Organon & Co.

Thank you for standing by. My name is Mon Diep and I'll be your operator today. At this time, I'd like to welcome everyone to the Oregon on Q3 2024 earnings call webcast. All lines have been placed on mute to prevent any background noise. After the speaker is submerged, there'll be a question and answer session. If you'd like to ask a question during this time, simply press 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 Hallchuck, Vice President Investor Relations. You may begin.

Thank you, operator. Good morning, everyone. Thank you for joining Oregon on third quarter 2024 earnings call. With me today are Kevin Ali, Oregon on Chief Executive Officer and Matt Walsh, our Chief Financial Officer, as well as Juan Camilo Arrona Ferreira, Oregon on head of R&D. 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 Oregon on 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'd now like to 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 third quarter results. For the third quarter of 2024, revenue was $1.6 billion, representing a 5% growth rate at constant currency. The women's health franchise grew 6%. Our biosimilars franchise grew 17%. And our established brands franchise was up 3%. Adjusted EBITDA was $459 million, representing a 29% adjusted EBITDA margin. Adjusted EBITDA includes $51 million of IPR&D expense booked in the third quarter, worth approximately 320 basis points of margin in the quarter. Year to date, we have generated nearly $700 million of free cash flow and are well on track to deliver our commitment of approximately $1 billion of free cash flow before one-time costs in 2024. Our significant free cash flow enables us to comfortably service the dividend and still gives us capacity to invest in high potential assets. Given our view into the rest of the year, we raised the midpoint of our revenue guidance by $50 million to reflect performance year to date and improve view of foreign exchange. The guidance represents growth of .8% to .6% on a nominal basis and .1% to .6% on a .8% X exchange for the full year. That would represent our third consecutive year of constant currency revenue growth, driven by strong performance in Nexpenon, Biosimilars, Jada, and the addition of MGALITY. Further, while it's too soon to be guiding to 2025 on this call, at this point in our planning cycle for next year, we believe that organic growth drivers plus contribution from recent business development will support another year of constant currency revenue growth in 2025. We're also revising our full year 2024 adjusted EBITDA margin range. The new range is 30% to 31%. Matt will walk you through that bridge, which factors in $51 million of IPR&D in the third quarter. In addition to reporting our results today, we are able to share more about our Dermavent acquisition and its key asset, Vitama, which we closed on Monday. Vitama is a nonsteroidal topical cream already approved for the treatment of Plaxoriasis in adult patients. Vitama also has a Q4-PDUFA date for potential new indication, the topical treatment of atopic dermatitis in adults and pediatric patients two years of age and older. The near-term potential for the proposed atopic dermatitis indication is the much more attractive opportunity for us for two main reasons. First, the size of the market. There are three times as many patients suffering from atopic dermatitis as compared to psoriasis. And second, for those millions of patients, if approved, we believe Vitama can address an existing gap in the standard of care for atopic dermatitis. There is a significant unmet need in atopic dermatitis for the treatment option with the efficacy of a biologic and with the safety and tolerability profile of a topical treatment that can be used long-term. This point is especially important as nearly half of all atopic dermatitis sufferers are children. Because of this unique clinical profile, we believe Vitama will be much better positioned in the atopic dermatitis market than it ever was in the psoriasis market. In fact, in our view, the opportunity for Vitama and AD versus psoriasis is night and day. So what is it about the clinical profile that is so differentiating? We have with us today Juan Camilo, our head of R&D, to talk more specifically on that topic.

Thank you, Kevin. I'd like to expand on Kevin's point about how Vitama is much better situated in the atopic dermatitis market than in psoriasis. Psoriasis is a systemic autoimmune disease that more frequently benefits from systemic therapy, and patients can be well controlled with injectable biologics. In fact, at the time of the Vitama launch, the psoriasis market was already fairly saturated with biologics. Therefore, there wasn't a critical unmet need like there is today in atopic dermatitis. Atopic dermatitis, on the other hand, is a chronic, long-lasting disease characterized by inflammation, redness, and irritation of the skin that is best addressed with a topical solution. During a flare, atopic dermatitis can be highly symptomatic, and the itchiness associated with it can be so severe, it may even affect sleep. Despite the significant disease burden associated with AD, there has not been a lot of innovation. The existing topical treatments are mostly steroids, which were first available in the 1950s and are not intended for chronic use. Current non-seroyal treatment options for AD consist of a few agents that have demonstrated different levels of efficacy, one being a highly priced injectable biologic, and another, a DAC inhibitor that offers a black box warning. There is a need for a solution that is efficacious, like biologics, and with a safety and tolerability profile that is suitable for long-term use in adults and children. The results from the two phase three clinical trials support a review that Vitama has the potential to fill this gap. Pending FDA approval, our proposed label for Vitama is broad, potentially covering mild to severe AD, with no restrictions for use or limitations of body surface area, with a high rate of treatment response in children greater than two years of age and adults, and good tolerability. Our proposed label would be truly different to the label of other options on the market. So we are confident in the clinically different profile of Vitama for the treatment of atopic dermatitis, and we're excited to bring this novel option to the patients who have been suffering from this condition, and their healthcare providers who will no longer have to make trade-offs between efficacy and safety, if Vitama is approved.

Thank you, Juan Camilo. So we're talking about a treatment option that is clinically differentiated in a large market with a critical unmet need. That combination makes us very confident in the commercial positioning for Vitama and atopic dermatitis, if approved. And from a capital allocation standpoint, this transaction makes a lot of sense for organics. The terms of the transaction are very attractive, with the economic skewed disproportionately towards success-based milestones. We expect to achieve at least $150 million of sales of Vitama in 2025, with the potential to grow to half a billion dollars over the next three to five years. In 2025, we expect the transaction to be diluted to our EBITDA margin by about 50 basis points, and we expect the transaction to be accretive in year two, with earnings accelerating from there. The acquisition also nicely leverages organons' existing therapeutic expertise in dermatology. Our existing dermatology portfolio of seven products outside the U.S. delivered $240 million of revenues in 2023. The addition of Vitama allows us to create a dermatology presence in the U.S. where we have a very experienced and scaled access team at the local, state, and national levels. We expect to be in a position to launch the AD indication immediately after approval, focused on expanding access, ultimately improving Vitama's growth to net over time. We'll also have the potential to launch internationally down the road. Overall, we believe we are the best owner of Vitama with solid growth prospects and healthy margins. We believe it will contribute solidly to the financial profile of organons. So let's review the rest of the business in greater detail. Growth in women's health was driven by continued strength in Nexplanon, which was up 11% XFX in the third quarter. In the U.S., Nexplanon grew 18% in the third quarter. We've benefited from Nexplanon's leadership in the U.S. contraception market, our pricing strategy, including management of the 340B discount program, as well as continued physician demand growth outside the U.S. Nexplanon was down 3% XFX in the third quarter, primarily due to the timing of tenders in Latin America. Given strong -to-date performance, we expect Nexplanon can achieve constant currency full year revenue growth in the low to mid teens. This would be our best year yet with Nexplanon and positions us extremely well to achieve the $1 billion milestone that we had signaled for the next year. We remain very optimistic about Nexplanon's future prospects and the expanding potential of the brand through the proposed five-year indication. We plan on making our submission to the FDA in the next few months. Which would put us in a position to be ready for a late 2025 launch, assuming FDA approval. Moving on to other women's health. Though up 14% XFX in the third quarter, we expect our fertility business to be slightly down this year as we work through inventory adjustments related to exiting a spin-related interim operating model and onboarding a large PBM contract in the U.S. in the fourth quarter of last year. We see 2025 as a rebound year with very strong growth for fertility underpinned by continuing ART expanded reimbursement in China, international expansion, and performance in the U.S. that won't have the noise of the IOM exit. Let's move now to our biosimilars franchise, which grew 17% at constant currency in the third quarter. We expect biosimilars to deliver low teens growth for the full year 2024. With Renflexis and Entrezant at the mature point in their unusually long and impressive growth period. Biosimilars growth next year will be driven by continued uptake of Hadlema in the U.S. which has performed well and continues to grow sequentially. The strategy in biosimilars is to launch a new asset every couple of years. In late 2025 and beyond, additional growth contributors to the biosimilars franchise will be the Denosumab asset. Then later, the Petuzumab asset. Both will be launched in collaboration with Shanghai Henleus pending FDA review and approval. Just yesterday, we announced that the FDA accepted our biologics license application for the Denosumab asset, bringing us a step closer to potentially providing this treatment option to patients in the U.S. in 2025. And then rounding out our discussion with established brands, which grew 3% XFX in the third quarter and up 1% XFX year to date. We expect the franchise to deliver flat to slightly better performance on a full year basis as growth in amgality and the recovery of injectable steroids are expected to offset the LOE of Adazed and mandatory pricing revisions in Japan. Overall, we are very encouraged about our performance year to date and remain very confident in our ability to deliver on our commitments for the full year. I'll now turn it over to Matt, who will discuss our financial performance in greater detail.

Thank you, Kevin. Beginning on slide nine, here we bridge revenue for the third quarter year over year. As Kevin mentioned at the outset, third quarter revenue of $1.58 billion was up 4% over third quarter of last year and ahead 5% at constant currency. Impact from LOE was about $5 million in the quarter, which reflects the loss of exclusivity of Adazette in Japan and negligible impact from the beginnings of the Adazette LOE in Europe, which happened in September. We didn't have any meaningful VBP headwind in the third quarter as the effects of round eight that began in the third quarter of last year and included Remeron and Heizer are now washing out. There was an approximate $70 million impact from price in the third quarter, or about 4.6%. You may recall that in our second quarter call, we said that the back half of 2024 would face steeper headwinds from price than the first half due to the timing of mandatory pricing reductions in Japan, mainly in the cardio and respiratory portfolios, which is what we are seeing. We're also seeing pricing headwinds coming from the September LOE of Adazette in Spain and France, as well as from certain mature products in the US, like NuvaRing, Dullara, and Renflexus. Volume growth in the quarter was $150 million, or almost 10% across several drivers. Hed Lima and Mgality were the largest contributors to volume growth, followed by Fertility, Next, Fanon, and established brands, especially in China. Timing of tenders of Entrezant and NuvaRing in the US were the biggest offsets to volume growth. In Supply Other, here we capture the lower margin contract manufacturing arrangements that we had with Merck, which had been declining since the spinoff as expected, although there was only a small change year over year in this bucket this quarter. And lastly, foreign exchange translation had an approximate $20 million impact, or 130 basis points of headwind to revenue, which reflects the strengthening US dollar versus certain foreign currencies, which this quarter included the Mexican peso, Japanese yen, and Brazilian real. Now let's turn to slide 10, where we show key non-GAAP P&L line items and metrics for third 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 from cost of goods sold, purchase accounting amortization, and one-time items, which can be seen in our appendix slides. Adjusted gross margin was .7% in the third quarter of 2024, compared with .6% in the third quarter of last year. In the third quarter of 2024, the lower adjusted gross margin was primarily related to unfavorable product mix and price. Excluding $51 million of IPR&D expense incurred during the period, non-GAAP operating expenses were down 5% year over year, reflective of our cost containment efforts. Of the $51 million of IPR&D expense in the third quarter, virtually all of it related to our collaboration with Shanghai Himlias for further advancement of the dinosumab and pertuzumab biosimilar candidates. While we have an established practice of not guiding to IPR&D, we do have pretty good line of sight from now until the end of 2024. We don't expect to surpass any further milestones that would trigger IPR&D payments. While the total of $81 million of IPR&D expense for the full year represents a headwind of about 170 basis points year to date, these payments are strong signals that our pipeline is progressing, and we are building our ability to sustain revenue growth well into the future. These factors culminated in an adjusted EBITDA margin of 29% in the third quarter of 2024, compared with .4% in the third quarter of 2023. Non-GAAP adjusted net income was $226 million, or 87 cents per diluted share, almost equal with 2023's $223 million, or 87 cents per share in the same period. GAAP net income was actually higher than non-GAAP net income this quarter. GAAP net income benefited from the release of evaluation allowance in the amount of $210 million against the tax asset of one of the company's SWIFT entities. This development, while favorable, does not impact our non-GAAP effective tax rate for earnings guidance purposes, which remains in the range 18.5 to 20.5%. During slide 11, we provide a closer look at our cash flow year to date, and despite some minor headwinds from the Dermavant acquisition, as Kevin mentioned, we're well on track to deliver approximately $1 billion of free cash flow before one-time charges. Year to date, those one-time spin-related costs were $137 million. Our global ERP implementation is now behind us, and that was the largest driver of these one-time costs. Our view into the fourth quarter is that costs in this category will be minimal, so we expect to finish the year at approximately $150 million, which is better than the $200 million of one-time spin-related costs that we were originally forecasting for 2024. Next year, in 2025, we would expect one-time spin-related costs to be de minimis. In the $129 million of other one-time costs, here we capture headcount restructuring initiatives and manufacturing network optimization. The cash outlay for these network optimization costs have amounted to $44 million year to date 2024. They are distinct from the spin-related costs in that they're associated with actions to separate our manufacturing and supply chain activities away from Merck, which will ultimately drive cost efficiencies and eventual gross margin improvement. We expect this bucket to total about $75 million this year. Turning to slide 12, we ended the quarter at 4.0 times on our net leverage ratio, which was a quarter turn better than this time last year, and also slightly better than where we were at year end, 4.1 times. Year to date, we have had stronger EBITDA generation, which has resulted in a leverage ratio at September 30th, 2024 that is more favorable than our expectations at the start of the year. That said, it will take us several quarters to digest the Dermavan acquisition before leverage can return to the 4.0 times net leverage ratio that we've achieved as of this quarter end. Now turning to 2024 guidance on slide 13, where we highlight the items driving our 2024 revenue guidance range. As Kevin mentioned, we've tightened our revenue range and raised the midpoint by $50 million, representing 1.8 to .6% nominal growth year on year, which equates to 3.1 to .8% on a constant currency basis. For LOE, we lowered our range from $70 to $90 million to $40 to $50 million, which reflects slower uptake for generics for adizep. Moving to the right, we lowered the range on VBP impact from $30 to $50 million to $15 to $25 million, which similarly reflects a slight delay in realizing the full revenue impact of round eight for Remeron and Heizar. We've been doing a bit better on price year to date, so we lowered our view of pricing impact from $180 to $200 million to $145 to $155 million, representing an approximate 2.5 percentage point headwind versus prior year, which is in line with our longer term expectations from price across our entire business. Sequentially, the impact from price has been and is expected to be more acute in the back half of 2024 as the mandatory pricing revisions in Japan accelerate and reductions in price associated with the adizep LOE in the EU more fully materialized. Additionally, we're facing increasing competitive pressures in the US within mature products such as Dulara, Renflexis, and Nuvirain. For the year, we've narrowed and lowered the range on volume to $445 to $465 million, down from $500 to $600 million. The range for volume reflects an approximate 7% growth rate over last year, tempering down from the 9% volume growth rate we expected, and that's mainly attributable to a softer outlook in fertility for the year. And finally, based on our current view of FX, we lowered our view of FX impact to $75 to $85 million, down from $110 to $140 million, and that $50 million improvement is the principal driver for raising the midpoint of our revenue guide by $50 million. Kevin mentioned at the outset that we were also revising our range on adjusted EBITDA from 31 to 33% to 30 to 31%. In slide 14, we bridged the items driving the change. The largest driver is the incremental $51 million of IPR&D expense we booked in the third quarter worth about 80 basis points of margin for the full year. Second, in our view into fourth quarter revenue, we can see that we'll likely have some unfavorable product mix worth about 50 basis points of gross margin on the full year. This is primarily related to certain products in our US portfolio that are subject to higher competitive pressure. Entrezant, Nouveau Ring, and Delaire to be specific, where we're seeing some pricing pressure and unfavorable channel mix from this group of products, which are at the mature part of their growth cycle. While we have seen pressure year to date in our US fertility business, we see a fairly strong rebound next year. When combined with the strong gross margin profile of Vitama, these two items in tandem should serve as an offset to the margin pressure dynamic in our mature brands. The fourth column here represents two months of onboarding of Dermavant at their current expense rate. So no synergies yet reflected in this number. The last column represents net productivity in the base business, and that bridges you to the new midpoint of the adjusted EBITDA margin range. Turning now to slide 15, where we show all components of our earnings guidance. For full year 2024, and consistent with the revenue commentary that we just discussed, we are revising our gross margin range from 61 to 63 percent to approximately 61.5 percent. On SG&A expense, we tightened our range from 1.5 to 1.7 billion dollars to 1.55 to 1.6 billion dollars, 25 million dollars better at the midpoint driven by -to-date favorability. For R&D, we tightened our range around the midpoint on the base R&D spend and adjusted for the incremental 51 million dollars of IPR&D that we booked in the third quarter. On a full year basis, the -to-date total of IPR&D expense is 81 million dollars, and that's worth about 130 basis points of adjusted EBITDA margin using the midpoint of our guide. As Kevin said, it's too soon to be guiding to 2025, but directionally, we do expect to see revenue growth year on year. This includes organic growth across the portfolio, plus the 150 million dollars plus of revenue from Dermavant that Kevin referenced. Those will be offsetting factors to the ad ozit LOE next year, as well as any other challenges we believe we might see across the portfolio. We do expect the Dermavant acquisition to be dilutive to 2025 profitability, accretive in 2026, and thereafter. In 2025, we expect operating expense for Dermavant will be about 180 million dollars, and will be focused on successful launch of VITAMA in the Atomic Dermatitis Indication for which we hope to receive approval this quarter, pending FDA approval. About one-third of this operating expense is fixed, and is in the form of onboarding Dermavant sales and marketing capabilities. The other two-thirds is promotional spend around the launch, and other business support that will either naturally flex down after the AD launch, or else become opportunities for further synergies. In 2025, directionally, we expect Dermavant to account for approximately one-half point of the total revenue of the company. We expect to see a bit of margin headwind, which of course we will be looking to see if we can offset with further expense discipline enacted across other parts of our business, as we've been doing quite successfully this year. In 2026, we expect VITAMA margins to grow to be above Organon's company average, as revenue accelerates from the AD launch, and synergies are realized, and continue to grow from there. Closing out, in 2024, we set ourselves up to deliver a trifecta of growth in revenue-inhibited dollars, a leveraged P&LX milestones, and $1 billion of free cash flow before one-time items. With three-quarters of the year under our belt and two months left to go, we feel very good about our ability to deliver on that goal. 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 your 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. For today's session, we ask that you please limit yourself to one question and one follow-up question. Again, press star one to join the queue. Our first question comes from the line of Balaji Prasad with Barclays. Please go ahead.

Hi. Good morning, and thank you for the questions. Firstly, on Mitama, congratulations, Nadeel. Seems to be well laid out in terms of capital allocation. Could you comment on the current profitability or EBITDA contribution from the government and maybe getting to next year on the apex of $180 million, split it up into atopic dermatitis spend versus psoriasis spend? And second question is on Nexplanon. Probably a slightly more sensitive topic, but can you comment around the current political climate -a-vis LARCs and maybe more specifically business growth drivers for Nexplanon? Thank you.

Matt, you want to take the first? Yeah.

So we've got two months of vitama included in our rest of year guidance for 2024. And so it's nominal. I mean, we're looking at a revenue run rate of approximately $6 million per month. And we're forecasting the same level of dilution in this stub period as we would be talking about for 2025. So that's

the vitama piece. And Balaji, in regards to your question regarding Nexplanon, it's actually a very timely question. I just came back from meetings on the Hill in DC. And on both sides of the aisle, I can tell you, you know, we obviously know there's going to be a new administration coming in. And on both sides of the aisle, I think the issue around access to LARCs, access to contraception with regards to women's health in general is not a threat at all. As a matter of fact, I think on both sides, there's a doubling down of sorts that nobody wants to kind of get into any kind of discussions around whether it's fertility or access to contraception in order to be able to address reproductive health related issues. So that's strong. And then in our Nexplanon business continues to go along very, very well in the US. We're a market leader in the contraception space, especially in terms of LARCs. And we see continued growth, not only in terms of demand, but also in our 340B business is also growing with the federally qualified health centers. That is a great opportunity for us in the future. So, you know, we'll reach a billion dollars, which is faster than I anticipated for Nexplanon globally with US obviously driving a big portion of that in the US, for us next year for Organon. And that's our first kind of major blockbuster milestone for the product. And we see a lot of years ahead of it in terms of the runway. Thanks for the question.

Our next question comes from the line of David Anselm with Piper Sandler. Please go ahead.

Thanks. So just a couple for me. So now that you have medical derm commercial infrastructure in place, and this is a new therapeutic vertical, how are you thinking about leveraging that infrastructure over the long term via the acquisition of additional assets? How aggressive do you want to be? And is it just medical derma or are you also open to assets and medical aesthetics? And then with the acquisition of dermavans, how does that change your thinking on capital deployment, are you looking to get more aggressive on the M&A front, particularly in a lower rate environment? Just philosophically, how are you thinking about things in the wake of the acquisition? And in the context of a lower interest rate environment? Thank you.

Thanks, David. I can address those questions. First, in regards to bringing in this new vertical in the U.S., we've always been very big fans of VITAMA and Dermavans in terms of where the opportunities are. I listed them out in my script in terms of the opportunities for atopic dermatitis. And so that continues to be something that we feel very, very enthusiastic and very bullish about. And this is a great product. And I think you saw the differentiation that Juan Camilo spoke to. It's a great position within the atopic dermatitis space in both efficacy of a biologic, even potentially, potentially I say, that greater and really well tolerated for use for long periods of time. So really excited about that. And you're right, David, over time, it definitely opens up a new opportunity for us. Now, keep in mind that we do have opportunities to internationalize VITAMA. So we'll be taking that path as soon as we can. We're going to be hopefully launching in Canada as the first country. We're on track for that in the not too distant future. So that'll be a nice addition to our portfolio. But also, we'll be looking at other countries as well. And we also have a royalty agreement in Japan. So we'll be getting royalties from that partnership as well. But within the US, definitely it opens up quite a bit of different opportunities that we see, a variety of different opportunities. You mentioned a few of them, whether it's anti-infectives, all the way to aesthetics and everything in between. Look, the team that we are bringing over from DermEvent is top notch. And we intend to essentially support them with all the different expertise we have, especially on the access front. We've got some of the best access folks that you know where we all came from. And this is kind of on the regional, local, as well as state levels, as well as national levels that will help to really expand our opportunities, not only with VITAMA, but also establishing ourselves for the future in that Derm space. In regards to the future of capital allocation in terms of BD, as well as where rates are going, I think right now our pure focus for 2025 will really be about integrating as well as really driving the VITAMA performance. And then we'll cross that bridge when we come to it.

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

Hey, guys. Good morning. Thanks for taking my question. Mine is just I wanted to follow up on the DermEvent accretion dilution profile. And given this is a new therapeutic vertical, just wondering if you can talk through the incremental selling and marketing cost versus what you're able to absorb with your own in-house resources. I think DermEvent talked at one point about more than $300 million or so, OPEX versus your $180 million number. So just kind of wondering, are you putting less behind the product or are there cost offsets in your infrastructure? Or alternatively, is the AD cost maybe not fully baked into the 180? Just wanted to get some clarity around those inputs. And then just on your next one on citizens petition file, is there any backstory to that? What I'm getting at is I don't know if the FDA were they unreceptive to propose changes in product specific guidance or is this basically your first sort of attempt to get the FDA to pay increased attention to the applicator similarity points that were raised in the CP? Thanks.

So I'll take the VITAMA

question

first, Jason. So from an OPEX perspective, I'm not exactly sure what DermEvents disclosure has been. I think that's approximate $300 million number is a very round number. We think we're onboarding operating costs of about $240 million. And in terms of how that cost is broken out, roughly a third of that is sales and marketing costs for which we intend to onboard that block, stock, and barrel. That's the expertise in the US Durham sales and marketing capability that is a key value driver for us going forward. And it's expertise we're absolutely focused on onboarding in the right way. And so the synergies as we achieve them will come from the remainder. And I think a significant part of the difference in the cost you might be looking at versus the $180 million of OPEX we're talking about next year is R&D costs under prior ownership that were already coming off. So I think that's a pretty important distinction between prior benchmarks and the OPEX that we believe we're onboarding for 2025. And just to reiterate from the prepared comments, we just see one year of dilution from onboarding the product. It'll be accreted in 2026 and thereafter at what we believe are very achievable revenue estimates.

And Jason, in regards to the question on the submission of the petition, it's still pending. So I can't speak to that in terms of when we get a response from the FDA. But the issue that I wanted to clarify is the fact that we do have patent protection on our applicator device until 2030. And I think that needs to be essentially understood that unless you want to devise and design and submit in your own clinical studies a completely new applicator, you can't use our applicator until 2030. And so that is one aspect when you make mention of an applicator device in terms of patent protection. But also, the fact of the matter is I've always signaled the fact that it's not an easy go of it. And again, like I said, if you just want to use a proxy, just look at the IUD Morena in terms of fact that we're now like seven years post LOE and there's still no true generics in the market. It's not an easy thing to do. And you've got to have a huge amount of infrastructure investments in terms of not only Salesforce to train your physicians on how to insert and remove your rod, but also all of the other things that goes into medical affairs and pharmacovigilance and all the nature of that. The FDA is very sensitive to that. So I think that's my view in terms of the runway ahead for Nexplanar. Got it. Thanks so much, guys. Sure,

James. Our next question comes from the line of Umar Rafet with Evercore ISI. Please go ahead.

Hi, guys. Thanks for taking my question. I'm curious, the $180 million in OpEx you referred to, is that inclusive of the ex-US spend you intend to do as well? And in a scenario where the TAMA underperforms, how much can you pull that back? Thank you.

So I'll take the first part of that question. So in the $180 million OpEx for 2025, that's really US-focused. There's really nothing of significance ex-US in that. And for the second part of the question in terms of how much can we pull it back, look, you can always cut back on promotional spend. We have plans in place to synergize on the G&A pieces of the cost structure, but I don't know that we would be focused on that in 2025. We will be putting all of our energies behind the successful launch of BITAMA. So the next 14 months, let's say, after the end of 2025 are really key. And so if we have to think about retrenchment, we'll be looking at that beyond 2025.

Great.

Thanks, Umar.

That concludes our Q&A session. I will now turn the call back over to Kevin Ali for closing remarks.

Thank you. Just in closing, look, 2024, in 2024, our commercial execution, I believe, has been very strong. Our largest product, Nexplanon, is well positioned, as I mentioned earlier, to deliver a billion dollars of revenue next year. And we've added other notable growth drivers with InGality, and most recently what we've just discussed this morning, BITAMA. Further, we've been extremely disciplined on operating costs and driving adjusted EBITDA growth in support of achieving a billion dollars of free cash flow before one-time costs for the full year 2024. So we're well on track to delivering a very solid year. We want to thank you for dialing in today, and we'll talk to you soon.

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