Orion Oyj (ORNBV) Earnings Call Transcript & Summary

[Foreign Language]

Good afternoon, ladies and gentlemen, and welcome to Orion's Full Year 2021 Earnings Conference Call and Webcast. My name is Tuukka Hirvonen, and I'm the Head of IR here at Orion. In a few moments, our CEO, Timo Lappalainen, this time exceptionally remotely due to the COVID situation, will present you the results and the key events of the year, after which you will have then the opportunity to ask questions from Mr. Lappalainen and from our CFO, Jari Karlson. We will be first taking questions through the conference call lines and after that we will take questions we will receive through the chat function of the webcast. So, you should see on the bottom of your screen a chat box through which you can send us questions. Kindly state your name and the organization you are representing before asking your question. And just before I let, Timo, to step in, I'd like to draw your attention to the disclaimer, which is shown now on the screen about the forward-looking statements. But with these words, without further delay, I'd like to invite Timo to join us remotely as said.

Thank you, Tuukka for your kind introductory words and let me plough through the highlights for the financial year '21. I think the headline kind of tells that we performed very well despite the pandemic. There were many good news about our development programs. We've highlighted here a few before -- just before the holidays, we informed about the primary endpoint being met in the ARASENS study. We also in the early part of the year, we have announced that we have initiated another ARANOTE trial relating to our Nubeqa prostate cancer agent. Also throughout the year, we received 2 approvals, European approvals in our Animal Health business both for feline as well as for canine applications. Also, as we informed the market throughout the year, just before the year end, we made a selection and decided to continue our development program for the CYP11A inhibitor with our ODM-208 candidate. Also in the beginning of the year, we initiated a new clinical development program for ODM-105. And also there were new research phase collaboration, agreements, and especially one of those with the Swedish Alligator, we informed the market at the mid-year. In terms of the business, Nubeqa, our prostate cancer agent, the sales continue to show strong growth as they should be at this stage of the development. The operating cost base was lower than we initially anticipated, and one of the key reasons, of course, was the continued pandemic. Also, we were able to acquire the rights for ganaxolone, a compound from our partner company, Marinus for a rare disease category initially and hope to introduce that to the market in not too distant future. Now certainly, as in many industries, we are also facing the fact that the inflation is certainly creeping in that we see the production costs are rising across the board, our operational cost and especially in terms of the prescription sales in human side, those are very difficult to pass on to our sales prices. We still face the risk of availability, both products, raw materials, intermediates, especially today, we see the logistics cost not only rising, but just the capacity to continue to be under stress. However, so far, we've been managing the situation very well, and there have been no production stoppages or even changes in our schedules due to the lack of material and this, we've managed apart from many other things by increasing the inventory levels. And, of course, the important element is that the Board has today decided to propose to the AGM, a dividend of EUR 1.50 a share. If you look at the numbers for the full year. So, certainly on the net sales, we were a little bit shy of the last year number and on operating profit, even more so. And here, there are couple of reasons and we'll provide you with the bridge on this. Operating profit margin, we were unfortunately a little bit shy on our target that we've set for ourselves of 25%, and in terms of the cash flow also there because of the working capital changes and also the increase in capital expenditure, including our down payment to the ganaxolone rights ate into that. If you look at the bridge for the net sales. So, certainly we've seen throughout the period and we informed that the Dexdor is facing the generic competition both in terms of the pricing and of course also in volume. Nubeqa continues to plough ahead in a very nice curve. Then with regard to Simdax, we did not yet see material competition in that for that product, although we are aware that there are generics that have been approved. Easyhaler then succeeded to make up for the -- then the shortfall in the early part of the year. And also, we had gains in volume in other human pharma part. But as we said, last year, we've lost one of the main distribution arrangements for Animal Health and that, of course, ate into that then the sales in that side, however, as we've indicated, the profitability of that contract is lower than the average. And then lastly, but not certainly least is, of course, the royalties and especially the milestones, which were substantially lower in '21 than in '20. And a similar story then if we look at the operating profit. So, certainly the pricing environment continued to be tough for us, especially with regard to Dexdor. Milestones, those were, of course, an important element why our profitability then declined. On the other hand, then when we look at the fixed cost base, because of the -- one of the reasons being the COVID, that then made some gains in terms of the lower base, and that's how we've been landed at EUR 243 million. Then, in terms of the revenue breakdown, Finland continues to be the largest single-country market, of course, the large with European, big 5, those are important for the company, including Scandinavia. And as we remember, outside Europe, especially in North America, we do not sell our own products. And in Asia-Pacific, we have initiated the activities in 3 countries in '21. And then, when we look at these by businesses, at specialty products, there was a small gain, but of course, because the base is so high, EUR 0.5 billion, so there even 1 percentage makes a difference. In proprietary products, certainly, we saw a decline driven by Dexdor, and in Animal Health, as said, we lost one of the distributorship agreements, with Fermion, pretty much at par with the previous year. And then when we look at the league table of the top products, Easyhaler continued to be the largest business for us, then followed by our Parkinson franchise, Stalevo, Comtess, Comtan; and then Simdax, our heart failure compound, despite showing declines still continued to perform well. And then Nubeqa, of course, the new introduction continues to increase and climb up in the league table. And I'd like to also draw the attention to the Animal Health products that continued to show good performance. Now, if we turn to proprietary products and look at the key products there, this is the summary table. However, if we look at the -- a little bit in the longer horizon, over the quarters, how the sales have evolved. And here firstly, the Nubeqa sales and these are the sales that Orion books for our 4 products that are intended for commercial use, including the royalties that we received. So, there was a quite a step up in our income or our revenues from that base. And as we see, there is certainly are these quarter-to-quarter variations, and we would expect the volatility of the -- in the quarterly base to continue, because the base number still is relatively low, and many of you remember that the accounting for our revenue is both the sales of the product as well as the royalties and the timing effect of combining these as one cost for the volatility. Then Easyhaler, our largest franchise, after the first quarter, we were quite a ways behind the previous year, '20. But then when the year closed, we were at par and actually a little bit on the positive side in terms of the growth. And there the key product continues to be our budesonide-formoterol, which not only continue to be the largest product in that category, but also continued to grow very nicely. Then the Parkinson franchise, pretty stable and as we've indicated, we would expect no dramatic changes in that, because, of course, the product itself is indicated for chronic use. And when we look at the numbers over the past quarters, it's been relatively stable. Then Dexdor, this is a product that has shown great volatility, of course, because of its utility in treating seriously ill pandemic patients and we've seen that. But also what we've seen is that since the patent expiry, there are numerous competitors in the market and the price decline has also been steep in some markets. And in overall, with 1/3 -- losing 1/3 of that business, of course, made its call into the total numbers. In Simdax, as I mentioned, we have seen no substantial or material competition in the marketplace. There are some products where we've seen generics, but in anticipation of the new entrants or generic players, in some cases, we've been forced to lower our prices. Then I'll flip over to our specialty products, which is our largest business. And here, if we look at the -- in Finland, we were pretty much at par, which is our largest market. In Scandinavia, little bit lower, basically, there were some inventory buildup during the '20, and some of the inventory declines in '21, as the inventory buildup reversed. But when we look at the growth in Eastern Europe and Russia, of course, that was very strong. And as we split those in 2 categories, the prescription products and the self-care products saw pretty even performance with those and would also like to draw your attention to the fact that self-care products are about 1/4 of the entire business in this. Then in Finland, which is our largest single-country market. So the entire market for the reference priced products and these are the products, generic products where there is a reference price, that market segment declined by roughly 4%, and Orion was able to increase its market then by 5 points. That of course, given the decline in the pricing, this was a substantial volume growth. And then when we look at the overall pharmaceutical market in Finland, the reference price market, we were able to increase our market share by 2 percentage points, so we are 27% now. And in self-care products, [ 1/4 ], and in overall pharmaceuticals continue to command an 11% market share. Then if we look at the future, how we are -- what are the key clinical development programs that we have in the human side, of course, the ARASENS that we've announced the top line results just before the holidays. We would expect that to be discussed in a forthcoming scientific meetings. ARANOTE is currently recruiting. And then as I said, the 208 is in Phase II. And over the course of the year, we'd expect that these data to be read out and then we'll make the next decisions to continue on that program. Then our 105 program, which we've initiated the Phase I. We would expect that to be developed for treatment of psychiatric disorders and that we expect that Phase I to be concluded during the year. Then the Easyhaler franchise, we have already 6 products there and we are ploughing ahead with this franchise and continue to develop new products to that platform with tiotropium and indacaterol-glycopyrronium all being the next products, especially for COPD. Now, the sustainability agenda and our indicators we've formulated our sustainability in 4 pillars, of course, the patient safety is our top priority that includes providing the medicines that we produce and market to the marketplace, taking care of our professionals that means Orionees, of course, working for the environment in totality and then having the ethics in the core whatever we do. And here are some of the sneak preview data from our Corporate Responsibility Report, that we will be issuing later this coming spring, but here you see that the audit situation has improved quite a lot and we are back on track pretty much in the audit numbers as we were before the pandemic, of course, many of these have been remote audits. I'd also like to flag that we have made nice progress also in our energy savings target that we've set for ourselves, but of course, we also have to recognize that our injury rate is nowhere close, where we would like it to be and we are working very hard to get that at a lower level. Now, over the past couple of years, we've also indicated to the markets, what we think would be valuable attributes, how -- when you look at Orion, how we are performing, are we making strides towards the future. And of course, Nubeqa has been one of the key items on that and given the positive outcome of the ARASENS trial and also the launches in Europe in collaboration with Bayer, we can say that these indicators are on 3. Easyhaler, of course, we would have liked to see strong growth there. We were able to meet the growth, so it was positive, but of course, we'd like to see stronger growth there. Then the development 208, that actually took place according to the plan and we are moving ahead with that. Also in Finland, we've continued to command a strong market share. In Scandinavia, of course, when we look at the numbers, we still have work to be done there. We have a good foundation, but there is still work to be done. We continue to licensing products, not only the ones that we mentioned, the large ones, but we have a strong portfolio that we do all the time and that's sort of the bread and butter business for us. Now whilst we have been involved and continue to monitor the market, evaluate opportunities also for larger portfolio or company acquisitions in that regard, there were no -- nothing to report at this time. Now, when we look at the '22, the indicators that we'd advise you to take a look at that is, of course, the sales performance of Nubeqa as we book them. Also Easyhaler, we've set the target for us with the growth of more than 5 points. Then building the long-term future, of course, the continued striving -- strives and in-licensing new products to augment our own portfolio. Also, the entire product portfolios or even company acquisitions, we continue to monitor that market. And then we've also announced that we are currently evaluating opportunities to partner 208 for development and commercialization. And we hope that this progress or this process could be concluded throughout this year. As of -- and that is also tied to the fact that we would expect towards the end of the year to be able to announce the launch of Phase III trial for 208. And then also to bolster our clinical pipeline, we would expect we have at least 1 new product or project in our clinical pipeline. And, of course, we continue to evaluate also opportunities in our R&D in early development for the external opportunities. And as always, we report the progress of those against our targets in our quarterly reports. And then the outlook for this year, we would expect the net sales to be at the similar level as '21, and the same for the operating level to be at the similar level as '21. And as last year, we also here open up a little bit the key assumptions that we feel are the important ones to impact potentially the outlook. One is, of course, the Nubeqa, the sales performance of that. Then the declines of Dexdor, we see that trajectory of that products, so that we would expect that to continue. Simdax is a wildcard. We expected the generic competition already last year to hit the product. We understand there are multiple products that have received the approval either at the national level or in multi-country level. But as said, so far there is limited competition in that regard. Also, of course, Nubeqa has some major impact in the operating profit, as does the sales development of Simdax and Dexdor. One factor that we, or the entire industry or the world competes with is, of course, the inflation. And then the price competition in generics is a fact of life that we live with. And then the sales and marketing expenses, of course, ties in not only to the cost inflation, but also in our investments for the future growth. And let me discuss a little bit of our growth target that we've set for ourselves for '21, sorry '25. And these are the financial objectives that we set for ourselves. One is, of course, that growth target requires us to grow net sales more rapidly and faster than the market. And overall, we believe this is quite possible. This of course, requires continued investment in our portfolio, in terms of the products, in terms of the markets. However, while doing that, our target is to keep the operating profit at the good level and that threshold we set for ourselves at 25% in both net sales. And also, the balance sheet that we've kept quite solid over the years, here the target is equity ratio of at least, 50%. And then Orion is known for being a shareholder-friendly company by also distributing capital back to the shareholders in the form of dividends. And here, we've said that our target is to distribute at least, EUR 30, and increasing that over the long-term. Bearing these in mind, our target for EUR 1.5 billion by '25, we believe the financial targets that are here above. Those are important. We need the balanced growth also. And of course, we have to look at also the timing of all of these events, I'll discuss that little bit later. Now, over the years, as we've announced the target, we've had post both positives and we have some negatives. Of course, the Nubeqa has done well as done also Easyhaler, despite that we had a little bit setback up last year. We've been able to license in new products. We've expanded geographically, most notably last year in Asia-Pacific area and that work continues there. And we've also repatriated Parkinson products in Europe. But we've also had some downsides. Our ALS program, unfortunately, did not work out. The generics pressure continues to be there, and we lost also the major distributorship arrangement in Animal Health, and then the patent expiry, those are of course, part of life in pharma. Now, the -- what we have communicated over the years is that this growth is not going to be linear. We would expect that to be back-end loaded. That's -- this is a graph that we've highlighted several times. And the growth that will be driven, this curve is coming from Nubeqa, Easyhaler, of course, all the businesses, we would expect growth from there, including the geographical expansion. And then the licensing M&A, those are sort of the cherries in the cream. And of course, we are working on those as well. And those provide us a little bit insurance against this target or meeting this target. And there are, of course, always unknowns that relate to top, to the development programs and also the potential regulatory changes, including price. And some of the downsides those have already either materialized, including the loss of patents or are as we speak, including the price pressure. The upcoming events, the AGM, we expect to that to be held in March, and then the first quarter report at the end of April. With these prepared remarks, now I would invite also to the podium, our CFO, Jari Karlson, and we were happy to take your questions. And as Tuukka said, we are firstly taking the questions from the webcast and telephone lines, and then we will follow-up on the chat lines. So, please.

[Operator Instructions] We have a question from the line of Harry Sephton from Credit Suisse.

Brilliant. So my first one is a clarification on the Nubeqa royalty payments that you are logging. So you've clearly explains the variation of Nubeqa income quarter-to-quarter based on the stock levels that you distribute to Bayer. But you also report a separate Group royalty income, which is -- which was EUR 24.3 million in 2021. My question is, is that royalty income also impacted by the stock that you sell on to Bayer, because if it is -- if it is not, then that EUR 24.3 million compares to around the EUR 220 million that Bayer has pre-announced, which would only imply around an 11% royalty rate. So I just want to understand about the ramp-up in that royalty rate to that 20% level that you previously communicated to us. I'll come back for further questions.

Okay. Jari, do you want to take -- to go through the stock [indiscernible].

Yes, I can. It's a little bit complicated, but maybe one thing to start with a clarification is that as we have indicated, this 20% is the average of during the first year of the product in the market and we have indicated also, that it's a tiered royalty, which means that at the beginning, it's a little bit below 20%, and over the time, as sales growth, it goes above the 20%, which basically means that currently the royalty rate is slightly below 20%. Then coming to the methodology of calculating this. So Orion's only income is the royalty, but how it is booked is slightly complicated. So we produce and ship the materials to Bayer and invoice them with transfer price and that we booked as product sales. Then one quarter later, when Bayer does ask the royalty calculation, they deduct from the royalty, the value of the shipments we did to them during the previous quarter and that generates certain variability at the -- at least at this early stage when the inventory levels are still being built up as the product sales increase. And that means that when there are large shipments in one quarter and then lower shipments in the second quarter, it means that the amount of value, which is deducted from the royalty varies quite a lot from one quarter to another. And it all, of course, means that towards the end of the year, the full year royalty doesn't totally represent the in-market sales Bayer has booked during the whole year, because we basically receive the final royalty calculation for 2021 only during the first quarter of 2022. So that explains that the numbers that you take were from [ Bayer's ] report, you cannot exactly compare it to our royalty plus product sales number, but ultimately these -- our product sales plus the royalty is what one should compare when -- with the Bayer sales and then taking into account that the royalty rate is currently slightly below 20%, and there are these variations from 1 year to another because of the timing of the royalty reporting.

Pretty and that's very clear. So the royalty income is impacted by the stocking to Bayer. I then have 3 further questions. The first one is on the generic segment. So you reported a high single-digit growth in the fourth quarter there. Can you maybe give us an update on what was driving that? And then also the dynamic for generic pricing in Scandinavia? And if you are able to offset any of the cost inflation you're seeing in the cost of goods for that segment? My second question is on Easyhaler, which you saw strong performance in the fourth quarter. I think you mentioned there were deliveries to partners in that. So is that strong performance more catch-up and stocking rather than a reflection of the in-market sales dynamics? And then my third question is on your 2025 targets for EUR 1.5 billion sales. Clearly, if you're expecting organic sales to be relatively flat in '22, you've already mentioned that you expect it to be back-end loaded. But clearly, we'd expect that implies a high contribution from M&A in those targets. Given that you haven't been able to meet your M&A targets in 2021, just wanted to get an understanding of what you're seeing in the market in terms of the availability of deals that you target. And also if you are looking to change your approach to M&A, if you're not currently hitting your targets?

Thank you. Excellent questions. Let me try to address these first, and then I'll invite any further comments from Jari, if I did not address this properly. Firstly, the generics growth and the drivers thereof. Clearly, we had a strong fourth quarter performance towards the end of the year, especially in Finland, also in Scandinavia, the inventory reduction that we expected to hit fourth quarter did not take place at least in the full force. I think also the -- we are now in the era when the -- we see that clearly the consumer or patient, it's much more difficult to forecast when they will pick up their scripts as they did earlier, especially if they are -- maybe not lockdowns, but even semi-lockdowns in the countries. But it is clearly that we have one of the key reasons why we have been able to gain market share, is actually our product availability. So the products in this category, having those available continuously is 1 important competitive factor and we've been able to meet that. Then, if I'll continue to Easyhaler, I think in Easyhaler, certainly we started to see the pickup of the Easyhaler business already towards the second half, as you can look at the numbers of bars, how those have evolved. And certainly, of course, there are catch up by everybody because you don't know how your inventories are going to perform, how the patients are picking up their scripts. But in overall, we continue to see the demand for Easyhaler to perform and that's why we said for our target for this year to exceed the 5 points there. Then the third question, on the M&A trail, that's true. We have not been able to meet that target. And this is also to say that we don't have -- the money is not burning a hole in our pockets. So we want to also exercise financial discipline. When we look at the opportunities that are available, we think that there are still opportunities, the market for M&A as we all know, it's very, very competitive. However, there are opportunities for companies such as Orion. And of course, there are certain areas where we are much more focused on in our search. And the -- if we look at, I think we feel very comfortable about the approach, I think we have a solid pipeline of opportunities that we continue to evaluate. Last year also the AGM for the first time maybe ever provided or gave the authorization for the Board to issue stock, if that was needed for any transaction. So, we'll continue to monitor the opportunities, but continue also to keep our financial discipline as we have in the past. Jari, anything that you want to add to my comments?

Maybe one thing I think, I mean there was also a little bit of question of the capability to increase prices in the generic side. It will offset the costs, and I think unfortunately, especially here in the Nordic markets, so far there has not been any sign of the market pricing decline to stop. And just to remind that this is not really a market where the government sets the generic price is, it's basically the competitive situation. So there is this tendering type of situation where all the players provide their prices to the market and then you have the reimbursement system, which allows people to get reimbursed if they pick up the product which are towards the lower end of the pricing range. And like last year, we saw still wide, heavy price decline in Finland. Of course, the cost inflation will hit all the players in the marketplace and time will show whether that will start limiting the willingness of the various players in the market to decline their prices, but so far, we haven't really seen the signs of it. And it's very difficult to predict. So I think, at best, we see the lower decline in the prices or even stable prices in the best possible situation, but to increase the price is to offset the cost, I think currently, we don't probably see that very -- very likely scenario.

Thank you, Jari. If I may continue here. There is also a question that, do we have an opportunity to lower our input cost, and given the inflationary environment where entire globe lives, I think that at least today would be an unreasonable assumption, at least in the short-term. Also given the fact that we see the logistics cost just going through the roof. Of course, they are maybe a minor portion of the cost in the entire cost logged in the pharma, but nevertheless, I think they are one indicator of that.

And our next question comes from the line of Sami Sarkamies from Nordea Markets.

I have 4 questions. Starting from the guidance you have provided for this year. Are you clarifying that you're not assuming any material milestone payments, are you however assuming a similar amount you had last year? And then secondly, can you also please elaborate on the magnitude of the Nubeqa sales milestone that made it this year or then most likely next year, if not this year?

Jari, do you want to take the first, the guidance. I'll take the Nubeqa.

Yes. So, as we indicated, no material milestones are included. As you saw last year we had a few millions and partly that milestone even come from the allocation of earlier received monies over the years. So, when we license out some of our products, sometimes the IFRS rules require us to put them in the balance sheet and then release to the milestone payments over the year and we have a few million of those a year. And then we had some very tiny ones on top of that in 2021. And the assumption included in the guidance currently is that we will get those type of milestones. So if we get something -- something else, for example, the 208 partnering program, then that needs to evaluate that situation and see what the impact of that could be to our guidance. But the current guidance of similar level than last year doesn't include any major milestones.

And then the follow-up turn over to the question on Nubeqa sales milestones. As we've indicated, we are to receive one-time milestones related to the certain performance -- sales performance of Nubeqa in the marketplace. But as we have indicated or stated in our release, for us, given the fact that we are not the final selling party to the market. It is impossible for us to estimate and predict when that might take place. And subsequently, there are no such milestones included in this year's outlook. And as we do not -- we provide only the ongoing year outlook, it's too early to discuss about the next years.

Yes. But in terms of magnitude are we talking about tens of millions of Euros for these sales [ postals ].

At this stage, we have not disclosed any details about that. And I think when we will make that disclosure, probably, we need to make that to the market in totality.

Okay. Then moving on ODM-208 you sort of highlighted plans regarding a Phase III study, I assume within prostate cancer by the end of this year, what are your plans regarding other potential indications like breast cancer?

Given the nature of the product. Certainly, the first indication, and the primary one for this type of mechanism of action would be prostate. We think that the breast cancer is probably, at least, it's not in the cards for the -- as a first indications. And this was in plural. So, it's really down the line. We think that first ones would be prostate, there may be some other minor indications, but at least so far, our understanding is that the utility of this agent in the breast would be much more limited than far higher risk than what we've seen in other hormone-related indications such as a prostate.

And then moving on to ganaxolone where you didn't get the fast track status in Europe just recently. Just curious how does this impact timing for the European launch? Will that still happen during this year? And will that also influence your -- you're seeing some marketing costs during the second half of the year maybe pushing those forward?

The overall delay in here, one can look at that from 2 perspectives. One is that given that we have now a little bit more time to also prepare ourselves, including the market access, which is very tedious and time-consuming process. We are a little bit more relieved that we have time for that. So I think that allows us to better prepare for the forthcoming launch. Now the question for the cost side. I think the costs, if those -- there will be some cost that will be pushed maybe some amortization-related cost. But then overall, especially the sales and the marketing cost, those are probably not material that will be pushed over to '23, because the -- making the market and preparing the market access, that work continues. And the – it's a fairly limited cost that can be pushed over to '23 in that respect.

Okay. So you're still preparing for a launch by the end of this year?

We'll see how that will take place, whether that will be the last days of this year, does it make sense, or should we actually wait for the holiday season to pass till '23. But that's unknown as of today, and we will probably need to update the market as we have more clarity on the overall approval including in some cases, the pricing processes.

Okay. And my final question would be on the sort of generics outlook where you're indicating flat sales this year with volume growth offset by sort of cost pressure. Can you give us a sense on what kind of price erosion you are expecting this year?

So if we look at historically, it's probably been over the past last years, it's been between 5 and 8 percentage points in that arena, and a little bit depending on the category, but in the average in Finland and to offset that, of course, that means fairly substantial volume growth.

And we have one more question from the line of James Vane-Tempest from Jefferies.

I have 3 please. So, firstly just to revisit some of the other questions, you're talking about 2022 to '25 is not going to be linear. Just wondering if there is a point where guidance needs revisiting if the gap requires more sizable M&A to get there? And the second question is just on the dividend. The 1.5% is above your minimum of 1.3%. And I guess you're now paying out more than your minimum at a time when investors certainly from feedback we've had, we would like to see lots of investments in the business. So I'm just wondering if this is because there is a lack of suitable investment opportunities with what you're seeing, or is it increasing confidence within your existing portfolio? And my final question is just on your 2022 outlook. And from the slide you've got, it's essentially Nubeqa offsetting a number of headwinds, which you've highlighted. So given this materiality, is there anything you can share with us on either seasonality or stocking or your assumptions is eventually being built? And also you are assuming your SG&A expenses are returning to normal as we emerge from the pandemic?

Okay. If I'll take the couple of first ones on the M&A and dividend and then Jari can address the '22 guidance. So, on M&A, as we've said earlier, we feel that the M&A, including the portfolio acquisitions should they suitable opportunity present itself, we are prepared to move. There is no question about that. We have a number of projects that we are following up. But of course, the financial discipline as we have our financial targets, we want to maintain those. Do we need M&A, probably will not hurt, it will give us insurance, as we've said, against for meeting the '25 goals. Will we at the end of the day meet that, remains to be seen, but of course, it will be -- it will give us a little bit more headroom. But this is not to say that we need a transformational transaction to meet that goal. So, I think we are anyway that's sort of an insurance matter. Turning to the dividend question. Of course, maintaining the dividend is a signal on the Board that they have a confidence in Company's performance. On the other hand, if you remember when Orion divested Orion Diagnostica, and at that time, we booked quite a substantial gain -- capital gain in that divestment. Since that, we've communicated that, that gain will be distributed to the shareholders in the form of maintaining dividend payout stable, despite the fact that we already at that point. So that there is a potential for a dip in our profitability. And now we are bridging that gap with amongst those dividends that gain. Last year we did not need that because of the performance of the Company, but that is something that was already planned at that time. So there is, from that perspective, it's [indiscernible]. With our '22 guidance, Jari, you want to address these multiple points that were raised?

So, starting from the sale. So as we have discussed today already the basic idea is that, we will see decline in Dexdor and Simdax and growth in Nubeqa. And the Nubeqa growth is very much driven by the development in the market or the expectations and the guidance Bayer has given to us. The fluctuation -- quarterly fluctuation generated by the product shipments versus the royalties, of course, can have some impact on the full-year numbers, but not really as much as it does between the quarter. So basically the assumption there is that we will see healthy growth in-market sales of Nubeqa, and that will be reflected in the royalties and the share of the royalties compared to the product revenues continuously will get bigger and bigger as the product grows. So that's basically the planning there. So not that much really variability from 1 year to another based on the stocking effect. So, it's really driven by the development of the royalties. In the SG&A expenses, we probably will see some growth. Of course, already a year ago, we predicted that towards the second half of '21, we would see an increase in SG&A expenses when the COVID restrictions are gone, and of course that didn't really materialize. Now, we again, are in a little bit similar situation that the world has not fully opened yet, but ask you see news coming from one country after another at least most places around Europe countries are trying to do that. And that of course, means that also we can start opening up our operations more and more. On the other hand, there are some other things, of course, we have -- we need to evaluate how we sell our products after learning to do it virtually in many cases and so forth. But anyways the assumption there is that we will see increase in the sales and marketing expenses not that much in the administrative side and R&D expenses relatively flat compared to last year. So, that's basically how the cost base is expected to develop. So some growth, but nothing really major increase is expected there.

And as there are no further audio questions, I will hand it back to the speakers.

Just as a reminder to the viewers that you may send ask questions through the chat box on the bottom of the webcast stream. We have few ones from Iiris Theman from Carnegie. Thanks, Iiris, for the questions. And we can start with 2 COVID-related questions. So the first one is, do you expect COVID-19 to boost your Dexdor sales in the first half of '22? And the second question related to COVID is, and what about specialty products? Do you expect any positive or negative impact from COVID in early this year?

I think with -- with regards to the Dexdor, I think it's fair to say that given the trajectory that we are following now that's likely to continue. There may be some quarter-to-quarter variation. We see some countries where the Dexdor shipments have picked up. But then overall the generic pressure that we've seen, we expect that to continue and as such in overall absolute terms highly unlikely that we would see growth and we have not planned that in our numbers. In terms of the generics, I think in most of the generic products that we supply, those are for broad indications for chronic use. Of course, there are some OTC products that are maybe for more discrete use, but for chronic use and there the patients as soon as they have the opportunity to visit their physician and get the scripts filled. They are likely to visit pharmacies. But as we've seen in, I think the best case would be 2020. There was a huge surge in the sales, but then it leveled off. As the use of medicines still at the overall is likely to follow the large trend. And I think in the annual 12 -- rolling 12-month basis, it would be very hard to see that there would be any material pick-up in the [ SPP ] over the trend line of what we've seen due to the COVID.

Then going forward, Iiris has a follow-up on the guidance. And actually the missing of any major milestones. So Iiris questions, does this mean that you don't expect your partner renegotiations to be completed this year, or at least in the first half and that you don't expect any sales milestones from Bayer?

For the first part of your question, the answer is, we absolutely do expect that we would be able to conclude our discussions with potential partner candidates this year and conclude the arrangement. But just because it's such an early stage, it would not be prudent to give any number because it depends totally on the structure of the arrangements and there are many components, many financial components or components that one could put value to. And as such, this is too early to provide guidance on that, because we just simply, we do not know, because it really depends on the parties coming together and what are the different interests and how to align those. Then the second part of the question, there are no Nubeqa milestones in our outlook.

Then still couple of more from Iiris. Can you give any color on your current M&A activity? And the price levels, the reason why Orion hasn't been able to make a deal in this area?

Well, of course, valuation of assets that's always a question, but it also depends, of course, on the opportunity that the -- opportunity presents itself. But I think in our case, when we look at these opportunities in different arenas, be that in Specialty products, be that in some cases more towards proprietary or in Animal Health products, it takes 2 to tango. And there may be some opportunities where the seller is not time-wise maybe prepared to consider and then of course, in some cases where it is through auction. And these are quite frequent these days. And if the seller is interested in selling to a financial sponsor. So, that means private equity. With the private equity given their financial structure and their -- how they view the future and the longevity of their investments, it's not easy for a strategic buyer to compete in that environment. But having said all that, we have quite interesting opportunities that we feel would be suitable to Orion, but as said, as of today, we have nothing to report on that front.

We have no further questions through the chat lines. It might be that it's very busy results day here in Helsinki, and also in the pharma and health care sectors. But I will turn once more to the operator whether there are any follow-ups on the conference call lines.

We don't have any further audio questions.

Thank you. Then, I guess, it's time for us to wrap up this time. Thank you, Timo, for joining us remotely, and Jari, Jari being here on stage. And the next time we will actually hold the AGM on March 23, but due to the COVID situation, it will be arranged in a special way like last year. So no attendance at the event. So only electronic voting beforehand will then take place. But hopefully, we can see you there then on the webcast. And also there we will have then after the AGM, a Q&A session for the shareholders. Unfortunately, for all our foreign viewers that event will be held only in Finnish. But until that time, we all wish you a good spring, stay healthy, and see you in March.