The paragraph details the introduction to Organon’s first-quarter 2025 earnings call and webcast, led by Jennifer Halchak, VP of Investor Relations, and attended by CEO Kevin Ali, CFO Matt Walsh, and Head of R&D Juan Camilo Arjona Ferreira. Jennifer Halchak warns that forward-looking statements may differ materially due to business risks, as outlined in their SEC filings, and notes the use of non-GAAP financial measures. The presentation accompanying the call is available on their website. Kevin Ali then notes that their first-quarter results have met expectations and that key growth drivers are progressing as anticipated.

The paragraph outlines the company's financial outlook and strategic initiatives. Nexplanon is projected to surpass $1 billion in revenue by 2025, while Vtama is on track to generate $150 million in revenue within the year. The company anticipates $200 million in annual savings from restructuring efforts and aims for over $900 million in free cash flow by 2025. It has reset its dividend payout to focus on debt reduction, with plans to reduce net leverage below 4 by year-end 2025. The company is enhancing its cost structure and revenue growth from core products, positioning itself for future business development and growth opportunities. Despite macroeconomic uncertainties affecting equity valuation, the company sees this as a signal to bolster its balance sheet. They report limited exposure to tariff changes, with 75% of revenue generated outside the U.S. and 25% from Europe and Canada.

The paragraph discusses the company's revenue sources and supply chains, highlighting that a significant portion of their revenue comes from China and the U.S., with supplies primarily sourced from Europe and other regions like Korea and the EU. It mentions the strategic inventory management for certain products like Nexplanon and recently acquired Tofidence to mitigate tariff exposure. The financial results indicate the first quarter was expectedly light due to specific market dynamics, but the women's health franchise, especially Nexplanon and fertility products, showed strong growth. Nexplanon sales are projected to exceed $1 billion this year, supported by demand and price increases, while fertility products experienced notable growth, particularly in the U.S., with new market launches in Turkey and Japan bolstering ex-U.S. sales.

The company anticipates high single-digit growth in its global fertility business by 2025, driven by U.S. growth and international expansion, including Jada's increased adoption and new market launches in South Korea and Europe. In biosimilars, Hadlima saw significant growth in the U.S., and the newly acquired Tofidence, the first biosimilar for Actemra, presents a promising opportunity. The company plans to introduce Henlius products in 2025. Challenges in the respiratory segment arose due to Japan's pricing revisions and mild respiratory issues in China. The cardiovascular portfolio faced setbacks due to the loss of exclusivity for Atozet but expects improvement later in the year.

The paragraph discusses the company's strategic approach to managing its Established Brands franchise with a focus on profitable growth. The franchise, which includes long-standing brands, now resembles a general medicines portfolio with added innovative medicines, such as Emgality and Vtama. These products are expected to generate over $300 million in revenue by 2025. Vtama, in particular, is showing strong performance and growth compared to competitors in the atopic dermatitis market, benefiting from its unique once-daily application and status as the only nonsteroidal topical treatment approved for various severity levels and for patients aged two and older. The company's strategy involves pursuing assets like Emgality and Vtama through success-based transactions, using capital freed up from dividends. The paragraph ends by transitioning to Matt Walsh, who will detail the financials, starting with a slide showing a 4% revenue decline due to constant currency effects.

In the quarter, the company experienced a $60 million impact due to the loss of exclusivity for Atozet in Europe. The volume-based procurement (VBP) impact in China was minimal early in the year, but there is an expectation of more significant effects later, particularly with Fosamax in round 11. Pricing pressures, largely from biosimilars and mature U.S. products, resulted in a $40 million impact. Despite these challenges, volume growth was driven by products like Hadlima and Nexplanon, increasing revenue by $45 million. Contract manufacturing revenues with Merck have been declining post-spin-off. Additionally, foreign exchange variations resulted in a $45 million negative impact due to a stronger U.S. dollar, although a recent weakening could benefit the company later in the year. Key financial line items are discussed in the following slide.

In the first quarter, the company reported a decrease in adjusted gross margin to 61.7% due to unfavorable pricing. Non-GAAP SG&A expenses rose by 6% due to costs associated with the launch of Vtama, acquired in Q4 2024, but excluding Vtama costs, SG&A decreased as part of cost-reduction efforts. Non-GAAP R&D expenses decreased by 17% due to the timing of clinical study spending. Restructuring plans initiated in the first quarter aim to save $200 million over the remaining quarters of 2025, which is factored into earnings guidance. Adjusted EBITDA margin excelled expectations at 32%, boosted by favorable product mix and the timing of clinical spending. The company also realized a $4 million gain from foreign exchange transactions. Free cash flow was $146 million before one-time costs, a significant improvement over the previous year.

The paragraph discusses Organon's financial strategies and projections, highlighting the impact of one-time costs related to the spin-off, restructuring, and manufacturing separation activities. These costs are expected to be zero in 2025 following their ERP system rollout. Organon is incurring one-time costs, including restructuring, a settlement payment, and supply arrangement exits, to improve operational efficiency and redefine sourcing strategies. These efforts aim to boost gross margins by 2027. The company anticipates closing 2025 at the lower end of the $325-$375 million cost range and plans to pay approximately $200 million in commercial milestones, especially for products like Vtama and Emgality, with $130 million already paid in the first quarter.

The paragraph discusses Organon's financial outlook and strategy. The company anticipates low to mid single-digit revenue growth post-2025 due to successful business development deals. Their net leverage ratio was 4.3 times as of March 31, 2025, and could increase to the mid-4 range due to the Dermavant transaction. However, with increased retention from a revised capital allocation plan, Organon aims to reduce net leverage below 4 times by year-end and improve financial flexibility. For 2025, Organon maintains its constant-currency guidance and expects growth from products like Vtama, Emgality, and Nexplanon to offset challenges from Atozet’s loss of exclusivity in Europe and pricing pressures.

The paragraph discusses the financial impact of various factors on the company's guidance. Atozet's loss of exclusivity (LOE) presents a $200 million challenge, while foreign exchange (FX) had a negative impact in Q1, expected to result in a 300 basis point headwind for 2025. However, a weakening dollar could lead to a more favorable outcome, but the company is cautious about updating guidance due to currency volatility. Quarterly revenue is expected to grow modestly from Q1 to Q2, with Q4 being the strongest. The 2025 gross margin guidance remains at 60%-61%, slightly lower than last year due to ongoing price, manufacturing, and distribution cost pressures. SG&A and R&D expenses as a percentage of revenue are expected to remain consistent with 2024 levels.

The paragraph outlines the company's financial performance and projections. Operating expenses are expected to remain stable year-over-year due to cost-efficient measures offsetting investments in Vtama. The adjusted EBITDA margin is projected to be around 30.5% for Q2, with the highest margin anticipated in Q4 as Vtama and restructuring benefits increase. The full-year 2025 interest expense is estimated at $510 million, factoring in Dermavant acquisition debts, but is $30 million lower than the previous year due to refinancing and lower rates. The non-GAAP tax rate for 2025 is expected to rise to 22.5%-24.5% due to a global minimum tax. Depreciation is slightly up due to a new ERP system. Overall, the first quarter was strong, with Nexplanon showing double-digit revenue growth, aligning with the year's financial goals.

In the article paragraph, the company discusses its successful launch of Vtama and reaffirms its projected revenue of $150 million for 2025. They are also making progress on achieving $200 million in identified operating expense savings by 2025, with an annualized benefit of approximately $275 million by 2026. The company plans to strengthen its balance sheet by increasing its retention ratio and lowering its 2025 net leverage ratio target to below four times. During the Q&A, David Amsellem from Piper Sandler asks about the confidence in achieving Vtama's sales target, considering market access challenges, and also inquires about the company's business development and M&A priorities in light of its deleveraging goals. Kevin Ali expresses confidence in achieving the sales target, citing the significance of Vtama's new atopic dermatitis label.

The paragraph discusses the competitive advantages of a drug, highlighting its once-a-day dosing for patients as young as two years old and its effectiveness in alleviating itch, a primary symptom of a condition called AD. The speaker emphasizes the importance of market access, supported by a strong managed care team, which is contributing to the drug's uptake and coverage, aiding in the goal of reaching $150 million in sales. Positive feedback from patients and observed momentum are boosting confidence in the drug's efficacy. Plans for international expansion, including a launch in Canada and other global markets, are underway, and the company is focused on reducing leverage, aiming to achieve a sub-4 level by the year's end.

The paragraph discusses the company's strategy for future growth and asset acquisition. Initially, the focus is on reducing debt to strengthen the company's future prospects. Over time, the company aims to acquire new assets like Vtama and Tofidence, enhancing their portfolio with products that offer immediate value. Michael Nedelcovych from TD Cowen asks if future business development will involve more frequent or larger deals. He also inquires about the scope of Organon's focus on women's health. Kevin Ali responds, indicating that the company has a broad definition of women's health and is open to a wide range of assets and therapeutic categories, provided they make financial sense.

The paragraph discusses the company's focus on medical conditions that uniquely or disproportionately affect women, such as endometriosis, polycystic ovary syndrome, migraines, and dermatological issues like atopic dermatitis (AD). It highlights their collaboration with Lilly on Emgality for migraines and their acquisition of Forendo. The company aims to innovate in pediatric AD treatment with non-steroidal options for young children. They emphasize a strategic and business-oriented approach to expand their medical and commercial capabilities, ensuring successful partnerships by setting milestones and sharing risks and successes.

The paragraph discusses the company's focus on deleveraging and being strategic about deals, citing examples like Vtama and Tofidence. Ethan Brown from JPMorgan asks about future capital allocation, specifically regarding share repurchases versus debt reduction and business development. Kevin Ali responds by mentioning that their actions, such as dividend announcements, are taken from a strong position, highlighting key achievements like surpassing $1 billion in sales for Nexplanon, stabilizing the Established Brands business, regrowing the fertility business, and launching several products. Ali also notes that Matt will address the issue of tariffs later.

The paragraph discusses Organon's strategy and financial outlook. The company is optimistic about overcoming recent challenges, such as losing exclusivity on a major product, and anticipates growth opportunities through business development deals. The organization has restructured to become leaner and more efficient. Matt Walsh comments on the minimal impact of international tariffs on Organon's operations, which supports its financial guidance. The company's manufacturing is mostly based outside the U.S., particularly in Europe, and the impact of tariffs remains uncertain. Share buybacks are not a current priority, as the focus is on managing leverage and growth to enhance the company's value.

In the paragraph, the discussion centers around Organon's capital allocation priorities amidst a volatile macroeconomic environment. Kevin Ali addresses Umer Raffat's concerns regarding a shift in priorities from returning capital to shareholders via dividends to focusing on reducing leverage, which investors have shown more concern about. Ali emphasizes that while the company initially prioritized regular dividends, addressing leverage is now deemed more critical for creating long-term value and stability.

The paragraph discusses a company's strategic focus on reducing debt and investing in new assets, such as Vtama, to foster growth, especially as they expect a strong performance in 2026 and the latter half of the current year. The positive results from Vtama and ongoing success with products like Nexplanon support this strategy. The leadership notes that while there is uncertainty around tariffs, they feel well-prepared for potential impacts in 2025.

The paragraph details a discussion about managing inventory, focusing on deleveraging, and addressing specific questions from analysts. Umer Raffat thanks the operator, and Bhavin Patel, speaking for Jason Gerberry from Bank of America, asks about the potential impact of a Paragraph IV challenge on their product Nexplanon, particularly concerning generic launches outside the U.S., and the FDA's stance on applicator similarity. Bhavin also inquires about anticipated one-time costs and free cash flow projections for 2025 and 2026. Kevin Ali suggests addressing these questions in reverse order, with Matt Walsh explaining that this fiscal year's one-time costs related to manufacturing separation from Merck are about $150 million, while separation costs for administrative activities are zero. Additional restructuring costs are expected to be around $200 million to achieve operating expense savings, and there are $75 million in other costs.

The paragraph discusses the company's future financial developments, including a decrease in manufacturing separation costs and expected milestone payments for Business Development (BD) deals amounting to $200-$250 million. Kevin Ali notes that a legal process related to a Paragraph IV patent challenge will likely extend into 2027, but he remains confident in the strength of their patent, which protects their product until 2030. The regulatory hurdles with the FDA, specifically regarding the safety and approval of a five-year indication, are also mentioned. Juan Camilo Arjona Ferreira adds that any changes to the applicator, which is critical for the safe insertion and removal of implants like Nexplanon, must be carefully managed, as emphasized in their Citizens petition.

The paragraph discusses the challenges and high standards necessary for the legal and regulatory approval of a new drug and its applicator, specifically highlighting the confidence in the growth of Nexplanon. The speaker is optimistic about achieving a five-year indication for the product before the year ends. The session concludes with Bhavin Patel thanking the participants, and the operator officially ends the conference call and webcast.

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