Orion Group Interim Report January–March 2024
ORION CORPORATION INTERIM REPORT
1-3/2024
25 APRIL 2024 at 12:00 EEST
Orion Group Interim Report January–March
2024
- Net sales totalled EUR 308.5
(January–March 2023: 277.9) million
- Operating profit was EUR 56.0 (55.5)
million
- Basic earnings per share were EUR
0.31 (0.31)
- Cash flow from operating activities
per share was EUR 0.78 (0.03)
- The outlook for 2024 has been
specified regarding operating profit: Operating profit is estimated
to be EUR 280 million to EUR 310 million. Previously operating
profit was estimated to be EUR 270 million to EUR 310 million.
Key figures
|
1-3/24 |
1-3/23 |
Change % |
1-12/23 |
Net sales, EUR million |
308.5 |
277.9 |
+11.0% |
1,189.7 |
EBITDA, EUR million |
68.5 |
67.7 |
1.2% |
326.4 |
% of net sales |
22.2% |
24.4% |
|
27.4% |
Operating profit, EUR million |
56.0 |
55.5 |
+1.0% |
274.9 |
% of net sales |
18.2% |
20.0% |
|
23.1% |
Profit before taxes, EUR million |
54.9 |
55.1 |
-0.4% |
271.9 |
% of net sales |
17.8% |
19.8% |
|
22.9% |
Profit for the period, EUR million |
43.8 |
43.8 |
-0.1% |
216.8 |
% of net sales |
14.2% |
15.8% |
|
18.2% |
Research and development expenses, EUR million |
36.8 |
31.7 |
+16.1% |
126.9 |
% of net sales |
11.9% |
11.4% |
|
10.7% |
Capital expenditure, excluding acquired in business combinations,
EUR million |
13.1 |
18.1 |
-27.6% |
92.7 |
% of net sales |
4.2% |
6.5% |
|
7.8% |
Acquired in business combination, net of cash, EUR million |
|
0.0 |
|
0.1 |
Interest-bearing net liabilities, EUR million |
6.4 |
110.8 |
-94.2% |
93.3 |
Basic earnings per share, EUR |
0.31 |
0.31 |
-0.2% |
1.54 |
Cash flow from operating activities per share, EUR |
0.78 |
0.03 |
> 100% |
0.85 |
Equity ratio, % |
48.8% |
56.9% |
|
62.3% |
Gearing, % |
0.9% |
15.2% |
|
10.5% |
Return on capital employed (before taxes), % |
22.8% |
22.0% |
|
25.3% |
Return on equity (after taxes), % |
21.9% |
21.4% |
|
24.1% |
Average personnel during the period |
3,673 |
3,546 |
+3.6% |
3,599 |
President and CEO Liisa Hurme: Year
started well with strong topline growth
"In January–March 2024, our net sales increased by 11 percent to
EUR 308.5 (277.9) million and operating profit was EUR 56.0 (55.5)
million. All our business divisions contributed to the solid growth
of net sales and the formation of operating profit. Nubeqa® and the
Easyhaler® product portfolio continued to be the largest drivers of
growth, but delightfully also many other sources contributed to the
growth. Generics and Consumer Health business division's reported
net sales were slightly down from the comparative period, but if we
exclude dexmedetomidine products and Simdax®, which are facing
increasing generic competition, and Russia, where in the
comparative period we cleared our remaining inventories before
withdrawing from the market, the net sales trend was positive.
Operating profit was at the level of the comparative period, due
to a planned increase in expenses. Many ongoing research and
development phase projects are progressing which explains the
increase in research and development expenditure in the first
quarter. Later this year, R&D expenditure growth is expected to
accelerate as we enter planned Phase II studies with our pain
molecule ODM-111. It is also worth noting that the bulk of R&D
costs are allocated to the development of new innovative medicines
and clearly lower share is allocated to the development of other
products such as generics and animal health products. Nubeqa's
royalty structure, with royalty levels starting at the lowest tier
each calendar year, means that in the coming years a larger
proportion of Orion's annual earnings will always likely to be made
in the second half of the year. In addition, the EUR 70 million
milestone payment related to the sale of Nubeqa®, included in our
outlook this year, is expected to be realised towards the end of
the year.
Cash flow from operating activities was strong as expected in
January–March 2024. The cash flow includes, among other things, the
EUR 30 million milestone payment related to Nubeqa® recognised last
year and the majority of the cash flow impact of the transfer of
the insurance portfolio of Orion Pension Fund's B Fund. In
addition, the cash flow generated by Nubeqa's product sales and
royalties, for example, was clearly better than in the comparative
period.
In line with our refined strategy announced earlier this year,
and with positive growth prospects, we want to allocate more
capital to building Orion's future, and in particular to advancing
and growing Orion's own R&D pipeline. However, we will increase
our spending in a controlled manner, guided by our financial
objectives. Over the period 2024–2028, we want to grow net sales by
an average of at least 8% per year, grow operating profit faster
than net sales and pay an increasing annual dividend to
shareholders, with an annual dividend payout ratio of 50–100%.
These objectives provide us with a financial framework within which
we can increase our prudent growth efforts.
Of the projects in clinical development, the Phase I study with
ODM-111 was completed during the period and we are now preparing to
start Phase II studies with the molecule, first in acute pain and
later in chronic pain. The expected news flow also includes the
completion of the phase III ARANOTE study with darolutamide later
this year.
The political strikes in Finland at the beginning of the year
have added to the challenges facing Orion's supply chains, which
have already been affected by geopolitical tensions in the Middle
East, among others. The strikes did not have a material impact on
Orion in the first quarter of the year, thanks to good inventory
levels and Orion's agility in finding alternative supply
routes.
All in all, the year has started well and even slightly better
than we expected. As a result, we have also slightly specified our
outlook for operating profit for 2024."
Outlook for 2024 (specified)
Net sales are estimated to be EUR 1,340 million to EUR 1,410
million.
Operating profit is estimated to be EUR 280 million to EUR 310
million.
Previous outlook for 2024 (provided on 13 February
2024)
Net sales are estimated to be EUR 1,340 million to EUR 1,410
million.
Operating profit is estimated to be EUR 270 million to EUR 310
million.
Basis for outlook in more detail
Collaboration agreements with other pharmaceutical companies are
an integral part 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 R&D outcomes which are not known until studies
have been completed, the progress of R&D projects or the
attainment of specified sales levels. Regarding possible new
contracts under negotiation, neither the outcome nor the schedule
of contract negotiations is generally known before the final
signing of the agreement.
Orion is eligible to receive milestone payments from Bayer based
on sales of the Nubeqa® product upon meeting certain global annual
sales thresholds for the first time. In 2023 Orion received one
such milestone payment of EUR 30 million. The outlook for 2024
includes one Nubeqa® sales-related milestone payment of EUR 70
million which is included in both the net sales outlook and the
operating profit outlook. The outlook does not include any other
material milestone payments or one-offs.
The outlook assumes that Orion's own production and other
operations will be able to operate normally throughout the year,
and the supply chains of raw materials or ready-made products are
not facing significant disruptions. These and other risks are
discussed in more detail under 'Near-term risks and
uncertainties'.
The outlook does not include income, expenses or other impacts
related to any future material product or company acquisition or
divestment.
Milestone payments received by Orion in
2019–2023
Year |
2019 |
2020 |
2021 |
2022 |
2023 |
EUR million |
51 |
42 |
3 |
234 |
32 |
Net sales
The outlook assumes that the net sales of Nubeqa® booked by
Orion, and thus the net sales of the Innovative Medicines business
division, will clearly increase in 2024. Orion’s assumption is
based on forecasts received from its partner Bayer. However, it is
difficult to predict the exact level of product sales and royalties
for the whole year of a strongly growing product. In addition, the
EUR 70 million Nubeqa®-related milestone is expected to increase
the net sales of the Innovative Medicines business division.
Branded Products and Animal Health business divisions are also
estimated to improve their net sales in 2024. Branded Products
growth is anticipated to be driven by the Easyhaler® product
portfolio. The sales of entacapone products are assumed to recover
somewhat after challenging year 2023. At the same time, however,
the market conditions for the entacapone products continue to be
tough with increasing competition and declining prices in many
markets, and as a result, the sales of the entacapone products are
anticipated to be flat in 2024. Animal Health growth is anticipated
to be driven by sedatives portfolio, products in launch phase and
improving market conditions.
Generics and Consumer Health business division continues to
suffer from the decline of Simdax® and dexmedetomidine products due
to generic competition and falling prices, but less than in the
recent years. Overall volume of generic products are expected to
grow but at the same time prices are expected to decline. Due to
the aforementioned reasons, the net sales of the Generic and
Consumer Health business division is assumed to decrease slightly
in 2024.
Fermion has been operating at very near full capacity over the
past few years. The share of manufacturing of the active
pharmaceutical ingredients of Orion's own proprietary drugs is
estimated to increase, which may restrict capacity allocated to
external business.
Operating profit
Gross profit is expected to increase clearly driven by growing
Nubeqa® royalties and the anticipated EUR 70 million
Nubeqa®-related sales milestone.
The range in the operating profit estimate is mainly due to
Nubeqa's sales booked by Orion and the development of R&D
costs. It is difficult to predict the exact level of royalties for
the whole year of a strongly growing product. Any variance from the
predicted level can have notable impact on Orion's operating
profit. Also, the mechanism by which each quarter's product
deliveries are always fully deducted from the next quarter's
royalty payments, is causing variance to operating profit. Even
though this impact on operating profit is only temporary, the
timing of product deliveries may have notable impact on Orion's
operating profit in one calendar year.
Over the past few years, Orion has been determined to increase
its investment in early-stage research in line with its growth
strategy. This work is now starting to bear fruit and several
projects are approaching the clinical development phase.
Progressing these projects will also require significantly higher
R&D expenditure than in the past. At the same time, projects in
the clinical development phase have advanced and will advance
during 2024, which will increase project costs. However, there are
uncertainties related to the progress and timing of projects, which
may mean that not all the costs projected for 2024 will
materialise. Currently Orion is not booking any costs related to
the development of ODM-208 and thus the outlook does not include
any ODM-208 related R&D costs.
Sales and marketing expenses are expected to increase mainly due
to growing investments to the Easyhaler® sales and increasing
Nubeqa® royalty payable due to an agreement with Endo
Pharmaceuticals.
Capital expenditure
The Group’s total capital expenditure in 2024 is expected to be
at a similar level as in 2023, when capital expenditure was EUR 93
million. The estimate of capital expenditure does not include any
investments related to any future material product or company
acquisition.
Near-term risks and uncertainties
The outlook assumes that Orion's own production and other
operations will be able to operate normally. The realisation of
sales of Orion-manufactured products requires that production and
the related supply chains and other operations are able to operate
at the planned level. There are a number of risks that could even
materially disrupt Orion's production or other operations. Such
risks include, for example, accidents, strikes, employee illness,
poor availability of supplies, equipment, spare parts, products,
energy, starting materials or semi-finished products, and the
failure of logistics chains or serious disruptions to information
or communication systems. Current risks to supply and logistics
chains include geopolitical conflicts and unrest around the world.
In addition to conflicts and unrest, any other unforeseen changes
in the operating environment could cause disruptions to Orion's
production, supply chains or other operations. Such risks may
include accidents, strikes, natural disasters, epidemics and
pandemics, wars, terrorism, cyber-attacks or hybrid
influencing.
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. Changes in pharmaceutical regulation in
individual markets or more broadly, for example at EU level, may
affect the sales and profitability of Orion's products. Changes in
overall market demand may also have negative impact on sales.
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.
Currently no single currency is posing a material exchange rate
risk for Orion. In Orion’s total net sales, the share of invoicing
in US dollars has fallen to around ten per cent. 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®. Other
key currencies that carry an exchange rate risk are European
currencies other than EUR. However, the overall effect of the risk
arising from currencies of European countries will be abated by the
fact that Orion has organisations of its own in most European
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 sales of Parkinson’s drugs
in Japan.
The current geopolitical conflicts and unrest, and other
challenges in the global supply and logistics chains of
pharmaceuticals have increased the already elevated risk of supply
disruptions. Moreover, the disruptions, production volume changes
and logistical challenges experienced 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 possible rise of raw material prices and other supply chain
costs deteriorates the profitability of Orion's products, since in
the pharmaceuticals industry it is very difficult to pass on cost
increases to the prices of own products, especially prescription
medicines, particularly in Europe. If high cost inflation occurs,
it will pose a risk to Orion's profitability.
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 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 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 size and
costs of new studies that are being started are known relatively
well in advance. However, there are uncertainties in the timing and
progression of any individual study. Any changes in the timing of
new research or development phases that are being launched may have
a material impact on the projected cost structure within a single
year. 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. 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. The upfront
and milestone payments paid by Orion to its collaborators, which
are recorded as investments in intangible assets in balance sheet,
include write-down risk that may be realised if, for example, a
collaborative research project fails or otherwise has to be
discontinued.
Webcast and Conference Call
A webcast and a conference call for analysts, investors and
media representatives will be held on Thursday, 25 April 2024 at
13.30 EEST.
A link to the live webcast is available on Orion's website at
www.orion.fi/en/investors. A recording of the event will be
available on the website later the same day.
Conference call can be joined by registering through the
following link:
http://palvelu.flik.fi/teleconference/?id=10011670
Phone numbers and the conference ID to access the conference
will be provided after the registration. In case you would like to
ask a question during the conference, please dial *5 on your
telephone keypad to enter the question queue.
Questions can also be presented in writing through the question
form of the webcast.
Upcoming events
Half-Year Financial
Report January–June 2024 |
Thursday 8 August
2024 |
Interim Report
January–September 2024 |
Tuesday 29 October
2024 |
Espoo, 25 April 2024
Board of Directors of Orion Corporation
For additional information about the
report:
Jari Karlson, CFO, tel. +358 50 966 2883
Tuukka Hirvonen, Investor Relations, tel. +358 10 426 2721 or
+358 50 966 2721
www.orion.fi/en/investors
Publisher:
Orion Corporation
http://www.orion.fi/en
http://www.twitter.com/OrionCorpIR
Orion is a globally operating Finnish pharmaceutical company – a
builder of well-being. We develop, manufacture and market human and
veterinary pharmaceuticals and active pharmaceutical ingredients.
Orion has an extensive portfolio of proprietary and generic
medicines and self-care products. The core therapy areas of our
pharmaceutical R&D are oncology and pain. Medicines developed
by Orion are used to treat cancer, neurological diseases and
respiratory diseases, among others. Orion's net sales in 2023
amounted to EUR 1,190 million and the company had about 3,600
employees at the end of the year. Orion's A and B shares are listed
on Nasdaq Helsinki.
- Orion Interim Report Q1 2024
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