Organon & Co.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Organon second quarter 2022 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Jennifer Helcheck, Vice President of Investor Relations. Please begin your conference.

Thank you, Chantal. Good morning, everyone. Thank you for joining Organon's second quarter 2022 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, who will cover strategy and operational highlights, and Matt Walsh, our Chief Financial Officer, who will review performance, guidance, and capital allocations. Dr. Sandra Milligan, Organon's head of RMD, will also be joining us for the Q&A portion of this 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 presentation 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 10-K 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 presentation and conference call presentation. I would now turn the call over to our CEO, Kevin Ali.

Good morning, everyone, and thank you, Jen. Welcome to today's call, where we will talk about our second quarter 2022 results. Our second quarter 2022 results round out one full year as a standalone publicly traded company. And today, I'm proud to be reporting our third consecutive quarter of product sales growth and solid progress against our stated objectives. Now, despite a challenging global macroeconomic and geopolitical environment, during the second quarter, we delivered growth across all reportable geographies and in all three franchises. We even saw growth in China, despite the negative impact from the COVID-related lockdown. and in our Lomero region, where growth in Latin America offset the negative impacts associated with the war in the Ukraine. For the second quarter of 2022, revenue was $1.6 billion, up 5% at constant currency. An adjusted EBITDA was $512 million. That includes $97 million of acquired in-process R&D, otherwise known as IP R&D, and milestones in the quarter. So on the basis we're all accustomed to, our EBITDA would be over, our adjusted EBITDA would be over $600 million in the second quarter of 2022. During the quarter, biosimilars continued its double-digit growth trajectory and grew 42% XFX. All five of our currently commercialized biosimilar assets had a strong second quarter and year-to-date 2022 compared with the previous reporting periods. Our next biosimilars launch will be mid-next year with our launch at Hadleyma in the U.S. We believe that biosimilars that will be best positioned for success are those that share the same attributes as the originator, Humira. That includes the option for a high-concentration citrate-free formulation and a low-concentration form, which we expect to have at launch. We also believe that real-world evidence and experience in other markets is important for provider uptake. And our collaborator, Samsung Bioethics, has data from the launch of Hedlima in the U, Canada, and Australia. These critical product attributes differentiate Hedlima from other offerings. Also in biosimilars this quarter, we demonstrated our commitment to the business by adding a collaboration with Shanghai Henleus Biotech, who, like Samsung Bioethics, will be an R&D and manufacturing collaborator with us. And I'll talk more about that in a minute. Women's health grew in the second quarter, driven by 8% growth in Nexplanon and continued demand for fertility products. Outside the U.S., Nexplanon grew 16% in the quarter, as access continued to expand in key markets like Latin America and Canada. Nexplanon growth in the U.S. was 4% in the second quarter compared with the prior year period, and 14% sequentially versus the previous quarter. In the U.S., the long-acting reversible contraception market, also known as LARCs, continues to face a macro trend that OBGYN office visits continue to lag behind pre-pandemic levels. This has translated into a sustained level of telemedicine visits, which are not often conducive to prescribing a LARC. Since our spin, we've accelerated our efforts to adapt to this environment and have developed and executed marketing campaigns to meet her where she is. We've added a telehealth capability at Nexplanon.com to enable women to immediately talk to an independent healthcare professional about her contraception options and about Nexplanon. And we are training and certifying more physicians each quarter on the insertion and removal of Nexplanon. All of these efforts are helping Nexplanon to outperform the high single-digit decline we have seen in the overall LARC market in the U.S. year to date. Despite this dynamic in the U.S., we still see a path to double-digit growth globally for Nexplanon for the full year. And this is based on four drivers. First, in the U.S., physician demand per week increased over the last three months with a meaningful increase in July. Second, continuing strong momentum outside of the U.S. Third, the visibility we have into customer buying patterns for the remainder of the year, and finally, in the third quarter of last year, Nexplanon was heavily impacted by COVID, so that presents an easier comparison for us next quarter. But let's talk longer term about Nexplanon and the LARC market. There is much progress to be made when it comes to all dimensions of women's health, and this includes unintended pregnancies. Just this year, a United Nations Population Fund report estimated that nearly 50% of all pregnancies worldwide were unintended. Data from the Guttmacher Institute report also estimates that a large share of these unintended pregnancies, more than 40%, are a result of inconsistent or incorrect use of contraceptives. On the other hand, long-acting reversible contraception methods like Nexplanon do not require daily self-administration and are subsequently very effective at preventing unintended pregnancies. So consider that just weeks after publishing our inaugural ESG report in which we outline our vision of creating a healthier everyday for every woman, Roe v. Wade was overturned, an important moment in history. We expect that now, more than ever, women together with their healthcare professionals will be seeking information about the most efficacious methods of contraception. Not necessarily the option that in the short term may seem more convenient, like an oral contraceptive that doesn't require an initial in-office doctor's visit, but the most effective methods for preventing unintended pregnancies, which wind up being more convenient because LARCs, like Nexplanon, do not require that daily self-administration. We believe that over time, we can help with the education process and to be a resource for those women and healthcare professionals looking for an efficacious and long-acting reversible contraceptive option. Turning to fertility, where we also expect to see double-digit growth for the full year. This past quarter, the fertility business was affected by strict COVID-related lockdowns in China, which have since eased. Fertility is a therapy area with strong demographic tailwinds. Women are waiting longer to start a family, resulting in higher infertility prevalence and more governments are realizing that they need to take action to address the associated low birth rate. This is increasing demand for IVF treatments and, in turn, our fertility products. Turning to established brands franchise, which again demonstrated very solid performance and grew 4% XFX this quarter. Established brands show growth in almost every therapeutic area, demonstrating the sustainability and untapped potential of these brands. With the strong performance in the first half, we now expect this franchise to achieve slattish revenue growth in 2022. This is stronger performance compared with the low single-digit erosion that was expected of this franchise at the time of our spin. We have been very successful at creating opportunities locally and globally for the established branch franchise. This has included developing new commercial models and new digital approaches focusing on consumers. repatriations of our business in certain emerging markets, and building flexibility to capitalize on market opportunities like competitor stock outs and later than expected generic entries. The established brand's business represents approximately two-thirds of our revenue, and its sizable cash flows are critical to our ability to execute on investments that will help to grow our top line over time. And in that regard, we've been very active on the business development front. We are striving for balance in our business development program, adding already commercialized or soon to be commercialized assets, as well as pipeline stage assets that will set up Organon for future growth. In the commercialized assets column, we are focusing on a distinctive way of working that allows us to unlock value quickly beyond what others have the capabilities to do and apply it to new assets from the start of integration. An example of this is Jada. where we could apply our expertise in regulatory and manufacturing and leverage our commercial footprint. We plan to do the same for Zasciato. And reclaiming Marbalon and Mersalon in the People's Republic of China, including Hong Kong, Macau, and in Vietnam made a lot of sense, since we already manufacture these products and commercialize them in 20 other markets. In the second column, our pipeline assets, These earlier bets are important to get a foot in the door with potential treatments that could be significant catalysts for Organon in the longer term. An example is our acquisition of Horendo. Just this week, we received a safe-to-proceed notification from the FDA for the OG6219 asset for endometriosis, which enables the team to start the initiation of our planned Phase II study. And during the second quarter, we added Shanghai Henley as biotech, as our second R&D and manufacturing collaborator for biosimilars. This is the first biosimilars deal we have completed since our spin. The global agreement includes two biosimilar candidates, one referencing Progetta and one for Prolia XGiva in seven markets in Europe and in North America. The agreement also includes an option to negotiate an exclusive license for the global commercialization rights for a biosimilar candidate referencing Yerboy. our strategy in biosimilars remains the same. Namely, to bring our commercial expertise to collaborations where we expect to have a very favorable launch position and competitive pricing. This transaction expands on our existing collaboration with Samsung Bioethics and further emphasizes our commitment to growing our biosimilars franchise. It also demonstrates that we recognize the importance of delivering treatment options that are aimed at reducing spending pressures on healthcare systems and enable a greater number of patients to access these important medicines. Also in business development, we recently announced the research and collaboration agreement with Circle Biomedical to develop a non-hormonal, on-demand, effective contraception candidate, a category preferred by many women but with limited available options. From the start, Organon has been an advocate for access to a broad range of effective, contraceptive options, and comprehensive counseling in partnership with healthcare providers. There is no one-size-fits-all solution when it comes to family planning. Women need more and different efficacious options that better reflect their very needs and preferences. And as a leader in contraception, Organon is focused on driving innovation and bringing forward more of these types of options. Overall, this was another solid quarter of progress. In just one year, we have focused on our women's health business to modernize the Nexplanon franchise while ensuring that our fertility business returns to a sustainable growth rate. We've broadened our therapy area, the focus in women's health, from two with contraception and fertility to seven with the addition of postpartum hemorrhage, preterm labor, endometriosis, polycystic ovary syndrome, and bacterial vaginosis. We've expanded our biosimilars portfolio and continued to accelerate revenue growth. And finally, we've demonstrated that with the right entrepreneurial focus that Organon is applying to these brands, established brands does not have to be a business in steady decline. This was a big achievement. Our ability to arrest the steady decline in that portfolio following legacy loss of exclusivity patents was probably the biggest open question in investors' minds at the time of the spin. These accomplishments are all due to the remarkable dedication and effort of our team of over 9,000 founders. We have made tremendous progress, and the team has much to be proud of. Now, I would like to turn it over to Matt to review our financial performance in greater detail. Over to you, Matt.