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.