QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 001-40235
Organon & Co.
(Exact name of registrant as specified in its charter)
Delaware
46-4838035
(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)
30 Hudson Street, Floor 33
Jersey City,
New Jersey
07302
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code)(551)430-6900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.01 par value)
OGN
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding as of the close of business on July 30, 2024: 257,473,477
The following notations in this Quarterly Report on Form 10-Q have the meanings as set forth below:
“1” Indicates, in this Form 10-Q for Quarter Ending June 30, 2024, brand names of products, that are not available in the United States.
“2” Indicates, in this Form 10-Q for Quarter Ending June 30, 2024, brand names of products, which are trademarks not owned by the Company or its subsidiaries. Humira is a trademark registered in the United States in the name of AbbVie Biotechnology Ltd.; Enbrel is a trademark registered in the United States in the name of Immunex Corporation; Remicade is a trademark registered in the United States in the name of Janssen Biotech, Inc.; Herceptin is a trademark registered in the United States in the name of Genentech, Inc.; Xgeva and Prolia are trademarks registered in the United States in the name of Amgen Inc.; Emgality is a trademark registered in the United States in the name of Eli Lilly and Company (used under license); and Rayvow is a registered trademark of Eli Lilly in the European Union and other countries (used under license). Brand names of products that are in all italicized letters, without the footnote, are trademarks of, or are otherwise licensed by, Organon and/or one of its subsidiaries.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Background and Nature of Operations
Organon & Co. (“Organon” or the “Company”) is an independent global healthcare company with a focus on improving the health of women throughout their lives. Organon develops and delivers innovative health solutions through a portfolio of prescription therapies and medical devices within women’s health, biosimilars and established brands (the “Organon Products”). Organon has a portfolio of more than 60 medicines and products across a range of therapeutic areas. The Company sells these products through various channels including drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. The Company operates six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, the Organon group of companies.
The Company’s operations include the following product portfolios:
•Women’s Health: Organon’s women’s health products are sold by prescription primarily in two therapeutic areas, contraception, with key brands such as Nexplanon® (etonogestrel implant) (sold as Implanon NXT™ in some countries outside the United States) and NuvaRing® (etonogestrel / ethinyl estradiol vaginal ring), and fertility, with key brands such as Follistim AQ® (follitropin beta injection) (marketed in most countries outside the United States as Puregon™). Nexplanon is a long-acting reversible contraceptive, which is a class of contraceptives that is recognized as one of the most effective types of hormonal contraception available to patients with a low long-term average cost. Other women’s health products include the Jada® System, which is intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted, and a license from Daré Biosciences for the global commercial rights to Xaciato® (clindamycin phosphate vaginal gel, 2%), an FDA-approved medication for the treatment of bacterial vaginosis (“BV”) in females 12 years of age and older. In October 2023, Xaciato was launched in the United States.
•Biosimilars: Organon’s current portfolio spans across immunology and oncology treatments. Organon’s oncology biosimilars, Ontruzant® (trastuzumab-dttb) and AybintioTM 1 (bevacizumab), have been launched in more than 20 countries, Organon’s immunology biosimilars, BrenzysTM 1 (etanercept), Renflexis® (infliximab-abda) and Hadlima® (adalimumab-bwwd), have been launched in five countries. All five biosimilars in Organon’s portfolio have launched in Canada, and three biosimilars, Ontruzant, Renflexis and Hadlima have launched in the United States.
•Established Brands: Organon has a portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management. A number of Organon’s established brands lost exclusivity years ago and have faced generic competition for some time.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures required by GAAP for complete consolidated financial statements are not included herein. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. All intercompany transactions and accounts within Organon have been eliminated. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Organon’s Annual Report on Form 10-K for the year ended December 31, 2023.
Use of Estimates
The presentation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with GAAP require management to make estimates and assumptions that affect the amounts reported, as further described in the Annual Report on Form 10-K for the year ended December 31, 2023. Accordingly, actual results could differ materially from management’s estimates and assumptions.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The amendments in this ASU are effective for annual periods beginning on January 1, 2025, and should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is currently evaluating the impact to its income tax disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The amendments in this ASU are effective for annual periods beginning on January 1, 2024 and interim periods beginning on January 1, 2025, and should be applied on a retrospective basis for all periods presented. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is currently evaluating the impact to its segment disclosures.
Recent Securities and Exchange Commission (“SEC”) Final Rules Not Yet Adopted
In March 2024, the SEC adopted final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to provide certain climate-related information in their registration statements and annual reports. The rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks will also include disclosure of a registrant's greenhouse gas emissions. In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements. These requirements are effective for the Company in various fiscal years, starting with its fiscal year beginning January 1, 2025. However, the climate rule is currently stayed which could potentially impact the effective date. Disclosures will be required prospectively, with information for prior periods required only to the extent it was previously disclosed in an SEC filing. The Company is currently evaluating the impact of these final rules on its consolidated financial statements and disclosures.
3. Acquisitions and Licensing Arrangements
Eli Lilly (“Lilly”)
In December 2023, Organon announced an agreement with Lilly to become the sole distributor and promoter of the migraine medicines Emgality® (galcanezumab) and Rayvow™ (lasmiditan) in Europe. Lilly will remain the marketing authorization holder and will manufacture the products for sale. Under the terms of the agreement, Organon paid an upfront payment of $50 million, upon closing of the transaction in January 2024, and will recognize sales-based milestones when the achievement is probable. In the first quarter of 2024, the Company recognized an intangible asset of $220 million, comprised of the $50 million upfront payment and $170 million of sales-based milestones that were deemed probable. The intangible asset will be amortized over 10 years. As of June 30, 2024, Organon had accrued $20 million in Accrued and Other current liabilities and $150 million in Other noncurrent liabilities related to the probable sales-based milestones.
Shanghai Henlius Biotech, Inc. (“Henlius”)
As of the three and six months ended June 30, 2024 research and development milestones related to the Henlius agreement were determined to be probable of being achieved and the Company expensed $5 million and $20 million, respectively in Acquired in-process research and development and milestones expense. On May 24, 2024 the European Medicines Agency validated the marketing authorization applications for HLX14, an investigational biosimilar of Prolia2 and Xgeva2 (denosumab).
Cirqle Biomedical (“Cirqle”)
In the second quarter of 2024, research and development milestones related to the Cirqle agreement were determined to be probable of being achieved and the Company expensed $10 million in Acquired in-process research and development and milestones expense.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
4. Earnings per Share (“EPS”)
The calculations of basic and diluted EPS are as follows:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions and shares in thousands, except per share amounts)
2024
2023
2024
2023
Net income
$
195
$
242
$
396
$
419
Basic weighted average number of shares outstanding
257,288
255,341
256,492
254,869
Stock awards and equity units (share equivalent)
1,310
612
1,988
1,195
Diluted weighted average common shares outstanding
258,598
255,953
258,480
256,064
EPS:
Basic
$
0.76
$
0.95
$
1.54
$
1.64
Diluted
$
0.75
$
0.95
$
1.53
$
1.64
Anti-dilutive shares excluded from the calculation of EPS
10,106
10,458
10,010
9,874
Diluted EPS was computed using the treasury stock method for stock option awards, performance share units and restricted share units. The computation of diluted EPS excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
5. Product and Geographic Information
The Company’s operations include the following product portfolios, which constitute one operating segment engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies and medical devices within women’s health, biosimilars and established brands.
Revenues of the Company’s products were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
($ in millions)
U.S.
Int’l
Total
U.S.
Int’l
Total
U.S.
Int’l
Total
U.S.
Int’l
Total
Women’s Health
Nexplanon/Implanon NXT
$
171
$
70
$
242
$
159
$
56
$
214
$
324
$
137
$
462
$
272
$
107
$
380
Follistim AQ
22
40
62
26
44
70
33
75
108
52
73
125
NuvaRing (1)
10
19
29
23
23
46
26
41
67
48
47
94
Ganirelix Acetate Injection
5
22
27
4
29
34
11
45
56
11
53
63
Marvelon/Mercilon
—
41
41
—
29
29
—
73
73
—
67
67
Jada
14
—
14
11
—
11
27
—
27
18
—
18
Other Women’s Health (1) (2)
13
23
34
10
25
35
27
52
79
20
52
73
Biosimilars
Renflexis
56
13
69
60
11
70
111
27
138
114
18
132
Ontruzant
10
38
48
12
21
33
18
69
87
25
29
54
Brenzys
—
12
12
—
13
13
—
36
36
—
32
32
Aybintio
—
7
7
—
12
12
—
15
15
—
22
22
Hadlima
20
8
28
—
7
7
42
16
58
—
12
12
Established Brands
Cardiovascular
Zetia (1)
2
73
75
2
94
95
4
155
159
4
180
184
Vytorin
2
26
28
1
37
38
3
52
56
3
65
67
Atozet
—
140
140
—
143
143
—
271
271
—
271
271
Rosuzet
—
9
9
—
17
17
—
25
25
—
35
35
Cozaar/Hyzaar
2
58
60
2
69
71
5
122
127
4
152
156
Other Cardiovascular(1) (2)
1
31
32
1
36
36
1
71
71
1
70
71
Respiratory
Singulair
2
90
93
3
77
80
5
186
190
5
194
199
Nasonex (1)
—
60
60
—
66
66
—
137
137
—
137
137
Dulera
39
8
47
38
10
48
82
21
103
76
18
95
Clarinex
1
35
35
1
38
39
2
71
73
2
77
79
Other Respiratory(1) (2)
8
4
13
13
4
17
15
6
22
25
8
33
Non-Opioid Pain, Bone and Dermatology
Arcoxia
—
68
68
—
72
72
—
143
143
—
143
143
Fosamax
1
34
35
1
44
44
3
72
74
1
81
82
Diprospan
—
37
37
—
12
12
—
66
66
—
27
27
Other Non-Opioid Pain, Bone and Dermatology(1)
5
73
78
2
67
71
9
141
151
7
127
133
Other
Emgality/Rayvow
—
30
30
—
—
—
—
40
40
—
—
—
Proscar
—
23
23
—
24
25
1
49
50
1
51
52
Propecia
2
27
28
2
35
36
3
47
51
4
66
69
Other(1)
2
69
72
2
81
84
7
149
155
4
156
162
Other (3)
—
31
31
(2)
41
40
(1)
61
59
—
79
79
Revenues
$
388
$
1,219
$
1,607
$
371
$
1,237
$
1,608
$
758
$
2,471
$
3,229
$
697
$
2,449
$
3,146
Totals may not foot due to rounding. Trademarks appearing above in italics are trademarks of, or are used under license by, the Organon group of companies.
(1) Sales of the authorized generic versions of NuvaRing, Zetia and Nasonex were previously included in other and have been reclassified to their respective brand name product.
(2) Includes sales of products not listed separately. Revenues from Jada were previously reported as part of Other Women’s Health. Revenue from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring is included in Other Women’s Health.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Revenues by geographic area where derived are as follows:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Europe and Canada
$
457
$
467
$
907
$
867
United States
388
371
758
697
Asia Pacific and Japan
260
261
546
585
China
216
234
421
459
Latin America, Middle East, Russia, and Africa
251
234
525
448
Other (1)
35
41
72
90
Revenues
$
1,607
$
1,608
$
3,229
$
3,146
(1) Primarily reflects manufacturing sales to third parties.
6. Stock-Based Compensation Plans
The Company grants stock option awards, performance share units (“PSUs”) and restricted share units (“RSUs”) pursuant to its 2021 Incentive Stock Plan.
The PSU awards are based on the following performance factors:
•total stockholder return of the Company relative to an index of peer companies specified in the awards; and
•the results of cumulative free cash flow and revenue metrics of the Company.
PSUs include awards issued where the service inception date precedes the grant date. The grant date for the performance conditions is the date grantees have a mutual understanding of the key terms and conditions of the award, which will occur when the performance condition is objectively determinable and measurable. Recognition of stock-based compensation occurs at the service inception date. Measurement of stock-based compensation attributed to the PSUs will be based on the fair value of the underlying common stock once the grant date is determined.
Stock-based compensation expenses incurred by the Company were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Stock-based compensation expense recognized in:
Cost of sales
$
5
$
4
$
9
$
8
Selling, general and administrative
18
17
36
32
Research and development
5
4
9
7
Total
$
28
$
25
$
54
$
47
Income tax benefits
$
6
$
5
$
11
$
10
The fair value of options granted was determined using the following assumptions:
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
A summary of the equity award transactions for the six months ended June 30, 2024 is as follows:
Stock Options
RSUs
PSUs
(shares in thousands)
Shares
Weighted average exercise price
Weighted average grant date fair value
Shares
Weighted average grant date fair value
Shares
Weighted average grant date fair value
Outstanding as of January 1, 2024
5,758
$
32.20
$
8.51
7,511
$
25.05
1,122
$
30.16
Granted/Issued
1,503
18.80
4.59
4,683
18.80
184
31.25
Vested/Exercised
—
—
—
(2,898)
29.52
—
—
Forfeited/Cancelled
(301)
28.81
7.57
(648)
22.23
(75)
27.08
Outstanding as of June 30, 2024
6,960
$
29.45
$
7.70
8,648
$
20.38
1,231
$
30.51
The following table summarizes information about equity awards outstanding that are vested and expected to vest and equity awards outstanding that are exercisable as of June 30, 2024:
Equity Awards Vested and Expected to Vest
Equity Awards That are Exercisable
(awards in thousands; aggregate intrinsic value in millions)
Awards
Weighted Average Exercise Price
Aggregate Intrinsic Value
Remaining
Term
(in years)
Awards
Weighted Average Exercise Price
Aggregate Intrinsic Value
Remaining
Term
(in years)
Stock Options
6,734
$
29.45
$
3
7.08
4,310
$
33.40
$
—
5.88
RSUs
7,909
179
2.16
PSUs
912
21
1.66
The amount of unrecognized compensation costs as of June 30, 2024 was $191 million, which will be recognized in operating expense ratably over the weighted average vesting period of 2.14 years.
7. Restructuring
In the first quarter of 2024, Organon implemented additional restructuring activities related to the ongoing optimization of its internal operations by reducing headcount, primarily in the Research and Development function. In the fourth quarter of 2023, Organon implemented restructuring activities related to the ongoing optimization of its internal operations by reducing headcount in certain markets and functions. As a result of these combined activities, the Company’s headcount will be reduced by approximately 5% by the end of 2024. Organon expects the remaining severance payments associated with the restructuring activities to be paid by the end of 2024.
The following is a summary of changes in severance liabilities related to the restructuring activities included within Accrued and other current liabilities:
June 30, 2024
December 31, 2023
Beginning balance
$
61
$
20
Severance & severance related costs
23
62
Cash payments and other
(46)
(21)
Ending Balance
$
38
$
61
8. Taxes on Income
The effective income tax rates were 17.3% and 5.0% for the three months ended June 30, 2024 and 2023, respectively, and 16.0% and 14.4% for the six months ended June 30, 2024 and 2023, respectively. These effective income tax rates reflect the beneficial impact of foreign earnings, offset by the impact of U.S. inclusions under the Global Intangible Low-Taxed Income regime and a partial valuation allowance recorded against non-deductible U.S. interest expense. There was a favorable impact to the 2024 year-to-date effective tax rate which was driven by the favorable closure of the two non-US tax audits and a return to provision adjustment for the Switzerland entity.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Effective January 1, 2024, multiple jurisdictions, most notably, a majority of the European Union member states, implemented the Organization for Economic Co-operation and Development’s (“OECD”) Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least €750 million. The Company has evaluated the effect of this for the first two quarters of 2024 and does not expect that it will have a material effect on a full year basis.
9. Inventories
Inventories consisted of:
($ in millions)
June 30, 2024
December 31, 2023
Finished goods
$
646
$
566
Raw materials
24
110
Work in process
657
684
Supplies
78
65
Total (approximates current cost)
$
1,405
$
1,425
Decrease to last in, first out (“LIFO”) costs
(5)
—
$
1,400
$
1,425
Recognized as:
Inventories
$
1,287
$
1,315
Other assets
113
110
Inventories valued under the LIFO method
139
105
Amounts recognized as Other assets are comprised primarily of raw materials and work in process inventories and are not expected to be converted to finished goods that will be sold within one year. The Company has long-term vendor supply contracts that include certain annual minimum purchase commitments.
10. Long-Term Debt
The following is a summary of Organon’s total debt:
($ in millions)
June 30, 2024
December 31, 2023
Term Loan B Facility:
SOFR plus 250 bps term loan due 2031 (1)
$
1,543
$
2,543
EURIBOR plus 300 bps euro-denominated term loan due 2028 (€728 million in 2024 and €731 million in 2023)
778
809
4.125% secured notes due 2028
2,100
2,100
2.875% euro-denominated secured notes due 2028 (€1.25 billion)
1,336
1,384
5.125% notes due 2031
2,000
2,000
6.750% secured notes due 2034
500
—
7.875% notes due 2034
500
—
Other borrowings
7
8
Other (discounts and debt issuance costs)
(108)
(84)
Total principal long-term debt
$
8,656
$
8,760
Less: Current portion of long-term debt
9
9
Total Long-term debt, net of current portion
$
8,647
$
8,751
(1) Prior to entering into Amendment No. 2 to the Senior Secured Credit Agreement on May 17, 2024, the maturity date was 2028.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The nature and terms of Organon’s long-term debt are described in detail in Note 16. “Long-Term Debt and Leases” in the 2023 Annual Report on Form 10-K for the year ended December 31, 2023.
During the second quarter of 2024, Organon issued $500 million of 6.750% senior secured notes due 2034 (the “2034 Secured Notes”) and $500 million of 7.875% senior unsecured notes due 2034 (the “2034 Unsecured Notes” and, together with the Secured Notes the “2034 Notes”). Each series of notes are guaranteed by each of the entities that guarantees the Companies’ existing senior secured credit facilities (the “Credit Facilities”). Organon used the net proceeds from the sale of the 2034 Notes to repay a portion of its borrowings under the Credit Facilities’ U.S. dollar-denominated “tranche B” term loan and to pay the fees and expenses incurred in connection with the foregoing.
On May 17, 2024, Organon entered into Amendment No. 2 to the Senior Secured Credit Agreement (“Amendment No. 2”) which, among other things, (i) extended the maturity of the U.S. Dollar Term Loan B Facility to May 17, 2031, (ii) extended the maturity of the revolving credit loans made under the senior secured credit facility (the “Revolving Facility”) to December 2, 2027, (iii) increased the maximum amount of the Revolving Facility by $300 million and decreased the commitment fee payable in respect of the Revolving Facility to 0.375%, (iv) removed the credit spread adjustment applicable to SOFR loans, and (v) reduced the interest rate in respect of the remaining $1.55 billion of loans under the U.S. Dollar Term Loan B Facility from Term SOFR plus 3.0% to Term SOFR plus 2.50%. During the second quarter of 2024, the Company borrowed $36 million on the Revolving Facility and subsequently repaid the amount on June 17, 2024. As of June 30, 2024 there were no outstanding balances under the Revolving Facility.
During the second quarter of 2024, the Company recorded approximately $36 million of deferred debt issuance costs and discounts related to the long-term debt. Debt issuance costs and discounts are presented as a reduction of debt on the Condensed Consolidated Balance Sheets and are amortized as a component of interest expense over the term on the related debt using the effective interest method.
Long-term debt was recorded at the carrying amount. The estimated fair value of long-term debt (including current portion) is as follows:
($ in millions)
June 30, 2024
December 31, 2023
Long-term debt
$
8,333
$
8,253
Fair value was estimated using inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability and would be considered Level 2 in the fair value hierarchy.
The Company made interest payments related to its debt instruments of $247 million for the six months ended June 30, 2024. The average maturity of the Company’s long-term debt as of June 30, 2024 is approximately 5.7 years and the weighted-average interest rate on total borrowings as of June 30, 2024 is 5.4%.
On June 26, 2024, the Company made a discretionary prepayment of $7.5 million on the U.S. Dollar-denominated term loan.
The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows:
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Senior Credit Agreement contains customary financial covenants, including a total leverage ratio covenant, which measures the ratio of (i) consolidated total debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, that must meet certain defined limits which are tested on a quarterly basis. In addition, the Senior Credit Agreement contains covenants that limit, among other things, Organon’s ability to prepay, redeem or repurchase its subordinated and junior lien debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, redeem, or repurchase equity interests, and create or become subject to liens. As of June 30, 2024, the Company is in compliance with all financial covenants and no default or event of default has occurred.
11. Financial Instruments
Foreign Currency Risk Management
The Company uses a balance sheet risk management program to partially mitigate the exposure of net monetary assets of its subsidiaries that are denominated in a currency other than a subsidiary’s functional currency from the effects of volatility in foreign exchange. In these instances, Organon principally utilizes forward exchange contracts to partially offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro, Swiss franc, and Japanese yen. For exposures in developing country currencies, the Company enters into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument.
Forward Contracts
Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Exchange (gains) losses in the Condensed Consolidated Statements of Income. The forward contracts are not designated as hedges and are marked to market through Exchange (gains) losses in the Condensed Consolidated Statements of Income. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year. The notional amount of forward contracts was $1.5 billion and $1.4 billion as of June 30, 2024 and December 31, 2023, respectively. The cash flows and the related gains and losses from these contracts are reported as operating activities in the Condensed Consolidated Statements of Cash Flows.
Net Investment Hedge
Euro-denominated debt instruments
Foreign exchange risk is also managed through the use of economic hedges on foreign currency balances. €728 of the euro-denominated term loan and €1,250 of the 2.875% euro-denominated secured notes have been designated and are effective as a hedge of the net investment in euro-denominated subsidiaries. See Note 10 “Long-Term Debt” for additional details.
Cross-Currency Swaps
In conjunction with the issuance of the 2034 Notes, the Company entered into cross-currency swaps that mature in 2029. The Company elected to designate the fixed-for-fixed swaps as a hedge of the net investment in euro-denominated subsidiaries balance and the change in the fair value attributable to the changes in the spot rate will be recorded in Other Comprehensive Income. Throughout the term of the swaps, the Company will pay a fixed interest rate of 5.8330% based on the Euro notional amount of €922 million and receive a fixed interest rate of 7.3125% based on the U.S. dollar notional amount of $1 billion. The notional amount based on the Euro leg of the cross-currency swaps has been designated and is effective as a hedge of the net investment in euro-denominated subsidiaries. The difference between the interest rate received and paid under the cross-currency swap agreements is recorded in Interest expense in the Condensed Consolidated Statements of Income. The cash flows and the related gains and losses from the cross-currency swaps are reported as operating activities in the Condensed Consolidated Statements of Cash Flows.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following financial instruments were recorded at their estimated fair value. The recurring fair value measurement of the assets and liabilities were as follows:
($ in millions)
Fair Value Measurement Level
June 30, 2024
December 31, 2023
Forward contracts in Other current assets
2
$
18
$
9
Cross-currency swap in Long term assets
2
4
—
Forward contracts in Accrued and other current liabilities
2
9
16
Foreign currency gain (loss) due to spot rate fluctuations on the euro-denominated debt instruments and the change in fair value of the cross-currency swaps resulting from hedge designation were included within Cumulative translation adjustment in Other comprehensive income:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Euro-denominated debt instruments
$
26
$
(16)
$
75
$
(58)
Cross-currency swaps
4
—
4
—
The Condensed Consolidated Statements of Income include the impact of net (gains) losses of Organon’s derivative financial instruments:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Derivative gain in Exchange (gains) losses
$
(8)
$
(13)
$
(9)
$
(13)
Derivative gain in Interest expense
(2)
—
(2)
—
Concentrations of Credit Risk
Organon has established accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Under these agreements, Organon factored $38 million and $66 million of accounts receivable as of June 30, 2024 and December 31, 2023, respectively, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated Statements of Cash Flows.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
12. Accumulated Other Comprehensive Income (Loss)
Changes in Accumulated other comprehensive income (loss) by component are as follows:
($ in millions)
Employee Benefit Plans
Cumulative Translation Adjustment
Accumulated Other
Comprehensive
Loss
Balance at April 1, 2023, net of taxes
$
10
$
(544)
$
(534)
Other comprehensive (loss) income, pretax
(1)
2
1
Tax
—
—
—
Other comprehensive (loss) income, net of taxes
(1)
2
1
Balance at June 30, 2023, net of taxes
$
9
$
(542)
$
(533)
Balance at April 1, 2024, net of taxes
$
(14)
$
(563)
$
(577)
Other comprehensive loss, pretax
—
(35)
(35)
Tax
—
—
—
Other comprehensive loss, net of taxes
—
(35)
(35)
Balance at June 30, 2024, net of taxes
$
(14)
$
(598)
$
(612)
Balance at January 1, 2023, net of taxes
$
10
$
(574)
$
(564)
Other comprehensive (loss) income, pretax
(1)
32
31
Tax
—
—
—
Other comprehensive (loss) income, net of taxes
(1)
32
31
Balance at June 30, 2023, net of taxes
$
9
$
(542)
$
(533)
Balance at January 1, 2024, net of taxes
$
(15)
$
(526)
$
(541)
Other comprehensive income (loss), pretax
1
(72)
(71)
Tax
—
—
—
Other comprehensive income (loss), net of taxes
1
(72)
(71)
Balance at June 30, 2024, net of taxes
$
(14)
$
(598)
$
(612)
13. Samsung Collaboration
The Company has an agreement with Samsung Bioepis Co., Ltd. (“Samsung Bioepis”) to develop and commercialize multiple pre-specified biosimilar candidates, which have since launched and are part of the Company's product portfolio. Under the agreement, Samsung Bioepis is responsible for preclinical and clinical development, process development and manufacturing, clinical trials and registration of product candidates, and the Company has an exclusive license for worldwide commercialization with certain geographic exceptions specified on a product-by-product basis. The Company's access rights to each product under the agreement last for 10 years from each product's launch date on a market-by-market basis. Gross profits are shared equally in all markets with the exception of certain markets in Brazil where gross profits are shared 65% to Samsung Bioepis and 35% to the Company. Since the Company is the principal on sales transactions with third parties, the Company recognizes sales, cost of sales and selling, general and administrative expenses on a gross basis. Generally, profit sharing adjustments are recorded either to Cost of sales (after commercialization) or Selling, general and administrative expenses (prior to commercialization).
Samsung Bioepis is eligible for additional payments associated with pre-specified clinical and regulatory milestones. As of June 30, 2024, potential future regulatory milestone payments of $25 million remain under the agreement.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Summarized information related to this collaboration is as follows:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Sales
$
165
$
135
$
335
$
251
Cost of sales
107
90
217
174
Selling, general and administrative
20
18
42
36
($ in millions)
June 30, 2024
December 31, 2023
Receivables from Samsung included in Other current assets
$
35
$
—
Payables to Samsung included in Trade accounts payable
135
104
14. Third-Party Arrangements
On June 2, 2021, Organon and Merck & Co., Inc. (“Merck”) entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”). Pursuant to the Separation and Distribution Agreement, Merck agreed to spin off the Organon Products into Organon, a new, publicly-traded company (the “Separation”).
The Separation was completed pursuant to the Separation and Distribution Agreement and other agreements with Merck related to the Separation. As of June 30, 2024, only one jurisdiction remains under an Interim Operating Model Agreement.
Under the manufacturing and supply agreements, the Company manufactures certain products for Merck, or its applicable affiliate, and Merck manufactures certain products for the Company, or its applicable affiliate. For details on the rights and responsibilities of the parties under the agreements, refer to Note 19 “Third-Party Arrangements and Related Party Disclosures” to the audited Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The amounts due under such agreements were:
($ in millions)
June 30, 2024
December 31, 2023
Due from Merck in Accounts receivable
$
173
$
583
Due to Merck in Accounts payable
603
619
Sales and cost of sales resulting from the manufacturing and supply agreements with Merck were:
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2024
2023
2024
2023
Sales
$
28
$
37
$
57
$
67
Cost of sales
25
35
52
63
15. Contingencies
Organon is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters.
Organon records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Given the nature of the litigation discussed in this note and the complexities involved in these matters, Organon is unable to reasonably estimate a possible loss or range of possible loss for such matters until Organon knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation, and (v) any other factors that may have a material effect on the litigation.
Organon’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. Organon has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for most product liabilities.
Reference is made below to certain litigation in which Merck, but not Organon, is named as a defendant. Pursuant to the Separation and Distribution Agreement, Organon is required to indemnify Merck for liabilities relating to, arising from, or resulting from such litigation.
Product Liability Litigation
Fosamax
Merck is a defendant in product liability lawsuits in the United States involving Fosamax® (alendronate sodium) (the “Fosamax Litigation”). As of June 30, 2024, approximately 3,115 cases comprising the Fosamax Litigation are pending against Merck in either federal or state court. Plaintiffs in the vast majority of these cases generally allege that they sustained femur fractures and/or other bone injuries (“Femur Fractures”) in association with the use of Fosamax.
All federal cases involving allegations of Femur Fractures have been or will be transferred to a multidistrict litigation in the District of New Jersey (“Femur Fracture MDL”). In the only bellwether case tried to date in the Femur Fracture MDL, Glynn v. Merck, the jury returned a verdict in Merck’s favor. In addition, in June 2013, the Femur Fracture MDL court granted Merck’s motion for judgment as a matter of law in the Glynn case and held that the plaintiff’s failure to warn claim was preempted by federal law.
In August 2013, the Femur Fracture MDL court entered an order requiring plaintiffs in the Femur Fracture MDL to show cause why those cases asserting claims for a femur fracture injury that took place prior to September 14, 2010, should not be dismissed based on the court’s preemption decision in the Glynn case. Pursuant to the show cause order, in March 2014, the Femur Fracture MDL court dismissed with prejudice approximately 650 cases on preemption grounds. Plaintiffs in approximately 515 of those cases appealed that decision to the U.S. Court of Appeals for the Third Circuit (“Third Circuit”). In March 2017, the Third Circuit issued a decision reversing the Femur Fracture MDL court’s preemption ruling and remanding the appealed cases back to the Femur Fracture MDL court. In May 2019, the U.S. Supreme Court decided that the Third Circuit had incorrectly concluded that the issue of preemption should be resolved by a jury, and accordingly vacated the judgment of the Third Circuit and remanded the proceedings back to the Third Circuit to address the issue in a manner consistent with the Supreme Court’s opinion. In November 2019, the Third Circuit remanded the cases back to the District Court in order to allow that court to determine in the first instance whether the plaintiffs’ state law claims are preempted by federal law under the standards described by the Supreme Court in its opinion. On March 23, 2022, the District Court granted Merck’s motion and ruled that plaintiffs’ failure to warn claims are preempted as a matter of law to the extent they assert that Merck should have added a Warning or Precaution regarding atypical femur fractures prior to October 2010. On July 11, 2022, the District Court entered an Order to Show Cause as to why the Court should not dismiss either with prejudice or conditionally all of plaintiffs’ claims that are not dependent on the preempted failure to warn claims. On November 18, 2022, as a result of the Order to Show Cause, the District Court entered a Final Judgment resulting in the dismissal with prejudice of all plaintiffs in the MDL. On December 16, 2022, those plaintiffs filed their Notice of Appeal to the Third Circuit challenging the District Court’s preemption ruling. 974 of the 975 cases previously pending in the Femur Fracture MDL have either been dismissed or are on appeal to the Third Circuit. Plaintiff’s motion to remand one case back to its transferor court is pending. The appeal to the Third Circuit has been fully briefed and oral arguments occurred on March 5, 2024.
As of June 30, 2024, approximately 1,860 cases alleging Femur Fractures have been filed in New Jersey state court and are pending in Middlesex County. The parties selected an initial group of cases to be reviewed through fact discovery, and Merck continues to select additional cases to be reviewed.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
As of June 30, 2024, approximately 275 cases alleging Femur Fractures have been filed and are pending in California state court. All of the Femur Fracture cases filed in California state court have been consolidated before a single judge in Orange County, California.
Additionally, there are four Femur Fracture cases pending in other state courts.
Discovery is presently stayed in the Femur Fracture MDL and in the state court in California.
Nexplanon/Implanon
Merck is a defendant in lawsuits brought by individuals relating to the use of Nexplanon and Implanon™ (etonogestrel implant). There are two filed product liability actions involving Implanon, both of which are pending in the Northern District of Ohio as well as 56 unfiled cases involving Implanon alleging similar injuries, all of which have been tolled under a written tolling agreement. As of June 30, 2024, Merck had 21 cases pending outside the United States, of which 11 relate to Implanon and 10 relate to Nexplanon.
Governmental Proceedings
From time to time, Organon’s subsidiaries may receive inquiries and may be the subject of preliminary investigation activities from competition and/or other governmental authorities, including in markets outside the United States. These authorities may include regulators, administrative authorities, and law enforcement and other similar officials, and these preliminary investigation activities may include site visits, formal or informal requests or demands for documents or materials, inquiries or interviews and similar matters. Certain of these preliminary inquiries or activities may lead to the commencement of formal proceedings. Should those proceedings be determined adversely to Organon, monetary fines and/or remedial undertakings may be required. Subject to certain exceptions specified in the Separation and Distribution Agreement, Organon assumed liability for all pending and threatened legal matters related to products transferred from Merck to Organon in connection with the spinoff, including competition investigations resulting from enforcement activity concerning Merck’s conduct involving Organon’s products. Organon could be obligated to indemnify Merck for fines or penalties, or a portion thereof, resulting from such investigations.
Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file Abbreviated New Drug Applications with the FDA seeking to market generic forms of Organon’s products prior to the expiration of relevant patents owned by Organon. To protect its patent rights, Organon may file patent infringement lawsuits against such generic companies. Similar lawsuits defending Organon’s patent rights may exist in other countries. Organon intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products, potential payment of damages and legal fees, and, with respect to products acquired through acquisitions, potentially significant intangible asset impairment charges.
Nexplanon
In June 2017, Microspherix LLC (“Microspherix”) sued Organon in the U.S. District Court for the District of New Jersey asserting that the manufacturing, use, sale and importation of Nexplanon infringed several of Microspherix’s patents that claim radio-opaque, implantable drug delivery devices. Microspherix claimed damages from September 2014 until the patents expired in May 2021. In December 2023, the parties executed a settlement agreement and the district court dismissed the case. Organon made its first payment of $35 million in December 2023, its second payment of $25 million in August 2024, and has reserved $20 million to cover the remainder of the settlement.
Other Litigation
In addition to the matters described above, there are various other pending legal proceedings involving Organon, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of Organon as of June 30, 2024, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to Organon’s financial condition, results of operations or cash flows either individually or in the aggregate.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Legal Defense Reserves
Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by Organon; the development of Organon’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against Organon; and the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The legal defense reserve as of June 30, 2024 and December 31, 2023 was $18 million and $20 million, respectively, and represented Organon’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by Organon. Organon will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “forecast,” “intend,” “would,” “seek,” “continue,” and other words of similar meaning, or negative variations of any of the foregoing. These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, pricing pressures globally, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and health care reform, pharmaceutical reimbursement and pricing in general; an inability to fully execute on our product development and commercialization plans in the United States, Europe, and elsewhere internationally; an inability to adapt to the industry-wide trend toward highly discounted channels; changes in tax laws or other tax guidance which could adversely affect our cash tax liability, effective tax rates, and results of operations and lead to greater audit scrutiny; expanded brand and class competition in the markets in which Organon & Co. (“Organon,” the “Company,” “we,” “our,” or “us”) operates; global tensions, which may result in disruptions in the broader global economic environment; governmental initiatives that adversely impact our marketing activities, particularly in China; volatility in our stock price; political and social pressures, or regulatory developments, that adversely impact demand for, availability of, or patient access to contraception or fertility products; difficulties with performance of third parties we rely on for our business growth; the failure of any supplier to provide substances, materials, or services as agreed; the increased cost of supply, manufacturing, packaging, and operations; difficulties developing and sustaining relationships with commercial counterparties; competition from generic products as our products lose patent protection; any failure by us to obtain an additional period of market exclusivity in the United States for Nexplanon subsequent to the expiration of certain current patents in 2027; difficulties implementing or executing on our acquisition strategy or failure to recognize the benefits of such acquisitions; the impact of higher selling and promotional costs; the impact of cyberattacks or other events that may affect our information technology systems or those of third parties; and other factors discussed in our most recently filed Annual Report on Form 10-K and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.
General
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist the reader in understanding our financial condition and results of operations. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and with our audited financial statements, including the accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. Operating results discussed herein are not necessarily indicative of the results of any future period.
We are a global health care company with a focus on improving the health of women throughout their lives. We develop and deliver innovative health solutions through a portfolio of prescription therapies and medical devices within women’s health, biosimilars and established brands. We have a portfolio of more than 60 medicines and products across a range of therapeutic areas. We sell these products through various channels including drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. We operate six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, our group of companies.
In December 2023, we announced an agreement with Lilly to become the sole distributor and promoter of the migraine medicines Emgality and Rayvow in Europe. Lilly will remain the marketing authorization holder and will manufacture the products for sale. Under the terms of the agreement, we paid an upfront payment of $50 million, upon closing of the transaction in January 2024, and will recognize sales-based milestones when the achievement is probable. In the first quarter of 2024, we recognized an intangible asset of $220 million, comprised of the $50 million upfront payment and $170 million of sales-based milestones that were deemed probable. The intangible asset will be amortized over 10 years. As of June 30, 2024, we accrued $20 million in Accrued and Other current liabilities and $150 million in Other noncurrent liabilities related to the probable sales-based milestones.
Operating Results
Sales Overview
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
United States
$
388
$
371
5
%
5
%
$
758
$
697
9
%
9
%
International
1,219
1,237
(1)
1
2,471
2,449
1
3
Total
$
1,607
$
1,608
—
%
2
%
$
3,229
$
3,146
3
%
4
%
Worldwide sales were $1.6 billion for the three months ended June 30, 2024 and 2023, respectively. Worldwide sales were negatively impacted by approximately 2% or $28 million, due to unfavorable foreign exchange.
Excluding foreign exchange, sales increases for the three months ended June 30, 2024 primarily reflect the performance of:
•Nexplanon, primarily due to favorable price and discount rates in the United States, an increase in demand in our institutional business in Africa, and increased demand in our international markets;
•Diprospan™ 1(betamethasone), due to recovery from the manufacturing issues resulting from the regulatory inspection finding at the Heist manufacturing location that impacted the manufacturing of selected injectable steroid brands in the first quarter of 2023 (the “Market Action”);
•Hadlima, due to the launch in the United States in July 2023.
This performance was offset by decreases for the three months ended June 30, 2024 in:
•Zetia® (ezetimibe), which is marketed as Ezetrol™ in most countries outside of the United States, and Vytorin® (ezetimibe / simvastatin), which is marketed as Inegy™ outside of the United Statesprimarily driven by the decrease in demand in Japan, the negative impact of competition and the phasing of shipments related to the implementation of our Enterprise Resource Planning (“ERP”) system in several international markets.
•NuvaRing, due to ongoing generic competition and the negative impact of increased government discount rates in the United States.
Worldwide sales were $3.2 billion for the six months ended June 30, 2024, an increase of 3%, compared to 2023. Worldwide sales during the six months ended June 30, 2024 were negatively impacted by approximately 2% or $58 million, due to unfavorable foreign exchange.
Excluding foreign exchange, sales increases for the six months ended June 30, 2024 primarily reflect the performance of:
•Nexplanon, primarily due to favorable price and discount rates in the United States, an increase in demand in our institutional business in Africa, increased demand in our international markets and customer buying patterns associated with our decision to forgo our normal Nexplanon list-price increase in 2023, which positively impacted the first quarter of 2024.
•Hadlima, due to the launch in the United States in July 2023 and a modest increase in international markets;
•Diprospan, due to recovery from the manufacturing issues resulting from the Market Action;
•Ontruzant, driven by increased demand due to a government tender in Brazil partially offset by the negative impact of unfavorable discount rates in the United States and lower demand in Europe.
This performance was offset by decreases for the six months ended June 30, 2024 in:
•Cozaar® and Hyzaar® (losartan and losartan / hydrochlorothiazide), driven by the negative impact of volume-based procurement (“VBP”) in China.
•NuvaRing, due to ongoing generic competition and the negative impact of increased government discount rates in the United States.
•Zetia/Vytorin, primarily driven by the decrease in demand in Japan, the negative impact of competition and the phasing of shipments related to the implementation of our ERP system in several international markets.
The loss of exclusivity (“LOE”) negatively impacted sales of certain of our products by approximately $7 million and $12 million during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively, based on the decrease in volume period over period, mainly impacting AtozetTM 1 (ezetimibe and atorvastatin) in Japan. VBP in China had a $6 million and $13 million negative impact on our sales during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively. We expect VBP to continue to impact our established brands product portfolio for the next several quarters.
Our operations include a portfolio of products. Highlights of the sales of our products for the three and six months ended June 30, 2024 and 2023 are provided below. See Note 5 “Product and Geographic Information”to the Condensed Consolidated Financial Statements for further details on sales of our products.
Women’s Health
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
Nexplanon/Implanon NXT
$
242
$
214
13
%
13
%
$
462
$
380
22
%
22
%
NuvaRing (1)
29
46
(36)
(35)
67
94
(29)
(27)
Marvelon/Mercilon
41
29
38
42
73
67
10
13
Follistim AQ
62
70
(11)
(9)
108
125
(13)
(11)
Ganirelix Acetate Injection
27
34
(20)
(17)
56
63
(12)
(9)
Jada
14
11
31
31
27
18
52
52
(1) Sales of the authorized generic version of NuvaRing were previously included in Other Women’s Health.
Contraception
Worldwide sales of Nexplanon, a single-rod subdermal contraceptive implant, increased 13% and 22% for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily due to favorable price and discount rates in the United States, an increase in demand in our institutional business in Africa, and increased demand in our international markets. In addition, sales for the six months ended June 30, 2024, primarily related to customer buying patterns associated with our decision to forgo our normal Nexplanon list-price increase in 2023, which positively impacted the first quarter of 2024.
Worldwide sales of NuvaRing, a vaginal contraceptive product, declined 36% and 29% for the three and six months ended June 30, 2024, compared to 2023, respectively, due to ongoing generic competition and the negative impact of increased government discount rates in the United States. We expect a continued decline in NuvaRing sales as a result of generic competition.
Worldwide sales of MarvelonTM 1 (desogestrel and ethinyl estradiol pill) and MercilonTM 1 (desogestrel and ethinyl estradiol pill), combined oral hormonal daily contraceptive pills not approved or marketed in the United States but available in certain countries outside the United States, increased 38% and 10% for the three and six months ended June 30, 2024, compared to 2023, respectively, as a result of increased demand in various international markets.
Fertility
Worldwide sales of FollistimAQ, a fertility treatment, declined 11% and 13% for the three and six months ended June 30, 2024, compared to 2023, respectively, due to a one-time buy-in as a result of the exit of the Interim Operating Model Agreement in the United States with Merck & Co.,Inc. (“Merck”), during the fourth quarter of 2023.
Worldwide sales of ganirelix acetate injection, a fertility treatment, declined 20% and 12% for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily due to generic competition.
Other Women’s Health
Worldwide sales of Jada, a device intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted, increased 31% and 52% for the three and six months ended June 30, 2024, compared to 2023, respectively. The sales increase is due to continued uptake in the United States following the Jadalaunch in early 2022.
Biosimilars
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
Renflexis
$
69
$
70
(2)
%
(2)
%
$
138
$
132
5
%
5
%
Ontruzant
48
33
46
46
87
54
62
62
Brenzys
12
13
(4)
(4)
36
32
13
14
Hadlima
28
7
273
273
58
12
*
*
* Calculation not meaningful.
Renflexis is a biosimilar to Remicade2(infliximab) for the treatment of certain autoimmune conditions. Sales declined 2% for the three months ended June 30, 2024, compared to 2023, driven primarily by an increase in discount rates in the United States, partially offset by continued demand growth in Canada. Sales increased 5% for the six months ended June 30, 2024, compared to 2023, driven primarily by continued demand growth in Canada and demand growth in the United States, partially offset by an increase in discount rates in the United States. We have commercialization rights to Renflexis in countries outside of Europe, Korea, China, Turkey, and Russia.
Ontruzant is a biosimilar to Herceptin2 (trastuzumab) for the treatment of HER2-overexpressing breast cancer and HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma. Sales for the three and six months ended June 30, 2024, compared to 2023, increased 46% and 62%, respectively, driven by increased demand due to a government tender in Brazil partially offset by the negative impact of unfavorable discount rates in the United States and lower demand in Europe. We have commercialization rights to Ontruzant in all countries except in Korea and China.
Brenzys is a biosimilar to Enbrel2 (etanercept) for the treatment of certain inflammatory diseases. Sales in the three months ended June 30, 2024, compared to 2023, remained relatively consistent. Sales in the six months ended June 30, 2024, compared to 2023, increased 13% driven by the timing of government orders in Brazil. We have commercialization rights to Brenzys in countries outside of the United States, Europe, Korea, China, and Japan.
Hadlima is a biosimilar to Humira2 (adalimumab) for the treatment of certain autoimmune and autoinflammatory conditions. We have commercialization rights to Hadlima in countries outside of the EU, Korea, China, Turkey, and Russia. We recorded sales of $28 million and $58 million during the three and six months ended June 30, 2024, respectively, reflecting an increase due to the launch in the United States in July 2023. In addition, sales for the six months ended June 30, 2024 were impacted by a modest increase in international markets. Hadlima is currently approved in the United States, Australia, Canada, and Israel.
Established brands represents a broad portfolio of well-known brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management, for which generic competition varies by market.
Cardiovascular
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
Zetia/Vytorin (1)
$
102
$
134
(23)
%
(21)
%
$
215
$
251
(15)
%
(12)
%
Atozet
140
143
(2)
(1)
271
271
—
1
Cozaar/Hyzaar
60
71
(16)
(13)
127
156
(19)
(15)
(1) Sales of the authorized generic version of Zetia were previously included in Other Cardiovascular.
Combined global sales of Zetia and Vytorin, medicines for lowering LDL cholesterol, declined 23% and 15% for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily driven by the decrease in demand in Japan, the negative impact of competition and phasing of shipments related to the implementation of our ERP system in several international markets.
Sales of Atozet, a medicine for lowering LDL cholesterol, declined 2% and remained consistent for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily due to LOE in Japan and the timing of tenders in the Latin America region partially offset by increased demand in Europe. We anticipate LOE in certain markets in Europe to commence late in the third quarter of 2024.
Combined global sales of Cozaar and Hyzaar, medicines for the treatment of hypertension, declined 16% and 19% for the three and six months ended June 30, 2024, compared to 2023, respectively, driven by the negative impact of VBP in China.
Respiratory
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
Singulair
$
93
$
80
16
%
22
%
$
190
$
199
(5)
%
—
%
Nasonex (1)
60
66
(9)
(6)
137
137
—
4
Dulera
47
48
(3)
(3)
103
95
8
8
(1) Sales of the authorized generic version of Nasonex were previously included in Other Respiratory.
Worldwide sales of Singulair® (montelukast sodium), a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis,increased16% for the three months ended June 30, 2024, compared to 2023, due to increased demand in China and phasing of shipments related to the implementation of our ERP system in various international markets, partially offset by mandatory price decreases in Japan. Sales declined5% for the six months ended June 30, 2024, compared to 2023, due to decreased demand and price decreases in Japan, partially offset by increased demand in China.
Global sales of Nasonex® (mometasone), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, declined 9% for the three months ended June 30, 2024, due to the phasing of shipments related to the implementation of our ERP system in various international markets. Sales remained consistent for the six months ended June 30, 2024, due to increased demand across our international markets offset by the phasing of shipments related to the implementation of our ERP system in various international markets.
Global sales of Dulera® (formoterol/fumarate dihydrate), which is also marketed as Zenhale™ in certain markets outside of the United States, a combination medicine for the treatment of asthma, remained relatively consistent for the three months ended June 30, 2024, compared to 2023. Sales increased 8% for the six months ended June 30, 2024, compared to 2023, primarily due to the favorable impact of increased demand in the United States and Canada.
Sales of Arcoxia™ ¹ (etoricoxib), a medicine for the treatment of arthritis and pain, declined 7% for the three months ended June 30, 2024, compared to 2023, primarily due to a decrease in demand in various international markets. Sales remained consistent for the six months ended June 30, 2024, compared to 2023, primarily due to favorable pricing in the Asia Pacific region offset by a decrease in demand in various international markets and the impact of foreign exchange.
Sales of Diprospan, a corticosteroid approved for treatment of a wide range of inflammatory conditions, increased 196% and 146% for the three and six months ended June 30, 2024, compared to 2023, respectively, due to recovery from the manufacturing issues resulting from the Market Action. In the first quarter of 2023, we resolved the regulatory inspection findings. We expect sales recovery to continue over the course of 2024.
Other
Three Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
Six Months Ended June 30,
% Change
% Change Excluding Foreign Exchange
($ in millions)
2024
2023
2024
2023
Emgality/Rayvow
30
—
*
*
40
—
*
*
Proscar
$
23
$
25
(6)
%
(3)
%
$
50
$
52
(5)
%
(2)
%
* Calculation not meaningful.
Sales of Emgality and Rayvow were $30 million and $40 million for the three and six months ended June 30, 2024, due to the acquisition of the distribution and promotion rights from Lilly in the first quarter of 2024.
Worldwide sales of Proscar® (finasteride), a medicine for the treatment of symptomatic benign prostate enlargement, for the three and six months ended June 30, 2024, compared to 2023, were substantially consistent.
Gross Profit, Expenses and Other
Three Months Ended June 30,
% Change
Six Months Ended June 30,
% Change
($ in millions)
2024
2023
2024
2023
Cost of sales
$
668
$
640
4
%
$
1,333
$
1,220
9
%
Gross profit
939
968
(3)
1,896
1,926
(2)
Selling, general and administrative
437
451
(3)
868
886
(2)
Research and development
116
128
(9)
228
257
(11)
Acquired in-process research and development and milestones
15
—
*
30
8
*
Restructuring costs
—
—
*
23
4
*
Interest expense
131
132
(1)
262
264
(1)
Exchange (gains) losses
(1)
2
*
5
11
(55)
Other expense, net
6
1
*
9
7
29
* Calculation not meaningful.
Cost of Sales
Cost of sales increased 4% and 9% for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily due to unfavorable product mix, foreign exchange translation and higher inflation impacts to material and distribution costs.
Gross profit decreased 3% for the three months ended June 30, 2024, compared to 2023, respectively, primarily due to flat sales coupled with unfavorable product mix, foreign exchange translation and higher inflation impacts to material and distribution costs. Gross profit decreased 2% for the six months ended June 30, 2024, compared to 2023, respectively, primarily due to higher sales offset by unfavorable product mix, foreign exchange translation and higher inflation impacts to material and distribution costs.
Selling, General and Administrative
Selling, general and administrative expenses decreased 3% and 2% for the three and six months ended June 30, 2024, compared to 2023, respectively, due to lower costs associated with the implementation of our ERP system.
Research and Development
Research and development expenses decreased 9% and 11% for the three and six months ended June 30, 2024, compared to 2023, respectively, primarily due to lower personnel costs due to a reduction in headcount related to our restructuring initiatives. In addition, the six months ended June 30, 2024, were impacted by a decrease in clinical study activity.
Acquired In-Process Research and Development and Milestones
For the three months ended June 30, 2024, acquired in-process research and development and milestones of $15 million represent the research and development milestones of $5 million for Henlius and $10 million for Cirqle, which were determined to be probable of being achieved. For the six months ended June 30, 2024, acquired in-process research and development and milestones of $30 million represent the research and development milestones of $20 million for Henlius and $10 million for Cirqle, which were determined to be probable of being achieved. For the six months ended June 30, 2023 acquired in-process research and development and milestones of $8 million represents the upfront and development milestones related to the Claria transaction.
Restructuring Costs
For the six months ended June 30, 2024, we incurred $23 million of headcount-related restructuring expense related to the ongoing optimization of our internal operations, primarily the research and development function.
Interest Expense
Interest expense remained consistent for the three and six months ended June 30, 2024, compared to 2023. Interest expense for the three and six months ended June 30, 2024 reflects the inclusion of approximately $4 million in debt issuance costs related to the refinancing of our long-term debt offset by lower interest rates on the refinanced debt and our cross-currency swaps. Beginning in May 2024, the difference between the interest rate received of 7.3125% and paid of 5.8330% under the cross-currency swap agreements is recorded in Interest expense.
Exchange Gains (Losses)
For the three and six months ended June 30, 2024, the reduction in exchange losses was driven by less volatility in foreign exchange compared to the prior year and the favorable changes in spot rates of our forward contracts.
Other Expense, net
Other expense increased for the three and six months ended June 30, 2024, compared to 2023.
Taxes on Income
The effective income tax rates were 16.0% and 14.4% for the six months ended June 30, 2024 and 2023, respectively. These effective income tax rates reflect the beneficial impact of foreign earnings, offset by the impact of U.S. inclusions under the Global Intangible Low-Taxed Income regime and a partial valuation allowance recorded against non-deductible U.S. interest expense. There was a favorable impact to the 2024 year-to-date effective tax rate which was driven by the favorable closure of the two non-US tax audits and a return to provision adjustment for the Switzerland entity.
Effective January 1, 2024, multiple jurisdictions, most notably, a majority of the European Union member states, implemented the Organization for Economic Co-operation and Development’s (“OECD”) Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least €750 million. We have evaluated the effect of this for the first two quarters of 2024 and do not expect that it will have a material effect on a full year basis.
Liquidity and Capital Resources
As of June 30, 2024, we had cash and cash equivalents of $704 million. We have historically generated and expect to continue to generate positive cash flow from operations. Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings, payment of dividends and strategic business development transactions. We believe that our financing arrangements, future cash from operations, and access to capital markets will provide adequate resources to fund our future cash flow needs.
During the second quarter of 2024, we refinanced a portion of our long-term debt. These transactions extended certain maturity dates, resulted in lower interest rates for certain of our long-term debt and increased the capacity of our revolving credit facility. See Note 10 “Long-Term Debt” to the Condensed Consolidated Financial Statements included elsewhere in this report for further information on our long-term debt transactions.
Working capital is defined as current assets less current liabilities and was $1.8 billion and $1.6 billion as of June 30, 2024 and December 31, 2023, respectively. The increase in working capital was primarily driven by a decline in our payables, due to the timing of payments, and accrued expenses, primarily due to the timing of annual incentive compensation payments in the first quarter of 2024.
Net cash provided by operating activities was $408 million for the six months ended June 30, 2024, compared to $141 million for the same period in the prior year. The increase in cash provided by operating activities was primarily attributable to the timing of collections of accounts receivable.
Net cash used in investing activities was $142 million for the six months ended June 30, 2024, compared to $124 million for the same period in the prior year, primarily due to the $50 million upfront payment related to the agreement with Lilly in the first quarter of 2024, partially offset by lower capital spending as a result of the completion of the implementation of our ERP system.
Net cash used in financing activities was $208 million for the six months ended June 30, 2024, compared to $414 million for the same period in the prior year. The decrease in cash used in financing activities was driven by the $250 million voluntary prepayment on the U.S. dollar-denominated term loan in the six months ended June 30, 2023, compared to a $7.5 million voluntary prepayment on the U.S. dollar-denominated term loan and $36 million of debt issuance costs related to the long-term debt refinancing in the six months ended June 30, 2024.
As part of our post-spinoff plan, we have approved an initiative to further optimize our manufacturing and supply network. As part of this initiative, we will continue to separate our supply chain through planned exits from supply agreements from Merck through 2031. This will enable us to redefine our appropriate sourcing strategy, and move to fit-for-purpose supply chains, while focusing on delivering efficiencies. We anticipate we will incur costs associated with this separation, including but not limited to accelerated depreciation, exit premiums and fees, technology transfer costs, stability and qualification batch costs, one-time resourcing costs, regulatory and filing costs, capital investment, and inventory stock bridges.
Our contractual obligations as of June 30, 2024, which require material cash requirements in the future, consist of contractual milestones, purchase obligations and lease obligations. In addition, we are responsible for settlement of certain tax matters that we expect to pay during 2024. During the 2024 fiscal year, we anticipate paying higher cash taxes than the 2023 fiscal year. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 for further details. As of June 30, 2024, there have been no material changes to our contractual obligations outside of the ordinary course of business.
During the second quarter of 2024, we paid cash dividends of $0.28 per share. On August 6, 2024, the Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of our common stock. The dividend is payable on September 12, 2024, to stockholders of record at the close of business on August 16, 2024.
Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 3 “Summary of Accounting Policies” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. See Note 2 “Basis of Presentation” to the Condensed Consolidated Financial Statements for information on the adoption of new accounting standards during 2024. There have been no changes to our accounting policies as of June 30, 2024. A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates are disclosed in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Organon’s Annual Report on Form 10-K for the year ended December 31, 2023.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 2 “Basis of Presentation” to the Condensed Consolidated Financial Statements included elsewhere in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely affected by fluctuations in foreign exchange. We are primarily exposed to foreign exchange risk with respect to forecasted transactions and net assets denominated in the euro, Swiss franc, and Japanese yen. We established a balance sheet risk management program and a net investment hedge to mitigate against volatility of changes in foreign exchange. See Note 11 “Financial Instruments” to the Condensed Consolidated Financial Statements included elsewhere in this report for further information on our risk management.
Interest Rate Risk
Our long-term debt portfolio consists of both fixed and variable-rate instruments. For any variable rate debt, interest rate changes in the underlying index rates will impact future interest expense. We do not hold any derivative contracts that hedge our interest rate risk; however, we may consider entering into such contracts in the future.
There have been no changes to our market risk during the quarter ended June 30, 2024. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth under Item 7A.—Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period ending June 30, 2024. Based upon that evaluation, our CEO and our CFO concluded that, as of June 30, 2024, the end of the period covered by this report, our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure.
In 2023, we began an implementation of an enterprise resource planning (“ERP”) system to replace the existing core financial system. The ERP system is designed to accurately maintain our financial records used to report operating results. The implementation of the consolidated financial reporting module was completed during the 2023 fiscal year. The implementation of the general ledger modules occurred in phases and was completed during the second quarter of our 2024 fiscal year. The changes in process under the new ERP continue to be subject to our evaluation of the operating effectiveness of internal control over financial reporting.
Except for the implementation of an ERP system, there was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The information called for by this Item is incorporated herein by reference to Note 15 “Contingencies” included in Part I, Item. 1.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 5. Other Information
Rule 10b5-1 and non-Rule 10b5-1 Trading Arrangements
During the three months ended June 30, 2024, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
Amendments to Award Agreements
On February 7, 2024, the Company’s existing form of Non-qualified Stock Option (“NQSO”) Award Agreement under the Organon & Co. 2021 Incentive Stock Plan (the “Plan”) was amended and revised to reflect the compensation recoupment provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Organon & Co. Dodd-Frank Policy on Recoupment of Incentive Compensation (together, the “Recoupment Provisions”) and other immaterial changes. The Company’s existing form of Performance Share Unit (“PSU”) Award Agreement under the Plan was also amended and revised to reflect the Recoupment Provisions, as well as to update the calculation of final awards of PSUs and to make other immaterial changes. In addition, the Company’s existing form of Restricted Share Unit (“RSU”) Award Agreement under Plan was amended and revised to comprise two separate forms, (i) a “Stock Default” RSU Award Agreement and (ii) a “Cash Default” RSU Award Agreement, each of which also reflect the Recoupment Provisions and a default settlement mechanism (shares of the Company’s common stock, in the case of the “Stock Default” RSU Award Agreement, and cash, in the case of the “Cash Default” RSU Award Agreement).
Except as described above, the revised forms of NQSO Award Agreement, PSU Award Agreement, and RSU Award Agreements are substantially consistent with prior versions of such agreements and is qualified in all respects by reference to the full text of the form of such revised agreement filed as Exhibit 10.2, 10.3, 10.4, and 10.5, respectively, to this report.
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ORGANON & CO.
Date: August 7, 2024
/s/ Kathryn DiMarco
Kathryn DiMarco
Senior Vice President Finance - Corporate Controller
