The net sales of the Orion Group in 1-6/2002 were EUR 477.7 million, about the same level as in the previous year (EUR 475.3 million in 1-6/2001), change +0.5% (+2.4%). Operating profit was EUR 50.0 million (EUR 47.5 million), up 5.2% (+1.4%). Operating profit improved, thanks to costs lower than planned and a contract payment of EUR 8 million received and recorded as other operating income. Group profit before extraordinary items and taxes came to EUR 52.6 million (EUR 52.4 million), change +0.4% (-0.9%). Earnings per share after taxes were EUR 0.52 (EUR 0.51) and shareholders equity per share was EUR 9.50 (EUR 9.21). The acquisition of the majority in the Swedish pharmaceutical distributor, Kronans Droghandel AB agreed upon in April, was completed on 1 July. In the second quarter, considerable organisational and operational rearrangements were initiated in Orion Pharma and they were introduced as of 1 August.
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 1-6/2001. The figures for 1-6/2002 have not been audited.
Group net sales and profit in 1-6/2002
The net sales of the Orion Group were at the same level as in the corresponding period of the previous year, EUR 477.7 million (EUR 475.3 million), +0.5% (+2.4%). Net sales of continuing operations grew by 3.9%. No milestone payments from the marketing partners of Orion Pharma were actual in the period (EUR 15.2 million in 1-6/2001). Net sales from continuing international operations grew by 7.5% (14.9%) to EUR 207.7 million (EUR 193.3 million). Domestic operations grew slightly by 1.3% (-5.7%).
Development of the operating profit in the second quarter slowed down in the second quarter due to increasing R&D investment. Operating profit for the first half of the year came to EUR 50.0 million (EUR 47.5 million), which was better than estimated, however, up by 5.2% (+1.4%). Contrary to anticipations, Orion Pharma's operating profit improved, due to continued high supply of the Parkinson's disease drug Comtan to the marketing partner Novartis and lower than estimated costs of pharmaceutical research and marketing. Part of the profit improvement was due to a payment of EUR 8 million by Novartis to Orion Pharma recorded as other operating income. Oriola, Orion Diagnostica and Noiro showed slightly weaker profit performance than in the comparative period of the previous year. Other operating income in the Group items includes EUR 4 million in net earnings from the sale of shares in Tamro Corporation.
Group profit before extraordinary items and taxes came to EUR 52.6 million (EUR 52.4 million), change +0.4% (-0.9%). 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 2.6 million (EUR 4.9 million). Net interest earnings were EUR 2.4 million (EUR 3.1 million). Exchange rates caused a net loss of EUR 0.5 million (± 0). Net income from securities, including received dividends, were EUR 0.7 million (EUR 1.8 million).
Events after the review period
Acquisition of Kronans Droghandel shares completed on 1 July 2002
The deal concerning the acquisition by Orion Corporation of the majority ownership in the Swedish pharmaceutical distributor, Kronans Droghandel AB (KD) was completed on 1 July 2002. In the transaction, altogether 58.3% of the total KD share stock were acquired from the Swedish Ratos AB and the British 3i Group Plc at a price of about EUR 60.6 million. Orion's holding in KD rose from 10.6% to about 69%.
In consequence of the arrangement, Orion's market position in the Swedish and Finnish pharmaceutical and healthcare distribution will strengthen considerably. The current market share of KD is about 48% in Sweden and 22% in Finland. The market share of Oriola in Finland is around 37%.
A new business division, Wholesale and Distribution, was formed of Oriola and KD within the Orion Group. The companies will continue operations independently of each other on the market, but their strengths and mutual synergies will be utilised as efficiently as possible.
On the basis of the interim closing of books on 30 June 2002, the goodwill value of the now acquired shares in Kronans Droghandel AB is EUR 36.9 million, excluding an allocation of EUR 1.2 million to land areas. The goodwill will be depreciated in 15 years.
AstraZeneca entrusted its distribution to Oriola in Finland
AstraZeneca shifted the distribution of its pharmaceuticals in Finland to Oriola as of 15 June 2002. AstraZeneca's 2001 sales in Finland were around EUR 88.6 million, representing about 7% of the market. The distribution agreement with the company, one of the world leaders, is one of the most significant ones in Oriola's history. In Sweden, AstraZeneca's products are partly distributed by KD and partly by Tamro.
Changes in the Group management
Dr. Risto Miettunen, President of Orion Pharma, was appointed Executive Vice President and Deputy to the President of Orion Corporation as of 1 August 2002. Dr. Miettunen joined Orion as President of Orion Pharma on 1 April 2002. Mr. Pauli Torkko will also continue as Executive Vice President.
Mr. Pauli Torkko will head the new Wholesale and Distribution division as of 1 September 2002. He started in Orion in 1977 as Senior Manager for Economic Planning. In 1980 he was appointed Chief Financial Officer of the Group, and since 1984 he has been Executive Vice President.
Mr. Jari Karlson will start as Chief Financial Officer of the Orion Group on 1 September 2002. He joined Orion in August 2001 as Vice President, Finance of Orion Pharma, a position he will also continue to take charge of.
Mr. Matti Vaheri, who was President of Orion Diagnostica since 1989, joined Orion Pharma as Senior Vice President, Strategic Marketing, on 1 August 2002.
Mr. Jaakko Rissanen was appointed new President of Orion Diagnostica as of the same date. He has worked for Orion Diagnostica since 1990, the recent years as Vice President, Sales and Marketing, Finland.
Mr. Pekka Kaivola, having headed the domestic marketing operations of Orion Pharma, started as President of the US subsidiary, Orion Pharma Inc., on 1 August. On the same date, Mrs. Hilkka Tuhkanen took over as his successor as Vice President, Sales, Finland.
Development by Business Division in 1-6/2002
The market developed steadily in the first half of 2002. Orion Pharma continued as the leader of the pharmaceutical market in Finland, with a share of 12%.
Orion Pharma's core strategic goal is to grow on international markets with its proprietary products and leaning on its own innovations. When implementing this strategy, all sub-areas of the business are taken into account to guarantee the best possible success. Successful management of partnerships is emphasised in Orion Pharma's process of growing increasingly international.
Net sales and operating profit
Orion Pharma's continuing operations generated altogether EUR 238.0 million in net sales (EUR 227.7 million), up by 4.5% (+8.0%) on the corresponding period of last year. No milestone payments were actual during the review period (EUR 15.2 million in 1-6/2001). Revenues from the sales of products from the own research pipeline grew by 35%.
International operations grew by 8.0% (+13.4%) to EUR 144.5 million (EUR 133.8 million) and they accounted for 60.7% (58.8%) of Orion Pharma's total net sales. The own marketing network contributed EUR 59.4 million (EUR 54.8 million) or 41.1% (40.9%) of the international operations. Both the sales of the own marketing subsidiaries and those by the marketing partners progressed favourably and increased from the level of last year. Fermion and Animal Health performed as planned.
The Finnish market for human pharmaceuticals grew by 11.3% in January - June. Orion Pharma's domestic net sales from human preparations were EUR 87.6 million (EUR 86.8 million). Net sales from prescription drugs came to EUR 58.6 million (EUR 57.5 million) whereas those of over-the-counter medicines came to EUR 29.0 million (EUR 29.3 million).
Operating profit rose by 11.6% to EUR 34.6 million. The favourable development was mostly consequence of increased sales of Comtan to Novartis but also lower than planned R&D and marketing expenses. Orion Pharma's operating profit includes a payment of EUR 8 million from Novartis AG based on the marketing agreement of Comtan, recorded as other operating income. Another similar payment at approximately the same amount will be actual in the last quarter of the current year.
Own products accounted for 34% of Orion Pharma's net sales
The products from Orion's own R&D pipeline contributed EUR 84.4 million or 34% (EUR 62.4 million or 27%) of the total net sales of Orion Pharma. About half of this came from the Parkinson's disease medication Comtess/Comtan (entacapone), the total sales revenues being EUR 42.0 million (EUR 26.0 million), up 62%. Revenues from the sales to the marketing partner Novartis almost doubled from those of the corresponding period in the previous year. According to Orion's understanding, a considerable part of the increased purchases by the marketing partner are associated with variations in the distribution logistics. Bulk deliveries to Novartis are anticipated to decrease in the second half of the year. The sales revenues from proprietary products are presented in the Tables section.
Sales revenues from Comtan for the marketing partner Novartis came to CHF 55.3 million, or EUR 36.4 million, 28.6% up on the same period of the previous year. Sales of Comtan to patients grew by 35.1% in the US and 18% elsewhere in the territory of Novartis. The US market share of Comtan of all Parkinson's disease medications in January - May 2002 came to 9% (7.7% in Jan-May 2001).
Sales of Comtess to patients within Orion's own marketing territory grew by 27% in the first six months of the year.
Sales revenues from Simdax, a hospital treatment for severe heart failure, were EUR 2.3 million (EUR 0.4 million), composed of sales within Orion's own marketing territory and supply to the marketing partner Abbott Laboratories. The product is available in Finland, Sweden and Norway through Orion's own marketing organisation, and through Abbott in eleven countries including Spain, Austria, Greece, Portugal, Brazil and Argentina.
Sales of hormone replacement therapies, the breast cancer drug Fareston (toremifene) and proprietary animal sedatives showed growth while those of Easyhaler products for asthma dropped from the previous year.
Hexal AG as been licensed to market Easyhaler products in Germany.
Major organisational rearrangements in Orion Pharma as of 1 August 2002
A completely new organisation model based on the processes of the business was adopted in Orion Pharma on 1 August 2002. The purpose of the change is to add efficiency and to establish a uniform pattern for functions throughout the business of Orion Pharma, to promote decision making and to streamline the chain of operations and the value chain. The change in the operational pattern goes hand in hand with the introduction of a new information management system that will integrate all operations and functions within one for all in Orion Pharma towards the end of the year.
Pharmaceutical research and development
Expenditure on pharmaceutical research and development in the first half of the year grew by 46% from the corresponding period in the previous year to EUR 51.6 million, representing 22% of Orion Pharma's net sales.
The additional Phase 3 clinical trials with Simdax (levosimendan) that started in December 2001 are progressing. According to the current estimate, the trial programme will be completed in mid 2004. The results of the studies will also be utilised for the new drug applications in France, Germany and Great Britain.
The clinical Phase 3 research programme with deramciclane, a drug candidate for generalised anxiety disorders, is ongoing. The European part of the programme is progressing to plan, and the first study of the US arm of the programme started in March in collaboration with the partner, Pharmacia.
Orion aims to apply for marketing authorisation for the entacapone triple combination tablet in the US and the EU in the course of the third quarter of this year.
Giona Easyhaler containing budesonide is still awaiting marketing authorisation by the German regulatory drug authorities. A positive decision is, anticipated in the near future, however, and the mutual recognition procedure in the other EU countries is planned to start in the last quarter of this year.
The plans under the New Ventures unit of Orion Corporation for the establishment of a new joint venture company for pharmaceutical development are progressing together with Quintiles. Orion Pharma has selected five drug candidates from its research portfolio for licensing by the new venture. These include the oral formulation of levosimendan for chronic heart failure; MPV-2426 (fadolmidine) for spinal analgesia; orazipone for asthma and chronic obstructive pulmonary disease and inflammatory bowel disease, dexmedetomidine for sedation in intensive care and a fast dissolving formulation of apomorphine for advanced Parkinson's disease. 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 324.2 million (EUR 301.7 million), up by 7.5% (+5.5%). Net sales were EUR 162.0 million (EUR 160.2 million), slightly up by 1.1% (-7.8%). An increased proportion of consignment trade was pressing down the net sales in the first quarter particularly. Operating profit for the continuing operations decreased slightly to EUR 8.6 million (EUR 9.2 million). Foreign operations were at the previous year's level contributing EUR 25.2 million (EUR 24.3 million) of the net sales.
Distribution agreement with AstraZeneca
will increase Oriola's market share in Finland
will increase Oriola's market share in Finland
Invoicing of the Wholesale and Distribution Sector of Oriola grew by 7.4% (+3.8%). Operating profit dropped, mainly due to investments in the resources and information systems. Finland accounted for 94% of the invoicing. Latvia and Lithuania are showing steady growth of volumes but competition is keen in these markets. Net sales in Estonia were at the previous year's level.
AstraZeneca Oy entrusted the distribution of its products in Finland to Oriola as of mid June. In consequence, Oriola's annual pharmaceutical distribution volume will rise by around EUR 90 million. Merck KGaA and Ferrosan shifted to Oriola earlier in the year.
The strategy of Oriola concerning pharmaceutical distribution in Sweden ended up in a natural solution as Kronans Droghandel AB became part of the Orion Group. The KD arrangement together with the distributor shift by a big pharmaceutical manufacturer are events with great impact in the sector in Sweden and Finland.
The growth of the Reformi-Keskus unit of Oriola was dampened by an unfavourable development of the sales of functional food and health food in Finland, whereas sales in the Baltic countries were positive.
Oriola Dental showing most vigorous growth
in the Medical and Technical Sector
in the Medical and Technical Sector
Net sales of the Medical and Technical Sector of Oriola grew by 5%. International operations were up by 26% (19%), and operating profit improved from last year. Considerable growth from the previous year was shown by Oriola Dental in Finland, Sweden and the Baltic states, and by Oriola Medical in Finland. The markets for these two businesses have been developing favourably in every respect. Net sales of Medion, which markets medical imaging and radio therapy products, remained at the level of last year as major project deliveries were postponed to the second half of the current year. Prolab is regaining growth, thanks to new laboratory product representations that compensate stepped-out ones.
Orion Diagnostica's net sales were EUR 18.0 million (EUR 17.0 million), up by 6.0% (+4.3%). Operating profit declined to EUR 2.1 million (EUR 2.4 million), mainly due to increased product development costs as well as the investments underway in an operations management system for the entire Orion Diagnostica. QuikRead CRP, a test using a blood sample for the detection of infections, continued showing strong sales growth. Sales of the Uricult test for diagnosing urinary tract infections also turned to growth, and those of hygiene tests are picking up clearly. Sales of QuikRead CRP as well as the Turbox analyser for protein measurements showed strong growth in China.
The long growth trend shown by Noiro is levelling off. Net sales came to EUR 67.8 million (EUR 63.7 million), and they grew by 6.4% (+9.8%). International operations came to EUR 23.6 million (EUR 21.7 million), up by 8.8% (+23.0%), mainly consisting of the exports of Lumene cosmetics and Herbina products for personal care. Exports to Russia were still brisk but they clearly levelled off compared to the previous year and showed a lower growth rate. Operating profit declined slightly to EUR 5.4 million (EUR 5.8 million).
Noiro kept a strong hold of its leading position in cosmetics and hairdressing products in Finland, the best selling brands being Lumene and Wella. The domestic market for industrial and institutional cleaning and hygiene products continued showing a slight growth.
Gross investments of the continuing operations for the period were EUR 56.3 million (EUR 33.8 million). Buildings accounted for EUR 11.5 million, machinery and equipment for EUR 20.5 million and other fixed assets for EUR 24.3 million, of which the reacquisition of the marketing rights for the HRT products for France accounted for EUR 16.5 million.
The new R&D facility constructed for Orion Pharma in Turku has been taken into use. The building comprises altogether 6600m2 of floor space and the premises have been furnished with the latest technology and equipment. The additional premises now completed will enable Orion Pharma to further enhance discovery activity and to promote throughput times of the development projects. The total acquisition cost of the facilities will be around EUR 10.8 million.
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 was completed in July, and the modern production lines are being taken into use. The total estimated acquisition cost of the plant will be about EUR 20.9 million.
Changes in the Group structure
Following the acquisition of the majority ownership in the Swedish Kronans Droghandel AB on 1 July 2002, a business division under the name Wholesale and Distribution was established in the Orion Group, accommodating Oriola and KD. The two pharmaceutical distributors will continue as independent companies on the market, however.
A new subsidiary, OÜ Orion Pharma Eesti, was established in Estonia in June.
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.
Research and product development
Group expenditure on research and development, excluding external financial contributions received, came to EUR 54.2 million (EUR 37.8 million) and it increased by no less than 43.6% from the corresponding period of the previous year. Orion Pharma accounted for EUR 51.6 million, or over 95% of the total. Pharmaceutical 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 5,364 (5,549). The average number of personnel in the continuing operations was 5,364 (5,358). The average number of employees in Orion Pharma declined by 76, mainly in consequence of the adjustment of personnel a year ago in the organisation of international marketing and sales as well as the shutting down of the three minor pharmaceutical plants last year. Oriola's average number of personnel increased by 34, mainly in the foreign units. Noiro's personnel increased by 50, half of which in marketing and the other half 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. Research and development expenditure will increase considerably due to the vast Phase 3 clinical trials underway with Simdax and deramciclane. Marketing costs are estimated to decline from the previous year. Operating profit is, however, estimated to decline from last year.
According to Orion's current knowledge, the merger of Pharmacia with Pfizer disclosed in July will not influence the ongoing joint development cooperation of Orion and Pharmacia concerning deramciclane.
Oriola's invoicing and net sales will show strong growth in the latter half of the year, thanks to the shift by AstraZeneca of its products to Oriola's distribution in June. Also the timing of Medion's big project deliveries in the second half of the year will improve growth and profits. Operating profit for the full year is estimated to increase from last year.
Orion Diagnostica's net sales will continue to grow at the rate of the first half of the year. Increasing product development expenditure and the IT system project underway are adding costs. Hence, operating profit is estimated to be at last year's level.
Noiro's operating profit is estimated to develop favourably, despite slower net sales growth.
Excluding the impact of Kronans Droghandel, 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. Net sales of KD, without the impact of operations in Norway, are anticipated to grow by 10% and operating profit will improve considerably.
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 Orion Corporation shares is about 67.5 million and they divide among the series A and B. Both shares are quoted on the Helsinki Exchanges. At shareholders' meetings, each A-share provides 20 (twenty) votes and each B-share one (1) vote. Both series provide equal rights to company assets and dividends.
A shareholder can require the conversion of his A-shares into B-shares. In 1-6/2002, altogether 2,243,734 A-shares were converted to B-shares. A-shares currently account for 30,945,029 and
B-shares for 36,573,392 of the total number of shares. Since the conversion became possible in late 1997, altogether close to 3.7 million A-shares have been converted to B.
B-shares for 36,573,392 of the total number of shares. Since the conversion became possible in late 1997, altogether close to 3.7 million A-shares have been converted to B.
The Board of Directors of Orion Corporation has an authorisation by the Shareholders' Meeting to acquire and convey the company's own shares until 15 April 2003. The shares can be acquired for the purpose of developing the capital structure of the company, using the shares in financing corporate acquisitions or other arrangements or otherwise conveying or invalidating them. The authorisation has not been utilised by the Board so far.
The Board of Directors has no existing authorisation by the Shareholders' Meeting to raise the share capital or to issue a bond loan, convertible loan or stock options.
Orion Stock Option Plan 1998
The first half, the stock options "A", of the option rights attached to the Orion Stock Option Plan 1998 for the entire personnel of the Orion Group were released for trading on 2 May 2001. The options "A" are quoted on the Helsinki Exchanges. On the basis of the options "A", altogether 1,581,600 new Orion B-shares can be subscribed for during 2 May 2001 - 30 April 2005 representing 2.3% of the total Orion shares and 0.2% of the total votes. The nominal value of each is 1.70 euros and the share subscription price after the latest dividend payment is 27.81 euros. The options "B" of this option plan will be released on 2 May 2003 and their subscription period will also end on 30 April 2005. The share capital can increase by up to EUR 5,377,440 in result of the subscriptions.
Orion Stock Option Plan 2001
The Orion Stock Option Plan 2001, issued to the key persons of Orion Corporation and its wholly-owned subsidiaries, contains altogether 1,800,000 stock options, each entitling to subscribe for one Orion B-share. These options have been allocated to 119 key persons of the Group. The subscription period for stock options "2001A" will begin on 1 October 2003, for options "2001B" on 1 October 2004, for options "2001C" on 1 October 2005 and for options "2001D" on 1 October 2006. The share subscription period will end on 31 October 2007 for all the options.
The share subscription price before the next dividend payment is 27.81 euros for the options "2001A" and "2001B" and it will decline by each future dividend paid per share before the record date for dividend payment until shares are subscribed for. The share subscription price for options "2001C" is 21.91 euros, which was the trade-volume-weighted average quotation of the B-share on the Helsinki Exchanges between 1-31 March 2002. For options "2001D" the price will be the corresponding quotation between 1-30 September 2002. The share subscription price of options "2001C" and "2001D" can only be reduced by possible special dividends per share that differ from the company's normal dividend distribution policy. The share capital can increase by up to EUR 3,060,000 and the number of shares by up to 1,800,000 B-shares. The shares subscribable on the basis of the options of the Stock Option Plan 2001 represent 2.7% of the total number of Orion shares and 0.3% of the total number of votes.
Espoo, 6 August 2002
Jukka Viinanen Risto Miettunen
President and CEO Executive Vice President
The full Interim Report including tables is available to download from the enclosed link.