Thank you for standing by. And welcome to the Organon Q4 Full Year 2023 Earnings Call and Webcast. I would now like to welcome Jennifer Halchak, Vice President of Investor Relations to begin the call. Jennifer, over to you.

Thank you, operator, and good morning, everyone. Thank you for joining Organon's fourth quarter 2023 and full year 2023 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, who will cover strategy and operational highlights; and Matt Walsh, our Chief Financial Officer, who will review performance and guidance. Also joining us for the Q&A portion of this call is Organon’s new 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. The presentation will also be available following this call on the Events & 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 press release and conference call presentation. I would 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 2023 results and provide financial guidance for the full year of 2024. We ended the year with a very strong fourth quarter. Revenue grew 8% both nominally and at constant currency with growth across all of our five geographies and all three franchisees. For the full year of 2023, we came in above the high end of our revenue guidance range, revenue for the full year was $6.3 billion resulting in 3% revenue growth at constant currency. Our women’s health franchise grew 3%, our biosimilars franchise grew 24% and our established brands business grew 2% at constant currency. For the full year 2023 adjusted EBTIDA was $1.9 billion representing a 31% adjusted EBITDA margin and adjusted diluted EPS was $4.14. Importantly, free cash flow before one time spin related items came in above the high end of our previous guidance range finishing the year with $940 million. We continue to believe this business can generate $1 billion of free cash flow before those onetime charges 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 leverage 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. That includes licensing deals like our transaction with Eli Lilly to become the sole distributor and promoter for the migraine medicines, Emgality and RAYVOW, in Europe. We're very proud of the business development we've completed today. These transactions share some important characteristics. First, our view that women's health goes beyond reproductive health. Migraine medicines are case in point. Migraines are…

Thank you, Kevin. Beginning on slide nine, you can clearly see in this year-over-year revenue bridge that the main driver of the 8% ex-FX revenue increase during the fourth quarter was solid volume growth. Fertility, Biosimilars and established brands all had very solid fourth quarters, which drove almost 9% volume growth during the period. Partially offsetting this solid volume growth was impact from loss of exclusivity, which in the fourth quarter was about $10 million and was primarily related to ongoing generic competition for NuvaRing in the U.S., and to a lesser extent, the LOE of Atozet in Japan. Volume-based procurement or VBP in China was about $20 million in the quarter and reflects the implementation of round seven, which included Ezetrol, which prior to VBP was our largest product in China, as well as the July implementation of round eight that included Remeron and HYZAAR. We had a negligible impact from price in the fourth quarter, mainly due to actions we took in the Nexpanon 340B channel to peel back voluntary discounts and those actions offsetting pricing pressure in established brands, where the portfolio is subject to mandatory price reductions in certain markets and in Biosimilars, which inherently is subject to significant price competition. In Supply Other, we capture the lower margin contract manufacturing arrangements that we have with Merck and have been declining since the spinoff. And lastly, foreign exchange translation had a de minimis impact on revenue during the fourth quarter. Now turning to the full year on slide 10, revenue for fiscal year 2023 was approximately $6.3 billion, up 3% at constant currency. LOE impact for the full year was about $20 million, and just like the fourth quarter, was driven mainly by ongoing generic competition for NuvaRing in the U.S. and to a lesser extent,…

[Operator Instructions] Our first question comes from a line of Umer Raffat with Evercore ISI. Please go ahead.

Good morning, guys. Thanks for taking my question and follow-up. I know there's been a fair amount of investor confusion on what you guys are messaging exactly on dividend. Can you confirm you're fully committed to maintaining the current dividend regardless of any M&A intents? And also, could you just remind us the working capital unwind in Q4, what exactly drove that?

So let me take that, Umer. It's good to hear from you. Yes, you heard me at JPM be very declarative that we are very committed to be able to service our dividend. And there was a question around free cash flow. And clearly, I mean, with $940 million, it gives us quite a bit of space in order to be able to comfortably not only pay our dividend, but also do some of the tuck ins that you've seen like most recently with the Lilly deal. So absent any major M&A, which is not what we're looking at, we're looking at tuck-ins because they we've been able to prove and I've signaled in my script, the kind of size that these all these tuck-ins pulled together actually represent. They're very meaningful. And so dividend continues and it's our focus. And in regards to your last question around free cash flow, it just essentially networking capital that we started to work greater on our focus on networking capital and more specifically around ERP costs started to come down a little bit less than we'd anticipated. So overall, we believe it's a very solid sign that we can continue to drive to a billion dollars of free cash flow in this year.

Thank you.

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

Hey, guys. Thanks for taking my question. My question, Kevin, is just regarding, I guess, this year, Teva disclosed the generic Nexplanon program and wondering how you're thinking about barriers to entry prior to 2027. I'm looking at the FDA kind of generic equivalence guidance for Nexplanon and it does mention there's a provision for like accelerated comparative in vitro release testing. And so if you get this five-year study for the intended period of use, just do you expect generics are going to need to do five-year comparative in vitro release testing? Or do you think that this provision for an accelerated in vitro release testing is something that is surmountable? Just curious, sort of any perspective you can offer on that would be great. Thanks.

Oh, good. Jason. Yes. Can you hear me?

Yes, I can hear you. Did you get my question?

Yes. You got cut off on Teva and FDA Nexplanon.

Yes. I can repeat it. So just curious, obviously the Teva generic program was announced this year. And so just wondering how you're thinking about barriers to a generic entry prior to 2027. I mean, the one thing when I look at the FDA is generic equivalence guidance for Nexplanon is whether or not one can do an accelerated comparative in vitro release test, especially if you get the five-year study that changes the intended period of use that I presume that would change to five years. But wondering how you view the feasibility of doing accelerated in vitro release testing. And just ultimately, it seems pretty critical, right, to the assumption of whether there's any generic risk prior to 2027 if Teva were to file an IPR or something to try to expedite the path.

Yes, Jason, there's nothing that I see from the FDA in terms of guidance around kind of breaking the patent that we have. Clearly, through the end of 2027. But the issue to keep in mind and more importantly, right, whoever announces what their intent is in terms of their focus on where they want to come in next. The FDA has never approved any complex generic drug during the first cycle review. I mean we expect -- historically, it's been anywhere between 2.5 year to 4-year approval time line from the initial ANDA submission. I'll give you an example. For us, NuvaRing, which is by far much less complex, by far, by a magnitude of many times than something like Nexplanon, which is a medicated vaginal ring for contraception. The first generic received FDA approval after almost a 30-month delay and Teva's NuvaRing, now that you're bringing up Teva, Teva's NuvaRing generic took 8 years to get to the market. If we take that time line, you're talking about a 2030 minimum introduction. And on top of that, we have the -- you're going to have to have your own proprietary device. Our device, our applicator device has patent protection through 2030. So you're going to have to do your own proprietary applicator device design and then launch it. And finally, you're going to have to start investing in sales force and medical affairs people because you need to have people who actually are training physicians in order to be able to insert and remove this product. And keep in mind, finally, this is a buy-and-build product. This is not a normal product in that respect. It's much more difficult. So I have been saying for years and I can get into all the intricacies that I do not expect any major issue with Nexplanon between now and the end of the decade. I do expect that we're going to have the data at the end of this year for the 5-year indication, and we'll be able to launch that probably when we decide in the 2025, 2026 timeframe, which will take essentially exclusivity through the end of the decade.

Thank you.

Our next question comes from the line of Navann Ty with BNP Paribas. Please go ahead.

Hi, good morning. Thanks for taking my question. Can you detail further your 2024 assumptions on operating expense management, where cost management will be focused on as well as your remaining tenders in Latin America that we should be aware of? And my second question is about the PBM's environment in 2024. Do you expect more PBMs to follow CVS Caremark, for instance? Thank you.

Yes. Let me start -- Navann, let me start with the last question and move backwards. So we're getting -- since the beginning, we've really been focused on essentially the PBMs and payers and providers across the country who are focused on low net cost. And essentially, we're getting we are getting some of the uptake that we're having actually involved in terms of the different PBMs that we've gotten to date, and we continue to add more PBMs on. Our excess focus has been really very successful. You've heard the most recent news that we were named as a sole manufacturer for biosimilars for Humira for the VA. So that's a very nice tuck-in. And that will have a halo effect as well in the rest of the communities that actually have heavy VA type of participation. So we continue to see the market form in 2024, as I've been saying. More market formation, although it will be a stronger year, obviously, for Hadlima this year. And then you'll see much more of a breakthrough than what I would consider to be the breakthrough in 2025 and beyond. So that's what I would signal in terms of our access capacities. And in terms of your first question around cost management, look, I mean, we know what we know now. When we spun out 2.5 years ago, there was -- there were inefficiencies around the company that we've been able to really kind of tailor down on. And so all the kind of discussions that we're having about OpEx savings in this year are not onetime in character. They are the kind of things that we can continue to be able to deliver going forward. So it's not as if you'll see a bounce back of our OpEx next year, but rather just continuing focus on efficiencies to go forward. And then the final question was on Nexplanon and America for tenders. Yes. So look, I mean, we had that news are on Mexico tender last year, but there's no further declines this year. There's no more -- I mean we're actually starting to see significant growth in Mexico, again, outside of the tender business. So we don't see that as being at all in 2024 as a headwind. Rather, we see a lot of tailwinds for Nexplanon in 2024. It will be a solid year in 2024, no doubt.

Thank you. If I can add just the 4 times net leverage, below 4 times net leverage. Do you expect to do any voluntary debt prepayments in addition to EBITDA growth and close to the $1 billion annual free cash flow?

I can take that one. The guide on net leverage ratio would have -- would be independent, Navann, of any debt prepayments. However, we will be generating sufficient net cash flow during the year to once again have that have that decision that we always have with respect to investments in growth assets versus early prepayment of debt. But the net leverage ratio guide doesn't anticipate any debt repayments. But once again, the nature of that calculation is independent of it.

Thank you.

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

Hi, good morning and thanks for the questions. A couple of pretty helpful bridges in the deck, but I just want to push my luck there with the opium bridge. As I look at the operating margin guidance or EBITDA guidance for 2024, can you speak about the drivers for this improved outlook? I see that you're looking at around 200 basis points on the higher end of the range despite no material benefits coming in from gross margins or reduced SG&A? That's one. And secondly, on Hadlima, again, pretty impressive growth leading all biosimilars versions. Could you help us understand what you're factoring for 2024 in your guidance? And how will the potential launch of an interchangeable high concentration version affect Hadlima specifically? Thank you.

So I can take the first part of that question. So in terms of how we're going to deliver improved margins in 2024. It's really coming down to operating expense improvements as we've talked about in the prepared comments, Kevin just alluded to it. So we've curtailed the number of pipeline projects that we have in the R&D space as we looked carefully at those -- all of those projects in the context of new information, some of them just were not meeting our economic return requirements, and so you see that's what's driving the R&D number lower. We'll be broadly containing costs across the SG&A space while still providing for investments in the product launches, as we alluded to in the prepared comments. But also in 2023, we did have over $40 million of FX losses that we're not expecting to recur in 2024. We don't forecast that kind of thing, but it was embedded in the 2023 actuals, and that is an element that drives the improvement year-on-year as well.

And Balaji, in terms of your question around Hadlima and what we expect this year. I mean we're not giving kind of guidance by product, but what I will say is this, we are currently the number one market shares we've seen in terms of TRx and NRx among all the six or more that were launched last January. We actually passed Amgevita for TRx performance and that were launched six months before. So we feel very strong about our performance. And in terms of interchangeability, that's going to -- they've already basically finished the study, submitted. So we expect to have interchangeability within, what, four months from now. So it is not going to be a major factor for us in terms of the opportunity to compete. We're in a very strong position. As I've said, if the market goes from $20 billion peak net revenue for Humira and down ultimately one day in the future, down to, let's just say, worst case scenario, $2 billion, a 90% discount to that original peak. And you've got a -- I've always said, you got to be in the top two or three. We're number one right now. But let's assume that we're conservatively in the top two or three, we'll be able to deliver the type of peak revenues that we said we were going to do and a couple of hundreds of millions. It's just that the time continuum stretches out a bit, that's all.

Thank you.

Our next question comes from the line of Chris Schott with JPMorgan. Please go ahead.

Great, thanks. Just two questions for me. Maybe the first one is, Matt, how should I think about EBITDA margins progressing beyond 2024? Just as a high level, is this 31% to 33% range a decent one to think about going forward or can we see margin expansion? So basically, some of the cost opportunities you're talking about, are those largely captured this year? Is there more opportunity? And the second one for me was just on business development. Just what does the funnel look like for more, I guess, Emgality-type transactions out there? Is there a wide range of these deals that you can look at or are these more kind of one-off opportunities for the company? Thanks very much.

So I'll take the first part of the question. On margin expansion beyond 2024, I think you'll see it come from potentially three places. We believe we can continue to grow revenues faster than our need to build the infrastructure around it. So we'll get leverage over our fixed costs, similar to what we are starting to realize this year. Then over time, as I mentioned in the prepared comments, as we start to peel away all of our manufacturing from Merck, these are margin-up opportunities as they happen, that will be on a bit of a longer cycle time for those. And then I think as we roll out beyond 2024, we'll have higher contribution in our revenue, our revenue mix from some of the newer things that we're either onboarding now where we expect to be able to onboard, those will all be higher margin. So we've got the potential there on product mix. Of course, that will depend on how fast other parts of our business grow, biosimilars, for example. And -- so that product mix is a bit of a question mark, which will provide more clarity to as those time periods draw closer.

And Chris, great to hear your voice. And I will say that in regards to essentially to our BD component. If you think about the Emgality product in terms of launch in the European Union, we see that as essentially a $170 million peak revenue business. If you put all of the BD stuff that we've done, just the commercial stage assets that we've done since spin, we're talking about -- when you put all the peaks together, you're talking about $750 million of potential, obviously, upside opportunities in terms of growth. We are working on a lot of generic -- a lot of regional business development deals. I mentioned to you when I saw you in San Francisco that we've got some China for China deals lined up, we've got some European deals more lined up. So to answer your question, it's not a one-off, there's plenty in the queue that ultimately we can go after that are really nice opportunities for continuing revenue growth and EBITDA growth.

Our next question comes from the line of Karishma Raghuram with Goldman Sachs. Please go ahead.

Karishma on for Chris Shibutani. Thanks for taking the question. In regards to your women's health branch, what are kind of the key positive growth drivers and what dynamics are weighing on market growth? How is Organon's portfolio positioned to address these dynamics going forward?

Karishma, it's -- look, I mean, we're very confident on what we're going to do this year with our Women's Health franchise. If I pull it apart, we decided to take a new kind of go-to-market approach to pricing for Nexplanon. We're going to take full pricing this year. We've reduced our 340B voluntary discount. We pulled that. So there's going to be a lot of reasons to believe the Nexplanon will continue to do very -- this will be a strong year for Nexplanon globally because we don't have some of the headwinds we started with last year. And ultimately, we're in a good position, and Nexplanon itself has now taken over the number one position in the large segment in the United States, which represents about 70% of our business globally. So we feel very good about that. Fertility. Fertility grew 9%, as I mentioned, high single digits last year and this year, we assume the same driven in large part by China and the U.S. We put the China and the U.S. businesses together, that represents about 60% of our overall business, but then we've got opportunities in some of the regions like the Lamera region, which we've had some recent launches and opportunities to continue to even drive hopefully beyond the high single-digit area, but that's what we're focused on right now. And you're talking about Jada. Jada is -- the opportunity there is to really -- I mean, we're at the steep end of the launch curve. We did very well with over $40 million of sales just in the U.S. We have opportunities to do two things with Jada to see it to continue to move to its peak, what I would consider global peak in the in terms of the $200 in terms…

Thank you so much.

I would now like to turn the call over to Kevin Ali for closing remarks.

Thank you. Thank you. We're entering 2024. As you've heard from the discussion this morning, feeling very good about delivering our third year of constant currency growth as a stand-alone company. Nexplanon and Fertility are positioned for strong performance in 2024. We expect another year of double-digit growth in our Biosimilars franchise, and we continue to demonstrate our ability to really ensure continued performance of our established brands business. Look, the combined businesses generate what we expect to be close to $1 billion of free cash flow before onetime charges in 2024. This gives us ample financial flexibility to continue to service our dividend continue to execute on our business development agenda and to make progress towards achieving a net debt-to-EBITDA ratio of below four by the end of this year. I thank you very much, and we look forward to the next time we speak.

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