Organon & (US:OGN)2023-11-02 16:21Financial Data and Key Metrics Changes - Total revenue decreased by 1% at constant currency compared to the prior year, with product sales growing 1% at constant currency for the eighth consecutive quarter [4][13] - Adjusted EBITDA margin was 29.4% in Q3 2023, down from 35.5% in the same period last year, with adjusted net income of $223 million or $0.87 per diluted share compared to $337 million or $1.32 per diluted share in 2022 [29][66] - Free cash flow for 2023 is expected to be between $700 million to $800 million, about $250 million below earlier expectations due to lower EBITDA and working capital use [30][106] Business Line Data and Key Metrics Changes - Women's Health revenue declined by 7% at constant currency, primarily due to NuvaRing facing generic competition, while the fertility business is expected to show high single-digit growth for the full year [14][15] - Nexplanon experienced a 3% decline ex-FX in Q3 but is projected to achieve low single-digit growth for the full year, with expectations of reaching a $1 billion run rate by 2025 [15][39] - Biosimilars grew by 10% ex-FX in Q3 and 15% year-to-date, with Renflexis on track for its sixth consecutive year of annual revenue growth in the U.S. [26][49] Market Data and Key Metrics Changes - In China, the fertility business has grown by 15% year-to-date at constant currency, with expectations for continued growth despite recent economic challenges [5][20] - The Chinese healthcare budget is currently in a deficit, impacting procurement processes, but the company has managed to maintain a diverse portfolio with no single product representing more than 16% of revenue [20][72] - The U.S. fertility market is growing, with a significant increase in employers providing fertility benefits, which is expected to drive future growth [46][97] Company Strategy and Development Direction - The company is adapting its U.S. go-to-market model for Nexplanon to align pricing with health plans' reimbursement schedules, which is expected to smooth revenue fluctuations [6][92] - There is a focus on expanding the supply capacity for Nexplanon to meet strong international demand, particularly in Asia and Africa [16][93] - The company aims to reduce leverage and maximize the existing portfolio's potential while exploring opportunities for growth through acquisitions [52][106] Management's Comments on Operating Environment and Future Outlook - Management acknowledged external factors such as a strong U.S. dollar and a challenging economic environment in China, but remains optimistic about product sales growth [13][66] - The company expects to see a return to normal engagement levels in China by early next year, with growth anticipated in the fourth quarter [20][97] - Management believes that the transient headwinds faced in 2023 will serve as tailwinds for growth in 2024, projecting mid-single-digit revenue growth over the medium term [52][66] Other Important Information - The company reached a settlement agreement regarding patent infringement claims for Nexplanon, reserving $80 million to cover the settlement over three years [28] - The impact of volume-based procurement (VBP) in China is expected to be lower than previously guided, with improved management of price erosion across several markets [32][58] - The company is implementing a new global ERP system, which has temporarily tied up cash but is expected to improve cash flow in the future [62][106] Q&A Session Summary Question: Clarification on Nexplanon's go-to-market model and biosimilar competition - Management explained that the change in Nexplanon's go-to-market model aims to smooth revenue fluctuations and align with reimbursement schedules, while biosimilar competition has not intensified significantly [68][91] Question: Impact of VBP on China business going into 2024 - Management indicated that approximately 75% of the Established Brands business will have gone through VBP by the end of the year, with a focus on retail sector growth [71][72] Question: Role of biosimilars and potential monetization - Management views biosimilars as an opportunistic segment with potential for growth, emphasizing the strong market position of Hadlima despite slower-than-expected uptake [73][75] Question: Free cash flow outlook and working capital impact - Management expects working capital issues to be temporary, with a return to higher free cash flow generation anticipated next year [78][106] Question: FDA recommendations on biosimilar labeling - Management believes the FDA's draft statement on biosimilar labeling could act as a tailwind for Hadlima's uptake, facilitating easier patient switches at pharmacies [82][84]