Organon & Co.

Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Organon Q3 2024 earnings call webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, 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 Holchuk, Vice President, Investor Relations. You may begin.

Thank you, operator. Good morning, everyone. Thank you for joining Organon's third quarter 2024 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, and Matt Walsh, our Chief Financial Officer, as well as Juan Camilo Afrona-Ferreira, Organon's 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 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'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 1.8% to 2.6% on a nominal basis and 3.1% to 3.8% ex-exchange for the full year. That would represent our third consecutive year of constant currency revenue growth, driven by strong performance in Nexpanon, 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 DermaVant acquisition and its key asset, Vitama, which we closed on Monday. Vitama is a nonsteroidal topical cream already approved for the treatment of plaque psoriasis in adult patients. Vitama also has a Q4 PDUFA date for a 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 the TAMA 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.