Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Organon Fourth Quarter and Full Year 2022 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Jennifer Halchak, Vice President, Investor Relations. Please begin your conference.

Thank you, Dennis. Good morning, everyone. Thank you for joining Organon's Fourth Quarter and Full Year 2022 Earnings Call. With me today are Kevin Ali, Organon's Chief Executive Officer, who will cover strategy and operational highlights; and Matt Walsh, our Chief Financial Officer, who will review performance, guidance, and capital allocation. Dr. Sandra Milligan, Organon's Head of R&D, will also be joining us for the Q&A portion of this call. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events and Presentations section of our Organon Investor Relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our 10-K and subsequent periodic filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our CEO, Kevin Ali.

Good morning, everyone, and thank you, Jen. Welcome to today's call where we'll talk about our fourth quarter and full year 2022 results. To begin with, I'm exceptionally proud of Organon's performance in our first full year as a stand-alone company. For the full year 2022, we delivered a 4% increase in total company revenue at constant currency. We also demonstrated strong profitability, generating an adjusted EBITDA of $2.1 billion, representing a 33.8% margin. We delivered strong growth in our Women's Health and Biosimilars portfolios and we grew our Established Brands business. Starting with Women's Health. For the full year 2022, the Women's Health franchise delivered 7% growth on a constant currency basis. This includes $834 million of revenue from Nexplanon, which grew 11% in 2022 at constant currency. This marks Nexplanon's second consecutive year of double-digit growth. That is a significant achievement for a product that has been around for over a decade and relies on continually attracting new patients to the product. We are seeing particular strength outside the U.S. where Nexplanon grew 17% in 2022, especially in our LAMERA region, where improved access is helping to drive demand. In the U.S., Nexplanon grew 8% in 2022 and continues to gain share in the market of long-acting reversible contraceptives. In 2022, we also trained more than 20,000 health care providers to insert Nexplanon, and we will continue to train more providers in 2023. Importantly, we continue to hone our go-to-market strategy emphasizing follow-on reviews with health care providers, actively prescribing Nexplanon for whom additional training may strengthen their comfort in prescribing Nexplanon. We continue to monitor the impact of the overturn of Roe v. Wade on the contraception market. Since July 2022, we have seen demand growth for Nexplanon in the most restricted states as well as protected and semi-restricted states. This speaks to the need now more than ever for highly efficacious forms of contraception. In real-world views, Nexplanon is over 99% effective in preventing pregnancies compared with some forms of short-acting contraceptives where efficacy is less than 80%. That is partly because when women use a long-acting contraceptive like Nexplanon, it removes the patient-dependent aspect. Nexplanon is inserted within minutes and currently provides continuous efficacy for up to 3 years. We also believe we will be successful in demonstrating the 5-year efficacy through our ongoing study. Importantly, it wasn't just Nexplanon that continued the growth in Women's Health in 2022. We continue to see good contribution from the Fertility portfolio which in 2022 grew approximately 9% at constant currency despite the impact of COVID in China, which limits patients' ability to begin or continue treatment at fertility clinics. The U.S. and China are large fertility markets and together represent more than half of our current fertility business. China is a particularly important fertility market for us, with the potential to grow to more than 1 million IVF cycles a year over the next decade. The number of cycles in China is already 3 times the number of cycles in the U.S. And as we have discussed many times before, fertility is a therapy area with strong demographic tailwinds. More than 100 countries around the world have a fertility rate or the number of births per woman that is significantly below the replacement rate that is required to sustain a population and its GDP growth. Countries are offering more monetary incentives for households to expand their families and many are offering better fertility access and benefits. Organon is one of the few companies with the portfolio capable of serving this growing market. The Women's Health franchise is also benefitting from our business development activities. As we think about business development, we are striving for balance between commercialized assets and earlier-stage asset that could become significant growth catalysts for Organon in the longer term. Since our spin, through business development, we have added 3 assets to our Women's Health portfolio that are already contributing or will soon be contributing to revenue growth. You will recall that last year, we reacquired the rights to Marvelon and Mercilon, which are combined oral contraceptives in selected territories in Asia, including China and Vietnam. Together, Marvelon and Mercilon grew 20% in 2022. The success from the repatriation of these assets is just another example of how Organon is applying its own methodologies to maximize the performance of assets that may have been under-prioritized in other companies in the past. We are also very excited about the JADA System, which we added to our portfolio in 2021 with the acquisition of Alydia Health. JADA is a device indicated to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage. Postpartum hemorrhage is one of the most common complications of birth requiring pharmacologic treatment in up to 10% of mothers. At last week's annual meeting for the Society for Maternal-Fetal Medicine, researchers unveiled the results of the Roe v. Wade study, which examined JADA's efficacy and safety in real-world use. Researchers concluded that JADA worked quickly and was highly effective in controlling postpartum hemorrhage after both vaginal and cesarean births. Researchers also found that the device successfully treated postpartum hemorrhage in 92.5% of vaginal births and 83.7% of cesarean births. In addition, the device was safe and only had to remain in place for a few hours after placement, allowing for a more efficient postpartum care experience. Our goals in acquiring Jada included the opportunity to speed up access to this innovation in the U.S. and to leverage our global capability to bring this product to markets around the world. We continue to add accounts and are now at about 1,000 hospitals in the U.S. with more than 15,000 mothers having been treated with JADA. Additionally, in 2022, we made our first ex-U.S. shipments and have also committed to the EU for approval. We're also pursuing earlier-stage assets that address the areas of highest unmet medical needs and have the potential to expand our portfolio in Women's Health. Since then, we've added 4 earlier-stage assets in the Women's Health portfolio at different stages of development. The farthest along is OG-6219, a unique new mechanism of action, which is a candidate to treat endometriosis locally instead of systemically. In October 2022, we enrolled the first patient in our Phase II ELENA study, which is expected to be completed by the end of 2024. Turning to Biosimilars. Our Biosimilars franchise grew 17% on a constant currency basis in 2022, marking its second consecutive year of double-digit growth. Biosimilars are an important growth driver for the company. And in 2022, we underscored our commitment to the business by adding a second R&D partner with Shanghai Henlius. All 5 of our biosimilars contributed to the strong performance in 2022. Renflexis, our largest selling biosimilar, grew 22% last year, driven by solid performance in the U.S. and Canada, despite already being on the market for over 5 years. Ontruzant, our second largest biosimilar, grew more than 40% in the U.S. but that growth was offset by competitive pressures in Europe. Hadlima, our biosimilar for Humira, had a very strong performance in 2022, reflecting its successful 2021 launch in Canada and Australia. We expect that our success in those markets will help with provider confidence when we launch Hadlima in the U.S. in July of this year. Because Humira is the largest biologic to face biosimilar competition in the U.S., we are frequently asked about the competitive position with Hadlima. To reiterate our messaging, we believe that the best physician biosimilars will be those that share the same attributes as the originator. That includes the option for high-concentration citrate-free formulation as well as a low-concentration formulation, and we expect to have both at launch. We also believe that real-world evidence and experience in other markets will be something that providers will appreciate. We have that data through our collaborator, Samsung Bioepis, from their experience with Hadlima in the EU as well as from our own successful launches in Canada and Australia. Finally, we believe our pen design can be a differentiator for patients. Samsung is an expert in device design and manufacturing and has designed the pen with the aim of providing a frictionless experience for new patients and those transitioning from Humira. That said, with multiple parties launching midyear, we have also conveyed our belief that 2023 will be a modest ramp-up year with the market for biosimilars really forming in 2024 and 2025 and beyond. Finally, let's talk about Established Brands, which currently represents about 2/3 of our overall business and generates significant free cash flow. The portfolio continues to demonstrate the sustainability and untapped potential of these brands. Over the longer term, given the maturity of the portfolio, we expect close to flat performance for our Established Brands business. In 2022, we benefited from some one-time events as well as from delayed VBP implementation that helped the franchise deliver growth of 3% at constant currency for the full year. In the near term, as we think about 2023, we believe we will be able to offset the expected impact from Round 7 of VBP with continued focus on maximizing the potential of these well-known brands through continuous demand generation. We expect the Established Brands to achieve generally flat performance in 2023 on a constant currency basis. Briefly turning to geographic performance. There are 2 important takeaways here: one, geographic risk in our revenue is well distributed; and two, each of these geographic regions grew in 2022. That includes China, which faced significant challenges related to COVID in 2022. As we think about 2023, we believe that strength in the retail channel, growth in fertility as well as the benefits from the reacquisition of Marvelon and Mercilon will together offset the expected VBP impact to our China business in 2023. We are extremely proud of our 2022 achievements, and I want to thank our 10,000 founders worldwide for rising together to live our purpose and for delivering the success Organon had in our first full year as a stand-alone company. I'd like to now turn the call over to Matt. Thank you.

Thanks, Kevin. Before I talk in more depth about our results, I'll remind you that we haven't completely lapped the June 2021 spin transaction as far as financial reporting is concerned. So while our 2022 third and fourth quarters are apples-to-apples with the prior year periods, the first half of 2022 comparability is impacted by the carve-out basis of accounting that we needed to employ for pre-spin-off accounting periods. And that really implies more to expense items on the full year income statement rather than revenue, and I'll call that out as necessary. So with that opener, we'll move to Slide 7 and discuss fourth quarter revenue. Fourth quarter revenue was approximately $1.5 billion, down 7% as reported, but up 1% at constant currency. And this marks our fourth consecutive quarter of constant currency growth. We'll spend more time talking about the individual drivers when we get to the full year. But isolating the fourth quarter for the moment, we had solid volume growth in the period. Our key growth franchises, Women's Health and Biosimilars were the main drivers of growth, but Established Brands also contributed. For example, recently, we've seen particular strength in Atozet in France and Spain. With some generics still out of the market in Japan, we're getting some pickups there as well. In the fourth quarter, we had about a $15 million impact from Volume Based Procurement or VBP in China, which reflects the implementation of Round 7 in November. The Organon product that's impacted in this round is Ezetrol, which is sold as Zetia in markets outside of China. The biggest number on this walk across is foreign exchange translation, which represented an 800 basis point headwind to revenue growth in the fourth quarter. This is the largest FX translation reporting impact of any quarter in 2022. This might seem counterintuitive because everyone's most recent memories of the U.S. dollar weakening versus most foreign currencies. But the numbers show that trend started at the very end of 2022. Given that more than 75% of our revenue is outside the U.S., FX translation was a significant theme for Organon in 2022. Our portfolio faced a significant financial reporting headwind from the strengthening U.S. dollar. Unfortunately, that dynamic masked the operational growth in local currencies that we delivered in the fourth quarter and in the full year. Looking at the full year, we have an identical revenue bridge on Slide 8. For the full year 2022, revenue was approximately $6.2 billion, down 2% as reported but up 4% at constant currency when compared to the prior year. Starting with loss of exclusivity or LOE, the full year 2022 LOE impact was modest at about $30 million, coming mainly from NuvaRing LOE in the United States. We didn't have any LOE impact in Established Brands this year. As we've said before, the most significant LOEs facing the Established Brands portfolio washed out prior to the spin-off. What we expect going forward is a cumulative few hundred million dollars of impact over the next several years. The full year impact from VBP was about $20 million, primarily reflecting the November implementation of Round 7, as I just discussed. We saw an approximate $140 million impact coming from price for the full year 2022. And that's consistent with our expectation that we will continue to see low single-digit price erosion on a company-wide basis. The majority of pricing pressure continues to come from Established Brands where products are subject to mandatory annual price reductions in some markets, as well as from Biosimilars. For volume, we expected to see strong volume growth during 2022 across our franchises, and that indeed happened. We saw volume increases coming from what we call our growth pillars: Nexplanon, Fertility, and Biosimilars, but Established Brands also grew volume as well. For example, Nasonex and Singulair drove strength year-on-year; Atozet grew in Europe. We continue to see significant growth in the China retail channel. When looking at Supply Other, the approximate $70 million impact primarily represents supply sales to Merck and other third parties, which consists of relatively low-margin sales of pharmaceutical products under contract manufacturing arrangements. Last year, we signaled that the volumes under these arrangements would decline in 2022, which has been the case. Finally, the significant financial reporting headwind we had in foreign exchange translation amounted to 600 basis points for the full year, which again is a function of more than 75% of our revenue being generated outside the U.S. The next few slides lay out our performance by franchise. Kevin covered the highlights very well, and the quarterly and full year details are provided in the supporting earnings materials. So I'll focus on topics that may be relevant to your modeling as we think about 2023. We'll start with Women's Health on Slide 9. As Kevin mentioned, Nexplanon had a strong performance in 2022, was up 8% ex FX in the quarter and 11% for the full year. In fact, we set 2 new sales records for Nexplanon in 2022: first in the third quarter and then again in the fourth quarter. As you think about quarterly phasing for next year, it's worth reminding you that in the fourth quarter of last year, Nexplanon also set a sales record, which was then sequentially followed by a weaker first quarter due in part to the buy-in, buyout dynamic we tend to see around the timing of price increases in the U.S. This is a dynamic we would expect to see again in the first quarter of 2023. Turning to Biosimilars on Slide 10. As Kevin mentioned, this franchise continues to be an important growth driver for us. We know investors are focused on the potential revenue contribution from our U.S. launch of Hadlima this year. Based on our expectations for a gradual market formation in 2023 and only a partial year revenue contribution given our July 1 launch, we expect that globally, Hadlima will represent no more than about 1.5% of our consolidated 2023 revenue. Turning to Established Brands now on Slide 11. Here, I want to drill down into the fourth quarter because in addition to VBP implementation, there was another item that impacted Established Brands' fourth quarter performance. In January 2023, we initiated market actions for sterile suspension injectables, Diprospan and Celestone Chronodose. This was related to a purchase component used in the sterile filling process at Organon's Heist facility in Belgium that was determined to be nonconforming. To be clear, no product quality complaints or adverse events have been reported nor are any expected. Due to the compliance aspect, it was prudent to exercise these market actions and discard inventory deemed to be impacted. For reference, combined, these 2 products represented about $165 million of revenue in 2022. This action had the effect of reducing fourth quarter revenue by $8 million for potential sales returns, and we recorded a one-time inventory charge of $36 million that shows up in cost of goods sold. We're breaking out the issue in this manner to show that excluding the total $44 million that flows through to adjusted EBITDA, our fourth quarter adjusted EBITDA margin would have been 28.4%, very much in line with what our expectations were for the fourth quarter when we last provided guidance in November. We're also showing the full year impact for reference. Since spinoff, we've been very pleased with our ability to forecast our business. So while events like a market action were always a potential risk in this industry, we're confident about the durability and diversity of our business as it relates to forecasting it. Let's now turn to key P&L line items on Slide 13. For non-GAAP gross profit, we are excluding from cost of goods sold, purchase accounting amortization and one-time items related to the spin-off. The market action I just discussed was the major driver of the change in gross margin in the fourth quarter compared to the prior year period. For the full year, adjusted gross margin was 65.7% compared with 64.7% for the full year 2021. Keep in mind that full year comparisons for items below the revenue line are less meaningful because they're only truly comparable for the second half of the year. That said, the year-over-year increase in adjusted gross margin is primarily a result of lower supply sales in 2022, which carry lower margins as well as pre-spin allocated costs related to the separation of Organon that occurred in the prior year. Adjusted EBITDA margin was 25.6% in the fourth quarter compared to 29.3% in the same period of last year. Adjusted EBITDA margin was 33.8% for the full year 2022 compared with 36.1% for the full year 2021. The decline in the fourth quarter and full year was a result of costs associated with the market action at Heist as well as expenses related to positioning the company for future growth. We've been talking about the importance of reinvestment in the business to create a pipeline of new products to drive revenue growth for a while now. You see that in higher selling and promotional costs as well as research and development spend associated with our prior acquisitions. Looking at debt capitalization and leverage on Slide 14, as of December 31, 2022, we have gross bank debt of $8.9 billion netted against cash and cash equivalents of $706 million. We ended the year with a net leverage ratio of about 3.8x, which ticked up from the 3.6x we reported at the end of the third quarter. That primarily reflects the combination of the strength of the euro and impact of the fourth quarter 2022 results. Given our adjusted EBITDA guidance for 2023, which we'll discuss in a moment, together with the currency impact on our euro-denominated debt, leverage is likely to be stubborn in 2023. In fact, given the inevitable math of this past quarter's inclusion in our LTM EBITDA calculation during the upcoming quarters, we could see leverage ticks higher before leveling back down by the end of the year. This doesn't have a significant impact on our capital allocation priorities, given the strong cash flow characteristics of the business. So let's turn to Slide 15 for a moment and take a closer look at cash flow. When we reported our third quarter financials, there was still a lot of noise in the September year-to-date cash flow numbers stemming from some transient spin-related items. This is washing out. In the fourth quarter, our free cash flow generation was very strong. In the full year 2022, there was about $300 million related to nonrecurring spin-related working capital build early in the year. If you recall the discussion from last quarter, we said that a good portion of that $300 million was actually expected in late 2021 but instead landed in early 2022. With the spin-related build largely behind us and reaching what we expect to be a more normalized ebb and flow to our working capital position, we saw a significant improvement in Q4 cash generation. The other driver was foreign exchange translation. Consistent with the weakening of the U.S. dollar, we had a positive impact of $100 million in the fourth quarter from foreign currency cash balances within our global liquidity management program. That partially offset the $160 million headwind we had experienced year-to-date September. But the key message here is that putting aside the $300 million of working capital build that should not repeat in 2023, our free cash flow excluding one-time costs related to the spin is in that north of $1 billion range that we communicated at the time of the spin. Our capital allocation priorities remain consistent with past communications. We will continue to prioritize servicing the current dividend, followed by pursuing organic growth through lifecycle management opportunities within our current portfolio of products. Capital expenditures in the range of 3% to 4% of revenue remains a good estimate for forecasting purposes. With that capital going to modernizing and growing our production capacity, stand-up-related investments like our global ERP implementation and other strategic investments in the business. With these priorities satisfied, we expect to have significant remaining cash flow available as we continue to balance external growth opportunities against our commitment to our BB/Ba2 rating. Having a higher leverage ratio at points during 2023 likely raises the bar on business development as it competes for capital. But even without discretionary debt repayment, which we've done twice as a stand-alone company, we can still get deals done and stay within the parameters of our rating, much as we have been doing since the spin-off. Now turning to 2023 guidance on Slide 16, where we highlight the items driving our 2023 revenue guidance range of $6.15 billion to $6.45 billion. Beginning with LOE, we expect an approximate $50 million to $75 million impact for the full year 2023, which reflects the continued impact of generic competition for NuvaRing. This also includes an impact from Atozet, which will go LOE in Japan in 2023 as well as a provision for Dulera, where we expect a generic entrant sometime in late 2023 after not seeing one in 2022 or 2021. We expect the impact from VBP to be in the range of $125 million to $175 million in 2023, driven mostly by the inclusion of Ezetrol in this latest round. We expect approximately $75 million to $125 million of price erosion in 2023. On a total company basis, we've been able to stem pricing pressure a little better than we thought at the start of last year. Over the longer term, we would expect pricing erosion to be in the range of 200 to 300 basis points of headwind, mainly due to mandatory pricing decreases in certain markets and smaller LOE impacts but also due to product mix. For example, as Biosimilars becomes a bigger business within Organon, that will put more pressure on price. For volume, we expect growth of approximately $500 million to $600 million for the full year, in line with what we saw in 2022. The majority of the volume increase is expected to come from our multiple growth pillars: Nexplanon, Biosimilars, Fertility, China Retail, and to a smaller degree, recent business development activity including JADA. Given where FX spot rates are trending, we would expect a more modest impact from foreign exchange translation in 2023 compared with 2022. We're estimating an approximate $50 million to $100 million impact from FX for the full year, which would represent about a 1 percentage point headwind. That means that our guidance range implies constant currency revenue growth of approximately 3.5% at the midpoint. Moving to the other components of guidance on Slide 17. We expect adjusted gross margin to be in the low to mid-60% range, which is modestly lower than where we finished 2022. As I've talked about previously, much of the inflationary impacts from 2022 were held in inventory and therefore, have a greater impact on our cost of goods sold this year in 2023. On operating expenses, our ranges for SG&A and R&D as a percentage of sales are in line with what we guided to and delivered in 2022 and reflect continued investment in the business as we position it for future growth. Our estimate for R&D expense includes line of sight to about $40 million of IPR&D expense that's tied to the $8 million investment we made in Claria Medical in January plus an estimate for a milestone achievement for ebopiprant in 2023. Any upfront payments related to future business development would be incremental, and we would call that out in our announcement of any such transactions. Those OpEx assumptions would bridge you to an adjusted EBITDA margin in the range of 31% to 33% for 2023. For below-the-line items, given the increasing interest rate environment, we have increased our estimate of interest expense for 2023 to approximately $510 million. The knock-on effect of higher interest expense also means that we had a cap with regard to interest expense deductibility for tax purposes. For 2022, we finished on the low end of our tax expense guidance range. For 2023, our non-GAAP effective tax rate range reflects a normalization of expectations for tax expense, plus incremental expense for limitation of interest expense deductibility. Wrapping up the financial discussion, 2022 was a very solid year for the company. In addition to all the operating accomplishments Kevin mentioned, as we advance Organon's mission in Women's Health, on the financial front, we delivered constant currency revenue growth of 4%, which is well-aligned with the mid-single-digit expectation we had for the year. We deployed over $200 million of capital across 4 promising transactions to drive future revenue growth. We proactively retired $100 million of debt. We returned $290 million in cash dividends to shareholders. We're looking forward to 2023, where we expect to deliver continued growth and strong capital performance based on the earnings guidance we're providing today. With that, we'll now turn the call over to Q&A.

Your first question is from the line of Terence Flynn with Morgan Stanley.

I guess just as we think about Nexplanon for 2023. Can you just walk us through how you're thinking about what's embedded in guidance, both on the U.S. side and ex U.S.? And then Follistim was somewhat soft this quarter. I was just wondering if there's anything of note there and then how we should think about that product going into the first half of this year?

Thanks for the question, Terence. I'll take that. Look, as we start to think forward in terms of what we're doing with Nexplanon, we're very pleased with 2 consecutive years of double-digit performance. Of course, we had somewhat of a strong buy-in in the fourth quarter of last year. So we expect the first quarter, as usual, to be a little bit soft. But ultimately, going forward, we see really very strong, at least in the U.S. as well as ex U.S., very strong demand growth coming in terms of physician demand growth; we're able to monitor this and feel good about the fact that the chances of Nexplanon continuing to grow in a very solid way is something that we feel very good about. Our ex U.S. business continues to grow because of the fact that it was very deprioritized in years past, and we have opportunities to really continue to drive access and ultimately awareness of Nexplanon throughout the world. Of course, when we start to go outside the U.S., you start to see more lumpiness in the overall orders because there's a lot more tender business involved here. But when you look at the U.S., we're really happy with what we're seeing in terms of our DTC campaigns, our social media campaigns, and all the things that we're doing in terms of our clinical training programs and continuing to focus on really driving prescription depth with physicians who are currently very comfortable with Nexplanon. In terms of Follistim that you were asking about, well, we have very strong Follistim growth in the U.S. performance, but ultimately, the softness came in Q4 from China. As you can well imagine, when China started to lock down and then ultimately, after the lockdown, you started to see a real increase in terms of COVID infections, it really inhibited the opportunity for couples to go to the IVF clinics in order to be able to get their therapy. But we expect that to ultimately turn around this year. We expect a very strong Follistim business in China for this year as we start to rebound from all the COVID lockdowns and ultimately from the COVID infections that are essentially burning through China as we see it today. I hope that answers your questions.

Your next question is from the line of Umer Raffat with Evercore.

Maybe a couple, if I may. First, on 2023 guidance, could you clarify how much Humira is in the number or not as well as sort of the ongoing China reopening and sort of what you've baked in? I think that will be very helpful.

It's great to speak with you, but we typically don't disclose specific sales figures for individual products like Humira or Hadlima. However, we are optimistic that Hadlima will perform well this coming year for several reasons. First, Canada and Australia are showing strong double-digit growth outside of the U.S. for Hadlima. Secondly, we will have six months of Hadlima sales in the U.S. this year. I've mentioned before that 2023 will largely focus on getting onto the formularies of the top pharmacy benefit managers in the country, as well as possibly some closed systems like Kaiser, other health maintenance organizations, and government bodies like the FDA. We are confident in our prospects due to the product's strong presentation. As noted in my earlier comments, we believe the products that are most similar to the original will succeed. Our formulation is as close as possible, featuring a high concentration that is citrate-free and a smooth, user-friendly delivery system. There is strong real-world evidence outside the U.S. to assure pharmacy benefit managers of the safety and efficacy of our product. We are optimistic about Hadlima's future. Regarding our operations in China, we have solid growth drivers there. As I mentioned earlier, fertility treatments are rebounding, the Marvelon brand is performing well, and retail sales are recovering as consumer behavior normalizes. Our online business is also thriving, which should help mitigate some of the significant challenges posed by the latest volume-based procurement rounds. We are hopeful for outcomes in the upcoming eighth round, expected around the second quarter. Historically, despite the recent rounds of procurement, we have not seen a decline in our performance in China; rather, we continue to grow. Looking ahead to 2023, we anticipate that about 70% to 80% of our business will have been affected by the volume-based procurement impact, setting the stage for strong growth post-2023. Therefore, in 2024 and beyond, we expect to see high single-digit to low double-digit growth from China.

Kevin, sorry, if I may just clarify. I think on China, So I understand most of the products have gone through VBP. I guess what I was getting at was the pace of VBP rollout got paused during COVID in China. So with Zetia, we had about $300 million run rate, etc. I'm just trying to understand how are you guys thinking about the step down on these sort of $300 million, $400 million franchises in China as rollout resumes on the previously conducted VBP? And what's on the guidance?

Yes. Well, look, I mean, you bring up a good point. The Round 7 was delayed by a few quarters. Ultimately, that benefited us last year from Ezetrol business in China. Now it effectively went into effect in November. We're seeing the expected erosion of Ezetrol as we speak right now, probably about a $90 million headwind this year from volume-based procurement for Ezetrol in China. The remaining products that we expect to go through volume-based procurement Round 8 and Round 9 are essentially much smaller products. They're in the $40 million range. If there is the opportunity that those get delayed because of further ongoing COVID infections or whatever could be the things that come as a result of what's happened last year, then the upside won't be great at, say, for example, the delay that we saw with Ezetrol. But that's why I mentioned it could be anywhere between, say, 70% and 80%, depending on those rounds happening in the second and fourth quarter, but they're much smaller products. So we went through most of the rounds that have kind of hit the big products already.

Thank you so much, Kevin.

Kevin, just to quickly revisit for Umer's benefit. In the prepared comments, back to Hadlima for a second, Umer, we did say worldwide sales would not exceed about 1.5 points of Organon's consolidated revenue. While Canada and Australia are important markets, they're a lot smaller than the U.S., so you can assume that number is weighted towards the United States a bit.

Next question is from the line of Navann Ty with BNP Paribas Exane.

I have a few starting on Nexplanon in the U.S. Do you expect to continue to take market share following the Dobbs news, from both the oral pill and IUDs? Can you share how many health care professionals you expect to train this year? Also, am I right that there was no Nexplanon tender in the fourth quarter outside of the U.S. and do you expect a tender in Q1? And then separately, do you have a net leverage target that you can share? Could we see some term loan prepayment in 2023?

So let me start with the Nexplanon questions. You're right, Navann, in Q4 of '21, we saw a big tender from Mexico. That tender came through in Q3 of '22. That's why you didn't see really the tender business for the ex U.S. business in Q4. We do expect probably in the Q3, Q4 timeframe more of the tender business to ramp up in the emerging markets, whether that be in Mexico, Brazil, and others. So look for that probably in the second half of this year; we'll start to see bigger tender activities coming through in the year. In regard to Nexplanon and kind of the post-Roe v. Wade opportunities, we do see, and I've been able to see that actually with Nexplanon in the U.S., what I would call those states that have restrictive policies around abortion or access, we're seeing about a high single-digit growth for Nexplanon in those states. Those that are more protective of the opportunities are probably at mid-single-digit growth rates right now, at least that's what we saw post-decision versus pre. I see that there are opportunities to continue to grow. I've felt that when we think about what physicians and patients are going to want in states where it's quite restrictive, I would think that real-world efficacy, and I mentioned 99% effective, you take the decision-making out of the daily issues in regards to their contraception needs. I believe that we'll continue to see growth accelerating from some of these states that ultimately have restricted policies. In the last question regarding clinical training programs, we did train 20,000 health care providers in 2022. Now that could be physicians, nurses, PAs, many of those. Some were retraining for people that needed to get refamiliarized as the COVID lockdowns eased or as people start to come back into the clinics. We'll continue to invest in clinical training programs going forward. I would say there's going to be an average of anywhere between 15,000 and 20,000 per year that we'll be averaging going forward for healthcare providers, both new to prescribing Nexplanon and those that need refresher training in order to be able to feel more comfortable with inserting and using Nexplanon and with follow-on reviews.

I can address the question about leverage. Since the spin-off, we have been targeting a net leverage figure of 3.5 times. The business reached that level during 2022, largely due to the strength of the dollar against euro-denominated debt. However, this trend is reversing in 2023, as mentioned in our prepared comments. Looking ahead to 2023 and our 3.5 times leverage target, we will need to balance the advantages of voluntary debt reduction with our business development goals and our capacity to increasingly fund our own deals as the year progresses. Our cost of debt has increased. We will continue to operate in the manner we have since the spin-off and seek to find a balance. As I mentioned earlier, the standards have risen as business development competes for capital in the short term, alongside the advantages of reducing debt.

Your next question is from the line of David Amsellem with Piper Sandler.

I had a few. First, on the revenue bridge for '23 guidance. Regarding the volume growth, can you talk about the extent to which that's coming from Established Brands? Maybe talk in more detail about where the drivers are in Established Brands as you think about volume? Secondly, I apologize if I missed this, but just remind us when you think you can get interchangeability in the U.S. for Hadlima and just talk about progress towards that? Lastly, on business development. I think you talked about a lean towards the acquisition of EBITDA-generating assets. I wanted to pick your brains on that and see what your appetite is in terms of commercial stage assets vis-a-vis development stage assets and how you're thinking about that.

I can address the first two questions regarding volume growth in 2023. We see volume-based procurement as well as non-volume-based procurement products contributing to this growth, and these products are not included in the initial list. The retail sector in China will continue to drive growth, along with Atozet, which is performing well in both Europe and China. Our respiratory products are also showing significant growth in our overall volume. Additionally, some smaller countries are contributing to this trend. From a regional standpoint, our businesses in Latin America, the Middle East, Africa, and Russia are experiencing robust volume growth opportunities, leading to continued growth for Established Brands. Regarding your second question about interchangeability, we anticipate it will be available around Q2 or Q3 of 2024, approximately one year after the product launch in July of this year, aligning with similar timelines from major competitors. However, in discussions with various pharmacy benefit managers, interchangeability was not a primary differentiating factor in the first year or two. As long as the process is clear and delivery into interchangeability can be ensured within a reasonable timeframe, that concern can be set aside. We then shift focus to other aspects and product differentiations that make our offerings much more attractive to them.

Yes. So David, we've been seeking balance in the program between early, mid-, and late-stage assets. We have had a preference to be looking at more latter-stage or currently marketed opportunities. As 2023 unfolds, don't be surprised if you see our capital deployed for business development slant towards things that are more near-term, especially since the last deal we did was Claria Medical, which is certainly early stage.

Your next question is from the line of Christopher Schott with JPMorgan.

I have two questions. First, regarding Hadlima, could you discuss how you foresee the market evolving in 2024 and beyond? Specifically, have there been any adjustments in your outlook on the size of the biosimilar market, particularly concerning where you expect prices to settle and what volume will ultimately be available for biosimilars? My second question is for Matt. In the past, I've asked about the EBITDA margins you project for 2023. Can we consider these margins as potentially representing a low point, and as top-line growth progresses in the coming years, might we anticipate margin expansion? Alternatively, do you believe further investment is required to support your long-term growth objectives, suggesting that margins might remain under pressure for some time?

Thanks, Chris. I can deal with the Hadlima question, and I'll turn over the other question to Matt. Look, as I mentioned before, we believe that 2023, as you've seen from a couple of the PBMs, are saying that they're going to allow, obviously, the originator. There's no preferential treatment for biosimilars. As a result of that, when you're able to choose whatever you want, people will likely go to the originator, at least in 2023. I believe that 2023 is going to be about which 2 to 3 biosimilars get on to those formularies. We believe that our profile in terms of the high concentration citrate-free, low concentration, real-world evidence, patient-centric device, experience positions us in an incredibly strong position to be one of those 2 to 3 products that will be listed on formulary. As I mentioned, this would be a lighter ramp-up year. You'll be trying to fight for formulary positions. There will be discounts that will likely be offered. I'm sure that the originators will be doing that. I do believe that volume will not retract. There will be opportunities not only for the switching of the Humira volume but also the PBMs will look at this opportunity for other products to go to a biosimilar first. So the potential for volume, and also, with high-quality anti-TNF biosimilars on the market, I think volume will be there. The question is what kind of rebates and what kind of discounts that will be provided. As we go forward in 2024 and 2025, there's going to be more of an expectation that the originator Humira will start to move off of formularies as we see in the rest of the world. Ultimately, you'll see bigger discounts being provided, but also ultimately, the volume opportunities will still exist. That is the way I see it. 2023 is a lighter ramp-up year focused on formulary accession. In '24 and '25, it will start to open up bigger rebates, more discounts, but more volume opportunities for biosimilars.

I'll take the second part of the question. This is a dialogue that has been ongoing with investors really since the spin. When we launched our P&L, we had really 0 space in it for product development-type expenses that could drive ongoing future revenue growth. We've been slowly and steadily reintroducing those as the quarters have evolved. When I think about the 31% to 33% margins for 2023 and how much lower that might go, it depends on the business development we do. But I would say, as we look at the range for 2023, the low side of that range is starting to feel like the nadir. At EBITDA margins like that, we've got R&D as a percentage of revenue that's right in the 9% to 10% range. We've got promotional expenses built into our SG&A that start to feel sustainable and ongoing. With the scenarios we've been running on what future business development might look like, the low side of that range is starting to feel like the nadir as we think about a 5-year strategic plan horizon.

Your next question is from the line of Chris Shibutani with Goldman Sachs.

This is for Chris. First, regarding business development in biosimilars, should we consider the possibility of you competing in other biologics that might lose patent protection over the next decade? If that’s the case, might we see deals similar to the Samsung agreement with a 50-50 split? Also, about cash flow for 2023, can we view this year as still somewhat impacted but nearing the $1 billion mark, with over $1 billion projected for 2024? Or is 2023 expected to be around the $1 billion-plus range?

Let me address the business development strategy for biosimilars. Look, we're very committed to biosimilars. Obviously, we're launching our Humira biosimilar in a few months from now. We made the deal with Shanghai Henlius to bring in 3 other biosimilars and the potential opportunity to get into the Yervoy biosimilar race as well. For us, it is key. The key is the order of entry. Rest assured, we are looking at every major potential opportunity for doing business development. We've got ongoing discussions as we speak. There's a high probability of success in getting to market. As long as your order of entry is in the first tranche of launches, you can do very well. That sales curve can last anywhere between 3 and 6 years. Look at Renflexis. We still grow double digits with Renflexis after 5 years of launch in the U.S. We expect Hadlima to ultimately peak as the second largest product for Organon. You can kind of see that we see an opportunity. In terms of profit-sharing or rather margins, we will do our best to continue to do what's best for our shareholders and for what we bring to the market with biosimilars.

On free cash flow, we spent some time talking about it in the prepared comments. When you look at our performance this year, were it not for that working capital build that was spin-related, you would have seen us in the north of $1 billion range before one-time items. We think that improves a little bit during the course of 2023. We will still have one-time costs of about the same magnitude as we saw in 2022. We're moving into the latter stages of the TSA agreement with Merck. We are right on target. We are standing up all the activities we need to. The biggest driver now of one-time cost is our global ERP implementation; that's one of the biggest drivers of the one-time cost in 2023.

Your next question is from the line of Steve Scala with Cowen.

I have two questions. Nexplanon missed double-digit growth expectations set early in 2022. Those expectations were reiterated at midyear and never stated to be constant exchange. You mentioned some pushes and pulls, but presumably, they were anticipated 6 months ago. What factors led to the shortfall in 2022 for Nexplanon? The second question is similar to questions I've asked in the past, so apologies for asking again. With the view that the future of the company is in Women's Health, the pace of Women's Health business development deals is strikingly low, 7 deals in 7 quarters of public existence. I know you won't do all 140 deals originally identified. But if you did, it would take 3 more decades to complete them all. Was this pace that we've seen always the plan? Or have things been more challenging than expected? In my humble opinion, I think the pace of activity in Women's Health needs to increase exponentially.

Good to talk to you, Steve. Let me address Nexplanon. We always signal to the world that we expect double-digit growth. We achieved 11% growth in 2022. That is always at constant currency because we don't know what will happen with currencies on a month-by-month basis. It was difficult at the end of last year to see what would happen with the dollar strengthening to the point it did throughout the year; so on an exchange-adjusted basis, we did grow 11%, with 8% in the U.S. The remainder outside of the U.S. contributed to 50% of our growth, so we're feeling good about where we landed with Nexplanon. It is consistent with what we have guided and the language we've used. Regarding your second question around opportunities in the Women's Health space, as I mentioned earlier, we consider Women's Health in three points: therapeutics, potential devices, and conditions that disproportionately impact women's health. We're agnostic on whether it's a device or therapeutic and those are primarily focused on conditions uniquely related to women's health. We are also looking at conditions that impact women significantly, such as celiac disease, lupus, migraine, osteoporosis, and more. While we did 8 deals in approximately 1.5 years, that's around a deal every 2 months. I would say we're comfortable, and once you layer on some of these assets organic business we’re driving, we see the opportunity to support continued growth momentum for the company going forward.

Your next question is from the line of Greg Fraser with Truist Securities.

Following up on BD. You've done a number of deals to expand the pipeline with assets for new indications beyond your core Women's Health business like endometriosis and preterm labor. I know you're bullish on the potential of those programs. Are you looking to add additional programs for those indications so you have more shots on goal? Is that something investors should expect? Or are your business development efforts in Women's Health more focused on?

I have to say that shots on goal is always a nice thing. The acquisition we had of Forendo includes a couple of molecules; our 6219 asset is the one that is furthest along, but they also have other backup compounds. We like the mechanism of action of this new product. Yes, wherever possible in terms of what we're making acquisitions, we'll see whether there are backup molecules that we potentially can take to the clinic if our primary molecule fails. We're expanding our therapeutic areas as you noted, moving from contraception and fertility to adding a number of different areas like postpartum hemorrhage, preterm labor, endometriosis, polycystic ovary syndrome, bacterial vaginosis, and now with Claria for minimally invasive laparoscopic hysterectomies. There are many areas we continually identify as opportunities that meet a market need and require innovation, and we believe we're well-placed to take on that leadership role.

And today's final question will come from the line of Jason Gerberry with Bank of America.

Just 2 questions. First, I wanted to get a sense of exploring growth outlook that’s assumed in the 2023 top-line guidance given that's something you provided in the past. I guess it is still double-digit growth. The second question is whether it's safe to assume that for now, the plan will be active in M&A this year, given net leverage ratio considerations. Do you expect to do a big deal in 2023?

Thanks for the question. Look, I'd say that, first of all, I'm very happy and satisfied with the performance since we spun off two consecutive years of double-digit performance. Our focus in 2023 will be really increasing our focus on patient demand. We'll be of course, pushing for more robust product performance. We continue to see ex-U.S. business growing faster than the U.S. business, and we're continuing our clinical training programs, follow-on reviews, and our DTC campaigns. We believe that Nexplanon will continue to grow robustly and is projected to be our first $1 billion product essentially by the end of 2025. We're very positive about it. January demand is strong in terms of our overall physician demand. I will hand over the last question to Matt.

We've fielded this question a few times on discussion about deal size. We've had good success with the smaller deals we've implemented, which are plentiful and generally easier to integrate. The rising interest rate environment and our leverage ticking up does make deals incrementally more challenging at the margin. With respect to large deals, we haven't focused primarily on them, but we remain aware of opportunities that we think creatively about and would not shy away from if we feel it would create compelling shareholder value. We have plenty of organic growth plans for 2023 and execution of the 8 deals we've done. 2023 will be an exciting and busy year. As far as big deals go, we're open to them, but we don't consider them necessary for our success.

This concludes the Q&A session. I would now like to turn the call over to the company's CEO, Kevin Ali, for closing remarks.

Well, thank you for all the thoughtful questions. I do want to close by saying, today marks our seventh quarter of earnings as a stand-alone company. With the fourth quarter of 2022, we've continued our track record of delivering exactly what we set out to achieve. Our vision of a sustainable growing business is being realized. We have confidence in the portfolio we have in our hands today, and we believe in the potential of our growing pipeline of assets with the promise to address significant unmet medical needs, especially for women. I want to thank you for joining us today, and we look forward to communicating our progress with you in 2023. Thanks, everyone.

Thank you all for joining the Organon Fourth Quarter and Full Year 2022 Earnings Conference Call. We thank you for your participation. You may now disconnect.