The net sales of the Orion Group in 1-3/2002 came to EUR 235.7 million (EUR 231.0 million in 1-3/2001), change +2.1% (-2.5%). Operating profit was EUR 23.2 million (EUR 14.3 million), up 62.4% (-55.2%). Operating profit was better than anticipated, due to the increased net sales and profit of Orion Pharma in the period. Group profit before extraordinary items and taxes was EUR 24.6 million (EUR 17.7 million), change +39.1% (- 49.5%). Earnings per share after taxes were EUR 0.24 (EUR 0.17), and shareholders' equity per share was EUR 9.22 (EUR 8.87). An agreement concerning the acquisition of the majority ownership in Kronans Droghandel AB as well as a Letter of Intent concerning the establishment of a drug development company in cooperation with Quintiles were major events after the review period.
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 1-3/2001. The figures for 1-3/2002 have not been audited.
Group net sales and profit in 1-3/2002
The net sales of the Orion Group came to EUR 235.7 million (EUR 231.0 million in 1-3/2001), up by 2.1% (-2.5%). Net sales of the continuing operations grew by 5.5%. The flat growth was due to the further increased proportion of consignment trade in Oriola's net sales. Group net sales from continuing international operations came to EUR 105.3 million (EUR 88.3 million), up by 19.2% (-0.4%) due to favourable development in Orion Pharma, Oriola and Noiro. Domestic operations declined by 3.4% (- 4.5%), reflecting the impact of Oriola.
Operating profit was EUR 23.2 million (EUR 14.3 million), and it grew by 62.4% (-55.2%) from the exceptionally low profit of the comparative period. The figure was better than planned, mainly due to the greater than expected net sales and operating profit of Orion Pharma in consequence of larger than normal deliveries of Comtan to the marketing partner Novartis. The net sales and profits of the other business divisions were largely in line with the plans.
Group profit before extraordinary items and taxes came to EUR 24.6 million (EUR 17.7 million), change +39.1% (-49.5%). Extraordinary items comprise earnings from the divestment of the subsidiary Hiven Oy in January, as well as the loss of the sale of real estate in Kemijärvi.
Net income from financial operations was EUR 1.4 million (EUR 3.4 million). Net interest earnings were EUR 1.2 million (EUR 2.2 million). Exchange rates caused a net loss of EUR 0.1 million (net profit of EUR 0.1 million). Net income from securities, including received dividends, were EUR 0.3 million (EUR 1.1 million). Dividend income and earnings from sold assets were lower than in the previous year.
Annual General Meeting of Shareholders on 15 April 2002
The dividend for 2001 is 1.10 euros per share, as decided by the Annual General Meeting of Shareholders on 15 April 2002. The dividend was paid on 25 April. The total amount of dividends, EUR 74.3 million, is included in the current liabilities in the Balance Sheet.
The AGM also approved the amendments to the Bylaws as proposed by the Board of Directors. The amendments will signify remarkable changes in the corporate governance of Orion, as the Supervisory Board was abolished. The Board of Directors and the Chairman are now elected by the General Meeting of Shareholders, for a term of twelve months. Eight members were elected to the Board: Erkki Etola, Heikki Hakala, Petteri Karttunen, Eeva Kölli-Jäntti, Juhani Leikola, Tuomo Lähdesmäki, Heikki Vapaatalo and Matti Vuoria. Professor Juhani Leikola was elected Chairman.
The AGM also authorised the Board of Directors to decide upon the acquisition and conveyance of the company's own shares on the terms proposed by the Board.
Events after the review period
Dr. Risto Miettunen started as President for Orion Pharma as of 1 April 2002.
On 12 April, Orion and Quintiles Transnational signed a Letter-of-Intent to form a joint venture company for the further development of selected proprietary drug candidates from Orion Pharma's research pipeline. Orion and Quintiles will have a non-controlling minority interest in the venture while international investors will be offered an opportunity to invest the majority of the total capital. The company will be based in the U.S. and operations are targeted to start in the third quarter of 2002. For the start, Orion Pharma will offer up to five investigational compounds to be licensed by the new venture.
Merck KGaA of Germany and Fujisawa of Japan shifted the distribution of their pharmaceuticals in Finland to Oriola at the start of the year, and Ferrosan of Denmark as of 1 April. In February, Oriola started as the pre-wholesaler for Aventis' exports to Russia.
Under an agreement concluded on 11 April, Orion will acquire 58% of the shares in Kronans Droghandel AB, a Swedish pharmaceutical distributor. The completion of the transaction, the price of which is around EUR 61 million, is subject to the approval of competition authorities as well as the fulfilment of certain other terms in the agreement. When completed, Orion's stake in KD will rise to 69 percent and Orion's foothold in the Nordic pharmaceutical distribution market will strengthen notably. KD is the second- largest pharmaceutical distributor in Sweden with a market share of 47%. Its share of the Finnish market is over 20% while that of Oriola was 32% in 2001.
Development by Business Division in 1-3/2002
Orion Pharma's continuing operations generated altogether EUR 118.8 million in net sales (EUR 105.5 million) whereby they grew by 12.6% (declined 3.7%) from the corresponding period of the previous year. No milestone payments were received in the review period (EUR 1.1 million in 1-3/2001). Product sales increased, particularly those of products from the own research pipeline.
International operations grew by 24.1% (-8.2%) to EUR 72.1 million (EUR 58.1 million), contributing 60.7% (55.0%) of Orion Pharma's total net sales. The own marketing network generated EUR 26.6 million or 37% of the international operations.
The Finnish market for human pharmaceuticals grew by 5% in January-March. Orion Pharma's corresponding net sales were EUR 44.0 million (EUR 43.8 million) and the market share was 13%. Net sales from over-the-counter medicines were EUR 15.1 million (EUR 15.2 million), while prescription drugs came to EUR 28.9 million (EUR 28.6 million).
Operating profit for Orion Pharma came to EUR 14.9 million (EUR 5.0 million) whereby it clearly exceeded the plans for the first quarter. This was consequence of increased sales but also somewhat lower research and marketing expenses than estimated for the period. For the current year, a considerably higher investment in research and development has been planned than that for last year, most of which will be consumed for the vast Phase 3 clinical studies with the anxiolytic deramciclane and the heart failure drug Simdax in the U.S. and Europe. The research expenditure grew by 51.1% from the comparative period to EUR 24.7 million, representing about 20% of the net sales.
The exclusive marketing and distribution rights for the hormone replacement therapies Divina and Indivina (Duova) in France were reacquired from Innothéra S.A. in March. The products will strengthen the portfolio of Orion Pharma's own marketing company in France.
Increased revenues from own products
The sales of products from Orion Pharma's own research pipeline were EUR 42.3 million, representing 36% of the total net sales (EUR 30.1 million, 28%). More than half of this was from the Parkinson's treatment Comtess/Comtan (entacapone), the sales revenues for Orion being altogether EUR 22.7 million (EUR 11.5 million), up 97%. Income received by Orion from Novartis of Comtan almost tripled from the comparative period. The sales revenues from the proprietary products are specified in the Tables section.
Sales for Comtan for the marketing partner Novartis came to CHF 24.8 million in the review period. Sales to patients in the U.S. rose 38 % as compared to the same period last year and the product's market share was 8.8% of all Parkinson's Disease medications.
The injectable heart failure treatment Simdax is currently available in Sweden, Finland and Norway through Orion Pharma's own marketing organisation. The marketing partner Abbott Laboratories has started marketing the product in some countries and is preparing for additional markets. Orion Pharma's sales revenues from Simdax in January-March came to EUR 0.5 million (EUR 0.2 million), consisting of the sales within Orion's own territory and deliveries to Abbott.
The royalties from the sales by Abbott of Precedex (dexmedetomidine), a sedative for use in intensive care, were EUR 0.4 million (EUR 0.1 million).
Sales of hormone replacement therapies and the proprietary animal sedation products grew, while those of the breast cancer drug Fareston (toremifene) declined, particularly concerning Japan. Also the Easyhaler sales declined from the comparative period.
Pharmaceutical research and development
The additional Phase 3 clinical trials with Simdax (levosimendan) that started in the U.S. in December 2001 have been progressing more slowly than estimated, due to lower than planned enrolment of patients to the study. Actions are being taken to promote patient recruitment. According to the current estimate, the trial programme will be completed during the first half of 2004. The results of the studies will also be utilised for the new drug applications in France, Germany and Great Britain.
The European Phase 3 clinical trials programme for deramciclane is underway in ten countries. The first study of the U.S. arm of the programme was started in March and it is being done in collaboration with the license partner, Pharmacia. More studies are planned to start during the current year. In January, a patent to high purity deramciclane and its salts was granted in the USA for Orion. At the same time, two use patents were granted by the same authorities.
The development of the entacapone triple combination tablet is progressing to schedule, and the marketing authorisation applications to the regulatory authorities of the U.S. and the EU are planned to be submitted in the third quarter of 2002.
Orion and Abbott Laboratories have agreed that the European development and marketing rights for dexmedetomidine are property of Orion, while Abbott maintains the rights in the U.S. and all other markets. The compound will be offered by Orion to the drug development company being established with Quintiles, for conducting the additional Phase 3 studies necessary for a European marketing authorisation for the product.
In April, Orion Pharma disclosed information about two pharmaceutical compounds in its research pipeline. These compounds are among those intended to be offered for licensing to the new company being established with Quintiles.
MPV 2426 (fadolmidine) is a novel spinal analgesic agent under development for the treatment of postoperative, obstetric and chronic pain. Pharmacologically it acts as an alpha-2 adrenergic agonist. Because of its unique pharmacological profile, fadolmidine could provide a new treatment concept. Fadolmidine is analgesic when administered intrathecally or epidurally. It could offer significant benefits over the current treatments by allowing more optimal pain relief. It has shown potent anti-nociceptive effects in various preclinical models. Phase 1-2 studies indicate that at analgesic doses, fadolmidine is devoid of common adverse effects associated with opioids and local anaesthetics and it does not induce pronounced cardiovascular effects (bradycardia, hypotension) like other alpha-2 adrenergic agents. Further clinical Phase 2 studies with fadolmidine are currently ongoing.
Orazipone is a locally acting immunomodulating agent that modulates thiol groups and inhibits inflammatory cell activation and decreases proinflammatory cytokine production. Experimental preclinical studies have shown good anti-inflammatory efficacy indicating that orazipone would be a potent new drug for the treatment of asthma, chronic obstructive pulmonary disease and inflammatory bowel disease. Phase 1 clinical studies for both respiratory and for gastrointestinal dosage forms of orazipone are being completed.
Letter of Intent with Quintiles on a joint venture
for pharmaceutical development
On 12 April 2002, Orion Corporation and the US-based Quintiles Transnational Corporation signed a Letter of Intent to form a drug development venture to develop a portfolio of selected proprietary products currently in Phases 1 through 3 from Orion Pharma. Orion and Quintiles will have a non-controlling minority interest in the new company, and plan to offer a majority ownership to outside investors. The new company will be based in the United States and is targeted to be operational by the third quarter of 2002. Dr. Jyrki Mattila, Senior Vice President, Orion New Ventures, has been assigned to head the team in charge of preparation for the venture.
Orion Pharma will initially contribute up to five drug candidates from its research and development (R&D) portfolio to be licensed to the new company. These include the oral formulation of levosimendan for chronic heart failure; MPV-2426 (fadolmidine) for spinal analgesia; orazipone for asthma/chronic obstructive pulmonary disease and inflammatory bowel disease, as well as dexmedetomidine for sedation in intensive care. Orion intends to retain options for future marketing rights for certain products for specified non-U.S. territories.
The invoicing of Oriola's continuing operations came to EUR 156.2 million (EUR 151.8 million), up by 2.9% (+6.7%). Net sales were EUR 76.5 million (EUR 80.5 million), down by 5.0% (-6.8%) in consequence of increased proportion of consignment trade. Operating profit for the continuing operations was EUR 5.2 million (EUR 5.0 million), up by 3.9% (+17.0%) and better than planned. Foreign operations contributed EUR 13.0 million (EUR 11.6 million) of the net sales and were up by 12.2% (+29.4%). Latvia and Lithuania showed favourable development.
Oriola reinforcing foothold in the Finnish pharmaceutical distribution market
Oriola's domestic invoicing of pharmaceutical wholesale and distribution increased by 1.9% (+1.7%) whereas net sales were down by 10%. Operating profit increased slightly.
At the start of the year, Warner Lambert products stepped out from Oriola's distribution in consequence of the merger with Pfizer. Merck KGaA of Germany came in as a new principal as of 1 January and Ferrosan of Denmark joined as of 1 April. In February, Oriola started taking care of the pre-wholesaling activities of Aventis' exports to Russia.
Medical Products business growing outside Finland
The domestic net sales of the Medical and Technical sector of Oriola declined slightly whereas operating profit reached the previous year's level and was clearly better than anticipated. Oriola Dental performed particularly well.
Operations outside Finland grew by almost 24%. Oriola Dental continued to increase business in Sweden and now made its first positive operating profit. The Danish subsidiary Oriola A/S started operations in January, mainly as a marketer of dental products.
Orion Diagnostica's net sales were EUR 9.1 million (EUR 8.7 million), up by 5.0% (+3.3%). The largest products by sales were QuikRead CRP, a test for the detection of infections, whose sales continued showing strong growth, and the Uricult test for diagnosing urinary tract infections, whose sales now turned to growth. The sales of hygiene tests and bone markers increased too, whereas those of the Pylori tests and RIA products declined. The sales of the QuikRead CRP test are growing rapidly in China and they are already approaching the sales volumes of the Nordic countries.
Operating profit of Orion Diagnostica was at the same level as in the previous year, EUR 1.2 million (EUR 1.2 million).
Noiro continued to show positive development. Net sales came to EUR 35.4 million (EUR 33.1 million), and they grew by 6.8% (+12.4%). International operations came to EUR 12.9 million (EUR 11.8 million), up by 9.4% (+27.8%), mainly consisting of the exports of Lumene cosmetics and Herbina products for personal care. Exports to Russia were brisk although they showed a lower growth rate. Operating profit declined slightly to EUR 3.7 million (EUR 3.8 million), change -3.9% (+78.1%).
Noiro's market share was further enhanced in the domestic market for cosmetics and hairdressing products. The Lumene, Anytime and Wella brands showed particularly strong growth. The domestic market for industrial and institutional cleaning and hygiene products was stable, and Farmos maintained its good position there.
Gross investments of the continuing operations for the period were EUR 31.2 million (EUR 16.5 million). Buildings accounted for EUR 5.0 million, machinery and equipment for EUR 7.3 million and other fixed assets for EUR 18.9 million, of which the reacquisition of the marketing rights for the HRT products for France accounted for EUR 16.5 million.
A considerable enlargement of the R&D facility will be completed at the Turku site of Orion Pharma in the near future. The total acquisition cost of the project will be around EUR 10.8 million.
The first pilot phase of the considerable project for integrating all the business operations of Orion Pharma under a uniform information and control system is being completed.
In Oriola, the renewal of the logistics and financial control systems as well as the establishment of a customer relationship management system are the most important ongoing development projects.
The new cosmetics plant for Noiro will be completed in early July, with a total estimated acquisition cost of EUR 20.2 million. The cost of the Farmos chemical plant recently completed in Turku was altogether EUR 3.7 million.
Changes in the Group structure
Hiven Oy, a subsidiary that was part of the Animal Health business of Orion Pharma, was divested in January. The 2001 net sales of Hiven Oy were EUR 6.4 million and the number of employees was 21.
Agreement on acquisition of majority in Kronans Droghandel
An agreement upon the acquisition of the majority holding in Kronans Droghandel AB (KD), Sweden's second largest pharmaceutical distributor, from Ratos AB, a Swedish private equity company, and 3i of England was concluded on 11 April 2002. The closing of the transaction is subject to the approval by the competition authorities and to the fulfilment of certain other terms. The price of the transaction is approximately EUR 61 million and will be adjusted before the final conclusion of the deal.
The acquired shares represent 58.3% of the total share capital of KD. As Orion Corporation already owns 10.6% of KD, its ownership in KD will rise to about 69 percent. Before the transaction, KD divested its Norwegian subsidiary, Holtung as, to the British healthcare distributor Alliance UniChem Plc, in early April.
As the majority shareholder in KD, Orion wants to build up a pharmaceutical and healthcare wholesaling business competitive and financially sound and strong enough for the Nordic area, targeting for market leadership in pharmaceutical distribution in Finland and Sweden. KD is a strong number two in Sweden with a profitable core business. KD and Oriola will continue as independent companies constituting the Wholesale Division of the Orion Group, making efficient use of each others' synergies for mutual benefit.
Research and product development
Group expenditure on research and development, excluding external financial contributions received, were EUR 26.0 million (EUR 18.1 million), or 11.0% of the Group net sales. The investment was increased by no less than 43.8% from the corresponding period of the previous year. Orion Pharma accounted for EUR 24.7 million of the total. Pharmaceutical research and development expenditure represented 20.8% (15.5%) of Orion Pharma's net sales for the period. The research projects have been reported above in the chapter dealing with Orion Pharma.
The average number of personnel in the Group during the review period was 5,288 (5,432). The average number of personnel in the continuing operations was 5,288 (5,245). The personnel of Orion Pharma declined by an average of 50 persons, while it increased in Oriola by 37, mainly in the foreign units. Noiro's personnel increased by an average of 55, mainly in production.
Outlook for the full year 2002
Orion Pharma's net sales are anticipated to grow slightly. Product sales are estimated to show stronger growth than in last year, whereas marketing agreement-related payments will be lower. The best growing products will be Comtess/Comtan for Parkinson's disease, and the hormone replacement therapy Indivina. Operating profit is estimated to decline from last year, because the research and development expenditure will increase considerably due to the vast Phase 3 clinical trials underway with Simdax and deramciclane. On the other hand, marketing costs are estimated to decline from the previous year.
Oriola's invoicing is estimated to accelerate from the level of the first months of the year. Operating profit for the full year is estimated to improve slightly from the previous year.
Orion Diagnostica will show stronger growth of net sales as the year progresses. Added investment in product development as well as the ongoing resource management project will increase costs. Therefore, operating profit will be at the previous year's level.
Noiro's net sales and operating profit are estimated to develop favourably.
The net sales for the Orion Group are estimated to show the same level of growth as in the previous year while operating profit is anticipated to be lower. Net financial income will decline too. The impact of the possible KD share acquisition is not taken into account in the estimates.
Espoo, 7 May 2002
President and CEO
Executive Vice President, CFO
The full report including tables can be downloaded from the following link.