Oikein hyvää iltapäivää arvoisat katsojat ja tervetuloa seuraamaan Orionin tulosjulkistustilaisuutta katsauskaudelta tammikesäkuu 2022. Minun nimeni on Tuukka Hirvonen ja vastaan meillä Orionilla sijoittajasuhteista. Hetken kuluttua toimitusjohtajamme Timo Lappalainen esittelee katsauskauden tuloksen ja tämän jälkeen teillä on mahdollisuus esittää kysymyksiä hänelle sekä talousjohtaja Jari Karlsonille. Tämän tilaisuuden kieli on englanti, mutta kysymyksiä voi toki esittää myös suomeksi. Lisäksi myöhemmin tämän iltapäivän aikana Orionin nettisivuille tulee toimitusjohtajan suomenkielinen haastattelu katsottavaksi. Good afternoon ladies and gentlemen and welcome to Orion's half year financial report webcast and conference call. My name is Tuukka Hirvonen and I'm the head of IR here at Orion. In a few moments, our CEO Timo Lappalainen will present the results after which you will have the opportunity to ask questions from him and from our CFO Jari Karlson. We will first take questions through the conference call lines, and then we will turn to the questions you may type in through the question tool in the webcast broadcast. Kindly state your name and the organization you are representing before asking your question. Just before I let Timo step in, just a brief reminder about the forward-looking statements. Here they are. This presentation contains forward-looking statements which involve risk and uncertainty factors, and actual results may differ even substantially from those stated here today. However, Orion has no obligation to update or revise the information in today's presentation later on. Now, Timo, please, the stage is yours. Thank you, Tuukka, for the kind introductory words. Let's delve into the highlights of the first half 2022. Certainly it was, we had quite a flow of news events throughout this first six months. First we announced in the early part of the year that we will be focusing our research on oncology as well as on pain areas. Now this has now been completed and, of course we will see the fruit of that focusing in years to come as the progress of the various programs takes place and then finally enters the clinical and then to the commercial phase. We also concluded an arrangement whereby Orion has now access to a novel selective sodium channel blocker, which has been labeled as ODM-111 for the treatment of acute and chronic pain. The compound is not yet administered to men, but we expect that to take place soon. Also, recently we announced acquisition of animal health company VMD, which has the main operations in Belgium as well as in France. That's how Orion also accessed the broader sense livestock market as well as gained access to a production facility that is dedicated to animal health. Company board has announced my successor. Dr. Liisa Hurme has been appointed to the President and CEO effective first of November, and we all wish her luck and success in her new position. This week, Orion and MSD announced a global development and commercialization agreement for ODM-208 and related pathway compounds. Orion received as a part of this arrangement an upfront payment, substantial $290 million of which $228 million was recognized or will be recognized in third quarter this year. In terms of the operating environment, Orion through the hard work of the various colleagues around the globe has been able to mitigate the supply chain risks so far. However, we expect that the cost inflation will start to be felt more at the later part of this year and then potentially more 2023. Of course we all know that the world is today very volatile in respect to the inflation and various prices on commodities. The key set of numbers, the net sales for the first half we were up by 6% also on the operating profit up by 5% on the operating profit margin we set ourselves a target threshold for 25%, so we were north of that. In terms of the cash flow, there we were behind last year and one of the reasons there is the capital that has been tied in in working capital. The waterfall, how did we land here? When we look at the last year we've told you throughout the year that the Simdax and Dexdor are facing generic competition and certainly we lost business there mainly due to the pricing. Now Nubeqa, of course, being still in the early phases of its launch, and we are all eagerly waiting for the new indication, is ramping ahead, as well as is Easyhaler, our product for treating asthma as well as COPD. Also our other products did well. Now the exchange rate accumulated had an impact of EUR 15 million for the first half. In terms of the operating profit, certainly driven by the product sales, we took a hit on the margin product mix, and of course the previously said Simdax, Dexdor have an impact as well as the declining price level for generics. Again, of course, exchange rate had an impact on the milestones. What we also seen is that in terms of the activity in various parts of the organization has picked up after the slowdown of pandemic, and we see the marketing cost, of course, being one of those elements. Also, Orion is investing in the new information system, so that is part of that fixed cost increase. In terms of the geographies, of course, we are happy to note that all but one region actually recorded a positive development, and even in North America, we were very close, par with the previous reporting timeline. When we look at the different businesses, how we report the sales, so specialty products, our largest business was up as well as was proprietary business. Animal health was behind last year. This has more to do with the timing of shipments to our large partners as well as discontinuation of one arrangement that dealt with the local Finnish market here. Pharmacy are pretty much at par with last year. Now, the league table of our products, the Easyhaler franchise, continues to plow ahead and is our largest single franchise today. Also our Parkinson's disease product line doing nicely, as of course is, as said, Nubeqa. Simdax is down as well as is the Dexdor of our original compounds. Then the animal health sedatives were down for the period, but this has more to do with the timing aspects. Now, if we move more to the key products in proprietary side, there, actually, if I'll just browse through the Nubeqa. Here for the convenience of you who follow the company, we have now split our sales with regard to Nubeqa in two components, hopefully to make this more transparent to you to follow. As we've always said, our sales to Bayer, those actually are a combination of two aspects. One is the royalty, and the other one is the product sales. To make things a little bit more complicated, whatever we ship in terms of the product this quarter, that will be subtracted from the royalty payment on the following quarter. That's why it is actually longer term trend line that one should focus on, not on any given single quarter. Easyhaler, I said, you know, plowing ahead and has done a nice comeback after the slowdown, what we experienced during the pandemic. That is doing very well. Also, when we look at the Parkinson's franchise, of course, this is a long-term disease, and the patients who have been stabilized with the product typically tend to stay with the product for a while. Here we see that it is over the longer period, it is a fairly stable product. Now, the Dexdor and Simdax story, Dexdor story we've discussed several times early on, so it had the uptake during the pandemic, then it came down, and I think now the trajectory that we are seeing is somewhere that we've expected, and there are multiple players, generic players in that market today, and certainly we've seen the price decline. In terms of the Simdax, also this is slowly starting to experience the generic competition. It is not in full force yet, but there are already a number of generic offerers in the marketplace, and subsequently we've seen that impact in our numbers. I'll turn over to specialty products. This is the product category in our books that contains OTC prescription products, so both of these categories. When we look at the markets, the key markets for us are Finland and Scandinavia and certain Eastern European countries. With all of these territories, we've seen that there was a positive gain for the period. Of course, the business is heavily tilted toward Finland as we see more than 50% of the business is today in Finland. Growth in both segments, so in both prescription side as well as on the self-care side. Good going there, despite the fact that we've seen also heavy discounting continuing in that generic side. When we look at the largest single country market for our generic business, it is Finland, and the reference price product, the entire market went down by 6% as it is reported, and Orion's business went up by 11%. They're a little bit skewed here with how these are presented, but I think this gives a very good proxy that our volume share certainly was up for the first six months compared to the market. When we look then at the overall market, our reference price product market share increased to 25%. We remained at 25% at the self-care end of the overall human market, we were at 11%. I'll move on to the research and development. Here we see that of course based on the ARASENS trials, Bayer has submitted an indication expansion, and that is currently under the regulatory phase. We have also another trial looking to expand the patient population, ARANOTE, and that is currently recruiting. Earlier this week, we announced a global partnership with MSD relating to ODM-208 that is also indicated for prostate cancer. This collaboration, of course, has been announced in a separate fashion and also that meant that we upgraded our outlook for this year. We have ongoing also our program for ODM-105. What we've said is that the tiotropium that we will complete that trial and the following Easyhaler programs, those will be wound down. As always, we take sustainability very seriously. Here is a snapshot of our sustainability report of 2021. You know, how did we do? We tried to condense a very thick document in one slide, giving you a little bit of the perspective in terms of our progress against the targets. As you see, you know, it's not all green. We have still work to be done here, and of course, all of these are moving targets. I encourage you to take a look at that 'cause there's a lot of good material that has been chewed. It is also something that we present in a very open manner. I encourage everyone to take a look at that. However, if we look at some of the highlights, we have been very successful in ensuring the supply of medications. Of course, it all starts from there. However, in terms of patient safety, and we look here also at withdrawals from the marketplace, you know, there is always room for improvement in terms of the quality. We are well on our way to carbon neutrality by our own operation by 2030. There is still work to be done for taking care of our own, and this is a measuring yard or stick that we put in the ground for lost time incidents. Unfortunately, we did not meet that goal. When we look at the ethics part in our business there, we have been able to achieve our goals. We put these four boxes, so patient safety, environment, taking care of Orionees, and ethics. These are the areas that we are focusing Orion's resources and work in terms of the sustainability, because that's where we think we can generally make an impact. When we look at also the business targets, so apart from the numbers, some of the highlights that we have told you that it would be good to take a look at that, how we are performing against these targets. Of course, the Nubeqa sales, we are all following that very closely, so that is moving on green. Easyhaler, the similar fashion. In-licensing of new products, we've achieved already some of that, but of course, we are looking continuously. Furthermore, one M&A, we can tick that, so that is in our animal health business. ODM-208 development and commercialization that was announced this Wednesday, so this is hot off the press, this green color here. In terms of launching the phase III trial for ODM-208, we've decided with MSD that we will expand the ongoing phase II trial, and then later based on that, decide the phase III clinical trial program. That will not take place this year. Taking one new program to clinical development, ODM-111. Our pain program is likely to be one of those, we'll see later on this year. Of course, that was also part of the new collaboration agreements that we were able to license in to complement our own research and discovery. Our renewed outlook that we gave out on Wednesday. We estimate that net sales as well as operating profit will be clearly higher than in 2021. The basis for this, the upgrade, certainly the upfront payment on both sides, both in net sales, operating profit is substantial. Of course, Nubeqa is also contributing that to that in the long run and is an important part. The acquisition of VMD, the animal health operation certainly increases our net sales. As we've said, the Simdax and Dexdor, those are products that the general erosion is dragging down, also on the profitability side. Of course, the cost inflation that everybody everywhere is today seeing that is part of the package that nobody is immune to that, including Orion. We expect that the price competition in generics would continue. We will see, you know, how that will evolve. Are we close to seeing the bottom of that? That we will see in the next interim releases. As said, many of the activities are actually returning back to the pre-COVID levels, and we are again able to invest in sales and marketing and expanding our business in that sense. The next scheduled event is our third quarter report on October 20. That's what we are planning for as the next one. Then we also today released our schedule for next year's releases as well as the AGM. At this time, I invite our Chief Financial Officer, Jari Karlson, to join me here at the podium, and we are happy to take any of your questions. As Tuukka here said, we would first take the questions from the webcast lines and conference call lines. Sorry, Tuukka, correct me here correctly. Then we will take the questions from the chat box, and Tuukka will kindly moderate those. Please. Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two to cancel. The first question comes from the line of Jo Walton at Credit Suisse. Please go ahead. Your line is open. Thank you. Just a couple of questions. Firstly on ODM-208. So the clinical study record was updated earlier this year in April, pushing out the primary completion from October to December with an anticipated enrollment of 112 patients, which didn't change. Now you're telling us that you're still recruiting patients. Could you give us an idea of how many additional patients you would look to recruit and whether this pushes out the results, is it the first half or the second half of 2023? My second question would be, I'm assuming then that you will need a phase III unless you tell us that there's a very high level of additional patients in phase II. But my second question is a simple one. Where in the P&L will we see the RUB 12 million non-cash benefit of the ruble revaluation that you say impacted the operating profits? My final question is, a more philosophical one I guess. Just wondering on your thoughts of the level of the upfront that was received from Merck, how much of that you think should be retained for business development and how much could be handed back to investors perhaps as an enhanced dividend in 2022? Thank you. Well, thank you very much. Excellent questions. Let me take the first couple and then Jari can address the Forex question. The decision or the protocol modification has not been submitted yet for the extension of the ongoing phase II trial to include further patient population in that. Unfortunately, that's too early to discuss. However, that would also be too early to give you an indication when the data lock would be open. However, we expect that the extension top line would be available in the course of 2023. Unfortunately, cannot give you a better answer in that. Furthermore, certainly today the view is that a phase III program would be certainly needed. I don't think anybody's banking on anything else. Should that not be the case, of course, we would then inform the market on that. You wanna take the ruble question? Yes. The exchange rate gained from the ruble, they are shown as net sales. They are also part of the product sales. When we go to the appendices, they are not allocated to any of the businesses. They are the reason why the other shows a number this case. Normally the other would be very close to zero. Now because of these FX gains, there's also a number for product net sales is the answer. Of course, ruble was not the only where we got some gains because euro has weakened against U.S. dollar, so we have some other currencies benefiting as well the second quarter numbers, but the ruble was the key reason for the very high FX gain. The excellent philosophical question on the capital allocation. Certainly when we look at the history of the company, of course, the company is known to be shareholder friendly. However, we have also very openly said that we are looking for external opportunities, and if one now looks back on the past, you know, 14- months or so, we've acquired a product from Marinus, one that is very close to the market. We've cut the deal with Jemincare for the earlier part, and now also made an acquisition of an animal health business, so we're looking at all of these tools available. However, we also have fairly stringent financial criteria, so the- We do not expect that the money would burn a hole in our pockets. We look at that very rationally. I'm sure the board will also look at that very rationally, but it's too early to give you any guideline on that, how we think. Also, of course, depends how various opportunities present themselves. Other than that, I think I would defer at this stage. Thank you. You can't tell us roughly how many additional people you are looking to recruit above the 112 that are in the original protocol? I'm sorry. The renewed protocol has not been submitted. I don't want to take any position on that because we will do that jointly with MSD. Thank you very much. Thank you. Our next question comes from the line of Sami Sarkamies of Danske Bank. Please go ahead. Your line is open. Okay. I have several questions starting from ODM-208. Can you talk about the partnering process? Did you have multiple options to choose from? What led the selection of MSD as the partner? How likely is it that ODM-208 will be investigated for also other indications than prostate cancer? Well, typically in these type of processes, you have also a number of candidates coming from different perspectives, so we did also in this case. Of course, MSD is well known and globally known to develop compounds programs for in the area of oncology and also prostate cancer. Of course, their capability and resources also in the commercial side are well known. That made, of course, the weight towards MSD. Of course, there are also many other elements that one has to take into account. Initially, the phase II is focused on metastatic prostate cancer, and that is the initial indication. As we all know, any oncology product is typically you look at for various patient populations and various stages of the underlying cancer. That is too early to take any position on that at this stage. I would probably defer that to a later stage when we have, you know, a little bit more data, including the phase II data. Okay. Continuing with your outlook assumptions, if you can look at certain product areas, for example, Stalevo sales were up by 9% in the first half, but you're expecting stable sales during the full year. Easyhaler sales were up by 17% in the first half. You're expecting only slight increase in the full year. Specialty product sales were up by 6% in the first half, but you're expecting only similar sales. Are you being overly cautious with these assumptions, or how do you justify your views? Well, I think question is very valid. Of course, in today's environment, the instability that we see across the board in all of our markets, including the behavior of the payers or the potential behavior there, of course, is one of those aspects. In terms of Stalevo, there are. However, the first half and second half are not going to be equal. We already know that there are some shipments, some of our partners who have taken more material in the first half than they are likely to take in the second half. In terms of the Easyhaler, the uptake has been very good. There are, of course, part of the Easyhaler business is based on tendering type of arrangements. Should there be a positive surprise there, we are happy to take that. Were we overly cautious when we put the 5% mark there? Maybe in the early part of when we look at the last year, of course, it was a disappointing start, so we are happy with that. In SPP, in the generic side, the problem there is also pricing. We know that in most of the markets the pricing cycles are very short. The largest market here in Finland, the pricing cycle is three months, but we also have markets where the pricing cycle is shorter. So that makes the estimation a little bit difficult, 'cause if you don't make it within the pricing cycle, you may be out in totality. That's the overall. We don't have any magic stick here. This is the best scenarios that we've been building on. Okay, thanks. That's very helpful. I would have a couple of housekeeping questions. Firstly, you did record EUR 1 million earn out from the earlier divestment of Diagnostica. Would you still be eligible for further earn outs or was this all you will ever be able to get? Secondly, could you elaborate on which areas of the business the EUR 4 million milestone payments were related to in Q2? Okay. The earn-out, that was it. We're done with regard to the divestment. Of course, we have a close relationship with the operations because they operate in the real estate that Orion owns, but that's a separate thing. But as far as the final consideration, now we are done with that. Not the entire, but the timing of a certain restructuring of our arrangement related to Easyhaler product in a certain territory. Okay, thanks. I don't have any further questions. Thank you. We have one further person in the queue, so just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. The next person is James Vane-Tempest at Jefferies. Please go ahead. Your line is open. Yes, hi. Thanks for taking my questions. I have three if I can, please. Firstly, you talk about inflationary trends sort of picking up the back end of this year into next year. Just wonder if you can give us a little bit more clarity where you're seeing that and what you can do to mitigate that and the magnitude of those inflationary pressures, please. Second question, just on your guidance, just to clarify, can you confirm that the guidance change this week was just purely due to the milestone or were there any changes in underlying assumptions that went into that? And then my final question is just on Nubeqa. I appreciate that there's sort of an element of kind of catch up in terms of adjusting the royalty for supply, etc, quarter-over-quarter, but it does seem to be quite a big dynamic shift this quarter in terms of the magnitude of the product supply and the royalty. I was just wondering if there's any clarity you can give us or color on that. Is it a case of the markets stagnating in terms of why the royalty is much lower? Is there a particular reason why the supply to your partner was much higher? I know there's very limited you can say in the terms of your partnership, but if there's any market clarity you can give us, that'd be really helpful. Thank you. Okay. Excellent. I'll take off first the inflation and then probably guidance and Nubeqa maybe Jari can reply to those. In terms of the inflation, maybe the most visible that we see today is in energy prices. Of course, pharmaceuticals per se is not the most energy intensive industry there is, with the exception of the active material, 'cause that's genuine chemical operation. Of course, there we are seeing the price hikes in energy cost. In terms of the consumables or raw materials, intermediates, there we are seeing that as well, but it's probably the overall impact is probably less material to us than would be in case of energy. The third item where we've seen multiple fold of increases is actually in transportation. Also in pharmaceuticals, typically transportation is not a very significant item. It's more that you actually get the capacity. Of course, everybody are now looking for a more economical way to ship the product. Air freight is commonly used, but of course, today you're also looking at the sea freight. Furthermore, of course, one aspect that we've lacked that is difficult in pharma is the price hikes. As we do not sell directly in the U.S. or in markets where there were free pricing, that is, of course, the little bit of the headache for the entire sector as the prices are controlled. Of course, we are in two segments where the prices are not controlled by the pricing boards or various regulators. One is OTC, then the generic business as far as it is pure tender business. I mean, there is no price regulation. There are only rules how you tender products. Of course, the animal health product where the competition takes care of this. Energy prices, of course, we are looking how we can make our operations more energy efficient, and we have multiple of such investments going on. On the raw material in intermediates and so forth, there is actually little that you can do. You can source from multiple producers, but you're pretty much stuck with the ingredients that you have in your dossiers or in your products. In terms of the shipments, of course, you try to use the most economical transportation means that makes sense. Jari Karlson, you wanna take the guidance and the Nubeqa question? Yes. Well, the reason for the upgrade was purely the MSD milestone. There has not been anything in our base business which would have triggered this type of a outlook change. Of course, all the time business changes a little bit, but the changes were not to the magnitude that they would have caused any reason to upgrade the guidance. To the difficult question of how the Nubeqa shows up in our net sales. Basically if one starts from the actual market sales, there the sales Bayer is doing is developing as planned. They are growing and there are no dramatic monthly variations. That baseline is kind of stable. But then what causes the variability is two things. First, for one reason or another, which we cannot really control, Bayer is not buying the same quantity of product every month and every quarter. As you can see from those slides, there is actually quite a lot of variability in their buying patterns. We cannot really answer on their behalf why there are such big fluctuations in there. That is causing. The third element is that since we only get the royalty calculations after the quarter has ended, during the quarter, we base our royalties on certain type of estimates on how the sales might end up looking and that of course also then causes certain variability when we then, after the end of the quarter, receive the final calculation and then of course correct the royalty accruals we had in the previous quarter. That plus then the variability of the tablet deliveries to Bayer caused the variation. Like Timo already explained in his presentation that the value of the shipments like in the second quarter of this year are then deducted on the royalties of the third quarter. Of course, that deduction finally takes place only when we receive the final calculation of the second, third quarter royalties during the fourth quarter of this year. During this quarter, again, we are basing the royalty calculation on assumption of the market sales and then paying around what we already shipped during the previous quarter. It's a kind of a complicated calculation, unfortunately. Hopefully in the longer run, when the volume starts growing in the market and the business continues to grow, the volatility on the monthly and quarterly shipments becomes less and, of course as a consequence of that also the volatility in how our sales look like. Long explanation, but it's fairly complicated also I can assure you internally to do these calculations. Thank you for the color. Much appreciated. Thank you. We've just had one further question come through on the phone. That's from Jo Walton at Credit Suisse. Please go ahead. Your line is open. Sorry, just one follow-up clarification on the Merck deal that you have done. You were asked about the background to it, and you said how fantastic Merck was in terms of being in oncology and prostate cancer, but of course that would also apply to Bayer. Just checking to see that, and I don't know how you'd say this anyway, but there's been no breakdown in your relationship with Bayer such that you chose to go with an alternate partner, or did you feel that it was important to have diversification in your partners, given the importance of the partner to driving the revenue that you will need? Just finally, again, I'm afraid on this Merck & Co transaction, if just to understand how the relationship could develop, so Merck & Co paid you a substantial upfront, and does that get them 50% of the rights to the product? Just what does that actually buy them? You say that they could take an exclusive, so they have the right to trigger that. They can say, "Right, we want to do it all ourselves. You, Orion, can't do any of it." Has that got to be a simple negotiation between the two before that turns into a simple royalty relationship? Many thanks. Okay. Thank you. No, I mean, this is by no means any vote of non-confidence to Bayer. They are highly respected and extremely important partner to ourselves. That was never a consideration that we would deliberately want to diversify our base, our partnerships. This is how it ended and, unfortunately, I cannot comment who the other party is or if there were some parties that were mentioned here, it's that we are all bound by confidentiality. In terms of how the split of the business, the development and commercialization is performed, no, MSD have the majority share of both future revenues, profits as well as costs of that. Actually, the way the release was worded is that both parties do have the option to convert the arrangement to an exclusive one, and then, with the subsequent financials that we did not disclose at this time, with the exception that Orion manufactures the product in either case. Thank you. Thank you. As there are no further questions from the phones at this time, I'll hand the floor back to our speakers. Thank you. Currently we have no questions from online. Now all the online viewers, if you have any questions, now is the right time to type them in. We will wait for 20- seconds or so, and if there is no further questions coming from online, then we can wrap this webcast up and everybody gets to go home on a sunny, hopefully at some point sunny Friday afternoon. It seems that we do not have any questions online this time. Timo, please, you may wrap up the session. Well, thank you very much, everybody, for joining this call. Do appreciate your interest in the company, and we welcome you to join again in October. In the meanwhile, please enjoy the summer and stay safe.