Organon & Co.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Organa fourth quarter and full year 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Jennifer Halczak, Vice President, Investor Relations. Please begin your conference.

Thank you, Mary. Good morning, everyone. And thank you for joining our fourth quarter and full year 2021 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, and Matt Walsh, our Chief Financial Officer. Dr. Sandra Milligan, Organon's Head of R&D, will also be joining us today for the Q&A portion of the call. Today we'll be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events and Presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our Form 10 registration statement and subsequent periodic filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our CEO, Kevin Ali.

Good morning, everyone, and thank you, Jen. And welcome to today's call, where we will talk about our results for the fourth quarter and full year of 2021. Let me start by saying that our team of 9,500 employees, our founders, did what we said we would do in 2021. We achieved all the financial objectives we laid out at the time of the spin and also began to build on our existing portfolio and to fulfill our vision of becoming a leader in women's health. In 2021, we delivered on our financial commitments, full-year revenue of $6.3 billion and adjusted EBITDA of $2.4 billion, equating to just below 38% adjusted EBITDA margins and are above the high end of the tightened guidance ranges we provided last November. Importantly, in 2021, our growth engines, Nexplanon, Fertility, and Biosimilars, all grew double digits. And we continue to expect double-digit performance from all three again in 2022. Now, we exited 2021 on a very positive note. In fact, the fourth quarter marks the first time in our product portfolio as a whole has grown. Sales of our portfolio products, that is, ex-supply sales, grew 1% in the quarter, overcoming the headwinds from loss of exclusivity and the impacts from the volume-based procurement, or VBP, initiatives in China. We're encouraged by the progress we see in several key areas. First, let's look at our established brands franchise. This is a portfolio of 49 products that includes brands with significant customer loyalties. We have said, once the impact of the most significant LOEs were behind us, that we can stabilize this business such that revenue would decline in the very low single digits, and that we would use its significant and durable cash flows to further invest in our growth engines. And that is exactly what is happening. In 2021, declines in the established brands business moderated, and the franchise ended the year down 2% on both nominal and constant currency basis in the fourth quarter. In fact, all the therapy areas included in the established brands portfolio grew in the fourth quarter, with the exception of cardiovascular, where the LOEs in the Azetamide family are still washing through. Going forward, we will have significantly less LOE exposure weighing on our established brand's business. But beyond that, there are several other reasons to believe in the durability of this portfolio. First, we have been successfully managing our business in China. China is an important market for us, representing about 20% of our established brand's revenue. VBP is a business reality in China, and like other competitors, we must find ways to manage our business in China accordingly. Already, about 50% of our established brand's portfolio has been put through the process, with an estimated 40% in 2022 and the remaining 10% in 2023 and 2024. Despite the impacts of EVP, the established brand's revenue in China was down only 2% for the full year in 2021 and was up 7% in the fourth quarter at constant currency. This performance is primarily due to our successful efforts of moving the business out of the hospital channel and into the retail channel, which started in earnest in 2017 and is paying dividends for us today as that channel has been growing double digits and now represents about half of our established France business in China. There's also strong demand for our products in the hospital channel that are currently not subject to BPP, and those products have been growing double digits as well. across all geographies we operate in. Stabilization of the established brands is supported by the entrepreneurial attention we have given this portfolio. Since the spin, increased management focused, often initiated at an individual country level, has delivered growth through launches into new geographies and secondary retail channels across our dermatology, respiratory, non-opioid pain, and cardiovascular portfolios. We have implemented a dozen of these lifecycle management opportunities worldwide. Another milestone in the fourth quarter was Nexplanon's performance. Nexplanon posted its highest sales in the history of the product with $226 million in revenue. Now, I want to caution everyone that this is not Nexplanon's new run rate. Nexplanon's growth can vary quarter to quarter. There are a few very important reasons driving this. And I want to remind everyone, Nexplanon is not a product for chronic disease, which means we need to engage new customers and patients to drive sales rather than relying on regular script renewals. Also, in our emerging markets, where our business is largely tender-driven, volumes are dependent on government budget cycles. That said, we believe our efforts to modernize the brand with our go-to-market approaches, while significantly ramping up the number of healthcare professionals trained in the insertion and removal of Nexplanon, are having a positive and durable impact on physician and patient demand. Now let's talk about biosimilars, another growth engine for the company. With about half of the biosimilar business outside of the US subject to tenders, we will see growth rates vary quarter to quarter. But we expect biosimilars to continue to deliver double digit performance on an annual basis. We remain very well positioned as a commercial collaborator with Samsung, and we are particularly encouraged by the planned U.S. launch of our Humira biosimilar in mid-2023, for which we will be undertaking an interchangeability study. We remain committed to pursuing the sizable biosimilar opportunity, which includes an estimated $100 billion of blockbuster biologics going off patent over the next decade. We will evaluate these pipeline opportunities with Samsung as well as other biosimilar developers. In addition to achieving our financial commitments, we have laid out a bold vision of becoming the global leader in women's health. We plan to do this by building on our established and leading positions in contraception and fertility and expanding our scope to include some of the most underserved conditions in women's health, including maternal and peripartum illnesses and other diseases impacting women. And since the spin, we have executed four transactions in pursuit of that vision. As we told you, you can expect our business development activity to include a mix of pipeline stage assets, as well as those already commercialized. This week alone, we announced that we have reacquired the rights to Marvalon and Mersalon, both combined oral hormonal daily contraceptive pills, in the People's Republic of China, including Hong Kong and Macau, and we have entered into an agreement to acquire the rights to these products in Vietnam as well. From a commercial perspective, this was a very attractive transaction for us, as Organon already owns, manufactures, and markets these products as prescription oral contraceptives in 20 other markets. Additionally, we were able to transact at a valuation that makes this immediately accretive to Organon's adjusted EBITDA profitability. In December, we closed on our acquisition of Forendo. a clinical stage development company whose lead investigational asset, 6219, is being studied for its ability to reduce endometriosis-related pain. Endometriosis is a high priority unmet need for women globally. This is a large and underserved market. Endometriosis affects up to 170 million patients, or up to 10% of all women of reproductive age. Currently, approved therapies target the pain associated with endometriosis, but often lead to systemic estrogen depletion, which impacts bone mineral density and triggers menopausal symptoms. Such treatments are therefore unsuitable for long-term use in patients. Forendo has completed the preclinical and Phase I studies supporting the progression of 6-219 into Phase II. We expect Phase II development work to start this year and to read out in 2024. Those Phase II results will further determine the potential for a Phase III program. And last July, we also announced the licensing of the global development, manufacturer, and commercial rights to another investigational asset, ibuprofen from Opseva. Ibuprofen is currently being studied as a potential first-in-class innovation for the treatment of preterm labor, which impacts an estimated 15 million babies, or about 11% of all babies born globally. This investigational agent has demonstrated biological activity in a small Phase IIa study performed in select European countries. Our aim is to study this agent more globally, and to do so, we will be investing in additional preclinical studies and technical work to enable IND submission in the U.S. and continue Phase II development. Phase two is a critical development phase involving pregnant women and requires close collaboration with regulatory authorities to ensure that our studies meet the relevant safety criteria for both baby and mother. And our first acquisition, right after the spin, was Aledia Health and its Jada system, which is already commercialized in the U.S. The device is aimed at controlling abnormal postpartum bleeding or hemorrhage and one of the most common complications of birth. To date, Over 3,000 mothers have now been treated with our product. We anticipate continued growth of the brand into 2022, given our investment in the commercial infrastructure necessary to satisfy the significant unmet need and demand. Overall, Organon is off to an exciting start. We are well positioned for a solid 2022, which Matt will speak more about as he discusses guidance. Over to you, Matt.