The net sales of the Orion Group in 1-3/2001 came to EUR 231.0 million (EUR 236.8 million in 1-3/2000), down by 2.5%. Profit before extraordinary items and taxes was EUR 17.7 million (EUR 35.1 million), down by 49.5%. Earnings per share were EUR 0.17 (EUR 0.35) and equity per share was EUR 8.87 (EUR 8.96). Orion Pharma's net sales decreased as the product purchases by marketing partners were essentially lower than in the corresponding period of the previous year. As substantial investments in product launches were actual during the review period, the operating profit of Orion Pharma decreased to EUR 5.0 million (EUR 23.1 million). In April, Orion Pharma received positive recognitions for the heart failure drug Simdax in nine European countries but withdraw the new drug application from seven countries, including the UK, France and Germany. The divisions Oriola and Noiro developed favourably. Orion Diagnostica's progress levelled off.
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 1-3/2000. The figures for 1-3/2001 have not been audited.
Group net sales and profit
The net sales of the Orion Group came to EUR 231.0 million (EUR 236.8 million in 1-3/2000), down by 2.5% from those for the corresponding period of the previous year. Net sales from domestic operations declined by 4.3%. This was due to the structural change in Oriola's net sales, where the volume growth during the period is not shown. International operations were approximately at the previous year's level, up 0.4% (up 14.4%).
Orion Pharma's operating profit declined substantially in result of weaker-than-expected development of international operations. Expenditure was increased on the international marketing of the Parkinson's disease drug Comtess, the Easyhaler asthma drug inhaler and the hormone replacement therapy Indivina as well as on the pre-launch activities of the heart failure drug Simdax.
Oriola's operating profit grew thanks to the favourable development of the Medical and Technical Sector. A slight improvement was seen also in the wholesale business in the Baltic countries. Orion Diagnostica's operating profit declined following the lower sales of the traditional tests for diagnosing infections. Noiro's operating profit grew substantially thanks to increased sales and successful cost management.
Net income from ordinary financial operations grew slightly. Group profit before extraordinary items and taxes came to EUR 17.7 million (EUR 35.1 million), down by 49.5%.
Financial income and expenses
Net income from financial operations were EUR 3.4 million (EUR 3.2 million). Net interest earnings were EUR 2.2 million (EUR 1.8 million). Net gains from foreign exchange rates were EUR 0.1 million (net loss EUR 0.1 million). Net income from securities, dividends included, came to EUR 1.1 million (EUR 1.4 million).
Development by Business Division
The net sales of Orion Pharma were EUR 106.8 million (EUR 110.8 million), down by 3.6% (up by 3.5%), and they were clearly lower than estimated. International operations declined by 8.2% (up by 18.3%) particularly due to lower than budgeted purchases by marketing partners. Domestic operations grew slightly, as planned.
Along with the declined net sales, Orion Pharma's gross margin also came down. At the same time, however, heavy investments were made to prepare for the launches of the heart failure drug Simdax, as well as in the marketing operations of Comtess and the launches of Indivina and Easyhaler. Following these, the operating profit declined by 78.2% from the comparative period.
International sales of human pharmaceuticals declined by 10.8% (up by 26.4%). The proprietary products Comtess/Comtan (entacapone), hormone replacement therapies, the breast cancer drug Fareston (toremifene) and the animal sedatives were major international products. The products from Orion Pharma's own research pipeline contributed EUR 30.1 million, or 28.2% to the net sales (EUR 36.2 million or 32.7%).
The combined net sales of Comtess and Comtan came to EUR 11.5 million (EUR 18.5) million. The comparative figure for the previous year includes pipeline filling of the marketing partner. Especially in the USA, the sales to the patients are clearly levelling off and lagging behind the planned level. Sales in the Southern European countries have also progressed at a lower level than anticipated whereas the sales in Orion Pharma's own territories have continued to develop favourably.
During the review period the heart failure drug Simdax has been available in Sweden only, having shown steady growth. A novel intensive care therapy like Simdax is, however, adopted for use in hospitals at a low pace.
The sales of the breast cancer drug Fareston continued to develop well in Japan, whereas the supplies to the US remained at a modest level.
The sales in the US of the human sedative Precedex (dexmedetomidine), licensed to Abbott Laboratories, have continued to grow although more slowly than expected. The royalties received by Orion came to EUR 0.1 million.
Net sales of the hormone replacement therapies were up 26% from the previous year. The sales of the novel Indivina that allows individual dosing, started particularly well in Finland and Sweden.
Sales of Beclomet Easyhaler and Buventol Easyhaler, inhalers for asthma medicines, rose by 26% from the previous year. After the last year's launch in France the sales have levelled off.
Sales of active pharmaceutical ingredients to external customers declined from the previous year. Sales of the animal sedatives also came down.
In the review period, a milestone payment of EUR 1.1 million was received from Abbott Laboratories, in association with the start of the EU mutual recognition procedure of Simdax (no milestone payments in 1-3/2000).
The Finnish market for human pharmaceuticals grew by 12.6% in January - March. Orion Pharma's domestic sales turned to a slight growth of 2.6% and came to EUR 48.8 million (EUR 47.5 million, down 11.3%). The novel hormone replacement therapy Indivina penetrated well in Finland. In April, Orion launched Orloc (bisoprolol), a beta blocker for hypertension, and Telfast (fexophenadine), an antihistamine for seasonal allergic rhinitis.
The production of large-volume parenterals at the Oulu plant is ending in the summer while that of other pharmaceutical preparations will end at the end of the year. The antibiotic plant in Kemijärvi will be shut down during the first quarter of 2002 and the Seinäjoki plant this summer. Following the closing down of the plants, the jobs of altogether 190 employees will end. The production will be centralised in Espoo and Turku, and partly outsourced.
Actions undertaken to improve profits
The investments in the Simdax launches have been discontinued in Germany, France and the UK. Actions to adapt to the new situation have been undertaken by rearranging the international marketing organisation and by combining responsibility areas. The marketing strategy is being re-orientated so that in the future, the marketing efforts of the own sales force will focus on physicians specialising in Orion Pharma's core therapy areas. Cost saving measures have been resumed in order to improve profits.
Oriola's invoicing, a figure that well describes its operational volume, came to EUR 157.8 million (EUR 147.7 million) and it grew somewhat more than expected, by 6.8% (up 3.0%). The invoicing of pharmaceutical wholesale in Finland grew by 1.7% only (up 0.3%). Due to renewed distribution agreements the share of consignment trade of the invoicing increased, which led further to declined net sales by 29.8% (up 6.8%). In consignment trade, only the distribution fee received from the principals is recorded as net sales. The development and the overall situation of pharmaceutical distribution and wholesale have improved somewhat in the Baltic countries. The year started favourably for the medico-technical business. The net sales and profits of Medion and Prolab particularly have developed positively. The dental business in Sweden is still unsatisfactory. Soredex has continued to perform positively.
Orion Diagnostica's progress has levelled off from the previous year. The net sales came to EUR 8.7 million (EUR 8.4 million), up by 3.3% (up 10.6%). The sales of the QuikRead CRP test for point-of-care detection of infections continued to show strong growth, whereas the sales of Uricult, a test for urinary tract infections, and Dentocult decreased slightly.
Noiro's net sales grew by 12.4% to EUR 33.1 million (EUR 29.5 million, up 11.5%). Operations have continued to show strong growth in Finland and Russia, mainly boosted by the Lumene cosmetics brand and also by the Herbina products in exports. The operating profit grew substantially, thanks to improved management of promotional costs.
Gross investment came to EUR 16.8 million. Buildings accounted for EUR 4.2 million, machinery and equipment for EUR 6.6 million and other fixed assets for EUR 6.0 million.
The extension of the API plant in Hanko, Finland, has been completed. The total acquisition cost will be in the region of EUR 20.4 million, of which 1.6 million were booked for the review period. The research centre located at Orion Pharma's plant in Turku, Finland, is being expanded at an estimated total cost of EUR 12 million and will be completed during the first half of 2002.
The Farmos division of Noiro is concentrating the manufacture of its institutional cleaning and hygiene products in Turku where an extension project, budgeted at EUR 3.5 million, is progressing. In April, the construction of a new cosmetics plant was started by Noiro in Espoo. The facility, whose estimated total cost is EUR 18 million, will double Noiro's present production capacity. Both projects will be completed in mid 2002.
Research and product development
Group expenditure on research and development, excluding financial contributions received, were EUR 18.1 million (EUR 17.7 million), or 7.8% of the consolidated net sales. Expenditure grew by 2.5%. Orion Pharma's R&D expenditure was EUR 16.4 million representing 15.3% (14.5%) of Orion Pharma's net sales. A research facility was established in Nottingham, England, especially focusing on the clinical studies of cardiovascular and CNS therapies.
Pharmaceutical R&D projects
Simdax (levosimendan), the innovative drug discovery by Orion Pharma for heart failure received the first marketing authorisation last September, from Sweden. In the registration procedure conducted in January - April, a positive recognition was received for Simdax from seven other EU countries, i.e. Finland, Spain, Italy, Austria, Greece, Luxemburg and Portugal, and from Norway and Iceland which also were included in the procedure. These countries are expected to grant the ordinary marketing authorisations in the next few months. Orion Pharma will start marketing Simdax in Finland, Norway and Iceland as soon as the authorisations have been received. In the rest of the above-mentioned countries, the marketing rights are held by Abbott Laboratories.
During the mutual recognition procedure, Orion Pharma withdrew the new drug application from Holland, Ireland, the UK, France, Germany, Denmark and Belgium as these countries were not ready to provide a positive recognition decision. During the next few months Orion Pharma will negotiate with the regulatory authorities of these countries to form an understanding of what additional clarifications or studies are necessary for the basis of a marketing authorisation.
New drug applications have been and will be submitted during 2001 in many south American, Asian and additional European countries. Orion Pharma's Simdax sales will remain notably below the estimated level, not the least due to the fact that big markets like Germany, France and the UK are now excluded from the near-term marketing area.
Orion Pharma is starting up and additional 2-year clinical Phase 3 trial with Simdax for the US marketing application. The first patients will be enrolled during the third quarter of the year.
The studies with the triple combination tablet for Parkinson's disease are progressing to plan. The tablet will contain the basic medication levodopa, and two substances inhibiting it from breaking down: carbidopa and entacapone, the active substance in Orion Pharma's Comtess. The first marketing applications are planned to be submitted by the end of 2002.
The Phase 2 clinical studies with the fast-soluble Zydis tablet formulation of apomorphine, for use in late-stage Parkinson's disease, have been completed and the next phase of the development programme is being designed.
The comprehensive Phase 3 clinical trials with deramciclane, an anxiolytic licensed from Egis Pharmaceuticals, are progressing in ten European countries according to plan. A marketing partner for the product is being sought.
The studies with Fareston (toremifene) for broadening the indication to cover earlier stages of breast cancer have been completed. On the basis of the study results from three years, Fareston is as efficient and safe as the comparative drug tamoxifen in the adjuvant treatment of breast cancer. The US regulatory drug authority FDA, however, would either request essentially better treatment results or evidence of safety and efficacy from treatment of no less than five years.
Of the two newer-generation substances formulated by Orion for the Easyhaler dry-powder inhaler, budesonide is under registration in Germany through the mutual recognition procedure. The Phase 3 trials with formoterol, a long-acting bronchodilator, are underway.
During the review period, the average number of personnel in the Group was 5,432 (5,190). 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 40, mainly in production. Oriola's personnel has decreased slightly.
Heikki Hakala elected Chairman of the Supervisory Board, Heikki Vapaatalo Deputy Chairman
The Annual General Meeting held on 29 March 2001 decided that the Supervisory Board be composed of 15 members. Due to the age limitation in the Bylaws, Tatu Miettinen, Ahti Tarkkanen, Juhani Aho and Juha Kytilä resigned having turned 70. Re-elected were Timo Estola, Seppo Salonen and Erkki Tammisalo. Kari Jussi Aho, Asmo Kalpala, Seppo Pellinen and Kari Raivio were elected as new members. Heikki Hakala was elected Chairman and Heikki Vapaatalo Deputy Chairman of the Supervisory Board.
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 on 31 March 2001 was 67,518,421 of which 34,105,517 were A-shares representing 50.5% of the total stock, and 33,412,904 were B-shares representing 49.5% of the stock. At shareholders' meetings, each A-share provides 20 votes and each B-share 1 vote. Both shares provide equal rights to the assets and dividends of the company.
A shareholder can require the conversion of his A-shares into B-shares. In 1-3/2001, altogether 111,780 A-shares were converted to B-shares.
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.
Trading in Orion Corporation shares
In 1-3/2001, altogether 3.1 million Orion shares were traded on the Helsinki Exchanges, representing 4.6% of the total shares. The total trading value was EUR 71.9 million. Altogether 771,229 A-shares were exchanged, representing 2.3% of the total A-share stock, and the quotations varied between EUR 21.00 and 25.00. Correspondingly, 2,353,100 B-shares were traded, representing 7.0% of the B-share stock, and the quotations varied between EUR 21.00 and 25.20. The closing quotation of the A-share on the first trading day of the year was EUR 22.80 and that of the B-share EUR 23.00. The closing quotations on the last trading day of the period were correspondingly EUR 22.00 and 22.50, and the market capitalisation was EUR 1.502,1 million.
A dividend of 1.20 euros per share was paid to the shareholders on 10 April 2001, in accordance with the Board of Directors' proposal approved by the Annual General Meeting. The total dividend payment was EUR 81.0 million. In the Balance Sheet of end March it was included in the current liabilities.
The year 1998 A-warrants listed publicly
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. All warrants attached to the programme have been transferred to a book-entry securities system. 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 the subscription period will also end on 30 April 2005.
New Warrants Programme 2001 to Group key persons
The Annual General Meeting approved the Board of Directors' proposal to issue warrants to the key persons of Orion Corporation and its subsidiaries and to a wholly-owned subsidiary. The Board of Directors decided on the allocation of the warrants on 7 May 2001.
Altogether 1,800,000 warrants will be issued entitling to subscribe for a total of 1,800,000 B-shares in Orion Corporation. The current share subscription price is 28.91 euros for the warrants 2001A and 2001B and it will 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 special dividends per share that differ from the company's normal dividend distribution policy.
The warrants to be 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. How many of these shares will be distributed to the inner circle of the Company cannot be exactly determined for the time being. 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 the announcement on the year 2000 financial statements, the Group operating profit was estimated to be lower than that of the previous year, due to increased investment on pharmaceutical R&D and international marketing. Later in March, the international sales were seen to lagging behind the estimated level especially for the part of the Parkinson's drug Comtan (stock exchange release of 20 March 2001). In April the company announced that not all of the major European countries would provide positive recognitions for the heart failure drug Simdax, meaning lower- than-forecasted sales of the product in the current year and the nearest coming years (stock exchange release on 11 April 2001). Payments associated with marketing agreements are partially anticipated to compensate for the gap caused by the decreased sales and profits. During the rest of the year Orion Pharma will receive altogether EUR 12.5 million in milestone payments associated with the progress of the studies with the combination tablet for Parkinson's disease. It is also possible that new marketing agreements will be closed in the course of the year.
In view of the afore-mentioned facts and the information provided in this Interim Report, Orion Pharma's net sales are estimated to grow only slightly from the previous year's level. Although corrective measures have already been undertaken to adapt the costs to the new situation, the operating profit will be lower than in the previous year.
Oriola and Noiro are estimated to improve their operating profits, whereas Orion Diagnostica's operating profit seems to be remaining on the previous year's level.
Hence, 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 slightly.
Espoo, 8 May 2001
President and CEO
Executive Vice President, CFO
The full report including tables can be downloaded from the enclosed link.