Organon (OGN) Q4 2025 earnings call transcript

Thank you, operator. Good morning, everyone. With me today are Joe Morrissey, Oregon on interim chief executive officer, and Matt Walsh, our chief financial officer. Carrie Cox, Oregon on board chair, and Juan Camilo Ojona Ferreira, Oregon on 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 presentation section of our Oregon on investor relations website.

Please reference slides two and three 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, believes, 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 10K and forms 10Q and those amended forms. These statements are based on information as of today, February 12th, 2026, and except as required by law, Oregon on undertakes new obligation to update or revise any of these forward-looking statements.

In addition, we will discuss certain non-GAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAP. Descriptions of these measures and reconciliations to the comparable GAP 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 a current report on Form 8K.

I note that while our full year 2026 guidance measures other than revenue are provided on a non-GAP basis, Oregon does not provide GAP 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 GAP 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 GAP. I'd now like to turn the call over to Joe Morrissey.

Thank you, Jen. Beginning on slide 4, in 2025, Oregon on delivered $6.2 billion in revenue and $1.9 billion of adjusted EBITDA. Revenue was down 3% on both a reported and X exchange basis. Relative to where we began the year are by a similar franchise performed better than expected, driven by solid performance in had Lima, as well as contributions from new launches.

The Tama delivered $128 million of global revenue in 2025, and in Galilee and our fertility business also grew strongly in 2025. That performance helped offset the continued impact of the Eloe of Adizet and headwinds in other parts of the business that emerged during the year. Those include policy-related changes in the U. S. for Nexmonon and a revision to medical guidelines in certain international markets that deprioritize the use of monolucast, which impacted singular.

Though Nexmonon had its challenges this year, the FDA approved our SNDA to extend the duration of Nexmonon from 3 to 5 years. The study supporting the approval enrolled a population of women with varying body mass indices, including women with an 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 Nexmonon 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 control 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 JADIS 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 it 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 the TAMA. 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 a revenue and about $1.9 billion of adjusted EBITDA in 2026.

We expect that the annual revenue for gone with the sale of the JADIS 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 JADIS system divestiture.

On the profitability front, we continue to thoughtfully curtail OP-X 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 Oregon who are driving this work every day. With that, I hand it over to Matt.

Thank you, Joe. Beginning on slide five, let's talk about the main drivers of performance in women's health. Women's health was down 16% XFX for the fourth quarter and down 2% for the year. Sales of Nexplanon decreased 20% XFX in the fourth quarter and 4% for the full year in line with what we discussed in November when we reguided 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 one-time in nature and starting with the one-time 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. wholesale or 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 larks. 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-build purchasing with some choosing to switch to specialty pharmacy claims for each patient via assignment of benefit. 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 five-year label.

Fourth and final driver is an offsetting positive. We expect strong XUS 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% XFX 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% XFX 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 competitors 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 Oregon on consolidated revenue in 2026.

Turning now to biosimilars on slide six. For the fourth quarter and full year, the drivers and biosimilars are largely the same. Performance was driven by had Lima, which grew 61% XFX globally for the full year, reflecting the strong clinical profile of had Lima 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 de noceme biosimilars, which were approved by the FDA in August and launched in the U. S. in late September, and Tophidance, which the company acquired in the second quarter of 2025. In 2026, we expect biosimilars to deliver flat to modest growth with had Lima and the contribution of new assets expected to at least offset the expected decline in entrees on and reflexes consistent with the maturity of those assets. As regards future launches, we've entered into a settlement with Genentech that grants us a license to start launching our platoon map biosimilar asset in you can in 2027 and in the U. S. in 2028.

Wrapping up the franchise discussion with established brands on slide seven, established brands revenue declined 5% XFX in the fourth quarter of 2025, as well as for the full year. We've always said that the Kager and established brands should be about flat XFX with some years above and some years below. In 2025, we navigated through the LOE of Atazette, 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 Engality together with lapping the LOE of Atazette should offset expected continued pressure in a respiratory franchise.

Turning now to the fourth quarter revenue bridge on slide eight, revenue in the fourth quarter was 1,507,000,000 down 8% accounts in currency. Loss of exclusivity was about $20 million in the quarter, the lowest of the year, and was related to lapping the Atazette LOE in the EU, which occurred in September of 2024.

The VBP was negligible for the quarter. Organized 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 one time in nature. The remainder was primarily driven by pricing revisions in respiratory, expected competitive pricing pressures in fertility and biosimilars, and the LOE of Atazette. 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.

Volumes 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, Hadlema, Engality, and Arcaxia. In supply other, here we capture the lower margin contract manufacturing arrangements that we have with Merck, which have been declining since the spinoff 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 nine. Loss of volume from LOE was about $200 million, consistent with the range without line all year, and that was primarily related to the LOE of Atazette 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 delera, and mandatory price reductions in China for Nasenax and Singula. To a lesser extent, we also felt price impacts stemming from the competitive environment and biosimilars and fertility in the U. S. Volume grew $200 million in 2025, or 3% for the year, with contributions from Vitama and Amgality and growth and fertility and biosimilars offsetting declines in the global respiratory portfolio and next one on in the U. S. Now, let's turn to slide 10, where we show key non-GAP P&L line items and metrics for the quarter. For reference, GAP financials and reconciliation to the non-GAP 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 one-time items from cost of goods sold, which can be seen in our appendix slide.

Non-GAP 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-GAP adjusted gross margin. Non-GAP adjusted even a 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 even a margin was primarily driven by the lower adjusted gross margin that was partially offset by a 5% reduction in non-GAP operating expenses.

Adjusted even a margin was 30.7% for full year 2025, consistent with prior year as the decline in adjusted gross margin was substantially offset with lower R&D expense.

Net loss for the fourth quarter of 2025 was $205 million or 79 cents per diluted share, compared with net income of $109 million or 42 cents per diluted share in the fourth quarter of 2024.

Net loss for the fourth quarter of 2025 includes a non-cash good will impairment of $301 million or $1.16 per share related to the decline in the company's stock price and under performance in the US. For the fourth quarter of 2025, non-GAP adjusted net income was $165 million or 63 cents per diluted share, compared with $235 million or 90 cents per diluted share in 2024.

Non-GAP adjusted net income was $954 million for full year 2025 or $3.66 per share, compared with $1.65 million 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 one-time cost, consistent with prior year.

One-time cost related to the spinoff 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 CAPX associated with these activities, as well as an increase in networking 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 VCAMA and Gallady and the biosimilar programs with Shanghai Himleus and made another $66 million in upfront payments, primarily related to acquiring the licensing rights for the tax flow line. We expect that commercial milestone payments will be similar to 2025 at approximately $170 million.

Turning out a leverage on slide 12, net leverage at year end was approximately 4.3 times. 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 Oregon on 5 and 1 8% notes due in 2031, including $177 million retired in the fourth quarter.

The prepayment of a portion of a long term debt assumed as part of the Derma Dan 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 jaded divestiture, we expect to be able to achieve net leverage below four times 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, clarinax in Japan, as well as the potential for a generic of do Lara in the US.

We expect VBP impact to be about $30 million, and related to the inclusion of FOSAMACs in round 11. We expect headwind 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 one time gross to net adjustments in the fourth quarter of 2025. Second, we expect stability in US gross to net in the US in 2026. And three, less pricing erosion internationally, particularly in the EU, as we laugh the LOE of Adizet. 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 beatamma and embality, and growth in biosimilars, and Nexplanon XUS. And finally, we're estimating that a modest FX tailwind offsets the loss of JDA 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 is subsequently matched to revenue when the inventory is sold.

For our BEX, our range for SG&A as 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 appreciation of about $140 million for full year 2026, and expect approximately $265 million for our fully diluted share account. For 2026, we estimate our non gap 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 to 15% global minimum tax, the absence of a tax amortization benefit, and an increase in our non deductible interest expense offset by use of additional foreign tax credits.

Proformer 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 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 in capital deployment in a disciplined fashion to achieve progress on our deleveraging efforts.

This is Carrie. Before we go to Q&A, I 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.

Yeah, thanks Umar. I'm sorry we can't provide any additional color at this point.

Well, I think the first issue of the first question on the biosimilar is we feel it'd be more incremental. So we think our strategy with biosimilars is the right one at picking the right partners that are positioning their biosimilars in the right order of the ability to launch and building out those partnerships. We're excited about our opportunities in the US continuing to grow head Lima as well as with our launch of the denosa map biosimilars and expanding that in other markets around the world and continue to grow in that way. So we see that more incremental.

And on the second part of the question for 2026 guidance and next one on. We believe next one on will be roughly flat year on year. We've got pushes in polls on the next one on business X US, the business will continue to grow nicely. We talked about improved access to next one on in Latin American markets in the United States.

We'll have consistent with the launch of the five year label. We will have a bit of a dip due to no reinsertions roughly and we've said 10 to 15. Let's let's call it 13% of insertions annually are actually reinsertions. So now with the move to three to five years, that'll create a bit of an inflection point in volume there. And some of the channel issues that we experienced the second half of the year will will will annualize.

So net net, the contribution of next one on to our 2026 guidance is to summarize roughly level with 2025, but we remain optimistic that the attractiveness of the five year label, especially for high BMI patients. And now with the duration, making the product more attractive versus other long acting reversible contraceptives, both very well for the long term growth of the product, both inside and outside the United States.

So I'll take the first part of the question. One Camilo can take the REMs question. So on the operating expense savings, the 275 we referred to when we spoke earlier in the year was all related to growth 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 reinvested, for example, in increase enhanced promotional activity for Vtama. So when you ask the question, you essentially answered it by saying that some of that 275 would be redirected to revenue growth opportunities.

I'll take a step back and say that the management team here continues to go after op X very aggressively. We've built another round of expense op X savings into our 2026 guidance, not quite as large as the 2025 effort, but you'll certainly in the same ballpark. And it's just essential that we continue to right size that the operating expense footprint of the company in light of what's happening in terms of our gross margins being compressed.

Now, turn the turn the question over to Juan Camilo for REMS.

Yeah, thank you Matt and thanks Jason. Yeah, we are pretty confident that with this window that we have and the effort that we've already planned. We will be able to recertify the prescribers that constantly use or are loyal to use of next one on this.

Physicians that have been already certified before will have a very small requirement that will take them around 15 square minutes to be 35. So we are pretty confident that we'll be able to maintain the volume based on the retraining that I really was your your question. The other factors are the ones that Matt and Joe already.

So the first part of the question relates to offbacks and I think the challenge for the company as we've seen gross margins compress since the spin is to continue to streamline make the business more efficient, get economies of scale where we can. And I just make the broad comment that it's incumbent upon us to continue to do that.

And, but at the same time, make sure that we are not sacrificing offbacks where it can draw a clear line to revenue growth and value creation in the top line. So I don't have a numerical answer to the question. What I have is the philosophy here that will that we are deploying have been deploying as we try and manage a bottom line that optimizes what our opportunity is.

On the five year and the reinsertion. I think this this year will be the most pronounced for it. Twenty twenty six. We might be talking about reinsertion risk in twenty twenty seven. It should be at a fairly significantly lower level than what we're talking about this year.

So the first part of that question. Oh, go ahead, Joe. Yeah, thanks. So I think also the first thing with the established brands, I think Matt said it in his commentary, right? We do think established brands are going to have some years where you have somewhat of a research. We set like we did with the respiratory in 2025 and then remaining back with flat. I think when we look at it, you know, a lot of the respiratory risk, it's make pull will pull into this year. But it's largely we're getting past that as well as some of the clients we had over the year and the prior year in Japan.

And so when we look at them, the growth of with products like in Galilee plus the tama and so forth. That's where we see stabilization in established brands. But it's still going to be somewhat chunky. I would say in the future where we'll have some challenges and then opportunities to offset that with growth.

Matt, do you want to take the tama? Yeah, so from a from a from a from a from a perspective as it competes against a royal nonsteroidal options. We see that 2026. The product is likely to grow in line with the other nonsteroidal topical. So in the 2025% range year on year for the tama. The only other thing I would add to Joe's comment on established brands is that we continue to add products there that capitalize on the global infrastructure that we have. So there were we the company made an announcement tail end of last year that we will be marketing.

Neil Mendo in the EU, not a big product, but it can slide right in similar to M. Gallady very little in the way of incremental operating expense necessary. And, you know, once again, capitalize is on what's the unique asset and feature for organized business, which is this global infrastructure that enables us to sell either directly or directly into 140 countries around the globe.

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. Thank you.

And as far as the denosma question, you know, I think let's let's just talk about what we should be modeling and how investors should be thinking about organones opportunity for that product. And like a lot of the bio similar 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 denosma product over both both reference products, it's on the order of $100 million in total, let's say over over over about a five year timeframe.