Orion Corp New B Shs

Good afternoon ladies and gentlemen and welcome to Orion's earnings conference call and webcast for the financial year 2023. My name is Tuukka Hirvonen and I'm the head of IR here at Orion. In a few moments our CEO Liisa Hurme will present the results from 2023 as well as our refined strategy and new financial objectives. After the presentation, you will have the possibility to ask questions from Liisa and also from our CFO Jari Karlsson. We will be first taking questions from the conference call lines. And kindly, whenever asking your question, kindly state your name and the organization you are representing before asking your question. And after that, we will then turn to the webcast questions. So in the webcast, you see the chat box below the stream and you can type in questions through that tool. And just before I let Liisa to take over, just a reminder about this disclaimer regarding forward-looking statements. But now, without any further delays, it's my pleasure to give the stage to Liisa. Liisa.

Thank you, Tuukka. And welcome on my behalf as well to Orion Full Year 2023 webcast. I'll start with the Q4, which was very good for Orion. We proceeded all year as we had planned, accelerating towards the end of the year. So our net sales in Q4 were 9% higher than in the Q4 2022, and our operating profit more than doubled from 2022. Of course, along with that, our operating profit margin also increased significantly. And cash flow was also improved from the last quarter of 2022. So compared quarter per quarter. Nubeka and Easyhaler were the growth drivers for our net sales. And during the last quarter, or for the last quarter, of course, the transfer of the Orion Pension Fund's B fund to an external pension insurance company resulted in 30.7 million positive impact on our operating profit. And now to the full year results of 2023. And as we go through the numbers, let's remind ourselves that the comparative year 2022 was a bit different for us in the form of upfront payment from MSD for our ODM 208. So that, of course, is reflected in 22 numbers. Our net sales for the full year decreased 11.3% to 1,189,7 million euros. Operating profit decreased 37.5% to 274.9 million euros. And operating profit margin was 23.1%. Cash flow per share from operating activities was 0.85, much lower than in 2022. And dividend that we propose per share this year is 1.62 euros per share. Let's look at the numbers now without the upfront payment. Net sales increased approximately 7% without the 228 million of upfront payment, the net effect in net sales. So a very healthy growth for Orion portfolio. And for the operating profit, when we look at that now in 2023, without the net effect of upfront payment and also without the positive impact of pension fund transfer of 30.7 million of 2023, our operating profit increased approximately 5%. I think these two percentages tell us a story of a very healthy company and portfolios that keep on growing. Of course, the cash flow might raise some questions, being so much lower than in 2022. upfront payment had, of course, an effect. But there was a lower operating profit as well due to some decline of our products. And Nubeca, as a very fast growing product, also we need to keep higher and higher inventories for Nubeca. And also our receivables are growing to be higher as the product sales grow. So that also starts to have an effect on our cash flow. Our inventories outside or ex nubeca have also increased. We have wanted to secure that we have good service level and that of course has a price to be paid in a form of inventories. And then the cash flow impact from the pension fund transfer will only be effective and seen in Q2 2024. So it's not yet in these numbers. Looking at our net sales compared to 2022. There are positives like Nubeka, product sales and royalty. And of course, the whole other portfolio excluding fermion and animal health grew 58.1 million euros. And then also animal health and fermion together grew 10 million euros. So all in all, very, very good positives during 2023. The biggest negative being the difference in the milestones, the upfront payment, and then the usual suspects, Dextor and Simdax, still declining. And a surprise, and this was probably the only biggest surprise, a bigger surprise for us in 23, was the decline of Entacapone sales. And we can see the effect here, which is 25 million euros. And all in all, the closure or withdrawal from Russia cost us in net sales 32.3 million euros. And then when we look at the exchange rates, that also had an effect of more than 20 million. But a lot of positives and mostly unknown negatives except the enter cap home. Or known negatives except the enter cap home. Operating profit tells pretty much the same story. Biggest negatives are here. Product sales marching and mix without the exchange rate. including, of course, Dextor, Simdex, Entercap home products that are declining, and then, of course, the exchange rate on the gross margin. And the biggest single difference here also derives from the upfront payment in 2022. But then when we look at the positives, of course, the Nubeka royalties here, 76.3, And the whole other portfolio growing also very nicely, which we see here as 21 million without any effect of exchange rate. And then on a positive side, we can see the transfer of pension fund effect of 30.7 million euros. Nubeka continued its growth story. Sales more than doubled, which is a really great thing. And we were expecting this as well. Of course, the number, the growth was not positive. Instead, it was negative by minus 28.6% for the innovative medicines division. But that, of course, is related to the 2022 upfront. Also, we received a new marketing authorization for Zdalmi, which is a Ganaxolone, is the molecule. And the first indication is for a very specific epilepsy, a rare disease in children. And we are right now working on the reimbursement and pricing processes across Europe. Our branded products division really caught up during the year. Especially Easyhaler showed very, very positive trend, growing 11%. I'll show the percentages later. Entacapone, as you can see here, suffered on the destocking of our partners who had stocked and increased their inventories during the pandemic. But it's not only destocking, as we have learned now during the first part of this year. It was also lower prices in some of the countries in the world, and then also increased competition. And Divina decrease was due to the withdrawal from Russia. So that should be sorted out now that we start the year 24. And Easyhaler is clearly the biggest product line within branded products. Our generics and consumer health declined. But if we look at that portfolio without Dextor, Simdax or Russia, actually our generics grew by approximately 4%. So I would say that our generics portfolio is doing very well and we have a target of growing faster than volumes in our markets. But also we are clearly growing very well in value. This is true especially in Finland, where in the reference price segment, we grew by 8.6% when the market decline was more than 5%. So this is especially a large segment for us in Finland. Animal health. through the acquisition in 2022 showed growth, not as healthy growth as we would have expected, but here clearly the market has been a bit soft due to the cost of living. It has an effect both on the companion animal side and the livestock side as the prices of drugs or prices of products is going higher or increasing. And also on the companion animal side, people, of course, need to think, you know, how they spend their money when the prices of energy and food are increasing. And growth also on Fermion side, a lot of the capacity in Fermion is actually now on Nubeka. But there are products, global products and APIs that we manufacture and keep on growing all the time. And we have capacity for those. In this slide, there is a lot of red numbers, but there is a very good explanation to all of the numbers that I've already explained for some of the products. Maybe a few words on animal health. As I already said, the companion animal and livestock markets have been soft. And it's clearly seen here. But it's not only that. But we've also seen that our partners have changed. stockpiled during the pandemic. And now that phenomenon is actually fading off and we are seeing a normal order cycle again. And then biosimilars that I didn't mention is a very binary business, especially for the hospital products. So you either win or lose in some countries on one go. So you probably see either really green numbers or then really red numbers. And last year was a bit of a red side. But our key drivers, Nubeka and Easy Halo, performed extremely well here. Trexan is really a result of delivery timing to our partners across the globe and probably will calm down during this year. But I think the most important message in this slide is really our pie chart here. Last year, in 2022, the share of innovative medicines was 9% of our total revenue. And now in 2023, it was 20%. For branded products, it was approximately 20%, a slight increase in the total share, and some decline, a few percentages, of course, respectively on the generics sales. So you can draw a conclusion here that the share of innovative medicines, meaning Nubeka here, will be growing as we proceed with our strategy. The really good news from the year 23 is related to our clinical development pipeline. I've worked more than 20 years in Orion, and I don't remember having this rich pipeline during that time. And I don't think we've ever had four phase three studies ongoing at the same time. Of course, these are with partners like Bayer and MSD. Nevertheless, it very beautifully validates our products and pipeline that we are this far with our molecules. CYPIDES is still ongoing, a phase 2 study for ODM208. We are proceeding with Tazepimidine for insomnia in phase 2a study, creating a proof of concept for this indication. And we are preparing with full speed to start Phase 2 study in acute pain with the ODM111, and then later on this year, Phase 2 study for the chronic pain. And then we have our newcomer in oncology, ODM212, with a mechanism of action called TID inhibition. a very nice pipeline, and I'm personally really looking forward to this year and how we can proceed with these molecules. Then a few words on sustainability and indicators from 2023. There are a lot of numbers on this slide, but I'll focus on one here, and that's energy savings. you can see a huge increase in our savings from the 2022. And indeed, you know, we've done a lot of actions on this front. We have our own local heating center in our Turku site that has been in full force and full use for the 23 for the first time and has resulted in a lot of savings. this center really uses all the waste energy that we create in our manufacturing to feed that into the whole campus in our Turku site. And we are actually building a similar one in our Espoo campus. And another thing that has had a big effect, even though you might think it's a small thing, But in the end of 2022, when we saw that the energy prices are increasing, we introduced a program one step lower with your temperature across the company in Finland. And that has really had a huge effect on our energy consumption as we've had it a bit more colder in our rooms and laboratories. So with very small things, you can do a big change. Changes have already happened and will happen in my executive management board. We have two new members. Julia Macaray has already started 1st of February as a senior vice president of people and culture. a new function in Orion actually on the executive level. And René Lindell has been appointed as a successor of Jari Carlsson as a CFO, and he will start on 1st of May this year. And I warmly welcome both Julia and René to join Orion. Now, let's look at the outlook for 2024. As you can see, we have changed the way we give our outlook. We used to do it for many, many years verbally, indicating slightly increasing, slightly increasing or this type of guidance or outlook. Now we are changing into numeric outlook. Before I go to the numbers, I'll explain a bit why we are doing this and what's the basis for this outlook. As Nubeka is growing, it's quite difficult to estimate and predict exactly When the product shipments to buyer happen, when and how much royalties we are getting paid, and also the timing of sales milestones due to the previous factors might be difficult. Those are all part of our business, but to better manage these predictions, the difficulties in this prediction, we now have a numeric range for our net sales and operating profit. So for the net sales, we expect it to be between 1,340,000,000 to 1,410,000. million. And then for the operating profit, the range is 270 to 310 million. And now it's good time to move to the basis for this outlook. So for the innovative medicines, it's of course Nubeca that is driving the net sales. But as I said, it's difficult to really predict exact timing of certain things with Nubeka, but we assume that we will get a 70 million sales milestone regarding Nubeka in 2024. For branded products, Easy Halo portfolio will grow and we expect Endacapone product portfolio to be quite stable. And generics and consumer health, generics portfolio will grow. And SIMDAX and Dextor will unfortunately continue the decline. And animal health business, we expect to grow. When it comes to operating profit, the clear message here with this range is that we are increasing our R&D spend. When we looked at the clinical pipeline, it's already a very rich one. And we will have most probably this year three phase twos ongoing. And then, of course, the phase threes will continue. So this will have a significant difference in our research costs compared to the previous years. We are not including ODM 208 R&D cost or Phase 3 cost in our assumption, but we don't accrue cost for that currently. But clearly it's a big change. It's like we are putting up a very different gear in Orion to accelerate our R&D pipeline and moving our projects faster along the pipeline. And then our sales and marketing expenses will also increase in line with our strategy, which will lie open which I will open to you in a minute. So these are clear changes to our previous years. So take this into account when making any assumptions or predictions. And with these assumptions, we have given out our outlook for the 2024. All right, that was 2023 and now I change the subject and I move to our updated and partly renewed strategy and also our renewed financial targets. Building well-being is Orion's purpose. And we are sticking to that. Those who are here in Finland and know Orion very well do know that we talk about building well-being wherever Orion is mentioned. The point here is that we are now making this global. And we are, and I will come later to the whole purpose, but we are really drawing from our Nordic heritage and a century long experience in pharma industry to serve our all customer groups. We see Orion and actually the pharma in a way that all generic products, branded products, animal head products and APIs have once been innovative medicines or molecules. So it's actually a bigger package with which we are serving our customers. And what's also very evident in this picture is that we are expanding. We have a very good track record from expanding from Nordic to Europe in 2010 and on forward from there. And now our aim is to become a global company. And in that, all our divisions have a role. Innovative, generic, branded and animal health. So why now? Why now? Why do we? We've really been thinking about this for a long time, that how to do this and when to do this and how to do this. I think this is a perfect time. Projections for our key products like Nubeka and Easyhaler for our generic portfolio look very positive. Also, our R&D capabilities have been validated. I think Nubeka is a beautiful sign of that. ODM 208, another one. We have other validated candidates in our pipeline like ODM 111. And all our business divisions have demonstrated resilience during the past years. Even in rather difficult conditions, they've been able to grow very solid platforms, product platforms, long-term customer relationships, which we can now build on. So we are in an excellent shape to drive for the next decade of growth and innovation. These are cornerstones of our new strategy. Building a customer-driven portfolio. geographic expansion and developing the growth enablers. We clearly understand that we don't know everything. We don't have all the capabilities that are needed for further expansion, but we will either buy them or we will recruit or learn them. I think the most important is that we know where we are going. And as I said, all divisions play a very important role. They have a unique role and unique strengths with different customer groups, but they also have synergies together. And Fermion is in a very crucial and strategic role by providing API to our key products. We have faced our strategy in three different stages. in three years periods. We have strengthened and expand. We will strengthen our position in Europe and Asia Pacific. We will build and invest for new assets, whether it's in our own pipeline or whether acquired from outside and enter USA step by step in a very, how would I say, not the modest, but a sensible Orion way. And then we'll accelerate. Of course, these stages will actually not be as clear as they are here. We'll be accelerating all the time. But the key message here is that we are building on a long-term growth. We do know that one day Nupeca's patent will expire. So now it's time to use our resources in a correct and right way to build the future growth. Our financial objectives have also been renewed. We aim to accumulate annual compounded growth rate with our net sales by 8%, at least 8%. What's more important is that we state that our operating profit will grow faster than net sales. Our equity ratio will be at least 50% and our return on equity at least 25%. This is a new element in our financial objectives to secure that we do wise decisions. And for the dividend, we will provide increasing dividend with the payout ratio between 50 to 100 percent. Regarding capital allocation, we have very clear priorities. The highest priorities are now on R&D, dividends, acquiring commercial assets to fulfill and fill our portfolio in Europe or other regions, or acquiring new R&D products or assets. We can use mergers and acquisitions to gain such competencies that we don't have yet that would make it possible to fill this and make this strategy happen. But it's not a purpose. It's not something that we definitely have to do. And our figures doesn't include acquisitions currently. And I'll end up here with our purpose, which tells a story of a century-long experience of a company that serves its stakeholders, customers, patients in every step of their life, whether it's a generic consumer health or new innovative medicine. Thank you.

Thank you very much, Liisa, for the presentation. And now it's time for Q&A. I'll invite first Jari Karlsson on the podium, and then we will turn it to the operator. So operator, please, we are ready to take questions from the conference call lines.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Victor Sundberg from Nordia. Please go ahead.

Yes, hi. Thank you for taking my question. so maybe a question here on your long-term guidance I guess you include you know maybe buying commercial assets and ramping up some kind of sales organization for that but have you also taken into account the say potential revenue from for this or this is just costs that you assume here going forward I just want to understand how much kind of upside there is to your numbers or have you modeled this going forward? Yeah, I'll start there. Thanks.

Thank you, Victor, for a good question. We have not included acquisitions in our objectives. We rely here on organic growth. But as I said, of course, we are also considering possible acquisitions if they really give us some competitive edge or we can acquire such capabilities that we would, for example, need to enter US markets. or strengthen our portfolio in Asia Pacific or in Europe. But per se, these objectives do not include any such numbers.

But of course, it's fair to note that already for a long time, we have all the time been in licensing new products for our portfolio. So those type of things we consider more or less almost like organic growth. So those type of sales definitely are included, but not really any major one time big events acquiring really commercial side companies or so forth but definitely in licensing activity type of growth is definitely included in the growth even in these numbers.

And on the long-term guide has any assumption been included for a potential opt-in for Merck for example on ODM 2.8?

We have not made any assumption on that one since that's totally open. So I think we calculated that we'll continue with the program.

Okay. And just a question here, a pipeline question also on ODM111. I mean Vertix did a lot of iterations on their 1.8 channel blocker. So can you share a bit about your early R&D effort on this molecule and why you wouldn't necessarily need to take the same kind of long iteration process as Vertex did with its molecule for pain. I'm just trying to understand how similar these molecules are and how we should see the risks for the ODEM 111 program going forward. Thank you.

Well, I think the question how similar the molecules are or will be, will only be answered when we have the phase two results. It's too early to say anything about that yet. We need to wait for a while still.

Okay, thanks. I jump back into the queue.

The next question comes from Anssi Rausi from SEB. Please go ahead.

Hi all and thank you for the presentation.

It's Anssi Rausi from SEB. First about your R&D expenses. I think those were close to 130 million euros in 2023 and you guide of course significantly higher number for 2024 but I know that it's a tricky question, but any ballpark in absolute terms here? And of course, if we look at your 2028 expectations, do you think that this R&D expense trend is sustainable going forward, or is this spike in 2024 like a one-time item? Thanks.

Well, let me start, and Jari can then fill in. Regarding this year, When I say that the R&D costs will be significantly higher than earlier, I'm not going to give you an exact number, but I don't think we've had, say, two, three phase twos ongoing ever. And each phase two, depending, of course, on the indication, is several tens of millions. Of course, all these costs doesn't accrue at the same time and they are phased, but It's a significant increase in our R&D budget. And then regarding our financial objectives, I think your question was that whether our objectives bear an increase in R&D spend like this. I think the very great philosophy in our financial objective is really that we are, at the same time as we increase our R&D investments and costs, we secure that our profits will grow according to the net sales. So higher than net sales, but our net sales will have to grow as well. And of course, we need to follow how this will happen. But we see that it's almost now or never we have an opportunity with Nubeka growth to bear higher R&D costs and at the same time increase our profits.

Yes, I think that's pretty much what was it. But of course, one needs to remember that in the longer term, definitely the programs continue growing. The R&D spend, they will do that in 2024 as well. But the exact timing when the programs really get started, when the costs really start accumulating within one given year might very easily cost actually quite large variances from the original plan, but the long-term trend is clear that if some costs are a little bit late for this year, it means that then they just increase the cost the following year. And of course, it's clear that some same type of a thing can then happen in 2025 or forward. But the idea here is very much that the R&D spending will increase, of course, depending that the programs are successful. That, of course, is embedded in this idea that we can move forward with the key programs we now have, which, of course, is never certain.

Okay, thanks. And then about your plans to expand geographically in APAC Japan, the U.S. I guess the U.S. is mainly related to ODM 111. APEC and Japan about Entacapone, but is there something else you're already planning with these expansions?

You are right. US is very much depending and relying on ODN 111. What the solution eventually will be, depends on what the molecule will look like. And then EISA Pacific, yes, Entacapone product portfolio forms a very good platform there. But probably we've told earlier that we are all the time looking to license in new drugs for Parkinson's disease. not new molecules but new combinations new formulations so whenever possible we will of course also launch and bring those to the asa pacific and and hopefully to japan as well okay thanks just to quickly continue on that last one so do you think that these investments in apac are made to like defend your sales in entacapone or do you see actually some opportunities to increase sales there we do see opportunities to increase our sales both in asia pacific and europe for our parkinson's products it it but it requires really uh again focus on that area and that was one of the main uh drivers for the change of our structure to put more effort and more focus on also on those branded legacy products. So it's really focusing on our own Stalivo, Komtaan, Komtes, both generic and branded, and then to build the portfolio to support those.

Okay, great. Thanks. I'll get back into the queue.

The next question comes from Graham Parry from BOFA. Please go ahead.

Great, thanks for taking my questions. So the first one is just on New Becker milestones. So I think the 70 million that you're guiding to in 2024 is above consensus. And these are, I know you said these are progressive. So could you just remind us how much of those milestones is left? I think you had 280 of which you've expended 100. And if they're progressive, is that something you would expect to see every year? Or could we be, you know, a couple of years without a milestone? And then, you know, they're just triggered by every 500 million increments on your becker sales or every billion, for example. So just help us to understand how lumpy that will be. And then at the end of your 2028 guide, you assume that they've been exhausted by that point. So operating profit growing faster than sales, X, with those milestones declining over time. And then the second question was on ODM 111. Just wondered when we might see some clinical data on this, any venues or expectations for data presentation. It would be great. Thank you.

Well, I'll let Jari start with Nubeka milestones.

Yes, so there is, you calculated correctly that after last year 30 million and this year hopefully 70 million, there is still 180 million left of that package. We have not disclosed the trigger for those milestones, but you are correcting that, that it doesn't necessarily mean that they come every year. So now there happened to be two years in a row where the expectation is that we will receive those. But it's also quite likely that by 28, we have exhausted those milestones if the business continues as planned.

Yes, and I think the key point here really is that it's not every year. So it is a bit of a bumpy, as you said, or whatever. And I think our financial objectives until 2028 also give room to that, that there might be a variance between the years. Regarding ODM 111, we aim to start our phase two, two study by the end of Q2 this year and hopefully we are able to also publish our phase one results but that's always something to consider where and when if there is a suitable scientific congress or something so I'm not in the liberty to talk about that right now.

And of course, one needs to remember that because this is not an oncology molecule, the phase one doesn't really give that much information about how well the product actually works. It's basically a safety study more than in the case of cancers.

Great, thank you.

The next question comes from Sami Sakamis from Danske Bank. Please go ahead.

Sami Sakamis, Danske Bank, your line is now unmuted. Please go ahead.

The next question comes from Iris the Man from Carnegie. Please go ahead.

Hi, all.

I have two questions, please. So firstly, could you just provide an update what you expect in terms of pipeline use? of headwinds and tailwinds do you expect this year? That's all. Thank you.

Regarding the pipeline use, We expect the ODM 208 to be reported this year. Of course, the previously mentioned Phase 1 studies, study results also for the 20, during the 24, and then at the Phase 3 study on Nubeka, one of the Phase 3 studies will also be published, the results will be published this year. Anything that I didn't remember?

Well, and then, of course, hopefully the start of the ODM111 phase 2. Oh, yes, of course.

So not study results. I was thinking about the results.

But pipeline news from that point of view. some studies and some new studies to start. So there should be enough events on that side this year.

Yeah, sure. Then regarding the headwinds and tailwinds. Luckily, we have seen that the inflation has kind of calmed down, if that's the right word. But I think in these circumstances, so how do you see it? You can't really be sure you know what's going to happen this year. So that's a bit of a question mark still, what we will see during this year on the prices of materials or energy. But I'm much more calmer with that than a year ago. So I think that front is... if not under control, but much more calmer. Really, what would you say a retail win said wins?

Well, I mean, of course, on the positive, I mean, of course, then unfortunately, the Simdex and Dexdoor products, Dex products still continue declining. And there's very little one can actually do about that because of the situation where the generic competition is with those products. But of course, the impact is getting smaller every year as the products are getting smaller. I mean, on the tailwinds, of course, New Pekka continues growing, and Easyhalers continue growing, like discussed many, many times. But other than that, I mean, it's probably relatively steady development. Of course, there can be individual product pluses and minuses also on the generic side. I mean, some of the generics pumped up to our top 10 last year, like Trexan type of products, and those are somewhat volatile. But of course, as a total, those don't really have that huge impact on the group level. But New Pekka definitely by far the largest positive side and then the negatives are Simdak's decks. And of course, like Lisa mentioned, the global politics in general, what might happen in the world, very difficult to predict at this stage. Of course, it's always possible that something surprising can come out of that, but nobody knows, of course.

The next question comes from Sami Sakamis from Danske Bank. Please go ahead.

Okay, let's try again. Just wanted to understand how you see operating leverage. You're guiding for smaller EBIT growth for this year than top line growth on underlying basis. But by 28, you're targeting faster EBIT growth than top line growth. Will this reverse over the next year or will it take a longer time to achieve a more normal operating leverage?

You can start.

Yeah, I mean you of course are correct there and I guess the expected rate of growth in the R&D spending is most likely going to be faster this year than in the coming years. The plan is that we will continue spending, but there is probably a clearly larger step change, which is then having an impact on this. That is really the biggest change I would say that happens over the time. And of course, in a couple of years time, we hopefully have completely left behind the SIMDAX DEX negative impact, which is still having impact on this year's numbers. But that, I guess, is the biggest explanation, really, why the numbers this year look a little bit different than in our long-term guidance.

Yeah, and when it comes to R&D, what would be like a sensible R&D budget for Orion in the medium term, either on absolute basis or relative to top line?

Well, it's traditionally been something like 13% of our top line.

Yeah, or actually 10-11% is probably close.

Well, I think that's still kind of a good, how would I say, rule of thumb. But of course, you always have to also think that how much eventually, even though your top line would grow very, very significantly, that how much risk are you willing to take in the form of the R&D pipeline? So it's very difficult to say, but I think at least in the beginning, that's a very good rule of thumb.

Yes, and of course, I mean, going... One big deciding factor, of course, is the phase two results of the ODM111, which really determines what type of phase three programs are going to follow and how are we going to do that. What do we... Internally, do we get some kind of partners on those, how we split those costs and so forth. So there are lots of kind of an open question which might have quite a big impact on that number. But of course, all those decisions are to some extent based on the financial targets we have defined that we need to build a cost structure which allows us then to continue growing the profits in mid to long term as well.

Okay, so even though R&D course will come up, relative to the top line these here, you're expecting them to trend down going forward.

Well, I mean, not necessarily that trend going down, but of course, one needs to remember that R&D costs are only part of our cost structure. So if top line grows 8% and R&D costs continue growing, but if the rest of the cost base is not growing as fast, then of course, it means that there's more left at the bottom line. So the growth is really for the next years most likely in the cost base coming from the R&D. Then it's a completely different question if Orion at some point starts creating its own sales organization in US and start building that, but that's not going to happen in the coming few years yet.

Okay and then finally I think the previous financial targets included 25% EBIT margin target Is that still a good planning assumption to think about Orion profitability profile in the long run?

Well, I'd say that we have now new financial targets, which basically mean that, I mean, last year, the operating profit, of course, was clearly less than 25. But in the long run, if we continue growing operating profit faster than top line, then, of course, it means that gradually also the operating profit will continue growing. But we have kind of dropped out that type of... measurement. So now it's more concentrating on making sure that the bottom line grows rather than looking at the operating profit margin.

Okay, thanks.

I don't have any further questions.

The next question comes from Ansi Rousey from SEB. Please go ahead.

yes hi thanks for the follow-up so just about your guidance for 2024 and we exclude this 70 million euro milestone so I think that your so-called underlying EBIT margin one could say it looks a bit weak so if we just could somehow try to split your cost base like how much you are currently sacrificing your current underlying EBIT margin for the growth investments, which are not yet generating any EBIT, so would it be possible to give us any kind of estimate here?

No, I mean, not numbers, but like we have several times here said, the plan is that we have a clear step change in our R&D spending. And that, of course, is going to be a burden on the margin. Of course, when you are doing the calculations, you need to remember that also last year's numbers include 30 million milestones. So you cannot really compare last year with that milestone and this year without any milestones. But yes, definitely, like we have been discussing here, operating profit development in 2024 is to some extent stressed by the fact that we need to now start making these growth investments and partly we are funding these growth investments with these milestones so they are part of the overall package.

Okay and Just one more question about your 2028 target. So I'm not sure if you are willing to give us any estimate, but what kind of EBIT margins you see possible to reach here? Anything to give us?

Well, I mean, like I said in the previous question that if If profits grow faster than top line, then it means that the EBIT margin is gradually going up compared to the level where we were last year. So where we will be exactly been in 28, time will show. Of course, one needs to remember that also the top line is at least 8%. So also there, of course, we are aiming at higher numbers if feasible.

Okay, thank you.

The next question comes from Graham Parry from BOFA. Please go ahead.

Hi, thanks. Thanks for taking my follow-up. I'm just trying to really work out what your midterm guide assumes for margins X R&D and X Nubeca royalties and milestones. So the way I think about, Oren, is you've got the Nubeca royalty and that sort of funding and expanding R&D pipeline, then you have the other businesses. So if we stripped out R&D and Nubeca, are the underlying business margins of the rest of the business declining, or should we perhaps think about that a different way? Thank you.

Well, of course, we are not really splitting it out in our longer term financial targets that way. But I think we've been discussing for many, many years that the margins on the generic business are declining. Volumes are growing, but unfortunately, prices are declining, which means that the operating profit margins are and have been coming constantly down already for many, many years. And I don't think there's anything which would change. No. change that in the coming years either. So I think in that sense, you are correct that the likely outcome is that the margins are flat or slightly declining in the other businesses. On the other hand, if the top line grows, it should mean that the actual year can still continue growing, even though the margins are not necessarily going up.

There are no more questions at this time, so I hand the conference back to the speakers.

Thank you, operator. Thank you, Liisa and Jari, for the good answers. We have few questions from the webcast audience. Let's start with Brian Bulgin from Jefferies. He actually has a few ones which some of them have already been asked, but I will read the question and then leave it to you guys. So, can you help us understand New Pekka milestones to expect post-24? And how are you thinking about IRA impact on New Pekka in 28-29? Also, what sort of recovery can we expect for animal health and entacapone in 2024-2025 and R&D going forward as consensus looks to be under modeling this. Quite many questions.

Many, many questions and good questions. Maybe I'll take the IRA, Animal Health, Entecapone. And Jari, you can then repeat probably the Nubeka. IRA for the Nubeka, we of course rely on the forecasts of Bayer. But to my understanding, IRA has been taken into account there. IRA is a... is not only a negative thing for some drugs, it can also increase volumes and use of the drugs. And I think some companies also look at it from that perspective. When animal health business would bounce back and will it bounce back this year? I'm rather confident it will. We've, as I mentioned earlier, and we all know that the inflation rate is not increasing and It's probably making this market better now, especially for the companion animals, but why not for the livestock as well? So we think much more positively on animal health this year than last year. And Entacapone, we think, is a rather flat market. It probably grows in volume and stays flat on value because the prices are higher. declining and also there is more competition in the form of generic products. So maybe a flattish one. this year as well, this year compared to the previous one.

And of course, in the case of animal health, like we communicated throughout last year or second half of last year, we had this one major partner customer who was managing their inventory levels and that program seems to be now over. So it should help in the rebounding of the animal health, especially the animal health sedative business. Then the new backup milestones passed this year. So like discussed already earlier today, the total package we declared a few years back is 280 million. And if this 70 million materializes this year, then there is still 180 million remaining And that is expected to come in the coming, well, probably, I mean, during this strategy period. So if nothing surprising happens, we should have received all those milestones by the end of the strategy period. But it doesn't necessarily mean that we can continue getting milestones every year, because we have not published the intervals. Then there was this R&D growth rate. Yes, I mean, like in 2024, also probably longer term, the outside world is probably underestimating a little bit the spending needed to grow the portfolio, which we are including in our numbers. But of course, there are lots of uncertainties. It's very dependent on the progress of those programs and development programs we have in pipeline. So anything, for example, if 1.1.1 doesn't turn out to be a good product, then of course that has a big impact in our longer term R&D spending. And on the other hand, if it is like we expect successful then we have a big decision to make that how big investment in one molecule Orion wants to make, because we all know that phase threes are very expensive. But definitely the answer is yes. It looks like that for the time being, the outside world is underestimating a little bit the spending needed to grow the portfolio.

Thank you, Liisa and Jari. Then going to the next question, this comes from anonymous asker and actually something we probably cannot comment on, but I will ask it anyway. Your 2028 revenue objective based on a 8% CAGR appears to be meaningfully lower than sell-side consensus. Can you please clarify the difference?

Well, first of all, let's remember that it's a minimum. We say that we grow at least 8%. And it's CAGR, so there might be very different years along the way. Of course, in 2028, it should be there. But I don't really see a challenge there. We can go beyond 8%.

And of course, I'm not sure that how kind of a consistent consensus there really exists about 2028 at this stage, because most of the data I have seen is more concentrating on the next two, three years. But let's see. And of course, it's, I mean, very dependent on the growth rate of Newbega. I mean, Bayer is still confident on their 3 billion target, but which year exactly that will happen, of course, will have a meaning, really major impact on how our numbers look on 28.

Okay, thank you. A question going to Jari. May I please ask a financial question, please? On the balance sheet, other receivables increased to 108.8 million from 44.8 a year ago. What drove the increase and is the step up in other receivables permanent?

Well, to some extent it is permanent because of the way how the Newbeka royalties are accrued. So we invoice, I mean, like for example, at the end of last year, we had invoiced the third quarter royalties from Bayer. So they are part of the trade receivables, but then the fourth quarter royalties from Bayer, they are still only accrued receivables because the final royalty calculation of course was not available yet. by the time when we are now publishing the numbers. So that explains, and as long as New Pekka continues growing, we of course will see growing numbers there, then We'll have to check the number, but of course we also have now in our books the receivable from the pension fund transfer, so we booked the profit impact, the 30.7 million, but the actual transfer of the excess cash from the pension fund to Orion will only take place during the first half of this year. And that, of course, was shown as a receivable in our balance sheet as well. But in the long run, definitely as long as Nupeca grows, the other receivables side will continue growing because of these royalty accruals.

Then one final follow up from Brian regarding IRA. So you stated IRA has been taken into account in Bayer's peak sales potential, but didn't IRA come out after they gave out the guidance? That's Brian's questions.

Well, of course, I give that commenting to Bayer, to our partner. But what I understand, I'm confident that IRA effect has been calculated. And of course, one needs to understand, and now I'm not referring to Nubeka's three billion, but any product having estimated big sales of certain amount, there are a lot of things that move up and down. during the time. So it's not only, for example, IRA. So there might be other factors. So the top line stays same. This is just an example for any that type of an estimate.

OK, now we have exhausted all the questions from the webcast and still once more turning to the conference call line operator. Do we have any follow ups there?

There are no more questions at this time. So I hand the conference back to the speakers.

Thank you. So, Liisa, your concluding words, please.

Well, thank you very much for your attendance and very good questions. Once again, we are all we have rolled our sleeves to our new strategy. And I'm very, very confident. moving that forward in coming years. And here you can see our upcoming events. Next one being our AGM in March 20th and then reporting our Q1 on 25th of April.