Orion Oyj (ORNBV) Earnings Call Transcript & Summary

Hello from sunny Helsinki, and welcome to Orion's Q2 2025 Earnings Conference Call and Webcast. My name is Tuukka Hirvonen, and I'm the Head of Investor Relations here at Orion. In a few moments, our CEO and President, Liisa Hurme, will present the results and key events from the past quarter, followed by the opportunity to ask questions from Liisa and also from our CFO, Rene Lindell, who is here today also. We will start taking questions first from the conference call lines. And then afterwards, we will turn to the webcast. So you will all have the opportunity to type in your questions using the chat function of the webcast. [Operator Instructions] And also to be noted that recording of this webcast will be available on Orion's website later this afternoon. And also to our Finnish-speaking viewers' information that also a Finnish interview of the CEO, Liisa Hurme, will also be available on Orion's website later this afternoon. But without any further delays, I'd like to draw your attention to this familiar disclaimer or safe harbor statement before letting Liisa to take over. Liisa, please.

Thank you, Tuukka, and welcome on my behalf as well. I start with saying that all Orion's divisions continued very good performance during the first quarter this year. But before I go to numbers, let's look at some highlights from the second quarter. FDA gave approval and CHMP recommended for approval in EU darolutamide in combination with ADT, androgen deprivation therapy, or the use of darolutamide and ADT in patients with metastatic hormone-sensitive prostate cancer. Our partner, MSD, has shared information that they have expanded opevesostat program to women's cancers. And also, we shared information in our Capital Markets Day that our first -- Orion's first biologics will enter clinical stage during the next 12 to 24 months. We've also broadened our research pipeline by exercising option with the company called Glykos to use their antibody drug conjugates, next-generation ADCs for development of products for cancer. Also, we've made an agreement with a company called Shilpa for recombinant albumin and with the company called Criceto for apomorphine -- oromucosal apomorphine for treatment of Parkinson's disease patients. And we've also updated potential of Easyhaler portfolio to be exceeding EUR 300 million in annual sales. Now first, let's start with the Q2. Our net sales grew 27% and totaled to EUR 416.5 million. Operating profit grew 59% with operating profit margin of 25%. And operating cash flow per share increased almost 200% to EUR 0.57 per share. I will come back to that later on. When we look at the net sales development in different divisions, it's very self-evident and clear that the biggest growth comes from Innovative Medicines and from Nubeqa sales and -- royalties from Nubeqa sales and also product deliveries to Bayer. However, all the other major divisions are also performing well. We see here Branded Products with EUR 9.4 million growth, Generics growing EUR 8.5 million and Animal Health, EUR 6.9 million. Fermion was slightly lower sales than in the previous year's quarter 2, mainly due to the -- some capacity constraints. And then looking at the operating profit, pretty much the same message here. Royalties contributing to almost EUR 46 million and increase in sales volumes, EUR 30.1 million. And change in prices, cost of goods and product mix, we can see minus EUR 14.5 million. And this comes, of course, from -- mainly from the Simdax and Dexdor, which are losing -- where the prices are still decreasing due to the generic competition. And I would like to draw your attention to the fixed cost, which is EUR 22 million, and this is all planned. We have clearly stated that we are investing more in our research and development and sales and marketing. So this is all according to our plans. Now I move on to first half of the 2025. Again, more than 20% growth in net sales, ending up to EUR 771 million, [ EUR 100 million ]; and then operating profit growing almost 50%, ending up to EUR 182.5 million. And operating cash flow here, when we look at the first half of the year, is more leveled out compared to the second quarter and ends up with EUR 1.12 per share. And now I move on to different divisions. And here, you can clearly see the Innovative Medicines. We have slightly changed the way we show the data here on the slide. So we can see the second quarter, always the quarterly results and then year-to-date. So here, we can see the first half of the year. So the growth, both on a quarterly level and on a half year level, is around 80%. And on the right side picture with several columns showing the quarterly sales or the quarterly royalties we are receiving from Bayer and also the product deliveries, product sales to Bayer, we see clearly the back-end loaded dynamics of Nubeqa -- year of Nubeqa to Orion. And already, we see again at all-time high product sales to Bayer. And Branded Products keeps on going with a steady more than 10% growth. Growth in quarter 2 compared to the previous year's quarter 2 was healthy 13% and even during the first half year, more than 10%. Driver of growth here is clearly Easyhaler portfolio and within that portfolio, budesonide-formoterol combination product. And CNS sales here in the lighter blue is growing due to the Stalevo rights -- repatriation of Stalevo rights in Japan. But also there are some new minor products that we are launching or smaller products that we are launching across Europe currently to our CNS platform. And the latest in-licensing agreement, as I already mentioned, was for APORON novel apomorphine oromucosal spray, which treats the OFF episodes of Parkinson's patients, a very good way to quickly get a treatment to a very difficult situation. Our women's health keeps on growing. It's the smallest segment within Branded Products with the highest growth percentage. Generics and Consumer Health is really doing good work. We do know that Generics market usually grows or the average growth is from 4% to 6%. And if you look at the second quarter numbers here, the growth was 6.7% compared to the last year's second quarter. And when we look at the first half of the year, we are almost growing 4%. This is a result of hard work, both with new launches, we have had several new launches across Nordics and Eastern Europe. But also, we've been able to provide and service our customers. So we've been able to take a bit of an advantage when other companies haven't had the products available in our regions. Animal Health keeps up the good work, growing almost 23%. But here, we, of course, need to remember that the comparison here was very, very tough for Animal Health. So this is kind of gearing up towards the normal Animal Health performance. And here, again, growth comes from all segments, from livestock, from companion animals and many, many different geographies. And this is especially -- I'm happy to show this top 10 list if I compare to how it looked like a year ago. Almost all products are on par, and most of them are growing. Of course, Nubeqa as the first one, Easyhalers, entacapone products, Animal Health sedatives, Divina series actually growing second fastest after the Nubeqa. Burana, more or less on par, and Simdax and Dexdor fighting against Generics and thus decreasing. Also, what we can see here is that the major divisions, Innovative Medicines and Generics and Consumer Health, are getting more and more balanced. Their share of total sales of Orion is approximately 30% for both of them. And then for Branded Products, it's 20%. Now on our clinical development pipeline. We showed this slide first time at the Capital Markets Day in May. And you can see that we have added 2 new projects that we are not carrying out by ourselves. One is DASL-HiCaP for darolutamide. Bayer is totally responsible for this study for [ neoadjuvant ] prostate cancer. But Orion has an option to jump into the study, if you could put it that way, and then also, of course, receive royalties as a result of this. Then we have levosimendan -- oral levosimendan. Our partner Tenax is developing that. And CYPIDES is still ongoing. We've had some questions regarding this Phase II study, but it's really a study where we are completing the phase study and are responsible for that. This study was initially the one that was used the data from this study to design OMAHA1 and OMAHA2a. But it is so that pharmaceutical companies are obliged to carry on studies as long as patients need drug. All other studies are proceeding as planned. And of course, then I forgot to mention the expansion that I actually talked about in the beginning, expansion of opevesostat program to women's cancers in Phase II. Now to a very different topic, sustainability. We are very happy that science-based targets initiative or based on the science-based target initiative, our near-term emission reduction targets are in line with the latest science. And we have a twofold strategy here. One is that we are committed to decrease our Scope 1 and 2 emissions by 70% and by 2030 by 70% using 2023 as a base year. The other commitment is a different one. And there, we commit that 78% of our suppliers, which is a huge number actually of suppliers around the globe, are committing to the science-based targets initiative by 2029. So how can we do this? Well, first of all, we have a very, very good track record. Now you can't really see the history except from the year '23, which is a base here, that we reduced already 21% of emissions during 1 year to '24. And now there really is a very concrete plan how we will reach that minus 70% by 2030. The biggest source, and you can see here the darker blue bulk, the lowest bulk here is really production of steam in our factories. And that -- those processes, we are going to be electric -- we are going to use electricity there. We've used already or done already a lot of work changing to gas and biogas and trying to reduce emissions as much as possible on that part. Of course, other big part is the district heat is just heating your factories and your offices. And there, we are -- we've done also a lot of work changing from the -- to local heating centers, where we use the energy from our factories in our campuses. But there is still a lot to do to change to greener choices in the remaining parts. And of course, the residual part comes from the traffic and cars and car fleet, where we step-by-step are moving to electric cars and other forms from diesel or benzene cars. And we updated our outlook on July 9. And you can see here the numbers, the updated numbers, no change to those in this session. We say that we will reach net sales of EUR 1.630 billion -- from EUR 1.630 billion to EUR 1.730 billion and for operating profit from EUR 400 million to EUR 500 million. And here are some upcoming events. Next time when we will be reporting quarter 3, it will be October 28. And then in February, we will report our financial statement. And I think I'm all done with this presentation. And I guess it's time that Rene and Tuukka will join me here.

Yes. Thank you, Liisa, for the presentation and remarks. As stated in the beginning of the webcast, we will first take questions from the conference call line. So at this point, I would like to hand over to the operator.

[Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets.

I have four questions. We'll take this one by one. Starting from the new guidance, you're still maintaining EUR 100 million wide ranges, even though you have derisked the first half of the year. What are some of the main uncertainties you're faced with in the second half of the year?

Will you take it?

Yes, I can take that one. So I think that's similar as earlier in the range on Nubeqa. Of course, with these kind of numbers and volumes and growth rates, there is a range of uncertainty in where we'll end up in the end of the year. And as we know, Q4 is the highest when it comes to the royalty percentage on Nubeqa. And also as we've been seeing the tablet deliveries have been growing quarter-by-quarter. So where we then land up at really the last months can have quite a big effect on net sales and also on EBIT. And of course, the R&D OpEx is another one, where we do know which projects we have ongoing and what are the costs for those. However, the timing of those can impact quite a lot on which calendar year, then basically the costs will be recorded. So is it this year or next year? That adds another significant variation, and that's why the range is kept as wide as it has been. There is really no space to narrow it down at this point of time.

Okay. Then I would actually like to continue on R&D costs. If we look at the Q2 cost level, is that a good proxy of the current run rate? Or should we assume a material step-up during the second half of the year?

I think in the first half of the year, the R&D spend has been a little bit lower than what we had expected. It's also quite typical that it takes some time for the year to build up the cost base. And as projects move forward, we are expecting to have a bit higher R&D expense in H2 than H1. I mean, not a significant step-up, as you phrased it. But yes, if the projects move forward, then according to our plan, there should be a slightly higher cost.

Okay. Then I have a question to Liisa. What are the main challenges of Orion? And what are the CEO priorities at the moment?

Well, CEO priorities are very, very clear. It's really filling our clinical pipeline. We are pushing and pulling our development projects forward, actually, which brings to the previous question of R&D spend this year that the programs are there, but it's difficult to say exact timing. So that's clearly one of the most important things for the CEO currently. And of course, then the other one is seeing that Nubeqa is succeeding together with Bayer. Nubeqa is a very, very important product for us. It's a very important product for our partner. So that joint collaboration is another priority for us. And then, of course, the rest of the business divisions, which happily are also performing extremely well currently. So I think really walking the talk is the third priority that we do benefit from the wide portfolio that we have and the different business segments. So proceeding at the same path as we've done this far.

Okay. And then finally, related to U.S. pharma tariffs. This is a bit speculative, but I mean, even 200% tariffs have been proposed. I mean, if we assume a lower level, let's say, 50% or even 100%, how could those impact Nubeqa franchise? And to which extent could you mitigate the impacts if that were to happen?

Yes. Thanks. Maybe I continue even from the previous question. You also asked about the challenges, not only about the priorities. Well, you already mentioned the U.S. market. There are several challenges and changes that I'll talk about regarding U.S. market. Tariffs is one thing. And I think there, we need to wait and see. Of course, we are not only waiting, but we are also preparing different type of scenarios and so does our partner do. So I think everybody is prepared that something probably happens, but we don't think that, that would have any material impact to this year, so for the second half of this year. So we don't think that, that is a challenge or tailwind for this year by no means. And on a broader picture, then regarding tariffs, we haven't seen any put in force for pharmaceuticals yet. So let's see what happens. And if such would come in force, we would, of course, bear our share based on our agreement with Bayer. So it would have an effect to us. But I think it's really a wait-and-see strategy for most of the pharma companies at the moment and no material effect for the rest of the year. However, you asked that what are the major challenges for this year. Of course, we -- and Rene can continue, U.S. dollar-euro ratio is one of the things that we follow very carefully, where that would go. And otherwise, generally, the situation in the world that there are a lot of things happening, and we need to follow carefully other negotiations and initiatives for the pricing, both in U.S. and Europe and act accordingly. Maybe, Rene, do you want to say something about the U.S.?

Yes. I think for this year, we've pretty much already factored in kind of the current situation into our outlook and see it quite unlikely that there would be major impacts. However, of course, in the long term, if the dollar weakens, that starts to, of course, have an impact on the business as we are growing in U.S.A. through Nubeqa.

Yes. Maybe a follow-up. You previously said that you don't have any plans to establish production capacity in the U.S. Could it look different if the tariffs were really high, like 100% or 200% that is there like a point where you actually need to reconsider that stance?

Well, I think this -- I can only answer as I answered to you earlier that we need to look at the situation at that moment. But right now, we don't have any intentions to set up manufacturing capacity in U.S. And as the pharma sector has clearly informed and communicated, setting up any new manufacturing capacity would take 4 to 5 years. So for any company, that's a huge undertaking to be done.

The next question comes from Shan Hama from Jefferies.

I'll take them one at a time as well, if that's okay. So just following on from the tariff impact, so irrespective of what's actually tariffed, is it 50-50 share with Bayer? Or is it sort of more of a skew to one company versus the other?

I mean we're not going into the details of that contract, but basically, tariffs is something that is taken off typically from the net sales and then you move on from there. So of course, it has an impact on us as well.

Exactly. And we share it according to our current...

But of course, we have a certain royalty percentage. And of course, that's -- you can think about how that flows down between the companies.

Understood. And then just in terms of the underlying market dynamics for Nubeqa, what has Bayer communicated there? And then also how much of the ARANOTE approval do you think contributed to that performance in Nubeqa this quarter?

Well, indeed, ARANOTE approval was very good news for us and also CHMP recommendation. We'll see then how much, and it's definitely Bayer's task to communicate what would be the potential of a specific study or indication to the full potential of Nubeqa. But let's remind us all that the message has been very clear that to reach the EUR 3 billion yearly sales, peak sales, all the ongoing studies, including ARANOTE, needs to be successful. So I think the best way to put it is that ARANOTE success or approval makes it more probable to reach that EUR 3 billion.

Understood. And then does that also include the neoadjuvant prostate cancer? Would that have to succeed as well?

Could you repeat the question, please?

Yes, of course. Does the neoadjuvant prostate cancer study have to succeed as well to reach that EUR 3 billion?

Yes, indeed. As I said, all the studies will have to be successful.

Understood. And then just one more please on opevesostat. So if we do get [ rPFS ] in 2026, what's the bar to be here? And based on its mechanism, how is opevesostat competitive?

I didn't quite get your question.

Could you, Shan, repeat also this question, please?

Yes, of course. So I was saying if we do get [ rPFS ] data in 2026 for opevesostat, what's the bar to be? And then based on its mechanism, how is opevesostat competitive?

Well, I can start from the mechanism of opevesostat that of course, when you shut down the whole steroid production, including also other steroids and then testosterone, the mechanism is very, very unique. It should actually really, really prohibit the growth of the tumor. And there is no other drug that would do that. So I think that clearly, clearly distinguishes it from other products at the market, are coming -- or the products that would be coming to the market.

The next question comes from Anssi Raussi from SEB.

It's Anssi from SEB. A couple of questions left. And the first one is a bit of a clarifying question regarding Nubeqa's R&D pipeline. So as you said, you have not yet jumped into this early-stage study, but you have an option to do so. But what kind of financial impact this would have for you? Like would you have to pay something retrospectively? Or how should we think about this?

Yes, indeed. We haven't, of course, shared the details of Bayer-Orion agreement, but option works like that, that you have different time points when you can opt in and they pay a share of the study costs. But we haven't yet made the decision at which stage we would do that.

And I guess you can't disclose the ballpark here, what kind of amount we would be talking about?

No.

Okay. That's clear. And maybe one more question regarding your guidance upgrade. So can you tell us like what was the latest data point you received from Bayer or what kind of assumptions you received from them? Anything to comment on this?

I mean we always discuss with Bayer on a continuous basis, of course, how the sales is going and what volumes need to be -- tablets need to be delivered and how the year is looking. So of course, we use the latest data that we had at that point on both companies and made a new projection. And of course, the first half year was also very good for Nubeqa. So I think everything was going -- pointing into a very good direction, and we made a recalculation of the full year.

Also with other businesses, not just Nubeqa for the second half.

Yes, I understand. And maybe lastly, about your expenses and the cost base. So admin expenses increased quite significantly. So what was the driver here, something one-off type expenses or natural increase?

Yes. I mean, of course, there's always a small kind of expense increase every year. There's wage inflation across the board. But however, there's also some fluctuation regarding the equity incentives, which are dependent a lot on the share price. So a lot of that fluctuation is actually related to the share price fluctuation or the growth of the share price during the last few quarters.

Okay. So can we assume that this is the level in Q3 as well? Or is it too early to say?

Well, I mean, if nothing strange happens. Of course, there are fluctuations that can happen. But I mean, nothing major, I think. But of course, you never know.

[Operator Instructions] The next question comes from Iiris Theman from DNB Carnegie.

I have still a couple of questions, and I'll take these one by one. So firstly, regarding your R&D pipeline for the remainder of this year and 2026, so what news could materialize?

Well, regarding '26, first of all, we are expecting the Phase I to finalize for the ODM-202 towards the end -- either by the end of this year or early next year, which would then mean that we would be able to start the Phase II next year in '26. Approximately the same applies for the ODM-105 that we are expecting to see the data by the end of the year or in the change of the years of '25 and '26, which would again allow us to start the next phase next year. And then regarding news, as I stated in the beginning, we have said that within next 12 to 24 months, we would be bringing new biologics into our clinical pipeline. So those are definitely a news regarding the pipeline. But for the existing products right now there, I think those are the key ones, except.

Yes. Well, actually, we have one projected compound with Tenax, and their current level Phase III trial is due to readout based on clinical trials next summer. However, as we have stated earlier and also Tenax has said that there needs to be another Phase III before filing that compound, and they are expecting to start that second Phase III towards the end of this year. That's also expected news flow from the pipeline.

Okay. And you don't expect any news on opevesostat to materialize next year?

Well, as we have stated earlier, if you look at clinicaltrials.gov, you can see that the readout estimates are '28 and '30. We have also reminded that there are two primary endpoints, out of which the other one will be reached probably earlier than '28 and '30. And now just recently, during the quarter, in connection with ASCO, MST actually said [ weekly ] that they have 3 compounds, out of which opevesostat is one, from which they expect some readouts over the course of the next around year or so. So that's basically the latest update from our partner regarding these OMAHA trials.

Okay. And regarding 105, so are you still expecting to find a partner for Phase III?

Yes.

Okay. And then on Parkinson's sales, it performed well. So were there any timing factors involved? Or is this kind of a good proxy for the remainder of the year?

Yes. That's a good question since for many, many years, we always talked about timing issues and -- regarding the deliveries to our partners. But at this time, we don't see anything like that at the moment. This is really a good performance of that product, speeded up by the Japanese sales, Orion-owned Japanese sales now.

Okay. And then the same question applies to Animal Health. What's driving sales in this segment? And what long-term growth rate that should -- or can you give us any kind of long-term growth that could be kind of sustainable for this business?

Yes. That's a very good question. As I say, this year's growth rate of 20% or something like that is not quite normal. It's really getting back to the normal, so to speak, after the previous years. And then again, what would be expected running rate or growth rate there? I think Animal Health market grows like 4% to 6% on a yearly basis globally. So you could talk about low single-digit numbers on a broad perspective.

Okay. And then regarding the Generics business, you mentioned that peers experienced supply challenges. So which products can you comment? And are there or in this business, any drivers that could sustain above average growth over or above the -- you mentioned the average growth that it has been about 4% to 6%. So could that be sustainable in the short term?

Yes. I did indeed mention that there are stockouts and that's a general information that there are a lot of stockouts, unfortunately, for Generic products in all European countries. I wouldn't name any specific products. We have such a wide portfolio, more than 300 products. So it's here and there in this country or that country where we've been able to then pick up the market. So it really comes from the several products. And of course, similarly, there might stockout for our products. So it's a very, very dynamic market for anybody who works there. And the winner is the one who can deliver, especially for the bigger products. But as we see this kind of a growth of, say, low single-digit growth looks quite probable. I don't know if Rene is saying something else, but I hope not.

No. I mean it's a competitive market. I mean it's a dynamic market, and we are very happy how Generics has been able to do now, I think, for the second year in a row, grow at a very nice pace.

Very good.

Yes. Basically, the growth needs to be made every day. If you think about our key markets, the Nordic countries and the tender rounds in Finland, we have 4 times a year in Sweden, every month in Denmark, every second week. So that basically means that we need to keep on running all the time to make that growth happen.

Okay. But is basically the average growth of 4% to 6% sustainable in your view? It would be mid-single-digit growth rather than low.

Well, thank you for correcting me. Maybe that's the right expression that it's a mid-digit, not low single digit.

Okay. And finally, regarding your peer XTANDI patent expiry in the coming years, what is the expected timeline for this in your view? And do you think that it could have a negative impact on the market sales?

Well, I'm not going to comment our competitors' loss of exclusivity when or how it could happen. I think those are always tricky situations for anybody. But to our understanding, Bayer, and this is, of course, good to ask from Bayer; they have calculated in their projections. Also they have included this generalization of XTANDI.

There are no more questions at this time. So I hand the conference back to the speakers.

Thank you, operator. We have a few questions coming from the webcast, and please do take the opportunity and type in your question if you have any now, it's a good opportunity to do so. Just wanted to remind about the comments regarding the EUR 3 billion peak sales estimate made by Bayer that was back in '22, and the comments we are referring to were made by Bayer then in '22. Just as a reminder, no new news flow from that front in that sense. But then to the questions from the webcast. We have a couple of here from [ Matti Kala ] from OP. The first one actually was about the OMAHA studies, and we covered that already, so we can step on to the next one. The next one is, how do you see geographical sales expansion of Generics and Branded Products proceeding? What timeline we could expect for current road map? Could we see another case Japan in the near future?

Well, that's a very good question regarding Generics and Branded Products. Our Generics division has a clear strategy to expand from the Nordic countries and Eastern Europe to the big 5 in Europe, not with the pure generics, but rather with the value-added generic products. Value-adding meaning, for example, in hospital, a product that needs to be stored at refrigerator, but you could provide a product that could be stored at room temperature or a product that is readily already diluted, so it saves time from the nurses or it provides some other advantages. And I think one good example of this is the recombinant albumin license agreement that we signed with Shilpa a few months ago. And that will definitely -- that's one of the major products that will be driving the expansion of generics to big 5 countries in Europe. There are other products as well, but we haven't reported -- they don't have the same potential as a single products that the portfolio is forming all the time. And I can say that we are expecting to launch first of those products, hopefully, in '27 and then build on that portfolio as we go onwards. I'm not sure if I can call it case Japan because we are already in Europe. But for Generics, it's definitely a new step to the big market. And then when we look at the Branded Products, it's -- the big question is actually Japan that we are and are trying to build up a portfolio around Stalevo there as we are doing also in Europe. So we are currently more or less trying to support the countries and build the portfolios in the new countries like Japan and then expanding Generics to big 5.

All right. Thank you, Liisa. Then we have one additional question from the webcast. This is related to our R&D pipeline and specifically to ODM-105. The question is, what is Orion's current or updated strategy for developing new pain treatments? And does ODM-105 still play a role in this strategy due to its analgesic properties?

Very -- again, a very, very good question due to the analgesic properties. It is a part of that portfolio, clearly, because pain and sleep are related, either people can't sleep because of the pain or other way around, and that could provide also help on that front. However, currently, we do see with that product that it would be aimed for general practitioners more for general practitioners in U.S. So that's why we would need to have a partner. Regarding our pain portfolio, in general, we do have new molecules in development in our research pipeline. So we are currently building that portfolio as well. But it takes a few more years before we will see those entering our clinical pipeline.

Right. Thank you, Liisa, for the answer. Now we have exhausted also the webcast questions. We could once more turn to the teleconference lines and ask from the operator whether there are any follow-ups.

[Operator Instructions] there are no more questions at this time. So I hand the conference back to the speakers.

All right. Thank you. Then we have exhausted all the questions. Thank you all for joining us this Friday -- summer Friday afternoon. Thanks for your attention, good questions. And next time, we will be reporting, like Liisa said, in the end of October. So for the time being, everybody, enjoy the summer. And see you next time.