Organon’s Flat Earnings Mask Biosimilar Surge and Cost War

Date of Call: Feb 12, 2026

Financials Results

• Revenue: $6.2 billion in 2025, down 3% on both a reported and ex exchange basis.
• EPS: Non-GAAP adjusted net income of $3.66 per share for full year 2025, compared with $4.11 in 2024.
• Gross Margin: Non-GAAP adjusted gross margin was 56.7% for Q4 2025, compared to 60.6% in Q4 2024. Full year 2025 adjusted gross margin was 60.1% vs 61.6% prior year.
• Operating Margin: Non-GAAP adjusted EBITDA margin was 25.4% for Q4 2025, down from 28.1% in Q4 2024. Full year 2025 adjusted EBITDA margin was 30.7%, consistent with prior year.

Guidance:

• Revenue for 2026 expected to be about $6.2 billion, in line with 2025.
• Adjusted EBITDA for 2026 expected to be about $1.9 billion, in line with 2025.
• Expect LOE of about $40 million and VBP impact of about $30 million in 2026.
• Price headwinds expected to be about $75 million (1.2% of revenue), lower than prior years.
• Volume growth expected to be about $150 million (2.4%).
• Adjusted gross margin expected to be about 75 to 100 basis points lower than prior year.
• Expect SG&A as a percentage of sales in mid-20% range and R&D spend in mid-single-digit area.
• Interest expense estimated at about $500 million.
• Non-GAAP tax rate expected in the range of 27.5% to 29.5%.
• Free cash flow in 2026 likely to resemble 2024 and 2025 levels.
• Net leverage expected below 4x by year-end 2026.

Business Commentary:

Revenue and Financial Performance:

• Organon reported $6.2 billion in revenue for 2025, with $1.9 billion of adjusted EBITDA. Revenue was down 3% on both a reported and exchange basis.
• The decline was primarily due to the loss of exclusivity for Atozet and policy-related changes affecting Nexplanon in the U.S. and international markets.

Biosimilar Franchise Performance:

• The biosimilar franchise, led by Hadlima, grew 61% ex FX globally for the full year, contributing to overall revenue.
• Growth was driven by the strong clinical profile of Hadlima, effective pricing strategies, and market expansion into Canada and Puerto Rico.

Women's Health Segment Challenges:

• The women's health segment experienced a 16% decline ex FX in the fourth quarter and a 2% decline for the year.
• Headwinds included government policy-related access restrictions impacting Nexplanon's sales, particularly in the U.S., and a shift in purchasing practices by some clinics.

Cost Management and Leverage Reduction:

• Organon achieved over $200 million in cost savings in 2025, maintaining adjusted EBITDA margins despite gross margin degradation.
• The company focused on reducing leverage, retiring approximately $530 million of debt, and plans to achieve a net leverage ratio below 4x by the end of 2026.

2026 Revenue and Profitability Outlook:

• For 2026, Organon expects revenue of about $6.2 billion and adjusted EBITDA of about $1.9 billion, with revenue anticipated to be flat with the prior year on a constant currency basis.
• Revenue is expected to be offset by the divestiture of the Jada system, while profitability will be supported by continued cost management to offset anticipated gross margin deterioration.

Sentiment Analysis:

Overall Tone: Neutral

• Management expressed confidence in delivering 2026 results similar to 2025, citing 'solid performance' in biosimilars and cost savings, while acknowledging headwinds from LOE, policy changes, and margin pressure. Statements include: 'I remain confident in our ability to deliver these results in 2026' and 'We continue to scrutinize our spending and have had to consider tough but necessary changes.'

Q&A:

• Question from Umer Raffat (Evercore ISI): Concerns about the comprehensiveness of the Audit Committee investigation into channel behavior issues and whether a full review has been conducted.
  Response: The company declined to provide additional color on the matter.

• Question from Michael Nedelcovych (TD Cowen): On the impact of FDA draft guidance on biosimilar efficacy studies and the expected contribution of Nexplanon to 2026 sales.
  Response: The biosimilar guidance is seen as incremental, not a floodgate. For Nexplanon, 2026 sales are expected to be roughly flat year-on-year, with ex-U.S. growth offset by a U.S. dip due to the 5-year label reducing reinsertions and lingering channel issues.

• Question from Bhavin Patel (Bank of America): On how the $275 million in cost savings is being absorbed in the EBITDA bridge and potential volume bottlenecks from the Nexplanon REMS program.
  Response: A portion of the cost savings is being reinvested in revenue growth opportunities like promotional activity for Vtama. The company is confident it can maintain Nexplanon volume through the REMS certification process, with minimal disruption expected.

• Question from Ethan Brown (JPMorgan Chase): On the outlook for operating costs and margins over time and the duration of the Nexplanon reinsertion headwind.
  Response: The philosophy is to continuously streamline OpEx while not sacrificing investment in revenue growth. The reinsertion headwind is expected to be most pronounced in 2026, with significantly lower risk in 2027.

• Question from Alexandra von Riesemann (Piper Sandler): On the pressure in established brands and the outlook for Vtama given competitive dynamics.
  Response: Established brands are expected to be flat with some chunky year-to-year variability. Vtama is expected to grow in line with other non-steroidal topical products, around 20-25% year-on-year in 2026.

• Question from Terence Flynn (Morgan Stanley): On the CEO search update and the go-to-market strategy for the denosumab biosimilar.
  Response: No public update on the CEO search. The denosumab biosimilar is expected to compete in a highly competitive market, with peak revenues over both reference products estimated at around $100 million over about five years.

Contradiction Point 1

Scope of Internal Investigation into Sales Practices

Contradiction on whether the investigation was limited to Nexplanon or included a broader review.

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2025Q4: Last quarter, I asked how anyone knew channel behavior issues were limited to Nexplanon and why the Audit Committee investigation was so limited in scope only to Nexplanon. You said it did span beyond look through other product areas and found nothing else. - Umer Raffat(Evercore ISI)

Why was the Audit Committee's investigation limited to Nexplanon when biosimilars purchasing issues were later identified, and how can we be sure a comprehensive review was conducted to address all potential issues? - Umer Raffat (Evercore ISI)

2025Q3: The independent internal investigation focused on Nexplanon sales practices with two U.S. wholesalers and found no issues in other product areas. - Carrie Cox(Executive Chair), Matthew Walsh(CFO)

Contradiction Point 2

Outlook for Established Brands Growth and Respiratory Business Pressure

Contradiction on the stability versus continued pressure for the Established Brands portfolio.

Can you provide insights into the company's recent financial performance? - Alexandra von Riesemann (Piper Sandler & Co.)

2025Q4: On established brands, we do think established brands are going to have some years where you have somewhat of a reset like we did with the respiratory in 2025 and then remaining backward flat. - Joseph Morrissey(CEO)

Can you discuss the pressure on established brands, the strategy for key segments through 2026 and beyond, and potential trouble spots like respiratory? - David Amsellem (Piper Sandler)

2025Q3: Apart from respiratory, the Established Brands portfolio is stable, with products like Emgality performing well. - Matthew Walsh(CFO)

Contradiction Point 3

Nexplanon U.S. Sales Growth Outlook

Conflicting guidance on Nexplanon's growth trajectory in the United States.

Could you provide more details on the recent earnings performance? - Michael Nedelcovych (TD Cowen)

2025Q4: We believe Nexplanon will be roughly flat year-on-year [in 2026]... In the United States, we'll have... a bit of a dip due to no reinsertion. - Matthew Walsh(CFO)

Can you provide more detail on Nexplanon's contribution to your 2026 sales guidance and whether the launch of the longer-acting Nexplanon implant will be accretive to total Nexplanon sales in 2026? - Michael Thomas Nedelcovych (TD Cowen)

2025Q2: The company is confident in achieving double-digit growth ex-U.S. and anticipates reaching the $1 billion franchise target in the near future. - Kevin Ali(CEO)

Contradiction Point 4

Impact of 5-Year Indication on Nexplanon Growth

Inconsistent characterization of the headwind/tailwind effect of the 5-year label launch on near-term growth.

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2025Q4: This year [2026] will be the most pronounced for [reinsertion headwind], 2026. We might be talking about reinsertion risk in 2027. It should be at a fairly significantly lower level than what we're talking about this year. - Matthew Walsh(CFO)

How long will the headwind from the 5-year indication for Nexplanon last, and are there potential price-related offsets? - Ethan Harris Brown (JPMorgan Chase)

2025Q2: While there may be a small headwind in 2026, the longer duration is preferred by patients and providers... creating a barrier for potential generics. - Kevin Ali(CEO)

Contradiction Point 5

Capital Allocation Priority: Share Repurchases vs. Debt Reduction

Contradiction on the priority of share buybacks relative to paying down debt.

Terence Flynn (Morgan Stanley)? - Terence Flynn (Morgan Stanley)

2025Q4: The immediate need is to manage leverage and fund growth. Returning capital is less prioritized than deleveraging while leverage remains above 4x. - Matthew Walsh(CFO)

Can you provide an update on the search for a permanent CEO? Can you provide an update on the denosumab biosimilar? - Ethan Brown (JPMorgan)

2025Q1: The decision to adjust the dividend is made from a position of strength... The priority is to accelerate deleveraging to create a stronger future position for executing BD deals and driving growth. - Kevin Ali(CEO)