Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Organon & Co (OGN, Financial) reported a strong start to 2024 with a 7% growth rate at constant currency, achieving $1.6 billion in revenue for the first quarter.
- The Women's Health franchise grew by 12%, driven by robust performance of NEXPLANON, which saw a 34% growth at constant currency.
- Biosimilars franchise experienced significant growth of 46%, with positive traction in key markets like the U.S., Brazil, and Canada.
- Adjusted EBITDA was $538 million, representing a 33.2% margin, and adjusted diluted EPS was $1.22, indicating strong profitability.
- Organon & Co (OGN) is on track to generate $1 billion of free cash flow before one-time costs in 2024, providing financial flexibility for dividends, debt reduction, and strategic business development.
Negative Points
- The Fertility franchise showed a slight decline, down about $2 million or 2% ex-FX, influenced by strategic exits and transitions in the U.S. market.
- Challenges in the APJ region, with a 7% decline ex-FX this quarter, primarily due to unfavorable national pricing revisions and competitive pressures.
- China's performance was down 5% ex-FX in the quarter, although there is an expectation of recovery throughout 2024.
- Established brands are expected to achieve flat performance on an ex-FX basis for the full year 2024, indicating limited growth potential in this segment.
- Organon & Co (OGN) faces ongoing pricing pressures across its portfolio, particularly in biosimilars and U.S. fertility, which could impact profitability and market competitiveness.
Q & A Highlights
Q: Can you comment on the free cash flow for Q1 2024, particularly regarding the working capital drag and expectations moving forward?
A: (Matthew M. Walsh - Executive VP & CFO) The $300 million working capital drag in Q1 is seen as seasonal and is expected to reverse in later quarters, supporting the forecast of $1 billion free cash flow before one-time items for 2024. The reduction in one-time costs related to the spin-off, about 40% lower than last year, will also aid in achieving this target.
Q: How do you view the potential impact of Nexplanon moving to a 5-year regimen from a 3-year regimen on free cash flow in the future?
A: (Kevin Ali - CEO & Director) The shift to a 5-year regimen for Nexplanon, expected by 2026, is seen not as a headwind but potentially as a net gain. The company may consider pricing adjustments and anticipates new users who prefer a longer-duration product, offsetting any negative impacts.
Q: What are the underlying volume trends for U.S. Nexplanon, and what are the expectations for HADLIMA in the coming years?
A: (Kevin Ali - CEO & Director) U.S. Nexplanon is expected to see double-digit growth, driven by strategic pricing changes and increasing demand. For HADLIMA, the market is evolving slowly, with expectations for significant growth as biosimilar adoption increases, particularly post-2025.
Q: Can you discuss the operating margin progression beyond 2024 and potential sources for improvement?
A: (Matthew M. Walsh - Executive VP & CFO) Margin improvement is expected from a better product mix, including higher-margin products from the pipeline, cost improvements in goods sold, and operating leverage from fixed cost realignment.
Q: What are your expectations for the HUMIRA biosimilar market in the upcoming years?
A: (Matthew M. Walsh - Executive VP & CFO) The market is anticipated to open up gradually, with significant shifts expected in 2025 and beyond as payer contracts evolve and biosimilars gain traction.
Q: Regarding the established brands, particularly with the addition of Emgality and REYVOW, what are the expectations for these brands moving forward?
A: (Matthew M. Walsh - Executive VP & CFO) The company is optimistic about the growth potential of Emgality and REYVOW in Europe, driven by a strong market for migraine treatments and the recent start of promotional activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
