Hello, and welcome to the Organon Second Quarter 2025 Earnings Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Jennifer Halchak, Vice President, Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining Organon's second quarter earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer; and Matt Walsh, our Chief Financial Officer; Juan Camilo Arjona Ferreira, Organon's Head of R&D, who will also be joining 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 & 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. Revenue for the second quarter was $1.6 billion, down 1% at constant currency with our growth pillars and contributions from new assets mostly offsetting the loss of exclusivity of Atozet in the EU. Given year-to- date operational performance and our current view of movements in various foreign currencies, we are raising our revenue guidance range by $100 million at the midpoint. Additionally, we generated strong adjusted EBITDA this quarter of $522 million representing a 32.7% margin. Year-to-date, our adjusted EBITDA is $1 billion or a 32.4% margin. Strength year-to-date was primarily due to favorability in adjusted gross margin, investment prioritization behind our growth pillars and the realization of savings from our restructuring programs to become a more fit-for-purpose organization. As a result, we are affirming our adjusted EBITDA margin guidance range of 31% to 32%. A strong focus on EBITDA generation underpins our objectives to deliver more than $900 million of free cash flow before onetime costs in 2025. Year-to-date, we're tracking well against that goal. As we signaled to you last quarter, we are committed to reducing our debt burden. To that end, in the second quarter, we repaid approximately $350 million of principal on long-term debt instruments which sets us up on a path to achieving net leverage below 4x by year-end. Midterm will aim to drive further improvements in net leverage with the goal of achieving net leverage of 3.5x or below by the end of 2026. Let's now talk about franchise performance beginning with Women's Health. The Women's Health franchise grew 2% at constant currency in the second quarter of 2025 compared with the second quarter of 2024. The company's fertility business grew 15% at constant currency in the second quarter. This was driven by a favorable year-over-year comparison…

Thank you, Kevin. Beginning on Slide 8, where we bridge our second quarter revenue of $1.594 billion year-on-year. Overall, revenue was down 1%, both as reported and at constant currency, which aligns with our guidance expectations at the halfway point. Starting on the left, loss of exclusivity was about $60 million for the quarter, which primarily reflects the impact of the LOE of Atozet in Europe, which occurred in September 2024. Six months year-to-date, we are at $120 million of impact from LOE, meaning we are about 2/3 of the way through our full year estimate. We will see that headwind would mitigate in the fourth quarter when we start lapping the LOE of Atozet in the EU. VBP in China was de minimis in the second quarter and year-to-date, and we expect only a nominal impact on a full year basis for 2025. Our potential exposure this fiscal year will be more back half weighted as we expect Fosamax will be included in Round 11. There was an approximate $40 million impact from price for the second quarter or about 2.5%. Pricing pressure was primarily from the LOE of Atozet as well as from certain mature products in the U.S. like NuvaRing, Dulera, Renflexis and Ontruzant. We also continue to face expected mandatory pricing revisions in certain regional markets, for example, Japan. Volume increased $90 million in the quarter, representing growth of about 5.6%. Fertility, Hadlima and Emgality and Vtama were the largest contributors to volume growth in the quarter. 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. And lastly, foreign exchange translation had an approximate $10 million favorable impact in the quarter, which reflects the weaker U.S. dollar versus the majority…

[Operator Instructions] Your first question comes from David Amsellem with Piper Sandler.

This is Alex, on for David. Just one on Vtama from us. Looking further ahead, can you talk to incremental sales and marketing investment, whether it's DTC or sales force expansion or both? And can you also remind us how many practitioners you are currently calling on and how many reps you currently have supporting the product?

Thanks for the question, Alex. So yes, as a matter of fact, in July, we started a new telehealth and DTC campaigns, coupled with pediatric initiatives or programs to penetrate into the pediatric segment. And so currently, we feel very comfortable with where we're going in terms of the investments for the second half of the year. They're more weighted or loaded towards the second half. And so things are moving along exactly where we thought they would be at this period of time. And we feel good in terms of overall positioning of where we are with Vtama right now, and we're expanding. And currently, in terms of your question around reps, so we did add more reps. And I talked about DTC. So we added more sales force, and we've got now a total of more than 125 reps in the field.

The next question comes from Mike Nedelcovych with TD Cowen.

I have two. My first is on Nexplanon. Can you elaborate on the federal funding headwinds you cited in the U.S.? To what extent was the decline in U.S. Nexplanon sales this quarter related to purchase timing versus underlying pressures that might persist through the rest of the year and beyond? And then my second question is on capital allocation. As you approach and then exceed your leverage ratio targets, how do you expect your capital allocation priorities to change what might become the top priority?

Mike, I can get started with that. With Nexplanon, it's a combination of both. Look, I mean, with the most recent big, beautiful, build, there were some effects in terms of overall on Planned Parenthood and Medicaid-related funding. And so there's a lot of kind of some nervousness in the market, especially when it comes to purchase of contraception as well. Remember that in the first quarter, we saw essentially the movement on USAID by the administration. But overall, we're seeing a lot of pickup ex U.S. in countries like Brazil, Egypt and many other countries that are starting to pick up the slack. And we have a lot of confidence that the USAID numbers will start to -- investment will start to pay off with regards to other sponsors coming in, picking up the tab on that. Now in regards to where we are with the U.S., still feel very confident that we'll grow this year with Nexplanon. But clearly, there's a lot of confusion in the market. We've got, I think, good news on Title X, unfreezing in certain states that are key for us like California and Texas. But there is a little bit of hesitancy, especially around the Planned Parenthood issues that are there that needs to be dealt with. But we feel very confident that it's just a matter of -- in the near future, we'll reach that $1 billion threshold. And we'll see growth this year going forward. Whether it lasts for the long term, remember, the Planned Parenthood issues were really 12 months in total. So once that's up and running, then ultimately, we'll be able to get back to it. But we feel very good about Nexplanon being our key product. And remember that we're going to be launching the 5-year indication sometime at the end of this year, so we feel good about that. In regards to leverage, well, ask us when we get down below 3.5, and then we'll have a discussion on that. But right now, our focus is to delever. We did that with regards to the payment on principal debt in terms of the first quarter what we just came right out with, and we'll continue to do that.

The next question comes from Terence Flynn with Morgan Stanley.

You guys mentioned that 15% tariff in the EU would not have an impact on '25 margins. Just wondering if you can look out to '26 and give us some idea what kind of impact it might have on '26? And then a similar question as you look out to 26, how should we think about free cash flow conversion and some of the onetime items? I know you've guided to those continuing to decline, but can you give us any sense of the magnitude there?

So I'll take that one. It's a little bit too soon to be talking about tariff impacts out in 2026. It's not the right time for that. Just investors should know that our largest import exposure into the United States comes from the EU. It's approximately 2/3 of our imported value. So investors knowing that can make some of their own math, but it's just too soon for us to speculate about 2026, whether we're talking about tariffs or anything else.

And free cash flow?

Free cash flow should be growing in line with the business. We'll continue to see a reduction in onetime costs. So we have been -- we've needed to make a differentiation between gross free cash flow and free cash flow, excluding onetime items. Those onetime items are declining. They've been declining this year. They will continue to decline into next year. So that will be a reason why you might see in addition to normal growth of the business, discretionary cash flow increase pretty significantly next year.

The next question comes from Umer Raffat with Evercore.

I was just looking at Vtama volume data. I recall you guys obviously got the atopic derm approval in December. So a couple of months into the launch, I think, around Feb, March time frame, it was generally hovering around 6,000 TRx a week. And it's kind of in that same ballpark right now, a few months later. And I'm just trying to think about how you're looking at the volume data because I feel like sometimes we do year-over-year, and it could mask what's happening more near term? And is there something you want to do differently to turn the trajectory around?

Umer, good to hear you. Listen, in regards to Vtama, I mean there's a tug of war week by week. But overall, what I can tell you is the following: We just started the investments right now, but we need to settle down. Obviously, we just took over the product and get it launched and get it out there and do the right things at the initial stages. And now we have a very, I think, effective and full force behind our DTC campaign and our telehealth campaign and expanding in terms of sales force, in terms of what we're doing regarding penetrating into the pediatric segment as well as obviously continue to maintain our focus on the adult segment. But more importantly, the gross to net and lives covered continue to move in the right direction. Look, when you -- when access starts to open up in each individual physician's offices, whether it's a dermatology office or others, they know that when they start to hear that ultimately PBM starts to accept it and for AD, you have less hesitancy about using, say, coupon cards, you have more fluency, more openness to be able to use the product on a more routine basis. And so now as we predicted, our access teams are working incredibly hard. They made huge strides, huge strides to get to 80% of the lives covered by Q1 of next year. We're making incredible movements in that space as well, gross to net is precipitously dropping in the right direction real quick. So once those 2 things happen, it's funny how that affects volume. Volume starts to pick up because people understand it's being covered. In addition to that, you add our DTC and telehealth as well as our expansion in sales force, and I think you'll see good solid volume getting picked up. But more importantly, that every script will mean more net revenue for us as we start to get the gross debt in the right place.

But Kevin, just to maybe expand on that. The new-to-brand is not so bad. It's kind of growing, which sounds to me like there's a duration issue more so than an access issue.

Well, I think that right now, what you see is an uptick in TRx, so you've got some refills coming in as we speak. You'll start to see more and more TRx uplift as the volume starts to move. But I agree with you. Look, I mean we've added a number of physicians right now who are new to brand. And we see these kind of seasonalities, but I feel really good about the second half of the year based on where we landed in terms of exiting Q2. Q2 in terms of the last month was a very strong exit. It gives me a lot of confidence in terms of where we're headed.

The next question comes from Chris Schott with JPMorgan.

This is Ethan, on for Chris Schott. Just starting off on Vtama, can you remind us what's driving the ramp in the second half of the year, to get to the $150 million in sales and how much of that is driven by volume versus price? And then on Nexplanon, as we think about the launch of the 5-year indication, can you remind us on how we should think about the impact to growth in 2026 and '27? And specifically, what portion of current volumes are coming from implant replacements?

Okay. Let me try to address those, Ethan, one after the next. So second half uplift in terms of VTAMA, we got -- and it is global, obviously, the $150 million. We've got $56 million and another $90 million something to go -- $94 million to go. And so I believe very strongly that where we are right now in implementing our new activities around DTC, around telehealth, around expansion of sales force, around some of the things that we're doing around volume is really a very important lever to believe in at least for me going forward. We're getting obviously a launch in Canada soon. We've got continuous implementation or rather contribution from Japan as well. But overall, in the U.S., that's the key market, and we feel really good about where we landed in terms of exiting Q2. And I think the ramp in terms of where we see it gets us to the $150 million, especially if you look at how we exited Q2 and especially if you look at where gross to net is falling in the right direction. The gross to net issue was not great under the psoriasis indication, but the team has done a phenomenal job of both adding significant lives in terms of PBM additions as well as lowering our gross to net range because of less usage and reliance on the coupon card. So I think overall, if the volume where it needs to be, get a better gross to net picture, invest in expansion of the sales force as well as DTC, then I feel really good about the second half of the year, especially how we exited Q2. Now in regards to Nexplanon, yes, I mean, that's still working its way out in terms of Planned Parenthood and Medicaid. But we've got opportunities in Title X on funding rather being on frozen in key states like Texas as well as California. And remember, we launched the 5-year duration indication by the end of this year. That will be a little bit of a small headwind in 2026, but then ultimately, it expands our ability for exclusivity and through 2029 with a 5-year indication. And I don't want to get into -- I can give us a little, if you want, in terms of the issues on being able to try to continue to penetrate into this market. But what I can tell you is ex U.S. is growing double-digit robustly. U.S. continues to be a growth driver for us, but we just got to get through this year. We've got to launch the 5-year indication. And I think all signals point to the fact that -- okay, a little disruption in terms of federal funding, but we feel good about where we are in terms of the patient cohort, in terms of expanding and where we are in terms of the performance year-to-date. We've got 6% growth year-to-date, which is very solid.

Your last question comes from Jason Gerberry with Bank of America.

So maybe firstly, on the 6219 endometriosis setback announced in July. Do you still expect to invest in the space? I think there was some commentary in the lead up to that readout that there was a backup molecule. And if you saw at least a signal with 6219, you might pursue that. So I'm just kind of curious where things may stand on that front. And then secondly, I know there was some efforts through citizen's petition to modify the generic product-specific guidance for developing a generic Nexplanon more around the applicator similarity. But I'm curious when you get the 5-year approval, do you expect the FDA to have the real-time release study updated to mandatory 5 years? Or do you think there'll still be an option to have a 3-year and a 5-year release time -- or I guess, time release study to be done by the generic supplier? Just curious your thoughts on that.

Juan Camilo, would you like to take those questions?

Yes, I can handle both, Kevin. So first, regarding the 6219, as we shared in our press release, we did not see a signal for efficacy for 6219. And therefore, to your question on the back of molecule in the second asset, which was targeting the same mechanism, we have decided to discontinue that program as well. And now second with regard to the citizen's petition and on the overall FDA guidance, we don't comment on the decisions the FDA may make about their guidance on how to develop a generic. We are working closely with the FDA to get the right labeling for the 5- year indication in Nexplanon. And as you saw in the citizen's petition we provided our perspective of what is required and has been required for Nexplanon to be used with safely in patients. So with that information, the FDA will make their own assessment and determine what is the right appropriate guidance it will provide to generic manufacturers. But as Kevin pointed out, we're really excited looking forward to bringing this new indication and the new labeling for Nexplanon through the finish line before the end of the year.

What I will say, though, is that patients and providers, both clearly prefer the longer duration of 5 years, just gives them much more flexibility, especially for different segments, like, for example, the family complete segment, the older cohort in terms of -- because a lot of our business comes from a much younger cohort. And so this will open up a completely new segment for us. And so to the question of, can we see a 3-year and a 5-year coexisting in the market? Very difficult. I think by the time that all plays out, I think the market will have moved securely into the 5-year segment, just another hurdle to -- essentially for any potential generics to actually deal with in managing to get into this business.

This concludes the question-and-answer session, and we'll conclude today's conference call and webcast. Thank you for joining. You may now disconnect.