Organon & Co.

will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jennifer Holchak, Vice President of Investor Relations. You may begin.

Thank you, operator. Good morning, everyone. Thank you for joining Organon's first quarter 2024 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 and guidance. Also joining us for the Q&A portion of this call is Organon's Head of R&D, Juan Camilo Arjona-Ferreira. Today, we will 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 .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 10K 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 Olley.

Good morning, everyone, and thank you, Jen. Welcome to today's call where we'll talk about our 2024 first quarter results. We entered this year with a clear focus to deliver our 2024 financial targets, improving our financial position, and positioning ourselves for future growth. And to that end, the first quarter was a very solid start. For the first quarter of 2024, revenue was $1.6 billion, with all three franchises contributing to a 7% growth rate at constant currency. I'm pleased to report that the women's health franchise grew 12%. Our biosimilar franchise grew 46%. And our established brands business continued its stable performance with growth of 2%. In the first quarter, adjusted EBITDA was $538 million, representing a .2% adjusted EBITDA margin, and adjusted diluted EPS was $1.22. The strong performance in the first quarter strengthens our conviction and our financial guidance for the full year 2024, and we are affirming those ranges. We remain confident in our ability to deliver our third year of revenue growth on a constant currency basis, and we remain committed to delivering full year adjusted EBITDA margins that are in line with last year or better. From a capital allocation standpoint, we continue to believe this business can generate a billion dollars of free cash flow before one-time costs, and we will be driving towards that number in 2024. That strong cash flow will provide financial flexibility to comfortably service our dividend, make progress on achieving a leverage ratio below four times by the end of 2024, and to continue to do business development in line with the types of transactions we have completed in the last couple of years. This includes transactions and biosimilars, and the recent commercial agreement with Eli Lilly to license two migraine assets. These transactions have solid returns, but importantly, they're also aligned with our definition of offering solutions in women's health beyond the narrow definition of reproductive health. Moving on to discuss our franchise performance, the first quarter growth in women's health franchise was led by Nexplanon. The last year, we took the appropriate actions to position Nexplanon for successful 2024 and the long-term growth opportunity we see for the product. We remain confident that the product can achieve robust revenue growth in 2024. Nexplanon's first quarter, constant currency growth, was 34 percent. The U.S. was up 35 percent, and the rest of the world was up 34 percent. -over-year growth in the U.S. reflected a shift in timing of our list price increase, which brought stability to distributor buying patterns. As a result of this shift going forward, we expect less volatility quarter to quarter in Nexplanon results. For the full year, we expect growth to be driven by Nexplanon's leadership and contraception, the benefits of our pricing strategy, including list price in the U.S., and management of the 340B channel, as well as position demand growth. Outside the U.S., Nexplanon grew 34 percent XFX in the first quarter, driven by increased demand in the Lamarra region and in larger markets in the Ucan region like France, the U.K., and Canada. Outside the U.S. for the full year of 2024, growth will be driven by continued strong performance in those markets, as well as our ability to better meet increased demand in our access markets, which we cited as a priority for us in 2024. As I mentioned nearly every quarter, we believe Nexplanon will be on a billion-dollar annual run rate in 2025, and beyond 2025, we believe there is still significant runway for growth up until the loss of exclusivity for Nexplanon in the U.S., which in our view will not occur until 2030 for three specific reasons. First, our five-year studies on track to close this year, and pending FDA review and approval, our planning assumption is that we will be able to market with a five-year label in 2026. A differentiated label will give us three years of data exclusivity on that five-year duration of use claim, which we know from our market research is preferred by women and providers. Second, we have IP protection on aspects of the applicator device until 2030. We believe that any generic coming to market before then would have to develop their own device and training programs to go along with it. So it's not until 2030 when IP protection on both implant and device would have expired that we might see the market start to alter with a similar five-year product and applicator. And third, complex drug device combinations have demonstrated strong post-LOE performance, which could be due to the fact that complex drug device development can pose significant challenges in terms of showing therapeutic equivalence. So overall, we're confident in the sales longevity of Nexplanon, and further, when competition does come, we do not expect a traditional genetics erosion curve. Moving on to our fertility franchise, as expected, our global fertility business was essentially flat this quarter, down about $2 or about 2%. You'll recall that in the fourth quarter of 2023, in the U.S., we exited a spin related commercial arrangement, and we onboarded a significant customer, resulting in a very strong buy-in of Faleston at the end of last year that we have largely worked through in the first quarter. Offsetting U.S. performance with strong growth in fertility in China, which grew double digits, benefiting from strong demand, we expect continued momentum in our fertility business in China in 2024, with growth supported by solid demand, especially in key provinces like Beijing, where reimbursement for assisted reproductive technologies has been implemented. Together, the U.S. and China make up north of 50% of our fertility business. Strong demand in those markets, coupled with new launches and footprint expansion in other markets, are supportive of the high single-digit revenue growth we expect to see in fertility on a global basis for the full year of 2024. Let's move now to our biosimilar business, which grew 46% in the first quarter and continues to be a solid growth pillar for Organon. We expect 2024 should be another year of double-digit growth on a global basis for our biosimilars franchise. In the U.S., the growth driver in 2024 for biosimilars will primarily be the uptake of Head Lima. We are getting very good traction with Head Lima, with Veterans Affairs, who within 60 days of exclusively carrying Head Lima, managed to convert more than 50% of the patients from Humira to Head Lima. This is a strong indicator of payers' ability to rapidly convert utilization, which is a critical factor for accelerating conversion to biosimilars in this market. Behind the U.S., two other key markets in our biosimilar business are Brazil and Canada. In Brazil, we're seeing strong performance from Entresante in particular. The fourth quarter of 2023 was very strong for Entresante, driven by favorable timing of a tender in Brazil, but in Q1, we saw incremental volume come through that we would characterize as opportunistic upside. In Canada, we continue to see strong performance, especially in Head Lima, and Rents Lexis, as the government-mandated -by-province transition to biosimilar progresses. As we have previously talked about, our aim in biosimilars is to launch a new asset every couple of years. We are well positioned to execute on that beyond 2024. A great example of this is our collaboration with Shanghai Hanlius Biotech, where we license commercialization rights for two investigational products, Progeta or Pertuzumab and Prolia and Xgeva or Denosumab biosimilar candidates. Organon will have exclusive global commercialization rights to these assets outside of mainland China, Hong Kong, Macau, and Taiwan. Clinical trials on both molecules have been progressing. In fact, we just recently announced that the phase three comparative clinical trial for the Denosumab biosimilar met primary endpoints. We expect regulatory filings for our two Denosumab biosimilar candidates to occur during 2024 in certain markets, including the U.S. and EU, followed by filings for the Pertuzumab biosimilar candidate in the U.S. in late 2024 or early 2025. And then rounding out the discussion with established brands, which grew 2 percent XFX in the first quarter, demonstrating the resilience of this business. Impact from DVP in China was more than offset by the initial contribution from the recent commercial agreement for the two migraine drugs, Imgality and Rayval. We also saw a recovery in our injectable steroid products following last year's market action. For full year 2024, we expect established brands to achieve flat performance on an XFX basis, and Matt will go into more detail about the pushes and pulls on the established brands portfolio for 2024. Moving now to slide six, where we take a look at revenue by geography. UKN grew 10 percent XFX in the quarter, driven by the addition of the two migraine assets and the recovery of injectable steroids, both of which I just mentioned. We're still having solid growth in adizette in Europe, which should be the trend for the nine months of the year until it loses exclusivity in late third quarter of this year. US was up 14 percent in the quarter, driven by performance in Nexplanon, as well as uptake of both Hadlima and Jada post-launch. These factors offset great pressure and the channel dynamics and fertility, which benefited the fourth quarter of last year, as well as US performance of Entrezón. The Lamarra region has been a significant contributor to Organon's growth since spin. The 36 percent XFX growth in the first quarter was primarily driven by opportunistic volume associated with the Entrezón tender in Brazil, as well as strong growth in Nexplanon across the access markets and Mexico. The APJ region was down 7 percent XFX this quarter. We expect it to be a challenging year in Japan as we face some national pricing revisions, lapped favorability from last year when some competitors were out of stock, and work through the LOEs of adizette and rosuzette. China was down 5 percent XFX in the quarter, but for the full year 2024, we expect China to grow, particularly as we lap the economy-related challenges in China as we saw in the back half of last year. Overall, we are very pleased with the results through the first quarter of the year. Operational execution is progressing very nicely. We also have our eye on smart deals that fit within our desired financial profile while moving us forward as a company. And finally, there is potential value yet to be unlocked in our clinical portfolio. In life cycle management, in addition to the Nexplanon five-year study and the two biosimilar assets with Shanghai Henleus that I spoke about earlier, we're making progress in the development of Mersalon for primary dysmenorrhea in Japan. On the innovative side, both assets we acquired through Ferendo are progressing well, and our OG 6219 study investigating a novel approach for treating endometriosis is progressing towards a phase two readout next year. We're also awaiting first in human dosing for our OG 719 program targeting the symptoms related to PCOS later this year, for which there is no current treatment. Additionally, we are anticipating preclinical data related to our collaboration with Circula, which is a novel method for non-hormonal contraception. It's great to see progress not only happening on the commercial execution side of things but also in positioning Organon for future growth through our innovative therapies. Now let's turn the call over to Matt, who will go into our financial results in more detail.

Thank you, Kevin. Beginning on slide seven, here we bridge revenue for the first quarter year over year. In February for modeling purposes, we suggested that you could consider evenly spreading revenue over the year, which would mean every quarter would be slightly under $1.6 billion in revenue if you're working from the midpoint of our guidance range. We did a little better than that in the first quarter of 2024, driven by stronger volume, especially from Nexplanon and biosimilars, followed by recovery in injectable steroids, namely DipperSpan, as well as continued growth from Jada. Outside of FX, the other revenue drivers were fairly neutral in the quarter. Taken in totality, these other drivers finished Q1 ahead of our expectations, which drove the margin favorability we saw in the quarter. We'll discuss margins in more detail shortly. LOE was about $5 million of impact in the first quarter, which reflects the LOE of Atazette in Japan. The impact of VBP in China was also about $5 million in the first quarter and reflects lingering effects of the July 2023 implementation of round eight that included Remeron and Heizar. There was negligible impact from price in the first quarter. The benefits of our Nexplanon pricing strategy in the U.S. muted expected pricing pressure in other parts of our business, particularly in biosimilars and to a lesser degree, fertility. In Supply Other, we captured the lower margin contract manufacturing arrangements that we had with Merck and have been declining since spin-off as expected. And lastly, foreign exchange translation had an approximate $30 million impact or 2 percentage point headwind to revenue, and that's a function of more than 75% of our business being generated outside the U.S. Now let's turn to performance by franchise. As has been our convention, I will target my comments over the next three slides to those areas most relevant to modeling as we think about where we ended the quarter and what the near-term future may hold. Let's start with women's health on slide eight. As Kevin mentioned, we expect robust growth for Nexplanon in the full year. With such strong growth in the first quarter and the benefit of our annual price increase in the U.S., which we took in January, Nexplanon could achieve double-digit growth this year on a constant currency basis. For fertility, growth will be skewed towards the second half of the year. In the first half, we'll be absorbing the two Q4 2023 issues that Kevin referenced. First, the buy-in that resulted from exiting a temporary -off-related commercial arrangement in the U.S. And second, initial supply chain stocking related to the large contract initiation, which is also in the U.S. In the second half of the year, we will have the benefit of what was a difficult fertility environment in China last year. Plus, we expect volume growth from the provincial expansion of reimbursement and new launches in other markets, as Kevin referenced. Turning to biosimilars on slide nine. With Entrezant, we have had competitive success as a key supplier of a biosimilar of Herceptin in Brazil. And in the quarter, we had the benefit of incremental upside coming from additional volume through that tender. I would note that Entrezant growth would have been down this quarter if not for the incremental upside we had from these additional volumes in Brazil. In fact, on a global basis, we expect Entrezant will be declining this year due to competition in other markets. And on U.S. head Lima, we had a strong first quarter, but given that this market has been difficult to predict and continues to evolve, we'll only say it is our objective to grow that product sequentially each quarter this year. Turning to slide 10, let's talk about pushes and pulls on established brands for the full year 2024. We'll see ZBP impacts pick up later in the year, driven by Fosamax's inclusion in round 10, expected late in the third quarter. Adizet will go through LOE in the EU in September of this year, and that product has been doing very well for us in that market. We expect those headwinds to be offset by continued volume growth. For example, contribution from the new migraine assets in Galadie and Rayval. We expect injectable steroids to continue to recover, and you already see that here with 19% XFX growth in the non-opioid pain and bone derm portfolio. These factors should result in about level performance for established brands portfolio in 2024 X exchange. Now let's start to slide 11, where we show key non-GAAP P&L line items and metrics for first quarter performance. For reference, GAAP financials and reconciliations to the non-GAAP financial measures are included in our press release and the slides in the appendix of this presentation. For gross profit, we are excluding cost of goods sold, purchase accounting amortization, and one-time items related to the spin-off, which can be seen in our appendix slides. Adjusted gross margin was .1% in the first quarter of 2024, compared with .2% in the first quarter of 2023. In the first quarter of 2024, the lower adjusted gross margin was primarily related to unfavorable product mix, foreign exchange translation, and higher inflation impacts to material and distribution costs. Despite being below last year, gross margin actually came in stronger than we expected in the first quarter, mostly driven by better performance and price across the aggregated portfolio. Total non-GAAP operating expense was down 3% in the quarter, excluding IPR&D, reflective of our cost containment efforts. That is especially the case in R&D, where we have reprioritized clinical spending and rationalized headcount to better align with the types of business development programs we've recently completed and plan to pursue in the near term. IPR&D expense was $15 million in the first quarter, compared with $8 million in the prior year period. The $15 million of milestone expense in the first quarter was related to development progression of a de nosemab biosimilar. Milestone payments are inherently difficult to forecast, so we will continue to utilize the same convention that we employed this quarter, and that is to include an estimate of IPR&D in milestones to be recorded in the quarter in our earnings date press release, which will be posted as soon as practical after the close of each quarter. Foreign exchange losses were modestly lower, $6 million in the first quarter of 2024, compared with $9 million in the prior year period. In both periods, these are foreign exchange losses primarily driven by normal course business activities in countries where it's not feasible to hedge movements in the local currency. These factors culminated in an adjusted EBITDA margin of .2% in the first quarter of 2024, compared with .7% in the first quarter of 2023. Non-GAAP adjusted net income was $315 million, or $1.22 per diluted share, compared with $276 million, or $1.08 per diluted share in 2023. Turning to slide 12, we provide a closer look at our cash flow for the quarter. For the last two years, our free cash flow generation has followed the approximate pattern of 30-70. 30% of our free cash flow was generated in the first half of the year, and 70% is generated in the back half. In 2022, we generated $875 million of free cash flow before one-time charges. In 2023, that figure rose to $940 million. And in 2024, we expect to reach approximately $1 billion of free cash flow before one-time items underpin by our financial guidance. Like many companies, with December fiscal year ends, Q1 free cash flow is impacted by a cruel runoff, largely related to the timing of annual incentive payments, and that represented about a third of that working capital consumption number. Typical to the first quarter, we also see seasonal fluctuations in working capital, which drove the remainder of the change. For one-time cash costs related to the spinoff, in February, when we gave full-year 2024 guidance, we said that we would expect about a 40% reduction from 2023, which would put us in the $200 million ballpark. The $68 million you see here is consistent with that expectation. Of note, we have completed the implementation of our global ERP system as of April, which was the main driver of one-time costs up until this point. Next year, we would expect even lower one-time spin-related costs, and beyond 2025, we expect one-time spin-related costs to be de minimis. In the $36 million of other one-time costs, here we capture headcount restructuring initiatives and the transition of our manufacturing network related to the spinoff. These costs are distinct from the spin-related stand-up costs, in that they're associated with actions which will ultimately drive cost efficiencies, some of which we realize in Q1, and which are already incorporated into our earnings guidance for 2024. Moving to slide 13 now on debt and leverage. When we provided guidance in February, we were bracing ourselves for leverage to tick higher in the first half of the year before coming down in the second half, ending the year better than 2023 with a view to ending year below four times. With stronger than expected EBITDA performance in Q1, our net leverage ratio has remained level with 2023 year end and is holding at 4.1 times. This solid result gives us greater confidence in our February commentary around lowering our net leverage ratio during the year. Now turning to 2024 guidance on slide 14, where we highlight the items driving our 2024 revenue guidance range of $6.2 to $6.5 billion. Some of the individual drivers have changed, but our top line revenue guidance is remaining unchanged. For LOE, that approximate $70 to $90 million impact for the full year 2024 incorporates AtoZet, both Japan and in the EU later this year. We also have a provision for DELARA, where we have been expecting a generic since its LOE in 2020. The VBP impact is still expected to be in the range of $30 to $50 million for 2024. By the end of the year, we expect approximately 85% of the portfolio to have gone through VBP. Though minimal in Q1, we expect the impact from price to be in the $180 to $220 million range, which is up $25 million at the midpoint from the $150 to $200 million range we talked about in February. Overall, this represents a bit over a three percentage point headwind versus prior year, and is more in line with our longer term expectations of price impact across our entire business, given pricing pressure and biosimilars, US fertility, and the mandatory pricing revisions we expect to see in certain international markets. And for volume, we are estimate by $75 million at the midpoint to $450 to $650 million to primarily reflect the upside we saw in biosimilars in the first quarter. Overall, that almost 9% volume growth we expect over last year will be coming from our growth pillars, Nexplanon, fertility, and Jada within women's health, biosimilars, and China retail, as well as the latest addition of lilies and galate and reval in Europe. And finally, based on current spot rates, we think we could see an increasing headwind from FX now at 160 to 200 basis points compared with 80 to 160 basis points that we were forecasting back in February. We've absorbed that impact with an improved view of volume growth, so our constant currency revenue guide effectively went up a bit. Moving to the other components of now in slide 15, for adjusted gross margin, we are continuing to guide to a range of 61 to 63% for 2024. On FX expense, even though we are tracking to the lower end of the ranges for SG&A and R&D expense if you simply annualize Q1, it's a little too early in the year to be calling those ranges down. For SG&A, we have some expense in the second half related to product launches, the migraine products, Hed Lima, Zasciato, and Jada internationally to cite a few examples, and that will be partially offsetting the favorable impact of our restructuring cost containment efforts. For R&D, the $400 to $500 million range still feels good, even inclusive of IPR&D to date, but we'll continue to evaluate this as the year progresses and milestone achievement becomes more clear. Interest, tax, and depreciation expense ranges are all unchanged. All things considered, Q1 was a solid start to the year. We're heading in the right direction on volume growth, margins, and operating expense discipline, and we're tracking to another year of constant currency revenue growth. With that, now let's turn the call over to questions and answers.

Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star one again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Our first question comes from the line of Umar Rafet with Evercore ISI. Please go ahead.

Hi, guys. Thanks for taking my question. I just wanted to focus on free cash flow for a quick second. It's about $109 million before one-time cost, and I guess the true free cash flow is $6 million for this quarter, so it's roughly flat, roughly neutral. And my question is, I know working capital was the biggest drag of about $300 million, but one queue last year wasn't exactly similar. Wasn't it half that at $160 million? So how do we square those knowing that the ERP costs had actually come down, but also knowing that maybe heading into 2025, 2026, you could potentially have -to-non headwinds from a free cash flow perspective as patients switch to a five-year regimen instead of three-year regimen. Thank you.

So we'll take the 2024 free cash flow part of your question first, Umar. And in our forecasting, it's the seasonality of working capital that will start to reverse in the latter quarters of the year. And so that really enables us to recover to the $1 billion before one-time items that we are forecasting. Overall, one-time costs related to the spin-off, which were about $344 million last year, we do see that number coming down about 40%, and that'll really all be real light. You'll see that really in the back quarters of the year. So just returning to the seasonality of that cash flow being more 70% driven in the back half, really the first quarter performance, Umar, just gives us confidence that we'll be able to hit the full-year number.

And Umar, on your second question in regards to -to-non being a headwind in the 25, 26 range, we don't expect the five-year indication to likely be instituted until 2026, first of all. Second of all, we see two reasons to believe that that will not be a headwind. First, there's always the possibility of taking price, but we haven't, in terms of additional price in the five-year indication, we haven't decided on that yet. There's a lot of research required, but that's definitely there on the table. And second, and probably more importantly, there's a large chunk of healthcare providers and patients who would prefer to actually have the five-year indication, who potentially right now are using other forms of contraception. So it is potentially a net gain for us as opposed to a significant handwind.

Thank you very much.

Our next question comes from a line of Balaji Prasad with Barclays. Please go ahead.

Your line is open. Please go ahead.

Okay. Can we come back to Balaji?

Next question. Our next question comes from a line of Terrence Flynn with Morgan Stanley. Please go ahead.

Hi, this is Dan Onn for Terrence. Thanks for taking our questions. Just two from us. I guess first, just on US Nexplanon, you get a little more color just on the underlying volume trends that you saw in the quarter and how you're thinking about the rest of the year. And then on Hedlima, how you're thinking about maybe initially the opportunity in 25 at this point in any color on some of your initial PBM contract and conversations. Thank you.

Yeah, thanks for the question, Dan. It's Kevin. So I would tell you that the components of Nexplanon growth this year in the US are strong. We believe that we made the right decision in terms of moving price to Q1 within the Q, within the quarter. So ultimately, any type of buy in and buy out scenario will happen in that given quarter. Also, demand is starting to really move nicely, both in the 340B channel as well as the commercial side of things. So we feel really good and that's going to be a very solid year overall. I do believe it'll be a double digit growth year for Nexplanon globally and driven by the US performance. And there's just good signals coming out of a number of things that we've done on the ground in order to drive demand in Nexplanon in the US. And secondly, in regards to Hedlima, I would tell you that Hedlima is also progressing very well. I've said for, it feels like forever now, but for the last few years that it's going to be a slow moving market formation period of time. Right now, you see, for example, more and more PBMs starting to move over to essentially prefer biosimilars to Hedlima. We want, of course, exclusive contract with the VA. And so there's going to be more of the market formation as you start to see much more erosion of Humira. And as I've always said, as long as you're in the top two or three, you will benefit from that opening of the market. And I continue to say that our peak revenues that we've signaled, a couple of hundred million in the US is definitely achievable. Hopefully we'll do more than that as time progresses, but we feel very good. It's just time continuum of being able to kind of push forward and do what we want to do on our strategy for Hedlima. And I feel very confident about the product for the coming years.

Our next question comes

from the line of Chris Shubitani with Goldman Sachs. Please go ahead.

Thank you very much. Good morning. Two questions. Perhaps if we think about the operating margin progression beyond 2024 based upon the progress that you're making so far, can you give us a sense for your confidence of potential sources for where and the scope of how that could improve? Secondly, on business development, maybe update us on where you are in terms of seeing opportunities. In particular, the opportunity that you had with MGALITY was quite attractive. Are there more such opportunities? Do you favor certain segments of the business or other categories? Thank you.

So I'll start Chris on the operating margin part of this. So as we look out into the future, we see margin accretion coming in a few areas. And that will be offsetting, we believe, sort of the constant issues that we face with price in our markets, which are highly competitive, as you know. On the upside, we believe that our product mix over time will be mixing towards higher margin products as things come out of the pipeline and become commercial. We see productivity efforts and overall cost of goods sold improvement efforts coming from the network rationalization work that we'll be doing as we transition away from Merck services. And finally, we believe that we'll be able to generate operating leverage off of our fixed costs, which as you know, we're in the process of realigning this year. And you saw some of the benefits of that in the first quarter itself. So those are the margin up areas that we're really working hard to pursue. And once again, as we referenced in some of the prepared comments that we believe will help us more than offset sort of that constant drumbeat of price that we see around our aggregated network.

Chris, in regards to your question around business development, yeah, I mean, there's going to be more and more of those type of deals that you saw with the Lilly deal with RayVow and Immigality. Our deals that we do is essentially focused on opening the aperture, as I've mentioned before, of women's health. In that case, it was migraine, which essentially two thirds of patients who suffer from migraine happen to be women. So there are opportunities. They're coming fast and furious over our desk in terms of regional specific, country specific, like for example, China for China, we have opportunities. We do see China as being a growth country for us in the future in a number of different areas, including women's health, of course. So we'll continue to do that. We'll be very disciplined in the sense that we'll be picking out on those opportunities that clearly fit into our capacity. And so that, you know, we don't really have to dedicate much operating expense to expanding that portfolio that we bring in. And essentially, it's just to create it pretty soon. And so we'll be doing more of those. And we'll always have our eye towards more of the larger deals as well that move the And there are more infrequent as you would expect, but we're definitely looking there. But this year, it's really all about focusing on our financial execution, on making sure that we deliver the numbers and even better, hopefully, in the future in this year and working on our leverage and all those nice things that we need to do in order to be able to have more flexibility in the future to do more transformative things. And I think just stay tuned.

Thank you. Helpful update on your perspective. Thanks.

Our next question comes from a line in Navante with BMP Paribas. Please go ahead.

Hi, it's Jane Marie from Navante. Thanks for taking our question. Can you comment more on what your expectations are for the humero-biosimilar market for this year and the next, considering the rise in humorosis and our X after CVS Caremark effectively removed humero-biosimil major formularing?

Yeah, Jane, sure. I can address that. So I do think it's what I've been essentially predicting for the last couple of years that it's going to be a slow, steady beat, drum beat of winds that you see across the channels, whether it's in the PBM world. You've just mentioned one large PBM and CVS deciding to go with a different product and obviously the humero in terms of exclusivity, which is one of the large PBMs. And then you talk about our strategy, which is really on the low net cost providers like the VA and Blue Cross, Blue Shield, Medicare, Medicaid, which is about 45% of the lives covered in the US today. They're looking more to try to save money quicker. And look, at the end of the day, something like about 25 to 30% of patients in the commercial plans today are still paying a thousand dollars or more per month out of pocket for the use of something like a humera. And I think that is something that we're working to try to bring more savings to not only patients, but the system so that there's more headroom for investment and other innovative things that need to be done. So I do think that the market will open up slowly. It was very slow in 24. I think it'll be more in 25 than I think it really will open up in 26 and beyond.

Thank you so much.

Our next question comes from a line of Jason Gerbery with the Bank of America. Please go ahead.

Hey guys, just to follow up on the similar humera. So it looks like, you know, Sandoz and Teva have had some success with these private label type deals with large insurer groups. I think Optum's still up for grabs. Do you see that as a strategy of interest to you? Because I know that at least with Teva they're exclusive to Cigna. And then another question just on Nexponon, OUS. Your 10k, you talk about next year, majority of countries where Nexponon is commercialized outside XUS is going to expire. So how do you think about that erosion profile with the loss of exclusivity in bulk of your OUS geography? Is that sort of typical OUS kind of down 30% or not a typical OUS cliff type dynamic? Or is it better than that? Just curious how you think about the Nexponon OUS in 25.

Thanks, Jason. Let me take the first question, which is really around what's happening with the humera biosimilar kind of event or humera LOE event. Yeah, I mean, you said it right in the sense that Sandoz was able to acquire the CVS business and then Teva has announced something recently. And of course, Optum, we've got more than 50% access already in the Optum business as we speak today. And I do think that our strategy is resonating with our providers, which is again, I'll reinforce. We do have obviously penetration into the Optum world in regards to, you know, a large PVM, but we also have really good pickup state by state level, whether you're talking about the VA's at various levels or whether you're talking about Blue Cross Blue Shield in various states, you know, certain systems. And I think those are probably more resilient, more sticky business over the long term is that if you look at it as more kind of diversified, the more diversified you are in the biosimilar business, the more you can retain share as it gets more competitive over time. And I still do hold the fact that I think in 25, 24 as the year progresses, you'll see better overall penetration into that world. But 25 will definitely open up for us in terms of what we expect to do with head Lima. Turning to your question about next one on, I don't foresee any market erosion for the ex US business. Look, 70% of our business is in the US. That's where everybody is going to be looking forward to try to penetrate first. And I think after that, you would get into the much less to say less attractive pricing environment and ex US whether it's, you know, the access markets and emerging markets or whether it's in Europe, I think that it's just too fragmented and too difficult to penetrate unless you've got essentially the breadth of being able to get into the US. And I don't think as I've mentioned earlier my prepared remarks, I clearly think there's a lot of fact out there. This is not just suppositions, a lot of fact that would lead one to believe that this is a 2030 event. Our applicator alone globally has patent protection until 2030. And somebody would have to develop their own applicator, which in itself is not as easy as you may think, because you've got to do studies around safety around efficacy of the applicator device alone, before you can actually show anything else in the world in regards to the rod itself. So I think this is a 2030 event globally and beyond.

Thanks.

Our next question comes from a line of David Amsallam with Piper Sandler. Please go ahead.

Hey, thanks. So two questions. One is longer term on EBITDA margins beyond control and spend. Do you think there's room for margin expansion based on the top line? Anything in the established brand business that can drive margin expansion over time? Anything in terms of the women's health business or just its overall footprint that can drive margin expansion over time? This is more of a beyond 24 question. That's number one. And then number two is, how does better understand long term leverage targets, particularly with the 2028 maturities? How are you thinking about that? Looking at say, Teva, they have a leverage target in 27 and 2X. I'm not trying to pin you down on a target necessarily, but some of your peers do talk about that. So where do you get comfortable in terms of a steady state net net to EBITDA? Thanks.

Yeah. Okay, David. So we'll start with your comment on longer term margin accretion, basically through revenue mix, I think is your question. And really where we'll be able to achieve that is in what we have coming out of the pipeline towards the latter part of the decade and what we can acquire in during that timeframe. So I think we will continue to see stability amongst the portfolio of products that we have now. So I think really the improvement in revenue mix comes from the relative mix of the things that are growing faster that are in the portfolio right now. And I'm mainly thinking about Nexplanon, Jada, and then what we bring in through business development. In terms of leverage, really since the spin, we've had the same commentary, the same view that this business can run very effectively at leverage levels underneath three and a half times. And how far underneath would be dependent on business conditions at the time or just the overall marketability of the stock in terms of investor comfort with leverage ratio on this business. So we see ourselves getting to underneath four times by the end of this year, and then by the end of 2025 getting to that 3.5 target that we've been referring to. So our view on that really hasn't changed. I think investor sentiment around leverage has changed, but really our view in terms of where this business runs most effectively has not. So we still feel the same, and that's sort of what we're targeting as we think about the capital structure going forward.

That's helpful. Thank you.

Our final question comes from the line of Balaji Prasad with Barclays. Please go ahead.

Hi, good morning, and thank you for taking me back on again. Apologies for missing the earlier call. And again, apologies if this has already been covered. Please feel free to refer to the transcripts if so. Refer me to the transcripts. A couple of things. Firstly, on the Bicentum Imara market, clearly the private label moves with Cardiff, IMOs, and what we saw with Alvo and Teba recently with Simlandi seems to be the one which is shaking the market and getting greater market dynamics. So can you comment on your thoughts, expectations around that? On a related note, can you also remind us of Adlima's path to interchangeability or is it still on track for June approval? When would you have to wait until Alvotex's exclusivity ends next year for you to claim interchangeability? Secondly, on the established brand side, now that we see M. and Revu are contributing, can you help me understand a bit more on the dynamics here and the expectations for these brands going forward?

Thanks. Bilaji, it's good to talk to you. So I would say the first question in regards to biosimilars and hadlima, I do think that it's a good signal, by the way, that for example, the first signal being CVS, essentially going strictly with the Sandoz product, it really is a good signal for the market formation that we keep talking about itself. But remember, the market is split into two pieces. It's the PBMs that are about, you know, 55 or so percent of the overall lives covered and it's all the other low net cost providers, as I've mentioned many times, that represent about 45% of the business and they're really more focused, or lives rather, covered. They're more focused on low net cost products. They're not playing the rebate game as well. They're just focusing on lower net cost. So I think it is going to be very dynamic as we think about what's going to happen over this year and next year. And we're continuing to be very competitive and our strategy is pulling through. We're among the top one or two biosimilars currently in TRX and NRX in the US and we feel very strongly that we'll be in a very solid position as time progresses to continually grab share from the originator and to drive for our peak revenues, but we've always signaled that we feel very strong about in terms of a couple of hundred millions in the US. In regards to established brands and where we're going with Rayval and Immigality, look, we've just started right now in terms of promotion in the EU. Some countries still have yet to come in in terms of that. I think that will happen in the coming months. It's a fast growing segment actually in Europe in terms of the migraine segment. And we are really well positioned because these are two products that are well known, recently launched, have a good reputation and we've got a great team that are really, really excited and very energized about being able to take over and showing what we can do with these two products. Look for more of these types of deals to happen that are accretive, that make use of our scale and our global infrastructure and that really makes sense in terms of fitting in to what we're trying to do and generating more cash for us to be able to do more business development in a larger scale over time.

Thank you. If I could just add a follow-up to it, I appreciate the detailed explanation. In light of this performance and the outlook, I thought guidance could have raised possibly. How conservative are you with the guidance retaining or reaffirming what you had said earlier?

Thanks. Yeah, so we were certainly encouraged by the first quarter performance really across all of our franchises, Balaji. But the thing that we were considering most when thinking about what to do with guidance was really what's going on with foreign exchange. The dollar is persistently strong. When we created our initial guidance in 2024, the euro was somewhere between 108 and 109. It's since come back. And so like we said in the prepared comments, when we look at the nuts and bolts aspects of our top line revenue, we're actually up on constant currency basis. And it's really just the FX dynamic that is causing us to be a little bit reticent about raising guidance this early in the year. We'll revisit this when we issue Q2 results. But once again, the performance in first quarter gives us a lot of confidence in the initial guidance that we gave. And we're just optimistic as we leg into the

second quarter here. Thank you.

That concludes our question and answer session. I would now like to turn the call back over to Kevin Alley for closing remarks.

I want to thank you. I want to close today's call by essentially repeating what I began today's call with, namely that we came into 2024 looking at it year to focus on execution, delivering on our projections, improving our financial positioning, and of course, building for our future pipeline. And through Q1, we can definitely say that we're progressing well towards those goals. And I want to thank all of you for a great discussion today. And we look forward to continuing engagement.

This concludes today's call. You may now disconnect.