Orion Corporation Stock Exchange Release
6 February 2007 at 12.10
Bulletin of Orion Corporation Financial Statements
for 1 July 31 December 2006
This stock exchange release concerns the official Financial
Statements and the Report by the Board of Directors for 1 July 31
December 2006, which was the first financial period of Orion
Corporation. The figures have not been audited.
The key performance was as follows:
- Net sales EUR 311.2 million
- Operating profit EUR 90.9 million
- Earnings per share EUR 0.47
- Equity ratio 75.4%
- ROCE 44.1%
The Board proposes a dividend of EUR 1.00 per share.
The information included in this release about the progress of the
negotiations on the heart failure drug Simdax (levosimendan) are
published also in a separate stock exchange release today, 6
February 2007.
To facilitate the evaluation of the new companys financial
performance, Orion publishes separately a proforma review of 2006
based on the post-demerger operational structure. In the proforma
review, the figures are compared to those for 2005 based on a
corresponding operational structure. The proforma figures have not
been audited.
The matters to be handled at the AGM on 2 April 2007 are also
provided in a separate stock exchange release published today.
Orion Corporation
Jukka Viinanen Jari Karlson
President and CEO CFO
Report by the Board of Directors of Orion Corporation
for 1 July 31 December 2006
On 1 July 2006, the former Orion Corporation demerged into two new
companies, Orion Corporation and Oriola-KD Corporation. This Report
provides the Financial Statements of the new Orion Group for July-
December 2006. As of 2007, the financial period of Orion
Corporation will be a calendar year.
Orion Group structure
The parent company of the Orion Group is Orion Corporation. The
Group has two businesses and five business divisions:
1) Pharmaceuticals
- Proprietary Products (patented prescription products)
- Specialty Products (off-patent prescription products and self-
medication products)
- Animal Health
- Fermion (active pharmaceutical ingredients)
2) Diagnostics
- Orion Diagnostica.
No changes have taken place in the Group structure during the first
financial period.
Market overview
A monthly overview of the development of the moving annual total
wholesales on the 13 key global pharmaceutical markets is
provided by IMS Health. The figures cover the purchases of retail
pharmacies from wholesalers and manufacturers and they are
reported at constant exchange rates. The leading 5 European
markets include Germany, France, Italy, UK and Spain. The leading
3 Latin American markets are Mexico, Brazil and Argentina. In
the 12-month period during 11/2005 10/2006, the markets
developed as follows (the figures have been rounded):
Sales Change on Share
11/20051 comparati
0/2006 ve period
USD
billion
North America 208.4 +7% 54%
Europe, leading 5 93.3 +4% 24%
Japan 56.8 +1% 15%
Latin America, 19.0 +12% 5%
leading 3
Australia and New 5.8 +4% 2%
Zealand
13 key markets total 383.7 +5% 100%
The annual growth rate has continued on a relatively moderate
level. The slowest pace has been shown by Japan throughout the
year. The largest therapeutic categories by sales are
cardiovasculars, CNS and alimentary, whereas the fastest growth has
been posted by the cytostatics category, with 13%. Great
differences appear between the countries included in the review.
The best-selling single drug continued to be Lipitor
(atorvastatin), a hypolipidemic, with global sales at over USD 11.7
billion.
In the top 5 European markets, the wholesales of medicines for
Parkinsons Disease in the 12-month period to September 2006 were
about EUR 730 million, up by 8.1%. In the USA, the sales were
USD 974 million and they grew by 21.6%. The exceptionally high
growth percentage is explained by the broadened indication of one
dopamine agonist to the restless legs syndrome.
According the sales statistics maintained by Finnish Pharmaceutical
Data Ltd., the full year 2006 wholesales of pharmaceuticals in
Finland were EUR 1 727 million, 0.8% less than in the comparative
year. The sales were reduced by the impact of the heavy competition
and the cutting of the prices of prescription drugs by 5% at the
start of 2006. Orions contribution to the total was EUR 152.4
million, 10.7% less than in the comparative year. Orions market
share in Finland was 8.8% (9.9%), with which Orion became Finlands
market leader.
Events after the review period
On 24 January 2007, the Board of Directors of Orion Corporation
decided to change the management organisation of the Orion
Diagnostica business division to enhance the role of the Board of
Directors of Orion Diagnostica Oy in the management and decision-
making of the diagnostics business. The arrangement meant that Mr.
Jaakko Rissanen, President of Orion Diagnostica Oy, stepped out
from the Executive Management Board of the Orion Group as of 1
February 2007, and that the diagnostics business is represented in
the Executive Management Board by Jukka Viinanen, President and CEO
of Orion Corporation and Chairman of the Board of Orion Diagnostica
Oy.
On 24 January 2007, the Board of Directors of Orion Corporation
decided on a new share-based incentive plan for ca. 30 key persons
in the Orion Group. The aim of the plan is to encourage them to
sustained efforts to increase shareholder value and to strengthen
their commitment to the development of the companys operations.
The possible incentive is determined on the basis of the growth of
Orions operating profit in the years 2007 2009 and separately
agreed personal performance objectives. The incentive is granted in
the form of the companys B-shares or cash, or both. The number of
shares included in the plan shall not exceed 350,000, corresponding
to about 0.25% of the total share stock of Orion Corporation. The
recipient may not transfer the bonus shares during the first two
years after the date of receipt, except for certain special
circumstances.
Simdax project update
In a separate stock exchange release published today, 6 February
2007, Orion informs about the situation of the Simdax project as
follows:
Orion Corporation and Abbott are continuing negotiations concerning
a possible additional Phase 3 clinical study with intravenously
administered levosimendan (Simdax), for which Abbott is the license
holder under an agreement with Orion. The two companies are also
discussing on the sharing of the costs of the possible study.
Orion has announced that it considers to contribute by carrying a
total of EUR 20 million of the costs during the study provided that
the prerequisites for conducting the study are reasonable and
acceptable on the basis of the upcoming consultation by Abbott and
Orion with the FDA, tentatively agreed to start in March 2007.
Due to the many still open questions concerning the scope and
timelines of the possible study, the timings of the study and
possible payments as well as the impacts on Orions cash flows can
not be estimated at this stage. Orion emphasises that the
realisation of the study and the agreement between Orion and Abbott
on the study is uncertain.
Orion will inform about the solution of the matter as soon as it
has been reached.
Discussions regarding further registration through the European
mutual recognition procedure will be begun by Abbott in the third
quarter of 2007.
Net sales and Profit
The Group net sales in 1 July 31 December 2006 were EUR 311.2
million, of which the sales of pharmaceuticals were EUR 292.0
million. No milestone payments are included in the figures. The
products based on in-house R&D accounted for EUR 131.0 million, or
45% of the total. The products for Parkinsons Disease, i.e.
Stalevo® and Comtess®/Comtan®, contributed EUR 91.0 million, or 31%
of the total net sales
The consolidated operating profit was EUR 90.9 million, of which
the Pharmaceuticals business accounted for of EUR 84.6 million and
the Diagnostics business for EUR 2.1 million. The consolidated
figure includes EUR 9.8 million in capital gain from the sale of
rental apartment buildings in August, recorded under other
operating income. In the table Operating profit by business
segments the item is included in the Group items.
The operating expenses were EUR 126.7 million. The biggest item was
the selling and marketing expenses, EUR 63.2 million. In addition
to the costs of sales and marketing they include the costs of
distribution and logistics, as well as the related salaries and
other personnel expenses
The Groups R&D expenditure was EUR 43.1 million, representing
13.8% of the Group net sales.
Group profit before taxes was EUR 91.4 million and earnings per
share were EUR 0.47. Equity per share was EUR 3.14. Group ROCE
before taxes was 44.1% and ROE after taxes was 32.5%.
Balance Sheet and financial position
The Groups gearing was -22.6%. Equity ratio was 75.4%. Total
liabilities in the Balance Sheet of 31 December 2006 came to EUR
144.6 million, of which interest-bearing liabilities accounted for
EUR 9.8 million. The cash and cash equivalents accounted for EUR
110.0 million. The cash reserves are invested in short-term
interest instruments.
Cash flows
The cash flows from operations were EUR 81.6 million, and they
comprised mainly operating profit and taxes paid. The working
capital decreased by EUR 22.5 million during the period. The net
cash used in investing activities was EUR 0.0 million, due to the
impact of earnings from the divestment of rental apartment
buildings in August.
Capital expenditure
The capital expenditure of the Group came to EUR 13.4 million, of
which machinery and equipment accounted for EUR 9.3 million. No
major single investment activities are being undertaken.
Research and development
Group R&D expenditure was EUR 43.1 million for the review period.
The Pharmaceuticals business accounted for EUR 40.6 million,
representing 13.9% of the pharmaceutical net sales.
The largest ongoing study, STRIDE-PD, is a major Phase 3 study on
Parkinsons Disease, seeking to investigate if Stalevo medication
can delay the onset of motor complications, i.e. dyskinesias. In
the study, Stalevo is compared with conventional levodopa/carbidopa
medication. The study, under way since late 2004, is being carried
out in collaboration with Novartis in 14 countries. It involves
altogether 740 patients, each being treated at least two years.
Results are anticipated in the first half of 2008.
The results presented at the turn of October-November from a Phase
4 study made in four Asian Pacific countries demonstrate for their
part that early started treatment with Stalevo significantly
improves quality of life in patients with Parkinsons Disease when
compared to traditional levodopa therapy.
The research programme for the development of a more efficient COMT
inhibitor than entacapone has progressed to clinical Phase 1 at the
turn of the year.
The clinical Phase 3 is being started with dexmedetomidine
(Precedex®) as a long-term infusion for the sedation of patients in
intensive care, with an objective to have the product registered in
the EU. The product is already available in the USA and Japan as a
sedative for patients in intensive care, administrable for up to 24
hours.
In December 2006, Orion received a New Animal Drug Approval (NADA)
for Dexdomitor® (dexmedetomidine), a new-generation sedative for
small animals.
Orion Corporation and Abbott are continuing negotiations concerning
a possible additional Phase 3 clinical study with intravenously
administered levosimendan (Simdax), for which Abbott is the license
holder under an agreement with Orion. The two companies are also
discussing on the sharing of the costs of the possible study.
Orion has announced that it considers to contribute by carrying a
total of EUR 20 million of the costs during the study provided that
the prerequisites for conducting the study are reasonable and
acceptable on the basis of the upcoming consultation by Abbott and
Orion with the FDA, tentatively agreed to start in March 2007.
Due to the many still open questions concerning the scope and
timelines of the possible study, the timings of the study and
possible payments as well as the impacts on Orions cash flows can
not be estimated at this stage. Orion emphasises that the
realisation of the study and the agreement between Orion and Abbott
on the study is uncertain.
Orion will inform about the solution of the matter as soon as it
has been reached.
Discussions regarding further registration through the European
mutual recognition procedure will be begun by Abbott in the third
quarter of 2007.
The CLEVET programme, which is studying the efficacy of
levosimendan in the treatment of heart diseases in dogs, is being
taken to the last research phase with an aim to receive marketing
authorisations.
The results received in the summer 2006 of the Persist study have
led to a decision not to continue the research programme in orally
administered levosimendan.
In early research phases, Orion is investigating molecules
affecting alpha 2 receptors in the central nervous system, and
selective androgen receptor modulators (SARM), among others.
Outlook for 2007 (proforma)
Net sales will grow somewhat from those of 2006. Sales of
pharmaceuticals via Orions own marketing organisation are
anticipated to start showing moderate growth in Finland and to go
on showing growth in the markets outside Finland. In-market sales
of the entacapone product franchise will continue showing steady,
although slower growth than in the previous years. Deliveries to
Novartis are anticipated to be at the same level as in 2006, in
which they increased considerably, partly because of higher reserve
stockpile levels of Novartis.
Operating profit, one-off earnings excluded, is estimated to grow
somewhat from 2006, despite increased investments in marketing and
pharmaceutical research. Marketing expenses will grow especially
due to investments in product launches by Orions own European
marketing units outside Finland. The higher R&D expenditure is
mainly caused by the new clinical research programmes being started
in 2007.
Research and development expenditure will be about EUR 95 million,
of which pharmaceutical R&D will account for about EUR 90 million.
Capital expenditure will be about EUR 35 million.
Personnel
The average number of personnel in the Group was 3,069 in the
review period. At the end of 2006, the total number of employees
was 3,061. The total wages and salaries paid in the review period
were EUR 62.4 million.
Corporate Governance
In its governance, Orion follows the Corporate Governance
Recommendation for companies listed on the Helsinki Stock Exchange,
with the exception that the Nomination Committee can be composed of
also other persons than members of the Board.
The Insider Guidelines of Orion Corporation are in compliance with
the insider guidelines issued by the Helsinki Stock Exchange in
2005.
A full description of the corporate governance of Orion is provided
on the Groups homepage for investors, www.orion.fi/investors. The
essentials are also provided in the printed version of the
Financial Statements 2006.
General Meetings of the Shareholders
No general meetings of the shareholders of the new Orion
Corporation have taken place during the financial period 1 July 31
December 2006.
Board of Directors
The composition of the Board of Directors of Orion Corporation is
as follows:
Matti Kavetvuo (Chairman)
Heikki Vapaatalo (Vice Chairman)
Eero Karvonen
Leena Palotie
Vesa Puttonen.
Erkki Etola, who was elected to the Boards of both the demerged
Orion and the new Orion by the AGM of the demerged Orion held on 21
March 2006, resigned from the two Boards and their compensation
committees on 22 May 2006. On 6 June 2006, Professor Heikki
Vapaatalo was elected new Vice Chairman of the Board of Directors.
The Audit Committee comprises Vesa Puttonen as Chairman and Eero
Karvonen and Heikki Vapaatalo as members. The Compensation
Committee is chaired by Matti Kavetvuo, with Leena Palotie and Vesa
Puttonen as members. The R&D Committee comprises Leena Palotie,
Chairman, with Eero Karvonen and Heikki Vapaatalo as members. The
Nomination Committee comprises Timo Maasilta as Chairman, and Kari
Jussi Aho, Harry Brade, Erkki Etola, Petteri Karttunen, Matti
Kavetvuo, Risto Murto and Seppo Salonen as members.
In the autumn of 2006, the Board of Directors conducted a self-
evaluation in accordance with the Corporate Governance
Recommendation.
The fees confirmed for the term of the Board that started on 1 July
2006 are as follows: Chairman EUR 48,600, Vice Chairman EUR
34,200, other members EUR 24,300 each. The exceptional duration of
the term of office has been taken into account in the fee which
corresponds to three quarters of a fee for a full-year term. The
fee for the period was paid on 31 July 2006.
As a fee for each meeting attended, the Chairman receives EUR
1,200, the Vice Chairman receives EUR 900 and the other members EUR
600 each. Respectively, the same fees are paid to the Chairmen and
to the members of the committees established by the Board, for each
committee meeting attended. The Chairman of the Board has a
telephone as a fringe benefit, and the travel expenses of all Board
members are paid in accordance with the travel policy of the
Company.
In July December 2006, the Board held 9 meetings, 2 of which were
teleconferences. The average attendance of the members was about
93.3%.
Committee meetings were held as follows:
- Audit Committee 2 meetings
- Compensation Committee 3 meetings
- R&D Committee 3 meetings
- Nomination Committee 2 meetings.
Auditor
The auditors for the company are Ernst & Young Oy, the designated
auditor being Mr. Pekka Luoma, Authorised Public Accountant, with
Ms. Päivi Virtanen, Authorised Public Accountant, as deputy
auditor.
Executive Management Board
The President and CEO of Orion Corporation is Mr. Jukka Viinanen.
As of 1 February 2007, the Executive Management Board of the Group
is composed of the following executives and their respective
responsibility areas:
Jukka Viinanen, President and CEO, Orion Corporation, Chairman
of the Executive Management Board; Orion Diagnostica
Markku Huhta-Koivisto, Senior Vice President, Specialty Products
and Fermion
Olli Huotari, Senior Vice President, Corporate Functions
Pekka Kaivola, Senior Vice President, Global Sales
Jari Karlson, Chief Financial Officer (CFO)
Pekka Konsi, Senior Vice President, Supply Chain
Timo Lappalainen, Senior Vice President, Proprietary Products
and Animal Health
Reijo Salonen, Senior Vice President, Research and Development
Riitta Vartiainen, Senior Vice President, Business Development
and Support
Until the end of 2006, the employees were represented in the
Management Board by Olli Piironen, Project Manager. As of the start
of 2007, their representative is Liisa Remes, Research Assistant.
Jaakko Rissanen, President of Orion Diagnostica Oy, was a member of
the Management Board until 31 January 2007. Reijo Salonen and Pekka
Konsi joined the Management Board as of 1 November 2006. Dr. Esa
Heinonen was a member until 31 October 2006.
The Senior Vice Presidents and Jaakko Rissanen report to Jukka
Viinanen, President and CEO.
Share capital and ownership base
The share capital of Orion Corporation is EUR 92,238,541.46. The
total number of shares is 141,257,828 shares consisting of
55,554,240 Class A shares and 85,703,588 Class B shares, after the
conversion registered on 7 December 2006. The counter book value of
each share is approximately EUR 0.65. At General Meetings of
Shareholders, each Class A share provides 20 (twenty) votes and
each Class B share one (1) vote. Both share classes provide equal
rights to the companys assets and dividends. On the basis of the
Articles of Association, a shareholder can demand conversion of
his/her Class A shares into Class B shares.
In July December 2006, a total of 843,300 Class A shares were
converted into Class B shares.
In early 2007, conversions of 293,000 A-shares have taken place,
after which the present number of Class A shares is 55,261,240 and
that of Class B shares 85,996,588.
At the end of December 2006, Orion had altogether 38,622
shareholders, of which 36,260 or 94.0% were private individuals.
Their holdings accounted for about 48.3% of the total number of
shares and 57.0% of the total votes. The number of nominee-
registered shares was 32.3 million, representing 22.3% of the total
shares and 7.0% of the total votes. The company has no treasury
shares.
At the end of 2006, the members of the Board of Directors, the
President as well as the members of the Executive Management Board
owned altogether 750,449 shares in Orion Corporation, representing
0.5 % of the total share stock and 12,011,198 votes, or 1.0 % of
the total votes. Their holdings include also those held by under-
aged children and organisations or foundations of which the person
has control.
No transactions exceeding the flagging limits set in the Finnish
Securities Market Act have been brought to the attention of the
company.
Trading in Orion Corporation A and B shares started on the main
list of the Helsinki Stock Exchange on 3 July 2006. Facts about the
shares as well as trading in the first three months of are
presented in the Tables section.
Authorisations of the Board of Directors
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, or to acquire or convey
the company's own shares.
Management incentive systems
The compensation of the President and CEO of Orion and the other
members of the Executive Management Board is subject to a decision
by the Board of Directors or its Chairman. The compensation system
for these persons consists of a monthly salary and a performance-
based bonus. The bonuses are based on pre-defined profit targets as
well as personal goals. Orion Corporation has no stock option
plans.
On 24 January 2007, the Board of Directors of Orion Corporation
decided on a new share-based incentive plan for ca. 30 key persons
in the Orion Group. The aim of the plan is to encourage them to
sustained efforts to increase shareholder value and to strengthen
their commitment to the development of the companys operations.
The possible incentive is determined on the basis of the growth of
Orions operating profit in the years 2007 2009 and separately
agreed personal performance objectives. The incentive is granted in
the form of the companys B-shares or cash, or both. The number of
shares included in the plan shall not exceed 350,000, corresponding
to about 0.25% of the total share stock of Orion Corporation. The
recipient may not transfer the bonus shares during the first two
years after the date of receipt, except for certain special
circumstances.
Insiders of Orion Corporation
Orion Corporation follows the insider guidelines issued by the
Helsinki Stock Exchange. The Groups permanent insiders comprise
the insiders with the duty to declare their holdings in Orion in
the companys public insider register and other persons defined by
the company as permanent company-specific insiders. The insiders
with the duty to declare comprise the members of the Board of
Directors, the members of the Executive Management Board as well as
the Designated Auditor and the Deputy Auditor. The companys own
insider register consists of persons defined by the company as
permanent company-specific insiders of the Group.
At the end of 2006, the members of the Board of Directors, the
President and the members of the Executive Management Board owned
altogether 801 903 shares in Orion Corporation, representing 0.6%
of the total share stock and 13,349,503 votes or 1.2% of the total
votes. The holdings include also those held by under-aged children
and organisations or foundations of which the person has control.
Up-to-date information about the holdings in Orion of the insiders
with a duty to declare, as well as changes in their holdings, is
provided on Orions website for investors, www.orion.fi/investors,
via a link to the NetSIRE database maintained by the Finnish
Central Securities Depository.
Risk management
Strategic risks
Research and product development risks
Operational risks
Financial risks
The purpose of risk management in Orion is, with appropriate means,
to identify, measure and manage the risks that may possibly
threaten the companys operations and the achievement of the
objectives set for the company.
The definition of overall risk management processes, practical
actions as well as responsibilities are developed by means of
regular risk identification approaches covering the following
areas:
- Strategic risks
- Research and product development risks
- Operational risks, including sales and business risks, as well
as those related to production, damages, safety and the environment
- Financial risks.
In this chapter, the focus is on the strategic risks, research and
product development risks and operational risks. The financial
risks are specified in the notes to the financial statements.
Strategic risks
Long-term business development risks
The research and development of new pharmaceuticals is associated
with considerable risks due to the long time spans required by the
development work as well as to the inherent uncertainties related
to the final results and outcomes. This strategic risk is managed
as follows:
- The Group structure also includes business units other than
those focusing on the development of proprietary original
preparations.
- The pharmaceutical product range is sufficiently extensive,
including not only proprietary products but also human generics,
OTC drugs, veterinary products, in-licensed drugs as well as active
pharmaceutical ingredients.
- The product development and marketing risks are shared by
working in close cooperation with partners.
The scope of strategic risks also includes issues such as the
sustainability of the companys governance and reporting
principles. In line with the Corporate Governance recommendation,
the unambiguous governance model which has clear definitions of the
management system including the responsibilities, rights and
reporting relationships of the persons involved, with transparently
published central characteristics and principles of the system,
will inspire public trust in the Orion Group and its management.
Trust shown by the surrounding society, its own stakeholders, the
equity markets and shareholders will also be inspired and enhanced
by the company by providing open, truthful and consistent
information about its operations, events and financial status.
Research and product development risks
The development of proprietary drugs is associated with many
factors of uncertainty. The major reasons to discontinue a
development project are those related to the efficacy and safety of
the drug candidate. The pharmacological properties, and the
efficacy and safety of an investigational drug are studied in
research projects that progress phase by phase, and clinical trials
with humans can only be conducted with the permission of regulatory
drug authorities. The pharmacology and safety of a drug candidate
is studied on a broad scale with preclinical laboratory models, and
its tolerability and adverse effects are closely followed
throughout all the phases of the development project. At Orion, the
decisions to progress from one research phase to the next are made
by the Board of Directors if the project is a major one, and by the
executive management in minor projects. The decisions are based on
a comprehensive analysis of the research results accumulated, and
also considering the prevailing market situation. For the marketing
authorisation application and the summary of product
characteristics (SPC), all phases and results of the research are
carefully documented for regulatory approval. Based on statutory
requirements, the eventual adverse effects of a drug continue to be
followed also after the product has been launched.
The financial risks grow as the project progresses towards clinical
trials in humans. The most expensive step is Phase 3 involving
hundreds or thousands of patients in multinational double-blind
studies to collect as reliable evidence on the efficacy and safety
of the drug as possible. As a rule, Orion shares the immense
financial risks of Phase 3 trials by conducting them together with
another pharmaceuticals company which will also be a marketing
partner for the drug at a later stage.
Risks related to competing generic drugs
A characteristic feature of the pharmaceutical industry is that
manufacturers of generic drugs seek to bring their own medicines,
which are generally cheaper than the original manufacturers
products, to market at the earliest possible stage. This can be
done, for example, by trying to use the courts to circumvent the
original manufacturer's patents or other intellectual property
rights well before they are due to expire. These actions can result
in high litigation and other expenses for an originator and may
lead to significant losses in sales if the manufacturer of generic
drugs obtains a marketing authorisation to sell its own products.
In developing its products Orion endeavours to protect them
efficiently and over a wide area, whilst defending the rights of
its products diligently both by itself and together with its
marketing partners.
Downward pressure on the prices of pharmaceuticals
Downward pressure on the prices of pharmaceuticals is caused not
only by normal price competition but by a number of factors that
are as a rule brought about by national governments and decisions
of the authorities as each nation seeks to curb mounting drug
costs. Among these factors are generic substitution and changes
that are taking place in rules concerning it as well as cuts in
drug prices and reimbursement. Another factor that is depressing
prices is parallel imports in the EU area. Orion seeks to respond
to these factors by maintaining a sufficiently versatile product
range, continuously boosting cost-effectiveness and correctly
channelling its development and sales resources.
Operational risks
Sales and business risks
The businesses of Orion are based on the companys own sales
networks comprising the Nordic countries and Eastern Europe, with
focus on Finland, and on marketing partnerships in the rest of the
world. This structure aims at a balance between available resources
and risk-bearing capacity, as well as the worldwide marketing
investment required by the new products developed in-house.
Credit loss risks
Orions Corporate Governance Manual includes detailed procedures
for the management of client credits and the follow-up and
collecting of receivables. Due to the nature of the clientele,
Orions credit loss risks have historically been insignificant.
Risks associated with pharmaceutical production
Pharmaceuticals must be safe and efficient and they must meet the
highest quality standards. Owing to these statutory requirements
alone, pharmaceutical production must pay close attention to
various safety and quality risks. The appropriate quality of
pharmaceuticals is ensured through systematic overall management of
operations, covering all factors with direct or indirect quality
impact. The operations are steered with comprehensive instructions
and sufficient control of materials and preparations both before,
during and after the production phases. Pharmaceutical
manufacturing is subject to regular inspections by the authorities.
Legal, intellectual property rights and regulatory risks
Healthcare is a sector closely under regulatory control by
authorities. The manufacture and distribution of drugs as well as
pharmaceutical research call for obtaining licences from the
authorities. Orion has clear operative rules and principles to
ensure that all regulations are complied. Typically, intellectual
property rights play an important role in this sector. In order to
safeguard the companys position both vis-à-vis the existing
products and those under development, the patent issues related to
the products are constantly followed on a global scale, thereby
ensuring that the rights of Orions proprietary products are not
violated and that Orion does not violate other parties patent
rights.
Product liability risks
The launch of a new drug on the market calls for extensive phase-by-
phase trials that delineate the drugs pharmacological properties,
efficacy and safety. Starting the sales and marketing of a drug
calls for marketing authorisation by the relevant drug authorities.
The adverse effects of a pharmaceutical are subject to monitoring
stipulated by the authorities also after it comes out on the
market. By means of the above-described trials and pharmaceutical
production methods, Orion seeks to ensure in advance that its
products do not involve any such adverse effects as might lead to a
liability to pay compensation for claims against the products or
that a major product might have to be withdrawn from the market.
Risks of damage
On top of normal statutory insurance, Orion has property, business
interruption and third party liability insurance to cover such
risks of damage as are deemed to be material and limitable through
insurance.
Corporate safety risks
Orions Corporate Governance Manual includes the corporate safety
instructions. The objective of Orions corporate security is to
ensure the uninterrupted continuation of the Groups operations,
the safety of people, the protection of property and environment
against damage as well as the sufficiency of the measures related
to information security. The Guidelines provide the principles
applied in corporate security activities, also incorporating crisis
management. Orions information security objectives, as well as the
most essential codes of conduct and responsibilities are defined in
a specific information security policy.
Environmental risks
The guidelines concerning environmental safety contain detailed
information about the procedures and responsibilities. Dedicated
persons have been appointed for the development and monitoring of
environmental management issues within the Group. Environmental
impacts are followed through emission measurements, waste quantity
controls and statistics on the use of various substances. The
implementation of environmental protection is monitored through
internal audits performed annually. The company has the
environmental permits required for its operations.
Financial objectives
The moderate organic growth of the net sales in the next few years
is accelerated via product, portfolio and company acquisitions.
Operating profit will be increased and Equity ratio is maintained
at the level of at least 50%.
Dividend policy
In the dividend distribution Orion takes into account the
distributable funds as well as the medium-long and long-term needs
of capital expenditure and other financial needs required for the
achievement of the financial objectives.
Proposal for the distribution of profits
The distributable equity of the parent company amounts to EUR
183,389,351.93, of which the profit for the financial year accounts
for EUR 73,044,309.29.
The Board of Directors proposes the AGM that a dividend of EUR 1.00
per share be distributed on the 141.3 million shares, total EUR
141.3 million. The payout ratio for the financial period would be
212.8 %. The dividend is paid on 16 April 2007 to the shareholders
being recorded in the companys shareholder register on 5 April
2007.
The Board also proposes that EUR 100,000.00 be donated to medical
research and other non-profit purposes according to a separate
decision by the Board of Directors, and that EUR 42,031,523.93 be
retained on the profit and loss account.
Espoo, 6 February 2007
Board of Directors of Orion Corporation
TABLES
GROUP INCOME STATEMENT
EUR million 10- 7-12/2006
12/2006
Net sales 162.2 311.2
Cost of goods sold -54.5 -105.2
Gross profit 107.7 205.9
Other operating income 1.0 11.6
Selling and marketing -35.7 -63.2
expenses
Research and development -24.2 -43.1
expenses
Administrative expenses -12.3 -20.4
Operating profit 36.6 90.9
Financial income 1.1 1.8
Financial expenses -0.6 -1.2
Profit before taxes 37.1 91.4
Income tax expense -10.8 -24.8
Profit for the period 26.3 66.6
of which attributable to:
Parent company 26.3 66.6
shareholders
Minority 0.0 0.0
Earnings per share, EUR 0.18 0.47
Depreciation and 8.6 17.2
amortisation
Employee benefit expenses 42.1 73.3
GROUP BALANCE SHEET:
ASSETS
EUR million 12/200
6
Non-current assets
Property, plant and 187.1
equipment
Goodwill 13.5
Other intangible assets 21.9
Investments in associates 0.1
Available-for-sale 1.0
investments
Pension asset 52.7
Deferred tax assets 1.4
Other non-current 3.8
receivables
Non-current assets total 281.4
Current assets
Inventories 107.2
Trade receivables 75.0
Other receivables 14.4
Cash and cash equivalents 110.0
Current assets total 306.6
Assets total 588.1
BALANCE SHEET:
EQUITY AND LIABILITIES
EUR million 12/2006
Equity
Share capital 92.2
Share premium 17.8
Expendable fund 23.0
Other reserves 0.5
Retained earnings 309.9
Equity of the parent company 443.5
shareholders
Minority interest 0.0
Equity total 443.5
Non-current liabilities
Deferred tax liabilities 51.5
Pension liability 0.9
Provisions 0.6
Interest-bearing non-current 7.5
liabilities
Other non-current 1.8
liabilities
Non-current liabilities 62.3
total
Current liabilities
Trade payables 29.2
Other current liabilities 49.9
Provisions 0.9
Interest-bearing current 2.3
liabilities
Current liabilities total 82.3
EQUITY AND LIABILITIES TOTAL 588.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN 7-12/2006
EUR Share Share Expenda Other Change Retai Equit Minor Tot
million capit premi ble reser in ned y of ity al
al um fund ves translat earni the inter
ion ngs paren est
differen t
ces compa
ny
share-
holde
rs
Equity 92.2 17.8 23.0 0.5 -3.5 246.8 376.8 0.0 376
1 July .8
2006
Change - - - - 0.1 - 0.1 - 0.1
in
transla
tion
differe
nces
Profit - - - - - 66.6 66.6 -0.0 66.
for the 6
period
Recogni - - - - 0.1 66.6 66.7 -0.0 66.
sed 7
income
and
expense
s total
Other - - - -0.0 - - -0.0 -0.0 -
changes 0.0
Equity 92.2 17.8 23.0 0.5 -3.4 313.3 443.5 0.0 443
31 Dec. .5
2006
CASH FLOW STATEMENT
EUR million 7-
12/200
6
Cash flow from operating
activities
Operating profit 90.9
Adjustments 4.3
Change in working capital 22.5
Interest paid -1.5
Interest received 1.7
Income taxes paid -36.3
Net cash from operating 81.6
activities
Cash flow from investing
activities
Purchases of property, plant and -12.3
equipment and intangible assets
Proceeds from sale of property, 12.3
plant and equipment, intangible
assets and available-for-sale
investments
Net cash used in investing 0.0
activities
Cash flow from financing
activities
Change in short-term loans -1.0
Change in long-term loans -0.4
Dividends paid to parent company 0.0
and minority shareholders
Net cash used in financing -1.4
activities
Net change in cash and cash 80.2
equivalents
Cash and cash equivalents at the 29.8
beginning
of the period
Foreign exchange adjustments 0.0
Net change in cash and cash 80.2
equivalents
Cash and cash equivalents at the 110.0
end of the period
CHANGES IN PROPERTY, PLANT AND EQUIPMENT
EUR million 7-
12/200
6
Carrying amount at the beginning 191.2
of the period
Additions 10.5
Disposals -1.9
Depreciation -12.7
Carrying amount at the end of 187.1
the period
CONTINGENT LIABILITIES
EUR million 12/200
6
Contingent for own liabilities:
Mortgages on land and buildings 25.5
of which those on behalf of the 9.0
Orion
Pension Fund
Guarantees 1.8
Leasing liabilities (excl. 5.2
finance leasing contracts)
Other liabilities 0.3
Currency forward contracts:
- fair value 0.3
- nominal value 58.5
Legal proceedings and claims
In November 2005, a failure was detected in the methotrexate
manufacturing equipment at the Oulu plant of Fermion Oy. As a
result of the failure, certain commercial batches had been
contaminated with small amounts of water containing ethylene-
glycol. The competent authorities as well as customers who had
received methotrexate batches containing ethylene-glycol water were
informed of the incident. The incident led to recalls of certain
defective methotrexate products as well as claims for damages
related to the defective methotrexate batches. The net costs
covered by Orion Corporation itself came to EUR 2.3 million,
consisting of the deductible and invoiced materials and costs not
covered by the liability insurance. No additional costs are
anticipated by the company from the incident.
RELATED-PARTY TRANSACTIONS
EUR million 7-
12/200
6
Management benefits 1.3
Non-current liabilities to the 6.0
pension fund
at the end of the period
NET SALES BY BUSINESS SEGMENTS
EUR million 10- 7-
12/200612/2006
Pharmaceuticals 152.1 292.0
Diagnostics 10.4 19.9
Group items -0.4 -0.7
Group total 162.2 311.2
OPERATING PROFIT BY BUSINESS SEGMENTS
EUR million 10- 7-
12/200612/2006
Pharmaceuticals 39.5 84.6
Diagnostics 0.6 2.1
Group items -3.5 4.2
Group total 36.6 90.9
REVIEW BY ANNUAL QUARTERS
Net sales by business segments by annual quarters
EUR million 7- 10-
9/200612/2006
Pharmaceuticals 139.9 152.1
Diagnostics 9.5 10.4
Group items -0.4 -0.4
Group total 149.0 162.2
Operating profit by business segments by annual quarters
EUR million 7- 10-
9/200612/2006
Pharmaceuticals 45.1 39.5
Diagnostics 1.5 0.6
Group items 7.7 -3.5
Group total 54.3 36.6
Net sales by geographic segments by annual quarters
EUR million 7- 10-
9/2006 12/2006
Finland 45.2 49.0
Scandinavia 21.2 23.4
Other Europe 52.8 58.4
North America 20.1 22.0
Other markets 9.7 9.4
Group total 149.0 162.2
KEY FIGURES OF THE ORION GROUP
EUR million and % 7-12/
2006
NET SALES AND PROFIT
Net sales 311,2
International operations 217,0
% of net sales 69,7%
Depreciation and 17,2
amortisation
Operating profit 90,9
% of net sales 29,2%
Financial income and 0,5
expenses
% of net sales 0,2%
Profit before taxes 91,4
% of net sales 29,4%
Income taxes 24,8
Profit available for 66,6
parent company
shareholders
Earnings per share, EUR 0.47
Return on capital 44,1%
employed (ROCE)
Return on equity (ROE) 32,5%
BALANCE SHEET
Non-current assets 281,4
Current assets 306,6
Equity of the parent 443,5
company shareholders
Minority interest 0,0
Non-current provisions 0,6
Liabilities total 144,6
Interest-bearing 9,8
liabilities
Non-interest-bearing 134,8
liabilities
Total assets 588,1
Equity ratio 75,4%
Gearing -
22,6%
CAPITAL EXPENDITURE
Capital expenditure 13,4
% of net sales 4,3%
RESEARCH AND DEVELOPMENT
EXPENDITURE
Research and development 43,1
expenditure
% of net sales 13,8%
PERSONNEL
Wages and salaries 62,4
Average number of 3 069
employees
FACTS ABOUT ORION CORPORATION SHARES as on 31 December 2006
Class A Class B A and B total
Share capital 36.3 MEUR 55.9 MEUR 92.2 MEUR
Total number of 55 554 pcs 85 703 pcs 141 257 pcs
shares 240 588 828
Minimum share 50 MEUR
capital
Maximum share 2 000 MEUR
capital
Share of total 39 % 61 % 100.0 %
share stock
Counter book value about EUR about EUR
of share 0.65 0.65
Votes per share 20 vote 1 vote
s
Trading code on ORNAV ORNBV
the Helsinki Stock
Exchange
Both share classes provide equal rights to the company assets and
dividends.
TRADING IN ORION CORPORATION SHARES 1 July - 31 December 2006
Class A Class B A and B total
Total number of shares 1 651 pcs 37 250 pcs 38 901 pcs
traded 018 954 972
Share of total stock 2.9 % 43.8 % 27.5 %
Lowest quotation 11.45 EUR 11.51 EUR
Highest quotation 16.44 EUR 16.53 EUR
Closing quotation on 3 13.35 EUR 13.90 EUR
July 2006
Closing quotation on 16.42 EUR 16.45 EUR
29 Dec. 2006
Market capitalisation 912.2 1 409.8 2 322.0
on MEUR MEUR MEUR
31 Dec. 2006
PERFORMANCE PER SHARE
7-
12/2006
Earnings per share 0.47 EUR
Equity per share 3.14 EUR
Dividend per share *) 1.00 EUR
Payout ratio *) 212.8 %
Total dividends*) 141.3 MEUR
Dividend yield *) A- 6.1 %
share
Dividend yield *) B- 6.1 %
share
P/E ratio, A-share 34.94
P/E ratio, B-share 35.00
Average number of shares 141 258 1 000
pcs
*) Proposed
OWNERSHIP BASE
Shareholders by type of owner and by share classes
31 December 2006 A- B-
shares shares
Share- % of % of Share- % of % of
holder share- shares holder share- share
s holder s holder s
s s
Individuals 12 892 95.2 58.2 29 096 93.8
41.8
Corporations and
partnerships
Government and 0 0 0 0 0 0
municipal
corporations
Private corporations 399 2.9 13.5 1 183 3.8 5.0
and
partnerships
Housing associations 4 0 0 5 0 0
Banks and insurance 29 0.2 1.6 73 0.2 4.7
companies
Public entities 13 0.1 14.8 47 0.2 7.5
Associations and 153 1.1 7.8 500 1.6 5.8
foundations
Foreign shareholders 49 0.4 0.9 121 0.4 0.3
Total 13 539 100.0 96.7 31 025 100.0 65.2
Nominee registrations 3.1 34.7
Shares not transferred 0.1 0.1
to the book-entry
system or not
subscribed to
100.0 100.0
Shareholders by type of owner, classes A and B total
31 December 2006 A and B total
Share- % of % of
holder share- share
s holders s
Individuals 36 260 94.0 48.3
Corporations and
partnerships
Government and 0 0 0
municipal
corporations
Private corporations 1 477 3.8 8.4
and
partnerships
Housing associations 6 0 0
Banks and insurance 82 0.2 3.5
companies
Public entities 50 0.1 10.4
Associations and 579 1.5 6.6
foundations
Foreign shareholders 130 0.3 0.5
Total 38 584 100.0 77.6
Nominee registrations 22.3
Shares not transferred 0.1
to the book-entry
system or not
subscribed to
100.0
Distribution:
Helsinki Exchanges
Media
Publisher:
Orion Corporation
Orionintie 1 A, 02200 Espoo
Homepage: www.orion.fi