Organon & Co.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Organon first quarter 2023 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. In order to ask a question, press star, then the number one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Jennifer Holchek, Vice President, Investor Relations. Please begin your conference.

Thank you, Mike. Good morning, everyone. Welcome to Organon's first quarter 2023 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 allocation. Dr. Sandra Milligan, Organon's Head of R&D, will also be joining the call today at the Q&A portion. 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 press release and conference call presentation. I'll now turn the call over to our CEO, Kevin Ali.

Good morning, everyone, and thank you, Jen. Welcome to today's call, where we'll talk about our first quarter 2023 results. 2023 is off to a very solid start. For the first quarter, revenue was $1.5 billion, up 3% at constant currency. adjusted even with $518 million, representing a 33.7% margin. Given this solid performance, together with our visibility into the remainder of the year, we're affirming our financial guidance for the full year. The first quarter of 2023 represents the sixth consecutive quarter of product sales growth, with all three franchises positively contributing to our performance. At constant currency, the women's health franchise grew 3%. The biosimilars franchise grew 20%, and the established brands franchise, which represents approximately two-thirds of our business, grew 1%. The established brands franchise continues to demonstrate its durability. The franchise generates sizable and predictable free cash flow, which is an important factor in our ability to take a balanced approach to capital allocation. During the first quarter, we made progress toward reducing our outstanding debt with a voluntary $250 million prepayment on our US dollar denominated term loan. Reducing our leverage over time is an important goal for us. We are committed to maximizing profitability in order to generate cash flow that supports that objective, as well as to pursue business development strategies that enhances our growth profile. We will continue to look at business development through two lenses. Tuck in opportunities that have the potential to drive near-term revenue, as well as longer-term bets that could be transformative for Organon and for patient care. We are especially focused on building out our capabilities in women's health, as we did in the first quarter with our strategic investment in Clarion Medical, which is developing an investigational medical device being studied for use during minimally invasive laparoscopic hysterectomies. Now, let's move on to review the quarter in a bit more detail. Let's start with women's health. Women's health grew 3% on a constant currency basis this quarter. In the first quarter of last year, we acquired rights to the oral contraceptives Marvalon and Mersalon in the People's Republic of China, including Hong Kong and Macau and Vietnam. Since then, we have generated strong demand for these products, which grew 65% in the first quarter. This transaction has been very successful and is just one example of how Organon is leveraging its expertise to maximize the performance of assets that may have been under-prioritized in the past. Staying on contraception for a moment, let's look at the trailing 12 months performance of Nexplanon, which is the more informative way of evaluating the product's performance because customer buying patterns introduce noise on a quarterly basis. We have changed the growth trajectory of Nexplanon since the product has been in our hands. This long-acting reversible contraceptive is a product that has been around for over a decade and relies on continuously driving new patients to the product. Still, with the managerial focus we have put on Nexplanon, we continue to deliver very strong growth for the product. Nexplanon is one of the most effective forms of contraception. It is an arm implant, and therefore it does not require daily self-administration like an oral contraceptive. We are seeing rising patient preference for these attributes in their choice of birth control, and that is leading to increasing physician demand. In fact, this quarter, physician demand in the US is up 6% versus last year, driven by women increasing their usage of Nexplanon. Our strategic focus in the US during 2023 is to continue to grow that physician demand by driving patient requests for Nexplanon and increasing the depth of use among the 35,000 providers currently prescribing Nexplanon. Outside the U.S., we continue to expand access and see strong payer physician and consumer demand. We anticipate particularly strong growth in both Brazil and Canada, two of the more relevant contraception markets in the world, and where Nexplanon is still somewhat in the launch phase. We are also making good progress with activities to expand Nexplanon production. This is subsequently enabling increased supply to parts of Africa and Asia Pacific where payers are expanding access to the product. We also continue to believe that Nexplanon can achieve a billion dollars in revenue by 2025, which implies strong growth for the product over the coming years. Continuing our discussion on women's health, we remain very encouraged by our opportunity in fertility. Families are delaying parenthood due to many social and demographic factors, including education, career goals, and financial barriers. This contributes to the prevalence of infertility, which in turn drives demand for IVF treatments. The use of assisted reproductive technologies like in vitro fertilization is growing 5% to 10% annually. It is a large market impacting an estimated 190 million people around the world. Globally, the top five markets with the highest rates of infertility are in the Asia Pacific region, where a number of births per woman is significantly below the replacement rate required to sustain a population and GDP growth. Countries like South Korea are offering cash incentives for households to expand their families, and Japan, Australia, Thailand, and Singapore are expanding fertility access and or other benefits. Over the next few years, these markets will represent the largest opportunity for Organon's fertility business. These dynamics, combined with our significant presence in the Asia Pacific and Japan region, represent an attractive opportunity for Organon and allows us to grow the fertility portfolio in markets outside the US, where we are focused on expanding market share and must therefore price our products competitively. China, where we currently hold the number two market share position in fertility, will also continue to be an important market for us. Early in the first quarter, COVID related disruptions were hampering demand for fertility treatments in China. However, we have seen solid recovery with sequential growth in both February and March. We're optimistic about getting back to normal in China and the positive impact that will have on our fertility business. Over the intermediate term, we believe fertility can grow in the high single digit to low double digit range, and we expect 2023 to deliver a similar growth profile. Moving now to our biosimilars business, which continues to perform very well. Red Flexis, our largest selling biosimilar, continues to grow more than five years after launch, driven by solid performance in the U.S. and Canada. Entrezant, our second largest biosimilar, had strong growth in the U.S., but that growth was offset by a very competitive pricing environment in Europe. There is great interest centered around the July 1st U.S. launch of Hadlima, our biosimilar for Humira. At launch, we will have the option for a high-concentration citrate-free formulation, as well as a low-concentration formulation. We have also the benefit of real-world evidence from our own launch of Hadlema in Australia and Canada, as well as through our collaborator, Samsung Bioweapons, from their experience with Hadlema in the EU. We're excited about our pen design, which was created with the patient in mind to ensure simple administration, so we feel good about the attributes of our product and our positioning. That said, with multiple parties launching mid-year, we've also conveyed our assumption that 2023 will be a modest ramp, with the market for biosimilars really forming in 2024 to 2025. And then rounding out the discussion with established brands, which we believe continues to be the most underappreciated part of Oregon's story. The established brands franchise has had a number of hurdles to overcome this quarter, primarily the ongoing impact of volume-based procurement initiatives in China and supply constraints associated with the market action we took earlier in the year on Dipper Span and Celestone. We also had a significant one-time benefit in the first quarter of last year related to some Japanese generics being... ...currency in the first quarter. The established brands franchise is comprised of products that are generally beyond LOE but still have opportunities for growth, especially in markets outside the US. This was a portfolio that was in double-digit decline prior to the spin. With major LOE risk behind us, together with the entrepreneurial focus we have put behind managing these brands, we have seen an inflection in growth rates. We've stabilized the portfolio and expect to achieve another year or flat or better performance in 2023 at constant currency. Within established brands, China is an important market, representing about 20% of the established brand's revenue. Despite multiple rounds of EVP in the last two years, the established brand's revenue in China has not declined since then. We expect to achieve similar flat performance in 2023, despite the continuing EVP impact this year on our largest product in China, Ezetrol. By the end of 2024, The majority of EBP impact will be behind us, and we expect growth in established brands in China to accelerate in line with the expectation we have for our total company business in China. I think, for some, it's a difficult proposition to understand how a portfolio of off-patent brands can demonstrate continued stability, so let me share a few examples. Since BIM, we've had a renewed focus on Adazet, a cardiovascular drug. We have intensified our commercial promotional effort to grow that business. We have pursued many lifecycle management actions on the product and have also added production capacity. And there was a response. Adizet had sales of $457 million in 2022, represent 11% growth X exchange. Another example is Nasonex. Nasonex is a respiratory drug that was launched in 1997. It has been all patented in key markets for almost a decade. In 2022, it delivered $260 million in revenue, growing about 17%. We are pursuing a number of lifecycle management opportunities to address global demand that exists for Nasonext, and we are investing in manufacturing capabilities to support those plans. These are just two examples of ways we are unlocking the value that remains in these established brands. There are many more opportunities to do so among the 49 products in that franchise. So, across the business, the year is off to a very good start. Thanks to the hard work of our people around the world, the business is performing the way we thought it would, and each of our franchises is contributing to the success of Organon. I'll turn it over to Matt now to go into some more financial detail. Matt?