Orion Group Interim Report 1–9/2021
ORION
CORPORATION INTERIM
REPORT 1–9/2021 20
OCTOBER 2021 at 12:00 noon EEST
Orion Group
Interim Report
1–9/2021
This is a summary of Orion’s Interim Report 1–9/2021. The
complete report is attached to this stock exchange release and is
available at
https://www.orion.fi/en/Orion-group/investors/financial-reviews-and-presentations/
- The outlook for 2021 has been specified. Orion estimates that
net sales in 2021 will be slightly lower than in 2020 (net sales in
2020 were EUR 1,078 million). Operating profit is estimated to be
lower than in 2020 (operating profit in 2020 was EUR 280 million).
Previously Orion estimated that net sales in 2021 will be slightly
lower than in 2020. Previously operating profit was estimated to be
lower or clearly lower than in 2020.
- Net sales totalled EUR 765 million (EUR 823 million in
1–9/2020).
- Operating profit was EUR 203 (246) million.
- Profit before taxes was EUR 202 (245) million.
- Equity ratio was 71% (70%).
- ROCE before taxes was 32% (40%).
- ROE after taxes was 29% (34%).
- Basic earnings per share were EUR 1.15 (1.38).
- Cash flow per share before financial items was EUR 0.52
(1.52).
KEY FIGURES
|
7-9/21 |
7-9/20 |
Change % |
1-9/21 |
1-9/20 |
Change % |
1-12/20 |
Net sales, EUR million |
240.9 |
250.3 |
-3.7% |
764.5 |
822.7 |
-7.1% |
1,078.1 |
EBITDA, EUR million |
68.4 |
79.5 |
-13.9% |
236.5 |
288.7 |
-18.1% |
336.5 |
% of net sales |
28.4% |
31.8% |
|
30.9% |
35.1% |
|
31.2% |
Operating profit, EUR million |
57.3 |
65.1 |
-11.9% |
203.4 |
245.9 |
-17.3% |
280.1 |
% of net sales |
23.8% |
26.0% |
|
26.6% |
29.9% |
|
26.0% |
Profit before taxes, EUR million |
57.3 |
64.6 |
-11.4% |
202.5 |
244.5 |
-17.2% |
278.3 |
% of net sales |
23.8% |
25.8% |
|
26.5% |
29.7% |
|
25.8% |
Profit for the period, EUR million |
45.4 |
51.4 |
-11.6% |
161.0 |
194.4 |
-17.2% |
219.9 |
% of net sales |
18.9% |
20.5% |
|
21.1% |
23.6% |
|
20.4% |
R&D expenses, EUR million |
22.7 |
25.6 |
-11.3% |
76.7 |
84.8 |
-9.6% |
123.2 |
% of net sales |
9.4% |
10.2% |
|
10.0% |
10.3% |
|
11.4% |
Capital expenditure, EUR million |
39.5 |
9.3 |
+323.3% |
65.9 |
30.5 |
+116.0% |
48.5 |
% of net sales |
16.4% |
3.7% |
|
8.6% |
3.7% |
|
4.5% |
Interest-bearing net liabilities, EUR million |
|
|
|
-48.2 |
-140.0 |
-65.6% |
-185.8 |
Basic earnings per share, EUR million |
0.32 |
0.37 |
-11.7% |
1.15 |
1.38 |
-17.2% |
1.56 |
Cash flow per share before financial items, EUR |
-0.01 |
0.62 |
-101.2% |
0.52 |
1.52 |
-65.7% |
1.85 |
Equity ratio, % |
|
|
|
71.5% |
70.4% |
|
66.7% |
Gearing, % |
|
|
|
-6.5% |
-18.4% |
|
-25.4% |
ROCE (before taxes), % |
|
|
|
32.2% |
40.1% |
|
34.8% |
ROE (after taxes), % |
|
|
|
29.1% |
33.7% |
|
29.1% |
Average personnel during the period |
|
|
|
3,368 |
3,343 |
+0.7% |
3,337 |
President and CEO Timo Lappalainen:
Operations shift towards normal, while pandemic impacts are
still visible
“Orion’s year has mainly progressed as anticipated, and since
the summer we have seen gradual recovery in demand. In our
estimation, the COVID-19 pandemic continues to affect our operating
environment, and risks associated with global supply chains in
particular remain clearly elevated. We manage these risks by
increasing inventory levels, among other measures. In addition, due
to the effects of the pandemic, sales and marketing expenses are
still not at a level that we would consider normal and they will be
lower for the full year than previously estimated. We continue to
focus on looking after the health and safety of our employees and
ensuring production continuity, product availability and patient
safety in ongoing clinical trials.
Orion’s net sales in January-September 2021 were EUR 765 (823)
million and the company’s operating profit was EUR 203 (246)
million. The anticipated decline in net sales and operating profit
was mainly attributable to three factors: the milestone payments
that were clearly smaller than in the comparison period, a drop in
the sales of Dexdor® and Simdax® owing to the expiration of their
product protection and the expiration of a significant distribution
agreement for veterinary drugs in the previous year.
Although net sales decreased year-on-year, we have seen positive
developments in many areas this year. Net sales of the Nubeqa®
product recorded by Orion have continued strong growth as expected.
The Specialty Products unit’s net sales were at a good level on the
whole, although they fell behind the strong comparison period. The
prevalence of seasonal illnesses has gradually changed towards
normal since the summer, as seen in the demand for Specialty
Products and Easyhaler® product family. The Animal Health business
has shown strong performance in all markets, in part due to new
product launches and distribution agreements, even though the
overall numbers are still deflated owing to the expiration of a
significant distribution agreement as stated above. Demand for
Fermion products has remained good and production capacity has been
nearly fully utilised.
During the review period, we received positive news from our
research and development projects, as Orion’s veterinary drugs
Bonqat® and Tessie® received marketing authorisations from the
European Commission. Our clinical research pipeline was
strengthened by a new project as we launched a Phase I clinical
trial on a molecule based on Orion’s alpha 2 research, intended for
the symptomatic treatment of neurological disorders.
Orion has succeeded in managing the risks of global supply
chains throughout the COVID-19 pandemic, and so far we have not
experienced any significant disruptions or shortages. However, the
risk of disturbances in global supply and logistics chains
continues to be higher than usual, and we have taken various
measures to mitigate it, such as increasing the inventory levels of
products, raw materials and supplies clearly above their long-term
averages. Due to worldwide operational bottlenecks, the prices of
raw materials and logistics have increased, and the price pressure
continues. To our understanding, the difficult situation may
prevail for the next couple of years. For pharmaceutical companies,
the increase in costs is particularly challenging as raising
product prices is often not an option.
We have continued systematic work to build Orion’s future
growth. In summer we were in position to announce two tangible
achievements in this area, signing a European-wide marketing and
distribution agreement with the US company Marinus Pharmaceuticals
for ganaxolone, as well as an early stage research collaboration
and licencing agreement with Alligator Bioscience, a Swedish
company. Our geographical expansion in Asia-Pacific is progressing,
and we continue the search for product and business acquisition
targets.”
Outlook for
2021
(specified)
Orion estimates that net sales in 2021 will be slightly lower
than in 2020 (net sales in 2020 were EUR 1,078 million).Operating
profit is estimated to be lower than in 2020 (operating profit in
2020 was EUR 280 million).
Previous outlook for
2021 (provided on
9 February
2021)
Orion estimates that net sales in 2021 will be slightly lower
than in 2020 (net sales in 2020 were EUR 1,078 million).Operating
profit is estimated to be lower or clearly lower than in 2020
(operating profit in 2020 was EUR 280 million).
Basis for outlook in more detail
Collaboration agreements with other pharmaceutical companies are
an important component of Orion’s business model. Agreements often
include payments recorded in net sales and operating profit that
vary greatly from year to year. Forecasting the timing and amount
of these payments is difficult. In some cases they are conditional
on terms such as research outcomes which are not known until
studies have been completed, the progress of research projects or
the attainment of specified sales levels. On the other hand,
neither the outcome nor the schedule of contract negotiations is
generally known before the final signing of the agreement.
In 2020 Orion received a total of EUR 42 million in milestone
payments, most of these in connection with the commercialisation of
Nubeqa® in Europe and Japan (EUR 28 million in total) and the
transfer of distribution rights to Parkinson’s products to new
partners around the world. In 2019, Orion received a total of EUR
51 million in milestone payments, of which EUR 45 million in
connection with the commercialisation of Nubeqa® in the United
States. The net sales and operating profit estimates for 2021
include less than EUR 5 million of milestone payments, a
significantly lower figure than in the preceding years.
Orion estimates that its operating profit in 2020 was around EUR
40 million higher due to the impacts of the COVID-19 pandemic than
the Company estimated at the beginning of 2020. More than half of
this came from the increased international sales of dexmedetomidine
products and the rest from lower than anticipated expenses and
increased sales of other products. The outlook for 2021 does not
contain similar impacts due to the pandemic.
The outlook is based on the assumption that Orion’s own
production can continue to operate normally despite the COVID-19
pandemic. This requires, among other things, continued success in
employee protection so that absence rates do not significantly
increase, that personal protective equipment, starting materials,
intermediate products and materials are available and that there
are no material disruptions in the logistics chains.
The outlook does not include any income or expenses associated
with possible product or company acquisitions.
Net sales
Orion continues persistent actions to generate growth more
rapidly than growth of the market in the long term. However, in
2021 net sales will be negatively affected by significantly lower
milestone payments than in the previous years, generic competition
and expiration of a major distribution agreement in the Animal
Health unit. In addition, the COVID-19 pandemic significantly
increased the demand for some Orion products in 2020, but similar
added sales beyond normal demand are not anticipated for the same
products in 2021, which negatively affects net sales in comparison
with 2020. Following the pandemic and various pandemic-related
restrictions, the demand for some product groups, such as products
used for treatment of common seasonal flu, has been below
normal.
Sales of Orion’s Dexdor® and Simdax® will decrease due to
generic competition. In 2020, the sales of Dexdor® remained at the
previous year’s level due to the increased demand caused by the
COVID-19 pandemic, but in 2021 its sales are expected to
decline.
Nubeqa®, the drug developed by Orion in collaboration with
Bayer, received marketing authorisation in the United States in
2019 and in the EU and Japan in 2020. Nubeqa® has now been approved
in several other countries as well, and marketing authorisation
application filings in other regions are underway or planned by
Bayer. The outlook anticipates that the net sales of Nubeqa® booked
by Orion will clearly increase in 2021. Orion’s estimate is based
on forecasts received from its partner Bayer. The
sales of the Easyhaler® product portfolio is estimated to be at the
previous year’s level. However, some uncertainty is associated with
the estimate, one of the reasons for this being that the market
situation of dry powder formulations of pulmonary drugs has
deteriorated in Europe owing to the effects of the COVID-19
pandemic. The sales of Orion’s branded Parkinson’s drugs (Comtess®,
Comtan® and Stalevo®) are estimated to remain at the same level as
in the previous year.
The Scandinavian distribution agreement between Orion’s Animal
Health unit and the animal health company Zoetis, in effect for
several years, terminated at the end of 2020. As a consequence, the
net sales of Orion’s Animal Health unit in 2021 will decrease
clearly from the previous year. Distribution of Zoetis products
contributed around EUR 28 million to Orion’s net sales in 2020.
Sales of generic products account for a significant proportion
of Orion’s total sales. Decline in the price of generic drugs and
availability disruptions due to causes other than the COVID-19
pandemic have impacted Orion’s net sales negatively in the past few
years. However, the combined negative impact of price decline and
product shortages is estimated to be clearly smaller in 2021 than
in the previous years. The demand for some generic drugs sold by
Orion exceeded normal levels in 2020 due to the COVID-19 pandemic,
but the demand for these products is estimated to return to a more
normal level this year, negatively affecting net sales development
in 2021 in comparison with 2020.
The outlook for 2021 includes under EUR 5 million in milestone
payments, which is clearly less than what was booked in 2020 (EUR
42 million) or 2019 (EUR 51 million).
Operating profit
Orion anticipates clearly lower milestone payments in 2021 than
in 2020, and the Company’s net product sales are expected to
decrease slightly from 2020. Operating profit will also be affected
by declining sales of the proprietary products Dexdor® and Simdax®
due to generic competition. Growing sales of products like Nubeqa®
will not be able to compensate for the resulting decline in
operating profit. Orion therefore estimates that operating profit
will be lower than in 2020.
The adjustment in the specified outlook for operating profit is
mainly due to operating expenses, which will be lower for the full
year than estimated at the beginning of the year. Now Orion
anticipates that operating expenses will be slightly lower than in
2020. Previously, expenses were estimated to be at the previous
year's level. Depreciations related to the acquisition of sales and
distribution rights for the Parkinson’s drugs were booked for the
final time in 2020, and this will reduce sales and marketing
expenses by around EUR 12 million. At the same time, increasing
investments are made in the sales and marketing of products that
are experiencing growth. Expenses that saw a decline due to the
COVID-19 pandemic are anticipated to return to a more normal level
in the last quarter of 2021. R&D expenses are estimated to be
at a similar level or slightly lower than in 2020.
The Group’s total capital expenditure in 2021 will be more than
in 2020, when capital expenditure was EUR 49 million. A
contributing factor to the total volume of investments is the
acquisition of the European-wide marketing and distribution rights
of ganaxolone, in the context of which Orion paid Marinus
Pharmaceuticals Inc. a signing fee of EUR 25 million. Orion has
launched a project to renew its enterprise resource planning (ERP)
system, and renovations of the Company head office in Espoo have
also commenced in 2021. Most of the investments in these projects
will materialise in 2022–2023.
Near-term risks and uncertainties
The outlook is based on the assumption that Orion’s own
production can continue to operate normally despite the COVID-19
pandemic. The sales of Orion-manufactured products depend on the
ability of production and the entire supply chain to operate at the
planned level. This involves numerous pandemic-related risks that
may cause even material production disruptions. Such risks include
the infection of employees, poor availability of personal
protective equipment, supplies, equipment and spare parts,
deteriorating availability of starting materials and intermediate
products as well as logistics chain disruptions.
In the course of 2020, as the agreement with Novartis expired,
Orion transferred the distribution of the Parkinson’s drugs
Stalevo® and Comtan® to new partners in most non-European markets
with the exception of Japan. Orion started to sell these products
on its own in Singapore, Malaysia and Thailand and continues to
sell them in Europe. These changes, as well as continued generic
competition affecting sales negatively, have been factored into the
outlook for the current year. However, they still entail
uncertainty that may affect the accuracy of the estimate. The basic
patents for Dexdor® and Simdax® have expired and generic
competition on these products has begun. In 2020, the COVID-19
pandemic strongly increased the demand for intensive care
sedatives, and therefore the sales of Dexdor® decreased far less
than anticipated. Its sales are estimated to notably decrease in
2021, but this estimate is subject to uncertainty due to the
pandemic situation. Generic competition to Simdax® started in the
first markets in 2020. In 2021, net sales of Simdax® are estimated
to decrease, but it is difficult to make exact estimates of sales
at this point. Actual sales will be affected, among other things,
by the timing of the beginning of generic competition in the
various markets and the intensity of this competition.
Sales of individual products and also Orion’s sales in
individual markets may vary, for example depending on the extent to
which the ever-tougher price and other competition prevailing in
pharmaceutical markets in recent years will specifically focus on
Orion’s products. Product deliveries to key partners are based on
timetables that are jointly agreed in advance. Nevertheless, they
can change, for example as a consequence of decisions concerning
adjustments of stock levels. In addition, changes in market prices
and exchange rates affect the value of deliveries. The COVID-19
pandemic significantly increased the demand for some Orion products
in 2020, but similar added sales beyond normal demand are not
anticipated for the same products in 2021. There is uncertainty
around this estimate, since the path of the pandemic and its
impacts on the demand for Orion’s products are difficult to assess
with any precision. On the other hand, Orion is unaware of how much
of the stockpiles acquired by customers in 2020 are remaining and
when customers might start using inventories that exceed normal
stock levels. Due to the pandemic and various pandemic-related
restrictions, the prevalence of many seasonal illnesses has been
below normal, whereby the numbers of medical appointments and
prescriptions issued have also declined. Non-critical procedures
have also been postponed due to the pandemic. These phenomena have
negatively impacted the development of the entire pharma market. At
present, it is difficult to estimate how long the situation will
last or to what extent the eventual waning of the pandemic will
manifest as a release of any pent-up demand.
The structural exchange rate risk due to the US dollar has
decreased in recent years because the share of Orion’s net sales
invoiced in dollars has fallen to below ten per cent and at the
same time the value of purchases in dollars has increased. The
weight of the US dollar will increase due to increasing sales of
Nubeqa®. The greatest exchange rate risk at present relates to
European currencies such as the Swedish and Norwegian crown and
British pound. However, the overall effect of the risk due to
currencies of European countries will be abated by the fact that
Orion has organisations of its own in most of these countries,
which means that in addition to sales income, there are also costs
in these currencies. The exchange rate performance of the Japanese
yen is significant due to increased sales of Parkinson’s drugs in
Japan. The exchange rate effect related to the Russian rouble has
increased due to the strong volatility of the currency. However,
Russian sales are not a significant portion of Orion’s entire net
sales.
Orion’s broad product range may cause risks to the delivery
reliability and make it challenging to maintain the high quality
standard required in production. The impact of availability
disruptions on the Company’s net sales has increased in the past
few years. The ongoing COVID-19 pandemic has clearly ramped up this
risk, as restrictions on travel and other operations and the
increase in sick leaves in different parts of the world may cause
delayed disruptions in pharmaceuticals’ global distribution and
logistics chains. The disruptions, production volume changes and
logistical challenges in other industries may also have unexpected
and sudden ramifications that can manifest as shortages of
necessary raw materials, supplies and equipment in the chemical and
pharmaceutical industries and as increases in prices. The impacts
of the COVID-19 pandemic on the availability of Orion’s products
have not been significant in 2021, but the risk of poorer than
normal availability of products is still elevated and will remain
so in the ensuing quarters. Authorities and key customers in
different countries carry out regular and detailed inspections of
drug development and manufacturing at Orion’s production sites. Any
remedial actions that may be required may at least temporarily have
effects that decrease delivery reliability and increase costs.
Orion’s product range also contains products manufactured by other
pharmaceutical companies and products that Orion manufactures on
its own but for which other companies deliver active pharmaceutical
or other ingredients. Orion’s product range also contains products
manufactured by other pharmaceutical companies and products that
Orion manufactures on its own but for which other companies supply
active pharmaceutical or other ingredients and components or parts
(among these the Easyhaler® products). Possible problems related to
the delivery reliability or quality of the products of those
manufacturers may cause a risk to Orion’s delivery reliability. The
single-channel system used for pharmaceuticals distribution in
Finland, in which Orion’s products have been delivered to customers
through only one wholesaler, may also cause risks to delivery
reliability.
Research projects always entail uncertainty factors that may
either increase or decrease estimated costs. The projects may
progress more slowly or faster than assumed, or they may be
discontinued. Nonetheless, changes that may occur in ongoing
clinical studies, for example due to the COVID-19 pandemic, are
reflected in costs relatively slowly and are not expected to have a
material impact on earnings in the current year. Owing to the
nature of the research process, the timetables and costs of new
studies that are being started are known well in advance. They
therefore typically do not lead to unexpected changes in the
estimated cost structure. Orion often undertakes the last, in other
words Phase III, clinical trials in collaboration with other
pharmaceutical companies. Commencement of these collaboration
relationships and their structure also materially affect the
schedule and cost level of research projects.
Collaboration arrangements are an important component of Orion’s
business model. Possible collaboration and licensing agreements
related to these arrangements also often include payments to be
recorded in net sales that may materially affect Orion’s financial
results. In 2014–2020 the annual payments varied from EUR 5 million
to EUR 51 million. The payments may be subject to conditions
relating to the progress of research projects or sales or to new
contracts to be signed, and whether these conditions or contracts
materialise and what their timing is will always entail
uncertainties.
Webcast and conference
call
A webcast and a conference call for analysts, investors and
media will be held today on Wednesday, 20 October 2021 at 13.30
EEST. The event will be held only online and by conference
call.
A link to the live webcast will be available on Orion's website
at www.orion.fi/en/investors. A recording of the event will be
available on the website later today.
To participate the conference call, please dial:
Finland: +358 9 817 103 10Sweden: +46
8 566 426 51UK: +44 333 300 0804USA:
+1 631 913 1422
PIN: 49775482#
Upcoming events
Financial Statement
Release for 2021 |
Thursday 10 February
2022 |
Annual General Meeting
2022 |
Planned to be held on
Wednesday 23 March 2022 |
Interim Report
January-March 2022 |
Thursday 28 April
2022 |
Half-Year Financial
Report January-June 2022 |
Friday 15 July
2022 |
Interim Report
January-September 2022 |
Thursday 20 October
2022 |
The Financial Statements and the Report of the Board of
Directors for 2021 will be published on the Company's website at
the latest in week 9/2022.
Espoo, 20 October 2021
Board of Directors of Orion Corporation
Orion Corporation
For additional information about the
report:
Jari Karlson,
CFO
tel. +358
50 966 2883Tuukka Hirvonen, Investor
Relations tel. +358
10 426 2721 or +358 50 966 2721
www.orion.fi/en/investors
Publisher:Orion
Corporationhttp://www.orion.fi/enhttp://www.twitter.com/OrionCorpIR
Orion is a globally operating Finnish pharmaceutical company – a
builder of well-being. Orion develops, manufactures and markets
human and veterinary pharmaceuticals and active pharmaceutical
ingredients. The company is continuously developing new drugs and
treatment methods. The core therapy areas of Orion's pharmaceutical
R&D are neurological disorders, oncology and respiratory
diseases for which Orion develops inhaled pulmonary medication.
Orion's net sales in 2020 amounted to EUR 1,078 million and the
company had about 3,300 employees at the end of the year. Orion's A
and B shares are listed on Nasdaq Helsinki.
- Orion Group Interim Report 1–9/2021