Organon & Company (OGN) — Q4 2025 Earnings Call Transcript

Thank you, operator. Good morning, everyone. With me today are Joe Morrissey, Organon's Interim Chief Executive Officer; and Matt Walsh, our Chief Financial Officer; Carrie Cox, Organon's Board Chair; and Juan Camilo Arjona Ferreira, Organon's Head of R&D, will also be joining for the Q&A portion of this call. Today, we are 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 Presentations section of our Organon Investor Relations website. Please reference Slides 2 and 3 for a couple of brief reminders. I would like to caution listeners that certain information discussed by management during this call will include forward-looking statements. Forward-looking statements can be identified because they do not relate strictly to historical or current facts and use words such as potential, should, will, continue, expects, believe, future, estimates, believes, outlook and other words of similar meaning. 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. This includes our most recent Form 10-K and Forms 10-Q and those amended forms. These statements are based on information as of today, February 12, 2026 and except as required by law, Organon undertakes no obligation to update or revise any of these forward-looking statements. 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. Descriptions of these measures and reconciliations to the comparable GAAP measures are included in today's earnings press release and conference call presentation, both of which are available on our Investor Relations website and have been furnished to the SEC on the current report on Form 8-K. I note that while our full year 2026 guidance measures other than revenue are provided on a non-GAAP basis, Organon does not provide GAAP financial measures on a forward-looking basis because we cannot predict with reasonable certainty and without unreasonable effort, the ultimate outcome of legal proceedings, unusual gains and losses, the occurrence of matters creating GAAP tax impacts and acquisition-related expenses. These items are uncertain, depend on various factors and could be material to our results computed in accordance with GAAP. I'd now like to turn the call over to Joe Morrissey.

Thank you, Jen. Beginning on Slide 4. In 2025, Organon delivered $6.2 billion in revenue and $1.9 billion of adjusted EBITDA. Revenue was down 3% on both a reported and ex-exchange basis. Relative to where we began the year, our biosimilar franchise performed better than expected, driven by solid performance in Hadlima as well as contributions from new launches. Vtama delivered $128 million of global revenue in 2025 and Emgality and our fertility business also grew strongly in 2025. That performance helped to offset the continued impact of the LOE of Atozet and headwinds in other parts of the business that emerged during the year. Those include policy-related changes in the U.S. for Nexplanon and a revision to medical guidelines in certain international markets that deprioritize the use of montelukast, which impacted Singulair. Though Nexplanon had its challenges this year, the FDA approved our sNDA to extend the duration of Nexplanon from 3 to 5 years. The study supporting the approval enrolled a population of women with varying body mass indices, including women with overweight or obesity, a testament to Organon's commitment to inclusive and comprehensive women's health care. This is a meaningful milestone for Organon and the Nexplanon brand as it potentially broadens the addressable market for this key product. The approval also includes a new risk evaluation and mitigation strategy program that will enhance Organon's existing clinical training program and controlled distribution program, which has been in place since 2006. One of the most important decisions the company made in 2025 was to lower our dividend payout ratio and apply those excess funds to debt reduction. We also divested the Jada system, resulting in approximately $390 million in net proceeds that will help us to reduce net debt in 2026. Together, these decisions mark our commitment to improving capacity in Organon's balance sheet to put us in a position to pursue growth opportunities in the future. At the same time, we have scrutinized our spending and had to consider tough but necessary changes to our business. In 2025, we were able to keep adjusted EBITDA margins essentially flat with 2024, despite 150 basis points of gross margin degradation. We achieved over $200 million in cost savings in 2025 through significant efforts, which offset investments in growth drivers like Vtama. We also discontinued early-stage clinical programs and are limiting spend to activities such as medical and regulatory affairs that support products already in the market. As we look across the portfolio, we expect revenue and adjusted EBITDA this year to be very much in line with 2025, which means at a high level, we expect to deliver about $6.2 billion of revenue and about $1.9 billion of adjusted EBITDA in 2026. We expect that the annual revenue foregone with the sale of the Jada system will be offset by an FX tailwind of about the same amount, which means we expect revenue to be about flat with prior year on a constant currency basis, pro forma for the Jada system divestiture. On the profitability front, we continue to thoughtfully curtail OpEx to offset what we believe is about 75 to 100 basis points of deterioration in gross margin in 2026 and that we can manage to an adjusted EBITDA figure of about $1.9 billion. I remain confident in our ability to deliver these results in 2026, and I'm deeply proud of the talented teams across Organon who are driving this work every day. With that, I hand it over to Matt.

Thank you, Joe. Beginning on Slide 5, let's talk about the main drivers of performance in women's health. Women's health was down 16% ex-FX for the fourth quarter and down 2% for the year. Sales of Nexplanon decreased 20% ex-FX in the fourth quarter and 4% for the full year, in line with what we discussed in November when we re-guided on the product. As we've talked about in previous quarters, in 2025, Nexplanon was impacted by several headwinds. Let's break it down between those we expect to continue versus those that we believe are onetime in nature. And starting with the onetime item. As we talked about last quarter, we expected an approximate $17 million negative impact in the fourth quarter related to the cessation of certain identified U.S. wholesaler sales practices identified in the Audit Committee's internal investigation disclosed in late October. The impact from that practice is contained to 2025. Now what do we think is likely to persist in 2026? We see four drivers. The first driver is in the U.S. and is macro in nature. Government policy-related access restrictions have impacted planned parenthood and federally qualified health centers where Nexplanon has a leading market share among LARCs, incorporated in our guidance is that this policy environment persists in 2026. The second driver. In 2025, we saw a developing weakness with smaller independent commercial clinics who are tightly managing their buy-and-bill purchasing with some choosing to switch to specialty pharmacy claims for each patient via assignment of benefits. While we expect this change to remain, we are actively engaging customers in this segment to support sustained and improved access to Nexplanon. Third driver. As we've discussed previously, in 2026, we will have a volume headwind from loss of reinsertions as we transition to the 5-year label. Fourth and final driver is an offsetting positive. We expect strong ex-U.S. growth to compensate for the U.S., particularly in Latin America, where we are seeing improved access. Turning to fertility. Our fertility business declined 6% ex-FX in the fourth quarter of 2025, primarily related to sales performance in China, where we are holding share, but socioeconomic trends are weighing on the broader fertility market. For the full year, the fertility business grew 8% ex-FX, driven by performance in the U.S., particularly in the first half of 2025 as well as geographic footprint expansion which together offset declines in China. Fertility will likely be a headwind for us in 2026 as we expect an increasingly competitive environment in the U.S. brought on by a competitor's agreement with the administration's new Direct Access Program. And finally, the Jada system delivered $74 million of revenue in 2025. We completed the divestiture of Jada in January of this year. So that will represent a headwind of about 120 basis points to Organon's consolidated revenue in 2026. Turning now to biosimilars on Slide 6. For the fourth quarter and full year, the drivers in biosimilars are largely the same. Performance was driven by Hadlima, which grew 61% ex-FX globally for the full year, reflecting the strong clinical profile of Hadlima and the effectiveness of our pricing strategy as well as expansion into Canada and Puerto Rico. To a lesser extent, biosimilars also benefited from our new denosumab biosimilars, which were approved by the FDA in August and launched in the U.S. in late September, and Tofidence, which the company acquired in the second quarter of 2025. In 2026, we expect biosimilars to deliver flat to modest growth with Hadlima and the contribution of new assets expected to at least offset the expected decline in Ontruzan and Renflexis, consistent with the maturity of those assets. As regards to future launches, we've entered into a settlement with Genentech that grants us a license to start launching our pertuzumab biosimilar asset in UCAN in 2027 and in the U.S. in 2028. Wrapping up the franchise discussion with established brands on Slide 7. Established brands revenue declined 5% ex-FX in the fourth quarter of 2025 as well as for the full year. We've always said that the CAGR in established brands should be about flat ex-FX and with some years above and some years below. In 2025, we navigated through the LOE of Atozet, which itself was an approximate 400 basis point headwind to established brands revenue. In 2026, we expect to return to flat performance. Contributions from Vtama and Emgality, together with lapping the LOE of Atozet, should offset expected continued pressure in our respiratory franchise. Turning now to the fourth quarter revenue bridge on Slide 8. Revenue in the fourth quarter was $1.57 billion, down 8% at constant currency. Loss of exclusivity was about $20 million in the quarter, the lowest of the year and was related to lapping the Atozet LOE in the EU, which occurred in September of 2024. VBP was negligible for the quarter. Organon products were not included in any new rounds of China's national VBP program during 2025. We lost approximately $80 million on price in the fourth quarter. About $30 million of this was related to four separate gross to net adjustments that were onetime in nature. The remainder was primarily driven by pricing revisions in respiratory, expected competitive pricing pressures in fertility and biosimilars and the LOE of Atozet. Additionally, there was an increase in the U.S. rebate rate for Nexplanon in the quarter related to a change in patient mix tied to Medicaid usage claims. Volume declined about $10 million in the quarter, and that was mainly driven by lower volume for Nexplanon and in the respiratory portfolio, which was largely offset by volume growth in Vtama, Hadlima, Emgality, and Arcoxia. In Supply other, here, we capture the lower-margin contract manufacturing arrangements that we have with Merck, which have been declining since the spin-off as expected. And lastly, foreign exchange translation had an approximate $35 million favorable impact for the quarter, which reflects the weaker U.S. dollar against the majority of foreign currencies in which we transact. Let's look at these same drivers now on a full year basis on Slide 9. Loss of volume from LOE was about $200 million, consistent with the range we've outlined all year and that was primarily related to the LOE of Atozet in the EU. As I mentioned, there was essentially no VBP impact in 2025. There was about $180 million of negative impact from price in 2025 or about 2.8%. Pricing headwinds for the full year were primarily in the respiratory portfolio with rate pressure in the U.S. for Dulera and mandatory price reductions in China for Nasonex and Singulair. To a lesser extent, we also felt price impacts stemming from the competitive environment in biosimilars and fertility in the U.S. Volume grew $200 million in 2025 or 3% for the year with contributions from Vtama and Emgality and growth in fertility and biosimilars, offsetting declines in the global respiratory portfolio and Nexplanon in the U.S. Now let's turn to Slide 10, where we show key non-GAAP P&L line items and metrics for the quarter. For reference, GAAP financials and reconciliations to the non-GAAP financial measures are included in our press release and the slides in the appendix of this presentation. For gross profit, we are excluding purchase accounting and amortization and onetime items from cost of goods sold, which can be seen in our appendix slides. Non-GAAP adjusted gross margin was 56.7% for the fourth quarter of 2025 compared to 60.6% in the fourth quarter of 2024. Pricing pressure and unfavorable product mix were notable drivers in the decline of non-GAAP adjusted gross margin. Adjusted gross margin for the full year 2025 was 60.1% compared with 61.6% for the full year 2024, with pricing pressure being the primary unfavorable driver in the year. Non-GAAP adjusted EBITDA margin was 25.4% in the fourth quarter of 2025 compared with 28.1% in the fourth quarter of 2024. The year-over-year decline in the fourth quarter 2025 adjusted EBITDA margin was primarily driven by the lower adjusted gross margin that was partially offset by a 5% reduction in non-GAAP operating expenses. Adjusted EBITDA margin was 30.7% for full year 2025, consistent with prior year as the decline in adjusted gross margin was substantially offset by lower R&D expense. Net loss for the fourth quarter of 2020 was $205 million or $0.79 per diluted share compared with net income of $109 million or $0.42 per diluted share in the fourth quarter of 2024. Net loss for the fourth quarter of 2025 includes a noncash goodwill impairment of $301 million or $1.16 per share related to the decline in the company's stock price and underperformance in the U.S. For the fourth quarter of 2025, non-GAAP adjusted net income was $165 million or $0.63 per diluted share compared with $235 million or $0.90 per diluted share in 2024. Non-GAAP adjusted net income was $954 million for full year 2025 or $3.66 per share compared with $1.065 billion or $4.11 per share in full year 2024. Turning to free cash flow now on Slide 11. For full year 2025, we delivered $960 million of free cash flow before onetime costs, consistent with prior year. Onetime costs related to the spin-off were completed in 2024, following the rollout of our global ERP system. What remains are margin-enhancing restructuring and manufacturing separation activities which were together about $270 million for 2025. For 2026, we expect costs associated with manufacturing separation activities to be about $100 million. We do expect an increase in CapEx associated with these activities as well as an increase in net working capital consumption driven largely by inventory in established brands and biosimilars, which means our free cash flow in 2026 will likely resemble what we delivered in both 2024 and 2025. Below the free cash flow line in 2025, we paid about $170 million related to contractual milestones for Vtama, Emgality and the biosimilar programs with Shanghai Henlius and made another $66 million in upfront payments, primarily related to acquiring the licensing rights for Tofidence and to a lesser extent, the purchase of the Oss bio manufacturing site. In 2026, we expect that commercial milestone payments will be similar to 2025 at approximately $170 million. Turning now to leverage on Slide 12. Net leverage at year-end was approximately 4.3x. Consistent with our priority to reduce leverage, during the year, we retired approximately $530 million of debt which included the open market repurchase and cancellation of $419 million of Organon's 5.125% notes due in 2031 including $177 million retired in the fourth quarter, the prepayment of a portion of the long-term debt assumed as part of the Dermavant acquisition and normal quarterly term loan payments. Given our outlook for approximately $1.9 billion in adjusted EBITDA in 2026, together with approximately $390 million of net proceeds from the Jada divestiture, we expect to be able to achieve net leverage below 4x by the end of the year. Now turning to the 2026 full year revenue bridge on Slide 13. For full year 2026, we expect revenue of about $6.2 billion. We expect LOE to be about $40 million related to a collection of smaller LOEs, for example, CLARINEX in Japan, as well as the potential for a generic of Dulera in the U.S. We expect VBP impact to be about $30 million and related to the inclusion of Fosamax in round 11. We expect headwinds from price to be about $75 million or about 1.2%, which is lower than what the portfolio has experienced in prior years and it's driven by several factors. First, lapping of the approximate $30 million in onetime gross to net adjustments in the fourth quarter of 2025. Second, we expect stability in U.S. gross to net in the U.S. in 2026. And three, less pricing erosion internationally, particularly in the EU as we lap the LOE of Atozet. And in Japan, as the majority of our portfolio there has already reached pricing parity with generics. We expect volume growth of about $150 million or about 2.4% will be driven by continued contribution from Vtama and Emgality and growth in biosimilars and Nexplanon ex-U.S. And finally, we're estimating that a modest FX tailwind offsets the loss of Jada revenue. Turning to Slide 14. We expect adjusted gross margin in 2026 to be about 75 to 100 basis points lower than prior year. And while price will be a headwind as it has been in prior years, the main driver of the adjusted gross margin decline in 2026 is higher cost of goods sold related to the release of accumulated foreign exchange translation on inventory that has subsequently matched to revenue when the inventory is sold. For OpEx, our range for SG&A as a percentage of sales remains in the mid-20% area, and we expect the range for R&D spend to be in the mid-single-digit area. For below-the-line items, our estimate for full year 2026 interest expense is about $500 million, in line with 2025. In 2026, we expect to refinance certain 2028 maturities, which will offset the benefits of recent voluntary debt payments and lower variable interest rates. We expect depreciation of about $140 million for full year 2026 and expect approximately 265 million for our fully diluted share count. For 2026, we estimate our non-GAAP tax rate to be in the range of 27.5% to 29.5%. The uptick from 2025 is largely due to the full year impact of the implementation of OECD's Pillar 2, 15% global minimum tax, the absence of a tax amortization benefit and an increase in our nondeductible interest expense, offset by the use of additional foreign tax credits. Pro forma for any divestitures, we expect cash taxes to be similar to 2025. As we think about the phasing of the quarters in 2026, we expect revenue growth to build throughout the year, but OpEx is more evenly spread through the quarters. So that means Q1 margin is likely to have the lowest margin of the year, and Q1 could wind up looking a lot like the quarter that we just reported in Q4 of 2025. In 2026, our primary objective is to maintain performance that aligns with last year. At the same time, we are committed to continuing to manage operating expenses and capital deployment in a disciplined fashion to achieve progress on our deleveraging efforts.

This is Carrie. Before we go to Q&A, I'd just like to say that we won't be able to answer any questions today regarding the topic referred to in our press release under other matters that was brought to the attention of the Audit Committee yesterday. With that, operator, we are ready to begin Q&A.

Carrie, I want to acknowledge what you just said, but I have a different question related to a broader issue. Last quarter, I inquired about how anyone could determine that the channel behavior issues were solely linked to Nexplanon and why the Audit Committee's investigation was restricted to just that product. At the time, you mentioned that the review extended beyond Nexplanon and found no other concerns. However, we are now discovering another issue, this time regarding biosimilars purchasing, which raises the possibility of additional problems. How can we be sure that a thorough review has been conducted? It seems like there is a reluctance from the Board and the leadership to truly address this matter and resolve it properly, allowing us to focus on the fundamentals and reduce the $9 billion debt.

Thanks, Umer. I'm sorry. We can't provide any additional color at this point.

I have two. My first is on the biosimilar portfolio. Back in October, as you know, FDA released draft guidance limiting the requirement for comparative efficacy studies for biosimilars. So I'm curious what you consider to be the status of this policy in the U.S. What's your interpretation of that guidance? And what impact should we expect it to have on Organon's business, for example, does it open the biosimilar floodgates and hugely boost margins? Or is it more of an incremental change? And then my second question is on your 2026 guidance. Can you provide any more detail on the Nexplanon contribution that's contemplated in your 2026 sales guidance and will the launch of the longer-acting Nexplanon implant be accretive to total Nexplanon sales this year?

Mike, regarding the first question on biosimilars, we believe our approach will lead to gradual growth. Our strategy focuses on selecting the right partners who are effectively launching their biosimilars. We're enthusiastic about the opportunities in the U.S., particularly with the continued growth of Hadlima and the launch of the denosumab biosimilars, as well as our expansion into other markets globally. So, we expect this to be a more incremental development.

Regarding the 2026 guidance for Nexplanon, we expect it to remain about the same as last year. There are factors both positively and negatively affecting the Nexplanon business. Outside the U.S., we anticipate continued solid growth, particularly with improved access in Latin American markets. In the U.S., as we launch the 5-year label, we may see a slight decline due to fewer reinsertion procedures. Approximately 10% to 15% of annual insertions are reinsertions, and the transition to a 3- to 5-year duration may impact volume. Additionally, some channel challenges we faced in the second half of the previous year are expected to stabilize. Overall, we project that Nexplanon will contribute similarly to our 2026 guidance as it did in 2025. However, we are optimistic about the appeal of the 5-year label, particularly for high BMI patients, and we believe this will enhance the product's competitiveness against other long-acting reversible contraceptives, supporting its long-term growth prospects both domestically and internationally.

This is Bhavin Patel on for Jason. Two questions from us. So the first is you're guiding to a flat 2026 adjusted EBITDA of $1.9 billion, and we have $275 million in annualized cost savings from the reset flowing into the P&L. So I guess if we strip out those savings, the underlying EBITDA performance appears to be declining. Maybe if you can help us bridge where that $275 million benefit is being absorbed. Is it purely the 75 to 100 bps of gross margin deterioration? Or are there massive onetime reinvestments into Vtama and Nexplanon REMS programs? And then my second question is to double-click on this REMS program that launches in a couple of weeks with a 6-month grace period ending in August. So does your 2026 Nexplanon outlook assume any volume bottlenecks or certification friction in the second half of the year once that mandate is fully enforced? And maybe does the REMS mandate distributor registration potentially provide you with like cleaner data to monitor the wholesaler days of coverage?

So I'll take the first part of the question, Juan Camilo can take the REMS question. So on the operating expense savings, the $275 million we referred to when we spoke earlier in the year was all related to gross takeouts that we were going after in sort of the base administrative and structural elements of our cost structure. That was the gross number we were going after. That enabled us to take a portion of that and reinvest it, for example, in increased enhanced promotional activity for Vtama. So when you asked the question, you essentially answered it by saying that some of that $275 million would be redirected to revenue growth opportunities. I'll take a step back and say that the management team here continues to go after OpEx very aggressively. We've built another round of OpEx savings into our 2026 guidance, not quite as large as the 2025 effort, but certainly in the same ballpark. And it's just essential that we continue to rightsize the operating expense footprint of the company in light of what's happening in terms of our gross margins being compressed. Now I'll turn the question over to Juan Camilo for REMS.

Yes. Thank you, Matt, and thanks, Jason. Yes. We are pretty confident that with this window that we have and the efforts that we have already planned, we will be able to recertify the prescribers that constantly use or loyalty use of Nexplanon. These physicians that have been already certified before will have a very small requirement that will take them around 15 to 20 minutes to be certified. So we are pretty confident that we'll be able to maintain the volume based on the retraining that I believe was your question. The other factors are the ones that Matt and Joe already covered.

This is Ethan speaking on behalf of Chris. Building on the commentary about margins, could you share your latest insights on how operating costs and margins might evolve over time? Also, regarding Nexplanon, I found the commentary on the challenges related to the 5-year indication very informative. How long do you anticipate these challenges will last, and are there any potential price offsets that we should consider?

The first part of your question concerns operating expenses. The challenge for the company, given the compression of gross margins since the spin-off, is to continue streamlining operations, enhancing efficiency, and achieving economies of scale whenever possible. It's essential that we pursue these goals without compromising operating expenses when they can be directly linked to revenue growth and value creation. While I don’t have specific figures to share, I can convey our guiding philosophy as we strive to manage our bottom line in a way that maximizes our opportunities. Regarding the five-year period and reinsertion, I believe this year will be the most significant, with discussions about reinsertion risks anticipated in 2027 at a much lower level compared to what we are addressing this year.

This is Alex on for David. The first one is, can you talk to the pressure on established brands and how we should think about key established brand segments, not only in 2026 but also beyond? And how you're thinking about potential trouble spots such as respiratory? And then on Vtama, how are you thinking about competitive dynamics for the product given that growth has been slower than topical roflumilast? So with that in mind, how are you thinking about your support of the product?

So the first part of that question, go ahead, Joe.

Yes, thank you, Matt. Regarding established brands, as mentioned in Matt's comments, we believe they will experience some years of reset, similar to what we observed with respiratory in 2025, followed by a flat performance. Looking ahead, much of the respiratory risk may carry into this year, but we are confident that we are moving beyond that, along with some declines we've experienced over the past year and the previous year in Japan. When we consider growth from products like Emgality and Vtama, we anticipate stabilization in established brands, although it may be uneven in the future, presenting some challenges alongside opportunities for growth. Matt, would you like to address Vtama?

From the perspective of Vtama, as it competes with both steroidal and non-steroidal options, we anticipate that by 2026, the product will grow similarly to other non-steroidal topicals, in the range of 20% to 25% year-on-year. Additionally, in response to Joe's comment regarding established brands, we are continuously adding products that leverage our global infrastructure. The company announced at the end of last year that we will be marketing Nilemdo in the EU. Although it is not a significant product, it can be integrated seamlessly, much like Emgality, with minimal incremental operating expenses required. This again showcases a unique asset and capability of Organon, allowing us to sell directly or indirectly in 140 countries worldwide.

Two for me. I was just wondering if you can give us any update on the search for a permanent CEO? And then the second one relates to the denosumab biosimilar that I know you guys launched end of December. I think Amgen has talked about being able to, on the Prolia side, at least, hold on some more share given they have Evenity as another option. So I guess as you think about your go-to-market strategy, on the denosumab biosimilar specifically for the osteoporosis setting. Anything you're doing differently to try to capture more share there?

So I can take the one on the CEO search. You might recall there was a special committee of the Board formed last year. We've had a very robust process underway, but there's no public update to share right now.

And as far as the denosumab question, I think let's just talk about what we should be modeling and how investors should be thinking about Organon's opportunity for that product. And like a lot of the biosimilar partnered opportunities that we have will be competing against highly competitive markets, both from a volume and price perspective when we think about what the peak revenues might be for that denosumab product over both reference products, it's on the order of $100 million in total, let's say, over about a 5-year time frame.