The operator introduces the Organon & Co. First Quarter 2024 Earnings Call and Webcast, and the speakers for the call. Jennifer Halchak, Vice President of Investor Relations, introduces the CEO and CFO who will cover strategy, performance, and guidance. The call will reference a presentation and caution listeners about forward-looking statements and non-GAAP financial measures.

The company's first quarter results show a 7% growth in revenue, with all three franchises contributing. The CEO is confident in the company's ability to meet its financial targets for 2024, including revenue growth and adjusted EBITDA margins. The company also plans to generate $1 billion in free cash flow and use it for capital allocation, including paying dividends and reducing leverage. Business development opportunities will also be pursued. A reconciliation of non-GAAP measures to GAAP measures is included in the press release and conference call presentation.

In the third paragraph, the company discusses their recent transactions in biosimilars and their commercial agreement with Eli Lilly. These transactions align with their mission of providing solutions in women's health. The company also reports on the growth of their women's health franchise, led by Nexplanon with a 34% growth in the first quarter. They expect this growth to continue through 2024, driven by various factors such as pricing strategy and increased demand in international markets. The company believes Nexplanon will reach a $1 billion annual run rate by 2025.

The company believes that there is still room for growth in their Nexplanon product until its exclusivity expires in 2030. This is due to a differentiated label, IP protection on the device, and the strong performance of complex drug device combinations. In terms of their fertility franchise, the global business was flat due to a spin-related commercial arrangement and a significant customer buy-in in the fourth quarter of 2023. However, there was strong growth in China due to high demand.

Organon expects continued growth in their fertility and biosimilar businesses in 2024, with strong demand in key markets like China and the U.S. driving high-single-digit revenue growth. The company also anticipates double-digit growth in their biosimilars franchise, with the U.S., Brazil, and Canada being key markets. Organon plans to launch a new asset every couple of years beyond 2024.

Organon's collaboration with Shanghai Henlius Biotech has resulted in the licensing of commercialization rights for two investigational products, PERJETA and Prolia/Xgeva biosimilar candidates. Clinical trials for these molecules are progressing well, with regulatory filings expected in 2024. The established brands portfolio grew 2% ex-FX in the first quarter, demonstrating its resilience. Revenue by geography also saw growth, with UCAN and the U.S. driving the increase.

Organon's growth in the fourth quarter of last year was offset by pressure and channel dynamics, but was boosted by the success of Ontruzant in the Lamera region. The company expects a challenging year in Japan due to national pricing revisions and LOE's, but anticipates growth in China. Operational execution is going well and the company is looking for smart deals and potential value in their clinical portfolio. Progress is being made in the development of Marcelo for primary dysmenorrhea and other innovative assets.

In the first quarter, Organon's revenue exceeded expectations due to strong volume from Nexplanon and biosimilars, as well as recovery in injectable steroids and growth from Jada. Other revenue drivers were neutral, and LOE and VBP had a minimal impact. Price pressure was offset by Nexplanon's pricing strategy in the U.S., and supply other was affected by declining contract manufacturing arrangements with Merck.

The last factor affecting the company's revenue was foreign exchange translation, which had a $30 million impact and was a 2 percentage point headwind. The company's women's health franchise is expected to see robust growth for Nexplanon, with potential double-digit growth for the year. However, fertility growth will be skewed towards the second half of the year due to certain issues in the first half. In the biosimilars franchise, Ontruzant has had success in Brazil but is expected to decline globally due to competition in other markets.

The company had a strong first quarter and aims to continue growing their product sequentially each quarter this year. They anticipate challenges and opportunities for their established brands, with expected impacts from inclusion in round 10 and LOE in the EU. However, they expect these headwinds to be offset by volume growth and contributions from new assets. The company also shared key non-GAAP financial metrics for the first quarter, including adjusted gross margin which was lower than last year due to various factors but still performed better than expected.

In the first quarter of 2024, the company's non-GAAP operating expenses decreased by 3% compared to the previous year, excluding IPR&D expenses. This was due to cost containment efforts, including reprioritizing clinical spending and rationalizing headcount. IPR&D expenses were $15 million in the quarter, with milestone payments related to the development of a denosumab biosimilar. Foreign exchange losses were lower, resulting in an adjusted EBITDA margin of 33.2%. Non-GAAP adjusted net income also increased compared to the previous year. The company's free cash flow generation has followed a pattern of 30-70 in the last two years, with 30% generated in the first half and 70% in the back half. In 2024, the company generated $875 million of free cash flow before one-time charges, increasing from $940 million in 2023.

In 2024, the company expects to reach $1 billion of free cash flow, with a third of the working capital consumption due to the timing of annual incentive payments. They also anticipate seasonal fluctuations in working capital and a reduction in one-time costs related to the spinoff. The company has completed the implementation of their global ERP system and expects even lower one-time spin-related costs next year. They also have $36 million in other one-time costs related to restructuring and transitioning their manufacturing network. The company's net leverage ratio has remained level at 4.1 times due to stronger-than-expected EBITDA performance in Q1.

The company is confident in their plans to lower their net leverage ratio this year. Their 2024 revenue guidance remains unchanged, with an expected impact from Atozet and Dulera. The VBP impact is expected to be around $30 million to $50 million, and the impact from price is estimated to be around $180 million to $220 million, representing a 3% headwind. The company is also raising their estimate for volume growth to $450 million to $650 million, primarily due to strong performance in biosimilars. This growth will come from their key areas of focus, including Nexplanon, fertility, biosimilars, and China retail, as well as new additions like Lilly's Emgality and Rayvow in Europe.

The company is forecasting an increase in headwind from foreign exchange rates compared to previous forecasts. This will be offset by improved volume growth. The company is maintaining its guidance for adjusted gross margin and operating expenses, but there may be some expenses related to product launches in the second half of the year. Q1 was a solid start to the year, and the company is on track for another year of constant currency revenue growth. The call then opened for questions, with the first question focused on free cash flow.

The speaker discusses the free cash flow for the quarter, which is roughly flat and neutral. They mention that working capital was a drag, but it is expected to reverse in later quarters. They also mention that one-time costs related to the spin-off will decrease by 40%. The speaker is confident that they will hit their full-year free cash flow target. They also address a question about potential headwinds in 2025 and 2026 due to the five-year Nexplanon regimen, but they do not expect it to be a major issue as price increases are possible and have not been decided upon yet.

The speaker discusses the growth of Nexplanon in the U.S., attributing it to a combination of factors such as price changes and increased demand in both the 340B channel and the commercial market. They predict a double-digit growth year for Nexplanon globally and express confidence in the product's performance in the U.S.

The company reports that their product, Hadlima, is progressing well in the market. They expect slow market formation with more PBMs preferring biosimilars over Hadlima. They are aiming for an exclusive contract with the VA and anticipate more erosion of Humira in the coming years. They believe that their peak revenue of $200 million in the U.S. is achievable and are confident in the product's success in the future. In terms of operating margins, the company sees potential for improvement beyond 2024 and is actively seeking business development opportunities, particularly in the attractive Emgality market. They are open to opportunities in different segments and geographies.

The company expects to offset the competitive pricing in their markets by focusing on higher margin products, improving cost of goods sold, and generating operating leverage. They also plan to pursue business development opportunities, such as the recent deal with Lilly, to expand their presence in women's health and potentially in growth markets like China.

The speaker discusses their expectations for the Humira biosimilar market in the upcoming years, noting that they have been predicting a slow and steady increase in sales across various channels. They mention the recent decision by CVS to remove Humira from its formulary, as well as their own strategy of targeting low-cost providers like the VA and Medicare.

The speaker discusses the slow market opening for Humira biosimilars and the potential for private label deals with large insurer groups. They also address the upcoming loss of exclusivity for Nexplanon in most countries outside of the US and how it may impact sales.

The speaker discusses the success of their biosimilar business, particularly in the Optum sector, and predicts continued growth and penetration in the coming years. They also address potential market erosion for their Nexplanon product, stating that the majority of their business is in the U.S. and that it is unlikely to be impacted by competition in other markets until at least 2030.

The speaker discusses the potential for margin expansion in the company's EBITDA and how it will be driven by the revenue mix of products in the pipeline and potential acquisitions. They also mention the stability of the current portfolio and the potential for growth in certain products.

The speaker discusses the biosimilar market and the impact of private label moves on market share dynamics. They also mention the progress of Hadlima towards interchangeability and the contributions of Emgality and Rayvow to the established brands side.

Kevin Ali, a spokesperson for a pharmaceutical company, discusses the dynamics and expectations for their brands going forward. He mentions that the market for biosimilars is split into two parts, with PBMs and low-cost providers making up the majority. He believes that their company's strategy is competitive and will continue to gain market share from the originator. He also mentions that their established brands, RAYVOW and Emgality, are just starting to be promoted in the EU and that the migraine segment in Europe is growing quickly.

The speaker discusses the company's strong position due to recent product launches, a good reputation, and a dedicated team. They also mention plans for more deals and growth in the future. The caller asks about the company's conservative guidance and the speaker explains that foreign exchange is a factor in their decision. The speaker concludes by expressing confidence in their initial guidance.

Kevin Ali thanks everyone for their participation in the call and reiterates the company's focus on execution, delivering on projections, and building for the future. He expresses satisfaction with the progress made in the first quarter and thanks participants for their input. The call is now concluded.

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