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Organon (NYSE:OGN) is a pharmaceuticals enterprise focusing on women’s health and biosimilars. It was created in 2020 as a spin-off from Merck/MSD (MRK) and listed publicly in 2021. Their third quarter results have shown steady growth, with a 3% increase in revenues, and the third consecutive growth quarter. Each of their three business arms showed relatively consistent growth, although individual product growth was more mixed.
Waning brands or a new start?
Organon’s starter portfolio was, from the outset, feared to be made up of declining products, to allow the Merck/MSD to focus on their biggest selling products. However, Organon have undergone a period of expansion with several acquisitions to support their bottom line. Their biosimilar division, while still relatively small, is growing well to provide a steady stream of income.
The women’s health division faced challenges from the company’s inception during the pandemic lockdowns. For example, in 2019 sales of the implantable contraceptive Nexplanon grew by 12%, but then fell by 14% in 2020 as clinics closed and women cancelled appointments.
However, possibly the bigger concern is impact of loss of patent exclusivity. A clear example was the loss of exclusivity for the contraceptive NuvaRing, sales of which fell by 73% in 2020 following the loss of exclusivity. In their established brands arm, most of the products are no longer under patent protection and therefore under threat from generic competition. The third quarter report showed sales from the established brands division rose by 6%.
Third quarter earnings release
Organon released their third quarter earnings and have reported a third consecutive quarter of growth on a currency basis.
The largest of Organon’s three business areas, established medicines, brought in $2.99 billion in year-to-date 2022, compared to $3.03 billion in the year-to-date to 2021. However, the cardiovascular and respiratory showed the greatest growth, at 4% and 14%, respectively. As many of the brands in the portfolio are beyond market exclusivity, they remain at risk from pressure from generics.
Women’s health also remained flat at $1.24 billion in 2022, compared to $1.197 in 2021. Much of this growth was from sales of Nexplanon, at $229 million in Q3 2021, up from $175 million in Q3 2021. Organon also reported improved sales of their fertility product ganirelix acetate, at $36 million, up from $25 million in Q3 2021.
The smallest arm, biosimilars showed a healthy growth from $0.306 billion in 2021 up to $0.346 billion in 2022. Taking a closer look at the biosimilars shows a more varied picture. Sales of the Herceptin biosimilar Ontruzant (trastuzumab) fell by 47% between Q3 2022 and 2021, thought to be driven by competition in Europe. However, sales of Brenzyz (etanercept) increased by 71% thanks to growth in Canada and tenders in Brazil.
Overall net income however for Q3 2022 were $0.227 billion, down from $0.323 in Q3 2021, while net income in 2022 year-to-date was $0.809, down from $1.149 in 2021.
|
Q3 2022 |
Q3 2021 |
YTD 2022 |
YTD 2021 |
|
|
Non-GAAP adjusted net income (continuing operations) |
$0.227 billion |
$0.323 billion |
$0.809 billion |
$1.149 billion |
|
Source: Organon 2022 Q3 Quarterly Report. |
||||
In their third-quarter results, Organon reported total revenues of $1.5 billion in the three months to September 2022, down slightly from $1.6 billion in the three months to September 2021. Their net profit was $227 million, down from $323 million in the same period last year, to give a profit per share of 0.89, down from 1.27 the same period last year.
As part of its separation from Merck/MSD, Organon incurred a significant amount of debt. They are currently holding $8.6 billion of long-term debt at a net leverage ratio of approximately 3.6 and a debt ratio of 0.65. Over the next five years their annual principal repayments is scheduled to increase to $11 million annually, although in June 2022 they paid $100 million in discretionary repayments.
Organon paid a dividend of $0.28 per share in their third quarter, giving an annual dividend yield of about 4%. Their current price to earnings ratio sits at 6.28.
A year of acquisitions
Organon is continuing to build its biosimilar portfolio, with its Humira biosimilar Hadlima (adalimumab) receiving FDA approval in August 2022. This ruling gives Organon low and high dose options for the biosimilar, with indications accepted for a range of conditions, including rheumatoid arthritis, plaque psoriasis and ulcerative colitis, among other conditions. Humira was the highest selling drug in the US for many years, and so a reliable biosimilar available across indications could be a strong source of income when it comes to market in August 2023.
Organon have had a relatively busy year in terms of acquisitions and agreements. They paid $10 million up front for a candidate compound from Cirqle Biomedical. They also paid $73 million in Q3 for global commercialisation rights, excluding China, to Henlius for their pertuzumab biosimilar, a treatment for some cancers and certain cases of osteoporosis. In March 2022, Organon licensed Xaciato, a treatment for bacterial vaginosis from Dare Bioscience.
In February 2022 they obtained licensing rights for China for the oral contraceptives Marvelon and Mercilon. This is in addition to their existing rights holdings for another 20 territories. Marvelon sales have outpaced the general market since Organons acquisitions, and the first shipments to Vietnam have also began.
In addition to their women’s health acquisitions, Organon have begun enrolment in their ELENA phase II trial, investigating their compound for management of endometriosis. This comes after they acquired the compound as part of their acquisition of Forendo Pharmaceuticals in November 2021. This represents the first of Organon’s compounds to enter the phase II trial. It will be some time before this comes to market, but it would be a welcome new income stream. Endometriosis is a common but vastly undertreated chronic condition. A successful treatment option would therefore be highly valuable.
These acquisitions could stand to boost their existing portfolio. And with the experience of Merck/MSD behind them, Organon should be in a strong position to capitalise on their deals.
These challenges raise a larger question about the future of Organon. Being a spin-off from one of the largest pharmaceutical companies means they have the pedigree and reputation for success. However, from the beginning commentators suggested it was a strategy to jettison waning brands to allow focus on larger growth products. On the other hand, Merck announced it was a plan to revitalise the brands. While growth of the brands has not been astronomical, it has been steady. And for a company formed during the pandemic, this steady growth is a good sign.
Conclusion
Organon have had a rough start, with the pandemic taking a toll on sales almost immediately after their inception. But that does not mean we can discount them. Their initial portfolio may not have been the strongest, but they have still brought in multi-billion-dollar revenues and they have the strong heritage of Merck/MSD behind them. Organon’s numerous acquisitions and licensing deals should bolster their portfolio and bring in income over the next couple of years. Their debt levels could be a cause for concern, although their solid sales should avoid any immediate challenges. We will have to wait until next year to see how their post-pandemic recovery has progressed and if their acquisitions have been successful. For now, they may be best kept on the backburner as an interesting company to watch.
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