Organon & Co. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Kevin Ali discussed franchise performance, noting growth in women's health driven by Nexplanon, biosimilars growth, and established brands performance. Matt Walsh talked about revenue bridge, with volume growth being a key driver, and performance by franchise, including details on Nexplanon, fertility, and biosimilars. They also mentioned cost containment efforts, cash flow tracking to deliver $1B free cash flow in 2024, and net leverage ratio holding steady.

Segment Performance

• Women's health: Revenue grew 3%. Nexplanon saw 13% ex-FX growth in Q2, with year-to-date constant-currency growth of 22%. In the US, Nexplanon grew 8% in Q2; outside the US, it grew 27% ex-FX. Global fertility performance is flat for the full year compared to initial high single-digit expectations.
• Biosimilars: Grew 22% at constant-currency in Q2 and 33% year-to-date. US Hadlima sales were $20M in Q2, with strong prescriptions.
• Established brands: Down 1% ex-FX in Q2 and 1% ex-FX year-to-date, impacted by LOE, VBP, and price factors.

Guidance

• Narrowed full year 2024 revenue range to $6.25B to $6.45B, with constant-currency revenue growth of 2% to 4.7% ex-exchange.
• Adjusted EBITDA margin range remains 31% to 33%.
• Target to deliver $1B free cash flow before one-time spin-related costs in 2024.

Risks

• Foreign exchange headwinds with a strengthening dollar.
• LOE impact in Japan from the loss of exclusivity of Atozet.
• VBP impact in China from lingering effects of Round 8.
• Price pressure in certain markets, and decline in lower-margin contract manufacturing arrangements with Merck.

Question and Answer Q: Umer Raffat asked about Gardasil in China and China's healthcare dynamics.

A: Kevin Ali responded that China results were impacted by high comparators in 2023 and washing through VBP impacts, expecting mid-single-digit growth in Q2 2024 China; also, Organon doesn't have local partner exposure like Merck.

Q: Ethan Brown asked about operating margins.

A: Matt Walsh said operating margins are stable through 2024, with volume growth drivers and continuation of key drivers for 2025.

Q: David Amsellem asked about Hadlima contracting strategy and R&D spend.

A: Kevin Ali discussed Hadlima's payer strategy and R&D being prudent with tuck-in deals like the Lilly one; Matt Walsh added R&D spend guidance and milestone-based compensation in deals.

Q: Jason Gerberry asked about EBITDA beyond 2024 and Hadlima interchangeability.

A: Kevin Ali said interchangeability on Hadlima isn't blocking growth, and Matt Walsh discussed EBITDA stability beyond 2024 with cost structure and product mix benefits.

Q: Terence Flynn asked about Nexplanon pricing and conversion.

A: Kevin Ali said Nexplanon five-year study met endpoints, preparing for regulatory submission, and inserter device exclusivity until 2030.

Q: Chris Shibutani asked about international pricing and China anti-corruption, and business development.

A: Kevin Ali responded on China anti-corruption not affecting business, positive China negotiations, and continued tuck-in deals like the Lilly one; Matt Walsh added success-based milestones in such deals.