The net sales of the Orion Group in 1-6/2001 came to EUR 475.3 million (EUR 464.2 million during 1-6/2000), up by 2.4%. Operating profit improved substantially from the level of the first quarter of the year, due to improved sales and the milestone payments received by Orion Pharma during the second quarter, and it came to EUR 47.5 million (EUR 46.8 million). Profit before extraordinary items and taxes was EUR 52.4 million, almost at the level of the previous year (EUR 52.8 million). The net sales of Orion Pharma grew by 8.1% and the operating profit came to the previous year's level. Oriola's net sales declined but the operating profit improved slightly. Orion Diagnostica's development levelled off from the previous year. Among the four business divisions of the Group, Noiro showed the best relative growth both in terms of net sales and operating profit, up by 9.8% and 67.2% correspondingly. The businesses of Orion Corporation Soredex and its US subsidiary, specialising in dental imaging systems, were sold to Instrumentarium Corporation at the end of June. Before the transaction, Finndent, a department of Soredex was divested through an MBO arrangement to Finndent's management.
In this report, the percentages showing the changes on the comparative period have been calculated from more precise figures than the published ones. The figures in the parentheses refer to the comparable ones for 1-6/2000. The figures for 1-6/2001 have not been audited.
Group net sales and profit
The net sales of the Orion Group came to EUR 475.3 million (EUR 464.2 during 1-6/2000), slightly up by 2.4%. The net sales from domestic operations declined by 5.5%, due to the structural change in Oriola's net sales in which the share of consignment trade has increased. The net sales from international operations grew by 15.0% (+9.9%). The best growth in international operations was shown by Noiro and Oriola.
Orion Pharma's operating profit, having declined considerably for the first quarter of the year, now recovered to the level of the first half of the previous year, thanks to improved sales and milestone payments received during the second quarter. The volume of exports, however, grew more slowly than estimated.
Oriola's operating profit grew in result of the favourable development of the Medical and Technical Sector. Also the wholesale activity in the Baltic countries showed some improvement. Orion Diagnostica's operating profit declined due to the declined sales of older infection tests. Noiro's operating profit grew substantially, thanks to the sales growth and successful cost management.
The net gains from ordinary financial operations declined from the corresponding period of the previous year. Group profit before extraordinary items and taxes declined slightly and came to EUR 52.4 million (EUR 52.8 million).
Financial income and expenses
The net gains from ordinary financial operations were EUR 4.9 million (EUR 6.0 million). Net interest earnings were EUR 3.1 million (EUR 2.8 million). Changes in foreign exchange rates had no impact on the profit for the review period (net loss of EUR 0.6 million). Net income from securities, including dividend income, were EUR 1.8 million (EUR 3.8 million). Dividend income was lower than in the previous year.
Development by Business Division
Orion Pharma's net sales came to EUR 230.5 million (EUR 213.3 million), up by 8.1% (down by 0.1%). Product sales progressed more rapidly than in the first quarter of the year, although international operations were still at a clearly lower level than estimated. Milestone payments received from marketing partners in the second quarter contributed considerably to the net sales growth. International operations, the milestone payments included, grew by 13.4% (+9.4%). International sales of human preparations were almost at the previous year's level. Orion Pharma's domestic operations grew slightly.
The profit improved after the poor first quarter, and the operating profit returned back to the level of the comparative period. Marketing efforts were concentrated on the heart failure drug Simdax (levosimendan), the Parkinson's disease drug Comtess (entacapone), the new hormone replacement therapy Indivina, and the Easyhaler asthma products.
The best-selling international products were Comtess/Comtan, the hormone replacement therapies, the breast cancer drug Fareston and the animal sedatives. The sales of products from Orion Pharma's own research pipeline came to EUR 62.1 million, corresponding to 26.9% of the division's net sales (EUR 61.1 million and 28.7%).
The combined sales of Comtess and Comtan came to EUR 25.8 million (EUR 26.1 million). The figures for the review period were no more affected by the partner's heavy pipeline-filling effects that were included in the comparative period's sales. Particularly in the US, the sales of Comtan to the patients have remained stable and they are still lagging notably behind the planned level. The same trend can be seen in the sales figures for the Southern European regions. In Orion's own marketing territories, however, the Comtess sales have continued to show good growth.
During the first half of the year, sales of the heart failure drug Simdax have only taken place in Sweden and Finland. In Sweden, where Orion Pharma launched the product in late 2000, the sales have grown steadily but slowly. During the latter half of the current year, Simdax will be launched in most of the countries that have recognised the Swedish marketing authorisation. Of these markets Orion Pharma's territory covers Norway, Finland and Iceland, while the marketing rights in Italy, Spain, Greece, Austria and Portugal are held by the US-based Abbott Laboratories. As already announced in April, the registration procedures for the product will be postponed by at least a couple of years in such major European markets as Germany, France and Great Britain.
The majority of the sales of Fareston (toremifene), for breast cancer, continued to take place in Japan with continued strong sales, whereas those to the US have remained modest.
Sales of hormone replacement therapies continued at the previous year's level. Sales of the new Indivina, allowing individually adjusted dosing, have been particularly positive in Finland and Sweden.
The sales growth of the Beclomet Easyhaler and Buventol Easyhaler inhalers containing asthma medicines have been steadily growing at a rate of 15%. The growth comes mainly from France.
The US sales of Precedex (dexmedetomidine), a sedative for patients in intensive care, have been relatively low. The royalties received from Abbott came to EUR 0.3 million.
In May, Orion Pharma entered into an agreement with Novartis concerning the marketing in Japan of the triple combination tablet that is under development by Orion Pharma for Parkinson's disease. The therapy combines levodopa, carbidopa and Orion Pharma's entacapone into one tablet. The rest of the world is covered by a marketing agreement closed already in 2000. The milestone payments in the review period comprise altogether EUR 14.1 million received in the second quarter from Novartis associated with the progress of the research of the triple combination tablet and the closing of the marketing agreement for Japan, as well as EUR 1.1 million received from Abbott Laboratories in the first quarter related to the start of the EU mutual recognition procedure of Simdax (no milestone payments were actual in 1-6/2000).
The Finnish market for human pharmaceuticals grew by 12.1% in January-June (11.2%). Orion Pharma's net sales from domestic operations now turned back to growth and came to EUR 96.7 million (EUR 95.3 million), slightly up by 1.5%. Sales of OTC products developed well, and, e.g., the sales of all the ten largest products were increasing. Particularly successful performance was shown by the Burana painkillers and the renewed skin care products. The sales of the current portfolio of prescription drugs are also increasing, Indivina and Comtess being particular growth generators.
Efforts to improve profits
are underway in Orion Pharma
When it became evident in early spring that particularly the US sales of the Parkinson's disease drug Comtan seem to be lagging distinctively below the desired level and that the registration of Simdax will be delayed in major European markets, Orion Pharma started to readjust operations to the new situation. Rearrangements have been made in the International Marketing and Sales organisation and responsibility areas have been combined. As a result, also the staff will gradually decrease by about 50 persons during the latter half of the year. The marketing strategy is being re-focused to concentrate the efforts of the own sales organisation on physicians specialising in Orion Pharma's core therapy areas.
The process of closing down three minor pharmaceutical plants in Finland is progressing. The production of large-volume parenterals in Oulu ended in June, and the still continuing activities related to pharmaceutical preparations will be run down by the end of January 2002. Manufacturing in Seinäjoki will end in August, to be followed by the Kemijärvi antibiotic plant in January 2002. The jobs of about 190 employees will end accordingly.
Oriola's invoicing, a figure that reflects its operational volume better than net sales, came to EUR 314.2 million (EUR 297.2 million), up by 5.7% (up 2.5%). Net sales were EUR 172.8 million (EUR 184.7 million), down by 6.5% (up 6.1%). The invoicing of pharmaceutical wholesale operations in Finland was approximately at the previous year's level, up by 1.1% (up 0.6%). The corresponding net sales, however, were down due to an increased share of principals whose distribution agreements are based on consignment trade. In these cases, only the distribution fee paid by the principal is included in the distributor's net sales. In the Baltic countries the development and the overall situation of pharmaceutical distribution has improved. Oriola's own branded healthcare products as well as the veterinary products have developed well. The year continued favourably also for the medico-technical business sector, not the least for Medion and Prolab who performed well both in terms of net sales and profits. The dental business in Sweden is still unsatisfactory, whereas business in Finland continued positively.
Orion Diagnostica's development continued at a slower pace than in the previous year. The net sales came to EUR 17.0 million (EUR 16.2 million), up by 4.3% (up 9.6%). Sales of the QuikRead CRP test for point-of-care detection of infections went on showing strong growth, whereas those of the Uricult test for urinary tract infections as well as the Dentocult test have decreased from the previous year. Operating profit declined.
Noiro's net sales rose to EUR 63.7 million (EUR 58.0 million), showing somewhat stabilised growth by 9.8% (up 11.0%). Sales have continued to grow rapidly in Finland and particularly in Russia, mainly thanks to Lumene as a whole but also Herbina in exports. Operating profit grew substantially.
Soredex business sold to Instrumentarium Corporation
With a transaction effective as of 1 July 2001, the dental imaging systems business Soredex and its subsidiary were sold to Instrumentarium Corporation, having until then been part of Oriola operationally. The transaction incorporated all business activities of Soredex and its US subsidiary Soredex Inc., and the related fixed assets and inventories as well as the receivables and liabilities. Also 165 employees of Soredex joined Instrumentarium under their previous terms of employment. Soredex' net sales in 2000 from dental X-ray imaging equipment were EUR 19.1 million.
With a management buy-out arrangement closed on 27 June 2000, the Finndent department of Soredex, specialising in dentists' chairs and dental care units, was sold by Orion Corporation to a new independent company. Along with the transaction, 11 employees joined the new owner. Finndent's net sales were EUR 3.2 million in 2000.
From now on, Oriola is only engaged in its core businesses, i.e. pharmaceutical wholesale and distribution and the marketing of healthcare equipment and supplies. The common nominator of these operations in Oriola is the company's deep knowhow of healthcare product logistics and the efficient management of the information related to the product flows and delivery processes.
The impact of the Soredex transaction on the Orion Group earnings will be presented in the extraordinary items of the Group income statement for 1-9/2001.
Gross investment came to EUR 34.1 million (EUR 26.7 million). Buildings accounted for EUR 9.7 million, machinery and equipment for EUR 15.1 million and other fixed assets for EUR 9.3 million.
The extension of the Fermion API plant in Hanko, Finland, was completed. The total acquisition cost of the plant that ensures the availability of the active ingredients for Orion Pharma's own drug discoveries, were about EUR 20.4 million, of which 3.6 million were actual during the review period. The construction of new research facilities at Orion Pharma's Turku site has started. The total acquisition cost is estimated at EUR 12 million, and the premises will be ready during the first half of 2002.
Two construction projects are underway in Noiro: the Farmos division is concentrating the manufacture of its institutional cleaning and hygiene products in Turku, where a plant extension project is progressing, budgeted at EUR 3.5 million. Another new plant is rising in Espoo enabling Noiro to double its present cosmetics production capacity. The cost estimate is EUR 18 million. Both plants will be completed in the summer of 2002.
Research and product development
Group expenditure on research and development, excluding financial contributions received, were EUR 38.9 million (EUR 36.0 million), or 8.2% of the consolidated net sales. Expenditure grew by 8.1%. Orion Pharma's R&D expenditure was EUR 35.4 million representing 15.4% (15.4%) of Orion Pharma's net sales. In the latter half of the year, the pharmaceutical R&D expenditure will increase considerably from the level of the first six months.
Pharmaceutical R&D projects
The heart failure drug Simdax (levosimendan) that was launched in Sweden in October last year, has received marketing authorisations so far in Finland, Austria, Norway, Greece, Portugal and Iceland. An additional European study is being prepaired. In the US, the first patients will be enrolled in the coming weeks to the additional, about 2-year-long Phase 3 clinical trial being conducted for a US new drug application of Simdax.
The studies with the triple combination tablet for Parkinson's disease are progressing to plan. In addition to the basic medication levodopa, the tablet contains entacapone, the active ingredient in Orion Pharma's Comtess, and carbidopa, both substances inhibiting the breakdown of levodopa.
The Phase 3 clinical trials with deramciclane in the treatment of anxiety disorders are progressing according to plan in ten European countries.
Of the two newer-generation substances formulated by Orion for the Easyhaler dry-powder inhaler, budesonide is still under registration in Germany. Phase 3 trials with formoterol, a long-acting bronchodilator, are underway.
The research program for developing a gel preparation containing Nestorone, a compound that mimicks progestin, has been discontinued, mainly because of commercial reasons.
By the end of June, the new hormone replacement therapy Indivina had received marketing authorisations in almost all EU countries.
During the review period, the average number of personnel in the Group was 5,549 (5,300). Orion Pharma's personnel has increased by about 200 persons, about half of which are engaged in R&D. Noiro's personnel grew by about 50, mainly in production.
Share capital and shares of Orion Corporation
The share capital of Orion Corporation is EUR 114.8 million, and the nominal value of each share is 1.70 euros. The minimum share capital is EUR 85.0 million and the maximum is EUR 340.0 million, and it can be increased or decreased within these limits without amending the Bylaws. The total number of shares in Orion Corporation is about 67.5 million and they divide among the series A and B. Both shares are quoted on the Helsinki Exchanges.
The board of Directors has no existing authorisation by the Shareholders' Meeting to acquire or sell the company's own shares, to raise the share capital or to issue a bond loan, convertible loan or option rights.
A shareholder can require the conversion of his A-shares into B-shares. In 1-6/2001, altogether 111,780 A-shares were converted to B-shares.
The year 1998 A-warrants released
The first half of the warrants, the so-called A-warrants, attached to the 1998 Bond Loan with Warrants programme for the entire personnel were released for trading on 2 May 2001. The A-warrants are publicly listed and quoted on the Helsinki Exchanges as of 2 May. On the basis of the A-warrants, altogether as many as 1,581,600 new Orion B-shares, the nominal value of each being 1.70 euros, can be subscribed for during 2 May 2001 - 30 April 2005, representing 2.3% of the total Orion share stock and 0.2% of the total votes. The current share subscription price is 28.91 euros. The share capital can increase by up to EUR 2,688,720 on the basis of the subscriptions based on the A-warrants. The B-warrants will be released on 2 May 2003 and their subscription period will also end on 30 April 2005.
New Warrants Programme 2001 to Group key persons
In May, the Board of Directors decided upon the allocation of the warrants of the new, Year 2001 Warrants Programme to 113 key persons of the Group, of which the share of persons engaged in the pharmaceutical research and development was emphasised. The programme was approved by the 2001 Annual General Meeting to be issued to the key persons of Orion Corporation and its subsidiaries and to a wholly-owned subsidiary.
Altogether 1,800,000 warrants are included in the programme, each entitling to subscribe for one (1) Orion B-share. For the warrants 2001A and 2001B, the current share subscription price is 28.91 euros and it will be decline by each future dividend paid per share before the date of subscription. For warrants 2001C the share subscription price will be the trade-volume-weighted average quotation of the B-share in the Helsinki Exchanges between 1 and 31 March 2002, and for warrants 2001D it will be the corresponding quotation between 1 and 30 September 2002.
The share subscription price of warrants 2001C and 2001D can only be reduced by possible extraordinary dividends per share that deviate from the company's normal dividend distribution policy.
The warrants issued now can be exchanged for shares constituting a maximum of 2.67% of the company's total shares and 0.25% of the total voting rights. The total share capital can increase by a maximum of 3,060,000 euros. The share subscription period will begin stepwise as of 1 October 2003 and it will end on 31 October 2007.
Outlook for 2001
In Orion Pharma, net sales of products are estimated to increase only slightly from the previous year. This is consequence of the marketing partner's flattening sales of the Parkinson's drug Comtan and the fact that the heart failure drug Simdax has not received marketing authorisations in all the major markets. Also, the sales of other products are levelling off.
Milestone payments based on current marketing agreements are anticipated to contribute a considerable addition to the net sales and the operating profit. Also completely new marketing contracts may be concluded during the latter half of the year. The operating profit will, however, be lower than that for the previous year, despite the measures being undertaken to adjust the costs to the new situation in Orion Pharma. Moreover, it should be noted that the research and development expenditure for the second half will clearly accelerate from the level of the first six months. The full-year R&D expenditure will, however, remain lower than earlier estimates.
Oriolas operating profit for the continuing operations is estimated to be at the previous year's level.
Noiro's operating profit is estimated to grow, whereas Orion Diagnostica's operating profit seems to be remaining at a lower level than in the previous year.
Consequently, the growth of the Orion Group net sales is estimated to slow down and the operating profit is estimated to be lower than in the previous year. Also net income from financial operations will decline.
Espoo, 8 August 2001
President and CEO
Executive Vice President, CFO
Jukka Viinanen, President and CEO, phone +358 10 429 3000
Pauli Torkko, EVP, CFO, phone +358 10 429 3711
The full report including tables can be downloaded from the enclosed link.