Matthew Walsh
Chief Financial Officer at Organon & Co.
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 two months of pre-separation operations for which GAAP mandates the carve-out method of accounting, and approximately one 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.
So with this clarification on basis of presentation, and now let's turn to Slide 8. Revenue for the second 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 second quarter of 2021 compared to the second quarter of last year is approximately $130 million and it's primarily related to the loss of exclusivity of ZETIA in the back half of 2020 in Japan, as Kevin mentioned and NuvaRing's 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 second quarter compared to the second quarter of last year was approximately $40 million and was associated with the third round of VBP, which is the largest so far, which occurred in the fourth quarter of 2020 and that included four of Organon's products, Singulair Paediatrics, Proscar, Propecia and Arcoxia.
In the second quarter of 2021, the negative impact of COVID-19 was estimated to be approximately $120 million, which is about $100 million better than last year. Our 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 second quarter 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-19 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. So 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 second quarter. We saw a 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-19 restrictions are lifted.
Now, while in-person patient visits to healthcare professionals demonstrated recovery in the second quarter relative to the height of the COVID-19 pandemic during the same period last year, they're not yet back to pre-pandemic levels. And as a result, we expect that ongoing negative impacts will persist through the rest of 2021 and that view is incorporated into our guidance, which we'll discuss shortly.
Our fertility portfolio is showing strength, FOLLISTIM grew 40% in the quarter. Volume growth came from increase in demand from new accounts as well as from patients returning to clinics. We have observed that patients seeking fertility treatments are more motivated to return to doctor's offices than those patients seeking normal course wealth 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 Biosimilars on Slide 10; Biosimilars grew 43% as reported in the second quarter and 35% ex-FX. We have five assets in the portfolio, three in immunology and two in oncology. We launched our first asset, BRENZYS in 2016, followed by RENFLEXIS in 2017, ONTRUZANT in 2018 and AYBINTIO in the back half of 2020. HADLIMA launched this year in Australia and Canada.
RENFLEXIS and ONTRUZANT are our two 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.S. and ONTRUZANT, which was launched in the U.S. in July of last year, was up 13%.
Turning to Established Brands now on Slide 11, because of the number of products in Established Brands in 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 second quarter 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 digits 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 a hospital channel and into the retail channel and this effort continues to be successful. The retail channel in China grew double digits and now represents about 45% of Established Brands' revenue in China, up from approximately 35% a year ago. And just a reference, total revenue in China across all Organon business lines for the second quarter was $236 million, up 12% versus the second quarter 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. We can, however, draw comparisons at the revenue and gross margin lines if, in the case of the latter, we make a sensible adjustment to exclude purchase accounting amortization and one-time items from cost of goods sold.
So making this adjustment in the second quarter of 2021, non-GAAP adjusted gross profit was $1.044 billion, representing a gross margin of 65.5% compared with 71.2% in the second quarter of last year.
The decline reflects an increase in standalone costs, including certain costs related to manufacturing agreements between Organon and Merck, which have lower gross margin percentages compared to third-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 2021 that we provided at our Investor Day across all line items of our P&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.
A few words on debt capitalization. At June 30, our bank debt was $9.5 billion against cash and cash equivalents of $730 million. Although this cash balance includes about $400 million 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 $9.2 billion.
And 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 four times. We discussed our capital allocation priorities at our Investor Day in May and I'll repeat them here today. With a recurring dividend now declared, of course the dividend becomes capital allocation priority number one. We've endeavored to set the dividend at a low-20s percentage of free cash flow, excluding one-time cost of the separation, and this level, we believe, will be very manageable going forward.
Our second priority will be organic growth, which would include life cycle management opportunities for existing products in the portfolio and capital deployed in our manufacturing plants. And on the latter, we expect to see annual capex in the range of 3% to 4% of revenue on an ongoing basis, excluding separation costs.
Our third capital allocation priority is really a tie between A, execution of external growth plans to develop a pipeline of new product opportunities like Jada 2.0 and [Indecipherable] balanced against B, debt reduction in our commitment to maintaining our BB/Ba2 rating. We are targeting a long-term leverage ratio below 3.5 times net to adjusted EBITDA.
Turning to guidance now on Slide 13. Today, we are affirming the guidance that we laid out at our May 3 investor event. When revisiting basis of presentation, our guidance both for the May 3 investor event and today is non-GAAP and pro forma as if the spin-off happened on January 1. Beginning 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 $6.1 billion to $6.4 billion, which is essentially all organic. We do include a de minimis partial year revenue contribution from the acquisition of Alydia 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 million year-to-date and are primarily related to the loss of patent protection for ZETIA in Japan and NuvaRing in the United States. So far, we have not seen a generic entrance for Dulera, which lost exclusivity in 2020. So we're improving our full year estimate of LOE impacts to $300 million to $400 million from the $400 million to $500 million 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 million cumulative over the four year period 2022 through 2025. Those who attended Investor Day would know that we had said $250 million, but with Dulera now moving out of '21 and into 2022, that pushes out some LOE exposure into future years.
As far as upcoming VBP exposure, we now expect that Ezetrol will most likely be included in the next round of VBP in 2022 instead of this year, as we previously expected. But we don't see that moving the needle on the $200 million to $300 million range we previously expected.
Obviously, COVID is something we're watching closely. Year-to-date impact from COVID was about $220 million. However, 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-19 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. Looking 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 in Established Brands ex-VBP.
Turning now to other guidance items on Slide 14, we're affirming all of the guidance that we provided at an Investor Day. We're updating shares outstanding, so that it's now a fully diluted number. We expect weighted average fully diluted shares to be about 254 million 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&A expense to be in the range of mid-20% of sales. We expect R&D expense to be in the mid-single digit range as a percentage of revenue. And what this really represents is mostly R&D infrastructure and a relatively small amount of variable spend on the organic lifecycle management opportunities that we're planning to undertake for products currently in the portfolio.
As we fill out our pipeline, our R&D expense would rise to support these programs and we expect some of that to occur in 2021, but not by enough to revise the guidance range that we gave previously. So taking all this together that would put us in an adjusted EBITDA margin in the range of 36% to 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 lifecycle management programs, the integration of Alydia 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, is expected to be approximately $400 million for the year, which reflects our new debt structure as a standalone company. Depreciation is expected to be in the range of $100 million to $115 million, and 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.
Wrapping up the financial discussion, the franchises are progressing as we had expected. And 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 at low-double digit CAGRs in the intermediate term.
At this point, I'll turn the call back to Kevin for closing remarks.
