Orion Corp New B Shs

Good afternoon ladies and gentlemen and welcome to Orion's earnings conference call and webcast for the financial period of January-September 2024. My name is Tuukka Hirvonen and I'm the head of IR here at Orion. In a few moments we will kick off with the presentation by our CFO René Lindell. Our CEO Liisa Hurme, she is recovering from a foot operation which restricts her mobility at the moment and thus she couldn't join us here today. But we have a good team here led by Rene and also for the Q&A session we have today here Mrs. Olti Vaarala, who is heading our R&D and Innovative Medicines Business Division. After the presentation, you will have the possibility to ask questions from the management. And we will first take questions from the conference call line. And after that, then we will turn to the webcast chat questions. So you are able to fill in your questions through the webcast chat function if you wish to do so. Kindly state your name and the organization you are representing before asking your question. And just before I let René to take over the stage, I'd like to draw your attention to this traditional disclaimer about forward-looking statements. But with these words, I'm happy to hand over to René.

Thank you Tuukka and hello and welcome to this interim presentation from my behalf as well. The quarter was eventful and also after the quarter's ending we had a few news that we will also discuss today in the presentation and I'm sure more also during the Q&A. The third quarter was strong. It had a strong underlying business growth, but boosted by milestone payments. In total, milestone payments were 130 million euros. 70 million euros of this was from Nubeka sales milestone and 60 million euros was related to the MSD agreement, which in July was transferred from a collaboration agreement to a license agreement. And with that change, the 60 million euros item that was reserved on the balance sheet was released to the P&L, both to the net sales and operating profit. The 60 million euros was reserved for potential costs related to collaboration agreement. But with this agreement change, then those costs didn't materialize. And consequently, the item was released to the P&L. During this quarter, Nubeka, Easyhaler, Animal Health were main drivers for growth, similarly as earlier this year. But in this quarter, also Generics and Consumer Health saw a very healthy growth of 5%. Our operating expenses increased according to plan. And if we exclude the major milestones, 130 million euros in Q3 this year and 30 million euros in the comparable period, the underlying business growth was 25.9%. And the net operating profit increased by 22 million euros. If you look at the year to date, the story is very similar. Two milestone payments increased a lot the net sales and profit, but even without these, if you look at the net sales growth, it was 16.6% and operating profit increased by 42 million. And over the year, the cash flow of operating activities has been strong as expected. Looking at some key components of the net sales through the net sales bridge, we can see here Nubeka standing out with close to 100 million euros growth from last year, and then Milestones net impact of another 100 million euros. But if you look at the other business divisions here, calculate them together, they contributed with 55 million euros of growth. And the largest negative contributors were, as before, Simdax and DEX, Medetomedin and Entacapone. On the operating profit side, main positive contributors were the sales growth and royalties and milestones. And then some negatives from product mix changes and price changes that impacted the margin. And also a negative contribution, as said earlier, from the planned rise in operating expenses, which in together was about 50 million euros, mainly from R&D and sales and marketing. Next, let's look at the performance of each business division. Net sales of innovative medicines show strong growth and includes the two major milestones as mentioned earlier. But even with excluding the milestones, the underlying sales increased by 73.5%. It's good to, at this point of time, to discuss about the remaining milestone for Nubeka. It's in total 180 million euros, and it is actually one milestone which could, according to our current estimates, be recorded in 2026. After the reporting period on last week's Thursday, Marinus reported the results of the Ganexalon Phase 3 study for the TSC indication, which unfortunately was negative. It didn't meet its primary endpoint and Marinus also was announcing that they discontinue the further Ganaxalone clinical development. Now, this means also that Orion is currently assessing its situation with Ganaxalone. We have the CDD indication. It's a rare disease indication, but with a much smaller business potential than we had expected for the TSC, if that would have been successful. Moving on to branded products, a healthy growth of 10.3% year to date, with Easyhaler leading that growth at 18.3%. Sales volume of Entacapone products did increase volume-wise, but due to declining prices, we see that the total net sales is lower than in a competitive period. In the women's health segment, the Divina series grew by 13.7%, also a very healthy number. You can also see here in the bar chart, in the other numbers, some expansion of the branded products portfolio building on the Easyhaler, on the Entacapone and the Divina series. So there is approximately five million euros of growth year to date there. Generics and consumer health, our largest business division. had a very good quarter. It grew around 5% in Q3 and also reached cumulatively growth for the year of just below 1%. And this is really a good result in a very competitive market. And it was achieved thanks to good portfolio management and service level. And as you remember, Generic's business also has its headwinds from Simdocs, Dex Metal Dean, and the fact that we exited the Russia business last year. So the result would have been, of course, much bigger even without these effects. Animal Health has continued its good performance in Q3 and its recovery from last year's dip. And the year-to-date sales is now 20.9%. It came from various sources, but animal sedatives being the single largest contributor. Fermion is slightly lower year on year, but this is mainly due to the fact that even more of Fermion's capacity is being diverted to supporting Orion's internal API production. And actually Nubeca is taking a larger share of the capacity. So it is capacity constraint for this external sales. Looking at our top products, Nubeca has grown by 80% year to date, Easyhaler product portfolio by almost 20% and animal sedatives over 40%. And the negatives are the ones that we have seen earlier this year, Simdac's dexmedetomidine for human use, around 30% decline. So similar as earlier. Trexan's decline year to days is partly explained by large shipments that happened last year during this time. On the clinical pipeline, We have Aranaut Indarolutamide, which had positive results in phase three during the quarter, and thus registrations are now ongoing for expanding Nubeca indication by Bayer. And Arastep is ongoing in phase three. For Opevesostat or ODM208, phase three programs, Omaha-1 and Omaha-2, are ongoing in phase three by a partner MSD. Regarding our own pipeline, last week we announced unfortunately that we had to cancel the ODM111 project within the pain area. It's our now 1.8 blocker. Due to findings in preclinical toxicology studies, that showed that the molecule did not support long-term use. What this also means is that the therapeutic window for the molecule became too narrow to continue the project. It should be noted that in phase one clinical studies, there was no significant safety concerns. Due to the decision to cancel ODM111, Orion will write down 17.5 million euros of assets related to the molecule. There are some savings this year that partly compensate for this, savings in external R&D, but they don't fully compensate for this. We're talking about a few millions and we are still looking at how much that in the end will be. On the other Orion pipeline project, Odeon 105, targeted for insomnia, is ongoing and proceeding in phase two. And ODM 2.1.2 for solid tumors is also proceeding in phase one. And during the Q&A session, as Tuukka said, head of our research and development, Outi Vaarala, will also be here with us answering any questions related to ODM 1.11 or the research pipeline. A few words about our progress in sustainability. We have received validation from the Science Based Target Initiative, who confirm our near-term emission reduction targets are in line with latest climate science. Our commitments in this area are that Orion commits to reduce absolute scope one and two greenhouse gas emissions by 70% by the year 2030 from the base year of 23. Additionally, we commit that 78% of our suppliers also have science-based targets by the year 2029. Finally, our outlook for 2024, which we updated during the quarter of 11 September, remains the same. So our net sales is estimated between 1.47 and 1.41 billion euros and operating profit between 370 and 400 million euros. And with this, I will invite Outi and Tuukka here with me and we'll be ready for your questions.

Thank you for the presentation, Rene. And as said earlier, we will first turn to the conference call line. So at this point, I would like to hand over to the operator with the teleconference. So please, it's time for the questions.

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 Brian Balchin from Jefferies. Please go ahead.

Hey, yeah, thanks for the question. Sorry, I joined a bit late, so you addressed the same. Apologies, but just maybe anything you can share on where you'd expect to allocate the additional R&D spend that you've now got post the ODM 111 failure. In your press release, you said other promising projects. So just anything you can give us on that would be helpful. And then how we should be thinking about your 24 to 28 outlook. Thank you.

Maybe I can start on the 2025-2028 outlook. So overall, I mean, that long-term target that we have set remains the same. So there's no change to that EBIT and sales growth targets. And of course, we already said that we are planning to also increase our spend in R&D across the board, but with keeping that guidance that we have given for the long term. Maybe, Outi, you want to continue on the overall research investments?

Yes, in our clinical pipeline we have oncology project ODM212, the inhibitor. And it's developed for solid cancer indications in plural. So many indications are possible for that medicine. And now we have opportunities to explore those indications in phase two studies in parallel. that's one way how we can reallocate the resources from ODM 111. In addition to that, we have in our research pipeline biologics projects also for multiple indications in the immuno-oncology area and there we have opportunities also to expedite the programs. In research pipeline we have also other interesting and promising projects. So these are some examples.

Thank you.

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

Thanks, and thank you for the presentation. A couple of questions from me, and if I start with your guidance, so you will book some write-downs relating to ODM 111 and Ganaxalon in Q4, but can you explain what is included in your EBIT guidance as you kept it unchanged for now?

Yes, so the guidance includes everything we of course know up to this point. And yes, ODI 111, that we know that that write down will be 17.5 million euros. So Ganaxa loan maximum write down is 25 million euros, but we are assessing that project and what the final write down will be, then we cannot yet tell. But before the year end, we will of course look at this project. And other than that, we are still within the outlook. And there are also, as we saw here, good underlying business performance.

And if I may add, Anssi, as René said in the presentation also regarding ODM 111, yes, we are going to have the write-down, but on the other hand, there will also be less R&D costs related to ODM 111 for the remainder of the year than we earlier had. And also related to Canucks alone, Whatever happens after the assessment, what we are going to do with that, also there are planned costs for Canucks alone for the remainder of the year. But at this stage, it's not certain that those will take place. So also in that area, there might be some balancing coming from that.

Okay got it and then about your sales and marketing expenses in Q3 like was there anything unusual or one time items to say included in that number?

There was nothing unusual, but it's good to note that we also record the Nubeca Endo royalties within that number. So that kind of increased in this quarter because of the milestone of 70 million euros. So there is an increase in the sales and marketing side, just mainly due to the Nubeca royalties that we paid to Endo.

Okay, and this is the ballpark we should expect in the future as well, especially in H2. and of course increasing with the Nubeka.

Yeah, it's proportional to the Nubeka sales. Of course, this 70 million euro was now a very big peak in this quarter. But yes, we pay on all the income that we get.

Okay, thank you. I'll get back to the line.

The next question comes from Iris Tem from Kaan. Please go ahead.

Hi, this is Iris Damon from Carnegie. Thanks for taking my questions. I have a couple of questions. Firstly, can you comment on how much you have spent R&D costs for ODM 111 so far this year? And secondly, you now expect the next New Pekka milestones to be recorded in 2026. What visibility do you have this payment? I mean, have you received any sales outlook from PIAC for 2025 and 2026? And did you have any comments regarding the sales threshold that will trigger the payment? And perhaps my third question is basically regarding your R&D pipeline news flow, that what should we expect in the next 12 to 24 months? And also, if you can comment, what are your expected next updates regarding OpeVeso Start? Thank you.

Okay, there was many questions there.

Should we start with the cost side, René, regarding how much cost to ODM 1.11 so far we have booked this year?

Yeah, I mean, we don't disclose single project cost items on that level, so that one, you know, we will not continue answering, but... We can move to the next one.

Then the next question was regarding the next New Pekka milestone which is now single 180 million euro milestone and currently we estimate it to be booked in 26. So the question from Iris was that have we received some information from our partner Bayer that made us to give out this outlook or estimate?

Yeah. So, of course, we are in continuous discussions with Bayer regularly on how the Numeca business goes. And of course, we can also see how it actually goes and compare those two. And those two led to make this estimate. So I think that's a very simple answer for that one. And of course, we don't disclose what the milestone threshold is, even in this case.

Thanks, René. Then maybe to Oti, the question regarding our R&D pipeline. So what's the expected news flow for the next 12 to 24 months?

Yes, if I start from the clinical pipeline, when it comes to 105, we hope to see the results of phase two study to be ready by the end of year 25. And then according to the results, we could have a move to phase three study also during the next 24 months period. When it comes to 2.12, also there, we expect to have a chance to move to phase two studies already next year, so 2025. And as I already mentioned, we have there options to start in parallel a few phase two studies in different indications. And then from the research pipeline, we expect to see that we can make a first in human phase one start in two of our biologics projects. We are preparing those to be started in 12 18 months period. And then we have also in our research pipeline small molecule projects, both in oncology and pain, where we could have a start of phase one study in 24 months period.

Thanks, Oti. And then there was the last question regarding when is the next update from Orion regarding Ope Vesostat? And maybe I can answer to that, Iris, that now that we have transferred or converted the licensing agreement to MSD. That means that Open Vesostas is now fully in MSD's hands. So we need to rely on what they are publicly giving out and then mirror anything they say about the program.

Okay. Thank you.

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

Hi, I have four questions. We'll take this one by one. First one to René, I guess. Can you please confirm that you will not have to lower your outstanding in finance even if you end up not bringing Ganex along to the market and need to write down and buy 25 million euros in Q4.

The outlook is not dependent on single issues like that. It's a totality of the business. There are many more moving parts. One single event like that is not necessarily the only thing. That's why we have to assess the whole thing and look at how the quarter goes. This is one among many other things. As Tuukka said, there are also upsides that we see in other parts.

Okay, and then moving on to ODM111. You've been talking about using ODM111 for chronic pain, and you were planning two Phase II studies, yet it seems that you did not have safety data on the long-term use. Can you please elaborate on your thinking here, and when were you planning on safety data for long-term use?

No, I didn't get the end of the question.

Could you, Sami, repeat the end of the question? The line broke down for a couple of seconds for us. Sorry about that. So can you please repeat?

Yeah, so when were you planning on evaluating the suitability of ODM 111 for long-term use?

So we have now done the safety studies for long-term use and complemented them all the time, of course, in order to be ready for the phase two start. And the results from the latest studies were such that it's not reasonable and feasible for us to continue because of the therapeutic window that remains too narrow. The decision, of course, is always a decision that is usually dependent on several factors. But in this case, the latest results that we got from our long-term safety studies revealed unexpected safety issue and that resulted like a relatively quick decision to terminate the program. And it's not only about chronic studies, it's also about acute chronic pain indication. It's also about acute pain indication due to the fact that in many cases in the real world, the patients who are treated for acute pain, they actually use medicines longer than prescribed. So we have there very high demand for clean safety. So these findings as a whole made us to terminate the whole program.

Okay, I just wanted to verify the study, the recent study you're referring to, which led to your decision, was that study requested by authorities?

It was agreed when we discussed with the authorities that we will do it. So it is, of course, all the studies are studies that we agree with the authorities that we will do. So yes, it's part of the data package that you need to have when you prepare phase two studies.

Okay. And then finally on your R&D cost level, How should we think about that going into next year? Will we be returning to more historical levels as our study has been completed and you will not be having the course from ODM 111?

Yes, of course, regarding next year, we're not prepared to give detailed outlooks for that yet. That's not the time. But we've stated that we aim to increase our R&D investments over time. So even with ODM 111 now canceled, of course, it does have a significant impact on the portfolio that we thought we're going to have. But as Oti said here, there are other projects there that we might want to look at to accelerate or introduce that might have come later. So this is not yet fully ready and planned, so we have to look at it and then come back to the overall outlook for next year in February next year as well. But at this point of time, we don't foresee, for example, that the R&D expense would absolutely decline from this year's level. That is not something we are thinking of planning for.

OK, thanks. I don't have any further questions.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, operator. From the webcast chat, we have actually a couple of questions. So the first one is that when are you planning to release phase one results of ODM 1.11?

Phase 1 results we have planned that we will report in the coming conferences. So I think that in 2025, in the conferences in pain therapy area, we are ready to report our Phase 1 results.

Thank you, Outi. And we'll continue with ODM111. So the question is, can we know more details about the termination of the molecule as it was planned to enter Phase 2? I guess you already exhausted that, but if there's anything you want to add.

Yes, these kind of things happen always in our business area. Truck discovery is a difficult area. We were preparing phase two studies very actively. We were ready to start phase two studies both in acute pain and in chronic pain. We did the preparations for that. And of course, as always, it is a disappointment when we find something that will compromise safety and then, of course, efficacy because of the narrow therapeutic window. But as I said, in my role, at least head of R&D, you need to be prepared for that. You need to prepare several scenarios for the future. And in that kind of situation, when we terminate something, we also see immediately the next scenarios and the next opportunities. And this is the way how we are now going forward.

Thank you, Olli. So closing one door may open other others in this case.

Absolutely.

OK, we have no further questions coming in from the webcast chat. So I guess that this time we will thank you, the audience, for your attention, for the good questions. And then, like Rene mentioned, next time we will be reporting the full year results in the end of February 2025. Until that, take care and bye bye.