Q2 2021 Organon & Co Earnings Call
Good day, and thank you for standing by.
Come to the Oregon, Inc, second quarter earnings Conference call.
At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
A question during the session you will need to branch star one on your telephone please be advised that today's conference call is being recorded.
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I'd now like to hand, the conference over to your Speaker today, Ms. Jennifer <unk>, Vice President of Investor Relations. Please go ahead.
Thank you Wayne good morning, everyone. Thank you for joining our second quarter 2021 earnings call with me today are Kevin Ali organized Chief Executive Officer, and Matt Walsh, Our Chief Financial Officer.
Today, we'll be referencing a presentation that will be visible during this call, but there was a view on a webcast of this presentation will also be available. Following this call on the events and presentations section of our Oregon on Investor Relations website at Www Dot org and on Dot 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.
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 Jan welcome and thank you for joining US today as you may know for several years in the making.
Oregon on 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.
Oregon with vision is to create a better and healthier everyday for every woman.
We have seen how our vision and purpose.
Has connected with so men and continues to motivate thousands of our employees who have been hard at work standing up organ on and at the same time had been focused on driving our business.
In the second quarter, Oregon on generated $1.6 billion of revenue.
$627 million of adjusted EBITDA.
And $1.72, and adjusted earnings per share.
Year to date, all three of our franchises are delivering on their objectives, each playing their role in 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.
Low risk will largely be behind us in the women's health and Biosimilar franchises are positioned to deliver double digit growth.
Today, We also announced an important milestone for Oregon on our board of Directors has declared a quarterly dividend of 28 per share, which speaks to the cash generating power and sustainability of our business turning to slide five now.
Though new as a Standalone company.
64 products that came to Oregon on from Merck are trusted well recognize medicines.
Many of them household names.
We operate in three franchises women's health and Biosimilar, our two growth engines and established brands, which as a portfolio of 49 products that generate sizable and stable cash flows even though most have already lost exclusivity.
Oregon on endeavors to be a different kind of company one focused on advancing the health of women.
In order to do that we are broadening our portfolio beyond our already market leading positions in contraception and fertility, we've already begun to execute on this vision already completing two transactions in important areas of unmet need for women in June we completed.
Our acquisition of the Lithia health, which is a commercial stage medical device company that received a five 10-K clearance from the FDA in 2020 for the Jada system, a product intended to control abnormal postpartum bleeding or hemorrhage.
We plan to use our global commercial footprint, and our reproductive health and experience in creating affordable access and to further develop and bring the jada system to more women around the world.
We recently also announced a licensing agreement with <unk> for the global development manufacturing and commercial rights to investigational agent.
Perfect.
Currently being studied as the first potential first in class innovation for the treatment of preterm labor.
To remind everyone.
Every year 15 million babies are born preterm and although preterm birth rates are on the rise. There are currently no other known compounds in development.
And no approved therapies for the acute treatment of preterm labor in the United States.
As our first development stage asset, Oregon on intends to leverage its considerable expertise and work with the scientific and medical communities and regulatory authorities in major markets, including the United States to advance the clinical development and registration of Evo Perpend.
Both of these opportunities fall squarely in line with our business development strategy and size scale market opportunity and.
And through our focus on helping address the most serious unmet needs of women.
Our early progress demonstrates how serious we are about our commitment to becoming the leader in women's health and expanding our portfolio beyond contraception and fertility.
Turning to slide six now.
We can't talk about our women's health portfolio without talking about next one the number two contraceptive worldwide by revenue and a product we believe has blockbuster potential.
<unk> Nexplanon plays in the large market or otherwise known as the long acting reversible contraception segment globally. The hormonal contraception market continues to see usage shift away from the daily combined oral contraceptives segment towards locks.
<unk> are highly efficacious and considered to be one of the most effective form of forms of hormonal contraception available.
Next one on or Implanon <unk> as it's known in some markets.
It's differentiated even within the large segment.
It's the only single Rod sub dermal long acting reversible contraceptive.
It is a progesterone only rod that is inserted in a woman's upper arm average insertion time. It takes about a minute and it is conducted and health care providers office.
Next one on has exclusivity in the U S until 2027.
And until 2025 in markets outside of the U S. Currently <unk> is approved for three years of efficacy, but in November 2020, we began a registration study to evaluate the use of next loan for up to five years. If successful. We believe this will make next one on an attractive contraception op.
And for many more women, including those who are family complete.
During the quarter, our fertility portfolio also showed particular strength.
We're very encouraged by the early traction, especially in China, where fertility demand is very close to being back to pre covid levels Gov.
Governments around the world are becoming increasingly active in addressing the fertility issues families can face.
Recently, the Chinese government introduced the three child policy next year, Japan will introduce reimbursement for IVF treatments in an attempt to address declining birth rates the French government.
<unk> also recently passed a bill to allow egg freezing and for same sex couples to seek IVF treatment.
Outside of women's Health, we're also encouraged by the growing support for Biosimilars.
The U S. Biosimilar market continues to grow with increases in physician and payer comfort with Biosimilars.
Both of the therapeutic areas, we compete in namely immunology and oncology are seeing increased biosimilar utilization.
College conversion from originator to Biosimilars has been faster for example, Trastuzumab, which is where entresol plays has some of the highest adoption rates. Among biosimilars. We currently see nearly 70% of the trust to the mat market converted to Biosimilars.
We are well positioned in the biosimilar market as a commercial collaborator with Samsung Bioweapon, we have a good balance in terms of geographic contribution. So we're not levered to the particular dynamics of any single market. We are balanced with the lifecycle of our portfolio and we have marketed products that are growing like rent flexes in ultrasound.
We have launch assets like had Lima in Australia, and Canada, which are performing very well and we have what we believe will be a major pipeline opportunity with.
Our anticipated had Lima launch in the U S in 2023.
We also continue to evaluate other potential pipeline opportunities with Samsung as well as other partners.
And as we think about our established brands portfolio.
Part of the strategic timing of the spin.
Is that 2021 is an inflection year.
It is the last year during which the portfolio is subject to significant new L O <unk> risk.
Beyond 2021, the impact from the Eloise dissipates.
Further we have opportunities to soften the erosion curve with continued growth of arrows that launches of certain products in selected markets and other lifecycle management opportunities. We continue to take an entrepreneurial view with regards to the established brands portfolio.
And all three franchises are global businesses as Youll see on the next slide.
Asia Pacific was the only geographic region that was down in the quarter and that was driven by <unk> loss of exclusivity in Japan.
Our largest region Europe, and Canada is showing strong double digit growth driven not only by Covid recovery, but also by volume growth in biosimilars and in fertility.
The U S, particularly nexplanon benefited from lapping the significant covid impacts in the second quarter of last year.
But also from growth in fertility.
The U S. Also showed solid performance in Biosimilars, where we offer both run flexes in ultrasound in China, We had several positive areas of momentum that more than offset the impact from four of our products being included in the volume based procurement process in the fourth quarter of last year.
We also saw the respiratory market recovering from the negative covid impact in 2020.
Our fertility portfolio outpaced the market in Q2.
And the contribution from the retail channel continued to grow.
We're actively monitoring the impacts of Covid and its variance across the world, but overall, we are very encouraged by how the portfolio is performing.
And now I will turn it over to Matt to discuss our second quarter performance in more detail Matt.
Thank you Kevin before I review the details of the quarter. It is important to remind everyone that our second quarter is unique and it's what I would call a hybrid corridor. 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 a proxy.
Lately, one month of post separation business activity accounted for by conventional GAAP methodologies.
But the key area of commonality across these two different messages 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 eight and revenue for the second quarter was up four 5% as reported and down about 1% at constant currency exchange rates.
Impact of velocity of exclusivity or L O.
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 <unk>.
Here in the back half of 2020 in Japan, as Kevin mentioned and Nuvaring low in the United States.
The established brands portfolio has exposure to the volume based procurement initiative or <unk> 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 V. BP, which is the largest so far which occurred in the fourth quarter.
2020, and that included for a organized products singularly or pediatrics pro scar Propecia and our Cox here.
In the second quarter of 2021, the negative impact of Covid 19 was estimated to be approximately $120 million, which is about $100 million better than last year.
Our product portfolio was comprised of physician prescribed products, which had been affected by social distancing measures and fewer medical visits and although we believe the global health systems and patients continue to adapt to the evolving impacts of the pandemic and although we have experienced recoveries during the second quarter as compared to the year ago quarter.
We do expect that ongoing negative impacts will persist through the remainder of 2021.
Foreign exchange translation had a fairly sizeable impact in the second quarter was about 550 basis points of favorability. It's not that's not really surprising given the impact of Covid 19 on global currency markets in the prior year period, and also understanding that approximately 80% of Oregon's revenues are derived outside the United States.
And finally, we are seeing volume growth, mainly driven by our key growth businesses women's health and Biosimilars as well as growth geographically in China and fertility and in our established brands products X V P.
So now let's take a look at performance by franchise, we'll start with women's health on slide nine.
Our women's health business grew 19% as reported and 16% ex FX in the second quarter. We saw growth in next one on which was up 39% ex FX in the quarter and benefited from patients beginning to return to their health care providers as Covid 19 restrictions are lifted.
Now while in person patient visits to health care professionals demonstrated recovery in the second quarter relative to the height of the Covid 19 pandemic. During the same period last year theyre not yet back to pre pandemic levels and as a result, we expect that ongoing negative impacts will persist through through the rest of 2021 and that view is incorporated into our <unk>.
Guidance, which we'll discuss shortly.
Our fertility portfolio was showing strength polished and grew 40% in the quarter volume growth came from increase in demand from new accounts as well as from patients returning to clinics. We have observed that patients seeking fertility treatments are more motivated to return to doctors' offices and those patients seeking normal course welfare.
<unk>.
So these growth drivers more than offset the 19% decline in nuvaring related to increased generic penetration as a result of Nuvaring Zeller, we in 2018 in the U S.
Turning now to Biosimilars on slide 10.
Biosimilars grew 43% as reported in the second quarter and 35% ex FX, we have five assets in the portfolio three in immunology and two in oncology, we launched our first asset brands is in 2016, followed by rain Flex. This in 2017 Entre is not in 2018 and <unk>.
Oh in the back half of 2020.
Had Lima launched this year in Australia and Canada.
Ren Flex us entrees on our two largest offerings and both are offered in the United States.
Globally run flexes grew 38% ex FX in the quarter driven by strong performance in the U S and Entre is on which was launched in the U S. In July of last year was up 13%.
Turning to established brands now Im on slide 11.
Because of the number of products and established brands in the multiple markets in which they are sold will often discuss the performance of this franchise in terms of how it behaved as a portfolio.
So revenue for established brands was down 4% as reported and 10% ex FX in the second quarter of 2021, excluding the impacts of low revenue was down about 2% ex FX.
Volumes were up incrementally, mainly driven by Covid rebound and price was down about 2%, which is consistent with our prior disclosures and that we expect price erosion and established brands to be in the low single digits XL are we over the intermediate term.
China is an important market for established brands and part of our strategy. In this market has been to move business out of the hospital channel and into the retail channel and this effort continues to be successful the retail channel in China grew double digits and now represents about 45% of established brands revenue in China up from approximately 35% a year ago.
Just to reference total revenue in China across all organon business lines for the second quarter was $236 million up 12% versus the second quarter of last year.
Now turning to our income statement on slide 12.
Again, because of the hybrid nature of this quarter comparability to prior year performance across most income statement line items is not particularly meaningful we can however draw comparisons at the revenue and gross margin lines. If in the case of a ladder, we make a sensible adjustment to exclude purchase accounting amortization and one time.
Items from cost of goods sold so.
So making this adjustment in the second quarter of 2021 non-GAAP adjusted gross profit was 1.0 for $4 billion.
<unk> gross margin of 65, 5% compared with 71, 2% in the second quarter of last year.
The decline reflects an increase in standalone costs, including certain costs related to manufacturing agreements between organized and Merck, which have lower gross margin percentages compared to a third party product sales.
While comparisons to prior year performance for challenging probably the most important commentary we can make about Q2 performance is that it aligns very well with the full year guidance for 2021 that we provided at our Investor day across all line items of our P&L from revenue down to adjusted EBITDA and including our non-GAAP effective.
Active tax rate.
I'll come back to guidance in a few moments.
A few words on debt capitalization.
At June 30, our bank debt was $9.5 billion against cash and cash equivalents of $730 million. Although this cash balance includes about $400 million of pre funded cash that will shortly be remitted back to Merck related to pre spin off inventory conveyance that will actually occur post separation.
So a more represented a net debt number is actually closer to $9.2 billion.
And if we think about leverage ratios in the context of the guidance that we're affirming today and just to be illustrative. If we use the midpoint of our implied 2021, adjusted EBITDA guidance that would put our net leverage ratio of just below four times.
We discussed our capital allocation priorities at our Investor day in May and I'll repeat them here today.
With a recurring dividend now declared of course, the dividend becomes a capital allocation priority number one we've endeavored to set the dividend at a low twenties percentage of free cash flow. Excluding one time cost of the separation and this level, we believe will be very manageable going forward.
Our second priority will be organic growth, which would include lifecycle management opportunities for existing products in the portfolio and capital deployed in our manufacturing plants.
And on the latter we expect to see annual Capex in the range of 3% to 4% of revenue on an ongoing basis, excluding separation costs.
Our third capital allocation priority is really a tie between a execution of external growth plans to develop a pipeline of new product opportunities like J 2.0, and Evo print.
Balance against B debt reduction and our commitment to maintaining our double BBA two rating we are targeting a long term leverage ratio below three five times net to adjusted EBIT.
Turning to guidance now on slide 13 today, we are affirming the guidance that we laid out at our may 3rd Investor event.
Revisiting basis of presentation, our guidance both for the May 3rd Investor event, and today is non-GAAP and pro forma as if the spin off happen on January one.
Beginning with revenue. This is the chart that we showed at Investor day, and Theres been very little change. We continue to expect revenue to be in the range of six 1% to $6.4 billion, which is essentially all organic we do include a de minimis partial year revenue contribution from the acquisition of a linear health that closed in June.
The biggest component to the year over year change in revenue of course is the expected low.
<unk> impacts from Ela, we were approximately $210 million year to date and are primarily related to the loss of patent protection for <unk> in Japan, and Nuvaring in the United States.
So far we have not seen a generic entrant for dilemma, which lost exclusivity in 2020, so we're improving our full year estimate of low impact to $300 million to $400 million.
From the $4 million to $500 million that we projected at Investor day.
As we were careful to describe previously 2021 is an inflection year for organon. After 2021 are low exposure dissipates to approximately $300 million cumulative over the four year period 2022 through 2025.
Those who attended Investor day would know that we had said $250 million, but with Dulera now moving out of 'twenty, one into 'twenty 'twenty two that pushes out some ela, we exposure into future years.
As far as upcoming Pvp exposure, we now expect that as a trial will most likely be included in the next round of <unk> in 2022, instead of this year as we previously expected, but we don't see that moving the needle on the $2 million to $300 million range. We previously expected.
Obviously covid is something we're watching closely year to date impact from Covid was about $220 million. However, as we consider lagging trends in well visits and the effect that that has had on <unk> as well as potential disruptions from the Covid 19 Delta variance. We now believe the 'twenty 'twenty one impact from Covid could be more in line with 2020.
As opposed to slightly better as we previously thought.
On a yearly basis, we expect foreign exchange translation to be a modest tailwind based on year to date currency performance and where spot rates are currently.
<unk> taken on the whole this quarter's revenue performance is well aligned with our previous guidance continues to reflect the key themes that we've been talking about in our public communications prior to the spin off.
Looking through the LOE issues that are waning, we are seeing volume growth as we expected mainly driven by our key growth businesses Women's health in Biosimilars. We're also seeing volume growth geographically in China in fertility and established brands X V P.
Turning now to other guidance items on slide 14, we're affirming all of the guidance that we provided at Investor day, We're updating shares outstanding so that it is now a fully diluted number.
We expect weighted average fully diluted shares to be about $254 million for 2021.
To reiterate what we said in May we expect gross margin to be in the low to mid sixties range, we expect SG&A expense to be in the range of mid 20% of sales.
We expect R&D expense to be in the mid single digit range as a percentage of revenue and what this really represents is mostly R&D infrastructure and a relatively small amount of variable spend on your organic lifecycle management opportunities that we're planning to undertake for products currently in the portfolio.
As we fill out a pipeline our R&D expense would rise to support these programs and we expect some of that to occur in 2021, but not by enough to revise the guidance range that we gave previously.
So taking all this together that would put us on an adjusted EBITDA margin in the range of 36% to 38% for 2021.
We expect back half of the year margins to be lower than this range based on phasing of spending and this is primarily related to delayed spending due to covid as well as timing of spending for lifecycle management programs. The integration of a linear health and some other investments that we're planning that are intended to drive revenue growth in the future.
Below the line interest expense for 2021 again as if we were a standalone company since the beginning of the year is expected to be approximately $400 million for the year, which reflects our new debt structure as a standalone company.
Depreciation is expected to be in the range of $100 million to $115 million and we expect our ongoing non-GAAP effective tax rate to be in the range of $17 five to 19, 5% with book and cash taxes being roughly similar.
Wrapping up the financial discussion the franchises are progressing as we had expected and given our outlook for 2021, we continue to believe that we're well positioned for future organic revenue growth in the low to mid single digits on a constant currency basis. This will be driven by stabilization in the established brands portfolio and continued growth in both.
Self in Biosimilars, each of which has the potential to grow at low double digit CAGR in the intermediate term.
At this point I'll turn the call back to Kevin for closing remarks.
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 and Oregon.
We're early in the stages of building a unique and differentiated ESG approach in the company, we take diversity inclusion and equity initiative 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 health care needs throughout the world.
So we can find new solutions to address those needs. It has a purpose that permeates throughout the entire company and our culture and.
And we believe create value across the spectrum of Oregon on stakeholders.
Now, we'd like to open up the call and take your questions. Thank you very much.
Thank you.
As a reminder, you'll ask a question. Please press star one on your telephone keypad.
We enjoy a question press the pound key.
Please stand by while we compile the Q&A roster.
Your first question comes from Lisa Slavic from Goldman Sachs. Your line is open.
Hi, This is terence thanks for taking the questions and congrats on your first quarter as a public company.
Was just wondering two part question first if you could elaborate further on your business development strategy in women's health I'm assuming.
Steve are typical of the deals youre 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 youre thinking about the pacing on the forward and then the second question I had is just on the dividend outlook for dividend growth.
Are you thinking about that or is it simply going to be anchored to a payout of free cash flow.
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 youre right I mean, as we mentioned during our Investor day, as well as our various equity roadshow discussions.
We're looking at as we say in kind of baseball parlance singles and doubles and an observer Lydia fit perfectly in this kind of area, but having said that as I mentioned a number of times. We did a scan of couple of years back and essentially we need to update that scan and we identified probably about 140 Act.
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 a meaningful acquisition. So we're working because of the fact that as I mentioned, a number of times unmet needs a significant out there.
And a number of different areas for women.
Areas significantly in terms of areas, specifically to women and those that are predominantly affecting women and so there's plenty of opportunity for a stay tuned we're in we're in discussions right now and more to come.
And on the 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 retained enough cash flow to support our growth programs. So the target of the low low twenties percentage.
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 Nevada, Fran CBD.
Your line is open.
Hi, good morning, Thanks for taking my question.
Could you comment on the Covid with coffee on your key products.
Can we expect to be.
Thank you Nikki.
And then longer term do you have any comments on the outlook calls for Cherokee in China and the U S.
Thank you.
Matt do you want to take that.
Sure. So we've certainly seen a covid recovery in the business. The Q2 versus this point last year and let's let's remember that this point last year was really.
I think the.
The depth of.
The depth of the issue in terms of patient that accessing health care systems is 19 states.
Countries around the world were on Lockdown.
So we have seen.
Covid rebound in the business we've seen it more in fertility then in contraception as we stated in the prepared comments fertility patience for a number of reasons are more motivated to return to the clinics versus patients seeking to roll either to initiate a rollover contraception.
<unk>.
And so we do think that there is more covid recovery to be realized in the businesses.
Depending on the progression of the of the.
The Delta there isn't any other variance that may come.
So that's I think we've seen some encouraging results in terms of the covid rebound both for fertility as well as across <unk>.
Solid portions of the established brands portfolio, but we are looking looking for more.
As the as the pandemic recedes.
If I can just add on to some of the point that Matt made and I'm sure we're going to get into discussions on Nexplanon and some other issues down the road, but in terms of fertility because that was a focus on 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, 'twenty 2020 and year to date, we've got 46% growth versus year to date 2020, and we are significantly outpacing the fertility market growth.
It's growing at 35% and we're growing at 46% so very positive sign 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 the three child policy, Japan and soon IVF reimbursement soon to begin France in terms of AG.
Egg freezing as well as same sex couples reimbursement more reimbursements from U S employers to singled to single parents like in the EU recognizing the need to address declining birth rates. So we're focused we're very bullish and very focused on fertility. It's an important area of focus for us and we will continue to see the kind of double digit growth, we always expected from it.
Thank you.
Your next question comes from Greg Fraser.
I'm truly 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 range you know what's important to consider for the second half. The pandemic is clearly meant but where they're pushing the pause when you call out that are important to consider.
And then my second question is on Biosimilars conscious and brands that are facing greater competitive intensity in the EU.
You'll have some challenging year over year comps in the second half for those products. The Biosimilars business is 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 Humira launched in the U S. In 2023.
Yes.
So I'll take the first part of the question.
Kevin with the pushing so.
The low end versus guidance, then you can cover biosimilars.
So we feel we feel very good about our full year revenue guidance at six 1% to $6.4 billion the biggest.
The biggest source of variability in terms of where we land in there I think the questioner pointed it out would certainly be where.
Where that where the pandemic takes us.
We do believe we have a good handle on most other.
Key drivers whether it's low.
Low impact China V BP.
So whether we end up at the at the high end or the low end I think will be it will.
B drip.
Driven by.
The progression of the pandemic and we're and I think where FX rates may go lets 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.
This is it's just a it's 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 in local currencies.
Or do you Kevin on Biosimilars, yeah. So.
Great question, Greg So just to clarify we do not have the Samsung Bioethics 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 in 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 rents Lexus and the U S is doing exceptionally well Entresol just recently launched and <unk> has been recently launched in the EU, where we continue to do well because we have the oncology biosimilars in the U S.
And of course, we have our biggest product potential which has had lima, which is the humira biosimilar theres going to be launching.
In 2023, we expect to be a second on the market with 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.
Okay.
Yes.
Hey, good morning, its Matt Harrison I was hoping you could just comment more broadly as opposed to just this year, but the longer term outlook on on V BD pricing and the impact that can have on on the business, especially for next plan. Thanks.
Sure I can I can handle that.
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 at 3% reported growth remember.
Four products key products the largest batch 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 and revenue growth.
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 V. BP 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 brands business.
In China.
And I also mentioned fertility fertility by the way just what taken opportunity to say this that fertility grew 70% in the second quarter and just as a reminder, the fertility franchise is not subject to volume based procurement and is 100% cash pay business.
Business.
Our portfolio in China, right now, 60% of the established brands business, 60% of our portfolio has gone through the volume based procurement process.
10% it will not because it's really fertility driven 30% is remaining.
20 of that 30 will go through in 2022, and the remaining 10% will come in the outer years. So we're very diversified remember in volume based procurement in terms of China No single product represents more than 20% of our business that we've got a very well diversified business, we have a business thats moving quickly.
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 exposure that we might have the U R. P S potential exposure, which potentially happens in 2023.
Approximately hits can affect about 40% of our of our 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 two really managing the volume based procurement process in China.
Okay.
Your next question comes from Don Maier.
Evercore ISI your line is open.
Hi, guys. Thanks, so much for taking my question.
Kevin if a large business development opportunity were to come available I'm talking something of the scale of let's say the Biogen, Samsung JV or like a 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's 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 them on the possibility of using nexplanon device IP or substituting other women's health generic products in there to create new sort of next one on to the next one on three 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.
Microsoft Barracks versus next one on the IP side I know you'd lost a couple of cases, but it's also been my sense that they're starting to be an alignment and.
At least on part of those patents you guys.
We have been able to settle should we expect Microsoft to be a non issue nexplanon from a damages perspective going forward. Thank you.
Thanks tumor 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.
Really looking for a home because there are significant unmet needs and we believe we can start to be an aggregator and some of these women's health assets that are unique in terms of in terms of what they provide us solutions for some of the significant unmet needs of women face around the world.
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 you know look we're two months into our launch and our spend we've already done two deals so.
So that really shows our seriousness, but of course to your point, if something really attractive with the right valuation the right focus the right marriage.
Now of course, we're going to look at 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 next one on raw technology of course, we're always we're in very close coordination with our Merck colleagues and right now we don't have anything in the pipeline in terms of <unk>.
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.
Our focus right now in our lifecycle management development for Nexplanon, we hope that that will give us an opportunity to extend the life of next belonged to 2030.
Which will really make it available to many more women who really need.
And what's something with that long of a horizon in term of efficacy for five years.
Finally in terms of what's happening microspheres, because I think we feel very solid and very good obviously I can't comment on ongoing litigation, but we feel very good of our position there.
We have a very strong case and I think that 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 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 dollar 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 cause organ on have any enemies in development from our legacy Merck and its existing pipeline. 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.
As part of our.
As part of the separation, we are 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 MSA at manufacturing services agreement and so.
That's what shows up in the other bar.
And then regard Steven to your second question regards to the interchange ability.
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 interchange ability and it's not really a major issue a major issue is really the citrate free and of course, the the high dose focus on citrate free up product availability that is the key because then you are truly becoming a buy.
Similar because obviously the originator in terms of Humira.
Obviously citrate free and 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.
And the position of entering second it is our biggest opportunity is obviously.
Obviously physician.
Rather our pharmacy defense product and that is essentially I think a good proof point for the value proposition of what buy.
Biosimilars will bring will bring to the market and in regards to your last point in regards to.
Did you mention enemies too in terms of do we have something with regards to Merck and conflict.
It did it did Merck and part any new molecular entities in Europe pipeline, which are in development and actually if I could follow up on your on the second question.
Why do think interchange ability of our Humira biosimilar is not important or a wide as Samsung I 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 sure. Steven So 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, though there's plenty in.
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 the proof point is really in the two the two deals we've done in the few months that we've actually spun in regards to our widest Samsung believe that interchange ability 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.
Sample Amgen in terms of their they are the first are expected to be on the market also does not have interchange ability as part of there as part of their focus the value proposition. So it's really about.
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 as well for our Biosimilar business is order of entry.
Really anything that you can do to actually being the first tranche of products that are.
Potentially approve so that you can offer access and choice to patients.
It's really the key focal strategic point of view for what we're doing biosimilars.
Okay.
Yeah.
The last question, we had in Q.
Thank you everybody for joining us today.
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.
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