The operator welcomed everyone to the Organon Second Quarter 2023 Earnings Conference Call and introduced Jennifer Halchak, Vice President of Investor Relations, and other members of the Organon team. Halchak cautioned listeners that certain information discussed on the call would include forward-looking statements, and that non-GAAP financial measures would be discussed as well.

In the second quarter of 2023, the company's revenue was $1.6 billion, up 4% compared with the prior year period. Women's health and biosimilars franchise saw double digit growth, while the Established Brands franchise achieved flat performance. Adjusted EBITDA was $530 million, representing a 33% margin. The company narrowed its guidance range on revenue to $6.25 billion to $6.45 billion and raised the lower end of its adjusted EBITDA guidance to 31.5% to 33%. Nexplanon saw strong growth in the US, with a 19% revenue increase and outpacing the large market, which grew 3% year-to-date.

In the second quarter of 2021, Organon saw strong growth in the fertility business in both China and the US. The US market is seeing increasing demand from existing customers and new accounts due to improved supply chain consistency and reliability. The company expects Nexplanon to achieve $1 billion in revenue by 2025, and the global fertility business to grow in the high single digits to low double digits in 2023. Additionally, the JADA system for post-partum haemorrhage has seen more than doubled revenue year to date, and is now in over 100 of the 150 largest birthing hospitals in the US.

The launch of HADLIMA, a biosimilar for Humira, has been successful with orders from all major wholesalers. Organon has been able to secure access through Optum RX and Express Scripts, covering over half of lives through United Healthcare and a third of lives through Cigna and Prime Therapeutics. Organon is continuing discussions for custom health plan business and is encouraged by the access they have secured so far.

HADLIMA has several product attributes that make it a strong competitor in the biosimilars market, such as its pen design which received an Arthritis Foundation designation and its For You Patient Support program which includes a co-pay program and dedicated nurse coaches. It also has five years of real-world evidence from its launches in Europe, Canada, and Australia, and is on track for an interchangeability designation approval in the summer of 2024. The product formulation is high concentration, citrate-free, and aligned with the most prescribed formulation of the originator, making it convenient for patients. This is important for the success of biosimilars in the U.S. healthcare system.

This paragraph discusses the success of the Established Brands franchise and how they have strategically managed pricing in order to maintain stability. They have leveraged manufacturing optimization, increased list prices in certain markets, and scrubbed the channel for commercial and trade discount improvements.

In the second quarter of this year, Organon's revenue grew 4% in constant currency terms. This growth was driven by negligible loss of exclusivity, a $25 million impact from value-based pricing in China, and $30 million of price erosion. Kevin then handed the discussion over to Matt Walsh to discuss the quarter's results in more detail.

Merck has seen strong volume growth across all of its franchises, with 60% of the growth coming from biosimilars, Nexplanon, Fertility, JADA and China Retail. The remainder was from established brands. Foreign exchange translation had a 250 basis point headwind in the second quarter, which moderated from the first quarter, and is expected to continue to moderate through 2023. In the U.K. region, revenue grew 6%, primarily due to growth in Atozet, France and biosimilars in Canada.

The second quarter saw mandatory price declines and supply constraints in Europe, as well as the US growing 6% due to strong performance across key platforms. Asia Pacific Japan declined 5%, driven by an unfavorable comparison to the strong performance in the same quarter last year, while China grew 2% due to COVID recovery in fertility. LAMIRA region grew 11%, driven by solid contributions in women's health, partially offset by supply constraints in the UCAN region. Expansion of access from out-of-pocket markets to reimbursed segments drove key volume drivers in NEXPLANON and fertility portfolios.

In the second quarter, the Docs' decision in the US drove an increase in demand for NEXPLANON through the 340B program. Fertility had strong volume demand, while biosimilars grew 15% ex FX in the quarter and 18% year-to-date. Established brands were able to cover the headwind from the market action on injectable steroids, and gross margins declined due to product mix, FX translation, and inflationary cost pressures.

In the second quarter of 2023, the company's adjusted EBITDA margin increased to 33% compared to 32.3% in the same quarter of 2022. This was primarily due to no IP R&D payments being incurred in the second quarter of 2023. Non-GAAP adjusted net income was $336 million or $1.31 per diluted share, compared with $319 million or $1.25 per diluted share in 2022, due to higher adjusted EBITDA and a tax benefit related to foreign earnings. The company's net leverage ratio is expected to increase through the third quarter of 2023, before ending close to where it began the year.

In the first half of 2023, cash flow is expected to be used for working capital, inventory build, and replenishment cycles, which is estimated to be around $440 million. This is expected to be offset by a reduction in trade days of sales outstanding (DSO) and other levers that should result in approximately $1 billion of free cash flow before onetime costs for the year.

The spinoff transaction is expected to cost $350 million in 2023 and CapEx is expected to be 3-4% of revenue. Revenue guidance for 2023 has been revised from $6.15-6.45 billion to $6.25-6.45 billion due to a decreased FX translation impact. LOE impact is minimal in 2023 and is mainly related to generic competition for NuvaRing in the US, Atozet in Japan, and possibly DULERA in the US. The annual impact from VBP is expected to be $100-125 million.

EZETROL's inclusion in Rounds 7 and 8 of implementation in 2022 and 2023, respectively, is expected to cause price erosion of $100-$150 million. Volume growth is expected to be $500-$600 million, with contributions from established brands, biosimilars, fertility, China retail, Jada, and NEXPLANON. Adjusted gross margin is expected to be in the low- to mid-60% range, with inflationary cost pressures persisting through 2023. SG&A and R&D are expected to remain consistent as a percentage of sales, with higher OpEx spending in the second half of the year.

The company is raising their adjusted EBITDA guidance by 0.5 percentage point, and is lowering their non-GAAP tax rate by 150 basis points, which will result in net savings in 2023. They are also increasing their annual interest expense by $10 million due to the Fed's rate hikes, but this is offset by a $10 million decrease in their estimate of depreciation for the year. The company is also looking to clean up some of its variable rate debt, and is considering how to balance the goals of deleveraging and adding assets in terms of BD M&A.

Matthew Walsh discussed the company's strategy for capital deployment, which includes a balance between growth, external growth, and debt reduction. The change in the interest rate environment has raised the bar on capital deployment through business development, causing the company to focus on opportunities that result in more near-term visibility into revenue and EBITDA accretion. The company has deployed about equal amounts of capital to growth and $450 million in total of voluntary debt repayments.

Umer asked Matthew and Kevin about the details of the quarter, which was tracking ahead. Matthew explained that the large tax lowering was due to their global tax structure in Europe. Kevin explained that the strong performance of the cholesterol franchise ex U.S. was due to a slow procurement implementation in China, which created an opportunity for the ezetimibe franchise, as well as double-digit growth in France for the Atozet franchise.

Kevin Ali provides an update on Humira's interchangeability commentary, noting that it was not a priority for PBMs until recently, but that Samsung has published a Phase IV trial that met all endpoints for interchangeability. He also notes that PBMs have expressed interest in contracting on price, and that they expect to receive an interchangeability indication by next summer. He does not comment on the race between Teva and other competitors to get the interchangeability designation.

Kevin Ali provides information on the low WACC and high discount strategy that AbbVie is using in the PBM world, which includes reliability in manufacturing, a unique pen design, real-world evidence, and interchangeability indication. He also provides an update on ebopiprant, which is missing data and requires additional clinical work.

AbbVie is taking a high WAC, high rebate approach to launching its biosimilars while HADLIMA is taking a route where the value proposition is providing savings to the system and out-of-pocket costs to patients. HADLIMA believes that the market will really start to form in 2023 and 2024 and that by 2025, 40% of the lives covered will be with low WACC, low rebate, and low out-of-pocket expenses. HADLIMA has already seen success with Prime, UnitedHealthcare, and Centene, covering one-third, half, and five million lives, respectively.

Kevin Ali discussed the company's plans for their biosimilars and women's health businesses. He noted the deal with Henlius to bring in two assets in the biosimilar space and that the next windfall would likely be in the 2028 time frame. He also mentioned that the company is being opportunistic and looking for opportunities wherever they can find them.

The company is looking into opportunities in women's health, but they are also expanding their scope to include conditions that disproportionately affect women. They are looking at both ready-to-launch and mid-stage development assets, and are committed to this endeavor. The company is proud of their results in the second quarter, and thanked everyone for tuning in.

This summary was generated with AI and may contain some inaccuracies.