Orion Oyj (ORNBV) Earnings Call Transcript

Good afternoon, and greetings from sunny Helsinki. Welcome to Orion's Half Year Financial Report January-June 2026 Conference Call and Webcast. My name is Tuukka Hirvonen, and I'm the Head of IR here at Orion. In a few moments, our CEO, Liisa Hurme, will go through the results and key events of the reported period, after which you will have then the possibility to ask questions in the Q&A session from Liisa and also from CFO, René Lindell. [Operator Instructions]. We will start with the conference call lines and then turn on to the webcast chat. For our Finnish viewers information that there will be a Finnish speaking interview of CEO, Liisa Hurme available on Orion's Internet page later this afternoon. And just before letting Liisa to take over a brief reminder about the forward-looking statements in the presentation. And with these words, it's my pleasure to hand over to Liisa.

Thank you, Tuukka, and good afternoon on my behalf as well. We have once again delivered a strong quarter. Our net sales growth accelerated and also profitability improved during Q2. This was driven by [ Nubeqa ] royalties and product sales and also our branded product in research and development, we reached several key milestones especially with [ ODM 212 ], and I will discuss that molecule later on in more detail. In Q2, our net sales increased by 25%, totaling EUR 522 million and operating profit increased by 69%. Being -- 34%, resulting in 34% of per EUR 8 billion, and earnings per share was EUR 1. And of course, in our net sales development, innovative medicines was the main driver by EUR 95 million. But also when we look at branded products and the size of the Branded Products division, EUR 10.3 million is a significant growth rate. All the other businesses were more or less on par. And on operating profit, the volume increased our profit by [ 17], the volume growth increased our profit by EUR 17.3 million. Again, royalty is playing a key role here by close to EUR 77 million. We have also finalized the liquidation of our Russian operations and the cost of that, the final cost of that liquidation, EUR 3.3 million is included now here in other expenses. And fixed cost, [ EUR 15 million ] is according to our plan as we widen and progress our research and development pipeline, accelerate our sales. And part of it also in the sales and marketing costs include the increase of the royalties to [ Endo ] as the [ Nubeqa ] sales performed well. And now I move to the first half of this year from January to June, a very much similar type of figures here. Growth or the increase by 22%, totaling of EUR 939 million during the first 6 months of EUR 1 million and with operating profit margin of 31%. And earnings per share, EUR 1.64. And innovative medicines, which clearly is the driver for the growth. Here, we can see Q2 numbers on the left and then the first half in the middle and it's really more than 60% growth, both on the quarter 2 and during the first 6 months. Royalty is playing the biggest role and then smaller share of other services to our partners. Figure with the columns on different orders where we can once again underline the dynamics of the [ Nevakar ] royalty growth for Orion or income grow to Orion. It's very, very back-end loaded during 1 financial year. If you look at here, the Q1 '26 and compare it to this previous quarter, Q2, a significant increase in royalties, but also in tablet deliveries to [ Bayer]. I think we've also previously stated that the tablet deliveries may vary between the quarters. And this -- Branded Products Q2 was strong, as I mentioned, almost 13% growth compared to the previous year's Q2. The biggest increase came in percentage was in women's health with our [ Divina ] product range replacement therapy. [ Easyhaler ] franchise grew 7% and there, the combination product put aside for [indiscernible] contributed. CNS growth was -- it was actually decreasing. The net sales was decreasing slightly due to the price changes or price decrease in some of our global markets -- and maybe quarter 2 previous year's quarter 2 annual give us year. The decline line, a very slight decline here comes from the generic risk. Encryption drugs as the consumer health products actually are growing with a healthy percentage. I can't resist to say here that probably not include the legacy product, the generic business growth was 2%, a very healthy growth percentage for a generic business in Europe. And we've also made a license agreement for new biosimilar for European rights of [ nivolumab ] with [ Shilpa], a partner that we are already developing products, but now we have a new biosimilar. And we are expecting to launch that in 2030. Animal Health had a bit more tough quarter in Q2. But let's remember that the previous year's Q2 was, if not all-time high, but exceptionally high. So the comparison period was tough. And it's always a question of deliveries to our partners in this business. And when you look at then the first half of this year compared to the previous one, it's minus 2.4%, and we are expecting the growth to accelerate towards the rest -- latter part of the year. We've also received very, very good news, an approval by FDA for a new product called [indiscernible]. The molecule is [ tacipimidine]. It's an oral solution for the anxiety and fear in dogs, especially if they go to the strange places or they need to experience new conditions and we expect our partner to start commercial sales in mid-'27. And [ Fermion], external sales here almost 20% growth in Q2 and 17% during the first half of the year. Here, the delivery timing is all. So these are big quantities that we sell to our business-to-business customers. So we can clearly see that the first half of this year has been very busy in that front. And we had -- and I'm sharing this since there has been also news in Finnish by the Finnish broadcasting company and here in Finland in news that there was a water damage at one of the Permian plants on [ Hanko ] site last week during the summer maintenance period, and we are fully recovering from that water damage and all the activities are implemented as we speak. And based on our current understanding, this will not have a material effect or impact to Orion or any disruption to continuity of our key products and then product list tells the same story as the therapy areas or other divisions, but product by product. I'm not going to go that through in detail. But I think the key message on this slide is clearly that now already in Q2, innovative medicines is the biggest division in Orion. Generics being the second biggest and branded products, the third biggest division. Our clinical development pipeline has stayed the same from the previous Q1 report. So no new projects included or no new stages entered. We already reported last time that we have studied the combination study with our TD inhibitor [indiscernible]. And now most of the readouts for these studies are actually in '27 or '28 like for [ Nubera ] studies and [ operesostat ] studies. But we are expecting [ LEVEL ] study by 10x to be read out during the latter part of this year. And I already mentioned ODM 212, and let's look at it in -- let's look at that molecular in a bit more detail. So ODM 212 is a DT inhibitor, and we develop it for certain cancers. It has 2 different mechanisms that we can use for the benefit of cancer patients. The one has to do with the hip pathway and some cancers are driven the tumor growth is driven by this [indiscernible]. So with this [ TEATinhibitor ] which binds to the transcription factors, we can actually limit the growth of the tumor in these certain cancers. And currently, we are studying mesothelioma and EH. And these are very rare cancers where there is no specific treatment exactly for these cancers. So if we can find a solution for patients, it would be really great and based on our Phase I results, we strongly believe so. The other part of the story for ATD inhibitor is that it can also prevent the resistance for some currently used cancer medication because it also limits some of the mechanisms that cells can develop to circumvent, for example, immune checkpoint inhibitors, chemotherapy or cross [ KRAS ] inhibitors. And here, we talk about different cancer types like pancreatic cancer, non-small cell lung cancer and also on [ mesothelin]. So there are 2 ways to use T inhibitor, specifically for a certain cancer that is driven by this [ hiperpathway ] or trying to prevent the resistance for currently used cancer medication. So this far, we have carried out Phase I study as a monotherapy using only [ 12 ] and we've seen very promising results on the efficacy. Of course, those are very early signals in mesothelioma and [ EE ] and also, we have seen a very good side effect profile. We know that in oncology, sometimes even a bit rougher side effect profile is approved. But here, we really can see that it's very well tolerated. And based on these results, which we actually announced in ASCO this year, we started a Phase II study for mesothelioma and EHG -- and this study is currently ongoing and expected to read out in late '27. Based on this monotherapy study with [ ODM-201], we also initiated a combination study with some of the usually used drugs as the ones that I already mentioned, for pancreatic cancer cell, non-small cell lung cancer and mesothelioma. And as we think that we have a potentially best-in-class IT inhibitor in our hands, we also believe that if this study is successful, we can solve many problems that are related to the resistance of current medication, and this could become a drug of choice to be combined with those medications. We've also received orphan drug designation in U.S. and Europe for mesothelioma. And that, of course, validates our belief that this is a very, very important study an important drug for patients. And the combination study results and the study is a Phase Ib/II study as we are also trying to find a suitable dosing for these combination studies before we go seamlessly to the Phase II. So this study readout is in '29. Now to a very, very different topic, sustainability. Orion was listed, I think, for fifth or sixth time now as one of Europe's climate leaders by financial time this year. And I think this graph speaks for itself, as you can see how our emissions have decreased year-by-year. We started the program early on many, many years ago. And in 2019, we changed and switched fully to clean electricity, carbon-free electricity. And then we've also done many, many different activities to be -- to reach our goal -- we have changed from crude oil in our steam production first to gas, then electricity, we have local heat stations in our campuses where we use the energy heat coming from our manufacturing facilities for the whole campus and we are also carrying out many different type of renovations to be as carbon neutral as possible. We also understand that there is a way to go. And finally, I think the last piece of this will -- then the last piece of the emissions will then be compensated in the end. And today, we specified our outlook for this year. This is another quarter -- another strong quarter. So we thought that this is the place to do it. So we actually hiked up the lower range in our outlook by 50 million. So now the range for net sales is from EUR 2 billion to EUR 2.1 billion, and the range for our EBIT operating profit is from EUR 650 million to EUR 750 million. And here, you can see our upcoming events next time where we will be reporting in late October and then the full year report of '26 will be in the middle of February. I thank you for your attention.

Thank you, Lisa, for the presentation. And now it's time to open up the floor for questions. As I mentioned in the beginning, we will start with the conference call lines, but please do remember that you can also type in your questions by using the webcast chat function. But with this, I would like to hand over to the operator for the first questions, please.

[Operator Instructions]. The next question comes from Shan Hama from Jefferies.

Just 2 for me, please. Firstly, could you provide some color as to the big increase in tablet sales for back -- is it a good proxy for the remainder of the year? And then secondly, are you able to disclose which point during the quarter you reached the highest royalty tier and what the rate or at least the range of the rate is? Thank you very much.

I'll start and I'll let René to continue then on the royalty rate. So your question was on the tablet deliveries. And there is nothing kind of -- no secrets here, nothing strange there. It's really, as we've stated, we delivered tablets as based, of course, to Bayer's forecasts. Sometimes the deliveries and manufacturing campaigns just are timed in our manufacturing so that there is a bigger bunch of tablets sent out during 1 quarter. But then if it's a 1-day miss, then the deliveries and big numbers are seen on the next quarter. So of course, the trend overall will be growing. The tablet deliveries will be growing. But there will still be maybe a variation between the quarter. So I think that's not a very good, how would I say, a key indicator for the future growth to look at it from 1 quarter to another quarter, if you want to estimate the growth of the Nubeqa at the marketplace. And maybe, René, if you want to say something about the royalty rate?

Yes. And to continue the tablet sales. Of course, we always have the maintenance break in our factories during the summertime. And of course, before that, we try to also build in a little bit more of shipments and those went out now nicely at the end of quarter. So you saw this big jump tablet sales. But as Liisa said, it's not necessarily a change in either direction depending on how the big shipments go out. And then on the royalties, unfortunately, we can't disclose anything more further on that when it comes to the timing. We said that it was reached during Q2 the maximum tier. We haven't also disclosed what the maximum percentage are, but I'm sure you can be able to get to a reasonable range when you compare the numbers.

The next question comes from Iiris Theman from DNB Carnegie.

Hello, this is Iiris Theman from DNB Carnegie. I have several questions, and I'll take them one by one. So basically, the first one, what was the reason behind your guidance upgrade? And was it trade mainly by your Q2 performance? Or have you also upgraded your estimates for H2?

Yes. Thanks, Iiris, for the question. Of course, I mean, when we look at the first half of the year, we are having a good momentum, especially with Nubeqa. And we think that, that momentum will continue in the H2. And for that reason, we, of course, look at the whole full year situation, and that led us to upgrade the lower boundary of the range higher. And as we saw that, that lower boundary of course, the probability to land in there started to be very low in our scenarios.

Okay. And then secondly, sales of Divina increased a lot. Were there any difficulties with peer supplies that increased demand?

Thank you, Iiris, for the question. If I heard right, you are asking about the other company's supply. Did I get it right?

Well, exactly.

Thanks. Yes, we've seen and heard that there are actually some products, some patches that there is a stock out in the Nordic countries. And what we've seen actually during this year and even last year is, on average, 40% growth of Divigel, our Divina product portfolio, maybe even above 40% you could speculate that the additional maybe slightly under 10% could be a result of stock-outs of some other hormone replacement therapies. Because patients really have to go to see a doctor to get a new prescription for another product. So it's -- you can't really do the change at the pharmacy. So it really needs to go via a doctor. But clearly, it is a treatment that needs to be continued. So I could imagine that we see some of our growth or some of -- some of that stock out is -- can be seen in our growth.

Okay. And is that going to be still an issue in Q3?

Well, that's a very difficult question. I don't really know about the other companies' production capabilities. But as I said, we've seen a constant growth of around 40% for individual even without this competitor stock out. So I would estimate that the growth will continue even in the second half of this year at that rate, at least.

And thirdly, what is your current plan for ODM 212? Do you plan to develop it yourself? Or are you looking for a partner for Phase III study?

A very good question. Currently, we are not looking for a partner. We are running our studies, the Phase II by ourselves and our plan is to run the Phase III also by ourselves, especially for the monotherapy but also hopefully for the combination therapy. So there is no -- there are no plans currently to look for a partner.

And my final question is regarding tariffs. So what are your current expectations for this year? Regarding the impact from tariffs and what you assume for next year?

Well, I think, René could.

Yes. So the latest is that we assume that there will be tariffs for innovative pharma from Europe in the last quarter of this year or starting from beginning of October. And we have also in our forecast some impact for that, not a big one for this year. But of course, next year, with 4 full quarters if that impact comes, then of course, then it's a larger one in then, we have to see then how that is impacting us. But of course, there is also some we have to see how it's calculated in the end. So I think that's also something which haven't been tested. But so far, I mean, this year impact is small next year, a bit bigger. And hopefully, it will not be a significant one, but we'll have to see how it develops.

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

I've asked a couple of questions. We'll also be taking this one by one. Starting from Nubeqa. Firstly, you said that deliveries were on the high side in the second quarter, are you suggesting that we will see lower deliveries in the third and fourth quarters relative to the second quarter level?

Well, I think that's a fair assumption. In every year that in Q3, we do have the maintenance break. So there is at least 1 month. The maintenance break is usually even 4 to 6 weeks. So there is less manufacturing during the Q3. So that's usually less deliveries as well. But then again, in Q4, we are usually fully geared on. So then you might see this fluctuation again between the quarters.

Okay. And then I'm wondering, did you make any accounting catch-ups related to Nubeqa sales that you estimated in the first quarter of the year?

I mean, it's always there is some corrections that we do on a monthly basis. But I mean, we're not disclosing how much we correct on a monthly basis.

Exactly.

But typically, these are not very big. So we have a pretty good understanding and estimates on a monthly basis.

Okay. So probably nothing material in the second quarter, but maybe on the positive side.

Well, I said, nothing to comment on that side.

Okay. Then I was wondering about the firm incident in [ Hongo], you're not estimating any material financial impacts, but just curious could we see changes to, let's say, normal seasonality, for example, that you would not be able to deliver full volumes in the third quarter yet. So could this have like timing impacts, if we think about the rest of the year? Do you see a risk for additional costs -- and when do you expect to restore the production volumes in full?