Orion Oyj (ORNBV) Earnings Call Transcript & Summary

Good afternoon, and welcome to Orion's Q3 '26 Conference Call and Webcast. My name is Tuukka Hirvonen, and I am the Head of Investor Relations here at Orion. I'm today here with our CEO, Liisa Hurme; and CFO, Rene Lindell. We will start shortly with Liisa's presentation, after which then you will have the possibility to ask questions from the management. We will first take questions from the conference call lines. And then afterwards, we will turn on to the webcast chat question. So you may type in your questions utilizing the webcast chat function. Before going through the disclaimer, for our Finnish-speaking viewers, a CEO interview in Finnish will be published later on today on Orion's website regarding the results. And now before letting Liisa start, a quick reminder about the disclaimer and forward-looking statements. And with this, it's my pleasure to hand over to Liisa.

Thank you, Tuukka, and welcome to Orion Q3 2026 webcast. Once again, we have delivered a strong quarter with improved sales and profitability growth. Nubeqa continued to be the growth driver, but also all business units across our Branded Products had a healthy growth. On R&D side, we are proud to tell that we have proceeded with our first biological molecule into Phase I, and this is a very important milestone for Orion R&D. Another very important piece of information on R&D side is the interim results of DASL-HiCaP study, which demonstrated 58% reduction of the risk of metastasis or death with darolutamide and androgen deprivation therapy and radiotherapy versus placebo and androgen deprivation therapy and radiotherapy. And this week, after the quarter, we also, on Monday, announced changes to Orion executive team to continue proceeding with our strategy. And now to number. Our net sales increased by 28%, totaling to EUR 542 million, and our operating profit had a growth of almost 74% and totaled EUR 210 million, and our earnings per share grew accordingly. And when we look at the net sales, we clearly see that Innovative Medicines with Nubeqa drives our net sales growth with EUR 113 million here, and Branded Products, of course, with smaller numbers, but a significant growth to Branded Products of EUR 7.4 million. And this quarter, Generics had a bit of a tough one, minus EUR 4.6 million, but we have had a very tough comparative period from the last year. Animal Health more or less on par, and Fermion, excellent deliveries to our customers. On operating profit, even more clearly, royalties are driving this with EUR 104 million. And maybe the other figure that I would like to point out here are our fixed cost of EUR 22.3 million, which is totally as we expected it to be. We have been telling and executing at the same time our R&D pipeline proceedings. So all our R&D projects are proceeding, thus the higher fixed cost and they are also partly due to the increased sales and marketing costs. Changes in sales volume also very positive, EUR 4.9 million, and changes in prices, COGS and product mix of EUR 2.6 million, all on a positive side. And now to year-to-date numbers from January to September, a very similar type of numbers, plus 24% growth, totaling to EUR 1.481 billion and almost 66% growth of operating profit, a bit over EUR 500 million during the first 9 months. And again, earnings pressure according to that growth. And now I turn to separate divisions where we can look at the quarter and also the year-to-date numbers. And here in the dark blue, you can see Nubeqa royalties and product sales, EUR 280 million in the third quarter, and then some other services and sales on the lighter blue here. And during the first 9 months EUR 662 million. And once again, I would like to point out on the right side, looking from here, you can see how the dynamics go during the year that we always start from the lower level of royalty on the first quarter or the beginning of every year. And it's good to remind here already that we reached the highest royalty rate already in quarter 2. So the growth that we are seeing here with Nubeqa is an absolute growth of royalties, meaning absolute growth of sales at market. And we had royalties of EUR 222 million and tablet sales of EUR 58 million to Bayer during the Q3. And a very healthy growth for Branded Products during Q3, almost 11% growth with a portfolio of Easyhaler products where budesonide-formoterol is clearly the growth driver. Our CNS portfolio, growth there as well this time, not entacapone growth, but actually growth of some of our new CNS products that we have been talking here earlier, for example, for migraine and some additional products for Parkinson's disease patients. And the fastest growth segment was again Women's Health. And the same trend you can see on the first 9 month figures. Generics and Consumer Health had a, as I said already in the beginning, quite rough starting point or comparative period from the last year. So quarter 3 figures are minus 3.4%. But still, I think, a very healthy business here. And when you then look at year-to-date numbers, I think it's -- you can say it's on par. We are on the same level as last year. And this is due to the slight decline in the generic prescription drugs. However, the consumer health business is proceeding as it did last year. So no decrease seen there. I'm happy to tell that we have signed a license agreement with the Chinese company, Qilu, to commercialize IV pembrolizumab, which is a biosimilar of KEYTRUDA, across Europe and the expected launch of this product would be in early 2030s. Animal Health, more or less on par during the Q3 compared to the previous year, a little bit lower figures on the year-to-date numbers. And Fermion, great numbers. I already mentioned this in the beginning. And let's remember, this is really external deliveries and this is mainly coming from the contract manufacturing and actually contract development and manufacturing services for both API and finished dosage forms. So when we report Fermion sales, it includes also contract manufacturing and development for finished drugs. I'm happy to tell that we are ramping up as we speak the Plant 3 in Hanko. That was the plant where we had the water damage early July. And now we are ahead of the schedule and clearly and solidly ramping up that plant and all the other plants ramped up already after the maintenance break as planned. Top 10 products, I think the same order as the last time, and you can see the almost 70% growth for Nubeqa, almost 7% growth for Easyhaler, slight decline for entacapone. This is due to the price pressure almost all over the world. It's a global product and there are price decreases that we see in different parts of the globe. Volumes, however, keep on growing all the time. And Divina series, you can see almost 47% growth, and I think this is amazing, and it's a really great news for all the women of this world that these treatments are available. And when you looked at the Animal Health numbers, I think that part of the explanation is here. It's about timing of shippings. The set up of these shippings again, have been a bit later than we expected. It might be just a 1-day difference between the quarter, so here we see a minus number. And I think the main message actually on this slide is that almost half of the Orion's revenues comes from Innovative Medicines after the first 9 months, meaning Nubeqa royalties and product sales. And the clinical development pipeline. DASL-HiCaP, interim results were reported by Bayer in ESMO, very positive results, as I already mentioned. And also, we are happy to tell about the new molecule ODM-216. That's the first biological molecule, a large molecule in our pipeline, and we have a study called BICIDES going on with this bispecific antibody. And it's targeted to add advanced solid tumors, but I'm not -- I can't and I'm not going to share any more about certain indications at this stage. Sustainability is an important thing for us. It's not only an item on our agenda that we need to do. We perform every day to keep good care of our value chain from sourcing the materials, key materials for -- or starting materials for our intermediates, sourcing our intermediates, sourcing APIs, sourcing drugs from other companies and distributing and selling the drugs for our customers. All this is very important, and you can see that on the 4 pillars of our sustainability agenda. And of course, how we are seen by the external environment is validating that we are doing well. And the recent news is that we got now on the Silver level by EcoVadis. And of course, we continue the good work and aim even higher. And based on good first 9 months, very good royalties and good outlook for the rest of the year, we upgraded our financial outlook for this year so that our net sales range is from EUR 2.070 billion to EUR 2.140 billion. And our range for operating profit is from EUR 730 million to EUR 790 million. And then after the third quarter, as I mentioned early this week, we announced changes in our executive team and in our divisional structures. We have not changed our strategy. On the contrary, our strategy has become a necessity. In the beginning, when we launched the strategy in '23, it was an aspiration for Orion to become a more global company from a European-based pharmaceutical company to go out to the world, both commercially and building R&D capabilities around the world where they are needed and where they are available. And we have more or less accomplished the first 3 years. We've strengthened our existence in Europe with all our key brands, and we continue to do that. We've established our sales operations in Japan, which actually also serves as a platform for our clinical studies, for example, for ODM-212. So now for the first time, we are running our own studies outside Europe. But now we are moving to the next stage of this strategy. And that means that we need to sharpen up and focus even more on our strategic assets. And thus, we've done some changes in our organization. We have a new role, a Commercial Executive Vice President for International Commercial Operations. Mr. Hao Pan is leading this organization. He's been member of Orion executed team since '23, early '23, and now he is responsible for all ex U.S. commercial operations as all the U.S. operations are reporting and are headed by Berkeley Vincent, and he's also responsible for the innovative medicines. The other change is that Mr. Juhani Kankaanpaa, who's been heading our global operations, which means all our manufacturing sites for finished goods, for APIs, company procurement, supply chain, also now heads our Generics and Consumer Health division. And we also welcome a new member to our Orion executive team, Mr. Henri Salokangas, as an Executive Vice President for Branded Products. And Branded Products continues as such, but we've added a hospital business to respiratory women's health and CNS business. And why do we do this? I think it underlines the fact that we are becoming more global. We focus definitely on our key brands in Branded Products. We are building our European-wide hospital business. We have the existing products there, Simdax, Dexdor, some biosimilars that we are already selling across Europe. And as I already told, we made another new agreement for new biosimilar, we've made several of those, and we also have this added value hospital products like recombinant albumin under development by our suppliers. So we are building that business unit under the Branded division. Then again, the generics is really about supply, price, service level. And thus, it's now combined to our global operations, where the bigger picture of that part can be taken care of. And then a very long-term member of Orion executive team, Ms. Satus Ahomaki, has decided to leave the company after admirable 34 years of service for Orion Pharma and 19 years in Orion executive team. And I take the opportunity here to thank her for all her commitment and work during those years. Her legacy will remain. I think she has worked with all the business divisions and left her fingermark on all the businesses that we do, and we will continue her precious work. And here, you can see our upcoming events, and I thank you for your attention, and I think it's time for questions and discussions.

Thank you, Liisa, for the presentation. And like I said, now it's time for Q&A. As said, we will start with the conference call lines. But then again, you remember that you have opportunity to type in your questions through the webcast chat also. But at this point, I would like to hand over to the conference call operator, please go ahead with the questions.

[Operator Instructions] The next question comes from Alex Moore from Bank of America.

I've got 3, all on back Nubeqa [indiscernible]. So first one, just on the back of royalty, following up on your comments at 2Q, is it still reasonable to assume royalty growth in the fourth quarter should be roughly in line with Nubeqa end market sales, given you're already at the maximum royalties? And there's consensus is assumption of roughly 10% sequential growth for market sales and broadly consistent with the assumptions underpinning your updated guidance?

Maybe I'll take the first. I mean the maximum royalty percentage has been in a way, reached already, as Liisa said, in Q2. So from that perspective, naturally, the royalties then would be directly proportional to the market sales that Bayer would then report to us. And then, of course, what the growth is in Q4, we will then see, but it's -- you can see our guidance and outlook and estimates from there as well what might be the potential range for Nubeqa.

Okay. Great. So second question, just on tablet sales. I think tablet sales declined about 10% sequentially in the quarter. Could you confirm whether this was mainly due to the maintenance break. And I think your commentary at 2Q implied you typically back up to full production in the fourth quarter. So should expect year-on-year growth of tablet sales in 4Q to be roughly similar to what we saw in the second quarter?

Yes. There usually is a bit of a fluctuation due to the maintenance break, but I think the change now between the Q2 and Q3 is just normal -- in a normal variation of how we ship out the tablet from Permian to -- or from Orion -- from Fermion to Orion and then from Orion Pharma to Bayer. So I don't think there is anything specific. And there might still be a variation between the quarters. I don't know if is there something you want to add?

No, it's like you said, that there will be always fluctuations depending on the shipments and those can be quite big as we ship in big batches. So it's hard to say always what will next quarter be up or down. So I think the general trend, if you look at the year, it's upwards and in the right direction, of course.

Okay. Great. So just my last question, which is more on your long-term ambition for Nubeqa. So just on the recent positive interim readout for DASL-HiCaP. I think you previously said that you are greater than EUR 1 billion guidance for Nubeqa sales by the end of the decade includes potential early line expansion. Can you give any color on sort of what sort of risk adjustment was used relating to the DASL-HiCaP opportunity in that guidance? Then given you appear to sort of reach that milestones from Nubeqa sales, either this year or next based on current indications alone to quite a large potential addressable population for DASL-HiCaP, does this not imply meaningful upside to the lower end of that target, and therefore, what specifically needs to occur before you can derisk and potentially quantify the upside to your long-term Nubeqa revenue guide?

Well, I may start, and Rene then continues on our guidance. As our partner has said and we've said many times that we need positive results of these early line studies to fulfill the full potential that Bayer has given out for Nubeqa. And we all know that they've said that this will be the biggest product that they've ever had, which means that it will be around EUR 5 billion. So this DASL-HiCaP positive interim results, let's remember, is already included in those numbers. I think the question regarding if we are able to then update our guidance is it was a separate one, and it's not -- I don't think it's time for that now. I think that might come later, but right now, we follow that guidance.

The next question comes from Anssi Raussi from SEB.

First question on your expenses. So of course, we know that the research and development and also sales and marketing expenses were clearly higher in Q4 last year as compared to other 3 quarters that you so do you think that these expenses will actually increase or decrease in Q4 this year compared to the last quarter of the last year?

Yes. We're not giving a guidance specifically on Q4 expenses and how those will pan out. So we still keep our full year guidance. But I think overall, I think last year had certain dynamics when it came, especially to the R&D expenses that did jump at that point of time. But I still would encourage to look at the full year, and from that, the dues, the full year potential expenses that will have. But I mean, nothing kind of material comes to mind in terms of why Q4 is very different from other this year. I mean, although sometimes, in Q4, there are questions that how do we book R&D expenses depending on how the project actually are progressing and that will then have a certain variation, which, of course, also is partly reflected in our outlook, although in a much minor component than the potential Nubeqa scenarios.

Okay. Understood. And then about Nubeqa tariffs. So can you give us an update on your estimates and also maybe as you mentioned, this contract manufacturing in the U.S., can you mitigate this impact with this kind of agreement in the future?

Yes, on tariffs, there is really no change from what we -- where we were last quarter. I mean, basically, if you look at what we know that the tariffs should be operational and we used from October -- beginning of October onwards. So in a way, we do estimate that there is some tariff impact in Q4, at least according to what we know. In the end, we will only see that once we actually see when -- and those are booked at the customers and we see how those are treated. So yes, we do assume some tariffs, but they are quite minor for Q4, and we will basically have to wait and see how those really are calculated in the end. And for the second part of the question on -- regarding API manufacturing U.S.A. Naturally, that could have an impact on tariffs and -- but that also is something to be seen then. So hopefully, it has an impact on that, but also it's an impact on our overall global supply of darolutamide.

And I think that's the most important thing that we now have, again, another place where we manufacture darolutamide API.

Okay. Got it. And then the final question from me. You mentioned that there are some new products entering the clinical phase in the coming months. So could you comment on what kind of molecules and/or any additional color on this?

All right. I guess you are referring the coming, I already mentioned, ODM-216, the bispecific antibody. But yes, I think I've been bullish enough already early this year to say that we will bring at least 1 biologic into our clinical pipeline. But I might be even bullish here and say that there might be another new Phase I program even during this year.

The next question comes from Sami Sarkamies from Danske Bank Markets.

I have 3 questions. We'll start from Nubeqa. You announced today that you're going to be using contract manufacturers going forward. Can you open up your thinking here that what has changed? Is this related to maybe higher peak potential risk management or the U.S. tariffs? And then how do you think this will be impacting Nubeqa gross margins in the long run?

Good question. Definitely, when we see that the volumes have been growing much faster and higher than originally was estimated, it's important to manage your supplier risks. And that means that you need to have several sites supplying the key ingredients like darolutamide API. And now we have 2. We have 1 in Hanko, 1 in Germany and then 1 will be in the United States. It's really to secure the volumes and manage our risks.

Okay. And what about the impact on Nubeqa gross margins when some of that capacity will be taken into use?

I don't think, Rene can confirm, but...

Yes. So of course, I mean, if we look at the we will be most likely manufacturing the bulk of the API in Hunker site where we've been doing that for years. And of course, we are efficient. That means that I can say. So some additional gross margin impact typically when you build resilience, that -- there is, of course, some price to that. But that resilience is worth paying for because now we have more flexibility in how you use the sites, what volumes you need at what point of time. In the end, the marginal impact will be marginal.

Exactly.

Okay. Then my second question would be on operating expenses. If you look at this year, R&D expenses have grown 20% since the marketing by roughly 10%. You are planning to become a more global company. So what kind of sort of growth rate in operating expenses are you thinking? Is it still going to be below top line growth? Or could it be that, let's say, in the coming years that there will be margin erosion from our investments into the Orion platform?

Yes, maybe I can answer that. So that really depends also how our products move forward in the clinics and what is the success rate. So we are investing in R&D. We know that our pipeline is getting better, and we should continue on that. So that means also that the R&D spend as a percentage of revenue might in some years grow faster than the top line. Of course, our top line has been growing now that fast that even as we have been growing by 20%, top line has been slightly above that. So it can be lower, it can be higher, but it really will depend on a clinical pipeline. And the sales and marketing as well, depends on the timing of do we have -- what products do we have coming into the market? There is some investments you need to do before the sales happen, especially on the innovative side. So then you need to invest before you see the sales, and then you could have, at least in a short-term, increase in sales and marketing faster than the sales for that specific product or business division. But over time then that should catch up again. So there could be fluctuations, but nothing like, I think, systematically that we can at this point to point out.

Okay. And then my final question would be on the updated guidance. The range is still pretty wide going into the last quarter of the year. So can you elaborate a bit on the reservations and uncertainties you still have for the rest of the year?

Yes. Yes, that is quite clear that the biggest reason for a wide range still is Nubeqa. As Q4, we have the maximum royalty rate, and we have a fast-growing product and Q4 is thereby estimated to be our best quarter also for Nubeqa. And there's a fairly broad range where this year could end up. I think the rest of the businesses have much smaller ranges are in a way, easier to predict, but Nubeqa, with such a growth curve and momentum we see it just gives naturally quite a broad range, still at this point, even though we narrowed it down a little bit in this latest outlook.

The next question comes from Shan Hama from Jefferies.

I've got 3, if I may. So firstly, just on Nubeqa royalties for this quarter, on first glance, they seem a little bit stocked versus consensus expectations. Is there any particular reason for this? So just potentially a correction for your guesstimate for the last month of last quarter? That's my first question. I'll ask the other 2 later.

Yes. So of course, always, there is a matter of estimation when we go into a quarter, as we discussed quite often, both on the first incoming month and then the last month of that. That can be 1 source of why then later when you compare to the Bayer number, you can see a discrepancy. But of course, at this point of time, not commenting kind of any expectations on that number, but as said, there are -- it's an estimate the last month.

Understood. And then my next question is, I mean, how do you anticipate Nubeqa's underlying market trajectory to develop through this quarter and then also into 2027, particularly with enzalutamide generics expected to come online potentially end of next year into 2028?