Organon (OGN) 24Q1 Update

24Q1 revenues were $1.622 billion, up 5.5% year-over-year, but up 7% at constant currency.  GAAP diluted EPS was $0.78, above 23Q1’s $0.69 and my estimate of $0.77.  Non-GAAP EPS of $1.22 was above last year’s $1.08 and also above my estimate of $1.14. The consensus estimate was $0.93.

Revenues were surprisingly strong, up 12% in Women’s Health, 46% in Biosimilars and 2% in Established Brands.  Nexplanon sales jumped 35%, after last year’s dip from distributors’ purchasing patterns.  In Biosimilars, OGN gained from the launch of Hadlima and increased demand for Ontruzant.  In Established Brands, sales of Diprospan, an injectable steroid, recovered from certain manufacturing problems.  Overall, higher selling volumes more than offset small declines from loss of exclusivity, the impact of volume-based pricing in China, lower supply sales and foreign currency effects.

On the cost side, a 310 bp decline in adjusted gross margin (to 62.1%) was partially offset by a slight decline in SG&A expense and a 13.2% decline in R&D expense, due to a decrease in clinical study activity and a reduction in headcount.  Income before taxes was flat, but income taxes were lower.

Management’s reaffirmed its 2024 guidance on key metrics (see below).  My projections are consistent with that guidance.  They anticipate revenues of $6.38 billion, GAAP EPS of $2.69 and non-GAAP EPS of $4.45.  For 2025, I project revenues of $6.59 billion, up 3.2%, GAAP EPS of $2.85 and non-GAAP EPS of $4.55. 

Since my last report (Nov. 3), OGN’s stock has significantly outperformed the broader market and peers, surging 53.0% vs. the gains of 11.9% in the S&P SmallCap 400 and 21.9% in the PHLX Pharmaceuticals Index (DRG).  The stock peaked at $21.98 on May 22 and has underperformed since.  Despite the rebound, it is still cheap at less than eight times forward GAAP EPS and less than five times forward non-GAAP EPS.

Management remains upbeat about the company’s prospects, including its expectation that Nexplanon will become a $1 billion franchise, the growth potential of its Biosimilars business, and the prospects for recent additions, including its Jada system, which controls and treats abnormal postpartum bleeding, and the marketing rights for two migraine medicines acquired from Eli Lilly.  It sees the potential to secure additional growth through development deals and expects that its Established Brands franchise will remain stable.

Based upon the stock’s continued low valuation, I am raising my price target from $15 to $23 and maintaining my buy rating.  The new price target represents a valuation multiple of eight times projected 2025 GAAP EPS of $2.85 and five times projected 2025 non-GAAP EPS of $4.55.  With the stock’s 5.5% dividend yield, the potential return is 18.5%.

This is a summary of my recent report on Organon & Co. (OGN). To obtain a copy of the full report, please reach out to me using the contact information provided below.

June 20, 2024 (Report published on June 18, 2024.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

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