ORION Holdings Corp. (OTCPK:ORINF) Q2 2024 Results Conference Call August 8, 2024 6:30 AM ET
Company Participants
Tuukka Hirvonen – Investor Relations & Financial Communications Officer
Liisa Hurme – President, CEO & Chairman of Executive Management Board
Rene Lindell – Chief Financial Officer & Member of Group Executive Management Board
Conference Call Participants
Viktor Sundberg – Nordea
Anssi Raussi – SEB
Sami Sarkamies – Danske bank
Iiris Theman – Carnegie
Tuukka Hirvonen
Good afternoon, ladies and gentlemen, and welcome to follow Orion’s webcast and listen to a teleconference where today, we have the topic of our half year financial report for 2024, which we just a couple of hours ago published.
My name is Tuukka Hirvonen. I’m the Head of IR here at Orion. In a few moments, our CEO, Liisa Hurme, will go through the key events and main topics of the reported period, after which you will have the possibility to ask questions either from her or from our CFO, Mr. Rene Lindell. We will be first taking questions through the conference call lines, after which then we will turn to the webcast where you have the possibility to type-in your questions using the chat box function in the webcast. And those who are presenting the questions through the teleconference lines, we kindly ask you to state your name and the organization you are representing before asking your question.
And as usually, I’d like to draw your attention to this disclaimer regarding forward-looking statements.
And with that, I will conclude and hand over to Liisa.
Liisa Hurme
Thank you, Tuukka, and very good afternoon to all of you, or very good morning, wherever you find yourselves. And welcome to Orion half year webcast.
Let’s start with Q2. Our Q2 was very strong, both on net sales and operating profit. Our net sales grew 13% or 13.4% to be exact, and our operating profit grew 41.5%. The net sales growth was driven mainly by Nubeqa royalties and product sales and also good performance of our Animal Health portfolio. Also, our operating margin increased from 16.1% to 20.1%. And a few words about the operating profit still, of course, Nubeqa was there, the biggest driver with the royalties and product sales. And of course, it’s great to present such a good improvement on operating profit. It is exactly according to our financial objectives. As we stated, we are increasing our R&D investments, and that’s what we’ve done, and we can still show growth in our operating profit.
Now let’s move to the half year figures and events. Similar trend here. Net sales, 12.2%. Nubeqa, Easyhaler and Animal Health, main drivers. Operating profit, plus 19.5%; and here, Nubeqa, again, as the main driver. And same here with the half year numbers that with the higher R&D investment, we still can show a very good profitability and increase in our operating profit.
Cash flow clearly improved from the previous year. And this is due to the Orion Pension Fund B transfer and also the Nubeqa sales milestone of EUR 30 million that were actually in our cash only this year, even though they were booked to the previous year. And Nubeqa royalties and product sales, of course, have a positive impact on cash flow as well.
When we look closer to the net sales, it’s Nubeqa here in the column 2, with EUR 38.1 million during the first half year. But when you calculate together, all the other products, Easyhaler, the other portfolio, including generics and also Animal Health and Fermion, those together are almost or are as high as Nubeqa alone, which means that all the divisions are contributing to Orion’s growth.
On the negative side, the usual suspects, Dexdor and Simdax, prices are declining and to somewhat also volumes. And also entacapone sales are declining due to price erosion. Volumes are still low.
On the operating profit, we can see the positive product sales without the sales margin or product mix in the first column here, EUR 32.6 million, and then the effect of the product mix and the margin. And this column then includes, for example, Simdax and Dexdor, entacapone price erosion. Then royalties, EUR 29.2 million. And the last column here, fixed cost, tells the story of increased R&D investment. Of course, this EUR 24.2 million also includes other costs and R&D, the bigger — another big item being IN cost and our ERP program that we are right now doing.
Now I move to divisions, and I’ll start with Innovative Medicines, very healthy growth. Growth driven by Nubeqa. And Nubeqa sales were EUR 121.1 million. And the remainder of the division’s revenues is product sales for research purposes, different type of products, of course, also Nubeqa. And we are still going through pricing and reimbursement negotiations regarding Ztalmy in the major European countries.
Branded products here, also very nice growth figure of 11.3%. And Easyhaler, the biggest product driving the growth. Demand is very strong at the market, partly due to the green wave that we can answer, but also partly due to the general increase although slow increase, but increase on the market. Entacapone, I already mentioned, decreasing to some degree, but very nice growth for women’s health, although it’s a smaller business.
We have also other products in branded division. There are some smaller CNS products and also some products for the asthma and COPD and those are also growing. And this supports our strategy, and I hope we’ll see bigger figures as we go along during the next years because we are building the Parkinson’s disease, a product portfolio around entacapone product. And on that note, we have signed a license agreement with Navamedic, a Norwegian company, on a dispersible water soluble micro tablet of levodopa/carbidopa for treatment of Parkinson’s disease, later stages. So this is just an example of one product that we — as an example of increasing the number of Parkinson’s disease drugs in our portfolio.
Now Generics and Consumer Health, almost on par with last year, minus 1.2%. Of course, here, as I often say, if you exclude Dexdor and Simdax, especially in Russia, last year, we sold remaining inventories in Russia. So that, of course, creates some difference in comparison to this half year of Generics and Consumer Health. So basic generic portfolio is experiencing and showing very healthy growth with single-digit percentages. And here, we can see that Finland is the single biggest market for our Generic and Consumer Health products.
Animal Health, very nice growth and also Fermion’s external sales are growing, although Fermion is — Fermion’s capacity is very much tied to manufacturing of increasing volumes of darolutamide for Nubeqa.
Here is our top 10 list. Same story is here. We have the Nubeqa with 46.9% growth. Easyhaler product portfolio with 19% growth compared to the previous year’s first half. Entacapone products, a slight decline due to the price erosion in different countries around the globe. And here, I also want to underline that the use of Stalevo and Comtan, Comtess is actually increasing by volume.
Our sedative portfolio, plus 46.7%. Also Divina series almost 70% growth. Burana, more or less on par with the previous year. Simdax, Dexdor, we already discussed. The last 2 products are mainly partner sales. So they may change actually quite a lot between different quarters and between different years depending on the deliveries to our partners.
We have had a busy summer with some news, and I’ll go through those now in my next session or section of this presentation. We have reported that we and MSD have exercised option regarding opevesostat for treatment of prostate cancer. So that the co-development and co-commercialization agreement with MSD was converted into a license agreement, which means that Merck has now rights for opevesostat globally. And this license agreement then provides Orion with a good, nice milestone package of EUR 1.63 billion.
The package is divided to 3 segments. There are the development milestone payments, approval and regulatory milestone payments and then sales milestone payments.
In addition to milestones, Orion is entitled to low double-digit to low teens of royalties. Of course, in a similar way as with Nubeqa to reach the highest level, I mean, in this case, the low 20s of royalties, the product would need to reach several billion of market sales. That’s good to keep in mind. And Orion continues to supply the product to Merck as earlier.
And in the context of converting this co-development and co-commercialization agreement to an exclusive agreement to Merck, we also released a EUR 60 million item from our balance sheet, and this will create a positive impact on our quarter 3 operating profit. And due to this, we upgraded our outlook for the year 2024, so this ongoing year, on first of July. To that outlook, of course, there were some other reasons, and I’ll get back to that in the end of the presentation when we discuss the outlook.
The other event after the first or the second quarter was the reporting of Phase III ARANOTE study of Nubeqa. The study showed or met the primary endpoint of progression — of the radiological progression-free survival. That was the primary endpoint. We compared this Nubeqa with androgen deprivation therapy to placebo and androgen deprivation therapy. This Phase III study also confirmed or reconfirmed again the safety and tolerability of Nubeqa. We have seen the same safety and tolerability profile in the earlier studies of ARAMIS and ARASENS.
Bayer plans to present this pivotal data in the forthcoming scientific congresses, and also Bayer plans and prepares to file or submit to the health authorities globally and expansion to the current indications based on these results of ARANOTE. Otherwise, our pipeline remains the same.
Regarding ODM-111, we have completed Phase I studies and we are in a process of preparing to start Phase II program including acute pain and 2 different types of chronic pain. The program is a global one and has several indications, and we aim to start this by the end of ’24 or early ’25.
Now to a very different subject, and this is sustainability. Orion has 6,000 suppliers in 60 different countries around the globe for many different — for drugs, for medicines, for APIs, for raw materials, for different parts of our manufacturing lines, you name it. And of course, having such a wide network of suppliers is something that you need to manage carefully. And we’ve worked consistently over decades to create an extremely solid, visible and transparent process of managing our suppliers. This has to do with the sustainability. We demand, of course, the code of conduct of our suppliers. We have included the Scope 3 carbon emissions into this collaborations. And most of all, it requires good collaboration with your suppliers. And many of our suppliers are our partners for a long time and very crucial ones for a midsized European company operating in many different segments like generics, innovative medicines and branded products. And most of all, we’ve been recognized, as you can see on this slide, by many operators in the sustainability field, that we — our work in the sustainability regarding managing the supply chain is on an excellent level.
Now to outlook of this year. This was updated on first of July, as already mentioned. And the update was mainly due to the EUR 60 million item that we released from the balance sheet. But that was not the only reason. Also at the beginning of the year has been better than we expected or estimated when we started out this year. So that’s clearly another reason for this update. And of course, reporting this half year results show that as well.
So now our target for the — outlook for the 2024 is EUR 1.440 billion to EUR 1.480 billion. And then for the operating profit is EUR 350 million to EUR 380 million. You can see the upcoming events here listed. We will report next time on 29th of October. And then we report the third quarter and first 9 months of this year and the financial statement of the ongoing year will be on 25th on February.
I thank you for your attendance.
Tuukka Hirvonen
Thank you, Liisa, for the presentation. And it’s my pleasure to invite also Rene to the podium, and we’ll turn to the Q&A session. And as mentioned, we will start with the conference call line. So at this stage, I will hand over to the teleconference operator. Please.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Viktor Sundberg from Nordea.
Viktor Sundberg
It’s Viktor Sundberg from Nordea. I had two, if I may. First, on the royalty revenue dynamics. As we can see here that Nubeqa really accelerated its factory in the U.S. and globally. So I was wondering from a modeling perspective, how this impact your product sales versus what I would call maybe the pure royalty rate that you’re getting from Bayer? Have you already supplied ahead of this increased uptick or should we expect increased product sales initially and that gets more efficient here from the ARANOTE setting, in general?
Liisa Hurme
Well, let me start and Tuukka and Rene can continue. Clearly, Nubeqa is accelerating on its curve and trajectory. What — I think the line was a bit bad, I think you mentioned ARANOTE as well, but we are not expecting ARANOTE to contribute to this trajectory, at least this year. We are — or Bayer is only now going to file the application for the indication expansion. But I also mentioned product sales maybe Rene or Tuukka, you pick up the rest of the question.
Rene Lindell
Yes, it might be referring to the tablet sales, basically now that the growth of Nubeqa is going well. And so of course, we expect as well that we’ll get additional request for tablet deliveries. So of course, those should also increase with the total sales. But those come a bit unpredictably. So it really depends on how we get in the orders and from Bayer and then we provide those. So there will be some fluctuations for sure.
Liisa Hurme
There is always fluctuation and I think we’ve discussed this before. But when you look at the slides, you can clearly see that this — the quarter 2 was second almost all-time high product deliveries of Nubeqa to Bayer, which, of course, you can indicate only the growing trajectory of the product.
Viktor Sundberg
And a second question, just on ODM-111 also. Where are you in that preparation and how can that potentially impact your guidance? Are the costs to start — to start material in your opinion, so that it turned out to be that you start the study on the other side of the year, could that mean that you end up above your guidance, for example, due to costs not taking place this year? And also, if I can squeeze in maybe just a comment also on expectation on the pricing environment, this kind of product with the FDA the approved drug at the end of January next year.
Liisa Hurme
The question was regarding ODM-111 and preparations for the Phase II program. Of course, preparing for such big global program with several indication takes time and you have your negotiations with all the different type of regulatory authorities. And as soon as all the preparations are ready and all the consultation is done, we will be able to start hopefully by the end of this year. But since these are lengthy processes and complicated, it may also be in the beginning of ’25.
If I understood or heard correctly, you also were discussing about whether this has an effect on our numbers. Whether it happens in ’24 or ’25. I don’t think it’s a big effect on those numbers. All the preparations are still ongoing. Of course, the biggest lump sum sale is, of course, always paying for the CROs to start the studies, but it’s difficult to estimate right now where those payments will — how they will be timed this — towards the end of the year.
I think the one question was regarding pricing of this type of product. I think it’s a very good question. Maybe a bit too early to ask that now. I think we need to proceed with our studies to see how the efficacy of the molecule and the safety of the molecule. Of course, we have — there is another company ahead of us. And I think the whole — we as well as everybody else following this segment, we’ll see then how that type of a product or this type of a product will be priced and reimbursed.
Operator
The next question comes from Anssi Raussi from SEB.
Anssi Raussi
If I may continue on Viktor’s questions a bit about Nubeqa and your guidance. Like did you see that Nubeqa is already selling maybe better than expected due to your higher product deliveries or — how do you see the situation when you upgraded your guidance early July?
Rene Lindell
Maybe I can take this one. So of course, it’s a totality of the business, and we have to look at the actual figures that we had in H1 and those were as a basis of that, and of course, always making best possible prediction of where this year is going, but there is a lot of uncertainty. You can see that in the range as well when you provide the outlook. So there is a broad range of scenarios. And of course, the deliveries themselves, they might indicate, of course, there’s a good pull for the product, but also it’s about inventory management. So we don’t know how much that is being done. And then on Bayer side again, so those are necessarily always correlate with the actual sales because you might also deliver tablets to ensure that you have inventory for different scenarios going down the line and even next year.
Liisa Hurme
Indeed.
Anssi Raussi
That’s clear. Then about your ODM-208, possible royalty rates, just to clarify that. Was it so that your royalty rate is the net royalty rate and the product deliveries will be booked as a several margin sales separately?
Tuukka Hirvonen
I can take it. Thanks, Anssi, for the question. So probably you are asking this question because with Bayer, we have this kind of arrangement that the royalty is the only income Orion gets and we need to then cover the cost of goods sold with that amount. But the agreement with MSD or Merck is a bit different. So like you said, the royalty will be pure royalty and when we are delivering tablets to Merck, that will be invoiced separately. So it’s a different kind of agreement that we have with Bayer.
Anssi Raussi
And maybe finally about ganaxolone. So do you have any updated timetable for this one and maybe about the future as well. So if Marinus Pharmaceuticals is successful with other indications like, do you have to go through the same process in Europe for every future indication?
Liisa Hurme
Indeed. Unfortunately, I cannot comment any more specific timetable for the first indication, CDD, where we are now negotiating with the pricing authorities. Let’s hope something happens soon.
For the second indication TSC, we are expecting Phase III results towards the end of the year. And yes, you are right. For all indications, we need to go through the same — or through a new pricing and reimbursement negotiations with the health authorities.
Anssi Raussi
And yes, I know that you haven’t commented anything on ganaxolone potential officially or — and you have highlighted that this is a small indication, the first one, but can you give us any updates regarding the potential of this first indication yet?
Liisa Hurme
Well, I can only reiterate the word small. The patient number in Europe, these children who are suffering of this hereditary epilepsy, it’s hundreds. It’s hundreds of patients. So it’s not even thousands of patients. So maybe that already tells that when I say small, it’s small, you know. And of course, because it’s such a small population, it is important to have the pricing and reimbursement in the right level.
Operator
The next question comes from Sami Sarkamies from Danske Bank.
Sami Sarkamies
I have a couple of questions starting from two topics that have already been discussed and then moving on to other topics. First on Nubeqa, I think you’re not really willing to provide any forward-looking information. But if we look at the number you reported for the second quarter as Nubeqa sales, was that your estimate? Or was that based on the actual number reported by Bayer this week? And if it was your estimate, when did you make the estimate?
Rene Lindell
Yes. So basically, we lag behind always with Bayer depend — when we get the reports and when they report as well. So most of that quarter is based on reports. But of course, the end of the quarter is based still on estimate, but one could say 2/3 is basically based on actual reports, so that kind of reduces the uncertainty. So — but of course, there’s always a chance for flow over depending on what happens then in the next quarter and the next reports.
Sami Sarkamies
Okay. So you’re sort of getting monthly sales reporting from Bayer, I guess?
Rene Lindell
That’s correct, yes.
Sami Sarkamies
Okay. Then moving on to ODM-111. I think it seems a bit delayed. Can you maybe discuss on why it is taking long of you to get it going? And then also, did I understand correctly that you’re actually planning 3 separate Phase II studies, that there will be one for acute pain and two for chronic pain?
Liisa Hurme
Indeed, you got it right. There will be 3 different indications for acute post-surgical pain or postoperative pain on the bunionectomy and also on the soft tissue surgery. And then there will be 2 chronic indications, this much I can tell you for the osteoarthritis and neuropathic pain.
Why this is taking time? I think this is a very — how would I say, this is how it is in the pharmaceutical industry. These are complicated studies. And of course, when you do global studies, you have so many continents. You have 3 different indications. You can multiply the complexity around it and different discussions that you have. So I think it’s safe to have also an assumption that it may start in early ’25.
Sami Sarkamies
Okay. Then moving on to entacapone. You’re still expecting flattish sales for the full year even though sales were down 8% in the first half of the year. I think you’re working on taking back distribution in Japan. Does this explain the more positive second half you — and any color on timing for that arrangement, please?
Liisa Hurme
Yes, that partly explains the positive improvements towards the end of the year. And yes, we are transferring the rights back from Novartis in Japan. The agreement, the license agreement will end towards the end of the year. So nothing very exciting there. This is also a very routine thing in pharmaceutical industry when you license out your products to another company. And then when the time comes and agreements and both companies discuss and then decide whether the rights are returned to the originator.
We have proceeded in Japan already. So Stalevo or entacapone products are not the only products that we are repatriating. We will also repatriate Divigel in Japan. And in which order these repatriations will happen is, of course, difficult to say, but we definitely hope that all the repatriations will happen towards the end — by the end of this year.
And regarding entacapone, of course, Japan as a big single market will have a positive effect on entacapone this year. However, even though it’s been sliding down now on the first half of the year, it’s due to the price erosion, but we strongly believe that working actively again in Europe in the selected countries will increase our volume so that we will get back on the same level as last year.
Sami Sarkamies
Okay. And then moving on to Easyhaler, where growth slowed down to single-digit level in the second quarter. I understand that you are running against higher comparables from last year, but is this high single-digit growth rate a good assumption of your growth going forward?
Liisa Hurme
Well, it’s difficult always to assume you know how the full year will go, but it’s — it will be, I think, around low single-digit numbers, somewhere around 10% plus something, minus something depends on a month and quarter. In good case, as you look at the first half year numbers, now it was 19% growth. So I think it’s very healthy growth. For a brand, let’s remember this is a brand that is 30 years old. So it has really experienced — it’s been revived for several reasons. And of course, we have more resources behind the brand now.
Sami Sarkamies
Okay. And then my final question would be on Animal Health, where we had inventory issues last year. I just want to make sure that we are not getting surprised by those. To the other direction, we have seen quite healthy growth during the first half of the year. Is this a sustainable recovery rate? Or could we see that inventories are starting to get filled on this product?
Liisa Hurme
Well, I surely hope that’s not the case. We more see that this is — we are getting back to normal after COVID and after the destocking. So I surely hope we are not going to see anything like that again.
Operator
The next question comes from Iiris Theman from Carnegie.
Iiris Theman
I think I have two questions left. So basically, firstly, thinking about your H2, do you see more hedgings for H2 compared to H1 in terms of costs or sales or anything that could basically put pressure on your underlying results more than in H1?
Rene Lindell
Yes, I think…
Iiris Theman
And then — okay, yes, please go ahead.
Rene Lindell
Yes. If we see any headwinds basically on the cost side for H2, so I think we — nothing major. I mean, we have already stated that we know the R&D cost will grow a bit because we have ODM-111 there, but those are all within basically our outlook as well. So there are some scenarios there, depending — mostly depending on, of course, R&D and that can change basically where you are in that outlook area. But otherwise, no, nothing major.
Liisa Hurme
But headwinds, no. I wouldn’t say so. Of course, you never know what happens in the world, but as we see it now.
Rene Lindell
Yes, but nothing we see at this point of time.
Iiris Theman
Okay. And yes, secondly related to Japan. So how many salespeople will you have? And how much this will increase your cost? And then perhaps thinking about your long-term outlook in Japan, do you see that you have potential to grow sales?
Liisa Hurme
Well, I’m not going to give out here any exact numbers on our sales force or our organization in Japan. Of course, we will have all the needed people for this portfolio, which is actually quite heterogeneous if you think, Divigel and then the Parkinson’s disease products, but we’re used to that already in Europe.
And long term, definitely, we have plans for long term in Japan, we wouldn’t otherwise enter that market. It’s, of course, an investment to go into a new geography. And Japan is the third biggest single pharmaceutical market. So it’s very important for us to be able to create growth.
And it’s good to mention here that it’s, of course, branded products with Parkinson’s disease products and women’s health that is entering the Japan. We can repatriate the products. But if we look on the longer term, and this is a very good question, is that we have ODM-111, and we have hopefully other new products, other new NCEs coming in our pipeline, and this is also preparing ground for those. Clinical studies, we can carry out them by ourselves and, hopefully, one day launch our products in Japan.
Operator
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Tuukka Hirvonen
All right. Thank you to the conference call. As we have a couple of questions here in the webcast. The first one is related to Nubeqa. Maybe already repeated, but I guess that it’s good to repeat so that the market understand the dynamics. So question comes from Dilip. His question is Bayer reported 78% Nubeqa growth in first half of this year and Orion 46%. So does this mean additional revenues to be recognized in Q3, so meaning that transferred from H1?
Rene Lindell
Yes, I can answer that. So you can’t directly draw a conclusion from Bayer’s growth figures and into our IMED’s net sales. And that’s due to a couple of things. One is timing. And the second big thing is the tablet sales. which basically are deducted from the royalties. And depending on how those come in and also how the inventory buildup is done to meet future demand as well, it means that those are not directly linked and cannot be compared as such. Of course, there’s some correlation. So if you look at our Q1, Q2, just the royalties growth that we saw that in Q2, our royalties grew faster than in Q1. So there is some correlation, but it’s not like mathematically exact.
Tuukka Hirvonen
And of course, the royalties are increasingly growing towards the end of the year because the royalty rate increases along the years. So there are lots of variables impacting that.
All right. Then another question coming from Andreas Hofstad related to — so the licensing deal within branded products. Can you indicate what impact the new product will have in your Parkinson’s portfolio? And what are your expectations when it comes to market penetration and revenue contribution a couple of years from now?
Liisa Hurme
Good question. Of course, we’ve estimated and forecasted how the product will do. But let me first say a few words on the product itself. So it would offer something for patients before the Parkinson’s disease symptoms get so bad that you either can’t treat them properly or then you move to Duodopa, which is an intestinal treatment, dopamine treatment.
So we — it’s a significant patient segment, but it’s not a blockbuster, let’s put it this way. So it’s kind of a middle-sized product in Orion Parkinson’s disease portfolio. So it’s not — it will not be in the size of entacapone that what entacapone is at its peak, but it will be a significant product.
Tuukka Hirvonen
All right. Thanks, Liisa. That was all from the webcast. We can still once more turn to the conference call line whether there are any follow-ups there.
Operator
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Tuukka Hirvonen
All right. Thank you. We don’t have any more questions either on the webcast. So we can conclude this. Thank you for participating in this webcast today. And the next time, Orion will be reporting results will be in the end of October 29. So have a great summer until that.
Liisa Hurme
Thank you.
Rene Lindell
Thank you.
Read the full article here