24Q3 revenues were $1.58 billion, up 4.1% year-over-year and up 5% at constant currency. GAAP diluted EPS was $1.38, compared with 23Q3’s $0.23, but above my estimate of $0.63. Non-GAAP EPS of $0.87 was even with last year, but below my estimate of $1.06. The consensus estimate was $0.90.
Franchise sales growth for Women’s Health was 5%, excluding currency, driven by growth in Nexplanon. Biosimilars grew 16%, ex-currency, helped by Brenzys (a biosimilar of the anti-inflammatory treatment, Enbrel) and Hadlima, (a biosimilar of the anti-rheumatic medicine, Humira). Sales in Established Brands rose 2%, ex-currency.
This was a complex quarter. Although the company matched my revenue and pre-tax income estimates of $1.59 billion and $208 million, respectively, it recorded a couple of expenses which affected both GAAP and non-GAAP earnings. It booked a $210 million reversal to its deferred tax valuation allowance, equivalent to a gain of $0.81 per share, based upon a favorable tax ruling in Switzerland. It also logged a $51 million acquired in-process R&D milestone expense payable to Shanghai Henlius Biotech for progress made in the development of two biosimilars. That milestone cost, which was not included in guidance, reduced GAAP and non-GAAP EPS by an estimated $0.14.
In October, Organon completed the acquisition of Dermavant Sciences Ltd. from Roivant Sciences Ltd. (NYSE:ROIV). Aggregate consideration could be as high as $1.2 billion with milestone payments, but Organon paid $175 million up front and could owe a $75 million milestone payment as early as year-end, if Dermavant’s primary product, VTAMA (tapinorof) cream, currently a topical treatment for plaque psoriasis, is approved by the FDA as a treatment for atopic dermatitis (i.e. eczema). Organon is excited about the worldwide sales of the atopic dermatitis indication. It projects $150 million in sales for VTAMA in 2025, but also expects a 50 bp reduction in its adjusted EBITDA margin. I have incorporated the upfront acquisition consideration in 24Q4 and milestone payment and increases in sales and operating expenses into my projections for 2025. This is a complicated transaction, however, the details of which probably will not be available until Organon updates its 2025 financial guidance and issues its 2024 financial statements.
Based upon 24Q3 results and management’s updated full year 2024 guidance, I have raised my 2024 GAAP EPS estimate to $3.51 from $2.84 and lowered my non-GAAP EPS estimate from $4.50 to $4.17. For 2025, I now expect GAAP EPS of $2.89 (down from $2.91) and non-GAAP EPS of $4.40 (down from $4.60).
Since my last report (8/18), OGN’s stock has declined 11.2%, compared with the S&P SmallCap 600’s 1.4% advance and the 6.9% drop in the PHLX Pharmaceuticals Index (DRG). With the reduced earnings expectations, I have lowered my price target from $23 to $21. The revised target equates to 7.3 times projected 2025 GAAP earnings and 4.7 times projected non-GAAP earnings. From the current quote of $18.07, that represents a potential total return of 22.4%, including the stock’s 6.2% dividend yield. Accordingly, I am maintaining my performance rating of “1” (Buy).
This is a summary of my recent update report on Organon & Co., Inc. (OGN). To obtain a copy of the report, please reach out to me using the contact information provided below.
November 18, 2024 (Report published on November 3, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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