24Q2 revenues were $1.607 billion, down 0.1% year-over-year, but up 2% at constant currency. GAAP diluted EPS was $0.76, below 23Q2’s $0.95, but above my estimate of $0.67. Non-GAAP EPS of $1.12 was behind last year’s $1.31, but a penny ahead of my estimate of $1.11. The consensus estimate was $1.08.
During the quarter, Organon issued in a private placement $1.0 billion of debt in two tranches: $500 million of 6.75% senior secured notes due 2034 and $500 million of 7.875% senior unsecured notes due 2034. Proceeds were used to retire $1.0 billion of its Term Loan B facility.
Franchise growth for Women’s Health was 3%, excluding currency, helped by growth in Nexplanon and Marvelon/Mercilon. The Biosimilars franchise grew 22%, excluding currency, with notable gains in Ontruzant (a biosimilar of the cancer treatment, Herceptin) and Hadlima, (a biosimilar of the anti-rheumatic medicine, Humira), whose launch is gaining traction in the U.S. Sales in Established Brands were down 1%, excluding currency.
On the cost side, a 90 bp drop in adjusted gross margin (to 62.0%) was partially offset by lower R&D expense. OGN also incurred $15 million of milestone payments for products under development vs. none last year. As a result, income before taxes fell 7.5% vs. 23Q2. Yet tax expense increased, so GAAP net income fell 19.4% to $195 million.
Compared with my estimates, revenues were 1.7% higher, but expenses only 0.8% higher. Thus, income before taxes exceeded my forecast by 7.7% and income taxes were lower. I had expected $25 million of restructuring costs and there were none. Yet, I did not anticipate the $15 million of milestone payments.
Despite the earnings beat, management raised the low end of its revenue guidance by $5 million and left the rest of its guidance unchanged. My revised projections are consistent with that guidance, but are now tracking higher within the implied ranges. I anticipate 2024 revenues of $6.41 billion, GAAP EPS of $2.84 (vs. $2.69 previously) and non-GAAP EPS of $4.50 (vs. $4.45). For 2025, I project revenues of $6.59 billion, up 2.8%, GAAP EPS of $2.91 (up from $2.85) and non-GAAP EPS of $4.60 (up from $4.55).
Since my last report (June 18), OGN’s stock is flat vs. gains of 6.7% in the S&P SmallCap 600 and 4.2% in the PHLX Pharmaceuticals Index (DRG). The stock peaked at $22.29 on July 30, at which point it had been outperforming its benchmarks, but it began to fall with the market at month’s end and the decline accelerated after earnings to a low of $17.50 on August 6, apparently due to a 7.7% decline in 24Q2 sales in China (or 4%, excluding currency), which raised concerns about the sales outlook there. The stock has since rebounded.
Since Organon remains on track with guidance and my projections, I am keeping my price target of $23 and performance rating of “1” (Buy). The price target equates to a forward multiple of eight times projected 2025 GAAP EPS of $2.91 and five times projected 2025 non-GAAP EPS of $4.60. With OGN’s 5.5% dividend yield, the potential total return is 18.5%.
This is a summary of my recent report on Organon & Co., Inc. (OGN). To obtain a copy of the report, please reach out to me using the contact information provided below.
August 20, 2024 (Report published on August 18, 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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