Organon & (OGN) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents Organon & Co.'s unaudited financial statements, management's discussion, market risk, and internal controls Item 1. Financial Statements (unaudited) Presents Organon & Co.'s unaudited condensed consolidated financial statements, including income, balance sheets, equity, cash flows, and detailed notes Condensed Consolidated Statements of Income Presents unaudited condensed consolidated statements of income, detailing revenues, expenses, and net income for specified periods Condensed Consolidated Statements of Income (Unaudited, $ in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $1,594 | $1,607 | $3,107 | $3,229 | | Cost of sales | 720 | 668 | 1,392 | 1,333 | | Gross profit | 874 | 939 | 1,715 | 1,896 | | Selling, general and administrative | 453 | 437 | 873 | 868 | | Research and development | 95 | 116 | 191 | 228 | | Income before income taxes | 229 | 235 | 330 | 471 | | Income tax expense | 84 | 40 | 98 | 75 | | Net income | $145 | $195 | $232 | $396 | | Basic EPS | $0.56 | $0.76 | $0.90 | $1.54 | | Diluted EPS | $0.56 | $0.75 | $0.89 | $1.53 | Condensed Consolidated Statements of Comprehensive Income Details unaudited condensed consolidated statements of comprehensive income, including net income and other comprehensive adjustments Condensed Consolidated Statements of Comprehensive Income (Unaudited, $ in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $145 | $195 | $232 | $396 | | Cumulative translation adjustment | 45 | (35) | 77 | (72) | | Comprehensive income | $190 | $160 | $309 | $325 | Condensed Consolidated Balance Sheets Outlines unaudited condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (Unaudited, $ in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $599 | $675 | | Accounts receivable (net) | 1,484 | 1,358 | | Inventories | 1,454 | 1,321 | | Total Current Assets | 4,618 | 4,348 | | Property, plant and equipment, net | 1,266 | 1,168 | | Goodwill | 4,680 | 4,680 | | Intangibles, net | 1,362 | 1,414 | | Total Assets | $13,500 | $13,101 | | Current portion of long-term debt and short-term borrowings | $115 | $20 | | Trade accounts payable | 1,067 | 1,153 | | Total Current Liabilities | 2,796 | 2,718 | | Long-term debt | 8,781 | 8,860 | | Total Liabilities | 12,767 | 12,629 | | Total Stockholders' Equity | 733 | 472 | | Total Liabilities and Stockholders' Equity | $13,500 | $13,101 | Condensed Consolidated Statements of Stockholders' Equity Presents the unaudited condensed consolidated statements of stockholders' equity, showing changes in equity components over time Condensed Consolidated Statements of Stockholders' Equity (Unaudited, $ in millions) | Metric | Balance at January 1, 2025 | Net Income (YTD) | Other Comprehensive Income (YTD) | Cash Dividends Declared (YTD) | Stock-based Compensation Plans and Other (YTD) | Balance at June 30, 2025 | | :-------------------------------- | :------------------------- | :--------------- | :------------------------------- | :---------------------------- | :--------------------------------------------- | :----------------------- | | Common Stock (Par Value) | $3 | — | — | — | — | $3 | | Additional Paid-In Capital | $108 | — | — | — | $31 | $139 | | Retained Earnings | $1,010 | $232 | — | $(79) | — | $1,163 | | Accumulated Other Comprehensive (Loss) Income | $(649) | — | $77 | — | — | $(572) | | Total Stockholders' Equity | $472 | $232 | $77 | $(79) | $31 | $733 | Condensed Consolidated Statements of Cash Flows Outlines unaudited condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing Condensed Consolidated Statements of Cash Flows (Unaudited, $ in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Flows Provided by Operating Activities | $295 | $408 | | Net Cash Flows Used in Investing Activities | $(210) | $(142) | | Net Cash Flows Used in Financing Activities | $(298) | $(208) | | Effect of Exchange Rate Changes on Cash and Cash Equivalents | 137 | (47) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(76) | $11 | | Cash and Cash Equivalents, Beginning of Period | 675 | 693 | | Cash and Cash Equivalents, End of Period | $599 | $704 | Notes to Condensed Consolidated Financial Statements (unaudited) Provides detailed notes to unaudited consolidated financial statements, explaining accounting policies and significant financial events 1. Background and Nature of Operations Organon & Co. is a global healthcare company focused on women's health, offering over 70 medicines and products across women's health and general medicines portfolios, with six manufacturing facilities worldwide - Primary focus: Improving the health of women throughout their lives[24] - Portfolio: Over 70 medicines and products in women's health and general medicines[24] - Key Women's Health brands include Nexplanon® (contraception), Follistim AQ® (fertility), and the Jada® System (postpartum bleeding)[27] - General Medicines portfolio includes leading brands in cardiovascular, respiratory, dermatology, non-opioid pain management, and biosimilars of immunology and oncology treatments[27] 2. Basis of Presentation The unaudited financial statements adhere to U.S. GAAP and Form 10-Q, with results not necessarily indicative of the full year. The company operates as one segment with U.S. and International reporting units, and is evaluating new FASB ASUs for disclosures - Financial statements prepared in accordance with U.S. GAAP and Form 10-Q[25] - Operates as one operating segment with two reporting units: U.S. and International[28] - Evaluating ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures), effective for fiscal years beginning after December 15, 2026, and January 1, 2025, respectively, with no impact on financial condition or results of operations[29][30] 3. Acquisitions and Licensing Arrangements Organon completed several acquisitions and licensing arrangements, including Tofidence (Biogen) and Dermavant (Vtama), expanding its biosimilar and dermatology portfolios. The company also exited an agreement with Centergene and made milestone payments for other products - Acquired U.S. regulatory and commercial rights for Tofidence® (tocilizumab-bavi) from Biogen in March 2025 for an upfront payment of $51 million[31] - Acquired Dermavant Sciences Ltd. in October 2024 for an upfront payment of $175 million and a $75 million milestone payment (paid Q1 2025) for Vtama® (tapinarof) cream's atopic dermatitis indication approval, with potential for up to $950 million in commercial milestones[32][33] - Exited agreement with Suzhou Centergene Pharmaceuticals due to changes in China's fertility landscape, recognizing $6 million in acquired in-process research and development and milestones for the six months ended June 30, 2025[38] - Acquired the Oss Biotech manufacturing facility in the Netherlands from Merck in July 2025 for an aggregate consideration of $25 million[40] 4. Earnings per Share ("EPS") Basic and diluted EPS decreased for both the three and six months ended June 30, 2025, compared to the prior year, reflecting lower net income Earnings per Share (EPS) and Weighted Average Shares Outstanding | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.56 | $0.76 | $0.90 | $1.54 | | Diluted EPS | $0.56 | $0.75 | $0.89 | $1.53 | | Basic weighted average shares outstanding (thousands) | 259,939 | 257,288 | 258,906 | 256,492 | | Diluted weighted average common shares outstanding (thousands) | 260,156 | 258,598 | 260,584 | 258,480 | 5. Product and Geographic Information Total revenues slightly decreased for the three months and more significantly for the six months ended June 30, 2025, primarily due to declines in Europe & Canada and Asia Pacific & Japan, despite growth in the U.S. and Latin America, Middle East, Russia, and Africa Total Revenues by Period ($ in millions) | Period | 2025 | 2024 | % Change | | :----- | :--- | :--- | :------- | | 3 Months Ended June 30 | $1,594 | $1,607 | (1)% | | 6 Months Ended June 30 | $3,107 | $3,229 | (4)% | Revenues by Geographic Area (Six Months Ended June 30, $ in millions) | Geographic Area | 2025 | 2024 | % Change | | :----------------------------------- | :--- | :--- | :------- | | Europe and Canada | $795 | $907 | (12.3)% | | United States | $826 | $758 | 9.0% | | Asia Pacific and Japan | $502 | $546 | (8.1)% | | China | $409 | $421 | (2.9)% | | Latin America, Middle East, Russia, and Africa | $524 | $525 | (0.2)% | - Key product performance (Six Months Ended June 30, 2025 vs. 2024): Nexplanon/Implanon NXT sales increased 6% to $488 million; Follistim AQ sales increased 31% to $142 million; NuvaRing sales declined 26% to $50 million due to generic competition. Hadlima sales increased 66% to $96 million; Atozet sales declined 40% to $162 million due to loss of exclusivity[43] 6. Stock-Based Compensation Plans Stock-based compensation expense decreased for both the three and six months ended June 30, 2025, compared to the prior year. The company has $172 million in unrecognized compensation costs Stock-Based Compensation Expense ($ in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $4 | $5 | $8 | $9 | | Selling, general and administrative | 14 | 18 | 30 | 36 | | Research and development | 4 | 5 | 8 | 9 | | Total | $22 | $28 | $46 | $54 | | Income tax benefits | $5 | $6 | $10 | $11 | - Unrecognized compensation costs as of June 30, 2025, were $172 million, to be recognized over a weighted average vesting period of 2.14 years[48] 7. Restructuring Organon implemented additional restructuring initiatives in Q1 2025, resulting in an approximate 6% headcount reduction and $88 million in costs for the six months, aiming for $200 million in annual savings - Implemented additional restructuring initiatives in Q1 2025, leading to an approximate 6% headcount reduction[49] Restructuring Costs and Severance Liabilities ($ in millions) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Restructuring costs | $2 | $88 | | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Ending Balance (Severance Liabilities) | $30 | $14 | - Restructuring activities combined with other cost savings initiatives are expected to result in approximately $200 million of annual savings[129] 8. Taxes on Income The effective income tax rate significantly increased for both the three and six months ended June 30, 2025, compared to 2024, influenced by foreign earnings, GILTI, and a tax amortization benefit. The company is evaluating the impact of the recently signed OBBBA Effective Income Tax Rates | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | 37.0% | 17.3% | | Six Months Ended June 30 | 29.8% | 16.0% | - The 2025 year-to-date effective tax rate was favorably impacted by a tax amortization benefit[51] - The company is evaluating the impacts of the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, on its U.S. cash tax liability and income tax provision[52][134] 9. Inventories Total inventories increased to $1,694 million as of June 30, 2025, from $1,536 million at December 31, 2024, with a significant portion classified as other assets not expected to be converted within one year. The Dermavant acquisition added $97 million in inventory Inventories ($ in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Finished goods | $804 | $764 | | Raw materials | 12 | 25 | | Work in process | 809 | 675 | | Supplies | 69 | 79 | | Total (approximates current cost) | $1,694 | $1,543 | | Recognized as: | | | | Inventories (current) | $1,454 | $1,321 | | Other assets (non-current) | $240 | $215 | - The Dermavant acquisition included $97 million of inventory, with a $63 million purchase accounting inventory fair value adjustment[54] 10. Long-Term Debt and Short-Term Borrowings Total principal long-term debt and short-term borrowings remained stable at $8,896 million as of June 30, 2025. The company repurchased $242 million of 2031 notes and terminated the NovaQuest Funding Agreement, resulting in pre-tax gains Long-Term Debt and Short-Term Borrowings ($ in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Total principal long-term debt and short-term borrowings | $8,896 | $8,880 | | Less: Current portion of long-term debt and short-term borrowings | 115 | 20 | | Total Long-term debt, net of current portion | $8,781 | $8,860 | - Repurchased and cancelled $242 million of 5.125% notes due 2031, resulting in a $42 million pre-tax gain on extinguishment of debt[58] - Voluntarily repaid and terminated the NovaQuest Funding Agreement ($103 million), resulting in a $4 million pre-tax gain on extinguishment of debt[59] - The weighted-average interest rate on total borrowings as of June 30, 2025, is 5.0%[61] - The company is in compliance with all financial covenants[62] 11. Financial Instruments Organon uses forward contracts and cross-currency swaps to manage foreign currency risk. Contingent consideration liabilities from business combinations are measured at fair value using Level 3 inputs - Uses forward exchange contracts to partially mitigate foreign currency exposure, with notional amounts of $1.8 billion (June 30, 2025) and $1.4 billion (December 31, 2024)[66] - Euro-denominated debt instruments (€720 million term loan and €1.25 billion notes) and cross-currency swaps are designated as hedges of the net investment in euro-denominated subsidiaries[67][68] Contingent Consideration (Level 3) Reconciliation ($ in millions) | Metric | June 30, 2025 | | :-------------------------------- | :-------------- | | Beginning balance | $394 | | Accretion and changes in fair value in Other (income) expense, net | 23 | | Payment | (75) | | Ending balance | $342 | - Factored accounts receivable: $280 million as of June 30, 2025, and $186 million as of December 31, 2024[73] 12. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive loss improved to $(572) million as of June 30, 2025, from $(649) million at January 1, 2025, primarily due to a positive cumulative translation adjustment Accumulated Other Comprehensive Income (Loss) ($ in millions) | Metric | Balance at January 1, 2025 | Other Comprehensive Income, net of taxes (YTD) | Balance at June 30, 2025 | | :-------------------------------- | :------------------------- | :------------------------------------------- | :----------------------- | | Employee Benefit Plans | $(17) | — | $(17) | | Cumulative Translation Adjustment | $(632) | $77 | $(555) | | Total Accumulated Other Comprehensive (Loss) Income | $(649) | $77 | $(572) | 13. Samsung Collaboration Organon collaborates with Samsung Bioepis for biosimilar development and commercialization, sharing gross profits. Sales from this collaboration decreased for the six months ended June 30, 2025 - Agreement with Samsung Bioepis to develop and commercialize multiple biosimilar candidates, with Organon having exclusive worldwide commercialization rights (with certain geographic exceptions)[75] - Gross profits are shared equally in most markets, with exceptions in certain markets in Brazil (65% to Samsung Bioepis, 35% to Organon)[75] Samsung Collaboration Summarized Financial Information ($ in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales | $170 | $165 | $311 | $335 | | Cost of sales | 102 | 107 | 192 | 217 | | Selling, general and administrative | 20 | 20 | 38 | 42 | - Potential future regulatory milestone payments of $25 million remain under the agreement[76] 14. Third-Party Arrangements Organon continues to manage third-party arrangements stemming from its separation from Merck, with one jurisdiction remaining under an Interim Operating Model Agreement. Sales and cost of sales from manufacturing agreements with Merck decreased - The Separation from Merck & Co., Inc. was completed, with only one jurisdiction remaining under an Interim Operating Model Agreement as of June 30, 2025[79] Amounts Due Under Third-Party Arrangements with Merck ($ in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Due from Merck in Accounts receivable | $157 | $148 | | Due to Merck in Accounts payable | $421 | $362 | Sales and Cost of Sales from Merck Manufacturing and Supply Agreements ($ in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales | $19 | $28 | $37 | $57 | | Cost of sales | 16 | 25 | 32 | 52 | 15. Contingencies Organon is involved in various legal proceedings, including product liability (Fosamax, Nexplanon/Implanon), securities and stockholder derivative litigation, governmental inquiries, and patent litigation (Nexplanon). The company accrues for probable and estimable losses and maintains a legal defense reserve - Product Liability Litigation: Fosamax litigation includes approximately 974 federal, 1,714 New Jersey, and 272 California cases. A Master Settlement Agreement was signed on July 28, 2025, with New Jersey state and federal plaintiffs' lawyers[87][88] - Product Liability Litigation: Nexplanon/Implanon lawsuits include two filed and 56 unfiled Implanon cases, one Nexplanon case in California, and 18 international cases[90] - Securities and Stockholder Derivative Litigation: Two stockholder class action lawsuits and two stockholder derivative lawsuits were filed in Q2 2025, alleging materially false and misleading statements regarding capital allocation and debt reduction strategies[91][92] - Patent Litigation: Sued Xiromed Pharma Espana, S.L. in April 2025 for infringing Nexplanon patents, triggering a 30-month stay of regulatory approval for a generic version[95] Legal Defense Reserves ($ in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Legal defense reserve | $8 | $7 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results, highlighting sales, acquisitions, LOE, expenses, liquidity, and strategy Worldwide Sales Overview ($ in millions) | Period | 2025 | 2024 | % Change | % Change Excluding Foreign Exchange | | :-------------------------------- | :--- | :--- | :------- | :---------------------------------- | | Three Months Ended June 30 | $1,594 | $1,607 | (1)% | (1)% | | Six Months Ended June 30 | $3,107 | $3,229 | (4)% | (3)% | - Sales increases for the six months ended June 30, 2025, were primarily driven by Vtama (Dermavant acquisition), Hadlima (biosimilar launch), Emgality (Lilly rights acquisition), Follistim AQ, and Nexplanon[105] - Sales decreases for the six months ended June 30, 2025, were primarily due to Atozet (LOE), Singulair (lower demand, price reductions), and Ontruzant (unfavorable pricing, lower volume)[105][106] - Loss of exclusivity (LOE) negatively impacted sales by approximately $60 million and approximately $123 million during the three and six months ended June 30, 2025, respectively, primarily from Atozet and Rosuzet[106] - Cost of sales increased 8% (3 months) and 4% (6 months) due to amortization of inventory fair value adjustment related to Dermavant acquisition ($10 million and $19 million, respectively), a $9 million impairment charge, and amortization of intangible assets[124] - Research and development expenses decreased 18% (3 months) and 16% (6 months) due to lower headcount-related expenses and clinical study activity[127] - The Phase 2 ELENA study for OG-6219 in endometriosis-related pain did not meet its primary efficacy endpoint, leading to discontinuation of the program[127] - Restructuring costs for the six months ended June 30, 2025, were $88 million, primarily headcount-related, with expected annual savings of approximately $200 million[129] - Net cash provided by operating activities was $295 million for the six months ended June 30, 2025, a decrease from $408 million in the prior year, due to lower operating income partially offset by active cash cycle management[138] - The Board of Directors declared a quarterly dividend of $0.02 per share, payable on September 11, 2025[143] Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the company's market risk exposure during the quarter ended June 30, 2025 - No material changes in market risk during the quarter ended June 30, 2025[147] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, and there were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of June 30, 2025[148] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[149] PART II - OTHER INFORMATION Covers legal proceedings, risk factors, other information, and exhibits, providing additional context to the financial report Item 1. Legal Proceedings This item incorporates by reference the detailed discussion of legal proceedings from Note 15 to the Condensed Consolidated Financial Statements - Information on legal proceedings is incorporated by reference from Note 15, 'Contingencies,' to the Condensed Consolidated Financial Statements[150] Item 1A. Risk Factors Company profitability and cash flows depend on key products, facing risks from competition, LOE, market changes, and sales strategy - Key products such as Nexplanon, Arcoxia, Singulair, and the ezetimibe family generate a significant amount of profits and cash flows, making the company vulnerable to adverse events[152] - Adverse events that could affect key products include expanded brand and class competition, generic competition (e.g., LOE for Atozet), increased costs, product shortages, and market/political events like tariffs, tax law changes, and healthcare reforms[153] - Sales strategies, including product discount programs and managing wholesaler inventory levels, are adapted to address changing market conditions, but carry risks if demand does not keep pace with inventory purchases[154] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[155] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various certifications, incentive plans, severance programs, and XBRL documents - Includes certifications of the Principal Executive Officer (CEO) and Principal Financial Officer (CFO) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[157] - Lists the Amended and Restated Organon & Co. 2021 Incentive Stock Plan[157] - Includes XBRL Instance Document and various XBRL Taxonomy Extension Documents (Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase)[157] Signatures The report is duly signed on behalf of Organon & Co. by Lynette Holzbaur, Senior Vice President Finance - Corporate Controller, and Matthew Walsh, Chief Financial Officer, on August 6, 2025 - The report was signed by Lynette Holzbaur, Senior Vice President Finance - Corporate Controller, and Matthew Walsh, Chief Financial Officer, on August 6, 2025[162]