Orion Oyj (ORNBV) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon, ladies and gentlemen, and welcome to Orion's earnings conference call and webcast for the fiscal year 2024. My name is Tuukka Hirvonen, I'm the Head of Investor Relations here at Orion. As usual, in a few moments, our CEO, Liisa Hurme, will go through the results, after which you will have the opportunity to ask questions from Liisa and also from our CFO, René Lindell. We will be first taking questions from the teleconference lines, after which then we will turn to the questions you can post us through the webcast app. Kindly state your name and the organization you are representing before asking your question. And just before letting Liisa take over, just a brief reminder about the disclaimer and forward-looking statements. But with this, it's my pleasure to hand over to Liisa.

Thank you, Tuukka. And good afternoon on my behalf as well, and welcome to Orion 2024 webcast. 2024 was a busy year for Orion. In the beginning of the year, we refined our strategy and financial targets. During the year, we have -- both have activities with our current partners and some new partners. In July, we converted our collaboration agreement with MSD to a global license to MSD. With Bayer, we got positive readout from Phase III of ARANOTE trial. And while I'm on Nubeqa, let's not forget that Nubeqa became a blockbuster during 2024 exceeding EUR 1 billion of sales. To another partner Alligator Bioscience, there we amended our agreement so that we got the full rights to our bispecific antibodies. Then regarding pain. We also signed an agreement with Abilita to develop antibodies against or towards the NaV 1.8 ion channel. We made agreements with Glykos and Invenra to develop new cancer drugs. And we made an agreement to license our digital platform for neurology and pain to Newel for them to develop further. Artificial intelligence is very important to Orion. It's a tool. It's -- we can do innovations, we can speed up things along our value chain. We have made a deal with a company called Aitia, a U.S.-based company to speed up our research for cancer drugs. They are a well-known company. They have digital twins and a load of data from patients all around the world that we can now use for our studies. And one big thing that we achieved actually early this year, I'm also concluding activities and milestones from early -- this 2025, is that we did the go-live for our new ERP system. That's not the small thing. I think everybody who works in the industry or any industry knows that ERP -- new ERP implementations can be tricky, but I am happy to report that this project that lasted several years has come to a very happy conclusion and everything is working well. Our drugs -- from the day 1, our drugs were reaching the pharmacies in all countries, money was going to -- from Orion and to Orion and all our operations have been working. So very well done. I'll take this opportunity to thank the whole Orion team who worked with this program. Then on the social side, we were able to validate our near-term emission targets by science-based target initiative. And on the social side, we started collaboration with Save the Children to protect the most vulnerable ones in this world, both in Finland and outside the Finland. There have been several changes in management. In my executive team, René Lindell was appointed CFO in 2024 and started 1st of May, and he will join me here later today. Julia Macharey started last February as a Senior Vice President for People and Culture. And the newest appointment is Mr. Mikko Kemppainen, who's been appointed as General Counsel and Secretary to the Board of Directors as of 1st of June this year. And I welcome, of course, all of you and especially Mikko as the latest addition to my group warmly to join this group. Now let's look at the Q4. Q4 was very strong regarding sales on all fronts. We do know that Nubeqa clearly drives the growth but I am happy to tell that all our divisions developed positively. So net sales in Q4 compared to the Q4 in '23 grew 35.3%. Operating profit was at the same level. And here, we, of course, need to remember that when we compare Q4 '24 to '23, in '24 -- '23, we received EUR 30.7 million when we transferred our pension fund to a private company. So that of course, has an effect on this comparison. And let's remember that we also did 2 write-downs, one for the ODM-111 program with EUR 17.5 million and the other one when we terminated our collaboration with Marinus and that write-down was EUR 23.5 million. So this is the comparison period, and these write-downs clearly had an effect on our operating profit during the last quarter, but sales developed very well, and cash flow was strong. Almost the same applies except for the operating profit for the full year. The full -- during the 2024, our sales grew almost 30% compared to the full year '23. Again, the common drivers; Nubeqa, Easyhaler and all our divisions, and of course, EUR 130 million of milestones. The other none being Nubeqa sales milestone and the other one that we received from MSD when we converted the agreement. And again, these milestones had a big effect on operating profit. So we were able to take the write-downs of EUR 41 million and also the increase of cost, both on R&D and sales and marketing. And cash flow looks very strong and grew from the previous year. What I'm extremely happy is that even though milestones are an important part, an integral part of our business, as we do license our product rights, and we do collaborations and I think last year proved that with EUR 130 million milestones, the underlying business is growing in a healthy way. Almost 22% of growth of underlying business from 2023 and 33% from growth of operating profit from the '23 to '24. We've also seen during '24, and already in '23, that our yearly cycle or financial year is very back-end loaded, mainly due to the Nubeqa royalties. The royalties are cumulative on a yearly basis. So we started a lower royalty rate, which then increases during the year as certain sales -- certain cumulative sales triggers have been reached. And of course, as the Nubeqa sales per se grows at the same time, it's really back-end loaded. And last year, of course, the milestones were also received in Q3, which made it even more back-end loaded. Our net sales bridge, nice blue colors on almost all of our main products and divisions with an exception to Entacapone, where volumes do increase but prices decrease and the usual suspects of Simdax and Dexdor here in the column 1, which are still sliding down due to generic competition. And on the operating profit, it's good to note the biggest factors -- milestones of -- the royalties of EUR 147.1 million and then milestones of approximately EUR 100 million. And then the biggest downside is here the write-downs of EUR 41 million. I think this slide of Innovative Medicines division describes even better the back-end loaded year -- financial year because this only shows the Innovative Medicines. Of course, this goes from the beginning of the -- and I'm talking about the right-handed picture -- the column picture. It starts from 2023. But even if you look at 2023 and then you look at the 2024, it's so very clear how the royalties increase towards the end of the year with both the percentage and the absolute amount of sales increasing together with the product sales that we are -- as we produce the product to Bayer. And on the other picture, you can clearly see how milestones have especially high impact on Innovative Medicines result. Branded Products performed very, very well. 10% of growth in branded market is a good achievement. Easyhaler was a clear driver in this portfolio with 15.4% growth. And in Easyhaler portfolio is the budesonide, formoterol combination product with 22% growth that drives that product portfolio of 6 products. And as I mentioned, Entacapone is suffering on the price decreases around the world, even though the volumes are growing, and Divina a series, mainly Divigel, which is an estrogen gel product for HRT grew 15%, a very good result. And generics and consumer health with a growth of 2.1% was also an excellent development. Generic business growth in Europe, say, from 2% to 5% depending on the country, but on average, so we are clearly where we should be. And let's remember that in this portfolio, we have Simdax and Dexdor and in '23, we -- there were also gains from some divestment of brands in Russia. So the comparative period is very challenging and still we were able to create growth here. And if I deduct Simdax and Dexdor from this equation, the generic peer portfolio grew almost 6%. And here also, last year, we saw a very accelerated growth towards the end of the year, mainly due to some legislative tax changes in Finland regarding drugs. So there were some busy months towards the end of the year in the pharmacies in Finland. And all key markets performed very well. Animal Health bounced back. '23 was a very difficult year for Animal Health, but it has clearly bounced back. Our partner, Zoetis is back on track and filling their stocks, and we are delivering. And also all our own regions are performing well. The only division that's showing a slight decline is Fermion. But let's remember, this is only external sales and that fluctuates quite a lot depending on when we have deliveries to our business-to-business customers and there has also been some capacity constraints due to internal -- manufacturing of internal APIs. Top 10 slide clearly shows the same story. Maybe in addition to the previous ones I could add the #9 and 10, which is d Trexan, the old-timers -- old, but very good treatments, which we mainly sell to partners all over the world. So these might fluctuate from plus to minus with rather big numbers even from one quarter to another one, depending on when we have deliveries to our partners. It's good to also note that the balance between divisions has -- it has not changed dramatically, but there is clearly a change going forward so that the Innovative Medicines is now 34% of our revenue. If I remember correctly, last year, at this time, it was around 20%. So clearly, Orion is becoming more and more innovative company and the generics are also 34% and Branded Products, 19% of the whole revenue. Our clinical pipeline has the 2 Nubeqa studies or darolutamide studies, ARANOTE and ARASTEP. These are Phase III studies, ARANOTE being in a registration phase and 2 Phase III studies for opevesostat; OMAHA 1 and OMAHA 2a. And CYPIDES, also with opevesostat, it's a Phase II study that continue -- is a continuation from the previous Phase II study, which we used to go and start the Phase III studies that I mentioned. On cancer therapy area, we have ODM-212, which is a TEAD inhibitor and target is solid tumors. It's in Phase I and we are currently expanding the Phase I study to do more extensive dose valuation based on the FDA's recent new guidances from the end of the last year, so we will continue the Phase I study for a while to be according to those guidances or work according to those guidances. And then tasipimidine, ODM-105, which is targeted to insomnia, to treat insomnia, also there, we are recruiting more patients and transferring from a kind of a classical Phase IIa, which are usually very small studies where you just show and try to see the proof of concept for your theory. So now we are expanding the patient population to a normal Phase II study. And the report of the Board of Directors, financial statements, sustainability statement, corporate governance statement and remuneration report for '24 will be published at latest in week 11. And now to the outlook for 2025. Outlook for net sales ranges from EUR 1.550 billion to EUR 1.650 billion and outlook for operating profit ranges from EUR 350 million to EUR 450 million. The basis for this outlook is, of course, growth of Nubeqa. That's the most single and significant variable in our net sales range. And here, you can see in this slide, how we estimate actually the underlying net sales and how the ranges are estimated to develop. And when we think that what are the factors that would have the biggest effect on our operating profit and how that will eventually develop. Of course, Nubeqa is one of the biggest items. Another one is timing of R&D costs. Some programs do go faster. Some goes maybe slowly. So we never know, at this time of the year, how the R&D costs will actually eventually be towards the end of the year. And now maybe this is after many years that we need to mention even the currency. So here, the U.S. dollar might have also a significant effect on the operating profit. And we don't include any major milestones in our outlook for 2025. And save the date, we will host Capital Markets Day on 22nd of May in Helsinki. We will share more light and elaborate our businesses and the future, also our R&D but this is not bound to any specific event within the company. It's really more to share information with our investors and markets. And here, you can find all the other upcoming events and dates for those. I thank you for your attention at this point, and we welcome the questions to me and Rene will join me here on the stage. And, Tuukka, of course.

Thank you, Liisa. Now we could immediately hand over to the operator to see whether there are any questions on the teleconference line. So please go ahead, operator.

[Operator Instructions] the next question comes from Viktor Sundberg from Nordea.

So I have a few. So maybe to start off, your range in the guidance is a bit wider versus last year in terms of millions of euros, so just wondered why is that? And what factors do you think are important to consider whether you would end up in the higher part of guidance or that could lead you to ending up in the lower end of guidance? I think I'll start with that question.

Yes. So if you look at the net sales guidance last year, we had a total range of EUR 70 million, and this year is EUR 100 million. So there's an increase in the range. And as was said in Liisa's presentation, the largest single factor, of course, is Nubeqa. And if you look at the year-to-year growth already this year was quite significant and as it's taking a larger share of the -- also of the company net sales is all in natural that actually our guidance range will reflect that. So that's the explanation for the net sales. On the EBIT side, it's also been noted that last year, yes, we had a narrow range. But here again, Nubeqa is a quite high margin product. So whatever happens in the net sales range will fall with a high percentage also to the EBIT side. And also, it has to be noted that R&D expenditure is a bit hard to predict on a yearly basis, even though we know every project's cost and how they're going to unfold over several years, the timing does have a big impact, and that can have also impact on the EBIT on the year, as we also saw last year. So that's why the EBIT range is of a similar size because of these factors.

Okay. And I just wondered here on Nubeqa milestone payment. Of course, in 2025, we have no milestone payment for Nubeqa. But I have noticed that in some service for buyers global Nubeqa sales, they're quite close to EUR 2 billion. if that would be a trigger for such a payout, could you please comment if that's completely ruled out or whether that's modeled to be very early in 2026 and if that could end up in the end of '25, et cetera?

Well, we have not enclosed what would be the trigger for that EUR 180 million milestone. And we don't have any such information that would give us a possibility to state that we would receive that EUR 180 million this year.

Okay. And just a final question. In terms of product sales, could that be a bigger part of Nubeqa figures once ARANOTE is fully approved just initially as buyer might expect an initial higher demand for that product when it's launched? Or how should we think about that?

I think a very good question. We actually saw already when the ARANOTE results came out that there was a hike in usage of Nubeqa and our deliveries. So it's difficult to estimate what will be the final effect when the marketing authorization is there. However, that is -- the group that ARANOTE is addressing and the usage that ARANOTE is allowing when the marketing authorization is there is not that big that it would change the picture just by that study. And I think it has already gradually started to my understanding.

The next question comes from Sami Sarkamies from Danske Bank.

I have several questions. We'll take this one by one. Firstly, starting from potential import duties to the U.S., a couple of questions were this; if we assume these duties, would you be able to mitigate them somehow? Would you anticipate impacts to your competitive position in the U.S.? And do you see a scenario in which a buyer would call the product to the U.S. upfront in order to mitigate potential import duties?

Well, this is a very, how would I put it, actual question because we saw we see all the time in the newspapers and TV, a lot of talks about these tariffs and all that. However, as I know it and as much as I follow the U.S. market and we meet with our partners, they seem to be -- and everybody seems to be quite calm at the moment. There is a lot of turbulence under the surface but nothing has yet happened. Nobody knows how these tariffs would be applied, which type of products and whether they would be applied to pharmaceutical, the finished goods, APIs, how this would all span out eventually. But right now, as much as I know, there is no panic. Then, of course, it's another question if I think the initial idea there is that companies would transfer their manufacturing to U.S. Transferring manufacturing in pharmaceutical industry is not easy. It will take several years to transfer any products manufacturing to a different site, not to mention to a different continent with all the regulatory requirements. So if that -- I think the -- whoever thinks about this has to take this into account. Then you asked whether Bayer would mitigate the risk by ordering or preponing their orders in the face of such situation. Of course, that's one possibility for any company who's sourcing from Europe or outside U.S., but we don't have any knowledge about any such activities. And then again, if such tariffs would be implemented, if I look at Orion as a European company, having manufacturing both API manufacturing and pharmaceutical manufacturing in Europe, it could actually be also an opportunity for us if there would be higher tariffs to China. So you always have to think about that if there is something that's happening on this front, it might actually offer a possibility on other front, business possibility.

Okay. Then moving on to R&D. You're guiding for higher R&D expenditure this year. Can you be a bit more specific on which programs are likely to cause the increase in R&D expenditure.

Well, the ODM-105 and ODM-212, as I explained, we are expanding both programs during the next year. Of course, those two will be significant contributors to the costs. And we have mentioned earlier that in our research stage, we have biologicals and those are actually much more. They are more expensive to develop in the early stage because you need to develop your GMP level product, your pharmaceutical product already before your Phase I. So we also have programs -- biologics programs ongoing where we are investing in R&D. And those also raised the cost. And then there is the whole research and discovery portfolio, which we are also investing more.

Okay. Then the next question would be on the VAT change that you mentioned, how materially did it impact your sales in Q4? And should we expect that it will then sort of -- Q1 will suffer to similar magnitude?

Well, actually, the impact was quite significant. I think it was the last month, actually December. I think people kind of that now you have to go to pharmacy and take your prescriptions out to get it with the lower VAT. Of course, there might be a possibility that it is reflected to Q1 but as prescription drugs are reimbursed in Finland for a 3-month period, except for the very expensive cancer drugs, which are reimbursed for 1 month, then it would not have any effect and even for the cheaper ones for a 3-month period, people will have to go and get them by the end of Q1. So we think that actually it will be balanced out during the Q1. But of course, we don't know it. But if you use this logic, it should balance out.

Okay. And then finally, on your CapEx needs for the coming years, what investments do you still need to make thinking of production capacity for Nubeqa and ODM-208?

Well, our CapEx, we have started all the investments -- CapEx investments for the Nubeqa already, mainly in Fermion, in Hanko. So those are all ongoing. Of course, they take some part of our CapEx, but not the majority. So we are investing all the time to new Easyhaler capacity, both packaging and manufacturing line and for other parts of the company and manufacturing. So I think our CapEx -- and now I ask and turn to Rene, I think it's on a quite normal, how would I say, a normal level that it has been earlier now that we got ERP program is finalized. .

I think when you consider Nubeqa and 208, those do not trigger any significant CapEx needs...

No. Not anymore.

For the coming years. So a lot of those investments are ongoing and as part of our, I would say, normal CapEx levels.

The next question comes from Brian from Jefferies LLC.

It's Brian from Jefferies. Just one question on Nubeqa. I was just hoping you can help us understand the extent to which that big Nubeqa uptick in 4Q was driven by, I guess, step-up in the royalties for 4Q is at around 23%? And then just kind of what royalty rate we should be expecting for this year?

I think we haven't disclosed the details of the royalty rates. But of course, as you saw also in the slides that there's 2 effects when we look at quarter-to-quarter development. You have both the growth in volumes of Nubeqa, but then you have also the tiered royalty that grows during the year. And of course, for us, it reaches the highest in the last quarter. So those are driving that. And that's why you see these big spikes, and we want to draw the attention that this is also what we expect going forward to be the dynamics.

So it's still approximately 20% for the full year? Is that still the...

I mean we haven't disclosed that level of details.

The next question comes from Iiris Theman from Carnegie.

I have a couple of questions and if I'll also take these one by one. So firstly, could you just provide an update on your expected pipeline is, for the next 12 to 24 months?

Okay. For the next 12 and 24 months, I think, was the question. Well, now that we -- I think this year is very much preparing as we explained, our ODM-212 and ODM-105 Phase I and Phase II so that we have enough data and patients to move to next steps, so that would include 24 months that during '26, we would be able to start Phase II for ODM-212 and Phase III for ODM-105. And hopefully, of course, now that I'm talking about only the clinical programs, of course, we expect to see new projects in our clinical pipeline at latest in 2026.

Okay. And yes, related to your early-stage pipeline. So basically, how many projects are there? What kind of projects? And I think you had a target to bring almost every year, 1 or 2 projects to the clinical pipeline, so why are you not expecting to bring any projects this year to your clinical pipeline?

Well, I'll answer first for the first question. We have not disclosed our research or discovery pipeline. I can tell you that it's -- we have tens and tens of projects. They are very well-focused in oncology and pain, all the projects. We have both small molecules and biologics, as I already mentioned. We have biologics. And that's, of course, a new area for us, and we already see that it shapes up a bit how the development program goes on, that you already do your GMP work for your final product before you go to Phase I. Then a very fair enough question of why are we not telling that we are bringing new projects in clinical stage this year? Let's, of course, remember now I'm talking about our internal pipeline, we, all the time, also looking for projects through in-licensing and partnering, that's another source for our clinical pipeline. So of course, we look for possible candidates from outside Orion as well.

Okay. That's clear. And then finally, so basically, regarding headwinds and tailwinds. So can you comment that do you expect more tailwinds or headwinds? And can you clarify what are those?

Well, looking at this year, I think headwinds are there. I mean -- I'm sorry. tailwinds are there. I'm thinking going ahead. So tailwinds are definitely there with the Nubeqa and increasing sales in both in euros and volumes. And with the new ARANOTE indication, I think all that is very good. We also see Easyhaler demand growing all the time in Europe and the generics. Pricing seems to be kind of stagnating. We don't see yet significant increase of pricing, but we see that it's -- the prices are not dropping as fast as they used to do. So I think that's definitely good for our portfolio and our company, which has a big and significant generic business. Then I'm thinking about the headwinds. Well, I think, in the form of risks, as Rene mentioned, the currency, the U.S. dollar is one. You never know which direction world goes these days. I think probably the geopolitics is the big question here. If I really think the headwinds that no one of us knows now whether there will be tariffs on pharmaceuticals by U.S. We don't know how the euro and U.S. dollar will develop, and we don't know what's going to happen. So I would actually think that, that's one of the biggest tailwinds that this, how would I say, situation where we can't really forecast very far what will happen. We can forecast with our products. But at the same time, I think everybody understands that there can be things that happen independently of us.

Potential headwinds.

Headwinds.

There no more questions at this time. So I hand the conference back to the speakers for any closing comments. .

Thank you, operator. We have a couple of questions from online. Actually, one is from Brian who already posted his question through the telecom lines. So we have one question here. This comes from private person called Jurgen [indiscernible] and he asks, will you be able to manage Nubeqa demand growth without external partners, assuming further similar growth rates. So do we have enough capacity?

Yes. We do have -- with the growth rates that we have been assuming now and with that Bayer has forecasted, we are able to manufacture at Orion and at Fermion. We already mentioned with Rene that actually all the CapEx investment for Nubeqa are already ongoing and have been ongoing for years at Fermion or in Fermion. So we are well prepared. .

I got a message that there should be one more question through the telecom line, so I will hand it back over to the operator. .

The next question comes from Anssi Raussi from SEB.

One question from me. Anssi Raussi from SEB. Just to continue on your guidance and maybe wider than usual EBIT guidance rate, so of course, I understand that there's great uncertainty regarding R&D expenses, for example. But if you think about Nubeqa, and of course, you issued multiple guidance upgrades during 2024. So do you actually see some negative or, let's say, headwinds in Nubeqa's sales? Or is it more like you have left wider upper end of the range to say when you try to estimate your 2025 Nubeqa sales?

Yes, of course, I mean they are -- we discussed already, headwinds. And of course, there are things that could impact the EBIT. We discussed the FX, the USD-euro does have an impact on its own even without volumes. And naturally, when you have a big product like Nubeqa and forecasts are -- can be wrong in both ways. And of course, it's forecasted to grow quite significantly, then we need to leave some room also for that growth might be less or then that our tablet sales might be a bit higher. And depending on the timing of that, our royalty, end of the year could have a fluctuation just because of that, even if the demand is there.

Yes. Okay. But nothing has changed with your guiding process, for example, or what kind of information you received from Bayer, that they try to estimate 2025 sales.

No, I think we're, all the time, improving the process. And I think hopefully, we are even better this year. And I think we learn all the time more from the market. So on the contrary, I think it's even -- hopefully even better information now.

I guess there are no further questions on the telecom lines. We have still a couple of more coming online. This is coming from Graham Parry from Bank of America. The first one is probably for Rene, he asked, do we have a gross margin outlook for the year ex Nubeqa royalties? .

No. Our outlook is basically what we stated in net sales and operating profit.

So no color on that, how that might develop going further right?

No.

And the second one is going back to U.S. and tariffs. So tariff exposure, presumably mainly Nubeqa manufacturing sales to Bayer, so our sales to U.S. Remind us where Nubeqa is manufactured? And do you sell the product to a U.S. or European subsidiary of Bayer? So basically, Graham wants to know, does Orion have tariff exposure? Or are we sitting with Bayer with this issue?

Well, that much I can say that the tablets are manufactured and the API is manufactured here in Finland at Orion and Fermion. I wouldn't like to go into more detail of arrangements between Bayer and Orion. You know where the tablets are shipped. So I think that's a business confidentiality -- business confidential information. .

All right. Thanks, Liisa. Now we have exhausted all the questions online and then hopefully also through teleconference lines. So with this, I think we can conclude this event. Thank you all for your attention. Good questions and hope to see you in our Annual General Meeting, which is planned to be held in the beginning of April and then, of course, the next quarterly report. And finally, in May, the Capital Markets Day here in Helsinki. So thank you, and bye for now. .

Thank you.