Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to Organon Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Jennifer Halchak, Vice President of Investor Relations. Please begin your conference.

Thank you, Chantel and good morning everyone. Thank you for joining Organon’s second quarter 2022 earnings call. With me today are Kevin Ali, Organon’s Chief Executive Officer, who will cover strategy and operational highlights; and Matt Walsh, our Chief Financial Officer, who will review performance, guidance and capital allocation. Dr. Sandra Milligan, Organon’s Head of R&D will also be joining us for the Q&A portion of this call. 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 Presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company’s business, which are discussed in the company’s filings with the Securities and Exchange Commission, including our 10-K and subsequent periodic filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the presentation and conference call presentation. I would now turn the call over to our CEO, Kevin Ali.

Good morning, everyone and thank you Jen. Welcome to today’s call where we will talk about our second quarter 2022 results. Our second quarter 2022 results round out one full year as a standalone publicly traded company. And today, I am proud to be reporting our third consecutive quarter of product sales growth and solid progress against our stated objectives. Now despite a challenging global macroeconomic and geopolitical environment, during the second quarter, we delivered growth across all reportable geographies and in all three franchises. We even saw growth in China despite the negative impact from the COVID-related lockdowns. And in our LAMERA region, where our growth in Latin America offset the negative impacts associated with the war in the Ukraine. For the second quarter of 2022, revenue was $1.6 billion, up 5% at constant currency and adjusted EBITDA was $512 million. That includes $97 million of acquired in-process R&D otherwise known as IP R&D and milestones in the quarter. So on the basis we are all accustomed to, our EBITDA would be over – our adjusted EBITDA would be over $600 million in the second quarter of 2022. During the quarter, biosimilars continued its double-digit growth trajectory and grew 42% ex-FX. All five of our currently commercialized biosimilar assets had a strong second quarter and year-to-date 2022 compared with the previous reporting periods. Our next biosimilars launch will be mid next year with our launch of Hadlima in the U.S. We believe that biosimilars that will be best positioned for success are those that share the same attributes as the originator of Humira. That includes the option for a high concentration citrate-free formulation and a low concentration form, which we expect to have at launch. We also believe that real-world evidence and experience in other markets is important for…

Thanks a lot, Kevin. As I have done in previous quarters, I will remind you that our results prior to spin-off are presented on the carve-out basis of accounting and that’s a GAAP convention that’s not intended to present results as if Organon were a standalone company. So, I want to be clear as we discuss results that because our spin date was June 2 of last year, it won’t be until next quarter, the third quarter of 2022, that we can draw a true apples-to-apples comparisons to prior year results, where all P&L line items represent post-spin standalone financials for Organon. Until then, as I have said over the past few quarters, the revenue line is where we will have the best comparability to prior year periods and that’s where we will start the financial discussion. Now, turning to Slide 6, revenue for the third quarter was approximately $1.6 billion, down 1% as reported, but up 5% at constant currency when compared to the second quarter of last year. In this graphic, we breakout the change in revenue according to key drivers and I will highlight some of the more significant impacts. The impact of loss of exclusivity or LOE during the second quarter compared to the second quarter of last year is approximately $10 million is primarily related to NuvaRing’s LOE in the United States. We didn’t have any LOE impact in established brands this quarter. The most significant LOEs facing the portfolio washed out prior to the spin-off and we expect only modest new LOE exposure going forward. Since the spin-off in 2021, we have been expecting a generic entrant in the U.S. for DULERA that did not happen in 2021 and has not happened thus far in 2022. Continuing to read across the waterfall chart, the…

[Operator Instructions] Our first question comes from Jason Gerberry with Bank of America. Your line is open.

Hi, guys. Good morning and thanks for taking my questions. Matt, just one for you first. Just in terms of the business model, it seems like you’re more likely than not going to do a couple of license deals per year. So should we be thinking about this year’s kind of EBITDA margin is more likely to go forward? EBITDA margin, I’m seeing Street at like 35% next year, but it seems like it may be prudent to kind of factor in some deals. And then just secondly, on the commentary about the impact of the ROW decision. Just curious, have you guys done any work just looking at states where there is automatic trigger logs banning abortion if you’re starting to see women embrace contraception at a higher rate. Just curious, I know that was sort of flagged as a tailwind, but if there is anything tangible that you could tie to that, that would be helpful. Thanks.

Thanks, Jason. So I’ll take the first part of that question and Kevin can take the second. So we’ve been saying since even before the spin, that the – to position the portfolio for sustained revenue growth beyond a 5-year horizon, we would need to be reinvesting. That reinvestment would show up not just in cash outlays, but it would be showing up on the P&L in our R&D line as well as our SG&A line, specifically for commercial expenses to support. So when we think about the long-term trend in margins, it would be below the 35% full year number that we were – that we’ve been guiding to on a pre-IP R&D basis. And so I think if you look at the implied second half performance versus our full year guidance as compared to our year-to-date results, that might be more representative of what the near-term future might look like beyond 2022. Actually, the numbers that we see in FactSet are pretty much – reflect that.

Yes. And Jason, it’s Kevin. So thanks for your question. In regards to the change of the change of the landscape post docs, we don’t see any effect in terms of overall view of how contraception is going to go forward. Right now, it’s still up in the air. You saw what happened in Canada just a couple of days ago in terms of what’s going on. And so as a result of that, it’s far too early to determine what exactly is going to happen. What I can tell you though is we’re getting more and more interest by consumers as well as healthcare professionals asking a lot of questions about what long-acting reversible contraceptive about trying to get more information. You can well imagine that if you’re a physician right now in what you consider or what you term the trigger state, you’re going to start to be much more careful in terms of your counseling of your patients in regards to make sure you do not have an unintended pregnancy rate. And I made that comment earlier about the fact in my opening that there is almost a 50% unintended pregnancy rate around the world and 40% of those was actually folks or women on some form of contraception. So as a result of that, you can see there is inconsistent or inaccurate or incorrect use of contraceptive. And so as a result of that, I think that the focus going forward will definitely be on efficacy. Efficacy should, and I believe will rule the day at the end of the day in terms of getting women the kind of options they need to make sure that they do not have an unintended pregnancy.

Great. Thank you.

Your next question comes from Umer Raffat with Evercore. Your line is open.

Guys thanks for taking my question. I guess, first, I’m just trying to understand NEXPLANON growth trends better. I’m a little puzzled by sort of the performance in the first half, especially in the context of the broader landscape around abortion, etcetera. So I’m just curious in general, what’s going on there? And should we reasonably expect this product to be growing sort of mid-teens, which is how folks expect it to be growing in 2022, 2023, etcetera. The second one is I was quite intrigued by the Cirqle deal for the vaginal gel, but I was not quite sure sort of what was the thought process around differentiation versus a lot of the other pH raising vaginal gels that are out there. I was just curious if you’d share your thoughts there. And then finally, maybe quickly, Kevin, I feel like in the branded sort of innovative product territory for pipeline assets, it looks like there is a very large swath of biotech that’s looking to raise capital or collaborations, whatever the case may be. And it might be a very opportune time for you guys to be more active. And it seems like between the deal last December and then this new one with Cirqle as well, they are very early stage. Very early stage to the point where for the next 2 to 4-year horizon, they are not needle moving from a numbers perspective. And I am curious how you’re thinking about sort of branded biotech drugs in a more mid to late stage as well? Thank you very much.

Well, thanks, Umer, and great to hear your voice again, and hope all is well. And I just wanted to – first of all, let me address some of these questions that you have regarding NEXPLANON. So, it’s been a little bumpy in terms of the comparator quarters. Last year, our year of spin, there was a number of things that were happening in terms of pricing movement and some of the issues around kind of name changes and other things that were going on in terms of our spin logistics. And right now, we feel that right now going forward, you are going to get a much more predictable pattern of demand. And right now, what we can see is that every month, post the deal we had a large buyout ultimately in January and February. But every month subsequent to that, we have actually seen increase in demand. And we are seeing very, very strong increase in demand in July, double-digit increased demand in July, and that’s going to be a significant quarter. But keep in mind, there are two things that are really important with regards to understanding NEXPLANON. As I mentioned to you almost a year ago, we expect the international business to grow faster than the U.S. business, and that has held true. We see robust double-digit growth going forward with the international business. It is now – it started out at as a 75-25 contribution. Now it’s more like 65-35. And that’s moving in the favor of a faster growing U.S. market. But within the U.S., we do see some things, I think that’s coming in, in our favor. I mentioned earlier to Jason, we feel that there is going to be more of a focus on efficacy, more of a focus on convenience,…

Yes. That would be great, Kevin. Thank you for the opportunity to respond. So, Umer, we do believe that with today’s currently available on-demand and non-hormonal products, there is room for improvement for women in wanting increased efficacy and maybe some differences in just some of the product characteristics. And so we think that this is a very interesting opportunity, albeit it’s very early, and we are looking forward to the partner and collaboration that we have with Cirqle. But basically, as Kevin mentioned, it’s a two-pronged approach in the product. It’s a chitosan that creates a barrier that prevents sperm from entering the cervical canal plus the pH modulator that immobilizes the sperm. And so, we are really focused on augmenting our contraceptive portfolio with such an on-demand, non-hormonal approach. And so this is just the first one that we are tucking into our pipeline, and we look forward to finding other opportunities to expand the differential product offerings that we can have for women, as they proceed along their reproductive journey and decide how to do their family planning when it’s right for them.

Thank you.

Your next question comes from David Amsellem with Piper Sandler. Your line is open.

Thanks. So, just a couple. So, number one, I wanted to get your thoughts, and I apologize if I missed this, but your thoughts on China, just with lockdowns and now emerging from lockdowns. How are you thinking about the rigs, the mix of hospital versus retail and just the overall trajectory of that business? And then secondly, just on the theme of business development, what is the extent to which you would do something transformational? I know you have said you are sensitive to leverage and the credit rating, but is that something you are willing to revisit if the price is right, particularly in the context of asset prices having come down, just wanted to get your thoughts philosophically on that? Thank you.

Sure, David. I will address the first point, first question in regards to China. So, currently, look, we have got a good outlook for China right now. There are two things happening and the lockdowns that are just finally easing up. It affected our fertility business clearly because the clinics were closed down. But – and it also slightly affected our established brands business. But remember that right now, in terms of our year-to-date business versus prior, we are essentially 8% growth in the overall market, 13% on the retail sector. And by the way, now retail for June was a 50% of our established brands business is coming through the retail channel. So, it is as I have always said, that we have done the right things to really invest in the retail channel that is expanding quickly. So, the headwinds were essentially in the area of fertility and some established brands. But the tailwind is the fact that they delayed some of the rounds of the VBP, specifically around seven and eight, timing have been delayed a bit. So, ultimately, we feel that Atozet for our business, which is one of our biggest cardiovascular products, will happen much later in the year versus our original anticipation in terms of the VBP update. So, I look for a positive outlook for the remainder of the year. We are continuing to invest in retail. Our women’s health business now is starting to unlock because fertility is coming back, clinics are open as well, our Marvelon and Mercilon acquisition or repatriation back from Bayer has started out like gangbusters and doing exceptionally well in the women’s health space. So, we feel very strong in the China sector. Matt, do you want to take the second question?

Yes. Thank you, Kevin. And just to close out on China. China is an important geography for us. We have well over $900 million of revenue in China. We have over 1,000 people there. So, it is a key geography for us in terms of growth for the future. But moving to BD, so David, we are not out hunting for those big deals, but we certainly are assessing the landscape and the possibility for them as a potential part of Organon’s future. Right now, especially as we are standing up, the company fully separating from Merck and putting all of our own systems in place, these smaller deals, are digestible and with a high degree of probability of value creation, so that makes sense for now. And once we get across the other side of all the agreements that we have in place with Merck, with most of them have about a 2-year duration to them. The potential for larger deals just becomes wider. But as I have said, we are not out hunting for them, but we are planning for their possibility.

Okay. Thank you.

Your next question comes from…

Sorry, you dropped off. We didn’t hear you. There is a question coming from?

Your next question comes from Chris Shibutani with Goldman Sachs. Your line is open.

Hi, this is Dan on for Chris. Thanks for taking our questions. Just two from us. First, I guess your commentary on NEXPLANON and the large market suggests you are taking share from IUDs? And if so, can you maybe talk a little more about the drivers of that and if you expect that to continue? And then second, just looking at your volumes year-to-date looks like you are tracking ahead of the $600 million to $700 million guidance. So, we know you touched on this, but could you talk a little more maybe about the outlook for volumes in the second half? And maybe how much of the benefit in the first half was from some of the Japan dynamics and established brands? Thank you.

Sure. Dan, I can take the first question in regards to NEXPLANON. We don’t have data. I mean IQVIA data in terms of the overall market is not very robust because we have the direct to physician buy-and-bill type of phenomenon happening. But what we can see is that there is, obviously, in terms of LARCs, IUDs are moving in terms of the decline section and essentially NEXPLANON is moving up. So, I think you are right. You have clearly seen that what’s happening in terms of the fact that although albeit it’s mid for the quarter, it’s mid-single digit growth. But nevertheless, all the signs are pointing to the fact that we are going to see continuing robust growth going forward for this product, and we are doing very well outside of the U.S. But our focus really is on combined oral contraceptive pills. That’s essentially the biggest area for us because that’s the area that ultimately that is most used. And our focus, again, is on reducing unintended pregnancies. And so really, we need to go where the greatest need is, which is essentially conveying the information and educating physicians on the benefits of NEXPLANON. We feel good about that product for the future. Matt, do you want to take the second question?

Yes, sure. So, Dan, if your intuition says that running a little bit hot in the first half on what our full year volume guidance would be, I think you are right about that. And I can point to a few things. I would say none of these are particularly large individually though. But for example, on a timing basis, we had more ONTRUZANT volume in the first half actuals that we had thought might come in the second half. We had some one-time favorability for the Japan competitor GMP issue that happened in the first half is likely to be transitory in nature. And then we have been anticipating since the start that the VBP would be more of a back-end loaded phenomenon for 2022. We thought we might see some of it in the first half, but that number actually turned out to be really, really de minimis because of the delays. So, on a full year basis, we still feel very good about the volume growth in the business, but we did have a little bit of ultimately front loading of it per your question.

We are ready for the next question, operator.

Your next question comes from Greg Fraser with Truist Securities. Your line is open.

Good morning guys. Thanks for taking the questions. On NEXPLANON, you mentioned visibility on customer buying patterns in the second half. Can you help us with how to think about the potential benefit from those patterns in the third quarter and the fourth quarter? And also on NEXPLANON, are there important markets where you are working to secure reimbursement that could be important future growth drivers? And then just one on the fertility business, if you could just speak about [indiscernible] products based on your prior experience and challenging macroeconomic conditions, that would be helpful. Thanks.

Yes. So, in terms of buying patterns, when I made the comment in my introductory comments, it’s really about looking at understanding the tenders that we see outside of the U.S. We know when they are coming through. We know what the sale, what the level is, and we know what to expect. And so when we think about, for example, Canada, it’s still a launch market with sales doubling from $1 million to $2.1 million public access. Coverage has been attained across all provinces. France, additional sales reps have been put on. And ultimately, we are seeing double-digit growth in France as well. UK, our second largest business outside of the U.S. is doing well. And then Mexico, our third largest market globally has very strong sales with over 100% growth. So, we are doing – we see just overall across the board, really good ex U.S. business. Inside the U.S., what we see as opportunities in terms of, as I mentioned earlier, that we continue to see more and more interest in LARCs and especially for NEXPLANON. We see more and more visits and to our nexplanon.com, specifically increasing. And we are certifying more and more physicians and health care providers by the day on the successful insertion and removal of NEXPLANON. So, again, like I mentioned, that’s our key product for Organon. It has patent protection until 2027, with a 5-year indication hopefully coming in the near-term, we will be able to extend that to a few years longer than that. And we feel very good about the solid growth of this product going forward. In regards to – I am sorry, I didn’t get the question in regards to fertility. You wanted to understand the kind of robustness of fertility going forward in terms of whether we can deliver the double-digit growth that I mentioned earlier?

Asking more about just sensitive, how sensitive that business and demand for those types of products could be in a sort of a recessionary environment?

Well, one of the things to keep in mind that two-thirds of our fertility business is outside the U.S. and one-third is in the U.S., and both are growing very nicely. I think – I believe what I can tell you is that the demographics in terms of our tailwind for us right now. We are currently seeing a significant demand across the world. There is clearly – as you start to see things from COVID in terms of lockdowns, you still see a rebound where these couples irrespective, I believe, of the recessionary pressures that we potentially might feel, are very motivated and extremely committed and passionate about starting the process. And then you see also more and more governments like Japan, investing in essentially reimbursement for IVF therapies starting at the beginning of the year, and you see other countries doing the same. So, I think that what you will see is that ultimately, more and more – there are going to be more and more tailwinds behind the fertility business. We feel very solid. We feel very good about it, and it will continue to have double-digit growth going forward.

Thank you. We have reached the end of the question-and-answer session. I will turn the call back over to Kevin for closing remarks.

Thank you. Thank you, operator. Well, we hope we came across today in that we are delivering on what we have committed to deliver. Our growth franchises, biosimilars and women’s health are performing really well, and we are enthused by the stabilization in our established brands business. We do continue to demonstrate that these products are in the right set of hands. And we are tapping into their potential with attention and resources. Additionally, we continue to be smart with capital allocation with a business development approach that balances more immediate opportunities with future growth prospects. We are proud of the solid track record we are building, and we are confident in our ability to deliver on our objectives for the remainder of the year. I want to thank you for joining us today, and thank you for your interest in Organon.

This concludes today’s conference call. You may now disconnect.