Organon Q3 Earnings: Interesting Company (NYSE:OGN)

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organ (NYSE:OGN) is a pharmaceutical company focused on women’s health and biosimilars. It has existed in many forms since its inception in the 1920s as it has been bought and sold. Most recently, Organon separated from Merck/MSD (MRK) in 2020 and was publicly listed in 2021. Third quarter results showed steady growth with revenue up 3% for the third consecutive quarter growth quarter. Each of their three businesses showed relatively consistent growth, although each product’s growth was more mixed.

Dying brands or new beginnings?

It was feared from the start that Organon’s starter portfolio would consist of declining products so that Merck/MSD could focus on their top-selling products. However, Organon has gone through a period of expansion with multiple acquisitions to shore up its bottom line. Their biosimilars division, while still relatively small, is growing well to provide a steady stream of income.

The Department of Women’s Health has faced challenges from the start during the pandemic lockdowns. For example, sales of the implantable contraceptive Nexplanon rose 12% in 2019, but then fell 14% in 2020 as clinics closed and women canceled appointments.

Perhaps the greater concern, however, is the loss of patent exclusivity. A clear example was the loss of exclusivity for contraceptive NuvaRing, whose sales fell 73% in 2020 following the loss of exclusivity. In the area of ​​established brands, most products are no longer patent-protected and are therefore threatened by generic competition. The report for the third quarter showed that established brands’ sales rose 6%.

Release of third quarter results

Organon released its third quarter results and reported a third straight quarter of growth on a currency basis.

The largest of Organon’s three businesses, established medicines, brought in $2.99 ​​billion year-to-date 2022 compared to $3.03 billion year-to-date through 2021. Cardiovascular and respiratory diseases, however, showed along 4 the largest growth % or 14%. As many of the brands in the portfolio go beyond market exclusivity, they remain subject to generic pressure.

Women’s health was also flat at $1.24 billion in 2022 compared to $1.197 in 2021. Much of this growth was driven by Nexplanon sales, which grew to $229 million in Q3 2021 US$ increased from US$175 million in Q3 2021. Organon also reported improved fertility product ganirelix acetate sales of US$36 million from US$25 million in Q3 2021.

The smallest branch, biosimilars, showed healthy growth from $0.306 billion in 2021 to $0.346 billion in 2022. A closer look at biosimilars reveals a more nuanced picture. Sales of Herceptin biosimilar Ontruzant (trastuzumab) fell 47% between the third quarter of 2022 and 2021, likely due to competition in Europe. However, sales of Brenzyz (etanercept) rose 71% thanks to growth in Canada and bids in Brazil.

However, total net income for the third quarter of 2022 was $0.227 billion compared to $0.323 in the third quarter of 2021, while year-to-date 2022 net income was $0.809 compared to $1.149 in 2021.

Q3 2022

Q3 2021

YTD 2022

Since the beginning of 2021

Non-GAAP Adjusted Net Income (Continuing Operations)

$0.227 billion

$0.323 billion

$0.809 billion

$1.149 billion

Source: Organon 2022 Q3 Quarterly Report.

In its third quarter results, Organon reported total revenue of $1.5 billion for the three months ended September 2022, down slightly from $1.6 billion for the three months ended September 2021. Its net income was $227 million versus $323 million for the same period last year to give earnings per share of 0.89 versus 1.27 for the same period last year.

As part of the Merck/MSD split, Organon incurred significant debt. They currently hold $8.6 billion in long-term debt with a net debt ratio of about 3.6 and a debt ratio of 0.65. Over the next five years, their annual principal repayments are expected to grow to $11 million per year, despite making $100 million in discretionary repayments in June 2022.

Organon paid a dividend of $0.28 per share in the third quarter, which translates to an annual dividend yield of about 4%. Its current price-to-earnings ratio is 6.28.

A year of acquisitions

Organon continues to expand its biosimilar portfolio, with its Humira biosimilar Hadlima (adalimumab) receiving FDA approval in August 2022. This ruling gives Organon low- and high-dose options for the biosimilar, with approved indications for a range of diseases, including rheumatoid arthritis, including plaque psoriasis and ulcerative colitis. Humira was the top-selling drug in the U.S. for many years, and as such, a reliable biosimilar available for all indications could be a strong revenue stream when it launches in August 2023.

Organon has had a relatively busy year in terms of acquisitions and deals. They paid $10 million upfront for a drug candidate from Cirqle Biomedical. Also in the third quarter, the company paid $73 million for worldwide marketing rights, excluding China, to Henlius for its biosimilar pertuzumab, a treatment for some cancers and certain types of osteoporosis. In March 2022, Organon licensed Xaciato, a treatment for bacterial vaginosis from Dare Bioscience.

In February 2022, they acquired the licensing rights for China for oral contraceptives Marvelon and Mercilon. This is in addition to their existing rights holdings for an additional 20 territories. Since the Organons acquisition, Marvelon sales have outperformed the general market and initial shipments to Vietnam have also begun.

In addition to its women’s health acquisitions, Organon has begun enrollment in its Phase II ELENA study evaluating its compound for the treatment of endometriosis. This comes after they acquired the compound as part of their acquisition of Forendo Pharmaceuticals in November 2021. This is Organon’s first compound to enter the Phase II study. It will take time for this to hit the market, but it would be a welcome new revenue stream. Endometriosis is a common but severely undertreated chronic disease. A successful treatment option would therefore be very valuable.

These acquisitions could strengthen their existing portfolio. And with Merck/MSD’s experience behind it, Organon should be in a strong position to capitalize on their deals.

These challenges raise a bigger question about Organon’s future. Being a spin-off of one of the biggest pharmaceutical companies means they have the pedigree and reputation for success. However, commentators suggested from the start that it was a strategy to jettison ailing brands to focus on bigger growth products. On the other hand, Merck announced that it would revitalize the brands. The growth of the brands, while not astronomical, was steady. And for a company launched during the pandemic, that steady growth bodes well.

Conclusion

Organon got off to a rocky start as the pandemic took a toll on sales almost immediately after its launch. But that doesn’t mean we can discount them. Their initial portfolio may not have been the strongest, but they still have multi-billion dollar revenues and they have the strong legacy of Merck/MSD behind them. Organon’s numerous acquisitions and licensing deals should strengthen its portfolio and bring in revenue for the next few years. Its debt could be a concern, although its solid sales should avoid any immediate challenges. We’ll have to wait until next year to see how their post-pandemic recovery fared and whether their acquisitions were successful. For now, as an interesting company, they’d best be withheld.

Organon Q3 Earnings: Interesting Company (NYSE:OGN)

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