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Organon – Company Analysis & Competitive Dynamics – 5 January 2022

  • Public Equity
  • Healthcare
  • North America
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Specialist

Former VP at Merck & Co Inc

Agenda

  • Women's health market and assessment of Merck's (NYSE: MRK) spin-off of Organon
  • Organon's portfolio, including biosimilars, NuvaRing, Nexplanon (etonogestrel implant), Vytorin (ezetimibe and simvastatin) and Zetia (ezetimibe)
  • Organon's acquisition of Forendo Pharma and outlook for M&A activity
  • Growth outlook including strategy, performance and international expansion potential

Questions

Transcript

1.
What are the key trends and themes in the women’s health sector and how do they impact Organon?

Specialist (SP): I will start with COVID, because I think it impacts many items responsible for the growth of Organon. The cost of goods is going to be quite important in the near future, as to the manufacturing of this large portfolio that Organon owns. COVID was also responsible for the significant reduction in wellness visits that were important for contraception and infertility and biosimilars, same also for surgical procedures, so the situation was quite difficult for the past year. That explains the results of Organon, but there are positive signs also, a trend for the growth of the portfolio in terms of COVID. We see a rebound in some countries of the wellness visits, and so patients are going back to their healthcare practitioners. We see also the US pricing policy change that would positively impact the biosimilar market, same also in Europe, where the biosimilar market is growing very, very quickly. Then you have China, especially for the established brands in fertility, where there is significant growth, so I would say these are the key trends relative to the Organon portfolio, positive and negative.

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2.
Could you discuss Merck’s strategy of spinning off its women’s health portfolio, now Organon? Do you think this was the right move?

SP: I think that was the right move for the two companies. Women’s health had a lot of potential and that potential was neglected for many years, because the focus was really in oncology and cardiovascular and virology and so there was very limited focus and resources, and so the growth was stagnating for women’s health and there was no business development effort, there was no expansion of the pipeline and so they had limited product, especially on the contraception and fertility, that were not growing and not planning to grow.

Then you had the large basket of established brands with especially growth in the emerging market. That portfolio was also negative because it was supposed to decline, and at the same time there was a limited profitability coming from it, and then there were the biosimilars, which was a market which was very new for Merck, which is primarily an innovative pharmaceutical company with a lot of manufacturing challenges, so those three portfolios didn’t fit well with Merck philosophies or goals. There was enormous pressure also in the future for the possible decline of the oncology franchise, which has been the engine for Merck.

There was a lot of focus from the investors on expanding the oncology margin, and those three portfolios were not contributing, so for Merck it was, “We can’t do anything, or much, for those three portfolios, they don’t fit well with the entire Merck portfolio. We have no focus in R&D, no focus in business development. They impact negatively the operating margin and so we are going to divest that so that, in fact, we can really concentrate on pure therapeutic areas where the gross margins are, in virology, immunology, oncology, cardiovascular.” Then when they decided to put that away and place that in the same company, they felt that the key driver and positioning for this new company, Organon, should be around women’s health, and I think it’s because there is no company dominating that space today and so it was a little bit unique to concentrate everything on women’s health, most of the new company on women’s health. They saw a lot of opportunities in terms of high unmet need and so they created this women’s health company. One of the difficulties for Organon is that they need to make women’s health the main engine for the new company, but they need also to take care of the biosimilars, which has a great potential which is very different, has nothing to do with women’s health, and then established brand is something that they can naturally grow with a little bit greater focus and that will fuel the growth of two other franchises.

In terms of strategy, it makes sense for both companies. The market reacted quite well when it was done. Things happened on the Merck side, I explained why the stock went down, but Organon actually has been outperforming most of the companies this year in terms of stock growth, and so now it’s going to be about the execution. One thing also that is important for Organon is that 80% of the Organon are ex-Merck. This is a very solid group of people who have worked together and lots of great, great people from Merck went there, and they have a new opportunity to create and launch this company. I see some positive prospects for Organon, but multiple levels, not only the management team but also the portfolio and the opportunity they have with increased focus and resources, and also their very significant activities on the business development side over the last year.

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3.
The women’s health portfolio under Merck had been declining since 2018. Do you think this underperformance was due to the markets or areas where the portfolio played in or due to a lack of focus and expertise from Merck? How might this differ under Organon’s leadership?

SP: The contraception market has been declining because it was not actively supported. There is a lot of untapped potential on Nexplanon that Organon wants to realise. NuvaRing had to deal with a loss of exclusivity in the US, that was a major blow. Merck was not capable of really dealing with that effectively, and I think I’ve explained why NuvaRing in a certain way is out of the main focus of the new company. On the fertility side, things are not that bad. It’s a smaller market, it has higher profitability than the contraception, and now you have a company which is well-founded, with smart people and they know that the survival of Organon is going to be linked to how they can reactivate the contraception portfolio. They want to, you can see that, in the public announcement everything is about Nexplanon, there are a lot of opportunities not only on geographies, on study, on patent. I see a very unique product which has not realised its potential. I don’t think that much will happen on NuvaRing, it’s going to stabilise probably at the level of USD 200m once (? 10.57) accept the immediate impact of the loss of LOE in the US. Then on fertility there are a lot of positive trends on fertility and I think that this is also what Organon wants to do. Their strategy is very focused. It’s Nexplanon and fertility for women’s health, and then they have been very active on licensing and acquiring companies for smaller markets with very high unmet needs, where they have first potential, first in class drug or device, and I think it’s going to be nicely complementing what they have with contraception and infertility.

It’s also good in the sense that they are going to focus on OBGYN, so they have a strong network among those healthcare practitioners and they know exactly what those practitioners are missing and they are trying to fill those gaps one by one, whether its preterm labour, endometriosis, which is a huge market which there is nothing much working there, and you have also the, what is the last one that they acquired? ObsEva, which is also for something which is high unmet need. ObsEva is for preterm babies, to diminish preterms. On the BD side they have been very active and very diversified in bringing three companies, two licenses that are going to probably launch around 2025 and 2027, ebopiprant from ObsEva and the Forendo compound for endometriosis and polycystic ovarian syndrome, and then they are going also to launch immediately the new Jada System from Alydia for post-partum uterine bleeding. They have already now actually three markets instead of two, and they have two potential new markets coming in the future with massive focus in US and Europe initially for those new launches, so it looks good. If the two new products work, and you could be first in class and penetrate this market with very high unmet need, I think for Forendo and ebopiprant there is a very strong potential there.

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4.
What are your post-pandemic expectations for the contraceptive implant Nexplanon [etonogestrel implant], which leads Organon’s portfolio? Sales for this product declined by 14% in 2020, largely due to women delaying or cancelling elective surgery during the pandemic.

SP: Once, in fact, you go back to the level of wellness and gynaecology visits, I think you will restore some of the loss of the Nexplanon performance, and the management say that they were confident that Q1 is going to be confirming what they have seen these last weeks in Q3 [sic] about a renewed performance of Nexplanon. Beside that, they have an operating model which is more efficient, because now Nexplanon becomes the number one product for the company. I’ll talk a bit about the focus and resources that are going there. Nexplanon was not even in the top 30 when it was at Merck, top 20. They are launching a D2C education campaign because there is a lot of lack of awareness about the long-acting reversible contraceptive, and so many more women could actually be educated about the benefits of this and could be interested in actually benefiting from (? 15.36) and especially from Nexplanon, which is a leading and unique implant in that market, which is better than the normal intrauterine device.

They have revamped their website to make things easy for people to find which healthcare practitioner in their area they could talk to, to consider whether they would want to have a Nexplanon, so you have the D2C education campaign, the revamped website, this is more for the patient side to educate, raise awareness, raise interest. They have significantly upgraded their training programme. The number of HCPs that they have trained in the last two quarters have been far above what they did in the past years, and it’s very important, actually, you have more HCPs which are comfortable and confident with the insertion of Nexplanon, because Nexplanon is only 5% market share, which is low. Then you have, of course, the COVID receding. There is the COVID receding and then you can already see a lot of investment going to Nexplanon at the patient and healthcare practitioner level.

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5.
Do you think Organon’s management’s expectation of double-digit revenue growth for Nexplanon is feasible?

SP: Yes, it is feasible. It is feasible because there is a large market there, especially on the old contraception that can be displaced, and they know what the barriers have been at the patient and practitioner levels, and they have not been able to address those barriers because there were no resources and focus coming from Merck, and so now they are doing that. I think that, because the people know what they are doing, I think the execution will be positive and it will drive double-digit revenue growth. 10%, Nexplanon is probably at USD 700m and so this is relatively easy to get another USD 80m, especially considering all the different factors and the recession of COVID. Then they have also things on the back which are the five-year study, which is going to be very important, because when this five-year study is approved it will extend the patent by three years, but it will make the product even more attractive because women want a contraception that they are not involved, they don’t need to think daily about it, and they want long-term protection and protection that could be easily reversible, and the implant totally answers that. When you see what Nexplanon has to offer in terms of effectiveness, safety and convenience, you wonder why it’s only a 5% market share, but this product has not been supported effectively.

There is also, on the mid-term, the potential that this unique technology will be actually licensed by other manufacturers. It is already considered by the Merck pipeline for virology, where there is a huge potential to actually insert an implant for HIV, and so they will have to pay royalties on the licensing of the technology. There is also, especially for the emerging and developing markets, the prospect of combining potentially a contraceptive and anti-HIV product to protect young women, especially in Africa, for example. There is a lot of growth in the short and long term with Nexplanon.

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6.
How hopeful are you that Organon’s five-year Nexplanon study will be a success and achieve the three-year patent extension you outlined? What should we continue to monitor?

SP: It’s going to be determined by the study. Their three-year study was positive, we know a lot about this product, so I think that if there was an investment that made sense that it was done, that was to invest in the five-year study, not only to enhance the benefits of the product but also to prolong the patent life by three years, especially in the US, and US is actually the main driver for Nexplanon. We need to monitor what the results of this study will be, because if it doesn’t work then there is a lot to be lost there, but if it works, I think it’s going to prolong the life of Nexplanon, which will be growing, certainly, in the next year. This product should be USD 1bn. When you see successful products in especially contraception, before they went generic, some of them were much bigger than Nexplanon is and they didn’t have that much medical differentiation when you compare to Nexplanon, because there is no rival for Nexplanon. This is also a very complicated offering to replicate for a generic because you need to control the distribution system, you need to match the results of the study and you need also to go around the technology, which is patented, so there is a lot of protection around this product. This product could grow, could go even further once they have the positive study, and I think that Nexplanon also will resist very well the loss of exclusivity because it’s difficult for a generic manufacturer to replicate what Nexplanon has to offer. It makes sense that Nexplanon is at the centre of the future growth for Organon. This is why the management is communicating so highly on this product. I guess you should monitor the study.

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7.
What are your thoughts on the growth potential or remaining growth opportunity for fertility treatments Follistim [follitropin beta injection], Orgalutran [ganirelix acetate injection] and Elonva [corifollitropin alfa], which Organon’s management considers to be key growth drivers?

SP: The products that are offered by Organon are very unique because they’re very well-positioned in the protocols for infertility, because I think they are easy to use and they are favoured by the practitioners, so that’s that’s why they are performing well. Since, in fact, there is no pipeline and no new study, the growth of this portfolio is mostly due to the positive trend in the infertility market. I think they expect a compound annual growth rate of 8-9%, which is huge, so the market will grow just by that, and they have a leading position there around the infertility product, medical product. The decline of fertility rate has alerted many governments to actually do something about infertility, and so you see new policies in Japan, in China, in France, in Spain, also in the US. You have a growing number of fertility clinics, for example in Asia Pacific and in the rest of the world. You have technological advancements and so the success of infertility treatments has actually been increasing for the last 20 years. There is public, private investment and the government are more likely to fund or reimburse some of the high procedures which are very costly, and so there is an interest from the public and the private side to actually help the infertility clinics and drive people to those possible treatments which are effective.

The market is going to grow because there are powerful positive trends in that area, including China also, and so if you have products which are well-positioned and favoured by the infertility protocols, those products are going to grow naturally. What Organon needs to do, I think, is to complement their current portfolio on the R&D side or licensing side, because otherwise this portfolio is going to die once it reaches the different LOEs for those three or four products that they have. When you look at the numbers, infertility has been doing very well lately.

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8.
What are your thoughts on Organon’s ability to make up for any future loss of exclusivity? What pipeline assets may position the company to make up for any revenue losses? What are your general thoughts on its R&D capabilities?

SP: One thing which is unique at this stage for Organon vs Merck, for example, is that they have no discovery, so there is nobody working on creating new products for Organon. Discovery can be very expensive and you never know whether discovery is going to discover new products. They are still quite young in terms of development and so they will have to increase their development capabilities by adding a lot of people. There are not a lot of Organon studies which are in phase 2 and phase 3, and so to compensate the effect of LOE we come mostly by growing the products which have still a long runway up to their patent, like Nexplanon, for example, launching new products that are not made by Organon, which are the biosimilars. A lot of biosimilar launches in immunology and oncology, which has a huge potential because the biosimilar portfolio of Organon is doing well and growing very fast and there are positive trends also for the biosimilar market. You grow Nexplanon probably to USD 1bn-1.5bn, you expand the biosimilar market significantly, you have double-digit growth that can be easily realised. There is limited risk on those launches, and then you have to expand the geographies. There are a lot of countries where the different indications of the most important products of Organon have not been launched, whether it’s fertility or contraception, for example.

Then you have these three acquisitions, so you have the Jada System that is going to be launched soon, that has potential, and then there are those two new products that will come around 2025, 2027 from the two acquisitions. They are going to continue to license products or acquire companies because they have to build their pipeline, since, in fact, they have no discovery, they have to find those products from somewhere else. The management of Organon comes mostly from people who led Europe and the emerging markets, and they know that they can position with their portfolio Organon as a preferred partner, so they can get also a lot of commercial deals with other companies because they have a great presence, very strong presence in many of those emerging markets in Europe, and so as a women’s health company they can attract and decide to either manufacture or commercialise products of other companies and then get royalties for that. That should be enough, I think, to compensate their LOE. They have also signalled, which is important, that the LOE of NuvaRing, which was a massive blow for Organon, is and was done, the impact of it. The biosimilars, you need to launch it because it is the first 3-4 years that you heavily return on the investment of your biosimilar. After that, you have to face competition because there will be more biosimilars coming.

Because of the very strong connection that they have with Merck management they will have access to biosimilars of, probably they will be a potentially preferred partner for the oncology products of Merck when those products go to LOE, and so when you see the growth of the oncology market in 10 years from now, a lot of those products are going to go off-patent and they will enter the biosimilar world. Organon is likely to be one of the leaders in biosimilar,s and oncology would be even more than immunology a driver for that, and then they have the connection with Merck, who is the leading company in oncology. There are a lot of things that they can do, and they have announced also for the established brands that the impact of the LOEs on the established brands also is going to slow down, so in the next 2-3 years what they are losing from those LOEs is going to be significantly lower than what they have lost over the last 3-4 years.

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9.
You mentioned that Organon will have 7-8 biosimilar launches from 2023 onward. How are you assessing these products’ potential? Where are you most hopeful for success? What sales do you expect across these launches?

SP: That’s difficult to say, but today they have three biosimilars. They have Remicade, which is doing very well, infliximab, they have the one for etanercept, Enbrel, so this is immunology, so both immunology, and then they have a third one, which is Herceptin for oncology, which is also doing very well. You have Humira, which is a USD 23bn-24bn (? 32.25), which is going to be off-patent and therefore it is signalled that they will have a biosimilar for Humira with multiple indications, like the one of Remicade, and then after that they are going to branch to other key immunology products, and then the oncology will come a little bit later. Each biosimilar can reach USD 500m and actually some of them should go to USD 1bn. Today they are still small because they have just launched, it’s competitive, but some of them could actually get to USD 500m, and they will have 10 of them.

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10.
How might Samsung’s rumoured acquisition of Biogen impact Organon’s role as a commercialisation partner for Samsung?

SP: Difficult to say. Samsung has been a good partner for Merck for the last 3-4 years. I think they have a long-term contract and that contract needs to be respected even if, in fact, there is a collaboration with Biogen. It makes sense for Biogen to go to Samsung and try to get some of their product there, to benefit from some of the Samsung capabilities. Samsung is a very strong company and they have been able to deliver for Merck, I think they can deliver for multiple companies. Might have to renegotiate the terms of the contract to make sure that actually you don’t suffer from the competition coming from Biogen, but Merck has been one of the leading partners for Samsung, and with this collaboration of the next 7-8 launches I think it’s Merck and then Organon represent a significant preferred customer for Samsung. It makes sense for Samsung to try to find other collaborations because the collaboration with Merck and Organon is not exclusive, but Biogen focuses on immunology with MS, multiple sclerosis, and also neuroscience, and so they don’t have the same portfolio as Merck. Very different, so there should be not much competition, I think it’s going to be different therapeutic areas controlled by Organon and controlled by Biogen.

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11.
Could you assess Organon’s December 2021 acquisition of Forendo Pharma for an initial USD 75m? What gaps does it fill? There are some who claim that Forendo is too early-stage and expensive, and have some hesitations on the area that it would be allowing Organon to expand into.

SP: Forendo, so endometriosis is a huge problem. It’s mismanaged, misunderstood, misdiagnosed, affects 10% of women with childbearing potential. There is no great treatment. The hormonal treatment cannot be given long term, they trigger menopauses, it’s a huge problem. Most of the treatments are for symptoms, especially pain, and so when you go to the endometriosis conferences, and I’ve been part of that for many years, these are very sad conferences because the surgeons and the OBGYNs who are involved in endometriosis have not had a good product for the last 20 years and they don’t know what to do to help these women. Now you have a new mechanism of action, potentially first in class, that is very selective, with no systemic effect, just acts at a tissue level. The biology about the conversion between (inaudible 37.28) makes sense as a cause of endometriosis. This is still early, because they are entering phase 2, but if it works and it’s safe, this could be a transformative medical treatment for endometriosis. They are very few things in the pipeline for endometriosis and most of them are not disease-modifying treatment. They don’t address the cause, they address the symptoms, and when they try to address the cause with a hormonal GnRH agonist treatment, they actually trigger menopause, reduction of bone mineral density and so they are very unsafe, so there is a huge, huge unmet need in endometriosis. This is one product for which the biology seems to be very promising and if they can develop it successfully and rapidly, then I think they could have a blockbuster product.

Regarding the financing, when you look at the way the deal was structured, the total number is high, around USD 900m, but is very back-loaded and so what they paid up front was only USD 75m, which is small for a product that has this potential. Most of the payments will occur if the studies are positive, if they are proof of the product, and two-thirds of actually the financing of this deal is linked to the commercial success, so it’s very de-risked. I don’t see a problem with that, I think that this is a very good deal about something that has a lot of opportunities and they didn’t pay so much up front to control and acquire this company.

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12.
What are your growth expectations for the Jada System, which came out of Organon’s June 2021 acquisition of Alydia? What’s the broader perception of the device?

SP: Difficult to put a number on the Jada System because it will be a function of the reimbursement and the execution of the launch who are going to note that, I would say, more in the first six months because they are launching in the US this year. The study is very impressive for Jada, the phase 3. Around 10% of mothers will have abnormal post-partum bleeding, which is also a leading cause of death, and when you see what the Pearle study was capable to do (? 40.49) 95% effective control of post-partum haemorrhaging, and that’s without requiring escalating interventions, so this is significant, because you don’t have transfusion, you don’t have hysterectomy, so this device, which is a very smart device, and it seems to be working very well and this was almost no safety issue. It’s going to be about training people to insert the device, to use the device, getting reimbursement, but I’ve seen all the economics. When you see the cost for the payers of the complications, including death, of post-partum haemorrhaging, I think that there is a great potential for this system. It’s a very, very smart technology and the phase 3 study was super impressive.

Then you can go everywhere, this is not only US, post-partum haemorrhaging is everywhere, it’s even more pronounced in countries where they don’t have the same effective pregnancy management, and so considering the very strong presence of Organon around the world, they can launch this system very effectively in 100 countries, at least. They can also probably get deals with Gates Foundation and stuff like that, to make sure that developing world actually will have access to that and somebody else will pay for it.

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13.
Do you think Organon will be the main player that will acquire other women’s health portfolios being divested? What other viable options are there for acquisitions in women’s health as the company attempts to drive focus and growth?

SP: Women’s health, there is no leading company in women’s health. When you look at the companies who are actually being involved in women’s health, you have a company with multiple contraception, hormonal treatments for oncology and so on, like (? 43.13), J&J. Bayer has a women’s health therapeutic area of focus that they say, “That’s one of our focuses.” Then you have Merck KGaA, which is the world leader in infertility by far. By far. Some companies are strong in certain areas of women’s health but they don’t usually position themselves as a women’s health company. They position themselves, “We are immunology, cardiology,” maybe infertility company, and so if you position yourself as a women’s health and you look at the other women’s health problems, contraception, fertility are there. Pregnancy management, so you see that already with Jada System. You are going to see that also with pre-term labour, so they have already two licenses for pregnancy management, and then you have diseases of women like endometriosis. Perinatal disease also will be important, so there are a bunch of markets where you have indications that have been neglected and for which the unmet need is quite high. They can look at all of these gaps. You also see also the psychiatry like postpartum depression, post-partum psychosis, they want to go there, they can, because there is nothing that works and these are diseases that mostly affect women and are considered perinatal diseases.

They have mapped from a woman’s standpoint by interviewing a lot of women and healthcare practitioners who take care of women about what are the most important, serious unaddressed diseases in the woman’s world, and they are going to selectively focus on, “Can we find a small (? 45.25)?” in fact, they have no discovery, “Can we find a company?” that could be a large company. For example, Merck KGaA had a license, I think, for ebopiprant, so previously they didn’t want to deal with that because that was pre-term labour and Merck KGaA is mostly infertility, so it didn’t fit, and so they say, “Okay, we are going to license that to ObsEva,” and then Organon said, “We’re going to take it from ObsEva.” They will look at, in the pipeline, all those products that are directed to diseases of women where there is very high unmet need and very limited competition. They will look at whether the biology is very strong or not, which is the culture of Merck and some ex-Merck people, and then they will go after that. It could be device, it could be drugs, it could be technologies, they will try to secure every gap, or most of the gaps, that they see in the women’s world in terms of diseases.

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14.
Organon considers its established medicines legacy franchise a support beam that could provide necessary cash flow to its aspirations elsewhere. What’s your assessment of this franchise’s top products?

SP: Yes, and another thing I wanted to mention before I address your question. They say also that (inaudible 46.58) impacted (inaudible 47.00) to women, when they go to the area of oncology, immunology, there are some autoimmune diseases which are mostly in women, and then you have all the cancers like ovarian, breast and so on. With the biosimilars for them, they are going to focus that, because they will continue to colour their pipeline by having products that are dedicated to women, and so when you look at the biosimilars there are a lot of things, especially in immuno-oncology, where they can direct their pipeline and future commercial portfolio towards diseases that are mostly or uniquely in women, like breast and ovarian cancer, for example.

Established brand is big. It’s declining because they are own products, but you can see the numbers, they are still a big portfolio and a lot of those products have already lost exclusivity. We know, especially in Asia Pacific, that there is a very strong customer brand loyalty. Asia Pacific, the patients don’t like so much to deal with generic, they’re afraid of generic, and then you have the growing middle class in China, and Organon communicates (? 48.38) on the retail sector of China where people want to have the western medicines and they recognise those names, especially for cardiovascular, respiratory, (? 48.55) pain, and so the growth in retail China is very impressive and will continue to grow. Then also that some of the LOEs are going to slow down, they will pass the impact of the LOE and they can leverage brand loyalties across most of their established brand portfolios, so it’s going to remain a large market, large portfolio that might not grow, because products are ageing, but by emphasising certain markets, for example, like China and other emerging markets, they can stabilise their established brands. Then, because they don’t invest heavily, those brands are old and very well-known, they don’t need to resource heavily those brands, so in a certain way the profitability that they can extract from the established brand portfolio is significant, and all this money can naturally be directed to their business development effort.

Which is why also for Organon, for Merck, when they split, they said, “We are going to give you this basket of products that are doing well, are not going to grow, are doing well,” and when you see you have 50 products there, as Organon you have a very strong presence in the emerging market, including China. You have a management also that has been operating in this region, including Russia also for OTC where there is a huge potential, the OTC market, a management that knows very well those markets, and so you can do something better with the established brand portfolio than Merck could do. The better you do, the more profit you can extract from this portfolio and that you can use for biosimilars and women’s health.

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15.
What are the key threats to the main products in Organon’s established medicines legacy franchise?

SP: I think they are going to deal, or they are dealing with the loss of Zetia in Japan, for example, the loss of the LOE for Zetia in Japan, which was a big market. Most of the products that they have, especially outside of Japan, are past their LOE and so it’s just a question of maintaining the share or investing in markets which are growing, like the retail sector of China, for example. You maintain your share, but if the demand is growing, and we see actually that maybe there is price pressure on the established brand because the competition, the volume of established brands is growing, so there is higher demand for those brands, which are very wellknown brands. They are also placed in therapeutic areas which are usually the focus of those emerging markets, cardiovascular disease, respiratory disease, pain, dermatology, you see a lot of growth in those markets, China being by far the most important.

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16.
You highlighted the importance of global expansion and leverage, including Organon’s presence in fastgrowing international markets. What might be the company’s other international opportunities? How do you hope this will evolve?

SP: I think part of the business development will be to leverage their manufacturing presence in the emerging market and also their commercial capabilities. They have a very strong network. MSD has a very strong presence in Asia, in China, in Latin America, and so having a large portfolio and having the relationship with the government in those markets is quite important, and so they can be a preferred partner for smaller companies who don’t have the presence and need a partner who can actually help them promote and commercialise their product. It was already the case with Merck, but I think it’s going to be even more the case with Organon because of their position, and also because of their focus in making sure they can grow through commercial business development things. Manufacturing, also. The manufacturing capabilities so they can say, “Okay, I make your product, I might commercialise also your product, and you pay me for that.”

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17.
What is your near-to-mid-term outlook for Organon? What should we continue to monitor? Is there anything else you would like to discuss?

SP: : When you see the priorities for Organon, I think the first one is dividends, which, in a certain way, they want the stock to go up and they want to return value to the investor, which makes sense, so they are going to focus on their profitability and operating margin. Also they acquire still a lot of people and develop their development capabilities, so it’s going to be an impact in the short term. Quarter after quarter, you can monitor first whether they are changing the story. I don’t think they will, at least for the next two years. It’s going to be Nexplanon, it’s going to be whether they grow the infertility market based on those positive market trends, it is going to be the long five-year study, of course, of Nexplanon, it’s going to be the effective launch of biosimilars. A new contract with Samsung to expand the portfolio of biosimilars, especially in oncology when Humira goes off-patent, which is already the case, that’s why especially oncology, and whether they will get a deal with Merck, but a little long term at the end of the decade. Then you have all the BD deals, whether it’s commercial or early and late stage, because they are really diversified, they try to get products early but they try also to get, which, I think, the Merck culture, products which have positive phase 2 wave proof of concept of the biology and in a certain way would deliver 5-10 years from now when they are commercialised.

I think they are going to continue to license or acquire small companies to expand their pipeline that they will develop for diseases of high unmet need, and so any announcement on the BD side will be important. Then there will be also BD opportunities on the commercial side, especially for emerging markets, especially for China. They can grow their current portfolio, especially for Nexplanon, infertility and biosimilars, and then they are going to prepare the future by licensing heavily new technology, devices, drugs, for high unmet need diseases of women. Then, of course, on the organic growth, I didn’t mention that before, but when you look at what they have today this is, of course, Nexplanon, but in terms of lifecycle management there are a lot of geographies and a lot of indications that have not been launched because Merck didn’t have the bandwidth to do that. They can decide, especially for Nexplanon and biosimilars, that they want now to launch and get those syndications approved in geographies where they are not today, especially for markets which are growing fast where there is a high demand. There are a lot of gaps that can be filled for the lifecycle management of their current organic pipeline.

 

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