Thank you for standing by. My name is Celine and I will be your conference operator today. At this time, I would like to welcome everyone to the Organon’s Fourth Quarter and Full Year 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Jen. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining Organon's Fourth Quarter and Full Year 2024 Earnings Call. With me today are Kevin Ali, Organon's Chief Executive Officer; Matt Walsh, our Chief Financial Officer; and Juan Camilo Arjona 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. The presentation will also be available following this call on the Events and Presentation section of our Organon Investor Relations website. 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 presentations. 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 fourth quarter and full year 2024 results. For the full year 2024, revenue was $6.4 billion, representing a 3% growth rate at constant currency. This is the third consecutive year that Organon has delivered constant currency revenue growth. In fact, all three of our franchises have delivered three years of constant currency revenue growth. Adjusted EBITDA was $1.96 billion, inclusive of $81 million of IPR&D, representing a 30.6% adjusted EBITDA margin. Ex-IPR&D, our adjusted EBITDA margin was 31.8%, about a half a point of margin expansion over last year on the same basis. Today we are also providing guidance for the full year 2025. For this year, we expect revenue to be in the range of $6.125 billion to $6.325 billion, inclusive of an approximate $200 million headwind from foreign currency. On a constant currency basis, the midpoint of this range would represent flat revenue performance in 2025. That is reflective of an approximate $200 million headwind from Atozet loss of exclusivity in Europe, which we will look to offset with growth in products like Vtama, Emgality, Fertility, and of course Nexplanon. Our adjusted EBITDA range for 2025 is 31% to 32%, consistent with prior commentary that we intend to manage to hold a 31% adjusted EBITDA margin floor ex-IPR&D. This applies even in 2025, as we manage through the LOE of our second largest product. Let's move now to discuss the growth drivers within the franchises in 2024. The women's health franchise grew 5%, ex-exchange led by performance of Nexplanon, which was up 17% ex-FX for the full year of 2024. This was Nexplanon's best annual performance ever and positions the product to achieve at least $1 billion of revenue in 2025. In…

Thank you, Kevin. Our research and development organization plays a pivotal role in shaping Organon's long-term growth and fulfilling our mission. We strive to address long standing unmet needs and realize our vision of a better and healthier every day for every woman. To accomplish this, we work to maximize the potential of our existing assets through life cycle management, advance novel therapeutics through the clinical development process and explore innovative modalities to improve health. Starting with exciting regulatory milestones, in December, we received approval for Vtama for the treatment of atopic dermatitis in adults and children down to two years of age. Despite an extended review period through a collaborative engagement with the FDA, we achieved approval on our original timeline, reflecting our proactive approach. The approved label outlines a compelling benefit and risk profile differentiated from the labels of the other available treatment options for atopic dermatitis. With Dermavant, we also acquired DMVT-506, a preclinical aryl-hydrocarbon receptor agonist with potential applications in immunological inflammatory diseases and multiple routes of administration. Our collaboration with Shanghai Henlius has advanced two biosimilars: HLX-14, a biosimilar candidate for Denosumab, Prolia Xgeva for the treatment of osteoporosis and cancer-related skeletal events and HLX-11, a candidate for Pertuzumab, Perjeta for the treatment of breast cancer. Both biosimilar labeling applications have been accepted by FDA with HLX-14 being potentially available in The U.S. later in 2025, pending FDA review and approval. As Kevin mentioned, we submitted robust data from our five-year Nexplanon study to the FDA and if approved, we expect to be able to launch this five-year indication by the end of this year. Additionally, the study included data in women with body mass index above 30, with the potential to address significant need for contraceptive options in this population. Our long acting recombinant…

Thank you, Juan Camilo. Beginning on Slide 11, here we bridge the 3% constant currency full year revenue growth year-over-year. Starting on the left, LOE was about $55 million for the year, which reflects the full year impact of the loss of exclusivity of Atozet in Japan and the impact of the LOE in Europe, which occurred in September. There was an approximate $15 million impact from VBP that was really contained to the first-half of the year and related to round eight that began in the third quarter of 2023 and included Remeron and Cozaar, Hyzaar. There was an approximate $115 million impact from price for the full year or about 1.8%. Pricing headwinds came primarily from the September LOE of Atozet in Spain and France, as well as from certain mature products in The U.S. Like NuvaRing, DULERA and Renflexis, as well as some expected mandatory pricing revisions in Japan. Volume growth for the year was $415 million representing almost 7% growth across multiple drivers. Hadlima and Emgality were the largest contributors to volume growth, followed by Nexplanon and the recovery of injectable steroids following a market action in 2023. In supply other, here we capture the lower margin contract manufacturing arrangements that we have with Merck, which have been declining since the spin-off as expected. Lastly, foreign exchange translation had an approximate $80 million impact in the year or about 130 basis points of headwind to revenue, which reflects a strengthening U.S. Dollar versus most foreign currencies during the year. Now let's turn to Slide 12, where we show key non-GAAP P&L line items and metrics for the full year. 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…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Terence Flynn with Morgan Stanley. Please go ahead.

Great. Thanks for the questions. Two for me. I guess the first one I had is just on, Matt, I know you talked about some of the one-time items in 2025. Can you just provide an estimate for where you think free cash flow will likely land for the year? And then on the biosimilar opportunity for Denosumab, Amgen's talked about, there will be different erosion curves for Prolia versus Xgeva, given kind of different indications in the installed base. And it sounds like they feel more confident in protecting Prolia. Just as you guys think about the commercial dynamics there for that franchise, any color on how to think about that at end of this year into 2026? Thank you.

Okay. So I'll take the free cash flow part of the question first. So, we were successful in 2024 getting close to that $1 billion of free cash flow before one-time items. That was a major goal for us at the beginning of 2024. As we look forward to 2025, we are going to see more of a continuation of that, but our starting point on adjusted EBITDA is going to be about $100 million lower and so that rolls right through. So our expectation is right around $900 million of free cash flow before one-time items. And then as we think about the as I said, the drivers as you go down the free cash flow will be somewhat similar to 2024.

Yes, Terrence, I can address the question on the denosumab biosimilar launch. Right now, we are going to be launching probably later on in the Q4 timeframe. So it will be probably de-minimis in terms of what we can expect for 2025 from the denosumab biosimilar. But going forward, look we've got a lot of comfort in the buy and bill process. And I can tell you right now that we've had years of experience when you start to think about the last six, seven years of Renflexis, Remicade biosimilar and Nexplanon and so on and so forth. So we feel very comfortable with regards to having a product, a good -- solid biosimilar for denosumab in both Prolia and Xgeva and being able to get some penetration out of that product in the coming years.

Next question?

Your next question comes from the line of Michael Nedelcovych with TD Cowen. Please go ahead.

Thank you for the questions. I have two as well. The first is on Nexplanon. At least as of November 2025, it looks like there has still not been a paragraph four filing for Nexplanon. Can you confirm that you have not received one since then? And more broadly, when you survey the landscape, what would you say is the probability that no generic Nexplanon comes to the U.S. Market before [2030] (ph)? And then question relates to your ambition to accelerate top-line and EBITDA growth rates beyond 2026. Do you feel you already have the portfolio necessary to do that? Or is that goal predicated on the idea that you would do additional accretive deals in the future? Thank you.

Michael, it is Kevin. So thanks for the questions. I'll start with the last one first and then go backwards. So we do feel very comfortable that when we get past the LOE of Atozet in this year which is our second largest product and we feel very good about the fact that we have a line of sight to be able to still deliver some constant currency growth this year even in spite of the loss of exclusivity of our second largest product. But going forward in 2026 to 2030, there's every intention and confidence that we could accelerate growth both on the top-line and bottom-line, leverage growth that is. And of course, we'll continue to do business development. But right now, we feel comfortable with the portfolio that we have in hand with Vtama with and I'll get to your first question in a second. With Nexplanon and other assets that we can see to accelerate growth top-line and bottom-line in the second half of the decade without any doubt. But of course, we will continue to do continued business development. And then in terms of your first question around Nexplanon, no paragraph four right now that we've received. And right now I've been saying for, I don't know for the last two years, I don't see really any risk to a large degree of a Nexplanon, three or five year for that matter, introduction in terms of a generic or biosimilar between now and the end of the decade. After the end of the decade, I mean, then we'll determine what happens then. But right now when I start to see the fact that our applicator device has got patent protection through 2030, when I start to see that our five year indication which we will hopefully launch by the end of this year will have exclusivity through 2029. If I start to look at all the various issues around an implant that has a product in it that there is no precedent there. When I start to think about the benchmarks of either Mirena, a medicated IUD, no generic so far. So I don't feel we will see any generics to challenge an exponent through 2030. And so as a result of that, when you start to see that we've got $1 billion expectation in this year, and you put down essentially the growth expected to the end of the decade, you see how big product can be and it's our most profitable product.

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

Hi. This is Ethan on for Chris Schott. Thanks for taking our questions. Just two for me. First off, on Vtama , you've had the asset for several months now. Any surprises as you think about the competitive or commercial landscape and just would be interested in your latest thinking on the competitive positioning of Vtama in atopic derm versus the initial psoriasis indication? And then second-off, on margins and the manufacturing separation from Merck that you are doing, you talked about beginning to see that in 2027, but just any color on the magnitude of benefit we might see and how that might flow in over 2027 and looking past that year? Thank you.

Thanks for the questions Ethan. I'll take the first and then hand it over to Matt to take your second question. Look, every week that goes by, I'm more and more confident, I was already confident on the acquisition of Vtama and that what we could do with that product globally and The U.S. Of course. But when you look at NRX is in terms of week ending January 31, we've got a 51% growth versus the pre AD approval 13-week average baseline. So really solid, NRX growth, solid growth in terms of new prescribers to the product. I mean, the label that we received from the FDA is outstanding. I mean, we are the only non-steroidal topical approved for mild, moderate and severe. You're talking about from two years of age and onwards. So when you think about the competitive landscape, there's no other non-steroidal topical that actually has down to two years of age. The closest is actually [indiscernible] that starts from six and older. You're talking about efficacy that's systemic like efficacy in terms of [EZ75] (ph) rates up to 59%. And that really beats everything in the market. And of course, you've got no black box warnings, no safety precautions or drug-drug interactions, no, minimal essentially systemic absorption. So we're talking about really a phenomenal product, all in one solution once a day and no duration or body surface area limitation. So when I think about the potential of Vtama for what we can do with that product both in the U.S. and we'll be launching in Canada later this year, it is going to be a very big contributor growth for us for not only 2025, but also going through the end of the decade and beyond. It's a fantastic product. I'll hand it over to Matt now to talk about the other question.

Yes. So on the subject of gross margin improvement, so at the time of the spin, essentially all of our API and a good deal of our manufacturing services were provided by Merck, the regulated products. So it takes time to move these things. We are in the process of doing it now. The margin expansion that we expect to see would be on the order of 250 basis points to 300 basis points starting in 2027. It would roll in over a few years starting at that point. But that's significant improvement in our supply chain manufacturing efficiency that we look forward to realizing.

Thank you. Next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

Thanks. Two quick ones for me. One is regarding your dermatology business that you now have, what are you hoping to accomplish beyond Vtama in terms of leveraging your infrastructure and adding other assets down the road? That's number one. And then number two, can you talk about your net leverage targets over the long-term? Of 4 times around that's been stubbornly high? Can you talk about the extent to which you want to get it down a turn or potentially more over the long-term? Thanks.

Good to hear, David. I can address the first question on Vtama. Look, we are concentrated in this year in 2025 our launch year most important year to really get out of the gates and not only achieve, but hopefully even surpass the numbers that we gave out in terms of what we expect to drive this year from that product. I talked a little bit earlier about the -- I think the best-in-class label that we received from the FDA. I think that was the one single risk that we were taking when we did the acquisition is what would the AD label look like, given the fact that the AD market is significantly bigger in terms of number of patients versus psoriasis and the opportunities really existed there. And what came through from the FDA is the label is just best-in-class label. And so, let's see how we do this year. I'm very confident that we'll do very well and we'll be on the right trajectory going forward to be able to achieve peak revenues that I think will surprise a lot of folks in the market. But nevertheless, we've got a great vertical that we are building here. The team that came over from Dermavant is our fantastic sales force, really fantastic. And we've got medical affairs groups and DTC groups that are really outstanding. And so as a result of that, I have every intention. We have every intention of being able to continue to build out our portfolio in dermatology and first and foremost to do well with Vtama, globalize the product because we're going to be launching in Canada and thereafter we'll start to think about other regions like the EU and others to really kind of penetrate into those segments. But after that, we've got a tremendous opportunity across a variety of different therapeutic areas within the dermatology area that we can add to the bag in our group in The U.S. and for that, I'll pass it over to Matt now.

Yes. So on leverage ratio, David, we had said at the start of 2024 that we thought the business would de-lever below four times by the end of the year. Pro form a for the Dermavant transaction, that number would have been about 3.8 times. So we had we were going into the end of the year with the confidence that we could onboard a deal like Dermavant, which is sort of a manifestation of the idea that we'll de-lever faster through EBITDA growth than through some great debt reduction. And okay, 2025 is a launch year for Vtama. But when you think about what the business can do in 2026, we should be cleanly below four times by the end of 2026. And then that so we are getting closer by the end of 2026 to the point where we're in that mid three range where we had been saying since the spin, is a sensible soft target for a business like this with the kind of cash flow that it generates. So we are still very much on that line of reasoning and I think we've set up the business to get there, once we work our way through 2025 and the near-term issues that we're facing, which are really restricted to 2025. When you think about the things that are growing in 2025, the Vtama and Emgality, Hadlima, Nexplanon, all of those things will keep growing in 2026. And the issues, the headwinds that we're facing are very near-term in nature. And so we expect the ability to make significant progress on leverage in just a few quarters' time once we get on the other side of 2025.

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

There he is.

We can hear you. Hi, Balaji.

Sorry about that guys. Yeah, two questions from me. Comparing on a component wise basis the variations between my estimates and the delivery, the biosimilar pricing decline seems to be higher than what I factor. I understand that the products are in the mature phase of the product life cycles and I would have expected the pricing impact to have been felt already. So if you can throw some color on what the pricing impact was and what led to this and which are the competitor what competitive dynamics led to this, that will be very helpful. Secondly, could you help us understand the quarterly cadence on the back of the multiple moving pieces that you have this year, pricing, Hadlima, Vtama, Atozet? So how should we factor the quarterly cadence for the year? Thank you.

Thanks, Balaji for the question. I'll address the first. In regards to pricing with biosimilars, I think the issue really is probably centered around the 340B pricing with Renflexis, which is our largest biosimilar Remicade biosimilar in the U.S. But as you said, I mean, we're essentially hitting that curve where we talk about more and more pricing pressures, as we start to get more and more biosimilars of Renflexis in the marketplace. So we're proud. We've had six years of significant growth for Renflexis, which is indicative I think of our ability to commercialize biosimilars and we are really looking forward for our denosumab launch later on in this year and then thereafter our Perjeta launch in Europe and in Latin America in 2026 and then followed thereafter by the U.S. And of course, as I mentioned in my opening comments, we're also doing a lot of due diligence on variety of different things we can do in [buying sublers] (ph) with regards to accretive business development deals that we can do in 2025 to offset some of the issues that we are looking at price in regards to Renflexis and Ontruzant. Thanks for the question.

Yes. So, I'll take the second part. So, your question is very important because as you correctly point out, we've got trending during the year that has some pretty significant movements. Let's just review what that is. We've got the LOE of Atozet, which the impacts of that are more front loaded in 2025. By the time you get to the fourth quarter, we lap it. We've got the ramp up of the Vtama sales, approximately two-thirds of our annual projection there is realized in the back half of the year. And then we've got the cost savings as a result of the restructuring, which is also back-half weighted. So when you blend all that together, I'll revisit the points that we made in the prepared comments. From a revenue perspective, it could be between Q1 and Q4 and the story of the bookends of the year, as I said. There's about $100 million revenue difference, we think, between where Q1 will land and where Q4 will land. So there is that delta. You can figure out the pieces in between. And then from an EBITDA margin perspective, it could be as much as 200 basis points difference between our first quarter, which will probably be our lowest quarter of the year, and the fourth quarter, which should be our best quarter of the year, as we're laying out our planning for the year. And I'll leave it at that.

Thanks, Balaji.

Your next question comes from the line of Jason Gerberry with BofA Securities. Please go ahead.

Hey, guys. Good morning. Thank you for taking my questions. Just firstly for me, the $200 million of OpEx savings, that seems like that's primarily in SG&A from the guide. It's just about a reduction of 10% to 15% of your legacy cost base. Just wondering, it seems like a pretty significant number. Wondering where those cuts are actually coming from and any commentary you can provide on opportunities beyond 2025 for further restructuring opportunities. And then just on Nexplanon Kevin, you've been more vocal about this potentially reaching $1.5 billion in revenues in the out years and having a very long tail. I would think that that implies more of like an out year growth CAGR of at least double digit. And Street obviously has it more flatlining probably on differing LOE assumptions. But just kind of curious, your guidance for '25 is greater than $1 billion but that's pretty much where you are this year. So just wondering if we should be thinking about growth in Nexplanon as more in the double digit plus territory in 2025?

So I'll start out with the restructuring piece. So we've been a public company now since 2001. We undertook some restructuring in 2023, 2024, I would call that belt tightening. This round of restructuring, as you point out, Jason, more significant, we did look at our organization more holistically and really did some pretty significant streamlining of our spans and layers and the way that our various functions work together. We've really tightened things up. So, the 2025 impact, $200 million run rate of that, about [$250 million] (ph) as I said in the prepared comments. The rough split in terms of how we financially report in 2025, you'd see about 75% of that $200 million in our OpEx, and so that's spread over the SG&A and R&D line, and about 25% would be in COGS.

Yes. Jason, in regards to your question on Nexplanon, you've heard me say many times the reasons to believe and I feel very confident that we won't see at least until the end of the decade a competitor for Nexplanon. And in 2024 as you rightfully stated it was the best year that we've actually ever had with 17% growth both outside the U.S., and inside the U.S. And we'll pretty comfortably get beyond $1 billion in 2025. I think the historical growth rate of this product has been in the high single digit range. I don't expect that to change, but there are certain years where we do certain things like for example, you start to see the benefit of the five-year indication hopefully with some BMI language attached to it which will really open up a variety of new very attractive segments for us for the Nexplanon growth opportunities. So it could be double digit -- low double digit in some years, high single digit in other years. But I think it's a prudent way to say, look just factor in high-single digit growth through the end of the decade. It'll get you to somewhere in the neighborhood of the [$1 billion -- $1.50 billion] (ph) which again is very different than you see in some of the models out there. But I think as time goes on, it is a show me story. As time goes on, you'll start to see the opportunities that do start to materialize for Nexplanon for us at least for the end of the decade. I see it. And thereafter, it could easily be longer. If you take the Mirena precedent, it could be significantly longer than that. But I'm going to be more responsible and say through the end of the decade.

Your next question comes from the line of Umer Raffat with Evercore ISI. Please go ahead.

Hi guys. Thanks for squeezing me in. I have -- I wanted to focus on Vtama on a two part question. First, I saw you reported $10 million for U.S. in Q4 for Vtama. Previously, I know the run rate was around $20 million or so on the prior quarters that Dermavant was reporting. But I do acknowledge you have a partial quarter. There is only two months, but still I wouldn't have thought it would be $10 million to be closer to perhaps $15 million or so. So I wanted to understand better the $10 million number knowing that it was two out of three months. Secondly, I was very intrigued by a comment made today. So specifically, I know you previously said you expect $150 million in sales for Vtama in 2025. Today, you said two-thirds will be back-half weighted. So 100 million will be in second half of the year presumably, which would imply a $50 million to $60 million quarter in Q4. So is it reasonable to think that your expectation is that Vatama's Q4 run rate will be $200 million to $250 million. Thank you very much.

Good to hear from you, Umer. So your first question in regards to the Q4 numbers, we look -- I mean, Dermavant had this customary practice of pulling sales forward in terms of revenue forward in the end of the quarter. We for obvious reasons decided not to do that and to get a good start in 2025. And so as a result of that kind of just let it just clean in terms of the overall kind of performance in Q4, so that we could start off I think in a very solid fashion with Q1 for the remainder of the year. And you are right, when I start to think about where the opportunities lay for this product, we are going to be working on gross to net. We're going to be working on a number of areas especially around with our managed care group which is I think best in breed in the market today. And they're getting successes as we speak to get better treatment in terms of the overall formulary status for Vtama in regards to AD. That's a very important thing to essentially lower the usage of things like coupons and other things. So yes, by the end of the year, as you start to see successively quarter-after-quarter, you'll start to see more strength in the product based on some of our managed care work and some of the formulary work that we are doing, as well as continuing growth in NRX TRx growth that we see going on for the product now. We've got a really solid first month of the year in terms of TRx growth. So we think that that will continue on to go forward for us.

Okay. I think that was our last question.

That concludes our Q&A session. I will now turn the conference back over to Kevin Ali, Chief Executive Officer for closing remarks.

Thank you, operator, and thanks everybody for your questions. Once again, we're really very proud of our 2024 performance. And in 2024, we achieved our third year of constant currency revenue growth and delivered adjusted EBITDA margin expansion ex-IPR&D. Our 2025 financial guidance reflects the potential for a fourth year of constant currency revenue growth despite the loss of exclusivity of our second largest product out of that. As we think about 2026 and beyond, we will have that LOE behind us and we will be leveraging the cost savings we're taking out this year. Longer-term, we will continue to source accretive business development deals that will drive an acceleration in our revenue growth profile, all while aggressively managing our cost structure. So thank you for your questions and we look forward to reporting on our continued progress as a company. Thanks everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.