Q4 2023 Organon & Co Earnings Call
Operator: Thank you for standing by, and welcome to the Organon Q4 Full Year 2023 Earnings Call-In Webcast. I would now like to welcome Jennifer Halchak, Vice President of Investor Relations, to begin the call. Jennifer, over to you. Thank you, operator. Good morning, everyone.
Thank you for standing by and welcome to the organ on Q4 full year 2023 earnings call and webcast.
I would now like to welcome Jennifer haul Jack Vice President of Investor Relations to begin the call Jennifer over to you.
Thank you operator, good morning, everyone. Thank you for joining organized sports quarter 2023 and full year 2023 earnings call with me today are Kevin Ali organized Chief Executive Officer, who will cover our strategy and operational highlights and Matt Walsh.
Jennifer Halchak: Thank you for joining Organon's fourth quarter 2023 and full year 2023 earnings call. With me today are Kevin Ali, Organon's Chief Executive Officer, who will cover strategy and operational highlights, and Matt Walsh, our Chief Financial Officer, who will review performance and guidance. Also joining us for the Q&A portion of this call is Organon's new head of R&D, Juan Camilo Arjona-Ferreira. Today, we will be referencing a presentation that will be visible during this call for those of you on our web site. The presentation will also be available following this call on the events and presentations section of our Organon Investor Relations website at www.organon.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.
Our Chief Financial Officer, who will review performance and guidance.
Also joining us for the Q&A portion of this call is organize new head of R&D, one camilo our phone off Ferreira.
Today, we will be referencing a presentation that will be visible during this call for those of you on the webcast. The presentation will also be available. Following this call on the events and presentation section of our Organon Investor Relations website at Www Dot, Oregon 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 Commission.
Jennifer Halchak: 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, including our 10-K and subsequent periodic 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.
Including our 10-K and subsequent periodic 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.
Jennifer Halchak: 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 Oliver. Good morning, everyone, and thank you, Jen.
Presentation, I would now like to turn the call over to our CEO Kevin Ali.
Good morning, everyone and thank you Jan welcome to today's call. We will talk about our 2023 results and provide financial guidance for the full year of 2024.
Kevin Oliver: Welcome to today's call, where we'll talk about our 2023 results and provide financial guidance for the full year of 2024. We ended the year with a very strong fourth quarter. Revenue grew 8%, both nominally and at constant currency, with growth across all of our five geographies and all three fringes. For the full year of 2023, we came in above the high end of our revenue guidance range; revenue for the full year was $6.3 billion, resulting in 3% revenue growth at constant currency. Our Women's Health franchise grew 3%, our Biosimilars franchise grew 24%, and our Established Brands business For the full year, 2023, adjusted EBITDA was $1.9 billion, representing a 31% adjusted EBITDA margin, and adjusted diluted EPS was $4.14. Importantly, pre-cash flow before one-time spin-related items came in above the high end of our previous guidance. Finishing the year with $940 million.
We ended the year with a very strong fourth quarter revenue grew 8%, both nominally and in constant currency with growth across all of our five geographies and all three franchises.
For the full year of 2023, we came in above the high end of our revenue guidance range revenue for the full year was $6 $3 billion, resulting in 3% revenue growth at constant currency, our women's health franchise grew 3% our Biosimilars franchise grew 24% and our established brands business grew 2%.
At constant currency.
The full year 2023, adjusted EBITDA was $1.9 billion, representing a 31% adjusted EBITDA margin and adjusted diluted EPS was $4 in 2014.
<unk> free cash flow before one time spin related items came in above the high end of our previous guidance range.
<unk> the year with $940 million, we continue to believe this business can generate $1 billion of free cash flow before those one time charges and we will be driving towards that number in 2024 that strong cash flow will provide financial flexibility to comfortably service our dividend make.
Kevin Oliver: We continue to believe this business can generate $1 billion of free cash flow before those one-time charges, and we will be driving towards that number in 2024. That strong cash flow will provide financial flexibility to comfortably service our dividend, make progress on achieving leverage below four times by the end of 2024, and continue to do business development in line with the types of transactions we have completed in the last couple of years. That includes licensing deals like our transaction with Eli Lilly to become the sole distributor and promoter for the migraine medicines Emgality and Rayvau in Europe. We're very proud of the business development we've completed to date. These transactions share some important characteristics. First, our view that women's health goes beyond reproduction. Migraine medicines are in cases. Migraines are three times more common in women than in men.
<unk> on achieving leverage below four times by the end of 'twenty 'twenty four and to continue to do business development in line with the types of transactions. We have completed in the last couple of years that includes licensing deals like our transaction with Eli Lilly to become the sole distributor and promoter for the migraine medicines and reality and Ray ban.
Now in Europe.
We're very proud of the business development, we've completed to date.
These transactions share some important characteristics first our view that women's health goes beyond reproductive health migraine medicines. Our case in point migraines are three times more common in women and men.
Kevin Oliver: Second, these are transactions that leverage the size and scale of our international commercial infrastructure, enabling us to efficiently commercialize these products. And finally, the deal structures are skewed to success-based milestones, giving us the ability to complete multiple transactions while limiting upfront cash. The combined potential peak revenue of just the commercial stage deals we have completed to date represents almost three quarters of a billion dollars that we expect will be realized between now and the end of the decade. Collectively, these assets have already meaningfully enhanced our growth profile, and we continue to do due diligence and are focused on executing As we think about what we can achieve as a company this year, we believe 2024 will be the third consecutive year in which we deliver low single-digit revenue growth on a constant currency basis. Our full-year 2024 revenue range of $6.2 to $6.5 billion represents about 3% growth on a constant currency basis. We've been at this for a while.
Second these are transactions that leverage the size and scale of our international commercial infrastructure, enabling us to efficiently commercialize these products and finally the deal structures are skewed to success based milestones, giving us the ability to complete multiple transactions, while limiting upfront capital.
The combined potential peak revenue of just the commercial stage deals. We have completed to date represent almost three quarters of $1 billion that we expect will be realized between now and the end of the decade.
Collectively these assets have already meaningfully enhanced our growth profile and we continue to do due diligence and are focused on executing these types of opportunities in future.
As we think about what we can achieve as a company. This year. We believe 2024 will be the third consecutive year in which we deliver low single digit revenue growth on a constant currency basis.
Our full year 'twenty 'twenty four revenue range of $6 two to $6 $5 billion represents about 3% growth on a constant currency basis.
On the profitability side, we've been at this a while now we know where the efficiencies are our adjusted EBITDA margin guide of 31% to 33% signals that we are committed to holding the line or better on adjusted EBITA margins in 2024.
Kevin Oliver: We know where the efficiency lies. Our adjusted EBITDA margin guide of 31 to 33 percent signals that we are committed to holding the line or better on adjusted EBITDA margins in 2024. Now, let's review 2023 in more detail by franchise, starting with Women's Health. The Women's Health franchise grew 8% in the fourth quarter and 3% for the full year.
Now, let's review 2023 in more detail by franchise, starting with women's health. The women's health franchise grew 8% in the fourth quarter and 3% for the full year fertility Jada and Marvelon, where the three strongest contributors to the growth of the women's health franchise in 2023 and together.
Kevin Oliver: Fertility, Jada, and Marbalon were the three strongest contributors to the growth of the Women's Health franchise in 2023, and together they more than offset the expected LOE impact of Nuvaring and some one-time headwinds for next year. Globally, our fertility business grew 9% for the full year 2023, and as you may recall from our third quarter earnings call, we guided to a very strong fourth quarter for our fertility business, based in part on a significant contract win with the largest PBM in the United States. Just like in other parts of our business, we've been proving that in our hands and given proper focus, we can unlock additional value in our product portfolio. This particular win marked Organon's return to the U.S. market leadership and covered lives within the fertility space after almost two decades.
They more than offset the expected impact of Nuvaring and some one time headwinds and next one.
Globally, our fertility business grew 9% for the full year 2023, and as you may recall from our third quarter earnings call, we guided to a very strong fourth quarter for our fertility business based in part on a significant contract win with the largest P. B M in the United States.
Just like in other parts of our business, we've been proving that in our hands and given proper focus we can unlock additional value in our product portfolio. This particular win marked organize returned to the U S market leadership and covered lives within the fertility space after almost two decades.
Kevin Oliver: China, which is also an important fertility market for us, performed strongly in 2023 as well. In the fourth quarter, we had some help by lapping a fourth quarter of last year that was significantly impacted by COVID, but fundamentally, we're gaining share in China, primarily from domestic competitors, and we're seeing strong demand in the larger provinces. And while the US and China together represent about 60% of our fertility business, our Lamera region had a very strong 2023, in part due to new launches in the back half of the year that will help drive the high single-digit growth we expect from our fertility business in 2024. Jada was also a key contributor to the women's health franchise last year, adding $43 million to our top line in 2023. Right now, most hospitals in the U.S. have already treated them. Over 45,000 women have been treated in the U.S. since launch.
China, which is also an important fertility market for US performed strongly in 2023 as well in the fourth quarter. We had some help by lapping a fourth quarter of last year that was significantly impacted by COVID-19, but fundamentally we're gaining share in China, primarily from domestic competitors and we're seeing strong demand in the larger provinces.
And while the U S and China together represent about 60% of our fertility business. Our Lemaire. Our region has also had a very strong 2023 and part due to new launches in the back half of the year that will help drive the high single digit growth, we expect from fertility business in 2024.
Data was also a key contributor to the women's health franchise last year, adding $43 million to our top line in 2023 right now most hospitals in the U S stock Gela over 45000 women have been treated in the U S. Since launch the second phase of growth for Jada involves driving <unk>.
Kevin Oliver: The second phase of growth for Jada involves driving depth of utilization in the U.S. as well as continued expansion outside the U.S. Data is already available in nine markets outside the U.S., including Brazil, which was a new market for us late in 2023. In 2024, we anticipate further approvals throughout Asia, the Middle East, Latin America, and the EU, as well as Canada, bringing this needed device to many more women who can benefit. Marvellon and Mercelon together grew 24% in 2023, their second year of strong double-digit growth. The reacquisition of the rights to these products in selected territories in Asia, including China and Vietnam, is another example of the kind of transactions that are attractive, transactions that allow us to leverage our commercial network and maximize the performance of these assets. Also late last year, we made our first U.S. shipment of Zasciato, an FDA-approved medication for the treatment of bacterial vaginosis developed by our collaborator, Daray Bioscience. We have now made Zocciato available nationwide.
Let's have utilization in the U S as well as continued expansion outside the U S.
Data is already available in nine markets outside the U S, including Brazil, which was a new market for US late in 2023 in 2024, we anticipate further approvals throughout Asia, the Middle East Latin America, and the EU as well as Canada, bringing this need a device to many more women who can benefit.
<unk> and immerse along together grew 24% in 2023 their second year of strong double digit growth. The re acquisition of the rights to these products in selected territories in Asia, including China and Vietnam is another example of the kind of transactions that are attractive to us transactions that allow us to leverage our.
Purcell network and maximize performance of these assets.
Also late last year, we made our first U S shipment of Zasyadko and FDA approved medication for the treatment of bacterial vaginosis developed by our collaborator Dore Bioscience. We have now made zasyadko available nationwide. We continue to meet with health care professionals to reviews, all shadow and obtain competitive managed care.
Kevin Oliver: We continue to meet with healthcare professionals to review Zocciato and obtain competitive managed care formulary status in the bacterial vaginosis market. And rounding out women's health, as we spoke about last quarter, in 2023, we made changes to the Nexplanon go-to-market model in the U.S., and we faced some headwinds outside the U.S. Still, in 2023, Nexplanon surpassed the best-selling IUD to achieve the number one market share in the long-acting reversible contraceptive market in the U.S. Moving to market leadership is a key milestone and speaks to how Nexplanon is driving performance in the LARC category. The 1% FX growth we saw in Nexplanon for the full year 2023 included resetting the timing of our annual price increase and proactive management of discounts in the 340B channel in the US. Outside the US, growth in 2023 was impacted by lower volumes from a public tender in Mexico.
Formulary status in the bacterial vaginosis marketplace and rounding out women's health as we spoke about last quarter. In 2023, we made changes to the next one on go to market model in the U S and we faced some headwinds outside the U S. Still in 2023, nexplanon surpassed the best selling IUD to achieve them.
Number one market share in the long acting reversible contraceptive market in the U S. Moving to market leadership is a key milestone and speak to how Nexplanon is driving performance of Golar category. The 1% ex FX growth. We saw in next one on for the full year 2023 included resetting the timing.
<unk> of our annual price increase and proactive management of discounts in the 340 B channel in the U S outside the U S growth in 2023 was impacted by lower volumes from a public tender in Mexico. However, we continue to see strong demand for <unk> in Mexico, and globally, which we expect will draw.
Kevin Oliver: However, we continue to see strong demand for Nexplanon in Mexico and globally, which we expect will drive strong growth opportunities in 2024, especially as we continue to expand production capacity to keep pace with this. These changes well-position Nexplanon for a strong 2024, and in the first quarter, we're already tracking with our expectations, and we remain encouraged about the long-term prospects for Nexplanon. At the end of 2024, we anticipate having Phase III data from our five-year study. If approved, that will give Nexplanon three years of exclusivity on the five-year efficacy claim in the U.S. market. In our research, there's a clear patient preference for longer duration.
<unk> strong growth opportunities in 2024, especially as we continue to expand production capacity to keep pace with this demand.
These changes well positioned nexplanon for strong 'twenty 'twenty four and in the first quarter were already tracking with our expectations.
And we remain encouraged about the long term prospects for Nexplanon at the end of 'twenty 'twenty four we anticipate having phase III data from our five year study if approved that will give next one on three years of exclusivity on the five year efficacy claim in the U S market.
Our research there is a clear patient preference for longer duration. We believe this will be a significant differentiator for our product and we will extend the growth ramp well past the $1 billion run rate, we are aiming for in 2025.
Kevin Oliver: We believe this will be a significant differentiator for our product and will extend the growth ramp well past the billion-dollar run rate we are aiming for in 2025. Let's move now to our biosimilars business, which grew 24% for the year. Biosimilars continue to be a key growth pillar for Organon, and we've especially been pleased with the continued growth of our immunology portfolio of products, including Renflexis, Renzis, and Hadalima.
Let's move now to our Biosimilars business, which grew 24% for the year Biosimilars continue to be a key growth pillar for Oregon on and we've especially been pleased with the continued growth of our immunology portfolio of products, including run flexes Brands's and had Lima brand.
Kevin Oliver: Renflexus grew 24% for the full year 2023, delivering its sixth consecutive year of revenue growth, primarily driven by continued demand growth in the U.S. and Canada. We're retaining customers in a competitive market, and we've also been able to hold prices better than the competitive field, resulting in market share gains on a value basis. Had Lima, our biosimilar for Humira, had strong growth in 2023 with continued uptake in the U.S. following our July 1, 2023 launch. With regard to HADLIMA, we have focused our commercial efforts on payers who want to bring lower net cost to patients.
Brent Flexes grew 24% for the full year 2023, delivering its sixth consecutive year of revenue growth, primarily driven by continued demand growth in the U S and Canada, we are retaining customers in a competitive market and we've also been able to hold price better than the competitive field, resulting in a market share gains on a value Bay.
Mrs.
Had lima, our Biosimilar for Humira had strong growth in 2020 three with continued uptake in the U S. Following our July one 2023 launch with regard to had Lima, we have focused our commercial efforts on payers, who want to bring lower net cost to patients and we've emphasized that's where we believe.
Kevin Oliver: And we've emphasized that's where we believe we can offer the highest value to patients. That strategy is paying off, and we're gaining good momentum. In fact, at the end of January, Lima continued to lead all biosimilars in total prescriptions as it has for the last eight weeks. Our formulary access has also continued to improve, and we expect ongoing changes through 2024 and beyond as payers enable broader access to biosimilars. In the fourth quarter, we were added to several payers focused on low-net-cost customers, and we recently received notification that we exclusively won the national solicitation with the U.S. Department of Veterans Affairs.
We can offer the highest value to patients that strategy is paying off and we're gaining good momentum in fact at the end of January had Lima continued to lead all biosimilars in total prescriptions as it has for the last eight weeks.
Our formulary access has also continued to improve and we expect ongoing changes through 2024 and beyond as payers enable broader access to biosimilars in the fourth quarter. We were added to several payers focused on low net cost customers and we recently received notification that we exclusively won the national.
Solicitation with the U S Department of Veterans Affairs.
Kevin Oliver: We are excited to see the VA supporting market formation of biosimilars to Humira, and we look forward to working with the VA to improve affordability of highly effective biologics. Rounding out the top line discussion, let's move to established brands. For the full year, established brands grew 2% XFX. This represents its second consecutive year of growth since spin-out. We believe established brands continue to be the most underappreciated part of Organon'
We are excited to see the VA supporting market formation of Biosimilars to Humira and we look forward to working with the VA to improve affordability of highly effective biologics.
Rounding out the top line discussion, let's move to established brands for the full year of established brands grew 2% ex FX. This represents its second consecutive year of growth since spin.
We believe established brands continues to be the most underappreciated part of organ on story over the past few quarters, we've talked about the drivers that have contributed to the stable performance of the franchise since our spin you've heard us talk about optimizing manufacturing, especially for Nasonex in Arizona to meet the increasing demand you've heard us talk.
Kevin Oliver: Over the past few quarters, we've talked about the drivers that have contributed to the stable performance of the franchise since our spin. You've heard us talk about optimizing manufacturing, especially for Nasonex and Adrozet, to meet increasing demand. You've heard us talk about our strategic approach around pricing and adapting our commercial model to compensate for payer pressure, as well as managing price declines in select markets through policy work. And last quarter, we discussed how our broad product and geographic diversity contributes to stability. To round out the discussion we've been having over the last year, it's important to highlight our lifecycle management initiative. Since then, we have implemented over 30 unique opportunities across 20 plus markets, representing all five of our geographic regions.
About our strategic approach around pricing and adapting our commercial model to compensate for payer pressure as well as managing price declines in select markets through policy works and last quarter, we discussed how our broad product and geographic diversity contributes to stability to round out the discussion we've been having over the last year. It's.
Important to highlight our lifecycle management initiatives since spin we have action over 30 unique opportunities across 20, plus markets, representing all five of our geographic regions. These include the expansions of product indications new market launches of existing products, new channels and go to market models for la.
Kevin Oliver: These include the expansions of product indications, new market launches of existing, new channels and go-to-market models, the launch of new pack sizes, the launch of clones, second brands, and white box launches, and finally, incremental direct-to-consumer activity. These licensing transactions are attractive to us as they very efficiently leverage our commercial footprint and expertise. Moving now to slide 8, where we take a look at revenue by geography. Our five geographies performed very well in the quarter and for the year.
Orange of new pack sizes, the launch of clones second brands and white box launches and finally incremental direct to consumer activities.
We'll also continue to look at established brands for opportunities for business development I'd like to transaction with Lilly. These licensing transactions are attractive to us as a very efficiently leverage our commercial footprint and expertise.
Moving now to slide eight where.
Where we take a look at revenue by geography, our five geographies performed very well in the quarter and for the year.
Kevin Oliver: The full year performance in China was particularly impressive when you think about VBP and the general economic slowdown in the region and its impact on Chinese consumers. We have strong diversity in our business in China. No product represents more than 16% of revenue in China.
The full year performance in China was particularly impressive when you think about the BP and the general economic slowdown in the region and its impact on Chinese consumers.
We have strong diversity in our business in China, no product represents more than 16% of revenue in China also most of our established brands portfolio has already been through be BP and has weathered those impacts since the beginning of the year, we have seen a recovery in China in fertility as patients returned to the clinics with declining cobot as well.
Kevin Oliver: Also, most of our established brands portfolio has already been through BBP and has weathered those. Since the beginning of the year, we have seen a recovery in China for infertility as patients return to the clinics with declining COVID, as well as in established brands in both the hospital and retail channels.
Well as an established brands in both the hospital and retail channels.
Even with various health care initiatives in China, We expect that China will grow low single digits on an ex exchange basis for us in 2024 with more robust growth in 2025 and beyond.
Kevin Oliver: Even with various healthcare initiatives in China, we expect that China will grow low single-digit on an exchange basis for us in 2024, with more robust growth in 2025 and beyond. In the United States, we had a strong performance supported by fertility demand, Jada, biosimilars, and doulera, which was partially muted by the LOE of Nuvar. As we move into 2024, our priorities are to deliver our third year of constant currency revenue growth and to deliver a stable to improving adjusted EBITDA margin. Delivering the financial profile is key for us to be able to continue advancing on our mission of a healthier every day for every woman. There's a tremendous opportunity in women's health to address significant unmet needs, and we're all well positioned at the forefront of that effort. Now, I'll turn the call over to Matt, who will go into our financial results in more detail. Thank you, Kevin.
In the United States, we had a strong performance supported by fertility demand Jada, Biosimilars and Dulera, which was partially muted by the yellow of Nuvaring.
As we move into 2024, our priorities are to deliver our third year of constant currency revenue growth and to deliver stable to improving adjusted EBITDA margins.
Delivering this financial profile is key for us to be able to continue advancing on our mission of a healthier everyday for every woman theres a tremendous opportunity in women's health to address significant unmet needs and we're all well positioned at the forefront of that effort now.
Now, let's turn the call over to Matt who will go into our financial results in more detail.
Thank you Kevin beginning on slide nine you can clearly see in this year over year revenue bridge that the main driver of the 8% ex FX revenue increased during the fourth quarter was solid volume growth.
Fertility Biosimilars and established brands, all had very solid fourth quarters, which drove almost 9% volume growth during the period.
Matthew M. Walsh: Beginning on slide 9, you can clearly see in this year-over-year revenue bridge that the main driver of the 8% XFX revenue increase during the fourth quarter was solid volume. Fertility, biosimilars, and established brands all had very solid fourth quarters, which drove almost 9% volume growth during the pandemic. Partially offsetting this solid volume growth was the impact of loss of exclusivity, which in the fourth quarter was about $10 million, and was primarily related to ongoing generic competition for NuvaRing in the U.S. and, to a lesser extent, the LOE of Adizet in Japan. Volume-Based Procurement, or VBP, in China was about $20 million in the quarter and reflects the implementation of Round 7, which included Ezetrol, which prior to VBP was our largest product in China, as well as the July implementation of round eight that included Remeron and Heisenberg.
Partially offsetting this solid volume growth was impact from loss of exclusivity, which in the fourth quarter was about $10 million and was primarily related to ongoing generic competition for nuvaring in the U S and to a lesser extent the low that is at in Japan.
Volume based procurement or EVP, and China was about $20 million in the quarter and reflects the implementation of round seven which included as a troll, which prior to <unk> was our largest product in China.
As well as the July implementation of round eight that included Remeron Anheuser.
We had a negligible impact from price in the fourth quarter, mainly due to actions. We took in the next one on $3 40, B channel to Peel back voluntary discounts.
His actions offsetting pricing pressure and established brands, where the portfolio is subject to mandatory price reductions in certain markets and in Biosimilars, which inherently is subject to significant price competition.
In supply other we capture the lower margin contract manufacturing arrangements that we have with Merck and had been declining since the spinoff.
Matthew M. Walsh: We had a negligible impact from price in the fourth quarter, mainly due to actions we took in the Nexponon 340B channel to peel back voluntary discounts and those actions offsetting pricing pressure in established brands, where the portfolio is subject to mandatory price reductions in certain markets and in biosimilars, which are inherently subject to significant price and Supply Other, we capture the lower margin contract manufacturing arrangements that we have with Merck and have been declining since the spin- And lastly, foreign exchange translation had a de minimis impact on revenue during the fourth quarter.
And lastly, foreign exchange translation had a de minimis impact on revenue during the fourth quarter.
Now turning to the full year on slide 10.
Revenue for fiscal year, 2023 was approximately $6 $3 billion up 3% at constant currency.
Low impact for the full year was about $20 million and just like the fourth quarter was driven mainly by ongoing generic competition for nuvaring in the U S and to a lesser extent the L. O. We have added that in Japan.
Full year impact from <unk> in China was approximately $95 million related to the implementation of around 7% eight impacting <unk> remeron and highs are as I just discussed.
Moving on to price, we saw approximately $90 million of price erosion for the full year and that was pretty equally driven by the familiar dynamics and established brands the biosimilars portfolio and fertility.
Matthew M. Walsh: Now turning to the full year on slide 10, revenue for fiscal year 2023 was approximately $6.3 billion, up 3% at constant currency. LOE impact for the full year was about $20 million and, just like the fourth quarter, was driven mainly by ongoing generic competition for Nubering in the U.S. and, to a lesser extent, the LOE of Adazet in Japan. Full year impact from VVP in China was approximately $95 million, related to the implementations of rounds 7 and 8, impacting Ezetral, Remeron, and Hyzar, as I just mentioned. Moving And that was driven pretty equally by the familiar dynamics in established brands, the biosimilars portfolio, and fertility. With infertility globally and particularly in the U.S., health systems and commercial insurers are increasingly reimbursing fertility.
Within fertility globally, and particularly in the U S health systems and commercial insurers are increasingly reimbursing fertility services. This is expanding the market and thats the volume opportunity for our fertility products and has also increased price competition.
Volume growth for the year was approximately $420 million or about 7% higher than last year.
Saw volume growth across multiple franchises in women's health, we had strong volume growth from fertility as Wellington Jada.
Our Biosimilar products also continued to see strong demand and an established brands volume growth outstripped pricing pressure during 2023.
And finally, you can see the approximate 190 basis points of financial reporting headwind, we had in foreign exchange translation, which is a function of more than 75% of our revenue being generated outside the U S.
Now, let's turn to performance by franchise as has been our convention I will target my comments over the next three slides to those areas most relevant to your modeling as we think about where we ended the year and what the near term future may hold.
Matthew M. Walsh: This is expanding the market and thus the volume opportunity for our fertility products and has also increased price. Volume growth for the year was approximately $420 million, or about 7% higher than last, and we saw volume growth across multiple France. In women's health, we had strong volume growth from fertility, as well as from Jada. Our biosimilar products also continue to see strong demand, and in established brands, volume growth outstripped pricing pressure during. And finally, you can see the approximate 190 basis points of financial reporting headwind we had in foreign exchange translation, which is a function of more than 75% of our revenue being generated outside. Now, let's turn to performance by Franchet, as has been our convention. Target my comments over the next three slides to those areas most relevant to your modeling as we think about where we ended the year and what the near-term future may hold. So let's start with women's health on a slide.
So let's start with women's health on slide 11.
The decision to forgo our normal list price increase for next one on in mid 2023, and opting instead to take price in early 2024. The result of that decision is reflected in <unk> performance in the fourth quarter, specifically during the fourth quarter of 2023, we didnt have demand pull forward or buy in.
We would normally see during a price protection period.
In the full year next one on results you also see the impact of more limited participation in the tender in Mexico as well as supply constraints in some fast growing international markets like Asia and Africa that have since been resolved.
The math on those collective headwinds would indicate that it's hard for us to envision a scenario that next one on doesn't return to strong growth in the high single digits in 2024.
As we think about phasing for next year. The first quarter of 2024 will be a relatively strong growth quarter, primarily because the first quarter of 2023 was light. Following a strong Q4 of 2022 that was helped by that by in dynamic that I just discussed.
Matthew M. Walsh: The decision to forego our normal list price increase for Nexplanon in mid-2023 and opt instead to take the price in early 2025. The result of that decision is reflected in Nexplanon's performance in the fourth quarter. Specifically, during the fourth quarter of 2023, we didn't have demand pull forward or buy-in that we would normally see during price protection. For the full year next when I'm, you also see the impact of more limited participation in a tender in Mexico as well as supply constraints in some fast-growing international markets like Asia and Africa that have since been resolved. The math on those collective headwinds would indicate that it's hard for us to imagine a scenario in which Nexplanon doesn't return to strong growth in the high single digits in 2020.
By resetting the timing of list price increase for next one we are better aligned commercially with our customers and health care peers in the U S and from a financial reporting perspective in future periods, we expect to see less volatility and next one on to year on year revenue growth rates each quarter.
Fertility had a strong fourth quarter as we expected and there were two drivers. The first driver was increased demand in the U S primarily tied to onboarding of new and significant P. B M customer.
The second and actually larger driver was a onetime buy in as a result of exiting a spinoff related temporary commercial arrangement with Merck.
Given that these value drivers were onetime in nature. The first quarter of 2024 is likely to be the lightest of the year for fertility as inventory levels in the U S normalized.
We will also benefit from expected continued recovery in China as well as launches in select markets in the latter part of the year.
Matthew M. Walsh: As we think about phasing for next, the first quarter of 2024 will be a relatively strong growth quarter, primarily because the first quarter of 2023 was light, following a strong Q4 of 2022 that was helped by that buy-in dynamic that I just mentioned. By resetting the timing of the list price increase for Nexmodon, we are better aligned commercially with our customers and healthcare peers in the U.S. And from a financial reporting perspective, in future periods, we expect to see less volatility in Nexmodon's year-on-year revenue growth rates each quarter. Fertility had a strong fourth quarter, as we expected, and there were two dry spells.
Turning to Biosimilars on slide 12.
<unk> always had a very strong fourth quarter, which was helped by favorable timing of entresol deliveries in Brazil to meet public sector demand.
That timing represented about half of the Biosimilars growth in the fourth quarter, we backed that out biosimilars were up 24% in the fourth quarter and 17% for the year at constant currency.
In 2020 for the drivers and the Biosimilars portfolio will continue to be supported by strong performance of rent flexes in the U S. Even after entering its seventh year on the market.
Matthew M. Walsh: The first driver was increased demand in the U.S., primarily tied to onboarding a new and significant PBM. The second and actually larger driver was a one-time buy-in as a result of exiting a spinoff-related temporary commercial arrangement. Given that these volume drivers were one-time in nature, the first quarter of 2024 is likely to be the lightest of the year for fertility, as inventory levels in the U.S. normal. However, we will also benefit from expected continued recovery in China, as well as launches in select markets in the latter part of the year. Turning to Biosimilars on slide 12, Biosolars had a very strong fourth quarter, which was helped by favorable timing of Entrezant deliveries in Brazil to meet public sector demand.
Robust growth in key markets, such as Canada, and Brazil, and continued uptake of head Lima and the U S.
Turning to slide 13, as Kevin mentioned established grants grew for the second year in a row ex FX performance was able to offset the impacts of V. B P and the economic challenges in China.
As well as for supply interruptions of several injectable steroid products stemming from the market action taken earlier this year.
The roughly 2% constant currency growth for the full year was driven by a little over 2% growth in volume across the portfolio, partially offset by just under 1% price pressure.
We expect approximately flat performance within established brands franchise for full year 2024 on an ex exchange basis.
Matthew M. Walsh: That timing represented about half of the biosimilar's growth in the fourth quarter. Back that out. Biosimilars were up 24% in the fourth quarter and 17% for the year at constant current prices. In 2024, the drivers in the biosimilars portfolio will continue to be supported by strong performance of Renflexus in the U.S., even after entering its seventh year on the market, robust growth in key markets such as Canada and Brazil, and continued uptake of HEDLIMA in the. Turning to slide 13, as Kevin mentioned, established grants grew for the second year in a row, XFF. Performance was able to offset the impacts of V The roughly 2% constant currency growth for the full year was driven by a little over 2% growth in volume across the portfolio, partially offset by just under 1% in price.
Now, let's turn to slide 14, where we show key non-GAAP P&L line items and metrics for the fourth quarter and full year performance.
For your 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 from cost of goods sold purchase accounting amortization.
And one time items related to the spinoff, which can be seen in our appendix slides.
So let's talk about the fourth quarter first and then we'll move to the full year.
Adjusted gross margin was 63% in the fourth quarter of 2023, compared with 63, 1% in the fourth quarter of 2022.
The unfavorable impact of foreign exchange translation within cost of goods sold and to a lesser extent product mix more than offset a favorable year over year comparison to the fourth quarter of 2022, when we took the market action on certain injectable steroid products.
Matthew M. Walsh: We expect approximately flat performance within the established brands franchise for full year 2024 on an ex-exchange basis. Now, let's turn to slide 14, where we show key non-GAAP P&L line items and metrics for the fourth quarter and full year performance. For your reference, GAP financials and reconciliations to the non-GAP financial measures are included in our press release and the slides in the appendix to this. For gross profit, we are excluding cost of goods sold, purchased accounting amortization, and one-time items related to the spinoff, which can be seen in our appendix.
non-GAAP operating expense was down in the quarter SG&A expense was down 3% and total R&D expense was down by 6%.
Oren exchange losses were also lower in the fourth quarter compared with the prior year period by about $15 million.
One key driver of this improvement in the fourth quarter of 2022, we increased the portion of our euro denominated debt that is designated as a net investment hedge from 85% to 100%.
As a result, we are now able to fully report unrealized FX gains and losses on our euro debt within other comprehensive income, which should dampen the volatility of gains and losses from foreign exchange and thus improve our overall quality of reported earnings all else equal.
Matthew M. Walsh: So let's talk about the fourth quarter first, and then we'll move to the, adjusted gross margin was 60.3% in the fourth quarter of 2023 compared with 63.1% in the fourth quarter of 2022. The unfavorable impact of foreign exchange translation within cost of goods sold, and to a lesser extent, product mix, more than offset a favorable year-over-year comparison to the fourth quarter of 2022, when we took the market action on certain injectable steroid, Non-GAAP operating expense was down in the quarter, SG&A expense was down 3%, and total R&D expense was down by 6%, foreign exchange losses were also lower in the fourth quarter compared with the prior year period by about 15 million, One key driver of this improvement, in the fourth quarter of 2022, we increased the portion of our euro denominated debt that is designated as a net investment hedge from 85% to 100%.
These factors culminated in an adjusted EBIT margin of 28, 1% in the fourth quarter of 2023, compared with 25, 6% in the fourth quarter of 2022.
non-GAAP adjusted net income was $226 million or <unk> 88 cents per diluted share compared with $208 million or <unk> 81 cents per diluted share in 2022.
Higher EBITDA more than offset a higher non-GAAP tax rate in the fourth quarter of this year and a $10 million year over year increase in interest expense.
While I am speaking in non-GAAP terms here there was a GAAP tax item in the fourth quarter that deserve mention.
In December our local tax holiday was terminated giving rise to a deferred tax asset in the amount of $686 million that was offset by a $210 million valuation allowance for a net benefit of $476 million to GAAP net income for the fourth quarter.
Matthew M. Walsh: As a result, we are now able to fully report unrealized FX gains and losses on our Euro debt within other comprehensive income, which should dampen the volatility of gains and losses from foreign exchange and thus improve our overall quality of reported earnings, all else being equal. These factors culminated in an adjusted EBITDA margin of 28.1% in the fourth quarter of 2023 compared with 25.6% in the fourth quarter of 2022. Non-GAAP adjusted net income was $226 million, or $0.88 per diluted share, compared with $208 million, or $0.81 per diluted share, in 2022. Higher EBITDA more than offset a higher non-GAAP tax rate in the fourth quarter of this year and a $10 million year-over-year increase in interest. While I'm speaking in non-GAAP terms here, there was a GAAP tax item in the fourth quarter that deserves mention. In December, a local tax holiday was terminated, giving rise to a deferred tax asset in the amount of $686 million.
For full year 2023, adjusted gross margin was 62, 7% compared with 65, 7% for full year 2022.
The year over year decrease in adjusted gross margin reflects higher cost of sales due to foreign exchange translation and product mix and to a lesser extent higher post COVID-19 inflationary impacts on labor materials and distribution related costs.
Adjusted EBITDA margin was 31% for the full year 2023, compared with 33, 8% for the full year 2022.
The year over year decrease was a result of lower adjusted gross margin.
Higher selling and promotional expenses were mostly offset by lower total R&D spend.
And that lower R&D spend was driven by year over year comparability of IP R&D.
There was $107 million of IP R&D in 2022 against only $8 million of IP R&D in 2023.
Adjusted net income was $1 $1 billion or $4 14 per diluted share for full year 2023, compared with $1 $3 billion.
Matthew M. Walsh: That was offset by a $210 million valuation allowance for a net benefit of $476 million to gap net income for the fourth quarter. Our full year 2023 adjusted gross margin was 62.7% compared with 65.7% for full year 2022. The year-over-year decrease in adjusted gross margin reflects higher costs of sales due to foreign exchange translation and product mix, and to a lesser extent, higher post-COVID inflationary impacts on labor, materials, and distribution-related costs. Adjusted EBITDA margin was 31% for the full year 2023 compared with 33.8% for the full year 2022. The year-over-year decrease was a result of lower adjusted gross margin.
Or $5 <unk> per diluted share in the prior year.
The year over year decline in net income is primarily due to higher interest expense associated with increased interest rates.
And accelerated amortization of capitalized financing costs associated with voluntary debt prepayments on the company's U S dollar denominated term loan.
Turning to slide 15, let's take a look at free cash flow.
We ended the year with $940 million of free cash flow before one time costs, which is above the range that we had guided to in November.
The upside was driven by the stabilization of our net working capital position as we continued to make progress toward the global implementation of our new ERP system.
Matthew M. Walsh: Higher selling and promotional expenses were mostly offset by lower total R&D, and that lower R&D spend was driven by year-over-year comparability of IP R&D. There was $107 million in IPR&D in 2022 against only $8 million in 2023. Adjusted net income was $1.1 billion or $4.14 per diluted share for full year 2023, compared with $1.3 billion. $5.03 per diluted share in the prior year. The year-over-year decline in net income is primarily due to higher interest expense associated with increased interest rates and accelerated amortization of capitalized financing costs.
One time spin related charges totaled $344 million for the full year 2023 slightly favorable to the $350 million, we had been guiding to.
Free cash flow generation is obviously important to the investment thesis of organized so let's talk about what these line items could look like for 2024.
Cash taxes will go up fairly substantially in 2024, largely due to the anticipated payment of certain non U S taxes as well as settlements in various jurisdictions that will trigger higher cash tax payments relative to 2023, which was an unusually low year for cash taxes.
Matthew M. Walsh: Associated with voluntary debt prepayments on the company's U.S. dollar-denominated term, Turning to slide 15, let's take a look at free cash flow. We ended the year with $940 million of free cash flow before one-time costs, which is above the range that we had guided to in November. The upside was driven by the stabilization of our networking capital position as we continued to make progress toward the global implementation of our new ERP system. One-time spin-related charges totaled $344 million for the full year 2023, slightly favorable to the $350 million we have been guiding. Free cash flow generation is obviously important to the investment thesis of Organon, so let's talk about what these line items could look like in 2024. Cash taxes will go up fairly substantially in 2024, largely due to the anticipated payment of certain non-U.S. taxes, as well as settlements in various jurisdictions that will trigger higher cash-tax payments relative to 2023, which was an unusually low year for cash.
Interest expense is expected to be a bit lower than last year and this guidance assumes no reduction in U S short term interest rates during 2024.
Working capital use will likely be about $100 million, which reflects typical working capital expansion as our business grows partially offset by continued gradual work down of our working capital as the global ERP implementation progresses towards full completion in the second quarter of this year.
Given our adjusted EBITDA Guide for 2020 for these components would put us in the range of $1 billion of net free cash flow before one time spin related costs for 2024.
We expect to see a significant reduction in one time spin related costs in 2024 about 40% lower than 2023, and then again and even larger reduction in 2025 and beyond 2025, we expect one time spin related costs to be de Minimis.
You can see on this slide and additional reporting line for other one time costs, which is a catch all line item for any one time costs that are not spin off related for 2023 that $35 million represents the first of three annual installment payments and the $80 million settlement of the Microsemi ex litigation.
Matthew M. Walsh: Interest expense is expected to be a bit lower than last year, and this guidance assumes no reduction in U.S. short-term interest rates during 2024. Working capital use will likely be about $100 million, which reflects typical working capital expansion as our business grows, partially offset by continued gradual workdown of our working capital as the global ERP implementation progresses towards full completion in the second quarter of 2021. Given our adjusted EBITDA guide for 2024, these components would put us in the range of $1 billion of net-free cash flow before one-time spin-related costs for 2024. We expect to see a significant reduction in one-time spin-related costs in 2024, about 40% lower than 2023, and then again, an even larger reduction in 2025. And beyond 2025, we expect one-time spin-related costs to be diminished; you can see on this slide an additional reporting line for other one, which is a catch-all line item for any one-time costs that are not spin-off related. For 2023, that $35 million represents the first of three annual installment payments in the $80 million settlement of the microspherics litigation.
Going forward other items that may appear in this line item include costs related to restructuring as well as costs related to optimizing our manufacturing and supply network as we continue to separate those activities for Merck.
<unk> activities that will enable organon to redefine our appropriate sourcing strategy and move to fit for purpose supply chains, while focusing on delivering efficiencies.
By order of magnitude, we're talking about a total of a few hundred million dollars from now until the end of 'twenty 31, when our last MSA with Merck will terminate.
These investments are not likely to be substantial in any given year and because they are aimed at improving productivity. They will be gross margin accretive over time.
Turning to our net leverage ratio on slide 16.
We ended the year at four one times net leverage which is a significant improvement over third quarter and in.
In addition to the strong Q4 cash flow, we dropped the low fourth quarter EBITDA of last year. However.
However, the strength in the euro at the end of the year increase the translated value of our euro denominated debt by about $100 million.
Matthew M. Walsh: Going forward, other items that may appear in this line item include costs related to restructuring, as well as costs related to optimizing our manufacturing and supply network as we continue to separate those activities from MERC. These are activities that will enable Organon to redefine our appropriate sourcing strategy and move to fit-for-purpose supply chains while focusing on delivering efficient. By order of magnitude, we're talking about a total of a few hundred million dollars from now until the end of 2031, when our last MSA with Merck will terminate. These investments are not likely to be substantial in any given year, and because they're aimed at improving productivity, they will be gross margin accretive over time. Turning to our net leverage ratio on the slide, we ended the year at 4.1 times net leverage, which is a significant improvement over the third quarter. In addition to the strong Q4 cash flow, we dropped the low fourth quarter EBITDA of last year. However, the strength in the euro at the end of the year increased the translated value of our euro-denominated debt by about $100 million.
As we think about 2024, the anticipated EBITDA phasing quarter by quarter suggests that the net leverage ratio could tick higher in the first half of 2024 and come down in the back half ending the year just under four times net leverage.
Now turning to 2024 guidance on slide 17, where we highlight the items driving our 2020 for revenue guidance range of six two to $6 $5 billion.
Beginning with L O b.
We expect an approximate $70 million to $90 million impact for the full year 2024. This is primarily for Matt is that which went live in Japan in 2023 and will lose exclusivity in the EU later this year as well as the provision for delay or in the U S, where we had been expecting a generic since 2020.
Turning to be BP, we expect VPN back to be in the range of $30 million to $50 million for full year 2024, lower than what we saw in 2023 as we lap the impact from <unk> and Remeron and highest <unk> inclusion.
Our range also assumes that the implementation of around 10 could include Fosamax later in the year.
Matthew M. Walsh: As we think about 2024, the anticipated EBITDA phasing quarter by quarter suggests that the net leverage ratio could tick higher in the first half of 2024 and come down in the back half, ending the year just under four times net leverage. Now turning to 2024 guidance on slide 17, where we highlight the items driving our 2024 revenue guidance range of $6.2 to $6.5 billion. Beginning with LOE, we expect an approximate $70 to $90 million impact for the full year of 2025. This is primarily from Adazet, which went LOE in Japan in 2023 and will lose exclusivity in the EU later this year, as well as a provision for Delaire in the U.S., where we have been expecting a generic since 2020.
By the end of 2024, we expect approximately 85% of the portfolio will have gone through V. P.
We expect the impact from price to be in the 150 to 200 million dollar range and that's about two 5% to three percentage points compared with the pretty low impact of one five percentage points, we saw in 2023.
And this is really more in the normal range of what we would expect for our business.
And for volume, we expect growth of approximately $400 million to $550 million with most of the volume coming from our growth pillars, Nexplanon fertility jada biosimilars in China retail as well as now the latest edition of Lilly's and <unk> and <unk> in Europe.
And finally based on current spot FX rates FX could be a 50 to 100 million dollar headwind to revenue in 2024 or a range of 80 to 160 basis points.
Matthew M. Walsh: Turning to VBP, we expect VBP impact to be in the range of $30 to $50 million for full year 2024, lower than what we saw in 2023 as we lapped the impact of Ezetrol and Remeron and Hyzar's inclusion. Our range also assumes that the implementation of round 10 could include Fosamax later in the year. By the end of 2024, we expect approximately 85% of the portfolio will have gone through VBP. We expect the impact from price to be in the $150 to $200 million range, and that's about 2.5 to 3 percentage points compared with the pretty low impact of 1.5 percentage points we saw in 2023. And this is really more in the normal range of what we would expect.
Together. These factors resulted in full year revenue guidance of six two to $6 $5 billion, which represents constant currency revenue growth a bit over two five percentage points at the midpoint.
That's consistent with our guide of low single digit growth that we provided of J P. M back in January and it would be our third consecutive year delivering constant currency revenue growth.
Moving to other components of guidance on slide 18 reiterating.
Reiterating Kevin's comments around margin our objective in 2024 is to deliver a P&L that combines constant currency revenue growth with potential operating leverage we've incorporated this into our adjusted EBITDA margin range.
Matthew M. Walsh: And for volume, we expect growth of approximately $400 to $550 million, with most of the volume coming from our growth pillars, Nexplanon, Fertility, Jada, Biosimilars, and China Retail, as well as now the latest addition of Lilly's M-Gality and RayVal. And finally, based on current spot FX rates, FX could be a 50 to $100 million headwind to revenue in 2024, or Together, these factors result in full-year revenue guidance of $6.2-$6.5 billion, which represents constant currency revenue growth of a bit over 2.5 percentage points in the mid-2000s.
So let's talk about the components of that adjusted EBITDA margin guide.
From an adjusted gross margin perspective, we delivered 62, 7% adjusted gross margin in 2023.
And we're guiding to a range of 61% to 63% for 2024.
Over time, we aim to improve this metric in part through the network optimization efforts I discussed.
So to deliver adjusted EBITDA margin expansion productivity pickup will need to come from operating expenses.
In SG&A, we will have product launches like Zasyadko had Lima and expansion for Jade internationally, but these growth investments will be largely offset by cost management efforts achieved broadly across the company.
Matthew M. Walsh: That's consistent with our guide of low single-digit growth that we provided at JPM back in January, and it would be our third consecutive year delivering constant currency revenue. Moving to other components of guidance on this slide, Reiterating Kevin's comments around margin, our objective in 2024 is to deliver a P&L that combines constant currency revenue growth with potential operating leverage. We've incorporated this into our adjusted EBITDA margin. Let's talk about the components of that adjusted EBITDA margin. From an adjusted gross margin perspective, we delivered 62.7% adjusted gross margin in 2023, and we're guiding to a range of 61 to 63% for 2024. Over time, we aim to improve this metric in part through network optimization efforts. However, to deliver adjusted EBITDA margin expansion, productivity pickup will need to come from operations.
As we think about phasing for the year, you can probably peanut butter spread revenue.
Margins will likely be better in the second half compared to the first half as we implement those companywide cost savings.
For R&D, the midpoint of that range would represent about a $50 million year over year improvement.
Because the IP R&D payments are hard to forecast. This number does not include any estimate of IP R&D in 2024.
The potential milestone payments in 2024 would be primarily related to the two biosimilar assets in development with our partner Shanghai Henley's.
<unk> and Denosumab and none of which are individual materially.
On below the line items interest expense should be a bit lower in 2024 based on current interest rates and lower debt balances year on year.
Just a reminder, that our interest expense guide assumes no movement in short term rates any rate cuts by the fed during 2024 would create upside to our interest expense guidance.
Depreciation ticks up a bit this year and that's related to the implementation of our ERP system.
Matthew M. Walsh: In SG&A, we will have product launches like Zasciato, Hedlima, and expansion for Jada internationally, but these growth investments will be largely offset by cost management efforts achieved broadly across the board. As we think about phasing for the year, you can probably guess that margins will likely be better in the second half compared to the first half as we implement those company-wide costs. For R&D, the midpoint of that range would represent about a $50 million year-over-year improvement. However, because IPR&D payments are hard to forecast, this number does not include any estimate of IPR&D in 2024. Potential milestone payments in 2024 would be primarily related to the two biosimilar assets in development with our partner Shanghai Henley, Tuzumab and Denosumab, none of which are individual materials.
With respect to tax.
Like most international companies, we are dealing with the implementation of pillar two as a result of that and other impacts we expect our effective tax rate to go up.
In 2023 and 2022, our first two full years as a public company our effective non-GAAP tax rate was low about 18% because we benefited from the termination of a tax holiday.
Absent that benefit our effective tax rate would have been several points higher.
The impact of that termination together with the implementation of pillar two we will increase our tax rate over the next few years, beginning with 2024 for which we are guiding to a range of $18, 5% to 25%.
Beyond 2024 is when we would start to see a more material increase in the rate.
Matthew M. Walsh: On below-the-line items, interest expense should be a bit lower in 2024 based on current interest rates and lower debt balances year-on-year. It's just a reminder that our interest expense guide assumes no movement in the short term. Any rate cuts by the Fed during 2024 would create upside to our interest expense. Appreciation ticks up a bit this year, and that's related to the implementation of RERP with respect to TAC. Like most international companies, we are dealing with the implementation of Pillar 2. As a result of that, and other impacts, we expect our effective tax rate to go up. In 2023 and 2022, our first two full years as a public company, our effective non-gap tax rate was low, about 18%, because we benefited from the termination of the tax attack. Absent that benefit, our effective tax rate would have been several points higher.
These impacts and the increase in U S guilty rates become fully realized.
In closing it was a strong end to 2023 and we're optimistic that we can deliver on a third consecutive year of constant currency revenue growth that is also accompanied by some bottom line margin improvement and free cash flow of approximately $1 billion before one time items.
Now, let's turn the call over to Q&A.
The floor is now open for your questions to ask a question at this time simply press star followed by the number one on your telephone keypad.
We ask that you please limit yourself to one question and one follow up question.
We will now take a moment to compile our roster.
Our first question comes from the line of Umar wrap it with Evercore ISI. Please go ahead.
Good morning, guys. Thanks for taking my question and follow up.
I know theres been a fair amount of investor confusion on what you guys are messaging exactly on dividend can you confirm you're fully committed to maintaining the current dividend regardless of any M&A intense and also could you just remind us the working capital unwind in Q4, what exactly drove that.
Matthew M. Walsh: The impact of that termination, together with the implementation of Pillar 2, will increase our tax rate over the next few years, beginning with 2020, for which we are guiding to a range of 18.5 to 20.5. Beyond 2024 is when we would start to see a more material increase in the rate as these impacts and the increase in U.S. guilty rates become fully real. In closing, it was a strong end to 2023, and we're optimistic that we can deliver on a third consecutive year of constant currency revenue growth that's also accompanied by some bottom-line margin improvement and free cash flow of approximately $1 billion before one time. With that, now let's turn the call over to Q&A. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.
So let me, let me take that rumor and it's good to hear from you.
Yes, you heard me at J P. M. B very declarative that we are very committed to be able to service our dividend and there was a question around free cash flow and clearly I mean with $940 million. It gives us quite a bit of space in order to be able to comfortably not only pay our dividend, but also do some of the tuck ins that you've seen.
Most recently with the Lilly deal so absent any major M&A, which is not what we're looking at we're looking at tuck ins because they we've been able to prove and I signaled in my script.
The kind of size that these all of these tuck ins pulled together actually represent theyre very meaningful and so dividend continues and it's our focus and in regards to your last question around free cash flow just for essentially net working capital that we started to work greater on our focus on net working capital and more specifically.
Operator: We ask that you please limit yourself to one question and one follow-up question. We'll now take a moment to compile our raw, Our first question comes from the line of Umar Rafat with Evercore ISI. Please go ahead. Good morning, guys.
ERP costs started to come down a little bit less than we had anticipated. So overall, we believe it's a very solid sign that we can continue to drive to a $1 billion of free cash flow in this year.
Yes.
Thank you.
Yeah.
Our next question comes from the line of Jason <unk> with Bank of America. Please go ahead.
Matthew M. Walsh: Thanks for taking my question and following-up. I know there's been a fair amount of investor confusion on what you guys are messaging exactly on the dividend. Can you confirm you're fully committed to maintaining the current dividend regardless of any M&A intents? And also, could you just remind us about the working capital unwind in Q4? What exactly drove that? So let me take that, Umer, and it's good to hear from you.
Hey, guys. Thanks for taking my question My question.
Kevin is just regarding I guess the year Teva disclosed the generic Nexplanon program Im wondering how youre thinking about barriers to entry prior to 2027.
Looking at the FDA kind of generic equivalents guidance for next banana and it does mention it.
Matthew M. Walsh: Yeah, you heard me at JPM be very declarative that we are very committed to being able to service our dividend. And there was a question around free cash flow. And clearly, I mean, with $940 million, it gives us quite a bit of space in order to be able to comfortably not only pay our dividend but also do some of the tuck-ins that you've seen most recently with the Lilly deal. So absent any major M&A, which is not what we're looking at, we're looking at tuck-ins because we've been able to prove, and I' They're very meaningful.
Provision for like accelerated comparative in vitro release testing and so if you get this five year study.
For the intended period of huge just did you expect generics are going to need to do five year comparative in vitro release testing or do you think that this provision for an accelerated in vitro release testing is something that.
Is it Surmountable just curious sort of any perspective, you can offer on that would be great. Thanks.
Yeah.
They landed up with a run rate.
Matthew M. Walsh: And so the dividend continues, and it's our focus. And in regards to your last question around free cash flow, it's just essentially networking capital that we started to work on our focus on networking capital, and more specifically around ERP costs started to come down a little bit less than we'd anticipated. So overall, we believe it's a very solid sign that we can continue to drive to $1 billion of free cash flow this year. Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of Jason Gerberi with Bank of America. Please go ahead.
Colin.
Having technical difficulties here first bucket.
Kevin you earlier, we are able to hear you are my did opened a backup line.
Okay.
Okay.
Okay.
Hi, Kevin can you hear me.
Okay.
Yes.
Yes.
Hello there.
Thank you Kevin.
Okay.
Jason.
Yes can you hear me.
Okay.
Your question was taking my question.
Yes, you got cut off on Teva and FDA Nexplanon.
Yeah I came here I can repeat it. So just curious you know obviously that the Teva generic program was announced this year and so I just wonder how youre thinking about barriers.
Operator: Hey guys, thanks for taking my question. My question, Kevin, is just regarding, I guess, this year, Teva disclosed the generic Nexplanon program. I'm wondering how you think about barriers to entry prior to 2027. I'm looking at the FDA's generic equivalence guidance for Nexplanon, and it does mention there's a provision for like accelerated comparative in vitro release testing, and so if you get this five-year study for the intended period of use, do you expect generics are going to need to do five-year comparative in vitro release testing, or Just curious; sort of any perspective you can offer on that would be great.
To a generic entry of prior to 2027 I mean, the one thing when I look at the FDA as generic equivalents guidance for an expert on is whether or not.
One can do an accelerated comparative in vitro release test.
Actually if you get the five year study that changes the intended period abuse I presume that would change to five years.
But I'm wondering how you view the feasibility of doing accelerated in vitro release testing and just ultimately it seems pretty critical right to the assumption of whether theres any generic risk prior to 2027, if teva were to file an IPR or something to try to expedite the patch.
Operator: The line dropped. We're having technical difficulties here for a second. Kevin, can we hear you? Yes, we are able to hear you. I did open the backup line.
Operator: Okay. Hi, Kevin. We can hear you. Thank you. Hello. We can hear you, Kevin.
Yes, Jason there is nothing that I see from the FDA in terms of guidance around kind of breaking the patent that we have clearly through the end of 2027, but the issue to keep in mind.
Kevin Oliver: Okay, Jason. Yes. Can you hear me?
Kevin Oliver: Okay. Yeah, I can hear you. Your question, would you get my question? Yeah, we got cut off on Teva and FDA Nexplanon. Yeah, again. I can repeat it.
More importantly, what it was.
However announces what their intent is in terms of their focus on where they want to come in next the FDA had never approved any complex generic drug during the first cycle review.
We expect historically its been anywhere between two and a half to four year approval timelines from the initial Anda submission I'll give you. An example for us nuvaring, which is by far much less complex by far by a magnitude of many times than something like <unk>, which is a medicated vas.
Kevin Oliver: So, the TEBA generic program was announced this year, so I'm just wondering how you're thinking about barriers to generic entry prior to 2027. I mean, the one thing when I look at the FDA's generic equivalence guidance for an explanon is whether or not one can do an accelerated comparative in vitro release test, especially if you get the five-year study that changes the intended period of use, which I presume that would change to five years. But wondering how you view the feasibility of doing accelerated in vitro release testing and, ultimately, you know, it seems pretty critical to the assumption of whether there's any generic risk prior to 2027 if Teva were to file an IPR or something to try to expedite the pass.
Vaginal ring for four for contraception. The first generic received FDA approval after almost a 30 month delay.
Teva Nuvaring now that Youre big enough Teva neighborhood, Teva Nuvaring generic took eight years to get to the market.
If we take that we take that timeline youre talking about 2030 minimum introduction and on top of that we have the youre going to have to have your own proprietary device. Our device. Our applicator device has patent protection through 2030, so you're going to have to do your own proprietary applicator device design and.
And then launch it and finally youre going to have to start investing in sales force and medical affairs people because you need to have people, who actually are training physicians.
In order to be able to insert and remove this product and keep in mind. Finally, this is a buy and bill product. This is not a normal product in that respect it's much more difficult. So I have been saying for years and I can get into all the intricacies that I do not expect any major issue with excellent on between now and the end of the decade I do expect that we're going.
Kevin Oliver: Yeah, Jason, there's nothing that I see from the FDA in terms of guidance around kind of breaking the patent that we have clearly through the end of 2027. But the issue to keep in mind, and more importantly, right, whoever announces what their intent is in terms of their focus on where they want to come in next, the FDA has never approved any complex generic drug during the first cycle review. I mean, historically, it's been anywhere between two and a half to four years for approval timelines from the initial ANDA submission. I'll give you an example.
To have the data at the end of this year for the five year indication and we will be able to launch that probably when we decide on the 2025 26 timeframe, which will take essentially exclusivity through the end of the decade.
Okay.
Got it thank you.
Sure.
Our next question comes from the line of Nevada tie with BNP Paribas. Please go ahead.
Hi, good morning, Thanks for taking my question.
Can you detail further your 2024 assumptions on operating expense management, where cost management will be focused on.
Kevin Oliver: For us, Nubarin, which is by far much less complex, by far, by a magnitude of many times more than something like Nexplanon, which is a medicated vaginal ring for contraception, the first generic received FDA approval after almost a 30-month delay. And Teva's Nubarin, now that you bring up Teva, Teva's generic took eight years to get to the market. If we take that timeline, you're talking about a 2030 minimum introduction. And on top of that, you're going to have to have your own proprietary device. Our device, our applicator device, has patent protection through 2030. So you're going to have to do your own proprietary applicator device design and then launch it.
One of your remaining tenders in Latin America that we should be aware of.
My second question is about the Pbms environment in 2024, do you expect more pbms to photo Cvs Caremark for instance.
Yeah, Let me let me start the call let me start with the last question and move backwards.
So we're getting.
Since the beginning we've really been focused on essentially the pbms and payers and providers across the country, who are focused on.
<unk> focused on low net cost.
We are getting we are getting some of the uptake that we're having actually involved in terms of the different pbms that we've gotten to date and we continue to add more pbms on our access Paul.
Kevin Oliver: And finally, you're going to have to start investing in a sales force and medical affairs people because you need to have people who actually are training physicians in order to be able to insert and remove this product. And keep in mind, finally, this is a buy-and-build product. This is not a normal product in that respect. It's much more difficult.
Our focus has been really very successful you've heard the most recent news that we work in that we were named as the sole manufacturer for Biosimilars for Humira for the VA. So that's that's a very nice tuck in and that will have a halo effect as well in the rest of the communities that actually have heavy heavy VA type of participation.
We continue to see the market form in 2024 as I have been saying.
More market formation, although it will be a stronger year, obviously for had Lima. This year and then youll see much more of a breakthrough that I, what I would consider to be the breakthrough in 2025 and beyond so that that's what I would signal in terms of our access capacity and in terms of.
Kevin Oliver: So I have been saying for years, and I can get into all the intricacies, that I do not expect any major issues with Nexplanon between now and the end of the decade. I do expect that we're going to have data at the end of this year for the five-year indication. And we'll be able to launch that probably when we decide in the 2025-2026 time frame, which will take, essentially, exclusivity through the end of the decade. Got it.
And in terms of your first question around cost management look I mean, we know what we know now when.
When we spun out two and a half years ago.
There were inefficiencies around the company that we've been able to really kind of Taylor.
Taylor down on and so all the kind of discussions that we're having about opex savings in this year are not one time in.
And character.
Things that we can continue to be able to deliver.
Kevin Oliver: Thank you. Schott, Matthew Walsh, David Amsellem, Organon. Our next question comes from a line from Nevanti with BNP Paribas. Please go ahead. Hi, good morning.
Forward. So it's not as if youll see a bounce back of our Opex next year, but rather just continuing focus on efficiencies.
Go forward and then.
Final question was.
Kevin Oliver: Thanks for taking my question. Can you detail further your 2024 assumptions on operating expense management, where cost management will be focused on, as well as your remaining tenders in Latin America that we should be aware of? And my second question is about the PBM environment in 2024. Do you expect more PBMs to follow CVS Caremark, for instance? Thank you. Yeah Let me start. Yvonne, let me start with the last question and move backwards.
On.
Next one on <unk>.
With tenders tender, yes, so look I mean, we.
We had that that news around Mexico tender last year, but there is no further declines this year, there's no more I mean, we're actually starting to see significant growth in Mexico again outside of the tender business.
We don't see that as being at all in 2024 as a.
As a headwind rather we see a lot of tailwind for <unk> in 2024, it will be a solid year in 2024 no doubt.
Thank you.
If I can add just the four times net leverage below four times net leverage do you expect to do any voluntary debt prepayments. In addition to our EBITDA growth.
Kevin Oliver: So we're getting, you know, since the beginning, we've really been focused on essentially the PBMs and payers and providers across the country who are focused on low net cost. And essentially, we are getting some of the uptake that we're having actually involved in terms of the different PBMs that we've got to date, and we continue to add more PBMs on. Our access, our access focus has been really very successful. You've heard the most recent news that we were named as a sole manufacturer for biosimilars for Humira for the VA. So that's a, that's a very nice tuck in, and that'll have a halo effect as well in the rest of the communities that actually have heavy, heavy VA type of participation. So we continue to see the market form in 2024, as I've been saying. More market formation, although it'll be a stronger year, obviously, for HEDLIMA this year.
Close to the 1 billion annual free cash flow.
I can take that one.
The guide on net leverage.
Ratio would've IV would be independent Nevada of any debt prepayments.
However, we will be generating sufficient net cash flow during the year to once again have that.
That decision that we always have with respect to investments in growth assets versus early prepayment of debt, but the net leverage ratio guide it doesn't it doesn't anticipate.
Any debt prepayments, but once again the nature of that calculation is independent of it.
Kevin Oliver: And then you'll see much more of a breakthrough that I would consider to be the breakthrough in 2025 and beyond. So that's what I would signal in terms of our access capacities. And in terms of, in terms of your first question around cost management, look, I mean, we know what we know now. You know, when we spun out two and a half years ago, there were inefficiencies all, you know, around the company that we've been able to really kind of tailor down on. And so all the kind of discussions that we're having about op-ex savings this year are not one time in, in, in, in, in.
Thank you.
Yeah.
Our next question.
Comes from the line of blogging Prasad with Barclays. Please go ahead.
Hi, good morning, and thank you for the questions.
A couple of Penny helpful bridges in the in the deck, but just wanted to push my luck OPM bridge.
As I look at the operating margin guidance, our EBITDA guidance for 2024 can you speak all the drivers for the improved outlook I see that you are looking at around 200 basis points on the higher end of the range. Despite no material benefits coming in from gross margins on deals SG&A.
Kevin Oliver: They're the kind of things that we can continue to be able to deliver going forward. So it's not as if you'll see a bounce back in our op-ex next year but rather just a continuing focus on efficiencies going forward. And then the final question was on Nexplanon in Latin America for tenders. Tenders, yeah.
That's one and secondly on at Lima, again plenty of interesting growth, leading all <unk> could you help us understand what you're factoring for 2024 in our guidance and how will the potential launch of an interchangeable high concentration was in effect.
Kevin Oliver: Yeah, so look, I mean, we had that news around Mexico tender last year, but there's no further declines this year, there's no more. I mean, we're actually starting to see significant growth in Mexico again outside of the tender business. So we don't see that as being an issue at all in 2024 as a headwind.
Hadley much specifically thank you.
So I can take the first part of that question Yeah, Yeah, Yeah. So in terms of how we're going to deliver.
Kevin Oliver: Rather, we see a lot of tailwind for Nexplanon in 2024. It'll be a solid year in 2024, no doubt. Thank you. If I can add just four times net leverage, below four times net leverage. Do you expect to do any voluntary debt prepayments in addition to EBITDA growth and close to the $1 billion annual free cash flow? I can take that one. The guide on the net leverage ratio would be independent, Navant, of any debt prepayments. However, we will be generating sufficient net cash flow during the year to, once again, have that decision that we always have with respect to investments in growth assets versus early prepayment of debt. But the net leverage ratio guide doesn't anticipate any debt prepayments.
Improved margins in 2020 for it it's really coming down to operating expense improvements as we talked about in the in the prepared comments, Kevin just alluded to it so we've.
We've.
Curtailed the number of <unk>.
Pipeline projects that we have in the R&D.
Face as we look carefully at those.
All of those projects.
In the context of new information some of them just were not meeting our economic return requirements and so youll see thats whats driving the R&D number lower.
Matthew M. Walsh: But, once again, the nature of that calculation is independent of. Thank you. Our next question comes from the line of Balaji Prasad with Barclays. Please go ahead. Hi, good morning, and thank you for the questions. There are a couple of pretty helpful bridges on the deck, but I just want to push my luck there with the OPM bridge.
B broadly.
Containing costs across the SG&A space, while still providing for investments in the product launches as we alluded to in the.
In the in the prepared comments, but also in 2023, we did have over $40 million of FX losses that were not expecting to recur in 2024, we don't we don't forecast that kind of thing, but it was embedded in the 2023 actually.
Operator: As I look at the operating margin guidance or EBITDA guidance for 2024, can you speak about the drivers for this improved outlook? I see that you're looking at around 200 basis points on the higher end of the range, despite no material benefits coming in from gross margins or reduced SG&A. That's one.
And that is an element that drives the improvement year on year as well.
Yes.
Operator: And secondly, on ADLIMA, again, pretty impressive growth leading all biosimilar versions. Could you help us understand what you're factoring for 2024 in your guidance, and how will the potential launch of an interchangeable high concentration version affect ADLIMA specifically? Thank you.
And below in terms of your question around head Lima, and while we expect this year I mean, we're not giving kind of guidance by product, but what I will say is this we are currently the number one market share as seen in teams in terms of <unk> and <unk>. Among all the six or more that were launched last January and we actually passed and Davita.
For Trs performance and that were launched six months before us. So we feel very strong about our performance and in terms of interchange ability.
Matthew M. Walsh: So in terms of how we're going to deliver improved margins in 2024, it's really coming down to operating expense improvements. As we've talked about in the prepared comments, Kevin just alluded to that. So we've curtailed the number of pipeline projects that we have in the R&D space. As we looked carefully at all of those projects in the context of new information, some of them just were not meeting our economic return requirements. And so you see that's what's driving the R&D numbers lower.
That's going to they've already basically finished the study submitted so we expect to have interchange ability within what four months from now so it is not going to be a major factor for us in terms of the opportunity to compete we're in a very strong position as I've said, if the market goes from $20 billion peak net revenue.
For for Humira and down ultimately one day in the future down to let's just say worst case scenario, two 2, billion% to 90% discount to that original peak and you've got say I've always said you got to be in the top two or three where number one right now but lets assume that we are conservatively in the top two or three we'll be able to deliver the type of.
Matthew M. Walsh: We'll be broadly containing costs across the SG&A space while still providing for investments in the product launches, as we alluded to in the prepared comments. But also, in 2023, we did have over $40 million of FX losses that we're not expecting to recur in 2024. We don't forecast that kind of thing.
Peak revenues that we said we were going to do in a couple of one hundreds of millions. It's just at the time continuum stretches out that's all.
Thank you.
Okay.
Yes.
Our next question comes from the line of Chris Schott with J P. Morgan. Please go ahead.
Matthew M. Walsh: But it was embedded in the 2023 actuals, and that is an element that drives the improvement year on year as well. And Balaji, in terms of your question around Hedlema and what we expect this year, I mean, we're not giving any kind of guidance by product, but what I will say is this. We are currently the number one market share, as you've seen, in terms of TRX and NRX, among all the six or more that were launched last January, and we actually passed Amgevita for TRX performance, which were launched six months before us. So we feel very strong about our performance, and in terms of interchangeability, that's going to, they've already basically finished the study, and we expect to have interchangeability within, what, four So it is not going to be a major factor for us in terms of the opportunity to compete.
Great. Thanks, just two questions from me maybe first one just matched how should I think about EBITDA margins progressing beyond 2024.
Just high level is this 31% to 33% range a decent wanted to think about going forward.
Or can we see margin expansion. So basically some of the cost opportunities you're talking about are those largely captured this year or is there more opportunity and the second one for me was just on business development.
What does the funnel look like for more <unk> type transactions out there is there a wide range of these deals that you can look at or are these more kind of one off.
Opportunities for the company. Thanks, so much.
So I'll take that question.
Yes.
On margin expansion beyond 2024, I think youll see it come come from potentially three places.
Kevin Oliver: We're in a very strong position. As I've said, you know, if the market goes from $20 billion peak net revenue for Humira and ultimately one day in the future, down to, let's just say, worst case scenario, $2 billion, a 90% discount to that original peak, and you've got, say, I've always said, you've got to be in the top two or three. We're number one right now, but let's assume that we're conservatively in the top two or three. We'll be able to deliver the type of peak revenues that we said we were going to do within a couple of hundreds of millions. It's just that the time continuum stretches out a bit.
We believe we can continue to grow revenues faster than our need to build the infrastructure around it. So we will get leverage over our fixed costs similar to what we are starting to realize this year.
Then over time as I mentioned in the prepared comments.
As we start to Peel away all of our manufacturing from Merck. These are margin up opportunities as they happen.
Operator: Our next question comes from the line of Chris Schott with J.P. Morgan. Please go ahead. Great, thanks. Just two questions for me. Maybe the first one is just, Matt, how should I think about EBITDA margins progressing beyond 2024? Is this just a high level?
That will be on a bit of a longer.
Longer cycle time for those and then I think as we as we roll out beyond 2024.
I'll have higher contribution in our revenue our revenue mix from some of the newer things that were either Onboarding now, where we expect to be able to onboard those will all be higher margin.
Christopher Thomas Schott: Is this 31 to 33% range a decent one to think about going forward? Or will we see margin expansion? So basically, you know, some of the cost opportunities you're talking about, are those largely captured this year? Is there more opportunity? And the second one for me was just on business development. What does the funnel look like for more, I guess, MGALITY-type transactions out there? Is there a wide range of these deals that you can look at? Or are these more of a one-off opportunities for the company? Thanks so much.
So we've got the potential there on product mix of course that will depend on how fast other parts of our business grow Biosimilars for example.
And.
So that product mix is a bit of a question Mark, which we will provide more clarity to us as those time periods draw closer.
Kevin Oliver: So I'll take the first part of the question. Yeah. On margin expansion beyond 2024, I think you'll see it come from potentially three places. We believe we can continue to grow revenues faster than our need to build the infrastructure around it. So we'll get leverage over our fixed costs, similar to what we're starting to realize this year. Then, over time, as I mentioned in the prepared comments, as we start to peel away all of our manufacturing from Merck, these are margin-enhancing opportunities as they happen. That'll be on a bit of a longer cycle time for those. And then I think as we roll out beyond 2024, we'll have higher contribution in our revenue, our revenue mix from some of the newer things that we're either onboarding now or we expect to be able to onboard. Those will all be higher-margin.
Chris Chris Great to hear your voice and I will say that in regards to the.
Essentially two to our BD component, if you think about the <unk> product in terms of launch in the European Union.
We see that as essentially a $170 million peak revenue business. If you put all of the BD stuff that we've done just a commercial stage assets.
We've done some spend we're talking about when you put all the peaks together youre talking about $750 million of potential obviously upside opportunities in terms of growth. We are working on a lot of generic a lot of regional business development deals I mentioned to you when I saw you in San Francisco that we've got some China.
For China deals lined up we've got some European deals more lined up so to answer your question. It's not a one off there is there's plenty in the Q that ultimately we can go after that are really nice nice opportunities for continuing revenue growth and EBITDA growth.
Matthew M. Walsh: So we've got the potential there in terms of product mix. Of course, that'll depend on how fast other parts of our business grow, biosimilars, for example. So that product mix is a bit of a question mark, which we'll provide more clarity on as those time periods draw closer, and Chris. Chris, great to hear your voice.
Yes.
Our next question comes from the line of Chris Schmidt Ragga ROM with Goldman Sachs. Please go ahead.
Hi, Krishna on for Chris. Thank you so much.
Kevin Oliver: And I will say that in regards to our BD component, if you think about the Mgality product in terms of launch in the European Union, we see that as essentially a $170 million peak revenue business. If you put all of the BD stuff that we've done, just the commercial stage assets that we've done since spin, we're talking about when you put all the peaks together, you're talking about $750 million of potential, obviously, upside opportunities in terms of growth. We are working on a lot of regional business development deals. I mentioned to you when I saw you in San Francisco that we've got some China for China deals lined up. We've got some more European deals lined up. So to answer your question, it's not a one-off.
In regards to your women's health.
What are kind of the key positive growth.
Dynamics are weighing on market growth.
Oregon's portfolio positioned to address these dynamics going forward.
Krishna.
Look I mean, we're very.
Very confident on what we're going to do this year with our women's health franchise, if I pull it apart.
We decided to take a new kind of go to market approach to pricing for next one on we're going to take full pricing this year.
We've reduced our 340 b voluntary discount we pulled that so theres going to be a lot of reasons to believe the Nexplanon will continue to do very very this will be a strong year for <unk> globally, because we don't have some of the headwinds we started with last year and ultimately we're in a good position and Exelon itself has now taken over the number one number.
Kevin Oliver: There are plenty in the queue that, ultimately, we can go after that are really nice opportunities for continuing revenue growth and EBITDA growth. Our next question comes from the line of Karishma Raghuram with Goldman Sachs. Please go ahead. Thank you. Thank you. Thank you.
<unk> positioned in the large segment in the United States, which represents about 70% of our business globally. So we feel very good about that fidelity fertility fertility grew 9% as I mentioned high single digits last year and this year, we assume the same driven in large part by China and the U S. We put the China.
Operator: Krishna, look, I mean, we're very, very confident about what we're going to do this year with our women's health franchise. If I pull it apart, we decided to take a new kind of go-to-market approach to pricing for Nexplanon. We're going to take full pricing this year.
The U S businesses together that represents about 60% of our overall business, but then we've got opportunities in some of the regions like the Humira region, which we've had some recent launches and opportunities to continue to even drive hopefully beyond the high single digit area, but that's what we're focused on right now and Youre talking about data data is the opportunity there.
Kevin Oliver: We've reduced our 340B voluntary discount, we pulled that, so there's going to be a lot of reasons to believe that Nexplanon will continue to do very, very, this will be a strong year for Nexplanon globally, because we don't have some of the headwinds we started with last year, and ultimately, we're in a good position, and Nexplanon itself has now taken over the number one position in a large segment in the United States, which represents about 70% of our business globally, so we feel very good about that. Fertility, fertility grew 9%, as I mentioned, high single digits last year, and this year we assume the same, driven in large part by China and the U.S., we put the China and the U.S. businesses together, that represents about 60% of our overall business, but then we've got opportunities in some of the regions, like the La Mera region, which we've had some recent launches and opportunities to continue to even drive, hopefully beyond the high single digit area, but that's what we're focused on right now.
It's really I mean, we are at the steep and of the launch curve, we did very well with over $40 million of sales just in the U S. We have opportunities to do two things with data to see is to continue to move to its peak what I would consider global peak in the two hundreds in terms of millions because now we're launching in the EU this year some.
During between now and the end of the year, we are launching in a number of other emerging market countries and so we <unk>.
Have opportunities to really drive the EU and then we got Brazil launch at the end of 2023, which is a very large a nice piece of business to get as well so that data and then when we talk about oral contraceptive oral contraceptive continue and we had we brought back.
The Marvel on personal loan business in the Asia Pacific region, including China, Vietnam, Macau, and and that continues to do well with more than 25% growth in 2023, and continuing double digit growth that we see strong double digit growth with that oral contraceptive franchise. So you put those things together and you see that.
Kevin Oliver: And you're talking about Jada, Jada is the opportunity there, it's really, I mean, we're at the steep end of the launch curve. We did very well with over $40 million in sales just in the U.S. We have opportunities to do two things with Jada, to see it continue to move to its peak, what I would consider a global peak in the 200s, in terms of millions, because now we're launching in the EU this year, sometime between now and the end of the year, we're launching in a number of other emerging market countries, and so we have opportunities So that's Jada.
Our women's health businesses.
It's diversified it's getting stronger we had a launch of <unk>.
Zasyadko, it's very small right now in the U S and.
And then we'll see how that we'll see how that come through but we're in discussions right now with payers in order to get formulary acceptance and hopefully that will start to really kind of generate some nice additional revenue growth for the women's health franchise. As we go forward. So all of that coming through and then of course are our pipeline is actually filled with some very.
Nice assets first and foremost and probably the most important will be $600 nine a very unique mechanism of action to treat nothing has been done before like it to treat endometriosis, our phase II data will read out sometime next year hopefully in the first half of next year and then we will have potentially an asset we can talk much more about in terms of.
Kevin Oliver: And then when we talk about oral contraceptives, oral contraceptives continue, and we have brought back the Marvalon-Mercelon business in the Asia Pacific region, including China, Vietnam, Macau, and that continues to do well with more than 25% growth in 2023 and continuing double-digit growth, we see strong double-digit growth with that oral contraceptive franchise. So you put those things together, and you see that our women's health business is diversified and it's getting stronger. We had a launch of Zasciato, it's very small right now in the U.S., and we'll see how that goes through, but we're in discussions right now with payers in order to get formulary acceptance, and hopefully, that will start to really kind of generate some nice additional revenue growth for the women's health franchise as we go forward.
Breakthrough asset for the treatment of endometriosis.
Thank you so much.
I would now like to turn the call over to Kevin Ali for closing remarks.
Thank you. Thank you we're entering 2020 forwards as you've heard from the discussion. This morning, feeling very good about our about delivering our third year of constant currency growth as a standalone company Nexplanon. Our fertility are positioned for strong performance in 2024, we expect another year of double digit growth.
And our Biosimilars franchise, and we continue to demonstrate our ability to really ensure continued performance of our established brands business.
The combined businesses generate what we expect to be close to $1 billion of free cash flow before one time charges. In 2024. This gives us ample financial flexibility to continue to service our dividend continue to execute on our business development agenda and to make progress towards achieving our net debt to EBITDA ratio of below four.
Kevin Oliver: So all of that is coming through, and then of course, our pipeline is actually filled with some very nice assets. The first and foremost, and probably the most important, will be 6219, a very unique mechanism of action to treat endometriosis, nothing has been done before like it. Our Phase II data will come out sometime next year, hopefully in the first half of next year, and then we'll potentially have an asset we can talk much more about in terms of really a breakthrough asset for the treatment of endometriosis.
By the end of this year.
Thank you very much and we look forward to the next time, we speak.
This concludes today's call you may now disconnect.
Please wait the conference will begin shortly.
Kevin Oliver: I would now like to turn the call over to Kevin Alley for closing remarks. Thank you.
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Kevin Oliver: We're entering 2024, and as you've heard from the discussion this morning, I feel very good about delivering our third year of constant currency growth as a standalone company. Nexplanon and Fertility are positioned for strong performance in 2024. We expect another year of double-digit growth in our biosimilars franchise, and we continue to demonstrate our ability to really ensure the continued performance of our established brands. Look, the combined businesses generate what we expect to be close to a billion dollars of free cash flow before one-time charges in 2024. This gives us ample financial flexibility to continue to service our dividend, continue to execute on our business development agenda, and to make progress towards achieving a net debt-to-EBITDA ratio of below four by the end of this year.
Okay.
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Kevin Oliver: I thank you very much, and we look forward to the next time. This concludes today's call. You may now disconnect.
Okay.
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Operator: Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.
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