Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue for Q2 2024 was $1.6 billion, representing a 2% growth rate at constant currency.
- The biosimilars franchise grew 22%, showing strong performance.
- Adjusted EBITDA was $513 million, representing a 31.9% adjusted EBITDA margin.
- NEXPLANON showed significant growth, up 13% ex-FX in the second quarter.
- The company is on track to deliver its third consecutive year of constant currency revenue growth.
Negative Points
- The established brands franchise was down 1% in Q2 2024.
- Global fertility business declined by 8% ex-FX in the second quarter.
- Adjusted gross margin decreased to 62% from 62.9% in the same quarter last year.
- Year-to-date non-GAAP adjusted net income decreased to $289 million from $336 million in 2023.
- China's revenue was down 4% ex-FX in the quarter, with slower-than-expected rollout of ART reimbursement.
Q & A Highlights
Q: Could you speak to why the commercial strategy for GARDASIL in China was different from other Organon products and if you would expect a different outcome with a local partner?
A: Kevin Ali, CEO: We don't have the same partner relationship in China as Merck does, so we don't have that exposure. Our Q2 results were impacted by a high comparator in Q2 of '23 due to a COVID rebound. We see positive tailwinds in established brands and expect mid-single-digit growth for China in the second half of the year.
Q: How do you see operating margin progressing through the rest of 2024 and into 2025?
A: Matthew Walsh, CFO: We see operating margins fairly stable through the rest of the year. We expect some amplitude more in the second half on things like LOE, VBP, and price. It's too soon to talk about 2025, but we see the continuation of volume growth in our key drivers.
Q: Can you talk about your longer-term contracting strategy on Hadlima and how you're thinking about tackling the payer landscape?
A: Kevin Ali, CEO: Our strategy focuses on providing a high-quality, frictionless experience at the lowest net cost. We are growing, with TRx up 60% quarter over quarter. We aim to be in the top two or three biosimilars for HUMIRA.
Q: What are your thoughts on R&D spend long term and balancing pipeline spend versus margin stability?
A: Kevin Ali, CEO: We are excited about our pipeline, including our endometriosis asset 6219. We are prudent with our capital, focusing on tuck-in deals like the one with Lilly, which has been very profitable. We will continue to be judicious with R&D expenditures.
Q: What are your thoughts on EBITDA beyond 2024 and the ability to do deals like Emgality annually?
A: Matthew Walsh, CFO: We see holding margins where they are as realistic for 2025, despite modest LOE exposure. Beyond 2025, we expect to improve gross margins as we separate our manufacturing network from Merck and improve product mix.
Q: Does interchangeability on high concentration for Hadlima matter, and any thoughts on private label participation?
A: Kevin Ali, CEO: Interchangeability hasn't impacted our performance. We expect to get the indication when the exclusivity period ends next May. We are confident in Hadlima's ongoing performance.
Q: Can you give insights on pricing and ramp of conversion for NEXPLANON five-year data?
A: Kevin Ali, CEO: The five-year efficacy indication is for the same product. We are still considering pricing. The data gives us confidence in NEXPLANON's robust future until the end of the decade and beyond.
Q: Can you discuss international pricing dynamics, particularly in Japan, and the impact of anti-corruption enforcement in China?
A: Kevin Ali, CEO: The anti-corruption campaign in China was short-lived, and we don't see any remnants affecting our business. We expect mid-single-digit growth in China in the second half of the year. International reference pricing hasn't significantly impacted us.
Q: What is your capacity for more tuck-in deals like the Lilly transaction?
A: Kevin Ali, CEO: We are pleased with the Lilly deal and plan to do more similar deals. These deals are part of our organic business strategy and are essential to our growth.
Q: How do you plan to manage inventory levels in China, especially in the hospital acquiring channel?
A: Kevin Ali, CEO: Our inventory levels are healthy and within normal ranges, both locally and in the hospital acquiring channel.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
