The paragraph is an introduction to Organon's third quarter 2024 earnings call. The operator, Mandeep, introduces the earnings call and Jennifer Halchak, Vice President of Investor Relations, takes over, welcoming participants and noting the presence of Kevin Ali, the CEO, Matt Walsh, the CFO, and Juan Camilo Arjona Ferreira, Head of R&D. She mentions that there is an accompanying presentation available to webcast viewers, which will also be posted on their investor relations website. Jennifer provides a caution about forward-looking statements, noting that actual results may vary due to risks and uncertainties detailed in SEC filings. She also mentions that non-GAAP financial measures will be discussed as supplements to GAAP measures. Finally, she hands the call over to CEO Kevin Ali.

The company discussed its third quarter 2024 financial results, reporting $1.6 billion in revenue, a 5% growth at constant currency. Key growth drivers included the women's health, biosimilars, and established brands franchises. With an adjusted EBITDA of $459 million and a 29% margin, the company generated nearly $700 million in free cash flow year-to-date. They increased their revenue guidance midpoint by $50 million due to better-than-expected performance and foreign exchange outlook, projecting a 1.8% to 2.6% nominal growth for the full year. The company anticipates continued constant currency revenue growth into 2025, supported by organic growth and business development. They revised their EBITDA margin range to 30% to 31%, factoring in a $51 million IPR&D expense. Additionally, they announced the acquisition of Dermavant and its asset, VTAMA.

VTAMA is a nonsteroidal topical cream approved for treating plaque psoriasis in adults and has a potential new indication for atopic dermatitis in adults and children over two years old. The atopic dermatitis market offers a more attractive opportunity due to its larger patient base and the unmet need for effective, safe long-term topical treatments. Unlike the saturated psoriasis market, atopic dermatitis lacks adequate treatments with the efficacy and safety of biologics but in a topical form, especially important for the significant pediatric population affected. Juan Camilo Arjona Ferreira explains that psoriasis often requires systemic therapies like biologics, whereas VTAMA's unique profile makes it better suited for the unmet needs in the atopic dermatitis market.

The paragraph discusses atopic dermatitis (AD), a chronic skin condition characterized by inflammation, redness, and itching that often disrupts sleep. Existing treatments, primarily steroids, are outdated and not suitable for long-term use. Nonsteroidal options are limited and come with drawbacks such as high cost and safety concerns. The need exists for new treatments that offer both efficacy and safety for all ages. Two Phase 3 trials suggest that VTAMA could meet this need by providing a novel, well-tolerated, and effective treatment with a broad label for mild to severe AD in both children and adults. The developers are optimistic about VTAMA's potential to offer a better balance of efficacy and safety.

The paragraph discusses Organon's confidence in VTAMA's commercial potential for atopic dermatitis and its strategic acquisition aligning well with the company's dermatology expertise. The transaction expectations include $150 million in VTAMA sales by 2025, with growth potential up to $0.5 billion over the next few years, though it may slightly impact EBITDA margins initially. The acquisition enhances Organon's dermatology presence in the US and globally. Additionally, it highlights growth in women's health, particularly with Nexplanon, due to its strong US market position and effective pricing strategies.

In the third quarter, Nexplanon experienced a 3% decline (excluding foreign exchange effects) due to tender timing in Latin America, but is still expected to achieve low to mid-teens revenue growth for the year. The company is optimistic about reaching a $1 billion milestone next year and plans to submit a five-year indication proposal to the FDA, aiming for a potential late 2025 launch. Meanwhile, the fertility business, despite a 14% increase (excluding foreign exchange) in the third quarter, is anticipated to slightly decline this year due to inventory adjustments and transitional challenges. However, strong growth is expected in 2025 driven by expanded reimbursement in China, international expansion, and stabilization in the US. The biosimilars franchise grew 17% at constant currency in the third quarter and is projected to achieve low teens growth in 2024, boosted by successful uptake of Hadlima in the US. The strategy involves launching a new asset every couple of years, with Denosumab and Pertuzumab planned for future growth in collaboration with Shanghai Henlius, pending FDA approval.

The paragraph discusses a company's recent developments and financial performance. The FDA accepted their Biologics license application for Denosumab, targeting a 2025 release in the US. Established brands grew by 3% in the third quarter and 1% year-to-date, with expectations for flat to slightly improved performance annually. Growth in Emgality and injectable steroids recovery is anticipated to counterbalance the loss of exclusivity for Atozet and pricing revisions in Japan. Third-quarter revenue was $1.58 billion, marking a 4% increase compared to last year, with a significant impact from price reductions in Japan's cardio and respiratory sectors.

The paragraph discusses the company's financial performance, highlighting challenges such as pricing pressures from the loss of exclusivity of Atozet in Spain and France and mature US products like NuvaRing, Dulera, and Renflexis. Despite these issues, there was nearly 10% volume growth, primarily driven by products like Hadlima and Emgality, as well as fertility treatments and established brands in China. Detractors from this growth included timing of tenders for Ontruzant and NuvaRing in the US. A slight decline in lower margin contract manufacturing with Merck and a $20 million revenue hit due to currency fluctuations also affected financials. The adjusted gross margin decreased to 61.7% from 62.6% the previous year, mainly due to unfavorable product mix and pricing. Despite incurring $51 million in IPR&D expenses, the company managed to reduce non-GAAP operating expenses by 5% year-over-year through cost containment efforts.

In the third quarter, the company recorded $51 million in IPR&D expenses primarily tied to its collaboration with Shanghai Henlius for biosimilar candidates. With expectations set through 2024, no additional milestone payments are anticipated. Total IPR&D expenses of $81 million for the year have slightly impacted margins, but signal pipeline progress. The company's adjusted EBITDA margin for Q3 2024 was 29%, slightly down from 29.4% in 2023. Non-GAAP net income was nearly stable at $226 million, while GAAP net income was higher, benefiting from a $210 million tax asset adjustment in Switzerland. The non-GAAP tax rate guidance remains unchanged. Despite minor acquisition-related impacts, the company is on track to achieve about $1 billion in free cash flow, with $137 million in one-time costs largely due to a global ERP implementation.

In the fourth quarter, the company expects minimal costs in a specific category, aiming to end the year at $150 million, better than the initially forecasted $200 million in spin-related costs for 2024. For 2025, spin-related costs are expected to be negligible. Additionally, $129 million are allocated towards other one-time costs, including headcount restructuring and manufacturing network optimization, with $44 million spent so far in 2024. These costs are separate from spin-related expenses and are intended to improve cost efficiency and gross margins by separating manufacturing and supply chain activities from Merck. The total expected for this is $75 million for the year. At the end of the recent quarter, the net leverage ratio was 4.0 times, an improvement over both the previous year's figure and year-end's 4.1 times. This favorable leverage is due to stronger EBITDA generation. However, it will take several quarters to absorb the Dermavant acquisition before returning to the current leverage ratio. For 2024, the revenue guidance has been adjusted upward by $50 million, equating to a 1.8% to 2.6% nominal growth, and 3.1% to 3.8% on a constant currency basis. The LOE forecast has been lowered to $40 million to $50 million due to slower generic uptake for Atozet.

The company has adjusted its financial projections due to delays and competitive pressures. It lowered the expected revenue impact of certain product rounds and price effects, anticipating these to be more significant in late 2024. The company also faces increased competition in the US market, leading to revised volume growth expectations. Additionally, favorable foreign exchange impacts led to improvements in revenue forecasts and an adjustment in EBITDA margin expectations, affected by increased research and development expenses.

The paragraph discusses the expected impact on fourth-quarter revenue and gross margins, citing a likely 50 basis point decrease due to unfavorable product mix and competitive pressures on certain mature US products such as Ontruzant, NuvaRing, and Dulera. However, a rebound is anticipated next year for the US fertility business, and a strong gross margin from VTAMA could offset current margin pressures. The discussion also touches on the onboarding of Dermavant, with no synergies yet included, and provides updated earnings guidance. The gross margin range for 2024 is revised to approximately 61.5%, with tightened SG&A and R&D expense ranges, and an $81 million year-to-date IPR&D expense impacting adjusted EBITDA margin by 130 basis points. While specific 2025 guidance is premature, revenue growth is expected.

The paragraph discusses the financial outlook and strategic plans related to the Dermavant acquisition. Organic growth and revenue from Dermavant will counterbalance the impact of the loss of exclusivity (LOE) for Atozet next year. The Dermavant acquisition is expected to negatively impact 2025 profitability but become beneficial in 2026 as the company focuses on launching VTAMA for atopic dermatitis. The 2025 operating expense for Dermavant is projected to be $180 million, largely directed toward this launch. Dermavant's launch is expected to cause a slight decline in EBITDA margin in 2025, which the company aims to offset with cost discipline. In 2026, as revenue from VTAMA grows, margins should exceed the company average. By 2024, the company aims to achieve growth across revenue, EBITDA, and free cash flow, with confidence in meeting its goals. The section concludes with a transition to a Q&A session.

The paragraph discusses a business update, focusing on VTAMA and Nexplanon. Matt Walsh notes that VTAMA’s inclusion in the rest-of-year 2024 guidance is minimal, with a revenue run rate of $6 million per month and similar expected dilution for 2025. Kevin Ali addresses Nexplanon, noting that, despite potential political changes, there is bipartisan support for access to long-acting reversible contraceptives (LARCs) and contraception in women's health. Nexplanon's business in the U.S. is performing well, maintaining market leadership in the LARC sector.

The paragraph discusses Organon's growth prospects, highlighting a milestone of reaching $1 billion in revenue for the product Nexplanon, primarily driven by the U.S. market. The company sees long-term potential in this product. David Amsellem from Piper Sandler asks about leveraging Organon's new medical dermatology infrastructure following an acquisition and whether they plan to expand aggressively into areas such as medical aesthetics. Kevin Ali responds by expressing enthusiasm for their acquisition of Dermavant and the product VTAMA, emphasizing opportunities in atopic dermatitis and the company's optimistic outlook for the product's differentiation and potential.

The paragraph discusses the potential of VTAMA in the atopic dermatitis market, highlighting its efficacy and tolerability for long-term use. The company is eager to expand its opportunities with VTAMA, planning to internationalize it starting with a launch in Canada and pursuing other countries, while also having a royalty agreement in Japan. In the US, it sees varied opportunities from anti-infectives to aesthetics. The company is focused on integrating and driving VTAMA's performance in 2025, leveraging a highly experienced team, especially in market access at multiple levels. Future capital allocation decisions will be made after achieving these immediate goals.

The paragraph discusses the operational expenses (OpEx) related to the acquisition of Dermavant's therapeutic assets. The speaker, Matt Walsh, addresses a question about the cost structure, comparing it to previous numbers provided by Dermavant. While Dermavant's OpEx was around $300 million, the expected costs to be incorporated by Walsh's company are about $240 million. This includes a significant portion, around one-third, allocated to sales and marketing, which they plan to fully integrate because of its importance in U.S. dermatology sales. The remaining cost differences are attributed to research and development (R&D) costs that have reduced under new ownership. Additionally, there is mention of a Nexplanon citizens petition, seeking clarity on whether the FDA had been unreceptive to guidance changes or if this was a new effort to highlight applicator similarities.

In this paragraph, the speaker, Kevin Ali, discusses the operational expenditure (OpEx) predictions for 2025 and mentions that the product will become accretive by 2026. He also addresses the pending status of an FDA petition and highlights the patent protection of their applicator device until 2030. Ali emphasizes the challenges of introducing generic versions of complex medical devices, drawing a parallel with the IUD Mirena, which hasn’t faced true generics even seven years post-loss of exclusivity (LOE). He underscores the significant investment needed in infrastructure, sales forces, and medical affairs to bring such products to market, noting the FDA's sensitivity to these issues. The conversation then shifts to the next question from Umer Raffat.

In the paragraph, Matt Walsh responds to a question about a $180 million operating expense for 2025, clarifying that it is mainly focused on the US with no significant ex-US expenditures. He mentions that while promotional spending can be reduced if VTAMA underperforms, efforts will be concentrated on a successful VTAMA launch until the end of 2025, with any retrenchment considered afterward. Kevin Ali then gives closing remarks, highlighting strong commercial execution in 2024, positioning the product Nexplanon for $1 billion revenue, and disciplined operating costs aimed at achieving significant free cash flow. The call concludes with an expression of gratitude to participants.

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