Organon & Co. Q1 FY2024 earnings call

Key Points

• First quarter 2024 revenue was $1.6 billion with 7% constant currency growth. Women's health grew 12%, Biosimilars 46%, established brands 2%.
• Adjusted EBITDA was $538 million with a 33.2% adjusted EBITDA margin, and adjusted diluted EPS was $1.22.
• NEXPLANON in Women's health had 34% constant currency growth in Q1, with U.S. up 35% and rest of the world up 34%. Expected to reach $1 billion annual run rate in 2025.
• Biosimilars franchise grew 46% in Q1, with growth in U.S. (HADLIMA), Brazil (ONTRUZANT), and Canada. Collaboration with Shanghai Henlius Biotech for biosimilar candidates.
• Established brands grew 2% ex-FX in Q1, with recovery in injectable steroid products and contribution from migraine assets Emgality and REYVOW.

For the first quarter of 2024, revenue was $1.6 billion with a 7% growth rate at constant currency. The Women's health franchise grew 12%, contributing a significant portion. The Biosimilars franchise saw a remarkable 46% growth. The established brands business had a stable performance with 2% growth. In terms of revenue contribution, Women's health, Biosimilars, and established brands each played their roles in the overall revenue mix.

Guidance

• Affirmed 2024 financial targets. Revenue guidance range is $6.2 billion to $6.5 billion.
• Adjusted gross margin guidance range is 61% to 63% for 2024.
• Expect to generate approximately $1 billion of free cash flow before onetime costs in 2024.
• Volume growth estimate revised to $450 million to $650 million, primarily reflecting Biosimilars upside in Q1.

Risks

• Foreign exchange fluctuations posing a headwind to revenue.
• Loss of exclusivity (LOE) for products like ATOZET in Japan and EU.
• Volume-based pricing (VBP) impact in China.
• Intense competition in biosimilars and women's health markets affecting market share and pricing.

Q: Umer Raffat asked about free cash flow and NEXPLANON headwinds.

A: Matthew Walsh responded that seasonality of working capital will reverse in latter quarters, and Kevin Ali noted NEXPLANON's 5-year indication likely not a headwind as it could be a net gain.

Q: Balaji Prasad inquired about HUMIRA biosimilar market and NEXPLANON OUS erosion.

A: Matthew Walsh discussed HUMIRA biosimilar market penetration and NEXPLANON OUS not foreseeing market erosion.

Q: Chris Shibutani asked about operating margin progression and business development.

A: Matthew Walsh talked about margin accretion from product mix, productivity, and operating leverage; Kevin Ali mentioned more business development deals like the Lilly one.

Q: David Amsellem asked about long-term EBITDA margins and leverage targets.

A: Matthew Walsh discussed margin accretion from revenue mix and leverage targeting below 4x by end of 2024 and 3.5x by 2025.

Q: Balaji Prasad followed up on biosimilar market dynamics and established brands.

A: Matthew Walsh commented on biosimilar market dynamics and established brands' contribution from migraine assets.