Organon & Co. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Kevin Ali: First quarter results were solid, in line with expectations. Nexplanon grew double-digit and set to achieve over $1 billion in revenue in 2025. Vtama launch successful, ramping as expected. Restructuring initiatives yield ~$200 million annual savings. Affirmed revenue and adjusted EBITDA margin guidance, and target of over $900 million free cash flow before one-time costs in 2025. Reset dividend payout to redirect funds to debt reduction.
• Matt Walsh: Bridged 4% constant currency revenue decline in Q1. Adjusted gross margin 61.7% in Q1 vs 62.1% in Q1 2024. Non-GAAP SG&A up 6% due to Vtama commercial and launch expenses. Non-GAAP R&D expense before $6 million of IPR&D down 17%. Adjusted EBITDA margin 32% in Q1, about 150 basis points better than expected. Delivered $146 million of free cash flow before one-time costs in Q1. One-time costs in 2025 include restructuring, Microspherix settlement, and supply arrangements with Merck.

Segment Performance

• Women's Health: The women's health franchise grew 12% ex-exchange, led by Nexplanon up 14% in the quarter. Nexplanon is set to achieve over $1 billion in revenue in 2025, with double-digit growth in both U.S. and ex-U.S. markets. The five-year indication submission to the FDA is ready for a late 2025 launch pending approval.
• Fertility: Grew nearly 26% globally. U.S. grew $23 million or 70%, with half from lapping a buyout in Q1 last year and half from volume growth and rate favorability. Ex-U.S. fertility grew 4%, with new launches in Turkey and Japan offsetting sluggish performance in China. Expected high single-digit growth in 2025.
• Jada: Grew 20% in the quarter, driven by growth in shipments, especially in the U.S. More than 94% of the nation's largest birthing hospitals now stock Jada. Launched in South Korea and achieved CE Mark approval in Europe, with plans to launch in select EU markets this year.
• Biosimilars: Hadlima grew 57% in the first quarter in the U.S. Acquired regulatory and commercial rights for Tofidence in the U.S. for intravenous infusion. Anticipate launching the portfolio of Henlius products beginning in late 2025.
• Established Brands: Mandatory pricing revisions in Japan and mild seasonal respiratory complications in China weighed on results in Q1. Performance in the cardiovascular portfolio was driven by the loss of exclusivity of Atozet, which will abate in Q4 2025. Added products with patent protection like Emgality and Vtama, expected to generate over $300 million in revenue in 2025.

Guidance

• Affirmed revenue and adjusted EBITDA margin guidance, and target of over $900 million free cash flow before one-time costs in 2025.
• Current FX guidance unchanged but note possibility of favorability over remainder of 2025 due to dollar weakening.
• Adjusted gross margin range 60%-61%, SG&A 25% of revenue, R&D ~7% of revenue ex-IPR&D. Adjusted EBITDA margin range 31%-32%. Interest expense for 2025 remains at $510 million. Non-GAAP tax rate range 22.5%-24.5%.

Risks

• Macro-economic uncertainty, particularly around current and future tariff policy.
• Potential impact of tariffs on revenue from markets like China, U.S., etc.
• Patent litigation and regulatory risks related to products like Nexplanon.

Question and Answer

Q: On Vtama, confidence in achieving $150 million revenue and access aspect; and where does additional BizDev M&A fit?

A: Kevin Ali is confident in achieving $150 million for Vtama due to its label advantages and access efforts. BizDev M&A is opportunistic and will be considered when it fits with deleveraging and growth.

Q: Should we think of any uptick in BizDev as increase in frequency or size of future deals; and strategic focus on assets?

A: Kevin Ali says women's health has broad definition including unique women's conditions, migraine (disproportionately affecting women), and dermatology. BizDev is opportunistic.

Q: On capital allocation more broadly, share repo fit; and potential impact of tariffs past 2025?

A: Share buybacks lower priority. Tariffs for 2025 are nominal, but future impact too soon to tell.

Q: Market sentiment on consistency; priority now and tariff anticipation?

A: Kevin Ali says focus on deleveraging as investors concerned about leverage. Tariffs for 2025 are manageable.

Q: On Nexplanon Paragraph IV and one-time costs in 2026?

A: Matt Walsh says one-time costs in 2025 include manufacturing separation, restructuring, etc. Juan Camilo Arjona Ferreira says Nexplanon patent strong through 2030, legal process to take through mid-2027.