion animal, the sedative portfolio performed very well. Of course, this sometimes has to do with, again, with the timings of shipments. For the fermion, we see a small decline. However, we currently manufacture big quantities, tons of darolutamide that kind of limits to some extent, capacity for the external sales. But we are working all the time as we speak to build more capacity on that front. And the strike in Finland had a small effect on Fermion in the early part of this year. Fermion, which is a process chemical industry for Fermion, few days strike means actually almost two weeks out of operations, as you need to run down operations, utilities, and then again start it all over again. And both ends takes several days to be prepared for. And our clinical pipeline proceeds as we have planned according to our strategy. Happy to tell about Arastep trial, a new one in phase three with Bayer. Here we study patients with the high risk prostate cancer hormone sensitive prostate cancer and high risk meaning that they have very they double their PSA value in a very short time within a year after after first round of treatment so this way we will be able to offer the new Becca and this treatment to the earlier segment of the disease to which it fits very well as the side effect profile is very good and mild compared to some other products. And of course, Arasensis now received the marketing authorizations in all the key markets. Of course, there are smaller markets where we still await for the registration. Then we have ODM208 for the prostate cancer with MSD. And we are happy to tell that a phase three study will be starting at the end of this year. This is good news. This is good news, of course, for the both companies, but also for the patients. Our ODM 105 for psychiatric disorders, we are preparing for the global phase two. And then our ODM 111 for the treatment of pain is advancing well in the phase one. We have published our sustainability report recently. I hope you've all been able to look at it. Sustainability is an important matter for Orion. Here, I would like to raise two new things that we've taken to our agenda. On the environment track, we have extended our climate targets to cover the scope three emissions. Scope three meaning the emissions of our suppliers and partners. To this day, we've been focusing and targeting to scope one and two, which are our own manufacturing and logistics and all the projects that we are now and we've been running for several years in our own operations have been very successful and we've been able to reduce both the energy or increase the energy efficiency and decrease the emissions. Also, we are now aligned with the 1.5 Celsius warming target. The other topic that I want to raise here regarding our employees and all the professionals working in Orion is the diversity, equity and inclusion. We have raised this topic so that on our safety sessions, all our teams from executive management board to the factory floor level have safety sessions on a regular basis with different topics. And now we also discuss these DEI topics. And it's an important thing for me that all the Orion employees feel safe and accepted and included in Orion. And our outlook for the current year is As we've told before, unchanged as it is, we estimate that our net sales will be slightly higher during this year compared to the 2022, and where the comparative number is €1,130,000,000 without the signing fee from the MSD. For the operating profit, we've given the outlook that we will be on a slightly higher or higher level compared to 2022. And there the comparative number is 232 million euros. Then separately from this outlook, we are currently exploring a possibility to transfer our pension fund to an insurance company. Until today, Orion has managed its pension funds by itself. But now we are exploring if we could really sell this business, if you could call it so. But we don't include it into this outlook. It is a one-off event. It is a very administrative action. And it is difficult to estimate since this will happen, the final day of closing will be in the end of the year. So we don't really know what will be the final effect for the income. It will be dependent on the discount rate and then of course on the value of the assets. when it relates to the cash flow. So that is a separate matter from our outlook, but of course, something that we want to share with the outside world. And basis for the outlook are the same as previously, NUBEKA, animal health, the milestones, we are looking forward to a milestone regarding NUBEKA, And certain sales thresholds exceeded. Easy hailer, a very robust business. And of course, then the generic competition. Russia will still have an effect to us, you know, especially on the early part of the year. I mean, the difference to the comparative year and the pricing pressure will have some negative impacts on our net sales and then the operating costs will have an effect, still increasing effect on our cost of goods, especially on the first half of the year. Regarding upcoming events, the next one will be on 25th of May, our Capital Markets Day. You are all very welcome to participate. And then in July, the half-year financial report. Thank you.

Thank you, Liisa. Now it's time for the questions, and we will start taking questions first from the conference call line. So operator, please, the first questions.