ORION CORPORATION
INTERIM REPORT 1–9/2021
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 wasEUR 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).
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
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-
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.
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
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
Outlook for 2021 (specified)
Orion estimates that net sales in 2021 will be slightly lower than in 2020
(net sales in 2020 were
Operating profit is estimated to be lower than in 2020
(operating profit in 2020 was
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
Operating profit is estimated to be lower or clearly lower than in 2020
(operating profit in 2020 was
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
Orion estimates that its operating profit in 2020 was around
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
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 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
The Scandinavian distribution agreement between Orion’s
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
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
The Group’s total capital expenditure in 2021 will be more than in 2020, when capital expenditure was
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
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
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
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
Webcast and conference call
A webcast and a conference call for analysts, investors and media will be held today on Wednesday,
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:
PIN: 49775482#
Upcoming events
Financial Statement Release for 2021 | Thursday |
Annual General Meeting 2022 | Planned to be held on Wednesday |
Interim Report January- | Thursday |
Half-Year Financial Report January- | Friday |
Interim Report January- | Thursday |
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,
Board of Directors of
For additional information about the report:
www.orion.fi/en/investors
Publisher:
http://www.orion.fi/en
http://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
Attachment
- Orion Group Interim Report 1–9/2021
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