NYSE:OGN Organon & Co. Q2 2021 Earnings Report $12.21 +0.09 (+0.74%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$12.23 +0.02 (+0.16%) As of 04/25/2025 07:44 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Organon & Co. EPS ResultsActual EPS$1.72Consensus EPS $1.49Beat/MissBeat by +$0.23One Year Ago EPSN/AOrganon & Co. Revenue ResultsActual Revenue$1.60 billionExpected Revenue$1.54 billionBeat/MissBeat by +$50.33 millionYoY Revenue GrowthN/AOrganon & Co. Announcement DetailsQuarterQ2 2021Date8/12/2021TimeBefore Market OpensConference Call DateThursday, August 12, 2021Conference Call Time11:46AM ETUpcoming EarningsOrganon & Co.'s Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Organon & Co. Q2 2021 Earnings Call TranscriptProvided by QuartrAugust 12, 2021 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:02Good day and thank you for standing by. Speaker 100:00:04Welcome to Operator00:00:05the Oregon Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Ms. Jennifer Halczyk, Vice President of Investor Relations. Operator00:00:38Please go ahead. Speaker 200:00:40Thank you, Rain. Good morning, everyone. Thank you for joining our 2nd quarter 2021 Earnings Call. With me today are Kevin Ali, Organon's Chief Executive Officer and Matt Walsh, our Chief Financial Officer. Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. Speaker 200:01:00This presentation will also be available following this Call on the Events and Presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward looking statements. Actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our Form 10 and subsequent SEC filings. In addition, we will discuss certain non GAAP financial measures on this call, which should be considered a supplement to and not a substitute 4 financial measures prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the comparable GAAP measures is included in the press release and conference Presentation. Speaker 200:01:54I would now like to turn the call over to our CEO, Kevin Ali. Speaker 100:01:59Good morning, everyone, and thank you, Jen. Welcome and thank you for joining us today. As you may know, after several years in the making, Oregonon Officially spun for Merck on June 2nd and began trading as a public company on June 3rd. So today marks our first earnings call As a standalone public company, and I'm very pleased to be here. Organon's vision is to create a better and healthier every day for every woman. Speaker 100:02:27We have seen how our vision and purpose has connected with so many and continues to motivate thousands of our employees We've been hard at work standing up Organon and at the same time have been focused on driving our business. In the second quarter, Organon generated $1,600,000,000 of revenue, dollars 627,000,000 of adjusted EBITDA And $1.72 in adjusted earnings per share. Year to date, all three of our franchises are delivering on their objectives, Each playing their role in driving our vision of improving the health of women. Accordingly, today we affirmed The full year 2021 guidance we provided at our May Investor Day. Looking out past 2021, We remain confident in our ability to grow revenue low to mid single digits on an organic basis as LOE risk will largely be behind us Our Board of Directors has declared a quarterly dividend of $0.28 per share, which speaks to the cash generating power And sustainability of our business. Speaker 100:03:49Turning to Slide 5 now. Though new as a standalone company, The 64 products that came to Organon for Merck are trusted, well recognized medicines, many of them household names. We operate in 3 franchises: Women's Health and Biosimilars, our 2 growth engines and Established Brands, which is a portfolio products that generate sizable and stable cash flow even though most have already lost exclusivity. Oregonon endeavors to be a different kind of company, one focused on advancing the health of women. In order to do that, we are broadening our portfolio beyond our already market leading positions in contraception and fertility. Speaker 100:04:36We've already begun to execute on this vision, already completing 2 transactions in important areas of unmet needs for women. June, we completed our acquisition of Alidya Health, which is a commercial stage medical device company that received a 510 clearance from the FDA in 2020 for the JADA system, a product intended to control abnormal postpartum bleed or hemorrhage. We plan to use our global commercial footprint in reproductive health and experience in creating affordable access and to further develop And bring the JADA system to more women around the world. We recently also announced a licensing agreement with ObsEva For the global development, manufacturing and commercial rights to investigational agent evoboprevint, Currently being studied as a first potential 1st in class innovation for the treatment of preterm labor. To remind everyone, Every year, 15,000,000 babies are born preterm. Speaker 100:05:44And although preterm birth dates are on the rise, there are currently no other known compounds in development And no approved therapies for the acute treatment of preterm ocular in the United States. Development stage after Organon intends to leverage its considerable expertise and work with the scientific and medical communities And regulatory authorities in major markets, including the United States, to advance the clinical development and registration of evopirpan. Both of these opportunities fall squarely in line with our business development strategy in size, Scale, market opportunities and to our focus on helping address the most serious unmet needs of women. Our early progress demonstrates how serious we are about our commitment to becoming the leader in women's health And expanding our portfolio beyond contraception and fertility. Turning to Slide 6 now. Speaker 100:06:45We can't talk about our women's health portfolio without talking about Nexomon, the number 2 contraceptive worldwide by revenue, Well known as a long acting reversible contraception segment. Globally, the hormonal contraception market continues to see usage Shift away from the daily combined oral contraceptive segment toward LARCs. LARCs are highly efficacious It's considered to be one of the most effective forms of hormonal contraception available. Nexplanon or Implanon XT as it's known in some markets It's differentiated even within the large segment as it's the only single rod, subdermal, long acting reversible contraceptive. It is a progesterone only rod that is inserted in a woman's alarm, average insertion time takes about a minute And it is conducted in the healthcare provider's office. Speaker 100:07:47Nexolom has exclusivity in the U. S. Until 2027 And until 2025 in markets outside of the U. S, currently, Nexplanon is approved for 3 years of efficacy, But in November 2020, we began a registration study to evaluate the use of Nexplanon for up to 5 years. If successful, we believe this will make Nexplanon an attractive contraception option for many more women, including those who are family complete. Speaker 100:08:18During the quarter, our fertility portfolio also showed particular strength. We're very encouraged by the early traction, Especially in China, where fertility demand is very close to being back to pre COVID levels. Governments around the world I'm becoming increasingly active in addressing the fertility issues families can face. Recently, The Chinese government introduced the 3 child policy, and next year, Japan will introduce reimbursement for IVF treatment in an attempt to address declining birth rates. The French government also recently passed a bill to allow egg freezing and for same sex couples to seek IVF treatment. Speaker 100:09:01Outside of women's health, we're also encouraged by the growing support for biosimilars. The U. S. Biosimilar market continues to grow with increases in physician and payer comfort with biosimilars. Both the targets we compete in, namely immunology and oncology, are seeing increased biosimilar utilization. Speaker 100:09:24The oncology conversion from originator to biosimilars has been faster. For example, trastuzumab, which is where oncizant plays, has some of Highest adoption rates among biosimilars. We currently see nearly 70% of the trastuzumab market converted to biosimilars. We are well positioned in the biosimilar market as a commercial collaborator with Samsung Bioethis. We have a good balance in terms of geographic contribution, So we're not levered with particular dynamics of any single market. Speaker 100:09:53We have balance with the life cycle of our portfolio. We have marketed products that are growing Like Renflexis and Entrazant, we have launched assets like HELLIMA in Australia and Canada, which are performing very well. And we have what we believe will be a major pipeline opportunity with our anticipated headwinda launch in the U. S. In 2023. Speaker 100:10:22And as we think about our established brands portfolio, part of the strategic timing of the spin Is that 2021 is an inflection year. It is the last year during which the portfolio is subject to significant new LOE risk. Beyond 2021, the impact from the LOE dissipates. Further, we have opportunities to Softened the erosion curve with continued growth of Abizet, launches of certain products in selected markets and other life cycle management opportunities. We continue to take an entrepreneurial view with regards to the Established Brands portfolio. Speaker 100:11:03And all three franchises are global businesses, As you'll see on the next slide, Asia Pacific was the only geographic region that was down in the quarter and that was driven by Zetra's loss of exclusivity in Japan. Our largest region, Europe and Canada, is showing Strong double digit growth driven not only by COVID recovery, but also by volume growth in biosimilars and infertility. The U. S, particularly Nexplanon, benefited from lapping the significant COVID impact in the Q2 of last year, Also from growth perspective, the U. S. Speaker 100:11:43Also showed solid performance in biosimilars where we offered both RenfLEXIS and Onprozant. In China, we had several positive areas of momentum that more than offset the impact from 4 of our products being Our fertility portfolio outpaced the market in Q2 and the contribution from the retail channel continued to grow. We're actively monitoring the impact of COVID and its variance across the world. But overall, we are very encouraged by how the portfolio is performing. And now, I will turn it over to Matt to discuss our 2nd quarter performance in more detail. Speaker 300:12:34Matt? Thank you, Kevin. Before I review the details of the quarter, it's important to remind everyone that Our second quarter is unique and it's what I would call a hybrid quarter. It's hybrid in that Q2 includes approximately 2 months of pre separation operations for which GAAP mandates the carve out method of accounting in approximately 1 month of post separation business activity accounted for by conventional GAAP methodologies. But the key area of commonality across these two different methods is revenue, which is presented by and large on an apples to apples basis and that's where I'll focus most of my commentary. Speaker 300:13:14So with this clarification on basis of presentation and now Let's turn to Slide 8. And revenue for the 2nd quarter was up 4.5% as reported and down about 1% at constant currency exchange rates. The impact of the loss of exclusivity or LOE during the Q2 of 2021 compared to the Q2 of last year Approximately $230,000,000 and it's primarily related to the loss of exclusivity of Zetia in the back half of twenty twenty in Japan, as Kevin mentioned, and New Barings LOE in the United States. The established brands portfolio has exposure to the Volume based procurement initiative or VBP in China, the total impact to sales for the Q2 compared to the Q2 of last was approximately $40,000,000 and was associated with the 3rd round of VBP, which is the largest so far Which occurred in the Q4 of 2020 and that included 4 of Organon's products: Singular Pediatrics, Proscar, Propecia and Arcoxia. In the Q2 of 2021, the negative impact of COVID-nineteen It was estimated to be approximately $120,000,000 which is about $100,000,000 better than last year. Speaker 300:14:30Our product portfolio is comprised of physician prescribed products, which have been affected by social distancing measures and fewer medical visits. And although we believe that global health systems and patients continue to adapt to the evolving impacts of the pandemic, and although we have experienced recoveries During the Q2, as compared to the year ago quarter, we do expect that ongoing negative impacts will persist through the remainder of 2021. Foreign exchange translation had a fairly sizable impact in the second quarter with about 550 basis points of favorability. That's not really surprising given the impact of COVID-nineteen on global currency markets in the prior year period and also understanding that approximately 80% of Organon's revenues are derived outside the United States. And finally, we are seeing volume growth mainly driven by our key growth businesses, women's health and biosimilars, As well as growth geographically in China, in fertility and in our Established Brands products ex VBP. Speaker 300:15:31So now let's take a look at performance by franchise. We'll start with Women's Health on Slide 9. Our Women's Health business grew 19% as reported And 16% ex FX in the 2nd quarter. We saw growth in Nexplanon, which was up 39% ex FX in the quarter And benefited from patients beginning to return to their healthcare providers as COVID-nineteen restrictions are lifted. Now while in person patient business They're not yet back to present at the level. Speaker 300:16:08As a result, we expect that ongoing negative impacts will persist through the rest of 2021. NetVue is incorporated into our guidance, which we'll discuss shortly. Our fertility portfolio was showing strength. Follows improved 40% in the quarter. Volume growth came from increasing demand for new accounts as well as from patients returning to clinics. Speaker 300:16:31We have observed that patients seeking fertility treatments are more motivated to return to doctors' offices than those patients seeking normal course well visits. So these growth drivers more than offset the 19% decline in NuvaRing related to increased generic penetration as a result of NuvaRing's LOE in 2018 in the U. S. Turning now to biosimilar to Slide 10. Biosimilars grew 43% as reported in the 2nd quarter And 35% ex FX. Speaker 300:17:01We have 5 assets in the portfolio, 3 in immunology and 2 in oncology. We launched our first asset, Brenzys, in 2016, followed by RINFLEXYS in 2017, Entrezant in 2018 And I think you'll be in the back half of twenty twenty. HADLIMA launched this year in Australia and Canada. RENFLEXIS and Entrezant are our 2 largest offerings and both are offered in the United States. Globally, RENFLEXIS grew 38% ex FX in the quarter, Driven by strong performance in the U. Speaker 300:17:33S. And Entrezant, which was launched in the U. S. In July of last year, was up 13%. Turning to Established Brands now on Slide 11. Speaker 300:17:44Because of the number of products in Established Brands and the multiple markets in which they're sold, We'll often discuss the performance of this franchise in terms of how it behaves as a portfolio. So revenue for Established Brands was down 4% as reported And 10% ex FX in the Q2 of 2021. Excluding the impacts of LOE, revenue was down about 2% ex FX. Volumes were up incrementally, mainly driven by COVID rebound, and price was down about 2%, which is Consistent with our prior disclosures and that we expect price erosion in Established Brands to be in the low single digit ex LOE over the intermediate term. China is an important market for Established Brands and part of our strategy in this market has been to move business out of the hospital channel and into the retail channel. Speaker 300:18:35This effort continues to be successful. The retail channel in China grew double digits, now represents about 45% of established brands revenue in China, up from approximately 35% a year ago. Just to reference, total revenue in China across all Organon business lines for the Q2 was $236,000,000 Up 12% versus the Q2 of last year. Now turning to our income statement on Slide 12. Again, because of the hybrid nature of this quarter, comparability to prior year performance across most income statement line items is not particularly meaningful. Speaker 300:19:11We can, however, draw comparisons at the revenue and gross margin lines if, in the case of the latter, we make a sensible adjustment Exclude purchase accounting amortization and one time items from cost of goods sold. So making this adjustment, In the Q2 of 2021, non GAAP adjusted gross profit was $1,040,000 Representing gross margin of 65.5 percent compared with 71.2% in the Q2 of last year. The decline reflects an increase in standalone costs, including certain costs related to manufacturing agreements between Organon and Burke, Which had lower gross margin percentages compared to 3rd party product sales. While comparisons to prior year performance are challenging, Probably the most important commentary we can make about Q2 performance is that it aligns very well with the full year guidance for 20 We provided at our Investor Day across all line items of our P and L from revenue down to adjusted EBITDA and including our non GAAP effective tax rate. We'll come back to guidance in a few moments. Speaker 300:20:20A few words on debt capitalization. At June 30, our bank debt was $9,500,000 Against cash and cash equivalents of $730,000,000 Although this cash balance includes about $400,000,000 of pre funded cash That will shortly be remitted back to Merck related to pre spin off inventory conveyance that will actually occur post separation. So a more representative net debt number is actually closer to $9,200,000,000 Now if we think about leverage ratios in the context of the guidance that we're affirming today and just to be illustrative, if we use the midpoint of our implied 2021 adjusted EBITDA guidance, That would put our net leverage ratio just below 4 times. Speaker 100:21:05We discussed Speaker 300:21:05our capital allocation priorities at our Investor Day in May, and I'll repeat them here today. With the recurring dividend now declared, of course, the dividend becomes capital allocation priority number 1. We've endeavored to set the dividend at a low 20s percentage of free cash flow, excluding onetime cost of the separation. Existing products in the portfolio and capital deployed in our manufacturing plants. And on the latter, we expect the annual CapEx in the range of 3% to 4% of revenue on an ongoing basis, excluding separation costs. Speaker 300:21:47Our 3rd capital allocation priority is really tied Between, a, execution of external growth plans to develop a pipeline of product opportunities like JAYA 2.0 and evopiprant Balance against B, debt reduction and our commitment to maintaining our DDBA2 rating. We are targeting a long term leverage ratio Below 3.5x net to adjusted EBIT. Turning to guidance now on Slide 13. Today, we are affirming the guidance that we laid out at our May 3 investor event. On a revisiting basis of presentation, Our guidance, both for the May 3rd investor event and today is non GAAP and pro form a as if the spin off happened on January 1. Speaker 300:22:34Beginning with revenue, this is the chart that we showed at Investor Day and there has been very little change. We continue to expect revenue to be in the range of $6,100,000,000 to $6,400,000,000 which is essentially all organic. We do include a de minimis partial year revenue contribution from the acquisition of Alinea Health that closed in June. The biggest component of the year over year change in revenue, of course, is the expected LOE impacts. Impacts from LOE were approximately $210,000,000 year to date and are primarily related to the loss of patent protection for ZEDIA in Japan And Newbury in the United States. Speaker 300:23:12So far, we have not seen a generic entrant for DALARA, which lost exclusivity in 2020. So we're improving our full year estimate of LOE impact to $300,000,000 to $400,000,000 from the $400,000,000 to $500,000,000 that we projected at Investor Day. As we were careful to describe previously, 2021 is an inflection year for Organon. After 2021, our LOE exposure dissipates to approximately $300,000,000 cumulative over the 4 year period 2022 through 2025. Those who attended Investor Day would know that we had said $250,000,000 With DULAYRA now moving out of 'twenty one into 2022, that pushes out some LOE exposure into future years. Speaker 300:24:00As far as upcoming VBP exposure, we now expect that EZTRAL will most likely be included in the next round of VBP in 2022 instead of this year As we previously expected, we don't see that moving the needle on the $200,000,000 to $300,000,000 range we previously expected. Obviously, COVID is something we're watching closely. Year to date impact from COVID was about $220,000,000 As we consider lagging trends in well visits and the effect that, that has had on Nexplanon as well as potential disruptions from the COVID-nineteen delta variant, We now believe the 2021 impact from COVID could be more in line with 2020 as opposed to slightly better as we previously thought. On a yearly basis, we expect foreign exchange translation to be a modest tailwind based on year to date currency performance and where spot rates are currently. Taken on the whole, this quarter's revenue performance is well aligned with our previous guidance, and it continues to reflect the key themes that we've been talking about in our public communications prior to the spin off. Speaker 300:25:04Looking through the LOE issues that are waning, We are seeing volume growth as we expected, mainly driven by our key growth businesses, women's health and biosimilars. We're also seeing volume growth geographically in China, in fertility and established brands ex BBP. Turning now to other guidance items on Slide 14. We're affirming all of the guidance that we provided at Investor Day. We're updating shares outstanding, so that's now a fully diluted number. Speaker 300:25:32We expect weighted average fully diluted shares to be about 254,000,000 for 2021. To reiterate what we said in May, we expect gross margin to be in the low to mid-60s range. We expect SG and A expense to be in the range Sales. We expect R and D expense to be in the mid single digit range as a percentage of revenue. And what this really represents is mostly R and D infrastructure A relatively small amount of variable spend on the organic life cycle management opportunities that we're planning to undertake for products currently in the portfolio. Speaker 300:26:09As we fill out a pipeline, our R and D expense will rise to support these programs, and we expect some of that to occur in 2021, Not by enough to revise the guidance range that we gave previously. So taking all this together, that would put us on an adjusted EBITDA margin in the range of 36 38% for 2021. We expect back half of the year margins to be lower than this range based on phasing of Spending, and this is primarily related to delayed spending due to COVID as well as timing of spending for life cycle management programs, the integration of Olivia Health And some other investments that we're planning that are intended to drive revenue growth in the future. Below the line, interest expense for 2021, Again, as if we were a standalone company since the beginning of the year, it's expected to be approximately $400,000,000 for the year, which reflects our new debt structure as a standalone company. Depreciation is expected to be in the range of $100,000,000 to $115,000,000 We expect our ongoing non GAAP effective tax rate to be in the range of 17.5% to 19.5% With book and cash taxes being roughly similar. Speaker 300:27:20Wrapping up the financial discussion, the franchises are progressing as we had expected. Given our outlook for 2021, we continue to believe that we're well positioned for future organic revenue growth in the low to mid single digits on a constant currency basis. This will be driven by stabilization in the established brand portfolio and continued growth in both women's health and biosimilars, each of which has the potential to grow low double digit CAGRs in near to medium term. At this point, I'll turn the call back to Kevin for closing remarks. Speaker 100:27:51Thank you, Matt. And I just want to stress that we're very early in our journey, but we're off to a solid start. Today, we reaffirmed our outlook for 2021, and we continue to feel very well positioned to deliver low to mid single digit growth of our 2021 base of business. In closing, I'd just like to say we're building something special at Orkon. We're early in the stages of building a unique and differentiated ESG approach in the company. Speaker 100:28:21We take diversity, Inclusion and Equity initiatives very seriously, and we believe our Board, which has the most female representation of any S and P 500 Healthcare Company today, We'll play a key role in our future success. When we launched our company back in June, we also launched a commitment Listening and understanding women's healthcare needs throughout the world. So we can find new solutions to address those needs. It is a purpose that permeates throughout the entire company and our culture, and we believe creates value across the spectrum of Organon stakeholders. Now we'd like to open up the call and take your questions. Speaker 100:29:01Thank you very much. Operator00:29:03Thank you. Please stand by while we compile the Q and A session. Your first question comes from Liza Chaslavik from Goldman Sachs. Your line is open. Speaker 400:29:26Hi, this is Tim. Thanks for taking the questions and congrats on your first quarter as a public company. I was just wondering, 2 part question. First, if you could elaborate further on your business development strategy in women's health. I'm assuming that Lidya and ObsEva are typical of the deals you're looking for, but maybe you could give us a little bit more color on the universe of opportunities and And then the second question I had is just on the dividend outlook for dividend growth. Speaker 400:29:56How are you thinking about that? Or is it simply going to be anchored to a payout of free cash flow? Thanks. Speaker 100:30:02Thanks for your question, Terrence. And I'll take the first question and then I'll pass it over to Matt to deal with the second question on dividend. So you're right. I mean, as we mentioned during our investor Various equity roadshow discussions, we're looking as we say kind of baseball parlors, singles and doubles. And ObsEva and Alidya fit perfectly in this kind of area. Speaker 100:30:29But having said that, We've as I mentioned a number of times, we did a scan a couple of years back and essentially we need to update that scan. And we identified probably about 140 assets in various stages of Development around the world, where we could actually use some of obviously some of our balance sheet capital to be able to go out and Make them a meaningful acquisition. So we're working because of the fact that, as I mentioned, unmet needs are significant out there Speaker 300:31:14And on the dividend, we thought very carefully Where to set the dividend in terms of balancing our desire for shareholders to participate in the cash generation of the business, but making sure that we retained enough cash flow to support our growth program. So The target of the low 20 percentage of production is strong right now, and we will be looking to stick Close to that as we roll out into the future. So we expect that the dividend will grow in terms of growth of free cash flow. Operator00:32:02Your next Question comes from Navanthi from Citi. Your line is open. Hi, good morning. Thanks for taking my question. Could you comment on the COVID recovery on your key products? Operator00:32:16And can we expect contraception to be offset by fraternities in the near term? And then longer term, do you have any comments for the outlook for fraternities Speaker 100:32:33Matt, do you want to take that? Speaker 300:32:36Sure. So we've certainly seen a COVID recovery in the business in Q2 versus this point last year. Let's remember that this point last year was really sort of, I think, the depth of the issue in terms of patients Accessing health care systems, United States and many countries around the world were on lockdown. So we have seen a COVID rebound in the business. We've seen it more in fertility than in contraception. Speaker 300:33:08As we stated in the prepared Comments, fertility patients for a number of reasons are more motivated to return to the clinics versus patient thinking To roll to initiate a rollover contraception. And so we do think that there is More COVID recovering to be realized in the businesses, dependent on the progression of the Of the delta variant and any other variants that may come. So that's I think we've Some encouraging results in terms of the COVID rebound, both for fertility as well as across solid portions of the Savage Brand's portfolio, but we are looking for more as the pandemic recedes. Speaker 100:34:00If I could just add on to some of the points that Matt made, and I'm sure we're going to get into discussions on the Nexomon and some other issues down the road. But in terms of fertility, because that was a focus of one of your points in your question, it had significant growth in the quarter, And it really anchors our women's health focus. Q2 is 50 9% growth versus Q2 2020, and year to date, we've got 46% growth versus year to date 2020. And we're significantly outpacing the fertility market growth. The market is growing at 35%, and we're growing at 46%. Speaker 100:34:37So very positive sign for our fertility efforts and what we're doing. And remember that overall behind what's going on here is a movement. I mean, I mentioned China and the 3 child policy, Japan and soon IVF reimbursement soon to begin, France, in terms of egg freezing as well as same sex couples reimbursement, more reimbursement from U. S. Employers to single payers like I mean, you recognizing the need to address declining birth rates. Speaker 100:35:04So we're very bullish and very focused on fertility. It's an important area Focus for us, and we'll continue to see the kind of double digit growth we always expected from it. Operator00:35:17Thank you. Your next question comes from Greg Fraser from Suri Securities. Your line is open. Speaker 500:35:28Thanks for taking the questions. Good morning, folks. Speaker 100:35:32On the revenue guidance, can you speak to Speaker 500:35:33the pushes and pulls that could get revenue to versus the lower end of the range, what's important to consider for the second half? The pandemic is clearly an unknown, but what are the pushes and pulls for the call out that are important to consider? And then my second question is on biosimilars. Contrerasenat and Brenzas are facing greater competitive intensity in the EU. I think you have some challenging year over year comps in the second half for those products. Speaker 500:35:57The biosimilar business is an important part of your growth strategy. So how should we think about growth In the second half, and what will be the key growth drivers for that business ahead of the biosimilar HUMIRA launch in the U. S. In 2023? Thank you. Speaker 100:36:11So I'll take the first part Speaker 300:36:13of the question, Kevin, with the push and pull high and low end versus Got it. And then you can cover that similar. So we feel very good about our full year revenue guidance of $6,100,000,000 to $6,400,000,000 The biggest source of variability to where we land in there, I think the questioner pointed it out, which certainly Where the pandemic takes us, we do believe we have a good handle on most other key drivers, whether it's So whether we end up at the High end or the low end, I think will be it will really be driven by the progression of the pandemic And I think where FX rates may go. Let's not forget 80% of our revenues are outside the United States. We reported in U. Speaker 300:37:14S. Dollars, so there can be cases where foreign exchange translation. And this is it's just It's a reporting impact, not an economic impact per se, that can just drive our reported numbers even though we may Speaker 100:37:38Great question, Greg. So just to clarify, we do not have the Samsung BioEpids anti TNF business in Europe. That is essentially Part of Biogen's business there, but what I will say is we are clearly doing well in biosimilars. Q2, we had 35% growth, and year to date, it's 23% growth in spite of, obviously, COVID. But what we see, for example, going forward It's the fact that GremFLEXIS in the U. Speaker 100:38:07S. Is doing exceptionally well, onthrozant just recently launched and Abyntio has been recently launched in the EU where we continue to do well We have the oncology biosimilars in the U. Of course, we have our biggest product potential, which is HADLIMA, which is a HUMIRA biosimilar We'll be launching in 2023. We expect to be 2nd on the market with our own citrate free high dose Availability, which we are very, very bullish on. Speaker 500:38:38Thank you. Operator00:38:42Your next question comes from Charlie Yang from Morgan Stanley. Your line is open. Speaker 300:38:51Hey, good morning. It's Matt Harrison. I was hoping that you could just comment more broadly as opposed to just This year, but the longer term outlook on BBP pricing and the impact that can have on the business, especially for mix plan. Thanks. Speaker 100:39:08Sure. I can handle that, Matt. And so look, I mean, we're very, very enthused by the performance in China currently. Q2, we've got essentially 12% reported growth and year to date, it's 3% reported growth. Remember, Four products, key products, the largest batch that we've had were included into the volume based procurement process in Q4 of 2020. Speaker 100:39:35And through the Q2, we already stabilized the business, showing volume growth and revenue growth. We're really excited as well Overall, the retail performance, I mentioned a number of occasions before that the retail focus we started in 2017 Seeing that VBP was going to be an issue, and right now, our performance in the retail sector in Q2 has grown almost by 30% And already account nearly 45% of our established brands business in China. I also mentioned fertility. Fertility, by the way, just we'll take an opportunity to say this, fertility grew 70% in the 2nd quarter. And just as a reminder, the fertility franchise is not subject to volume based procurement and is 100% cash pay business. Speaker 100:40:23Our portfolio in China right now, 60% of the Established Brands business, 60% of our portfolio has gone through the volume based procurement process, 10% will not because it's really fertility driven, 30% is remaining, 20% of that 30% will go through in 2022 And the remaining 10% will come in the outer years. So we're very diversified. Remember, in volume based procurement in terms of the China, No single product represents more than 20% of our business, so we've got a very well disciplined business. We have a business that's moving to Retail Channel just because we've got experience of it for the last 5 years. And also, we see that the future is essentially In terms of any exposures that we might have, the URPS potential exposure, which potentially happens in 2023, Approximately hits can affect about 40% of our business there, but it's been in the forecast During our May Investor Day, it's already folded in. Speaker 100:41:24So we feel very good that we're on the way back to really managing The volume based procurement process in China. Operator00:41:38Your next question comes from Umer Raffat from Evercore ISI. Your line is open. Speaker 600:41:46Hi, guys. Thanks so much for taking my question. Kevin, if a large business development opportunity were to become available, I'm talking something of the scale of, Let's say the BIO and Samsung JV or like a large women's health business from 1 of the pharma companies. Speaker 300:42:00What can you speak to your ability to engage Speaker 600:42:03in something like that, Especially early on being a public company, are you constrained in being able to use equity or not? That's first. Secondly, I know there's a lot of investor interest in figuring out what are the true growth drivers that's beyond biosimilars going forward. And one of the points I thought about is, what's your ability to engage with Merck On the possibility of using Nexplanon device IP for substituting other women's health generic products in there to create new So that's Nexvinon II and Nexvinon III kind of new offerings using that device given the physician comfort with that device. Can you speak to that and any programs ongoing? Speaker 600:42:44And then finally, where are you guys on the MicroSperics versus Nextel on IP side? I know you've lost a couple of cases, But it's also been my sense that there's going to be an alignment and at least on part of those patents you guys have been able to settle. Should we expect MicroSverix to be a nonissue mix phenomenon from a damages perspective going forward? Thank you. Speaker 100:43:07Thanks, Umer. Let me try to To address those points, so from a business development perspective, of course, we're always looking for what we feel is going to be really an important contributor to the business we're doing. We are though executing currently exactly on our strategy, which is essentially, as I mentioned to you before, there are a number of assets out there They are really looking for a home because there's significant unmet needs. And we believe we can start to be an aggregator in some of these women's health assets That are unique in terms of what they provide are solutions for some of the significant unmet needs that women face around the world. And so right now, the way that we've executed on that strategy is what I believe is spot on to what we wanted to do. Speaker 100:43:51It's really kind of look, we're 2 months into our launch and our spend, we've already done 2 deals. So that really shows our seriousness. But of course, It's something really attractive with the right valuation, the right focus, the right marriage. Of course, we're going to look at it seriously. But nothing of that nature is something that we're considering right now. Speaker 100:44:12We're considering more of the same of what you've seen from us over the 1st 2 months. In terms of Nexmo on the raw technology, of course, we always we're in very close coordination with our Merck colleagues. And right now, we don't have anything in the pipeline in terms of focusing on using that raw technology for anything else What we're doing today, which is essentially moving from 3 years to 5 years, is our focus right now in our life cycle management development for Nexplanon. We hope that, that will give us an opportunity to extend the life of Nexplanon to 2,030, which will really make it available to many more women who really need And want something that long ago horizon of efficacy for 5 years. Finally, in terms of what's happening in MicroPherus, I think we Very solid and very good. Speaker 100:45:03Obviously, I can't comment on ongoing litigation, but we feel very good with our position there. And we have a very strong We'd like to wind that down in the not too distant future, but we feel very good and very confident about where we stand right now with that potential issue. Operator00:45:28Your next question comes from Steven Sklar from Cowen. Your line is open. Speaker 700:45:33Thank you. In the second quarter, There was a $20,000,000 contribution from other. Can you elaborate on what other consists of? Secondly, has Organon done the studies necessary for your tumor biosimilar to be substituted? And then lastly, if I might, does Organon have any enemies in development from what you see Merck in its existing pipeline? Speaker 700:46:00Thank you. Speaker 300:46:02So I can take the first part of that question, Kevin. So the $20,000,000 in other It's principally supply sales to Merck. So As part of the separation, we inherited 6 manufacturing facilities in their totality, and some of the Activity at those sites is related to Merck Products, which will be continued under an MSA manufacturing services agreement. And so Speaker 100:46:43Steve, to your second question regards to the interchangeability focus. So Samsung, our partner, doesn't Feel that interchangeability is really the key point right now in terms of what they need to do. And keep in mind, most of the biosimilars right now up for FDA review ultimately and hopefully approval in the frame that we said do not also have interchangeability. And it's not really a major issue. The major It's really the citrate free and of course the high dose focus on citrate free product availability. Speaker 100:47:18That is the key because then you truly become a biosimilar because obviously the originator in terms of HUMIRA As we see, 3 100 milligrams and essentially that's what we're going to come into the market with, and we're very confident we'll be in the position of Entering second, it's our biggest opportunity. It's obviously physician rather a pharmacy dispensed And that is essentially, I think, a good proof point for the value proposition of what biosimilars will bring to the market. And in regards to your last point, in regards to did you mention enemies to in terms of do we have something with regards to Merck Speaker 700:48:04Did Merck impart any new molecular entities in your pipeline, which are in development? Actually, if I could follow-up on your on the second question, why do you think interchangeability of a Humira biosimilar is Not important or why does Samsung believe it's not important? I think most people think it is important. So if you can elaborate on that as well, that would be helpful. Speaker 100:48:26Sure, sure, Stephen. So first and foremost, no, we did not get any new molecular entities in our pipeline from Merck. We're building our pipeline out, as I mentioned. There's plenty in the hopper in terms of our business development strategies and focus In terms of what we can do with our cash flow, and I think the proof point is really in the 2 deals we've done in a few months that we've actually spun. In regards to why does Samsung believe The interchangeability is not the key focal point. Speaker 100:49:01I believe right now that Samsung Has a view that they've done their research and their due diligence. And like, for example, Amgen in terms of they're the first to be on the market, also does not have interchangeability as part of their focus of value proposition. So It's really about as again, I'll repeat, Stitch rate 3 high dose availability is really going to be a very, very key thing. But The key thing for all of us as well for biosimilar business is order of entry. Really anything that you can do to actually be in the first tranche of products that are Potentially approved so that you can offer access and choice to patients is really the key focal strategic point of view for what we're doing in biosimilars. Speaker 200:49:57Last question we had in queue. Thank you everybody for joining us today. The team looks forward to engaging with you all throughout the quarter. Speaker 100:50:09Thank you. Operator00:50:11This concludes today's conference call. Thank you all for joining. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOrganon & Co. Q2 202100:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Organon & Co. Earnings HeadlinesOrganon (OGN) Receives a Sell from Bank of America SecuritiesApril 22, 2025 | markets.businessinsider.comOrganon Appoints Ramona A. Sequeira to the Company’s Board of DirectorsApril 15, 2025 | finance.yahoo.comTrump’s Secret Social Security Plan?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Organon Appoints Ramona A. Sequeira to the Company's Board of DirectorsApril 15, 2025 | businesswire.comOrganon To Report First Quarter 2025 Results and Host Conference Call on May 1, 2025April 15, 2025 | businesswire.comOrganon price target lowered to $15 from $16 at Morgan StanleyApril 9, 2025 | markets.businessinsider.comSee More Organon & Co. Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Organon & Co.? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Organon & Co. and other key companies, straight to your email. Email Address About Organon & Co.Organon & Co. (NYSE:OGN) is a science based global pharmaceutical company, which develops and delivers innovative health solutions through a portfolio of prescription therapies within women’s health, biosimilars and established brands. The company was founded on March 11, 2020, and is headquartered in Jersey City, NJ.View Organon & Co. 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There are 8 speakers on the call. Operator00:00:02Good day and thank you for standing by. Speaker 100:00:04Welcome to Operator00:00:05the Oregon Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Ms. Jennifer Halczyk, Vice President of Investor Relations. Operator00:00:38Please go ahead. Speaker 200:00:40Thank you, Rain. Good morning, everyone. Thank you for joining our 2nd quarter 2021 Earnings Call. With me today are Kevin Ali, Organon's Chief Executive Officer and Matt Walsh, our Chief Financial Officer. Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. Speaker 200:01:00This presentation will also be available following this Call on the Events and Presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward looking statements. Actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our Form 10 and subsequent SEC filings. In addition, we will discuss certain non GAAP financial measures on this call, which should be considered a supplement to and not a substitute 4 financial measures prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the comparable GAAP measures is included in the press release and conference Presentation. Speaker 200:01:54I would now like to turn the call over to our CEO, Kevin Ali. Speaker 100:01:59Good morning, everyone, and thank you, Jen. Welcome and thank you for joining us today. As you may know, after several years in the making, Oregonon Officially spun for Merck on June 2nd and began trading as a public company on June 3rd. So today marks our first earnings call As a standalone public company, and I'm very pleased to be here. Organon's vision is to create a better and healthier every day for every woman. Speaker 100:02:27We have seen how our vision and purpose has connected with so many and continues to motivate thousands of our employees We've been hard at work standing up Organon and at the same time have been focused on driving our business. In the second quarter, Organon generated $1,600,000,000 of revenue, dollars 627,000,000 of adjusted EBITDA And $1.72 in adjusted earnings per share. Year to date, all three of our franchises are delivering on their objectives, Each playing their role in driving our vision of improving the health of women. Accordingly, today we affirmed The full year 2021 guidance we provided at our May Investor Day. Looking out past 2021, We remain confident in our ability to grow revenue low to mid single digits on an organic basis as LOE risk will largely be behind us Our Board of Directors has declared a quarterly dividend of $0.28 per share, which speaks to the cash generating power And sustainability of our business. Speaker 100:03:49Turning to Slide 5 now. Though new as a standalone company, The 64 products that came to Organon for Merck are trusted, well recognized medicines, many of them household names. We operate in 3 franchises: Women's Health and Biosimilars, our 2 growth engines and Established Brands, which is a portfolio products that generate sizable and stable cash flow even though most have already lost exclusivity. Oregonon endeavors to be a different kind of company, one focused on advancing the health of women. In order to do that, we are broadening our portfolio beyond our already market leading positions in contraception and fertility. Speaker 100:04:36We've already begun to execute on this vision, already completing 2 transactions in important areas of unmet needs for women. June, we completed our acquisition of Alidya Health, which is a commercial stage medical device company that received a 510 clearance from the FDA in 2020 for the JADA system, a product intended to control abnormal postpartum bleed or hemorrhage. We plan to use our global commercial footprint in reproductive health and experience in creating affordable access and to further develop And bring the JADA system to more women around the world. We recently also announced a licensing agreement with ObsEva For the global development, manufacturing and commercial rights to investigational agent evoboprevint, Currently being studied as a first potential 1st in class innovation for the treatment of preterm labor. To remind everyone, Every year, 15,000,000 babies are born preterm. Speaker 100:05:44And although preterm birth dates are on the rise, there are currently no other known compounds in development And no approved therapies for the acute treatment of preterm ocular in the United States. Development stage after Organon intends to leverage its considerable expertise and work with the scientific and medical communities And regulatory authorities in major markets, including the United States, to advance the clinical development and registration of evopirpan. Both of these opportunities fall squarely in line with our business development strategy in size, Scale, market opportunities and to our focus on helping address the most serious unmet needs of women. Our early progress demonstrates how serious we are about our commitment to becoming the leader in women's health And expanding our portfolio beyond contraception and fertility. Turning to Slide 6 now. Speaker 100:06:45We can't talk about our women's health portfolio without talking about Nexomon, the number 2 contraceptive worldwide by revenue, Well known as a long acting reversible contraception segment. Globally, the hormonal contraception market continues to see usage Shift away from the daily combined oral contraceptive segment toward LARCs. LARCs are highly efficacious It's considered to be one of the most effective forms of hormonal contraception available. Nexplanon or Implanon XT as it's known in some markets It's differentiated even within the large segment as it's the only single rod, subdermal, long acting reversible contraceptive. It is a progesterone only rod that is inserted in a woman's alarm, average insertion time takes about a minute And it is conducted in the healthcare provider's office. Speaker 100:07:47Nexolom has exclusivity in the U. S. Until 2027 And until 2025 in markets outside of the U. S, currently, Nexplanon is approved for 3 years of efficacy, But in November 2020, we began a registration study to evaluate the use of Nexplanon for up to 5 years. If successful, we believe this will make Nexplanon an attractive contraception option for many more women, including those who are family complete. Speaker 100:08:18During the quarter, our fertility portfolio also showed particular strength. We're very encouraged by the early traction, Especially in China, where fertility demand is very close to being back to pre COVID levels. Governments around the world I'm becoming increasingly active in addressing the fertility issues families can face. Recently, The Chinese government introduced the 3 child policy, and next year, Japan will introduce reimbursement for IVF treatment in an attempt to address declining birth rates. The French government also recently passed a bill to allow egg freezing and for same sex couples to seek IVF treatment. Speaker 100:09:01Outside of women's health, we're also encouraged by the growing support for biosimilars. The U. S. Biosimilar market continues to grow with increases in physician and payer comfort with biosimilars. Both the targets we compete in, namely immunology and oncology, are seeing increased biosimilar utilization. Speaker 100:09:24The oncology conversion from originator to biosimilars has been faster. For example, trastuzumab, which is where oncizant plays, has some of Highest adoption rates among biosimilars. We currently see nearly 70% of the trastuzumab market converted to biosimilars. We are well positioned in the biosimilar market as a commercial collaborator with Samsung Bioethis. We have a good balance in terms of geographic contribution, So we're not levered with particular dynamics of any single market. Speaker 100:09:53We have balance with the life cycle of our portfolio. We have marketed products that are growing Like Renflexis and Entrazant, we have launched assets like HELLIMA in Australia and Canada, which are performing very well. And we have what we believe will be a major pipeline opportunity with our anticipated headwinda launch in the U. S. In 2023. Speaker 100:10:22And as we think about our established brands portfolio, part of the strategic timing of the spin Is that 2021 is an inflection year. It is the last year during which the portfolio is subject to significant new LOE risk. Beyond 2021, the impact from the LOE dissipates. Further, we have opportunities to Softened the erosion curve with continued growth of Abizet, launches of certain products in selected markets and other life cycle management opportunities. We continue to take an entrepreneurial view with regards to the Established Brands portfolio. Speaker 100:11:03And all three franchises are global businesses, As you'll see on the next slide, Asia Pacific was the only geographic region that was down in the quarter and that was driven by Zetra's loss of exclusivity in Japan. Our largest region, Europe and Canada, is showing Strong double digit growth driven not only by COVID recovery, but also by volume growth in biosimilars and infertility. The U. S, particularly Nexplanon, benefited from lapping the significant COVID impact in the Q2 of last year, Also from growth perspective, the U. S. Speaker 100:11:43Also showed solid performance in biosimilars where we offered both RenfLEXIS and Onprozant. In China, we had several positive areas of momentum that more than offset the impact from 4 of our products being Our fertility portfolio outpaced the market in Q2 and the contribution from the retail channel continued to grow. We're actively monitoring the impact of COVID and its variance across the world. But overall, we are very encouraged by how the portfolio is performing. And now, I will turn it over to Matt to discuss our 2nd quarter performance in more detail. Speaker 300:12:34Matt? Thank you, Kevin. Before I review the details of the quarter, it's important to remind everyone that Our second quarter is unique and it's what I would call a hybrid quarter. It's hybrid in that Q2 includes approximately 2 months of pre separation operations for which GAAP mandates the carve out method of accounting in approximately 1 month of post separation business activity accounted for by conventional GAAP methodologies. But the key area of commonality across these two different methods is revenue, which is presented by and large on an apples to apples basis and that's where I'll focus most of my commentary. Speaker 300:13:14So with this clarification on basis of presentation and now Let's turn to Slide 8. And revenue for the 2nd quarter was up 4.5% as reported and down about 1% at constant currency exchange rates. The impact of the loss of exclusivity or LOE during the Q2 of 2021 compared to the Q2 of last year Approximately $230,000,000 and it's primarily related to the loss of exclusivity of Zetia in the back half of twenty twenty in Japan, as Kevin mentioned, and New Barings LOE in the United States. The established brands portfolio has exposure to the Volume based procurement initiative or VBP in China, the total impact to sales for the Q2 compared to the Q2 of last was approximately $40,000,000 and was associated with the 3rd round of VBP, which is the largest so far Which occurred in the Q4 of 2020 and that included 4 of Organon's products: Singular Pediatrics, Proscar, Propecia and Arcoxia. In the Q2 of 2021, the negative impact of COVID-nineteen It was estimated to be approximately $120,000,000 which is about $100,000,000 better than last year. Speaker 300:14:30Our product portfolio is comprised of physician prescribed products, which have been affected by social distancing measures and fewer medical visits. And although we believe that global health systems and patients continue to adapt to the evolving impacts of the pandemic, and although we have experienced recoveries During the Q2, as compared to the year ago quarter, we do expect that ongoing negative impacts will persist through the remainder of 2021. Foreign exchange translation had a fairly sizable impact in the second quarter with about 550 basis points of favorability. That's not really surprising given the impact of COVID-nineteen on global currency markets in the prior year period and also understanding that approximately 80% of Organon's revenues are derived outside the United States. And finally, we are seeing volume growth mainly driven by our key growth businesses, women's health and biosimilars, As well as growth geographically in China, in fertility and in our Established Brands products ex VBP. Speaker 300:15:31So now let's take a look at performance by franchise. We'll start with Women's Health on Slide 9. Our Women's Health business grew 19% as reported And 16% ex FX in the 2nd quarter. We saw growth in Nexplanon, which was up 39% ex FX in the quarter And benefited from patients beginning to return to their healthcare providers as COVID-nineteen restrictions are lifted. Now while in person patient business They're not yet back to present at the level. Speaker 300:16:08As a result, we expect that ongoing negative impacts will persist through the rest of 2021. NetVue is incorporated into our guidance, which we'll discuss shortly. Our fertility portfolio was showing strength. Follows improved 40% in the quarter. Volume growth came from increasing demand for new accounts as well as from patients returning to clinics. Speaker 300:16:31We have observed that patients seeking fertility treatments are more motivated to return to doctors' offices than those patients seeking normal course well visits. So these growth drivers more than offset the 19% decline in NuvaRing related to increased generic penetration as a result of NuvaRing's LOE in 2018 in the U. S. Turning now to biosimilar to Slide 10. Biosimilars grew 43% as reported in the 2nd quarter And 35% ex FX. Speaker 300:17:01We have 5 assets in the portfolio, 3 in immunology and 2 in oncology. We launched our first asset, Brenzys, in 2016, followed by RINFLEXYS in 2017, Entrezant in 2018 And I think you'll be in the back half of twenty twenty. HADLIMA launched this year in Australia and Canada. RENFLEXIS and Entrezant are our 2 largest offerings and both are offered in the United States. Globally, RENFLEXIS grew 38% ex FX in the quarter, Driven by strong performance in the U. Speaker 300:17:33S. And Entrezant, which was launched in the U. S. In July of last year, was up 13%. Turning to Established Brands now on Slide 11. Speaker 300:17:44Because of the number of products in Established Brands and the multiple markets in which they're sold, We'll often discuss the performance of this franchise in terms of how it behaves as a portfolio. So revenue for Established Brands was down 4% as reported And 10% ex FX in the Q2 of 2021. Excluding the impacts of LOE, revenue was down about 2% ex FX. Volumes were up incrementally, mainly driven by COVID rebound, and price was down about 2%, which is Consistent with our prior disclosures and that we expect price erosion in Established Brands to be in the low single digit ex LOE over the intermediate term. China is an important market for Established Brands and part of our strategy in this market has been to move business out of the hospital channel and into the retail channel. Speaker 300:18:35This effort continues to be successful. The retail channel in China grew double digits, now represents about 45% of established brands revenue in China, up from approximately 35% a year ago. Just to reference, total revenue in China across all Organon business lines for the Q2 was $236,000,000 Up 12% versus the Q2 of last year. Now turning to our income statement on Slide 12. Again, because of the hybrid nature of this quarter, comparability to prior year performance across most income statement line items is not particularly meaningful. Speaker 300:19:11We can, however, draw comparisons at the revenue and gross margin lines if, in the case of the latter, we make a sensible adjustment Exclude purchase accounting amortization and one time items from cost of goods sold. So making this adjustment, In the Q2 of 2021, non GAAP adjusted gross profit was $1,040,000 Representing gross margin of 65.5 percent compared with 71.2% in the Q2 of last year. The decline reflects an increase in standalone costs, including certain costs related to manufacturing agreements between Organon and Burke, Which had lower gross margin percentages compared to 3rd party product sales. While comparisons to prior year performance are challenging, Probably the most important commentary we can make about Q2 performance is that it aligns very well with the full year guidance for 20 We provided at our Investor Day across all line items of our P and L from revenue down to adjusted EBITDA and including our non GAAP effective tax rate. We'll come back to guidance in a few moments. Speaker 300:20:20A few words on debt capitalization. At June 30, our bank debt was $9,500,000 Against cash and cash equivalents of $730,000,000 Although this cash balance includes about $400,000,000 of pre funded cash That will shortly be remitted back to Merck related to pre spin off inventory conveyance that will actually occur post separation. So a more representative net debt number is actually closer to $9,200,000,000 Now if we think about leverage ratios in the context of the guidance that we're affirming today and just to be illustrative, if we use the midpoint of our implied 2021 adjusted EBITDA guidance, That would put our net leverage ratio just below 4 times. Speaker 100:21:05We discussed Speaker 300:21:05our capital allocation priorities at our Investor Day in May, and I'll repeat them here today. With the recurring dividend now declared, of course, the dividend becomes capital allocation priority number 1. We've endeavored to set the dividend at a low 20s percentage of free cash flow, excluding onetime cost of the separation. Existing products in the portfolio and capital deployed in our manufacturing plants. And on the latter, we expect the annual CapEx in the range of 3% to 4% of revenue on an ongoing basis, excluding separation costs. Speaker 300:21:47Our 3rd capital allocation priority is really tied Between, a, execution of external growth plans to develop a pipeline of product opportunities like JAYA 2.0 and evopiprant Balance against B, debt reduction and our commitment to maintaining our DDBA2 rating. We are targeting a long term leverage ratio Below 3.5x net to adjusted EBIT. Turning to guidance now on Slide 13. Today, we are affirming the guidance that we laid out at our May 3 investor event. On a revisiting basis of presentation, Our guidance, both for the May 3rd investor event and today is non GAAP and pro form a as if the spin off happened on January 1. Speaker 300:22:34Beginning with revenue, this is the chart that we showed at Investor Day and there has been very little change. We continue to expect revenue to be in the range of $6,100,000,000 to $6,400,000,000 which is essentially all organic. We do include a de minimis partial year revenue contribution from the acquisition of Alinea Health that closed in June. The biggest component of the year over year change in revenue, of course, is the expected LOE impacts. Impacts from LOE were approximately $210,000,000 year to date and are primarily related to the loss of patent protection for ZEDIA in Japan And Newbury in the United States. Speaker 300:23:12So far, we have not seen a generic entrant for DALARA, which lost exclusivity in 2020. So we're improving our full year estimate of LOE impact to $300,000,000 to $400,000,000 from the $400,000,000 to $500,000,000 that we projected at Investor Day. As we were careful to describe previously, 2021 is an inflection year for Organon. After 2021, our LOE exposure dissipates to approximately $300,000,000 cumulative over the 4 year period 2022 through 2025. Those who attended Investor Day would know that we had said $250,000,000 With DULAYRA now moving out of 'twenty one into 2022, that pushes out some LOE exposure into future years. Speaker 300:24:00As far as upcoming VBP exposure, we now expect that EZTRAL will most likely be included in the next round of VBP in 2022 instead of this year As we previously expected, we don't see that moving the needle on the $200,000,000 to $300,000,000 range we previously expected. Obviously, COVID is something we're watching closely. Year to date impact from COVID was about $220,000,000 As we consider lagging trends in well visits and the effect that, that has had on Nexplanon as well as potential disruptions from the COVID-nineteen delta variant, We now believe the 2021 impact from COVID could be more in line with 2020 as opposed to slightly better as we previously thought. On a yearly basis, we expect foreign exchange translation to be a modest tailwind based on year to date currency performance and where spot rates are currently. Taken on the whole, this quarter's revenue performance is well aligned with our previous guidance, and it continues to reflect the key themes that we've been talking about in our public communications prior to the spin off. Speaker 300:25:04Looking through the LOE issues that are waning, We are seeing volume growth as we expected, mainly driven by our key growth businesses, women's health and biosimilars. We're also seeing volume growth geographically in China, in fertility and established brands ex BBP. Turning now to other guidance items on Slide 14. We're affirming all of the guidance that we provided at Investor Day. We're updating shares outstanding, so that's now a fully diluted number. Speaker 300:25:32We expect weighted average fully diluted shares to be about 254,000,000 for 2021. To reiterate what we said in May, we expect gross margin to be in the low to mid-60s range. We expect SG and A expense to be in the range Sales. We expect R and D expense to be in the mid single digit range as a percentage of revenue. And what this really represents is mostly R and D infrastructure A relatively small amount of variable spend on the organic life cycle management opportunities that we're planning to undertake for products currently in the portfolio. Speaker 300:26:09As we fill out a pipeline, our R and D expense will rise to support these programs, and we expect some of that to occur in 2021, Not by enough to revise the guidance range that we gave previously. So taking all this together, that would put us on an adjusted EBITDA margin in the range of 36 38% for 2021. We expect back half of the year margins to be lower than this range based on phasing of Spending, and this is primarily related to delayed spending due to COVID as well as timing of spending for life cycle management programs, the integration of Olivia Health And some other investments that we're planning that are intended to drive revenue growth in the future. Below the line, interest expense for 2021, Again, as if we were a standalone company since the beginning of the year, it's expected to be approximately $400,000,000 for the year, which reflects our new debt structure as a standalone company. Depreciation is expected to be in the range of $100,000,000 to $115,000,000 We expect our ongoing non GAAP effective tax rate to be in the range of 17.5% to 19.5% With book and cash taxes being roughly similar. Speaker 300:27:20Wrapping up the financial discussion, the franchises are progressing as we had expected. Given our outlook for 2021, we continue to believe that we're well positioned for future organic revenue growth in the low to mid single digits on a constant currency basis. This will be driven by stabilization in the established brand portfolio and continued growth in both women's health and biosimilars, each of which has the potential to grow low double digit CAGRs in near to medium term. At this point, I'll turn the call back to Kevin for closing remarks. Speaker 100:27:51Thank you, Matt. And I just want to stress that we're very early in our journey, but we're off to a solid start. Today, we reaffirmed our outlook for 2021, and we continue to feel very well positioned to deliver low to mid single digit growth of our 2021 base of business. In closing, I'd just like to say we're building something special at Orkon. We're early in the stages of building a unique and differentiated ESG approach in the company. Speaker 100:28:21We take diversity, Inclusion and Equity initiatives very seriously, and we believe our Board, which has the most female representation of any S and P 500 Healthcare Company today, We'll play a key role in our future success. When we launched our company back in June, we also launched a commitment Listening and understanding women's healthcare needs throughout the world. So we can find new solutions to address those needs. It is a purpose that permeates throughout the entire company and our culture, and we believe creates value across the spectrum of Organon stakeholders. Now we'd like to open up the call and take your questions. Speaker 100:29:01Thank you very much. Operator00:29:03Thank you. Please stand by while we compile the Q and A session. Your first question comes from Liza Chaslavik from Goldman Sachs. Your line is open. Speaker 400:29:26Hi, this is Tim. Thanks for taking the questions and congrats on your first quarter as a public company. I was just wondering, 2 part question. First, if you could elaborate further on your business development strategy in women's health. I'm assuming that Lidya and ObsEva are typical of the deals you're looking for, but maybe you could give us a little bit more color on the universe of opportunities and And then the second question I had is just on the dividend outlook for dividend growth. Speaker 400:29:56How are you thinking about that? Or is it simply going to be anchored to a payout of free cash flow? Thanks. Speaker 100:30:02Thanks for your question, Terrence. And I'll take the first question and then I'll pass it over to Matt to deal with the second question on dividend. So you're right. I mean, as we mentioned during our investor Various equity roadshow discussions, we're looking as we say kind of baseball parlors, singles and doubles. And ObsEva and Alidya fit perfectly in this kind of area. Speaker 100:30:29But having said that, We've as I mentioned a number of times, we did a scan a couple of years back and essentially we need to update that scan. And we identified probably about 140 assets in various stages of Development around the world, where we could actually use some of obviously some of our balance sheet capital to be able to go out and Make them a meaningful acquisition. So we're working because of the fact that, as I mentioned, unmet needs are significant out there Speaker 300:31:14And on the dividend, we thought very carefully Where to set the dividend in terms of balancing our desire for shareholders to participate in the cash generation of the business, but making sure that we retained enough cash flow to support our growth program. So The target of the low 20 percentage of production is strong right now, and we will be looking to stick Close to that as we roll out into the future. So we expect that the dividend will grow in terms of growth of free cash flow. Operator00:32:02Your next Question comes from Navanthi from Citi. Your line is open. Hi, good morning. Thanks for taking my question. Could you comment on the COVID recovery on your key products? Operator00:32:16And can we expect contraception to be offset by fraternities in the near term? And then longer term, do you have any comments for the outlook for fraternities Speaker 100:32:33Matt, do you want to take that? Speaker 300:32:36Sure. So we've certainly seen a COVID recovery in the business in Q2 versus this point last year. Let's remember that this point last year was really sort of, I think, the depth of the issue in terms of patients Accessing health care systems, United States and many countries around the world were on lockdown. So we have seen a COVID rebound in the business. We've seen it more in fertility than in contraception. Speaker 300:33:08As we stated in the prepared Comments, fertility patients for a number of reasons are more motivated to return to the clinics versus patient thinking To roll to initiate a rollover contraception. And so we do think that there is More COVID recovering to be realized in the businesses, dependent on the progression of the Of the delta variant and any other variants that may come. So that's I think we've Some encouraging results in terms of the COVID rebound, both for fertility as well as across solid portions of the Savage Brand's portfolio, but we are looking for more as the pandemic recedes. Speaker 100:34:00If I could just add on to some of the points that Matt made, and I'm sure we're going to get into discussions on the Nexomon and some other issues down the road. But in terms of fertility, because that was a focus of one of your points in your question, it had significant growth in the quarter, And it really anchors our women's health focus. Q2 is 50 9% growth versus Q2 2020, and year to date, we've got 46% growth versus year to date 2020. And we're significantly outpacing the fertility market growth. The market is growing at 35%, and we're growing at 46%. Speaker 100:34:37So very positive sign for our fertility efforts and what we're doing. And remember that overall behind what's going on here is a movement. I mean, I mentioned China and the 3 child policy, Japan and soon IVF reimbursement soon to begin, France, in terms of egg freezing as well as same sex couples reimbursement, more reimbursement from U. S. Employers to single payers like I mean, you recognizing the need to address declining birth rates. Speaker 100:35:04So we're very bullish and very focused on fertility. It's an important area Focus for us, and we'll continue to see the kind of double digit growth we always expected from it. Operator00:35:17Thank you. Your next question comes from Greg Fraser from Suri Securities. Your line is open. Speaker 500:35:28Thanks for taking the questions. Good morning, folks. Speaker 100:35:32On the revenue guidance, can you speak to Speaker 500:35:33the pushes and pulls that could get revenue to versus the lower end of the range, what's important to consider for the second half? The pandemic is clearly an unknown, but what are the pushes and pulls for the call out that are important to consider? And then my second question is on biosimilars. Contrerasenat and Brenzas are facing greater competitive intensity in the EU. I think you have some challenging year over year comps in the second half for those products. Speaker 500:35:57The biosimilar business is an important part of your growth strategy. So how should we think about growth In the second half, and what will be the key growth drivers for that business ahead of the biosimilar HUMIRA launch in the U. S. In 2023? Thank you. Speaker 100:36:11So I'll take the first part Speaker 300:36:13of the question, Kevin, with the push and pull high and low end versus Got it. And then you can cover that similar. So we feel very good about our full year revenue guidance of $6,100,000,000 to $6,400,000,000 The biggest source of variability to where we land in there, I think the questioner pointed it out, which certainly Where the pandemic takes us, we do believe we have a good handle on most other key drivers, whether it's So whether we end up at the High end or the low end, I think will be it will really be driven by the progression of the pandemic And I think where FX rates may go. Let's not forget 80% of our revenues are outside the United States. We reported in U. Speaker 300:37:14S. Dollars, so there can be cases where foreign exchange translation. And this is it's just It's a reporting impact, not an economic impact per se, that can just drive our reported numbers even though we may Speaker 100:37:38Great question, Greg. So just to clarify, we do not have the Samsung BioEpids anti TNF business in Europe. That is essentially Part of Biogen's business there, but what I will say is we are clearly doing well in biosimilars. Q2, we had 35% growth, and year to date, it's 23% growth in spite of, obviously, COVID. But what we see, for example, going forward It's the fact that GremFLEXIS in the U. Speaker 100:38:07S. Is doing exceptionally well, onthrozant just recently launched and Abyntio has been recently launched in the EU where we continue to do well We have the oncology biosimilars in the U. Of course, we have our biggest product potential, which is HADLIMA, which is a HUMIRA biosimilar We'll be launching in 2023. We expect to be 2nd on the market with our own citrate free high dose Availability, which we are very, very bullish on. Speaker 500:38:38Thank you. Operator00:38:42Your next question comes from Charlie Yang from Morgan Stanley. Your line is open. Speaker 300:38:51Hey, good morning. It's Matt Harrison. I was hoping that you could just comment more broadly as opposed to just This year, but the longer term outlook on BBP pricing and the impact that can have on the business, especially for mix plan. Thanks. Speaker 100:39:08Sure. I can handle that, Matt. And so look, I mean, we're very, very enthused by the performance in China currently. Q2, we've got essentially 12% reported growth and year to date, it's 3% reported growth. Remember, Four products, key products, the largest batch that we've had were included into the volume based procurement process in Q4 of 2020. Speaker 100:39:35And through the Q2, we already stabilized the business, showing volume growth and revenue growth. We're really excited as well Overall, the retail performance, I mentioned a number of occasions before that the retail focus we started in 2017 Seeing that VBP was going to be an issue, and right now, our performance in the retail sector in Q2 has grown almost by 30% And already account nearly 45% of our established brands business in China. I also mentioned fertility. Fertility, by the way, just we'll take an opportunity to say this, fertility grew 70% in the 2nd quarter. And just as a reminder, the fertility franchise is not subject to volume based procurement and is 100% cash pay business. Speaker 100:40:23Our portfolio in China right now, 60% of the Established Brands business, 60% of our portfolio has gone through the volume based procurement process, 10% will not because it's really fertility driven, 30% is remaining, 20% of that 30% will go through in 2022 And the remaining 10% will come in the outer years. So we're very diversified. Remember, in volume based procurement in terms of the China, No single product represents more than 20% of our business, so we've got a very well disciplined business. We have a business that's moving to Retail Channel just because we've got experience of it for the last 5 years. And also, we see that the future is essentially In terms of any exposures that we might have, the URPS potential exposure, which potentially happens in 2023, Approximately hits can affect about 40% of our business there, but it's been in the forecast During our May Investor Day, it's already folded in. Speaker 100:41:24So we feel very good that we're on the way back to really managing The volume based procurement process in China. Operator00:41:38Your next question comes from Umer Raffat from Evercore ISI. Your line is open. Speaker 600:41:46Hi, guys. Thanks so much for taking my question. Kevin, if a large business development opportunity were to become available, I'm talking something of the scale of, Let's say the BIO and Samsung JV or like a large women's health business from 1 of the pharma companies. Speaker 300:42:00What can you speak to your ability to engage Speaker 600:42:03in something like that, Especially early on being a public company, are you constrained in being able to use equity or not? That's first. Secondly, I know there's a lot of investor interest in figuring out what are the true growth drivers that's beyond biosimilars going forward. And one of the points I thought about is, what's your ability to engage with Merck On the possibility of using Nexplanon device IP for substituting other women's health generic products in there to create new So that's Nexvinon II and Nexvinon III kind of new offerings using that device given the physician comfort with that device. Can you speak to that and any programs ongoing? Speaker 600:42:44And then finally, where are you guys on the MicroSperics versus Nextel on IP side? I know you've lost a couple of cases, But it's also been my sense that there's going to be an alignment and at least on part of those patents you guys have been able to settle. Should we expect MicroSverix to be a nonissue mix phenomenon from a damages perspective going forward? Thank you. Speaker 100:43:07Thanks, Umer. Let me try to To address those points, so from a business development perspective, of course, we're always looking for what we feel is going to be really an important contributor to the business we're doing. We are though executing currently exactly on our strategy, which is essentially, as I mentioned to you before, there are a number of assets out there They are really looking for a home because there's significant unmet needs. And we believe we can start to be an aggregator in some of these women's health assets That are unique in terms of what they provide are solutions for some of the significant unmet needs that women face around the world. And so right now, the way that we've executed on that strategy is what I believe is spot on to what we wanted to do. Speaker 100:43:51It's really kind of look, we're 2 months into our launch and our spend, we've already done 2 deals. So that really shows our seriousness. But of course, It's something really attractive with the right valuation, the right focus, the right marriage. Of course, we're going to look at it seriously. But nothing of that nature is something that we're considering right now. Speaker 100:44:12We're considering more of the same of what you've seen from us over the 1st 2 months. In terms of Nexmo on the raw technology, of course, we always we're in very close coordination with our Merck colleagues. And right now, we don't have anything in the pipeline in terms of focusing on using that raw technology for anything else What we're doing today, which is essentially moving from 3 years to 5 years, is our focus right now in our life cycle management development for Nexplanon. We hope that, that will give us an opportunity to extend the life of Nexplanon to 2,030, which will really make it available to many more women who really need And want something that long ago horizon of efficacy for 5 years. Finally, in terms of what's happening in MicroPherus, I think we Very solid and very good. Speaker 100:45:03Obviously, I can't comment on ongoing litigation, but we feel very good with our position there. And we have a very strong We'd like to wind that down in the not too distant future, but we feel very good and very confident about where we stand right now with that potential issue. Operator00:45:28Your next question comes from Steven Sklar from Cowen. Your line is open. Speaker 700:45:33Thank you. In the second quarter, There was a $20,000,000 contribution from other. Can you elaborate on what other consists of? Secondly, has Organon done the studies necessary for your tumor biosimilar to be substituted? And then lastly, if I might, does Organon have any enemies in development from what you see Merck in its existing pipeline? Speaker 700:46:00Thank you. Speaker 300:46:02So I can take the first part of that question, Kevin. So the $20,000,000 in other It's principally supply sales to Merck. So As part of the separation, we inherited 6 manufacturing facilities in their totality, and some of the Activity at those sites is related to Merck Products, which will be continued under an MSA manufacturing services agreement. And so Speaker 100:46:43Steve, to your second question regards to the interchangeability focus. So Samsung, our partner, doesn't Feel that interchangeability is really the key point right now in terms of what they need to do. And keep in mind, most of the biosimilars right now up for FDA review ultimately and hopefully approval in the frame that we said do not also have interchangeability. And it's not really a major issue. The major It's really the citrate free and of course the high dose focus on citrate free product availability. Speaker 100:47:18That is the key because then you truly become a biosimilar because obviously the originator in terms of HUMIRA As we see, 3 100 milligrams and essentially that's what we're going to come into the market with, and we're very confident we'll be in the position of Entering second, it's our biggest opportunity. It's obviously physician rather a pharmacy dispensed And that is essentially, I think, a good proof point for the value proposition of what biosimilars will bring to the market. And in regards to your last point, in regards to did you mention enemies to in terms of do we have something with regards to Merck Speaker 700:48:04Did Merck impart any new molecular entities in your pipeline, which are in development? Actually, if I could follow-up on your on the second question, why do you think interchangeability of a Humira biosimilar is Not important or why does Samsung believe it's not important? I think most people think it is important. So if you can elaborate on that as well, that would be helpful. Speaker 100:48:26Sure, sure, Stephen. So first and foremost, no, we did not get any new molecular entities in our pipeline from Merck. We're building our pipeline out, as I mentioned. There's plenty in the hopper in terms of our business development strategies and focus In terms of what we can do with our cash flow, and I think the proof point is really in the 2 deals we've done in a few months that we've actually spun. In regards to why does Samsung believe The interchangeability is not the key focal point. Speaker 100:49:01I believe right now that Samsung Has a view that they've done their research and their due diligence. And like, for example, Amgen in terms of they're the first to be on the market, also does not have interchangeability as part of their focus of value proposition. So It's really about as again, I'll repeat, Stitch rate 3 high dose availability is really going to be a very, very key thing. But The key thing for all of us as well for biosimilar business is order of entry. Really anything that you can do to actually be in the first tranche of products that are Potentially approved so that you can offer access and choice to patients is really the key focal strategic point of view for what we're doing in biosimilars. Speaker 200:49:57Last question we had in queue. Thank you everybody for joining us today. The team looks forward to engaging with you all throughout the quarter. Speaker 100:50:09Thank you. Operator00:50:11This concludes today's conference call. Thank you all for joining. You may now disconnect.Read morePowered by