Orion Corp New B Shs

A very good summer evening to all of you and welcome to watch Orion's revenue announcement event from the review period of January-September 2023. My name is Tuukka Hirvonen and I will answer the investor relations with us at Orion. Let's start the event in the traditional way with the review of CEO Liisa Hurme, after which you have the opportunity to ask questions to her and the current CEO Jari Karlsson. The official language of this event is English, but you can also present questions in Finnish. In addition, during the evening, the Orion website will also have an interview with the CEO Liisa Hurmeen. Good afternoon, ladies and gentlemen, and welcome to Orion's earnings conference call and webcast for the financial period of January-June 2023. My name is Tuukka Hirvonen and I'm the head of IR here at Orion. We will kick off shortly with a presentation from our CEO Liisa Hurme, followed by a Q&A session, where also our CFO Jari Karlsson will be present. We will first take questions from the conference call lines, after which we will then take questions from the webcast tool, so you are able to type in questions also through the webcast tool, but we will first take questions from the conference call lines. And kindly please state your name and organization before asking your question. And just before I let Liisa to start with her presentation, I'd like to draw your attention to this safe harbor statement or disclaimer regarding forward-looking statements. But without further delays, it's my pleasure to hand over to Liisa. Liisa, please go ahead.

Thank you, Tuukka. And good morning and good afternoon on my behalf as well. And welcome to the Orion Q2 2023 event. Let's look at the key matters or activities from the second quarter. Very good news on our clinical pipeline. We are entering or have entered already to phase two clinical trial with our molecule Tazipimidine, which goes with the name ODM-105 for the treatment of insomnia. Also, we are preparing to start a phase one clinical trial with ODM-211. And I will say a few more words on those molecules later on. We also updated on the capital market day that our ECHL portfolio's peak sales potential is more than 200 million, which is clearly an increase from our original plan. Also, we were told that we are going to invest 30 million euros to increase our production capacity for easy halo devices along the high potential and also increase the capacity to manufacture darolutamide API. All in all, very positive news and projects. On the other hand, we have discontinued our business operations in Russia during the Q2. We have no inventories anymore in Russia. We carry no sales in that country. And total impact of Russia related items was approximately 25 million negative on our operating profit in the first half of 23 compared to the 22. And Then when we look at the numbers more closely, our net sales increased positively, 2.4%. Nubeka, of course, our main driver for the net sales. Animal health also positive, all in all. And the usual suspects on the negative side, like Simdux and Dexter. And unfortunately, this time also Entacapone. And then the decline in operating profit. That was heavy. A two-digit number, 23.5 percentages. So we came down from 153.4 from the 2022 first half, now to 102. Of course, when we compare the first halves of these years, Russia plays a big role in this. It was... partly in our plans, but of course, eventually we didn't know how and when exactly we are able to discontinue and close down our business operations in Russia. So the final figures only became evident during the last weeks. Then there is the lower margin due to price decreases, also product mix to some extent, and increased cost of goods that we have discussed earlier. Cash flow also down 55.1%. That is explained by the decrease in operating profit that we just discussed, and also by increase of working capital. that is now higher than in the first half of the last year. Of course, Nubeka plays a big role there, but other materials and our inventories are quite high right now. On net sales, a very positive development. Nubeka, 44.3 million euros. The whole other portfolio outside animal health, 23.7 million euros. And then animal health and fermion altogether, plus 20.7 million euros. There are also downsides. Dex metadermin continues as it has been declining, although all the time with smaller numbers. As the sales get smaller, the decline, of course, gets smaller at the same time. And then the exchange rates that I will talk more here on the next slide. And I think it's good for us to stop here and really go through all the details on this slide. Maybe it's good to remind, when we discuss the operating profit, that when I first mentioned that Russia generated 25 million euros minus for us on the first half of this year, so that 25 million is embedded in almost all of these columns in this picture. So it's really composed of different factors, not that much of a discontinuation itself, but different matters during the first half year. We can start from the product and service sales on the first one. Of course, there Russia plays a big role because we actually didn't have sales in in that country almost all during the first half. But Nubeka luckily brings a positive vibe here. The next one, minus 57.4 percentage, more million euros, million euros, is the big one. Of course, the loss of margin of the products that we've sold in Russia is included here. Also, the minus almost 20 million, that is a price difference of Nubeka transfer price to Bayer compared to the last year is embedded in this one. And then there are more costs that we've been generating during the first half. So three big parts in this big column of 57.4. Russia, Nubeka price difference and increased costs. Of course, Russia is a one-off item. So that really then belongs to the first half and shouldn't accumulate any costs or losses as we go along this year. Looking at the exchange rates of the 17.2, again, Russian rubble plays a big role with 12.3 million euros. But luckily Nubeka, of course, has generated new sales for us. And then other operating income and expenses as well. All in all, Nubeca is very positive on many fronts, but not quite enough to then substitute the losses on different fronts, for example, in Russia. Looking at our business divisions, innovative medicines, a huge growth, a very good one, Nubeca driven, branded products, down due to the timing of deliveries of entacapone and loss of sales of dvgl in russia an excellent excellent performance by generics and consumer health and you now you might think that why is that excellent you know it is declining here but If you take into account that within this division you have Simdax and Dextor, both declining, as you can see from the numbers, and also Russia has quite big impact on this division. I think this is an excellent, excellent performance. Animal health, almost doubling their revenues and fermion. approximately at par. What is noteworthy here is that innovative medicines now generate 17% of our net sales. I think last quarter was around 10%, so the share of innovative medicines is growing all the time, as it should be. Then when we look at our top 10 list. Nubeka, already discussed. Easyhalers, a 5% growth. All Easyhaler portfolio products grow in a very healthy way. What's new on this list is actually the entacapones. Entacapone products are decreasing almost 30%. And that is, to our understanding, really a timing of deliveries from Orion to our partners. We see that some of the customers around the world are really how would I say, managing their inventories. We see the high interest rates. And of course, some of the companies might also have high inventories after the pandemic. So there is clearly the dynamics is a bit different than at the comparative period last year. The other new thing on this slide is really the animal health products. The number five here, that's also declining almost. 25%. A bit of a same reason here. Also, management of inventories of our customers. High inventories after the pandemic and clearly some different dynamics applying to ordering behavior. And Divina series, as already discussed, suffers from a withdrawal from Russia. Biosimilars have entered our top 10 list. They come and go. Clearly, nothing dramatic or big to report on that front. Innovative Medicines, Nubeka, Clear. But then Ganaxalon will be the next launch for our Innovative Medicines division. And we now know that CHMP has given a positive opinion to our partner Marinus. on the first indication for the CDD. And marketing authorisation is expected in the coming weeks or months. So we are, of course, all the time preparing for the launch with the pricing and reimbursement processes, but anyone who has launched a product in Europe knows that it takes time and it has very different pace in different countries. So I'm sure we will be hearing more about this later on this year. Branded products, a good performance with Easyhalers, but as I already said, we see that Entacapone products, especially Staliibo, has a bit of a, how would I say, backlog of deliveries currently. And we'll see whether that then smoothens out during this year or is moved to next year. Generics and consumer health, a very good result if you look at the last year's first half and then calculate DEX and SIMDAX, as I said, and also the effect of Russia. So the basic generic portfolio in Nordic countries performed very well during the first half of this year. Animal health. After the acquisition of BMD, as we call Innovet, healthy growth on net sales here and Even though we see a growth here, without Inovet and VMD, we would actually see a declining sales in animal health, as you saw on the top 10 product list. There is a weakening demand, clearly, especially on the companion and animal health market. I think it's due to the increased cost of living. People will have to pay for their energy, for their food, for their driving and housing. And now we can really see the effect of that, you know, in the companion and animal market. Not to mention the livestock market to some extent. But there the effect is more the same as with intercomponent animal health. It has to do with inventories and ordering products. cycles. Fermion at par, slight increase in manufacturing, a lot of Fermion's capacity is now tied to darolutamide manufacturing. And this is of course the external sales, but lucky to have capacity also for growth there. Then the clinical development pipeline are two new or one new molecule and then one new indication on this list. ODM 105 for insomnia. Now anybody could ask that why would you develop something to treat insomnia when you work with oncology and pain? Well, insomnia is very often related actually to pain. So it's really difficult to distinguish which is the cause and which is the result. So we see that there is a link, not a very strong one, but there is a link. And the molecule per se, by its qualities, we believe would serve very well in this indication. The newcomer here is Odium-212, a TID inhibitor for solid tumors. This is a JAP-TID pathway in signaling of tumor growth, where this type of a molecule then would be able to have an effect. And here we plan to enter phase one during this year. We have also conducted a double materiality assessment in Orion with our stakeholders this spring. What this means is that we have assessed if our sustainability efforts are in line with those that are in line with our industry, so to speak, that are we doing the right things, taking into account the effect of our industry to the environment and other way around. Luckily, the outcome shows that yes, all the actions and efforts that we are doing are very well aligned with the environment. Of course, first for us is patient safety. That's our top priority at any given moment. The second is better environment. And there we work, of course, with the waste. How do we deal with the waste? And waste is a big thing for the API manufacturing, especially not that much on pharma industry, but for the API industry. And there you should then develop green chemistry, develop new ways of handling the waste that is generated by the API factories and all this stuff. we are currently doing. Then, of course, care for well-being professionals. And what do we mean with well-being professionals? We mean Orionis, so Orion employees. And here we measure and improve our work safety every day, every week. We have introduced the DEI. DIE basics and we take it very seriously that anybody who comes to work to Orion and all the Orionis will have to be able to be who they are in our working community. And of course, we plan for the future talent development and building the future capabilities. Ethics is most important for us. I mean, for any company, but if you're working in pharma industry, I think it should be one of your priorities and there we need to have the good corporate governance practices. data protection. And of course, when it comes to this type of a global industry, where much of the materials, parts of the supply chain are outsourced around the globe, it also means that you will have to be extremely transparent on that supply chain and be able to describe it at any given moment to your customers or buyers around the world. And first of all, of course, to ourselves. and work all the time towards a better supply chains, both from the environment perspective, but also from the social perspective. Regulatory compliance comes without saying. Now to the outlook for 2023. We specified our outlook based on the Q2 results. We still assume that we will be able to do slightly higher when it comes to our net sales. And the comparative number from 2022 is 1 billion 130 million euros. That's all clear and that's as it has been. Regarding the operating profit, we are now estimating that that will be slightly higher than in 2022. And the comparative figure here is 232 million euros without the money received from the pension fund. And the difference here is that earlier we said that it will be slightly higher, that the operating profit would be slightly higher or higher. So we've kind of specified it to be a bit more narrow, but we will grow with our operating profit and we will grow with our net sales. And this is what we communicated early this year, the factors that will contribute both up and down on our net sales and operating profit. I think these are exactly the things that we've been discussing today. They have realized, as we planned, the Russia, both on the net sales and operating profit, pricing pressure on DEX, SIMDAX. And then, of course, the operating cost and cost of goods will, and they have had an impact on the first half of the year, But more we see that now that we have moved to the next or the latter part of this year, it will be the effect of the inventory management and customer behavior for in some of the business that we probably were not able to estimate earlier this year. Markets changed during the year. So both the animal health and the entacapone have clearly improved. clearly shown that there can be changes during the year. Of course, we will have to take such changes into consideration when we look at the rest of the year. But Russia itself was one of and mainly has to do when we compare the first half of this year to the first half of the last year. Here you see the upcoming events, the next one in October 26th, and then 13th of February next year, we will be reporting the full year of 23. And I thank you on my behalf here.

Thank you, Liisa. And now it's time to take the questions. So we will first start with the conference call line. So operator, please, the floor is open for questions.