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.
In addition, both the net sales outlook and the operating profit outlook include a EUR 60 million item which Orion will release from the balance sheet in Q3 2024 after Orion and MSD exercised an option in July 2024 to convert the companies’ co-development and co-commercialisation agreement for opevesostat (MK-5684/ODM-208), an investigational CYP11A1 inhibitor, and other candidates targeting CYP11A1 into an exclusive global license for MSD.
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 fof a strongly growing product for the whole year. In addition, the EUR 70 million Nubeqa®-related milestone is expected to increase the net sales of the Innovative Medicines business division. The net sales of the business division increases also due to the EUR 60 million item to be released from the balance sheet in Q3 2024.
The 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 the sedatives portfolio, products in launch phase and improving market conditions.
The 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 recent years. The overall volume of generic products is expected to grow. Due to the aforementioned reasons, the net sales of the Generic and Consumer Health business division in 2024 is assumed to be at a similar level as in 2023.
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, the EUR 60 million item to be released from the balance sheet in Q3 2024, 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 of a strongly growing product for the whole year. Any variance from the predicted level can have a 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.
Sales and marketing expenses are expected to increase mainly due to growing investments to the Easyhaler® sales and increasing Nubeqa® royalty payable as per 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.