Q4 2023 Earnings Summary
- Organon has significant business development opportunities, with a pipeline of deals expected to contribute up to $750 million in potential growth, including the launch of Emgality in the European Union, projected to reach $170 million peak revenue. They are working on additional deals in China and Europe, indicating strong future growth prospects.
- The Women's Health franchise is positioned for strong performance in 2024, with NEXPLANON now holding the #1 position in the large segment in the U.S., representing 70% of their global business. Fertility products grew 9% last year, with China and the U.S. accounting for 60% of overall fertility business. The Jada system achieved over $40 million in U.S. sales, with potential global peak sales of $200 million.
- In Biosimilars, Hadlima (biosimilar of HUMIRA) currently holds the #1 market share in TRx and NRx among biosimilar competitors. Organon expects to achieve peak revenues in the hundreds of millions, assuming they remain among the top 2 or 3 in the market.
- The company's margin expansion beyond 2024 is uncertain, as it depends on product mix and the growth rate of different business segments like biosimilars, which remains a question mark.
- Margin improvements in 2024 are driven by operating expense reductions, including curtailing R&D projects that did not meet economic return requirements, potentially limiting future pipeline development.
- The time to achieve peak revenues for Hadlima may be extended due to market dynamics, and the potential launch of interchangeable high-concentration versions of HUMIRA could impact Hadlima's market share.
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Dividend Commitment
Q: Are you fully committed to maintaining the dividend?
A: Yes, we are very committed to servicing our dividend. With $940 million in free cash flow, we are comfortable not only paying our dividend but also pursuing tuck-in acquisitions like the recent Lilly deal. Absent any major M&A, which we're not looking at, the dividend remains our focus. -
Operating Margin Outlook
Q: What drives the improved 2024 operating margin guidance?
A: The margin improvement comes from operating expense reductions. We've curtailed certain R&D projects that didn't meet our return requirements, lowering R&D expenses. We'll broadly contain costs across SG&A while still investing in product launches. Additionally, we had over $40 million of FX losses in 2023 that we don't expect to recur in 2024, aiding year-over-year margin improvement. -
NEXPLANON Generic Risk
Q: Is there generic risk for NEXPLANON before 2027?
A: We do not expect any major issues with NEXPLANON between now and the end of the decade. The FDA has never approved a complex generic drug during the first cycle review, and historically, approvals take 2.5 to 4 years from initial submission. Our applicator device has patent protection through 2030, requiring competitors to develop their own devices. Additionally, significant investments in sales force and training are needed due to the product's complexity. -
Hadlima Growth and Competition
Q: How will Hadlima perform amid interchangeable versions?
A: We're currently the #1 in market share among biosimilars launched last January. We expect interchangeability to be approved in about four months, but it won't be a major factor for us. Even if the HUMIRA market decreases significantly, being in the top two or three positions allows us to achieve our peak revenue targets of a couple of hundred million dollars. -
2024 Operating Expense Management
Q: How will you manage operating expenses in 2024?
A: We've identified inefficiencies since our spin-off 2.5 years ago and tailored down on costs. The OpEx savings are not one-time but sustainable improvements. We will continue to focus on efficiencies going forward, without expecting a bounce-back in OpEx next year. -
Debt Leverage and Prepayments
Q: Will you make voluntary debt prepayments?
A: The guide on net leverage ratio is independent of any debt prepayments. We'll generate sufficient cash flow to consider investments in growth assets versus early debt repayment. The net leverage ratio doesn't anticipate debt repayments, but the calculation is independent of it. -
PBM Environment in 2024
Q: Will more PBMs follow CVS Caremark?
A: We're focused on PBMs, payers, and providers aiming for low net cost. We're gaining uptake with additional PBMs and were recently named the sole biosimilars manufacturer for HUMIRA for the VA. We expect continued market formation in 2024, with a stronger year for Hadlima, and a breakthrough in 2025 and beyond. -
NEXPLANON in Latin America
Q: Any remaining tenders in Latin America to note?
A: We had a Mexico tender last year, but there's no further declines this year. We're seeing significant growth in Mexico outside the tender business. We don't see any headwinds in 2024 from tenders and expect tailwinds for NEXPLANON.
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