Q3 2024 Organon & Co Earnings Call

Standing by my name is Martin deep and I'll be your operator today at this time I'd like to welcome everyone to the Oregon on Q3, 'twenty 'twenty four earnings call webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like that question. During this time simply press star.

Followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one again.

Speaker Change: I would now like to turn the call over to Jennifer haul Jack Vice President Investor Relations you may begin.

Thanks for standing by. My name is Maan Deep and I'll be your operator today. I've just time with like to welcome everyone to the Oregon On Q3 2024 earnings call from the webcast. I'll want to be in place on me to prevent any background noise.

Speaker Change: Thank you operator, good morning, everyone. Thank you for joining Oregon on third quarter 2024 earnings call with me today are Kevin Ali Organon, Chief Executive Officer, and Matt Walsh, Our Chief Financial Officer, as well as one can be a little a phone a surrender organized head of R&D.

After the speech or some hours, there'll be a question and answer session. If you'd like that question during this time, simply press star, followed by the number one on your telephone keypad.

Speaker Change: If you'd like to withdraw your question, press star 1 again. Thank you. I would now like to turn to call over to Jennifer Halchak, Vice President and Bector Relations. You may begin.

Speaker Change: Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. The presentation will also be available. Following this call on the events and presentations section of our Oregon on Investor Relations website at Www Organon Dotcom before.

Jennifer Halchak: Thank you, operator, good morning everyone. Thank you for joining Organ on 3rd quarter 2020 for earnings call.

Speaker Change: 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 companys filings with the securities and exchange.

Jennifer Halchak: with me today are Kevin Ali, Organan Chief Executive Officer and Matt Walsh, our Chief Financial Officer, as well as one Camilo Afrona Ferrera, Organan's Head of R&D.

Jennifer Halchak: Today we'll be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the events and presentation section of our Organon Investor Relations website at www.organon.com

Speaker Change: Commission, including our 10-K and subsequent periodic filings.

Speaker Change: In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation, I'd now like to turn the call over to our CEO Kevin Ali.

Jennifer Halchak: Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements.

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 10K and subsequent periodic filings.

Kevin Ali: Good morning, everyone and thank you Jan welcome to today's call, where we'll talk about our third quarter results.

For the third quarter of 2024 revenue was $1 6 billion, representing a 5% growth rate.

Jennifer Halchak: In addition, we will discuss certain non-gap financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAP. A reconciliation of these non-gap measures to the comparable GAP measures is included in the press release and conference call presentation.

Kevin Ali: Constant currency.

Kevin Ali: The women's health franchise grew 6% or.

Kevin Ali: Our Biosimilars franchise grew 17%.

And our established brands franchise was up 3%.

Kevin Ali: Adjusted EBITDA was $459 million, representing a 29% adjusted EBITDA margin.

Speaker Change: I'd now like to turn the call over to our CEO, Kevin Ali.

Kevin Ali: Good morning everyone. Thank you Jen. Welcome to today's call where we'll talk about our third quarter results.

Kevin Ali: Adjusted EBITDA includes $51 million of IP R&D expense booked in the third quarter worth approximately 320 basis points of margin in the quarter.

Kevin Ali: For the third quarter of 2024, revenue was $1.6 billion representing a 5% growth rate at constant currency. The Women's Health franchise grew 6%. Our biocimilar franchise grew 17%. And our established branch franchise was up 3%.

Kevin Ali: Year to date, we have generated nearly $700 million of free cash flow.

Kevin Ali: We're well on track to deliver our commitment of approximately $1 billion of free cash flow before one time costs in 2024.

Kevin Ali: Our significant free cash flow enables us to comfortably service the dividend and still gives us capacity to invest in high potential assets.

Kevin Ali: The Justice EBITDA was $459 million representing a 29% adjusted EBITDA margin.

Kevin Ali: The Jocity Betta includes $51 million of IPR and the expense booked in the third quarter worth approximately 320 basis points of margin in the quarter.

Kevin Ali: Given our view into the rest of the year, we raised the midpoint of our revenue guidance by $50 million to reflect performance year to date and improved view of foreign exchange. The guidance represents growth of one 8% to two 6% on a nominal basis and three 1% to three 8% ex exchange for the <unk>.

Kevin Ali: You're today, we have generated nearly $700 million of free cash flow and are well on track to deliver our commitment of approximately $1 billion of free cash flow before one time costs in 2024.

Kevin Ali: All year.

Kevin Ali: That would represent our third consecutive year of constant currency revenue growth driven by strong performance in next one on Biosimilars Jada and the addition of <unk> further while it's too soon to be guiding to 2025 on this call at this point in our planning cycle for next year, we believe that organic.

Kevin Ali: Our significant pre-casual enables us to comfortably service the dividend and still gives us capacity to invest in high potential assets.

Kevin Ali: Given our view into the rest of the year, we raised a midpoint of our revenue guidance by $50 million to reflect performance year to date and improve view of foreign exchange. The guidance represents growth of 1.8% to 2.6% on a nominal basis.

Kevin Ali: Growth drivers plus contribution from recent business development will support another year of constant currency revenue growth in 2025.

Kevin Ali: and 3.1% to 3.8% x-x-change for the full year.

Kevin Ali: We're also revising our full year 2024, adjusted EBITA margin range, the new range is 30% to 31%.

Kevin Ali: That would represent our third consecutive year of constant currency revenue growth driven by strong performance in next upon on by our similers, jayda and the addition of him Galilee.

Kevin Ali: Matt will walk you through that bridge, which factors in $51 million of IP R&D in the third quarter.

Kevin Ali: Further, well, it's too soon to be guiding to 2025 on this call. At this point in our planning cycle for next year, we believe that organic growth drivers plus contribution from recent business development will support another year of

Kevin Ali: In addition to reporting our results today, we are able to share more about our derma that acquisition and its key asset the tomo, which we closed on Monday.

Kevin Ali: The Tama has a non steroidal topical cream already approved for the treatment of plaque psoriasis and adult patients with.

Kevin Ali: We're also revising our full year 2024 adjusted EBITDA margin range. The new range is 30% to 31%. Matt will walk you through that bridge, which factors in $51 million of IPRD in the third quarter.

Kevin Ali: <unk> also has a Q4 paducah date for potential new indications the topical treatment of atopic dermatitis in adult and pediatric patients two years of age and older.

The near term potential for the proposed atopic dermatitis indication is the much more attractive opportunity for us for two main reasons first the size of the market. There are three times as many patients suffering from atopic dermatitis as compared to psoriasis.

Kevin Ali: In addition to reporting our results today, we are able to share more about our Dermavan DAC position and its KSZ Vitaama, which we closed on Monday.

Kevin Ali: Vitama is an on-steroidal topical cream already approved for the treatment to plagiarize this in adult patients.

Kevin Ali: And second for those millions of patients if approved we believe the Tama can address an existing gap in the standard of care for atopic tightness.

Kevin Ali: The trauma also has a Q4-peduphidate for a potential new indication, the topical treatment of a topic dermatitis in adults and pediatric patients two years of age and older.

Kevin Ali: There is a significant unmet need in atopic dermatitis for the treatment option with the efficacy of a biologic and with the safety and Tolerability profile of a topical treatment that can be used long term.

Kevin Ali: The near-term potential for the proposed atopic dermatitis indication is the much more attractive opportunity for us for two main reasons. First, the size of the market. There are three times as many patients suffering from atopic dermatitis as compared to psoriasis.

Kevin Ali: This point is especially important as nearly half of all atopic dermatitis suffers our children.

Kevin Ali: Cause of this unique clinical profile, we believe the tomo will be much better positioned in the atopic dermatitis market than it ever was in the psoriasis market in fact in our view the opportunity for <unk> and <unk>.

Kevin Ali: and second, for those millions of patients, if approved, we believe that Thomas can address an existing gap in the standard of care for a topic of guidance.

Kevin Ali: There's a significant on-met need in a topic dermatitis for the treatment option with the efficacy of a biologic and with the safety and tolerability profile of a topical treatment that can be used long-term.

Kevin Ali: <unk> psoriasis is night and day.

Kevin Ali: So what is it about the clinical profile that is so differentiated.

Kevin Ali: We have with US today want Camilo, our head of R&D to talk more specifically on that topic.

Kevin Ali: This point is especially important, as nearly half of all the topic dermatitis suffers are children.

Speaker Change: Thank you Kevin.

Kevin Ali: Because of this unique clinical profile, we believe the Thomas will be much better positioned in the eight-topic dermatitis market than it ever was in the psoriasis market. In fact, in our view, the opportunity for vitamin A D versus psoriasis is night and day.

Speaker Change: Like to expand on Kevin's point about how the <unk> is much better situated in the atopic dermatitis market <unk>.

Speaker Change: So as as a systemic autoimmune disease that more frequently benefits from systemic therapy and patients can be well control with injectable biologics.

Speaker Change: In fact at the time of the time of launch the thoracic market was already fairly saturated with biologics there.

Speaker Change: So what is it about the clinical profile that is so differentiating? We have with us today Juan Camilo, our head of R&D to talk more specifically on that topic.

Speaker Change: Therefore, there wasn't a critical unmet need like there is today in atopic dermatitis.

Speaker Change: Atopic dermatitis on the other hand is a chronic long lasting disease characterized by inflammation redness and irritation of the skin that is best addressed with the topical solution.

Juan Camilo: Thank you Kevin. I'd like to expand on Kevin's point about how the Thomas is much better situated in the topic of the Matitis Market than in Sarasys.

Juan Camilo: So as is the systemic autoimmune disease that more frequently benefits from systemic therapy, and patients can be well controlled with injectable biologics.

Speaker Change: During a fair atopic dermatitis can be highly symptomatic and <unk> associated with it can be so severe it may even affect sleep.

Juan Camilo: In fact, at the time of the time of launch, the SIRASIS market was already fairly saturated with biologics.

Speaker Change: Despite the significant disease burden associated with IV <unk>.

Speaker Change: There has not been a lot of innovation.

Juan Camilo: Therefore, the Western critical on met needs like there is today in a topic of German times.

Speaker Change: The existing topical treatments are mostly steroids, which were first available in the 19 fifties and are not intended for chronic use.

Juan Camilo: It's Dr. Mattitis on the other hand, is a chronic, long-lasting disease, characterized by information, redness and irritation of the skin that is best addressed with the topical solution.

Speaker Change: Current non steroidal treatment options for <unk> consists of a few agents that have demonstrated different levels of efficacy one being a highly priced injectable biologic and another JAK inhibitor Brexit black box warning.

Juan Camilo: During his prayer, eight topic dermatitis can be highly symptomatic, and the

Speaker Change: There is a need for a solution that is efficacious like biologics and with the safety and Tolerability profile that is suitable for long term use in adults and children.

Juan Camilo: Despite the significant this is burden associated with AD, there has not been a lot of innovation.

Juan Camilo: The existing topcoat treatments are mostly steroids which were first available in the 1950s and are not intended for chronic use.

Speaker Change: The results from the two phase III clinical trials support our view that the <unk> has the potential to fill this gap.

Juan Camilo: Current non-surgery will treat an options for AD, consist of a few agents that have demonstrated different levels of efficacy.

Speaker Change: Pending FDA approval, our proposed label for <unk> broad potentially covering milestones of your.

Juan Camilo: One being a highly priced injectable by logic and another adjacking inhibitor of the British Blackbox Warning.

Speaker Change: With no restrictions for us or limitations of body surface area with a high rate of treatment response and children greater than two years of age and adults and good tolerability.

Our proposed label would be truly different to the label of other options in the market.

Speaker Change: So we are confident in the clinically different profile of a tomo for the treatment of atopic dermatitis and we're excited to bring this novel option to the patients who have been suffering from this condition and their health care providers, who will no longer have to make tradeoffs between efficacy and safety EBITA asset group.

Speaker Change: Thank you Juan Camilo.

Speaker Change: So we're talking about a treatment option that is clinically differentiated in a large market with a critical unmet need that combination makes us very confident in our commercial positioning for <unk> in atopic dermatitis if approved.

Speaker Change: And from a capital allocation standpoint, this transaction makes a lot of central Oregon.

Speaker Change: The terms of the transaction are very attractive with the economic skewed disproportionately towards success based milestones, we expect to achieve at least $150 million of sales will be tomah in 2025 with the potential to grow to have $1 billion over the next three to five years in.

Speaker Change: In 2025, we expect the transaction to be dilutive to our EBITDA margin by about 50 basis points and we expect the transaction to be accretive in year, two with earnings accelerating from there.

The acquisition also nicely leverages organize existing therapeutic expertise in dermatology.

Speaker Change: Our existing dermatology portfolio of seven products outside the U S delivered $240 million of revenues in 2023. The addition of the Tama allows us to create a dermatology presence in the U S, where we have a very experienced and scaled access team at the local state and national levels, we expect to be in a position to <unk>.

Speaker Change: Launch the indication immediately after approval focused on expanding access ultimately improving the Thomas gross to net over time, we will also have the potential to launch internationally down the road.

Speaker Change: Overall, we believe we are the best owner of the Tama with solid growth prospects and healthy margins, we easily it will contribute solidly to the financial profile of Oregon on.

Speaker Change: So let's review the rest of the business in greater detail.

Speaker Change: Growth in women's health was driven by continued strength in next one on which was up 11% ex FX in the third quarter.

Speaker Change: In the U S. Nexplanon grew 18% in the third quarter, we benefited from <unk> leadership in the U S. Congress section market, our pricing strategy, including management of the $3 40 be discount program as well as continued physician demand growth outside the U S.

<unk> was down 3% ex FX in the quarter, primarily due to the timing of tenders in Latin America.

Speaker Change: Given strong year to date performance, we expect Nexplanon can achieve constant currency full year revenue growth in the low to mid teens.

Speaker Change: This would be our best year, yet with Nexplanon and positions us extremely well to achieve the $1 billion milestone that we had signaled for the next year.

Speaker Change: We remain very optimistic about <unk> future prospects and the expanding potential of the brand through the proposed five year indication we plan on making our submission to the FDA in the next few months, which would put us in a position to be ready for a late 2025 launch assuming FDA approval.

Speaker Change: Moving onto other women's health, though up 14% ex FX in the third quarter, we expect our fertility business to be slightly down this year as we work through inventory adjustments related to exiting a spin related interim operating model and Onboarding, a large <unk> contract in the U S. In the fourth quarter of last year.

Speaker Change: We see 2025 is a rebound year with very strong growth for fertility underpinned by continued expanded reimbursement in China International expansion and performance in the U S. It won't have the noise of the IOM exit.

Speaker Change: Let's move now to our Biosimilars franchise, which grew 17% at constant currency in the third quarter.

Speaker Change: Tori adjustments related to exiting a spin related interim operating model and Onboarding, a large <unk> contract in the U S. In the fourth quarter of last year.

We expect biosimilars to deliver low teens growth for the full year 2024 with.

Speaker Change: With rent flexes and <unk> at the mature point and the unusually long and impressive growth period.

Speaker Change: We see 2025 is the rebound year with very strong growth for fertility underpinned by continuing <unk> expanded reimbursement in China International expansion and performance in the U S. It won't have the noise of the IOM exit.

Speaker Change: Biosimilars growth next year will be driven by continued uptake of had Lima in the U S, which has performed well and continues to grow sequentially. The.

Speaker Change: The strategy in Biosimilars is to launch a new asset every couple of years in.

Speaker Change: Let's move now to our Biosimilar franchise, which grew 17% at constant currency in the third quarter.

Speaker Change: In late 2025 and beyond additional growth contributors to the Biosimilar franchise will be the denosumab asset than later the <unk> asset.

Speaker Change: We expect biosimilars to deliver low teens growth for the full year 2024 with run flexes and <unk> at the mature point and there are unusually long and impressive growth period.

Speaker Change: Both will be launched in collaboration with Shanghai, Handless pending FDA review and approval.

Speaker Change: Yesterday, we announced that the FDA accepted our biologics license application for the Denosumab asset, bringing us a step closer to potentially providing this treatment option to patients in the U S. In 2025.

Speaker Change: Some of those growth next year will be driven by continued uptake of had Lima in the U S, which has performed well and continues to grow sequentially.

Speaker Change: The strategy in Biosimilars is to launch a new asset every couple of years in.

Speaker Change: And then rounding out our discussion with established brands, which grew 3% ex FX in the third quarter and up 1% ex FX year to date.

Speaker Change: In late 2025 and beyond additional growth contributors to the Biosimilar franchise will be the denosumab asset than later the <unk> asset.

Speaker Change: We expect the franchise to deliver flat to slightly better performance on a full year basis as growth in <unk> and the recovery of injectable steroids are expected to offset the low <unk> and mandatory pricing revisions in Japan.

Speaker Change: Both will be launched in collaboration with Shanghai, Handless pending FDA review and approval.

Speaker Change: Yesterday, we announced that the FDA accepted our biologics license application for the Denosumab asset, bringing us a step closer to potentially providing this treatment option to patients in the U S. In 2025.

Speaker Change: Overall, we are very encouraged about our performance year to date and remain very confident in our ability to deliver on our commitments for the full year.

Speaker Change: I'll now turn it over to Matt who will discuss our financial performance in greater detail.

Matt Walsh: Thank you Kevin beginning on slide nine here.

Matt Walsh: Here, we bridge revenue for the third quarter year over year.

Matt Walsh: As Kevin mentioned at the outset third quarter revenue of $1 $5 8 billion was up 4% over third quarter of last year and <unk>, 5% at constant currency.

Matt Walsh: Impact from low was about $5 million in the quarter, which reflects the loss of exclusivity of <unk> in Japan, and negligible impact from the beginnings of the arrows at low in Europe, which happened in September.

Matt Walsh: We didn't have any meaningful EBT headwind in the third quarter as the effects of round eight that began in the third quarter of last year and included Remeron Anheuser are now washing out.

Matt Walsh: There was an approximate $70 million impact from price in the third quarter were about four 6%.

Matt Walsh: You may recall that in our second quarter call. We said that the back half of 2024 with phase steeper headwinds from price in the first half due to the timing of mandatory pricing reductions in Japan, mainly in the cardio and respiratory portfolios, which is what we are seeing.

We're also seeing pricing headwinds coming from the September LOE, and <unk> in Spain, and France, as well as from certain mature products in the U S. Like Nuvaring Dulera Ameren flexes.

Matt Walsh: Volume growth in the quarter was $150 million or almost 10% across several drivers.

Matt Walsh: Had Lima, and <unk> were the largest contributors to volume growth followed by fertility Nexplanon and established brands, especially in China.

Matt Walsh: Timing of tenders of Entre is on Nuvaring in the U S, where the biggest offset to the volume growth.

Matt Walsh: And supply other you recapture the lower margin contract manufacturing arrangements that we have with Merck, which had been declining since the spinoff as expected. Although there was only a small change year over year in this bucket this quarter.

And lastly, foreign exchange translation had an approximate $20 million impact or 130 basis points of headwind to revenue, which reflects the strengthening U S dollar versus certain foreign currencies, which this quarter included the Mexican peso Japanese yen and Brazilian real.

Matt Walsh: Now, let's turn to slide 10, where we show key non-GAAP P&L line items and metrics for third quarter performance for 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.

Matt Walsh: For gross profit we are excluding from cost of goods sold purchase accounting amortization and one time items, which can be seen in our appendix slides.

Matt Walsh: Adjusted gross margin was 61, 7% in the third quarter of 2024, compared with 62, 6% in the third quarter of last year.

Matt Walsh: In the third quarter of 2024, the lower adjusted gross margin was primarily related to unfavorable product mix and price.

Matt Walsh: Excluding $51 million of IP R&D expense incurred during the period non-GAAP operating expenses were down 5% year over year reflective of our cost containment efforts.

Matt Walsh: Of the $51 million of IP R&D expense in the third quarter virtually all of it related to our collaboration with Shanghai <unk> for further advancement of the Denosumab and <unk> Biosimilar candidates.

Matt Walsh: While we have an established practice of not guiding to IP R&D, we do have pretty good line of sight from now until the end of 2024, we don't expect to surpass any further milestones that would trigger IP R&D payments.

Matt Walsh: While the total of $81 million of IP R&D expense for the full year represents a headwind of about 170 basis points year to date. These payments are strong signals that our pipeline is progressing and we are building our ability to sustain revenue growth well into the future.

Matt Walsh: These factors culminated in an adjusted EBITDA margin of 29% in the third quarter of 2024, compared with 29, 4% in the third quarter of 2023.

Matt Walsh: non-GAAP adjusted net income was $226 million or <unk> 87 per diluted share almost equal with 2023 $223 million or <unk> 87 per share in the same period.

Matt Walsh: GAAP net income was actually higher than non-GAAP net income this quarter.

Matt Walsh: GAAP net income benefited from the release of evaluation allowance in the amount of $210 million against the tax asset of one of the company's Swiss entities.

Matt Walsh: This development, while favorable does not impact our non-GAAP effective tax rate for earnings guidance purposes, which remains in the range $18, 5% to 25%.

Speaker Change: Turning to slide 11, we provide a closer look at our cash flow year to date and despite some minor headwinds from the derm event acquisition as Kevin mentioned, we're well on track to deliver approximately $1 billion of free cash flow before one time charges.

Speaker Change: Year to date, those one time spin related costs were $137 million.

Speaker Change: Our global ERP implementation is now behind us and that was the largest driver of these onetime costs.

Speaker Change: Our view into the fourth quarter is that costs in this category will be minimal. So we expect to finish the year at approximately $150 million, which is better than the $200 million of onetime spin related costs that we were originally forecasting for 2024.

Speaker Change: Next year in 2025, we would expect one time spin related costs to be de minimus.

Speaker Change: In the $129 million of other onetime costs here recapture head count restructuring initiatives and manufacturing network optimization the.

Speaker Change: The cash outlay for these network optimization cost of amount its a $44 million year to date 2024.

Speaker Change: They are distinct from the spin related costs and that they are associated with actions to separate our manufacturing and supply chain activities away from Merck, which will ultimately drive cost efficiencies and eventual gross margin improvement.

We expect this bucket to total about $75 million this year.

Speaker Change: Turning to slide 12, we ended the quarter at 4.0 times and our net leverage ratio, which was a quarter turn better than this time last year and also slightly better than where we were at year end four one times.

Speaker Change: Year to date, we have had stronger EBIT generation, which has resulted in a leverage ratio at September 32024 that is more favorable than our expectations at the start of the year.

Speaker Change: That said it will take us several quarters to digest, the derma than acquisition before leverage can return to the 4.0 times net leverage ratio that we've achieved as of this quarter ended.

Speaker Change: Turn better than this time last year and also slightly better than where we were at year end four one times.

Speaker Change: Now turning to 2024 guidance on slide 13, where we highlight the items driving our 2020 for revenue guidance range.

Speaker Change: Year to date, we have had stronger EBIT generation, which has resulted in a leverage ratio at September 32024 that is more favorable than our expectations at the start of the year.

Speaker Change: As Kevin mentioned, we've tightened our revenue range and raised the midpoint by $50 million, representing one eight to two 6% nominal growth year on year, which equates to three 1% to three 8% on a constant currency basis.

Speaker Change: That said it will take us several quarters to digest, the derma that acquisition before leverage can return to the 4.0 times net leverage ratio that we've achieved as of this quarter end.

Speaker Change: For LOE, we lowered our range from $70 million to $90 million to $40 million to $50 million, which reflects slower uptake for generic for <unk>.

Speaker Change: Now turning to 2024 guidance on slide 13, where we highlight the items driving our 2020 for revenue guidance range.

Speaker Change: Moving to the right, we lowered the range on GDP impact from $30 million to $50 million to 15% to $25 million, which similarly reflects a slight delay in realizing the full revenue impact of round date for Remeron and highs are.

Speaker Change: As Kevin mentioned, we've tightened our revenue range and raised the midpoint by $50 million, representing one 8% to two 6% nominal growth year on year, which equates to three 1% to three 8% on a constant currency basis.

Speaker Change: For LOE, we lowered our range from $70 million to $90 million to $40 million to $50 million, which reflects slower uptake for generic for <unk>.

Speaker Change: We've been doing a bit better on price year to date, so we lowered our view of pricing impact from $180 million to $200 million too.

To $145 million to $155 million, representing an approximate two five percentage point headwind versus prior year, which is in line with our longer term expectations from price across our entire business.

Speaker Change: Sequentially the impact from price has been and is expected to be more acute in the back half of 2024 as the mandatory pricing revisions in Japan accelerate and reductions in price associated with the <unk> in the EU more fully materialize. Additionally.

Speaker Change: Additionally, we're facing increasing competitive pressures in the U S within mature products, such as Dulera rent flexes and Nuvaring.

Speaker Change: For the year, we have narrowed and lowered the range on volume to $445 million to $465 million.

Speaker Change: Down from $500 million to $600 million.

The range for volume reflects an approximate 7% growth rate over last year temporary down from the 9% volume growth rate, we expected and that's mainly attributable to a softer outlook and fertility for the year.

Speaker Change: And finally based on our current view of FX, we lowered our view of the FX impact to 75% to $85 million down from $110 million to $140 million and Thats $50 million improvement is the principal driver for raising the midpoint of our revenue guide by $50 million.

Speaker Change: Kevin mentioned at the outset that we we're also revising our range on adjusted EBITDA from 31% to 33% to 30% to 31%.

Speaker Change: In slide 14, we bridge the items driving the change.

Speaker Change: The largest driver is the incremental $51 million of IP R&D expense, we booked in the third quarter worth about 80 basis points of margin for the full year.

Speaker Change: Second in our view into the fourth quarter revenue, we can see that we will likely have some unfavorable product mix worth about 50 basis points of gross margin on the full year.

Speaker Change: This is primarily related to certain products in our U S portfolio that are subject to higher competitive pressure <unk>.

Speaker Change: <unk>, nuvaring and delay or to be specific where we're seeing some pricing pressure and unfavorable channel mix from this group of products, which are at the mature part of their growth cycle.

Speaker Change: While we have seen pressure year to date in our U S fertility business, we see a fairly strong rebound next year when combined with the strong gross margin profile of the Tama. These two items in tandem should serve as an offset to the margin pressure dynamic in our mature brands.

Speaker Change: The fourth column here represents two months of Onboarding of derma that at their current expense rate. So no synergies yet reflected in this number.

Speaker Change: The last column represents net productivity in the base business net bridges, you to the new midpoint of the adjusted EBITDA margin range.

Speaker Change: Turning now to slide 15, where we show all components of our earnings guidance for full year 2024, and consistent with the revenue commentary that we just discussed we are revising our gross margin range from 61% to 63% to approximately 61, 5%.

Speaker Change: On SG&A expense, we tightened our range from one five to $1 7 billion.

Speaker Change: To 155 to $1 6 billion.

Speaker Change: $25 million better at the midpoint driven by year to date favorability.

Speaker Change: For R&D, we tightened our range around the midpoint on the base R&D spend and adjusted for the incremental $51 million of IP R&D that we booked in the third quarter.

Speaker Change: On a full year basis, the year to date total of IP R&D expense was $81 million.

Speaker Change: And that's worth about 130 basis points of adjusted EBITDA margin using the midpoint of our guide.

Speaker Change: As Kevin said, it's too soon to be guiding to 2025, but directionally, we do expect to see revenue growth year on year.

Speaker Change: This includes organic growth across the portfolio plus the $150 million plus of revenue from derma event that Kevin referenced.

Speaker Change: Those will be offsetting factors to the <unk> low <unk> next year as well as any other challenges, we believe we might see across the portfolio.

Speaker Change: We do expect the <unk> acquisition to be dilutive to 2025 profitability accretive in 2026 and thereafter.

Speaker Change: In 2025, we expect operating expense for derma that will be about $180 million and will be focused on successful launch of the tama in the atopic dermatitis indication for which we hope to receive approval this quarter pending FDA approval.

Speaker Change: About one third of this operating expense is fixed and is in the form of Onboarding derma vans sales and marketing capabilities.

Speaker Change: The other two thirds is promotional spend around the launch and other business support that will either naturally flex down after the launch or else become opportunities for further synergies.

Speaker Change: In 2025, Directionally, we expect derma van to account for approximately one half point of EBITDA margin headwind, which of course, we will be looking to see if we can offset with further expense discipline enacted across other parts of our business as we've been doing quite successfully this year.

Speaker Change: In 2026, we expect to be tomo margins to grow to be above organized company average as revenue accelerates from the <unk> launch and synergies are realized and continue to grow from there.

Speaker Change: Closing out in 2024, we set ourselves up to deliver a trifecta of growth in revenue and EBIT dollars, a leveraged P&L likes milestones and $1 billion of free cash flow before one time items with three quarters of the year under our belt in two months left to go we feel very good about our.

Speaker Change: Our ability to deliver on that goal.

Speaker Change: With that now, let's turn the call over to questions and answers.

Speaker Change: Thank you we will now begin the question and answer session. If you delve in we'd like to ask a question. Please press star one their telephone keypad rates are handed joined the queue if you'd like to withdraw your question simply press Star. One again you are called upon to ask your question and they are listening.

Speaker Change: Loud speaker on their device. Please pickup your handset in the short out your phone as dawn mute when asking your question.

Speaker Change: For today's session. We ask that you. Please limit yourself to one question and one follow up question again press star one to join the queue.

Speaker Change: Yeah.

Speaker Change: Our first question comes from the line of <unk> Prasad with Barclays. Please go ahead.

Speaker Change: Hi, good morning.

Speaker Change: Thank you for the questions Firstly on <unk> congratulations on the deal seems to be well, let out in terms of capital allocation could.

Speaker Change: Could you comment on the current <unk>.

Speaker Change: EBITDA contribution from Devon mined and made getting into next year on the opex of $180 million split it up into atopic dermatitis spend versus sorry, yes spend.

Speaker Change: And second question is on Nexplanon.

Speaker Change: <unk> Prasad with Barclays. Please go ahead.

Speaker Change: It was slightly more sensitive topic, but can you comment around the current political climate visibly locks and maybe more specifically business growth drivers from excellent. Thank you.

Speaker Change: Hi, good morning.

Speaker Change: Thank you for the questions Firstly on <unk> congratulations on the deal seems to be well laid out in terms of capital allocation.

Speaker Change: Could you comment on the current profitability or the EBITDA contribution from Derma mind, and maybe getting into next year on the opex of $180 million split it up into atopic dermatitis spend versus psoriatic spend.

Speaker Change: Matt you want to take the first yes. So.

Speaker Change: So we've got two months of <unk>.

Speaker Change: Tom.

Speaker Change: Included in our rest of year guidance for 2024, and so it's nominal and then we're looking at a revenue run rate of approximately $6 million.

Speaker Change: And second question is on next one on a probably a slightly more sensitive topic, but can you comment around the current political climate visibly locks and maybe more specifically business growth drivers from excellent. Thank you.

Speaker Change: Per month.

Speaker Change: Yes.

Speaker Change: We're forecasting the same level of dilution in the stub period, as we would be talking about her.

Speaker Change: 2025.

Speaker Change: That's the best of E Commerce.

Speaker Change: Matt you want to take the first one yes so.

Speaker Change: And velocity in regards to your question regarding Nexplanon, it's actually a very timely question I just came back from meetings on the hill in D C and on both sides of the aisle.

Speaker Change: So we've got two months of <unk>.

Speaker Change: Tom.

Speaker Change: Included in our rest of year guidance, where 2024 and so it's nominal I mean, we're looking at a revenue run rate of approximately $6 million.

I can tell you we.

Speaker Change: You, obviously know there is going to be a new administration coming in and on both sides of the aisle I think the issue around access blocks.

Speaker Change: For months.

Speaker Change: Yes.

Speaker Change: We are.

Speaker Change: We're forecasting the same level of dilution in the stub period, as we would be talking about for 2025.

Speaker Change: Access to contraception with regards to women's health in general is not a threat at all as a matter of fact I think on on both sides is theres, a doubling down of sorts that.

Speaker Change: Thomas.

Speaker Change: Nobody wants to kind of get into any kind of discussions around.

Speaker Change: Whether its fertility or access to contraception in order to be able to address reproductive health related issues. So that's strong.

Speaker Change: That's what our business continues to to go along very very well in the U S. We're a market leader in the contraception space, especially in terms of alerts and.

Speaker Change: And we see we see continued growth not only in terms of demand, but also in our 340 <unk> business is also growing with the federally qualified health centers that is that's a great opportunity for us in the future. So.

Speaker Change: We will reach $1 billion, which is faster than I anticipated.

Speaker Change: For an extra hour globally with U S. Obviously, driving a big portion of that in the U S.

Speaker Change: For US next year for Oregon on and that's our first cut of major blockbuster milestone for the product and we see a lot of years ahead of it in terms of the runway. Thanks for the question.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of David and film with Piper Sandler. Please go ahead.

Speaker Change: Yes.

Speaker Change: Thanks, So just a couple for me.

Speaker Change: So now that you have.

Speaker Change: Medical Derm commercial infrastructure in place and this is a new therapy.

Speaker Change: EBIT vertical.

Speaker Change: Are you thinking about leveraging that infrastructure over the long term.

The acquisition.

Speaker Change: Additional assets, how aggressive do you want to be and is it just medical derm or are you also open to new assets in medical aesthetics.

Speaker Change: And then with the acquisition.

Of Derma brand.

Speaker Change: How does that change.

Your thinking on capital deployment are you looking to get more aggressive.

Speaker Change: On the M&A front, particularly.

Speaker Change: In a lower rate environment, just philosophically how are you thinking about things in the wake of the acquisition and in the context of a lower interest rate environment. Thank you.

Speaker Change: Thanks, David.

Speaker Change: I can address those questions first first in regards to.

Speaker Change: Bringing in this new vertical in the U S. We've always been.

Speaker Change: Very big fans of the tomo and derma that in terms of what where the opportunities are listed them out in my script in terms of the opportunities for atopic dermatitis and so that continues to be something that we feel very very enthusiastic and very bullish about and this is a great product and I think you saw the differentiation that Juan Camilo spoke to.

Speaker Change: Two.

Speaker Change: It's a great position within the atopic dermatitis space in both the efficacy of a biologic even potentially potentially I would say.

Speaker Change: Greater than really well tolerated for use for long long periods of time so.

Speaker Change: Really excited about and Youre right David overtime. It definitely opens up a new opportunity for us keep in mind that we do have opportunities to internationalize, the Thomas who will be taking that taking that path as soon as we can we're going to be hopefully launching in Canada is the first country where.

Speaker Change: We're on track for that in the not too distant future. So that'll be a nice addition to our portfolio, but also wherever you are looking at other countries as well and we also have a royalty agreement in Japan, So we'll be getting royalties from that from that partnership as well, but within the U S definitely opens up quite a bit of different opportunities that we saw.

See a variety of different opportunities you mentioned, a few of them, whether it's anti infectives, all the way to aesthetics and everything in between.

Speaker Change: Look the team that we're bringing over from derma that is top notch.

Speaker Change: And we intend to essentially support them with all the different expertise, we have especially on the access front. We've got some of the best access folks that you know where we all came from and this is kind of on a regional local as well as state levels as well as our national levels that will help to really expand.

Speaker Change: Our opportunities not only with <unk>, but also establishing ourselves for the future and that derm space in regards to the future of our capital allocation in terms of BD as well as where rates are going I think right now our pure focus your focus for 2025 will really be about integrating as well as really draw.

Speaker Change: Rising the Vitol, but performance and then we'll cross that bridge when we come to it.

Speaker Change: Our next question comes from the line of Jason <unk> with Bank of America. Please go ahead.

Speaker Change: Hey, guys good.

Good morning, Thanks for taking my question.

My mind is just wanted to follow up on the derm event accretion dilution profile and given this is any therapeutic vertical just wondering if you can.

Speaker Change: Talk conceptually, the incremental selling and marketing cost versus what you're able to absorb.

Speaker Change: With your own in House resources, I think <unk> talked at one point about more than 300 million or so opex versus your $180 million number. So just kind of wondering are you putting less behind the product.

Speaker Change: Or are there cost offsets in your infrastructure.

Speaker Change: Or alternatively is the <unk> cost maybe not fully baked into the $180 just wanted to get clarity around those inputs and then yes.

Speaker Change: On your next one on citizens petition filed is there any back story to that.

Speaker Change: What I'm getting at is.

Speaker Change: So if the FDA were they unreceptive to proposed changes and product specific guidance or is this basically your first sort of attempt to get the FDA to pay increased attention to the applicators similarity.

Points that were raised in the CP.

Speaker Change: So I'll take the <unk>, Tom a question for Jason.

Speaker Change: From an opex perspective, im not exactly sure what.

Speaker Change: What what term advanced disclosure has been I think that's approximate 300 million number is a very round number we think we're onboarding.

Speaker Change: Operating costs of about $240 million.

Speaker Change: And we see and in terms of how that cost is broken out.

Speaker Change: Roughly a third of that is sales and marketing costs for which we intend to onboard that lock stock and barrel. That's the expertise in the U S. Derm sales and marketing capability that is a key value driver for us going forward and its expertise we're absolutely focused on onboarding in the right way.

Speaker Change: And so the synergies as we achieve them will come from the.

Speaker Change: The remainder.

And I think.

Speaker Change: A significant part of the difference in the cost you might be looking at versus the $180 million of Opex, we're talking about next year.

Speaker Change: R&D costs.

Speaker Change: Under the under prior ownership that were already coming off.

So I think thats, a pretty important distinction between.

Speaker Change: Prior benchmarks and the Opex that we believe we are onboarding for.

Speaker Change: For.

Speaker Change: 2025.

Speaker Change: And just to reiterate from the from a from.

From the prepared comments, we just see one year of dilution from Onboarding, the product and it will be accretive in 2026 and thereafter at what we believe are very achievable.

Thomas: About next year.

Thomas: Is R&D costs.

Thomas: Under the under prior ownership there were already coming off.

Speaker Change: You estimates.

Thomas: So I think thats, a pretty important distinction between.

Speaker Change: And Jason in regards to the question on the on the submission of the petition is still pending so I can't speak to that.

Thomas: Prior benchmarks and the Opex that we believe we are onboarding for.

Thomas: For.

Speaker Change: Until that time in terms of when we get a response from the FDA, but the issue that I wanted to clarify is the fact that we do have patent protection on our applicator device until 2030.

Thomas: 2025.

Thomas: And just to reiterate from the from the from the prepared comments, we just see one year of dilution from Onboarding the product and it will be accretive in 2026 and thereafter at what we believe are very achievable revenue estimates.

Speaker Change: And I think that needs to be essentially understood that.

Speaker Change: Les you want to devise and design and submit in your own clinical studies, a new completely new applicator you can't use our applicator in the past.

Speaker Change: And Jason in regards to the question on the submission of the petition.

Speaker Change: Until 2030.

Speaker Change: And so that is one aspect when you make mention of the applicator device in terms of the patent protection, but also in fact matter is I've always signal. The fact that it's not an easy go of it and again like I said.

Speaker Change: Pending so I can't speak to.

Speaker Change: That until it.

Speaker Change: When we get a response from the FDA, but the issue that I wanted to clarify is the fact that we do have patent protection on our applicator device until 2030.

Speaker Change: If you just want to use a proxy just look at look at the IUD Marina in terms of the fact that we're now like seven years post LOE.

Speaker Change: And I think that needs to be essentially understood that.

Speaker Change: Unless you want to devise and design and submit in your own clinical studies, a new completely new applicator you can't use our applicator in the past.

Speaker Change: There's still no true generics in the market, it's not a.

Speaker Change: It's not an easy thing to do and <unk> got to have a huge amount of infrastructure investments in terms of not only sales force to train your physicians on how to insert and remove.

Speaker Change: Until 2030.

Speaker Change: And so that is one aspect.

Speaker Change: Make mention of the applicator device in terms of the patent protection, but also in fact matter is I've always signal. The fact that it's not an easy go of it and again like I said.

Speaker Change: Youre Rod, but also all of the other things that goes into medical affairs and pharmacovigilance all the nature of that the FDA is very sensitive to that so I think thats my view in terms of in terms of the runway ahead for <unk>.

Speaker Change: Got it thanks, so much guys.

Speaker Change: Sure Jay.

Speaker Change: Our next question comes from the line of <unk> with Evercore ISI. Please go ahead.

Speaker Change: Hi, guys. Thanks for taking my question.

Speaker Change: I'm curious the $180 million and Opex you referred to is that inclusive of the extra spend you intend to do as well and in a scenario where the camera underperformed how much can you pull that back. Thank you.

Speaker Change: So I'll take the first part of that question. So the in the 180 million Opex for 2025, that's really U S focused theres really nothing of significance ex U S.

Speaker Change: Matt.

Speaker Change: Yeah.

Speaker Change: And for the second part of the question in terms of how much can we can pull it back.

Speaker Change: Look you can always cut back on promotional spend we have plans in place.

Speaker Change: <unk> on the G&A pieces of the cost structure, but.

Speaker Change: I don't know that we would be focused on that in 2025.

Speaker Change: We will be putting all of our energies behind the successful launch of <unk>.

Speaker Change: B comment so the next 12 next 14 months, let's say at the end of 2025 are really key.

Speaker Change: And so if we have to think about retrenchment.

Speaker Change: We'll be looking at that beyond 2025.

Speaker Change: Great.

Speaker Change: Thanks AMR.

Speaker Change: Okay.

Speaker Change: That concludes our Q&A session I will now turn the call back over to Kevin <unk> for closing remarks.

Kevin Ali: Thank you and just in closing you look 2024.

Kevin Ali: In 2012, where our commercial execution I believe has been very strong our largest product nexplanon as well positioned as I mentioned earlier to deliver $1 billion of revenue next year and we've added other notable growth drivers within <unk> and most recently what we've just discussed this morning VTOL AMA.

Kevin Ali: Further we have been extremely disciplined on operating costs and driving adjusted EBITDA growth in support of achieving $1 billion of free cash flow before onetime costs for the full year.

Kevin Ali: 2024, so we're well on track to delivering a very solid year and we want to thank you for for dialing in today and we'll talk to you soon.

Speaker Change: This concludes today's call you may now disconnect.