Good day and thank you for standing by. Welcome to the Organon's Second Quarter Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that this conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Jennifer Halchak, Vice President of Investor Relations. Please go ahead.

Thank you, Reign. Good morning, everyone. Thank you for joining our second quarter 2021 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer; and Matt Walsh, our Chief Financial Officer. Today we'll 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 and Presentation 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 Form-10 and subsequent SEC 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. Welcome and thank you for joining us today. As you may know for several years in the making, Organon officially spun from Merck on June 2nd to began trading as a public company on June 3rd. So today marks our first earnings call as a standalone public company and I'm very pleased to be here. Organon's vision is to create a better and healthier every day for every woman. We have seen how our vision and purpose has connected with so many and continues to motivate thousands of our employees, who have been hard at work standing up Organon and at the same time have been focused on driving our business. In the second quarter, Organon generated $1.6 billion of revenue, $627 million of adjusted EBITDA and $1.72 in adjusted earnings per share. Year-to-date, all three of our franchises are delivering on their objectives, each playing their role and driving our vision of improving the health of women. Accordingly, today we affirmed the full year 2021 guidance we provided at our May Investor Day. Looking out past 2021, we remain confident in our ability to grow revenue low to mid single digits on an organic basis as LOE risk will largely be behind us and the women's health and biosimilar franchises are positioned to deliver double digit growth. Today, we also announced an important milestone for Organon. Our Board of Directors has declared a quarterly dividend of $0.28 per share, which speaks to the cash generating power and sustainability of our business. Turning to Slide 5 now. Though new as a standalone company, the 64 products that came to Organon from Merck are trusted well-recognized medicines, many of them household names. We operate in three franchises. Women's health and biosimilars are two growth…

Thank you, Kevin. Before I review the details of the quarter, it's important to remind everyone that our second quarter is unique. And it's what I would call a hybrid quarter. It's hybrid in that Q2 includes approximately two months of pre-separation operations for which GAAP mandates the carve-out method of accounting and approximately one month of post-separation business activity accounted for by conventional GAAP methodologies. But the key area of commonality across these two different methods is revenue, which is presented by and large on an apples-to-apples basis. And that's where I'll focus most of my commentary. So with this clarification on basis of presentation, and now let's turn to Slide 8. And revenue for the second quarter was up 4.5% as reported and down about 1% at constant currency exchange rates. The impact of a loss of exclusivity or LOE during the second quarter of 2021 compared to the second quarter of last year is approximately $130 million and it's primarily related to the loss of exclusivity of Zetia in the back half of 2020 in Japan, as Kevin mentioned and NuvaRing’s LOE in the United States. The established brands portfolio has exposure to the volume-based procurement initiative or VBP in China. The total impact to sales for the second quarter compared to the second quarter of last year was approximately $40 million and was associated with the third round of VBP, which is the largest so far that which occurred in the fourth quarter of 2020. And that included four of Organon’s products, Singulair Paediatrics, Proscar, Propecia and Arcoxia. In the second quarter of 2021, the negative impact of COVID-19 was estimated to be approximately $120 million, which is about $100 billion better than last year. Our product portfolio is comprised of physician prescribed products, which have…

Thank you, Matt. And I just want to stress that we're very early in our journey, but we're off to a solid start. Today, we reaffirmed our outlook for 2021, and we continue to feel very well positioned to deliver low- to mid-single digit growth off of our 2021 base of business. In closing, I'd just like to say we're building something special at Organon. They're early in the stages of building a unique and differentiated ESG approach in the company. We take diversity inclusion and equity initiatives very seriously, and we believe our board, which has the most female representation of any S&P 500 Healthcare Company today will play a key role in our future success. When we launched our company back in June, we also launched a commitment to listening and understanding women's healthcare needs throughout the world. So we can find new solutions to address those needs. It is a purpose that permeates throughout the entire company in our culture, and we believe create value across the spectrum of Organon stakeholders. Now we'd like to open up the call and take your questions. Thank you very much.

Thank you. [Operator Instructions] Your first question comes from Lisa Slavik [ph] from Goldman Sachs. Your line is open.

Hi. This is Terence Flynn. Thanks for taking the questions and congrats on your first quarter as a public company. I was just wondering two part question: first, if you could elaborate further on your business development strategy in women's health, I'm assuming [indiscernible] and ObsEva are typical that the deals you're looking for. But maybe you could give us a little bit more color on the universe of opportunities and what that looks like and how you're thinking about the pacing on the forward? And then the second question I had is just on the dividend – outlook for dividend growth. How are you thinking about that or is it simply going to be anchored to a payout of free cash flow? Thanks.

Thanks for your question, Terence. And I'll take the first question and then pass it over to Matt to deal with the second question on dividends. So you're right. I mean, as we mentioned during our Investor Day, as well as our various equity road show discussions we're looking at as we say kind of baseball, Parlance singles and doubles and ObsEva and [indiscernible] sit perfectly in this kind of area. But having said that, we've – as I mentioned, a number of times, we did a scan a couple of years back, and essentially we need to update that scan, and we identified probably about 140 assets in various stages of development around the world, where we could actually use some of, obviously some of our balance sheet capital to be able to go out and make some meaningful acquisitions. So we're working because of the fact that as I mentioned a number of times. Unmet needs are significant out there in a number of different areas for women in areas of significantly in terms of areas specifically to women and those that are predominantly affecting women. And so there's plenty of opportunity for us stay tuned. We're in discussions right now and more to come.

And on the dividend we thought very carefully about where to set the – where to set the dividend in terms of balancing our desire for shareholders to participate in the cash flow generation of the business, but making sure that we – it retained enough cash flow to support our growth programs. So the target of the low-20% of free cash flow, we think strikes the right balance. And we will be looking to stick close to that as we roll out into the future. So we expect that the dividend will grow in conjunction with our growth of free cash flow.

Your next question comes from Navann Ty from Citi. You lines open.

Hi, good morning. Thanks for taking my question. Could you comment on the COVID recovery on your key products and can we expect contraception to be offset by fertility in the near-term? And then longer-term, do you have any comments for the outlook for fertility in China and in the U.S.? Thank you.

Matt, do you want to take that?

Sure. So we certainly seen a COVID recovery in the business in Q2 versus this point last year, and let's remember at this point last year was really sort of the – I think the depth of the – the depth of the issue in terms of patients accessing healthcare systems is United States and many countries around the world. We're on lockdown. So we have seen COVID rebound. In the business we've seen it more infertility then in contraception, as we stated in the prepared comments, fertility patients for a number of reasons are more motivated to return to the clinics versus patients seeking to role either to initiate a rollover contraception. And so we do think that there is more COVID recovery to be realized in the businesses depending on the progression of the Delta variant and any other variants that may come. So that – I think we've seen some encouraging results in terms of the COVID rebound, both for fertility as well as across solid portions of the established. Brand portfolio, but we are looking for more as the pandemic receipts,

If I could just add on to some of the points that Matt made, and I'm sure we're going to get into discussions on the Nexplanon and some other issues down the road, but in terms of fertility, because that was a focus of one of your points of your question, it has significant growth in the quarter. And it really anchors our women's health focus. Q2 was 59% growth versus Q2 2020, and year-to-date, we've got 46% growth versus year-to-date 2020, and we're significantly outpacing the fertility market growth. The market's growing at 35% and we're growing at 46%. So very positive signs for our fertility efforts and what we're doing. And remember that overall behind what's going on here is there's a movement. I mean, I mentioned China and its three-child policy Japan, and soon IVF reimbursement soon to begin France in terms of egg freezing, as well as same-sex couples reimbursements, more reimbursements from U.S. employers to single, to single pairs like in the EU, recognizing the need to address declining birth rates. So we're both, we're very bullish and very focused on fertility. It's an important area of focus for us, and we'll continue to see the kind of double digit growth we always expected from it.

Thank you.

Your next question comes from Greg Fraser from Truist Securities. Your line is open.

Thanks for taking the questions. Good morning folks. On the revenue guidance, can you speak to the pushes and pulls that could get revenue to the high end versus the lower end of the, what's important to consider for the second half. The pandemic is clearly an unknown, but one of their pushes and pulls would call out that are important to consider. And then my second question is on biosimilars etanercept and Brenzys are facing greater competitive intensity in the EU. I think you'll ask them challenging year-over-year comps in the second half of those products the biosimilar businesses, an important part of your growth strategy. So how should we think about growth in the second half and what will be the key growth drivers for that business ahead of the biosimilar launch in the U.S. in 2023? Thank you.

So I'll take the first part of the question Kevin with the push and pull – low end of guidance and then you can cover biosimilars. So we feel very good about our full year revenue guidance at $6.1 billion to $6.4 billion. The biggest – the biggest source of variability in terms of where we land in there. I think the question you were pointed it out would certainly be where the pandemic takes us. We do believe we have a good handle on most other key drivers, whether it's LOE impact, China VBP. So, whether we end up at the, at the high end or the low end I think we'll be it'll, really be driven by the progression of the pandemic and where, and I think where FX rates may go, let's not forget 80% of our revenues are outside the United States, we report in U.S. dollars. So, there can be cases where foreign exchange translation and, it's just a, it's a reporting impact, not an economic impact per se that can just drive our reported numbers, even though we may end up close to our expectations and local currencies, or what are you Kevin on biosimilars?

Yes. So Great question Greg. So just to clarify, we do not have the Samsung Bioepis anti TNF business in Europe that is essentially part of Biogen's business there. But what I will say is we are clearly doing well in biosimilars Q2, we had 35% growth and year-to-date it's 23% growth in spite of obviously the COVID. But what we see for example, going forward is the fact that RENFLEXIS in the U.S. is doing exceptionally well Ontruzant just recently launched and Aybintio has been recently launched in the EU where we continue to do well, because we are the oncology biosimilars in the EU. And of course we have our biggest product potential, which is HADLIMA, which is the Humira biosimilar that's going to be launching. In 2023, we expect to be a second on the market where their our own citrate free high dose availability which we are very, very bullish on.

Thank you.

Your next question comes from Charlie Yang from Morgan Stanley. Your line is open.

Hi, good morning. It's Matthew Harrison. I was hoping that you could just comment more broadly as opposed to just this year, but the longer term outlook on VBP pricing and the impact that can have on, on the business, especially for next plan. Thanks.

Sure. I can, I can handle that. Matt and so look, I mean, we're very, very enthused by the performance in China currently. Q2 we've got essentially 12% reported growth and year-to-date it’s 3% reported growth. Remember four products, key products, the largest bash that we've had were included into the volume-based procurement process in Q4 of 2020. And through the second quarter, we already stabilized the business showing volume growth in revenue growth. We're really excited as well. Overall the retail performance. I mentioned a number of occasions before that the retail focus, we started in 2017, seeing that the VBP was going to be an issue. And right now our performance in the retail sector in Q2 has grown almost by 30% and already accounts for nearly 45% of our established Brenzys business in China. And I also mentioned fertility, fertility; by the way, just take an opportunity to say this. The fertility grew 70% in the second quarter. And just as a reminder, the fertility franchise is not subject to volume-based procurement and is a hundred percent cash pay business. Our portfolio in China right now, 60% of the established Brenzys business 60% of our portfolio has gone through the volume-based procurement process. 10% will not because it's really fertility driven. 30% is remaining. 20 of that 30 we'll go through in 2022. And the remaining 10% will come in the outer years. So we're very diversified. Remember, and volume-based procurement is in terms of the China, no single product represents more than 20% of our business. So we've got a very well diversified business. We have a business that's moving quickly to the retail channel just because we've got experience of it for the last five years. And also, we see that the future is essentially in terms of any exposures that we might have, the URTS potential exposure, which potentially happens in 2023 approximately its can, can affect about 40% of our business there. But it's been in the forecast discussed during our May Investor Day. It's already folded in. So we feel very good that we're on the way back to really managing the volume-based procurement process in China.

Your next question comes from Umer Raffat from Evercore ISI. Your line is open.

Hi guys. Thanks so much for taking my question. Kevin, if a large business development opportunity were to become available, I'm talking something of the scale of, let's say the Biogen Samsung JV, or like large women's health business from one of the pharma companies. What can you speak to your ability to engage in something like that, especially early on being a public company? Are you constrained in being able to use equity or not? That's first. Secondly, I know there is a lot of investor interest in figuring out what are the true growth drivers perhaps beyond biosimilars going forward? And one of the points I've thought about is what's your ability to engage with Merck on the possibility of using Nexplanon device IP for substituting other women's health generic products in there to create a new sort of Nexplanon 2 and Nexplanon 3 kind of thing, new offerings using that device, given the physician comfort with that device. Can you speak to that and any programs ongoing? And then finally, where are you guys on the microspheres versus Nexplanon IP side? I know you'd lost a couple of cases, but it's also been my sense that they're starting to be in alignment. And at least on part of those patents, you guys have been able to settle. Should we expect microspheres to be a non-issue of Nexplanon from a damages perspective going forward? Thank you.

Thanks. Let me try to address those points. So from a business development perspective, of course, we're always looking for what we feel is going to be really an important contributor to the type of business we're doing. We are though executing currently, exactly on our strategy, which is essentially, as I mentioned to you before, there are a number of assets out there that are really looking for home, because there is significant unmet needs and we believe we can start to be an aggregator in some of these women's health assets that are unique in terms of what they provide as solutions for some of the significant unmet needs of women face around the world. And so, right now, the way that we've executed on that strategy is what I believe is spot on to what we wanted to do, it's really kind of – look, we're two months into our launch and our spin. We've already done two deals, so that really shows our seriousness, but of course, to your point, if something really attractive with the right evaluations, the right focus, the right marriage, of course, we're going to look that seriously. But nothing of that nature is something that we're considering right now, we're considering more of the same of what you've seen from us over the first two months. In terms of Nexplanon raw technology, of course, we're always wearing very close coordination with our Merck colleagues and right now, we don't have anything in the pipeline in terms of focusing on using that raw technology for anything else than what we're doing today, which is essentially moving from three years to five years is our focus right now and our life cycle management development for Nexplanon. We hope that, that will give us an opportunity to extend the life of Nexplanon to 2030, which will really make it available to many more women who really need and want something with that long of horizon in term of efficacy for five years. Finally, in terms of what's happening microspheres. I think we feel very solid and very good, obviously I can't comment on ongoing litigation, but we feel very good about our position there. And we have a very strong case, and I think, as you said we'd like to wind that down in the not too distant future, but we feel very good, very confident about where we stand right now with that potential issue.

Thank you, Kevin.

Sure.

Your next question comes from Steve Scala from Cowen. Your line is open.

Thank you. In the second quarter there was a $20 million contribution from other, can you elaborate on what other consists of? Secondly, has Organon done the studies necessary for your Humira Biosimilar to be substitutable? And then lastly, if I might, does Organon have any enemies in development from legacy Merck in its existing? Thank you.

So I can take the first part of that question, Kevin. So the $20 million in other is principally supply sales to Merck. So as part of the separation, we inherited six manufacturing facilities in their totality. And some of the activity at those sites is related to Merck products, which will be continued under an NSA manufacturing services agreement, and so, that's what shows up in the other bar.

And in regards Steven to your second question in regards to the interchangeability focus. So Samsung, our partner doesn't feel, that interchangeability is really the key point right now and in terms of what they need to do and keep in mind, most of the biosimilars right now up for FDA review, ultimately, and hopefully approval in the frame that we said do not also have interchangeability. And it's not really a major issue, the major issue is really the citrate free and of course, the high dose focus on citrates free product availability. That is the key, because then –you're truly becoming a biosimilar, because obviously the originator in terms of Humira has obviously citrates free and a 100 milligrams, and essentially that's what we're going to be coming to the market with. And we're very confident, we'll be in a position of entering second, it's our biggest opportunity, it's obviously positioned rather pharmacy dispense product and that is essentially I think a good proof point for the value proposition of what biosimilars will bring to the market. And in regards to your last point – in regards to – did you mention enemies to – in terms of, do we have something with regards to Merck in conflict in regards to the government.

Did Merck in part any new molecular entities in your pipeline, which are in development. And actually, if I could follow-up on your second – on the second question, why do you think interchangeability of a Humira biosimilar is not important? Or why does Samsung believe it's not important? I think most people think it is important. So if you could elaborate on that as well, that'd be helpful.

Sure, Steven. So first and foremost, no, we did not get any new molecular entities in our pipeline from Merck. We're building our pipeline out, as I mentioned there is plenty in the hopper in terms of our business development strategies and focus in terms of what we can do with our cash flow. And I think we've – the proof point is really in the two deals we've done in the few months that we've actually spun. In regards to what widest Samsung believe that interchangeability is not the key focal point, I believe right now that Samsung has a view that they've done their research and their due diligence. And like for example, Amgen in terms of their – they are the first expected to be on the market also does not have interchangeability as part of their focus of value proposition. So it's really about – as again, I'll repeat citrate free high dose availability is really going to be the very, very key thing. But the key thing for all of us is well for biosimilar business is order of entry. Really anything that you can do to actually be in the first truancy of products that are potentially approved so that you can offer access and choice to patients is really the key focal strategic point of view for what we're doing in biosimilars.

Thank you.

Last question we had in queue. Thank you everybody for joining us today. The team looks forward to engaging with you throughout the quarter.

Thank you.

This concludes today’s conference call. Thank you all for joining. You may now disconnect.