Merck & Co., Inc. (MRK) Earnings Call Transcript & Summary

Good morning. I'm Peter Dannenbaum, Head of Investor Relations for Merck. Thank you for joining today's virtual investor event. We look forward to providing you with insight into Merck's spin-off of Organon, which will soon be operating as an independent company. As you can see, we have a full agenda, beginning with Rob Davis, who will describe the transaction from Merck's perspective.

You will then hear from the Organon leadership team, who will describe our business strategy and growth opportunities. I'm Jennifer Halchak, and as the newly appointed lead for Investor Relations at Organon, I know I speak for the team when I say we are really looking forward to today's event. Kevin Ali, Organon's CEO, will kick this off with a high-level strategic overview. And he will be followed by business leaders, who will highlight the opportunities they see in each of their respective areas of responsibility. Matt Walsh, Organon's CFO, will also provide a financial outlook for our business.

After the presentations, we should have time to address your questions, which can be submitted throughout the morning via the webcast or ask live following instructions from the operator. Today's presentations and slides will be posted to the Organon section of Merck's Investor Relations website. Finally, before we get started, I would like to draw your attention to Merck's forward-looking statement. With that, I'd like to introduce Rob Davis, currently Merck's President; and as of July 1, Merck's Chief Executive Officer. Rob?

Thank you, Peter, and good morning, and thank you all for joining our virtual investor event. I'm very happy to speak with you today about the planned spinoff of Organon. This is a strategic transaction that Merck has carefully considered for several years. And we're thrilled to have found the right structure, product portfolio, and strategy, as well as management team to bring this to fruition. From my perspective, I feel very good that we are creating an important new company with a compelling portfolio and a mission in women's health. At the same time, this is an important step to best position Merck to simplify our operations, focus on delivering our growth ambitions, and accelerate our growing early and late-stage pipeline. With regard to the management team of Organon, I'd like to recognize the work that Kevin Ali and his team have done in partnering with us to achieve this important milestone. I've worked closely with Kevin since joining Merck 7 years ago, and I'm confident he's the best person for the job given his deep understanding of Organon's products and markets. Since we announced our spin-off plans in February of 2020, Merck has put tremendous effort into preparing Organon to become a successful, independent, publicly traded company. Much of this work culminated in a very successful transition to what we've referred to internally as a company within a company. For the past several months, Organon has begun to essentially operate independently at Merck from a business systems and process standpoint. This has helped to prepare Organon for the spin-off and for a strong launch with business continuity. Throughout this time, the company has advanced its strategic growth agenda, including business development. We've completed key milestones over the past several months, including the filing of a Form-10 registration statement, the naming of a highly qualified, diverse and experienced Board of Directors, and have successfully secured financing, and commitments of $9.5 billion for Organon. Today, we are excited to present the Organon growth story to you. We are confident that you will come away with a better understanding of how Organon is uniquely positioned in the industry and why we believe it's poised to become the world's leading women's healthcare company. We are confident that on its first day as an independent publicly traded company, Organon will be fully ready to pursue the numerous opportunities for growth it sees across its portfolio. This transaction also marks the next chapter in Merck's long and rich history of driving scientific innovations that save and improve lives. Before I turn the day over to Kevin and the rest of the Organon leadership team, I want to speak to you about the benefits of the transaction for both companies. At Merck, we remain anchored by our science-led strategy. We've long inspired to be the premier research-intensive biopharmaceutical company. We will continue to aggressively invest and develop products that aim to solve the world's biggest health problems, and we will empower our highly talented scientists to enable those breakthroughs. To enable the sustained investments in innovation we intend to make and to do this in our current era where speed is critical to success, we know we must evolve our operating model. Over the last decade, we focused attention and resources on key growth pillars of oncology, vaccines, hospital and animal health. The success of this commercial strategy has put us in a position of financial and operational strength. At the same time, though, due to necessary investment and management focused trade-offs, we knew there were products in our portfolio, which were not receiving the full attention they deserved. Despite the meaningful value they bring to patients around the world and their own opportunities for growth. We believed they had greater potential and want to define a structure to more fully realize it. This view prompted a careful evaluation, which led to last year's announcement that a separate and independent company structure would best optimize and provide significant benefits to the Organon verticals of women's health, biosimilars, and established brands as well as to Merck and its shareholders. Merck will see significant benefits from the spin. With the refined portfolio, Merck will be able to put even more focus behind its key growth drivers. Separation will allow for a more streamlined company. The Organon portfolio represents around 15% of Merck's revenues, but 25% of manufacturing capacity and roughly 50% of its products. After this transaction, Merck will be leaner and more agile, better positioned to optimize its resources, meet the needs of patients and customers, and achieve faster growth. We will be even more focused on capturing the substantial opportunities we see across our portfolio of innovative high-growth human health medicines and vaccines, like KEYTRUDA, GARDASIL, Lynparza, Lenvima, and BRIDION, and across our leading animal health business. Additionally, the spin will further catalyze our ongoing efforts to evolve our operating model. We are becoming a flatter, more agile and network organization, all critical to being successful in a world that changes rapidly. We are adopting digital tools across all areas of the business, and this is helping to optimize engagements with patients, physicians, providers and employees. And we are better leveraging data and demonstrating the value of our products. Evolving in these ways is the best path towards being able to make the meaningful investments necessary to sustain our success as an innovative biopharma company. Our pipeline is deep, full of innovative assets, which provide us increasing line of sight to growth drivers later this decade and into the next. We have tremendous opportunities. With KEYTRUDA in additional potential indications in earlier lines of therapy and in combination with other agents, with our greater than 25 novel oncology agents, several of which are now entering late-stage development. With islatravir, which we believe can be foundational in the treatment and prevention of HIV. Across vaccines, including our suite of pneumococcal conjugate vaccines, and in our early research pipeline, including in cardiovascular and neuroscience. We know that innovation has been and will continue to be the ultimate source of long-term value creation for both our patients and our shareholders. So as we look over the next 5 years, we continue to believe that Merck will deliver strong revenue growth based on the demand for our innovative, derisked, and visible in line assets. And beyond this, we believe our strong mid and late-stage pipeline will drive continued success. And finally, longer term, we believe our revitalized discovery efforts will lead to additional breakthroughs addressing areas of unmet medical need. I'll let the Organon team speak more fully to the benefits they see. But as an independent company, we are convinced that the full focus, attention, and resources that Organon will now be able to put behind its portfolio of products, will enable their full value to be realized. Organon will benefit from a dedicated management team with the ability to focus its efforts and resources to accelerate growth and realize its untapped potential. The company will be well capitalized to drive its growth strategy with substantial cash flow that will provide ample financial flexibility for potential business development, debt paydown, and a meaningful dividend. For shareholders, we're confident that the transaction will create value. For Merck, the spin-off is expected to result in higher revenue growth and enable incremental operating efficiencies of approximately $1.5 billion ratably over 3 years. Merck will also receive a tax-free dividend from Organon of $9 billion. As we've said, value-enhancing business development is an important priority for Merck. And this cash infusion positions us even better to pursue those transactions. If opportunities don't materialize, we will execute additional share repurchase. Organon should achieve stronger growth across its portfolio of products, than what it would have achieved as part of Merck. Within the first 12 to 24 months post-spin, we expect the combined EPS of both companies to be higher than what Merck would have been able to achieve without the transaction. And we are confident that this transaction will put both companies on the path towards sustained, accelerated growth and market leadership over the long-term. With that, I would now like to introduce Kevin Ali, Organon's CEO and member of the Board of Directors. Kevin has 3 decades of experience at Merck, including as President of International Operations and as President of Emerging Markets. He has an intimate knowledge of the Organon portfolio of products, its customers, and the geographies in which it operates. He's a seasoned and passionate leader, who has brought incredible energy to the formation of Organon. The Merck Board and I are fully confident in the ability of Carrie Cox as Executive Chairman, given her deep industry experience and knowledge of the portfolio, Kevin as CEO and the Board, he and Carrie have assembled, along with Matt and the rest of the very capable management team, to achieve global leadership in women's health and to deliver sustainable growth and value. Following a short video, Kevin will describe his views of the opportunity at Organon, followed by presentations from the rest of his leadership team. Again, thank you very much for your interest today. [Presentation]

Thank you all for tuning in, and thank you, Rob, for that introduction. I'm very excited to be here and share with all of you why the world needs Organon. You will hear from me and others on how we will achieve our vision and deliver sustained growth. We believe Organon is well positioned for organic, low to mid-single-digit growth from our 2021 base of business. We have 2 growth engines, in women's health and biosimilars, and a steady and sustainable established brands business, which has already experienced most of its loss of exclusivity. As I take you through the Organon story, I want you to keep 2 words in mind: focus and opportunity. Focus is what we'll bring to this business. Our day 1 portfolio consists of many well-known products that were once core to Merck's business, but have subsequently received limited resources and investments. These are impactful medicines that we believe will be responsive to commercial investment, and more importantly, with renewed management focus, this will trigger additional growth. The second word is opportunity, which is about the difference Organon can make in women's health. There are many examples of significant unmet need that underscore the opportunity for Organon. For example, 45% of all pregnancies in the United States are unintended. The burden of unplanned pregnancies disproportionately impacts young women, women of color, and women from low economic backgrounds. 10 million women in the U.S. struggle with severe peri and postmenopausal symptoms with no effective non-hormonal therapies available. And 26 million women in the U.S. suffer from uterine fibroids, causing pain, heavy bleeding, and other complications, and less than 20% are diagnosed and treated. And finally, postpartum hemorrhage, a significant complication during childbirth, kills 1 woman around the world every 4 minutes. Addressing the significant burden to women is the mission of Alydia Health. Our planned acquisition of Alydia underscores our seriousness and commitment to becoming a leader in women's health. Despite these massive health needs and their drag on society, there are no large pharmaceutical companies that have women and their health as their stated focus. But our world is shifting. We are at an inflection point, with women's voices demanding change and demanding choice. Policies starting to shift to bring attention and resources to solutions that address women's health. For example, the Affordable Care Act in the U.S. has expanded coverage to make Nexplanon available at no co-pay for women who need it most. And science is evolving, offering new possibilities with more than 140 therapies focused on women's health in various stages of development around the world. These factors all underscore the opportunity for Organon. And why we believe there had never been a better time for the birth of a global women's healthcare company. Our vision is to create a better and healthier every day for every woman. We will put women at the center of everything we do. We will listen and strive to understand her healthcare needs so that we can deliver impactful medicines, devices and solutions. And we will take a broad view of women's health. We will maximize the potential of our portfolio today, but we will also open the aperture beyond the narrow lens of reproductive health. This will allow Organon to address the conditions that are unique to women, but also conditions that disproportionately affect women or have an especially heavy burden on them. This reframing of women's health represents a much larger market size of approximately $61 billion by 2026. And this is in attractive adjacency for Organon as it strives to achieve its vision. We are fortunate to be building on the proud heritage of the Organon name, a known leader in women's health, bringing much innovation to the market in contraception and fertility. Since its founding in 1923, the Organon brand has had a trusted reputation with patients and providers. Healthcare providers are eager to welcome Organon back to the world to support their patients with renewed focus and innovation. Today, our portfolio consists of 64 impactful medicines, many of which are well recognized by patients, consumers, and providers globally. The 3 pillars of our business are women's health, biosimilars, and established brands. Women's health and biosimilars are our growth engines, and we are focused on these large and growing market segments. Our women's health business today is centered on contraception and fertility, with 10 products delivering $1.6 billion of revenues in 2020. This business offers the opportunity to maximize organic and inorganic opportunities. Growth will be driven by Nexplanon, a unique leading long-acting reversible contraceptive with $1 billion potential and exclusivity in the U.S. until 2027 and the opportunity for additional years of exclusivity. Our biosimilars business consists of 5 marketed products that we are commercializing with our nonexclusive partner, Samsung Bioepis with $330 million in revenue last year and a market that is emerging and fast growing. And finally, our established brands business consists of 49 well-known products that are beyond their patent loss in most major markets and still delivered $4.5 billion of revenues in 2020. We aim to realize the full potential of this franchise, which will allow us to invest in our growth engines. In total, our 3 key segments represent approximately $6.6 billion of revenue in 2020, including supply sales, and approximately $2.8 billion of EBITDA. Organon has geographic diversity, with almost 80% of our revenues generated outside the U.S., an attractive profile in the face of ever-changing global healthcare environments. We also have geographic scale with the ability to reach customers in more than 140 markets worldwide, and product diversity with no single product representing more than 11% of our revenues. We have 6 Organon-owned manufacturing sites, combined with an extensive network of contract manufacturers, that we believe provides us a manufacturing and supply capability that delivers top quartile quality performance and fulfillment consistency. Organon has all the capabilities needed to execute on organic opportunities and to be the partner of choice for external strategic opportunities. These would be incremental to our low to mid-single-digit growth target. As we have already demonstrated with our planned acquisition of Alydia Health, we expect business development transaction to be a core part of our growth strategy. The highly fragmented women's health market, which we believe has more sensible valuations versus many other therapeutic areas presents attractive opportunities for consolidation. But Organon is more than the fact and figures you see on this slide. Together with our people, we aim to be a company that serves an important purpose in the world. We are creating a company based on ESG principles, and we are embedding ESG into our strategy, starting with our Board. Organon has a highly capable Board of Directors who bring diversity in terms of their experiences, gender, background, and mindset. We believe there is a strength in this diversity and that it will play a role in our future success. As a women's health company, we have the most female representation on the Board of any S&P 500 Health Care Company today. As an international company, our Board is reflective of that, with about 1/4 of our directors born outside the U.S. and 50% having lived and worked internationally. They represent a strong governance profile for Organon and will help steer us to fulfill our future promise. We also have a diverse executive leadership team. 6 have joined us from Merck, where they were rated as top talent. They all bring deep experience, strong followership, creativity, and an entrepreneurial mindset. We added 3 accomplished talented outsiders to stand up the right team to make the right decisions for Organon. They will execute on our strategy with commercial focus and financial discipline. Our growth is backed by a number of organizational elements to support our success. From the start, Merck has made a strong commitment to set Organon up well. Detailed planning for our spin-off began more than 2 years ago with nearly 1,500 employees within Merck having been involved in a meaningful way. At day 1, we will have nearly 80% of our employees coming from Merck, bringing the intellectual curiosity, integrity, and a purpose-driven mindset that Merck is known for. We will round this out with new talent to build a team that will be rightsized from the start to support a company of Organon's scale and ambition. We are building an organization that can operate effectively as a company 1/7 of the size of Merck, but with the same geographic coverage. We have been intentional in our choices to create a nimble and entrepreneurial company. We will be a flat organization. We have pushed empowerment from the center out to our commercial market leaders, so decisions are made close to our customers. We have a centralized, transactional and knowledge intensive services group to eliminate silos, and we have streamlined governance. We believe these choices will enable greater collaboration to support faster decision-making and greater innovation. Finally, we aligned our organization around a clear set of values and standards. Be real, bring your fire and we all belong, are just some of our values that our employees have connected with. These values are critical to support a single enterprise strategy to keep everyone focused on delivering the business outcomes that support our growth. Thank you for your time and attention. I want you to know that this is just the beginning of the Organon story. Today, you will hear from members of our executive leadership team and our franchise leaders. They will share more detail on our strategies and plans. So you come away with a clear understanding of how Organon will grow and make an impact on the lives of women and patients around the world. Please join us for the Q&A session to ask any remaining questions on your mind. With that, I would like to introduce Susi Fiedler, our Chief Commercial Officer.

Thank you, Kevin. My name is Susi Fiedler, and I'm the Chief Commercial Officer at Organon, and I'm very happy to be here. I've been in the pharmaceutical industry for more than 20 years. So it truly feels like a once in a lifetime opportunity to create a new company and a new culture that is fully dedicated to advancing and improving the health of women. Today, I will outline for you Organon's commercial approach and strategy and our road map for achieving sustainable growth. Following this presentation, our franchise leaders will give you a deeper dive into each of their businesses and future directions. At Organon, we have a strong and balanced foundation with a diverse portfolio of trusted and innovative brands, built on a broad geographic footprint. With management focus and renewed investment, we will capitalize on the growth potential of our women's health and biosimilar portfolios, while optimizing and leveraging our established brands business. And I'm also very proud to say that we started to execute on our vision to becoming a leader in women's health with a recently announced acquisition of Alydia Health. I'm excited about this acquisition for several reasons. But most importantly, it is demonstrating our commitment to placing the health of women at the center of what we do. When it comes to Organon, one of the major concepts to embrace is diversity. You heard Kevin refer to the diversity of our Board and our people, but I want to talk to you about the diversity of our business. Our operating model provides us with broad geographic and portfolio diversity. Organon will launch with a large commercial footprint of over 4,000 employees. We will have a direct sales presence in 58 markets while supplying our products to over 140 markets. In terms of geography, we think about the business in 5 core clusters: Europe and Canada; Asia Pacific and Japan; LAMIRA, which includes Latin America, Middle East, Russia and Africa; U.S. and China. And when you look across these clusters, no region contributes more than 1/3 of revenue. Our product portfolio is also very diverse. Organon has 64 medicines that span across 3 strategic franchises: women's health, biosimilars, and established brands. In 2020, we delivered USD 6.5 billion in revenue. Our top 3 products together represent only 25% of 2020 revenue. Our leading product, Nexplanon, represented only 10% of total sales. So you can see we don't rely on any one product or market, giving us more balance across our company. Before taking a closer look at our franchises and the growth opportunities, I want to quickly touch on the topic of patent expiration or LOE that Kevin mentioned earlier. Our established brands business is a diverse portfolio of iconic products that are beyond their patent loss in most major markets. Within the established brands franchise, we have 49 products, including cardiovascular, respiratory, non-opioid pain products, and dermatology. This franchise produces $4.5 billion of revenues in 2020 and more than 90% of the business residing outside of the U.S. In the past, the established brands portfolio was a declining business, mainly due to the loss of exclusivity of several brands. The by far biggest impact has come from our former blockbuster brands from the Acetamide family, which was approximately USD 8.7 billion in cumulative sales over the last 5 years. In 2021, the business rebase lines as we will have washed out our major LOE impacts across our major markets. Over the next 5 years, we do not have any meaningful new LOEs for the established brands business. What remains is a relatively consistent baseline performance, the expected cash flow will support growth investments, business development, and other opportunities we see in front of us. The focus going forward is on growing our women's health and biosimilar franchises. We expect that they will become larger contributors to our business in the future and drive Organon's performance. The women's house portfolio consists of 10 products focused on contraception and fertility and delivered $1.6 billion in sales in 2020. We expect the portfolio to grow to more than 1/3 of our revenue by 2025. Nexplanon, a leading long-acting reversible contraceptive represents a significant source of growth with more than $1 billion in annual sales potential. Nexplanon has market exclusivity in the U.S. until 2027. We also see our fertility business, driven by Follistim, Puregon expanding both in the U.S. and internationally. Specifically, there is an important opportunity for growth in China, where infertility rates have grown significantly over the past 20 years and now nearly 50 million women struggle with fertility issues. Today, Organon has a 20% share of the global fertility treatment market. With our enhanced focus, we can strengthen our position and grow our share. Our second growth pillar is the biosimilar franchise, which is a $330 million business today. This market is still in its infancy. There is a large and emerging global market for biologics coming off patent, especially in the near-term, and we believe that this business has the potential to double its revenue by 2025. Today, we are focusing on optimizing our commercial success of the 5 biosimilars currently in our portfolio, where we have partnered with Samsung Bioepis. But we will also seek out other partners where we can apply our global scale, capabilities, and leverage our commercial track record. Organon has the opportunity to be a leader and the partner of choice for developers in this space. I want to say a few words about 2 key markets: the U.S. and China. Let's start with the U.S. We expect the U.S. to remain a key growth market for Organon, with more than half of the company's future growth to be generated by the women's health and biosimilar businesses. We see significant upside potential in the U.S. coming from our core women's health business with an opportunity to expand usage of Nexplanon. Nearly half of the 6.1 million pregnancies in the United States are unintended, which is significantly higher than in many other developed countries. Biosimilars can provide much-needed savings to the healthcare system in the U.S. whose budgets are now even further constrained with the COVID pandemic. You will hear more about our biosimilar products, but I wanted to take a moment to highlight Hadlima, which represents an important opportunity beginning in 2023. Hadlima is our biosimilar of Humira. While we expect several Humira biosimilars to be introduced in close proximity in the U.S., we are encouraged by a potential position as the likely second to market. China is another key market for Organon. It represented 14% of our total revenues in 2020, and it will become larger as we grow in this market over the next few years. Our business is anchored around our established brands and fertility portfolios. Organon is well positioned to perform strongly as we have effectively reduced and continued to mitigate the exposure to volume-based procurement, which is the Chinese government's effort to lower drug prices. There are several reasons why we are well positioned here: First, our portfolio is differentiated relative to other players in China with no single product representing more than 20% of our revenue. Also, the majority of our products are for conditions in diseases where the patient is a key decision maker. Our customers have strong loyalty to our broad portfolio of trusted brands, leading to lower competitive pressure. This allows us to leverage customer preference, especially with the use of new digital tools outside of the hospital channel. Second, we have already reduced our exposure to VBP in the hospital channel. To date, 60% of our business in China has been exposed to VBP already, with another 20% expected by late 2021. Back in 2017, we anticipated this, and we started to pivot our business towards the retail segment. Today, this segment represents 40% of our revenue, growing double digit. Third, a large part of our business in China is fertility, which is not expected to be subject to VBP, and the team is targeting a doubling of this franchise by 2025. Moving forward, our commercial priorities are centered on 5 core pillars: Number one, maximizing our portfolio by accelerating growth opportunities for both our women's health and biosimilar portfolios. Number two, focusing on our customer and patient needs, by listening to the healthcare needs of women, big and small, while creating value for a broad range of stakeholders. Number three, streamlining operations by leveraging new technologies to simplify processes and policies as well as implement of effective ways of working. Number four, developing our people and our people pipeline, by fostering a growth mindset anchored to our diversity and inclusion principles; and finally, creating the future for Organon, through flawless execution of our life cycle management opportunities, and building a leading portfolio in women's health and biosimilars through ongoing business development. To conclude, we are excited about the opportunities we see. Organon has a solid road map to sustain growth with foundational growth opportunities coming from our existing portfolio. We are confident that we will drive incremental growth by executing further strategic business development deals in the women's health and biosimilar spaces. Our franchise leaders will now give you a deeper dive into each of their businesses and future direction. Simon Holland, our Women's Health Commercial Lead will start by walking you through our opportunity in reproductive health, which will be part of the foundation to becoming a leading women's health company.

Thanks, Susi. Well, good morning. My name is Simon Holland, and I'm the Women's Health Commercial Head at Organon. Prior to this position, I've spent 22 years at Merck, with the past 10 years in global women's health leadership positions. I'm passionate about women's health, and very excited by the opportunity we have with our women's health portfolio. Over the past 10 years, I've been focusing on women's healthcare needs and advocating for improved women's health access around the world. I believe Organon is well positioned to positively impact future women's health outcomes. To do this, Organon will seize upon the opportunity we have today in reproductive health to drive strong, organic growth, and build off this foundation to become a leading women's health company. As you have heard from Susi, Organon will do this by focusing on the successful execution of 3 strategic priorities: First, successfully making Nexplanon, a $1 billion brand with long-term growth opportunities; second, reinvigorate our fertility portfolio; and third, using Organon's existing strengths and capabilities in women's health as the foundation for expanding our women's health business, beginning with our proposed acquisition of Alydia Health. I will now provide details on the first and third strategic pillars before passing it over to my colleague, Elisabeth Weis, who will provide details on our fertility business. As you can see, today, Organon has a large portfolio of contraceptive and fertility brands with $1.6 billion in global sales and long-term growth potential, anchored by Nexplanon. Over the past several years, Nexplanon has achieved a 9% positive compound annual growth rate and is set for continued long-term growth. Organon is targeting Nexplanon as a greater than $1 billion peak sales opportunity. Now regarding NuvaRing, the loss of market exclusivity in 2018 triggered a decline in our overall women's health business during 2020. However, we expect most NuvaRing decline to be complete this year, and we see long-term opportunity for sustained NuvaRing sales value, just as we have seen with other contraceptive brands that have gone off patent, including Cerazette and Mercilon. And finally, our fertility business is expected to grow and has opportunities for footprint expansion, especially in the U.S. and China. At spin, Organon will be the second largest women's health company by revenue with excellent opportunities for sustained growth across our women's health business. I now want to talk specifically about our contraceptive business and our first strategic priority, seizing our blockbuster opportunity for Nexplanon. We expect our contraceptive business to return to growth in 2021, benefiting from the favorable market trends that support the sustained revenue growth opportunity for Nexplanon. Over the past decade, there has been a sustained shift from the daily contraceptive pills to long-acting reversible contraception, also known as LARC. This shift was interrupted in 2020 and continues in 2021 by COVID-19, as clinics were forced to close and reduce patient access to nonessential medical procedures, such as Nexplanon insertion. However, as clinics begin to reopen, we have witnessed, and we expect to see the continuation of this move from the daily pill to LARC. Moreover, many global health organizations such as WHO and ACOG in the U.S. see LARCs is the most effective contraceptive methods and recommend universal women's health access to LARC. Across the world, payers are increasingly covering Nexplanon, removing a key barrier for women to be able to choose Nexplanon. Despite these positive trends, daily contraceptive pills continue to be the largest segment of a highly fragmented market when Nexplanon has an estimated global hormonal contraception share of 5%, but with significant room to grow this share over the coming years. Nexplanon is a differentiated patented contraceptive offering convenience and high contraceptive efficacy. Nexplanon is the only single rod subdermal long-acting reversible contraceptive. It's approved for up to 3 years of contraceptive efficacy. Average insertion time takes about a minute, Nexplanon is one of the most effective forms of contraception with extremely high clinical and real-world efficacy. Nexplanon is the #2 contraceptive worldwide by revenue and has market exclusivity until late 2027 in the U.S. and in many countries outside the U.S. until 2025 or 2026, providing Organon with an excellent opportunity to grow sales over the next several years. Organon will do this by focusing investments to seize this Nexplanon sales opportunity. We see peak sales potential to exceed $1 billion. We have excellent access in the U.S. under the Affordable Care Act and across many large markets outside the U.S. Today, 96% of Nexplanon sales are from markets where the end user is paying little or no out-of-pocket costs. Organon will invest to continue to expand access in existing and new markets. Organon will also invest in consumer awareness and education. Today, many women wanting contraception do not have the knowledge of the full contraceptive options, with the daily pill, still the most widely known method. We have also begun a registration study to expand the use of Nexplanon to up to 5 years. This would result in Nexplanon being an attractive contraceptive option for many more women, including more family complete mothers. This future change would result in a change in the current Nexplanon label. There would be no change in the dosage of Nexplanon, and once complete, the label change would allow Nexplanon to be left inserted for a duration of up to 5 years. Women would still be able to choose to remove Nexplanon at any point up to their maximum 5-year duration. Nexplanon would also receive 3 years of data exclusivity for this new 5-year duration claim. And the current Nexplanon implant and applicator patents remain unchanged, and we do not anticipate any risk to these patents as a result of this label change. So when we combine 3 years of data exclusivity from the 5 year duration label, plus, the known complexities of developing long-acting drug device combinations and the historical post-patent sales trends we often see with complex long-acting drug device combinations, we are very confident that Nexplanon has a significant sales opportunity, not only in the next several years, but for many years to come. Beyond making Nexplanon, $1 billion brand, another women's health strategic priority for Organon, is to build on our position as the second largest women's health company and expand our women's health business. How do we do this? Well, first, we will double down on our strength within contraception and fertility to invest in new inorganic growth opportunities. Second, Organon will use our global women's health, clinical and commercial capabilities to expand through targeted acquisitions into conditions unique to women's health and conditions disproportionately impacting women's health. As you can see, these segments are large and forecasted to grow over the coming years. And finally, with our success in women's health and as one of the only large pharma companies strongly committed to women's health, we believe that we can differentiate Organon as the Women's Health Partner of Choice, especially for those small companies that are conducting research within the women's health space. Our proposed acquisition of Alydia Health is an example of Organon already executing on the strategic priority of expanding our women's health business. As both Kevin and Susi have mentioned, Organon's proposed acquisition of Alydia Health and the launch of the Jada System addresses an important unmet medical need for effective treatment of postpartum hemorrhage in the U.S. and around the world. Postpartum hemorrhage is a common complication of birth, affecting 10% of mothers worldwide. The Jada system is intended to treat abnormal postpartum uterine bleeding or hemorrhage. In the PEARLE study of 106 participants, 94% of participants met the primary endpoint, where bleeding was controlled with Jada, and no further intervention was required. Moreover, it was shown to work fast with a medium time to control of postpartum hemorrhage of 3 minutes. Organon will build from our existing clinical and commercial capabilities to successfully integrate the Jada System into Organon post-spin. Today, Jada is marketed in the U.S., and we will use our large Nexplanon OBGYN field force and established relationships to significantly expand the current Jada U.S. launch efforts. We will also use our global capabilities to seek future registration and launches in large markets outside the U.S. And finally, we will advance access in the least developed markets where postpartum hemorrhage can result in especially negative outcomes for new mothers. I now want to hand it over to Elisabeth Weis, who will talk in more depth about our fertility portfolio plans. Elisabeth?

Thank you, Simon. My name is Elisabeth Weis. I'm the Global Commercial Lead for Organon's fertility franchise, and I'm delighted to be here today. For the past 20 years, I have worked in this specialized field, and I have witnessed the significant changes and improvements in the treatment of infertility. I'm passionate about helping couples, get the family, they have always dreamed off. So I'm thrilled to be leading Organon's rebound onto the global fertility arena. Reconnecting with opinion leaders around the world who I know are so excited about our imminent return. Over the next minutes, I'll elaborate on the most important market opportunities Susi introduced in her presentation that we believe make this therapeutic area so attractive for Organon. And then more importantly, talk about the innovation and investments we aim to bring to existing and new geographies to regain our position as a leading global player. The global fertility market represents a significant business opportunity for Organon. The pool of infertile patients needing treatment is large with untapped potential that we intend to leverage. Social demographics are the main driver behind this problem. Today, women advance in higher levels of education, they want to have a career, want to live their life. Thus, they postpone having their first child until later in life, around the 30s, when the chance of pregnancy is already starting to decline. It is estimated that between 10% to 15% of couples have problems getting pregnant. The late start also means that couple may not have the number of children they want. And around the world, we witnessed declining birth rates, which are becoming an increasing social problem. To remedy this trend, governments are starting to engage actively to push the birth rates up. Japan is considering introducing reimbursement of infertility treatment, and China suggests lifting the ban on the 2-child policy. Unfortunately, we must also acknowledge that despite the increasing number of patients, only a minority is seeking treatment. This is often due to concerns about the cost of treatment. In Denmark, where I come from, 3 IVF attempts are reimbursed. And as a result, we have 10% of children born from IVF, one of the highest numbers in the world. In contrast, it's only 2% in the U.S., where 50% of treatments are paid out-of-pocket by the patient. There is an important opportunity for Organon to help patients access and navigate through IVF treatment. Fertility treatments create tremendous emotional stress, and many patients often withdraw from treatment before they bring a baby home. I'm proud to be working for Organon, a company that is entirely dedicated to advancing women's health. Our product portfolio still enjoys strong brand recognition and loyalty in the market. Despite Merck's strategic deprioritization of the fertility area several years ago, we reemerged after COVID with a solid 20% global market share in 2020, and we aim to reclaim more share from here. Fertility is the cottage industry, with a handful of companies. Organon included, representing almost 90% of global market share. Biosimilar players have not succeeded in making an impact in this relationship-based fertility market. The last trend I briefly want to touch upon is the increasing number of fertility clinics that are appearing to cope with the increasing patient load I described. In addition, we have seen international investors into the fertility arena over the last couple of years, forming networks with the capacity to further develop the field. This provides Organon with a unique opportunity to create new partnerships. Based on our heritage, combined with innovative partnerships, we are committed to growing our fertility sales, and we are basing our rebound on 3 strategic pillars: One, expansion of our global footprint; two, facilitation of access to treatment and patient support; and three, innovative partnerships with clinics and healthcare professionals. Our first focus will be to expand our global fertility footprint. A key priority will be to build and grow our business in China, the world's largest IVF market. In fertility rates in China have grown from 3% to 17% in the past 20 years, meaning nearly 50 million women struggled today with infertility issues. We aim to increase access to hospital formularies for our current portfolio and to develop and launch our new asset, Elonva. Our immediate goal is to regain Puregon market share around the world, following several years of deprioritization through renewed investments in promotion and sales force activities. And we will expedite relaunch of Puregon in deprioritized areas, including Japan. Within Elonva the only recombinant FSH product injected weekly instead of daily, Organon has the opportunity to offer clinicians a new differentiated product to treat new and existing patient groups. We are currently investing in Phase III programs with a goal of gaining access in 2 of the world's largest IVF markets, China and the U.S. Lastly, our ambition is to further expand our footprint by licensing not only products, but also innovative diagnostics and devices that will strengthen our existing portfolio and improved treatment outcomes for couples wanting a baby. We plan to facilitate access for treatment and educate patients throughout their fertility journey to increase the chances of taking home a baby. Young women's take to social media to talk about their fertility journey with women experiencing similar challenges. So Organon will leverage digital educational platforms in order to encourage patients to see the health care provider, but also to provide emotional support when most needed. As I previously outlined, the patients are plentiful. So we must ensure that we also work to improve access to treatment, both in terms of providing alternative and affordable treatment methods, but also explore innovative insurance coverage options. Lastly, our ambition is to become the preferred partner in the new large IVF chains around the world, working with all the clinic stakeholders, to enable the most effective clinical protocols, innovative technologies and services that can benefit both clinics and their patients. With that overview of Organon's fertility business priorities, I would like to thank you for your attention and hand over to my colleague, Joe Azzinaro.

Thank you for the opportunity to spend some time sharing Organon's enthusiasm for the biosimilars business. By way of introduction, I am Joe Azzinaro, and I've been the global commercial leader for the biosimilars portfolio, for the past 3 years at Merck and now today at Organon. During my presentation today, I will cover several key points summarizing our biosimilars business. First, the biosimilars business is a key growth pillar for Organon, based on our current portfolio of products and plan for longer-term portfolio expansion. Second, Organon's current portfolio is well positioned to realize near-term growth and our confidence is driven by our demonstrated ability to execute around the world and the positioning and makeup of our portfolio. Third, external factors, such as an improving biosimilar environment and increasing pressure on healthcare systems to manage budgets support continued uptake of biosimilars. Fourth, longer term, the biosimilar market is poised to become a large segment of the overall pharmaceutical market-driven by large molecule patent expirations and an increasingly favorable market. Lastly, we will build from the solid foundation by expanding our portfolio, consistent with the breadth of the Organon mission to deliver impactful medicines for a healthier every day. So how do we think about the biosimilars growth strategy today and adventure the future? In the short-term, we are in a very good position with the products we have in our hands today with our partner, Samsung Bioepis. We have significant organic growth in front of us, derived from marketed growth drivers like Renflexis in the U.S., launch products like BPO in the EU and Hadlima in Canada and a pipeline opportunity with the anticipated launch of Hadlima in the U.S. market in 2023. We see very good organic growth in the next several years as we continue to commercialize these products in markets around the world. Given the largely deflationary nature of the biosimilars business, it is key to continue to launch new assets into the market to enable sustained growth. With this in mind, longer term, our strategy is to expand our portfolio with Samsung and potentially other partners to optimally launch a new product every 1 to 2 years in order to enable sustained portfolio growth. So how do we operate today? We have been in global partnership with our colleagues from Samsung Bioepis since 2013, where we lead commercial activities and Samsung leads development and manufacturing. Strong commercial capabilities across sales, access and pricing enables Organon to successfully execute on new launches across portfolio and markets. The partnership has performed well, given each organization's core competencies and unique capabilities. We have 5 assets in our portfolio, 3 in immunology and 2 in oncology. We launched our first asset Brenzys in 2016, then launched Renflexis in 2017, Ontruzant in 2018, Aybintio just last year in 2020, and now Hadlima in 2021 and an anticipated launch in the U.S. market in 2023. In terms of the commercial opportunities we have in our hands today, we are confident in our continued growth potential. Let's look at this asset by asset. For Brenzys, we are the market share leader in Canada for Etanercept biosimilars. Several years after launch and expect to see continued growth driven by favorable policy mandating switch from originator to biosimilars, which will increase utilization. For Renflexis in the U.S., we continue to see significant demand growth for U.S. Renflexis, while overall infliximab volumes remain stable. For Ontruzant, we are the market share leader among biosimilars in EU markets where we have launched and have an incremental opportunity in the U.S. where oncology biosimilars continue to gain traction. Aybintio in the EU, we are currently launching in EU 5 markets, leveraging the success of Ontruzant in the oncology space, and we see early evidence of solid commercial execution in important markets such as Germany and France. And lastly, but most importantly, Hadlima. This is the largest opportunity in our portfolio. We have favorable order of entry launch positions in the U.S., Canada, and Australia, after the anticipated launch in 2023 in the U.S. market, there is potential to see more efficient and rapid conversion to biosimilars than prior biosimilar launches, given the control and influence of pharmacy benefit managers. And we have synergies with our current portfolio with Renflexis in the U.S. So in summary, when we look across these opportunities, we feel confident about our going-forward growth position. Additionally, when we look at our portfolio, we like 2 characteristics, in particular: First, we have very good balance in terms of geographic sales contribution. So we are not levered to the particular dynamics of any one market. We have considerable sales in the EU, U.S., Canada as well as Latin America. Second, we have balanced with the life cycle of our portfolio. We have marketed products that are growing, which provide the foundation of our business, launch assets in the EU, U.S. and Canada as well as a major pipeline opportunity with our anticipated Hadlima launch in the U.S. in 2023. When you put all of this together, we like to make up of our portfolio. When we look outside in, we continue to see an improving policy environment for biosimilars. One of the key determinants of biosimilar commercial success is having favorable uptake drivers or incentives in the markets that enable the adoption of biosimilars. In the absence of favorable customer incentives in the market, either payer, provider or patient incentives, it is very difficult for biosimilars to gain traction. We know from our launch experience, global markets are at different stages of enabling a favorable biosimilar market. EU is clearly the most advanced and a high-functioning biosimilar market. However, Canada is emerging due to favorable provincial policies mandating switch from originator to biosimilar in immunology. And notably, the U.S. market continues to improve from a policy perspective. Also, this external tailwind supports our confidence in the growth of our portfolio. Also, there is potential for increased utilization of biosimilars post-pandemic. As we all know, the value proposition of biosimilars has been to reduce spending on biologic drugs upon intellectual property exploration in order to make headroom for innovation. This proposition has only increased during the pandemic, and it is apparent across global markets as payers seek to reallocate costs to support healthcare needs during the pandemic. Less resources are available for chronic care disease due to COVID-19 related reallocation. As a result, savings achieved through biosimilar utilization could be a potential solution to reduce overall healthcare spending. So how do we think about the future biosimilars market? Longer term, the biosimilars market is an attractive one, poised for significant future growth. If one thought about this market similar to how we consider therapy areas like oncology or respiratory, one could quickly conclude that this is a burgeoning pool of significant revenue opportunity. When you look out into the future, there are numerous high-value biologics expected to face biosimilar competition. Thus far, the market largely has biosimilars primarily in immunology and oncology. However, the next wave includes assets in other therapy areas such as ophthalmology, respiratory and rare disease. It's clear we are in the early innings of a sizable business opportunity. So how are we thinking about expanding our portfolio over the long-term? First, we seek broader partnership with Samsung, but we will also consider other firms on an asset-by-asset basis. Order of entry is a major driver of value in the biosimilars business. So this will be a key determinant under which we will evaluate new assets. Given the scale and global footprint of Organon, we prefer global rights to new ads in order to leverage that scale. And then lastly, although we've been focused in immunology and oncology, given our deep commercial experience here, but we will consider other therapy areas opportunistically. So in summary, Organon's biosimilars portfolio is in a very solid position in terms of near-term growth, based on what we have in our hands today with our partners at Samsung. And when one looks out into the future, we believe the biosimilars market has the potential for continued expansion driven by several underlying factors. Thank you. This is the conclusion of my presentation. I will now turn it over to my colleague, Ger Brennan, who will discuss our established brands business. Thank you.

Thank you, Joe. Hello. My name is Ger Brennan, and I'm Organon's Commercial Lead for Established Brands. I'm honored to be here. Today, I will focus on Organon's portfolio of established brands. This portfolio is comprised of 49 medicines, which together generate $4.5 billion in revenue in 2020, along with significant cash flow. These are trusted medicines that have been helping patients, in some cases, for decades and have earned the status of becoming household names. What really excites me about this portfolio and this company is that although these brands are mature, in fact, the vast majority of the portfolio is beyond LOE. We believe there is much potential to unlock value to a reinvigorated approach to commercialization. What you will hear is that for our established brands, there is no one size that fits our approach. Instead, Organon will bring an entrepreneurial focus, rooting out opportunities wherever they are and leveraging focused marketing and commercialization strategies by product and market, to capture and deliver sustained cash flow. Today, I will talk about our strategy and efforts. But before diving in, I want to say a few words about the LOE status of this portfolio. Because Established Brands had, for the most part, lost exclusivity, it should be no surprise that this portfolio has been in decline. However, significant LOE risk is behind us and future LOE exposure is very modest. We have only a handful of medicines left that will be subject to LOE, which are in only a handful of markets. Matt Walsh will cover this in more detail when you hear from him. We believe the underlying business will remain stable and sustainable, and we will proactively manage the portfolio to ensure its durability above and beyond anticipating the LOE risk. So this all begins with focus. Something you heard Kevin speak about earlier. This is a portfolio that in recent times, particularly following LOEs was not strategic to Merck. This led to deprioritization in both time and resources. In the Organon hands, we believe the portfolio will benefit from renewed focus, especially because many of these brands respond to promotion. We are focusing on 3 levers that we believe will reinvigorate this portfolio: First, we will harness market-specific opportunities for select products to drive sustained flow. Next, we will invest in life cycle management activities that drive near-term growth and sustained long-term value. Finally, we will leverage our digital growth to market capabilities to efficiently and effectively reach the right customers with the right messages. Before I share how we will execute against each of these levers, I want to make sure I communicate the power of the brand we have in this portfolio. As I mentioned earlier, this business consists of a diverse portfolio of 49 products that have a long history of trusted innovation. Our Medicines spent 4 key therapeutic areas, including cardiovascular, respiratory, non-opioid pain and dermatology. Many of these products, even after loss of exclusivity, continued to be global leaders in their class, take singular, which maintains its leadership in the oral asthma space, despite gone off-patent in 2012. Our Nasonex, which is still the #2 inhaled nasal corticosteroid despite loss of patent exclusivity in 2018; and consider Zetia which is still the #5 cholesterol-lowing agent despite LOE in 2016. It is important to highlight the power that diversity brings, but in terms of our product portfolio and geography. No single product represented more than 11% of the portfolio sales in 2020. And no country represented more than 20% of our established brand sales. So let me now return to sharing some details and how we will execute. As you've heard, our broad geographic footprint is an asset and gives us multiple opportunities in selected markets. We seek to capitalize on our well-known and recognizable brands in the international markets. By selectively increasing commercial spend in areas that have the potential to offer solid returns. In many places, patients and consumers have strong preferences for branded originals, and are happy to pay for an originator over the generic. For example, look at our dermatology brands in Southern Europe. Our topical steroids especially in markets like Spain and Italy, our brands that have a high degree of loyalty and respond well to promotions. By investing in promotion, for example, in Italy and Spain, we should drive increased value across our entire dermatology portfolio. Singular is another example where we see consumers have a strong affinity for the originator brand. There are other opportunities as well. We'll explore new business development opportunities, both regionally and at the local market level, where we seek partners and can drive value by bringing products to those markets. By investing time and senior management attention, we will also look at all of our partnerships, with our global and local commercial partners to maximize the opportunities and enhance value for both parties. Finally, manufacturing localization provides an opportunity to drive more profitability. We will seek selective opportunities to establish manufacturing operations in locations to drive favorable positioning and pricing. I want to stay with our geographic footprint for a moment and talk about China. As Susi Fiedler mentioned, China is an important market for us, and it's an especially important market for the Established Brands business. In that country, we currently market a broad portfolio, and I do want to emphasize the breadth of the portfolio with brands across respiratory, men's health, and cardiovascular disease. As you heard, and different from other players in the market, we have a balanced revenue contribution in China, with no single product representing more than 20% of sales. A proactive shift in channel mix from hospital to retail, which started several years back was designed to reduce our exposure to volume-based procurement, and this effort continues to be successful. Over the past few years, we have migrated about 40% of our business from the hospital channel to the out-of-pocket retail channel, where we have strong customer loyalty to our brand, leading to lower competitive intensity with generics. Turning now to the second lever. I mentioned, which is to focus on life cycle management. We will invest in life cycle management activities aimed at driving long-term value, including new market launches, new indications and prescription to OTC opportunities. I want to highlight 2 of the most important opportunities here. The first is the prescription to OTC switch for Nasonex, which we are planning to execute in all of our markets. Here, we are seeking to run Nasonex over the counter and broaden access to consumers. In doing so, we believe we can better compete with other products, which are already available OTC and again, preference for the branded originator remains strong. The second is the potential launch of our cholesterol lowering medicine Atozet which represents a substantial opportunity in China. Atozet is one example of a product that with the right focus and some investment has the potential to continue to deliver growth. Atozet is a fixed dose, atorvastatin ezetimibe combination that has delivered a 5-year CAGR of 33% and has data exclusivity in the EU through 2024. Atozet has not been launched in China and we're working to address that by securing Phase III data. Atozet efficacious combination is well suited to address a significant cholesterol lowering unmet need in the Chinese cardiovascular market. Atozet has the potential to complement our existing trusted cardiovascular portfolio in China. We also believe we have another opportunity with Rosuzet another cardiovascular treatment, which we plan to launch in a number of markets where we see the opportunity. Finally, I want to focus on our go-to-market commercial models, given that evolving channels present new opportunities to engage with customers and patients. We are starting with the digital capabilities we have inherited from Merck, put aim to expand those and bring them to markets where they currently don't exist. Organon aims to increase our digital effectiveness and provide end-to-end commercialization capabilities to transform access and leverage the equity in our Established Brands portfolio. By partnering with third parties, we see opportunities to deepen our engagement and offerings. And really put the patient at the center of everything we do. For example, we're working to imply online subscription models with companion patient support programs, where appropriate, that deliver more benefit and convenience to consumers. I hope you've come away from this presentation, believing this is already a very durable portfolio. LOE risk is largely behind us. And on top of that, we have real opportunity to unlock more value and reinvigorate this portfolio with greater focus and a fresh strategic approach. As we look to the future, we believe the renewed management focus and clear prioritization. We can put in place the right strategies for our Established Brands business and continue delivering meaningful revenue and cash flow supporting the future growth of Organon. I will now hand it over to Dr. Sandy Milligan, who will give some insight into our research and development approach.

At Organon, we have a unique vision for women's health, putting women at the center of all we do. It's a vision to fulfill unmet medical needs of women throughout their lives, beginning in adolescence and early adulthood and continuing through menopause and beyond. Conditions suffered by women, weather-driven by hormone status, anatomy or physiology can severely impact their level of health and well-being and affect them physically, emotionally, and culturally. At Organon, we bring a legacy of women's health solutions, including therapies for breast and ovarian cancer and autoimmune diseases, such as rheumatoid arthritis, that primarily affect women as well as products for migraine, menopause, fertility, and pregnancy planning. And now we add a new dimension to women's health. And intentiality and commitment to focus on what's needed. We have brought together seasoned and experienced physicians and scientists engaged in bringing innovative and impactful solutions to women and their healthcare providers. We will look across academic centers and early and established companies to find promising drugs, diagnostics, and devices, and develop them using our extensive global capabilities in clinical development and patient safety, regulatory and medical affairs. This is a rare opportunity to start with the patient segment, women's health rather than a product and build our pipeline around the patient's needs, filling out that menu of healthcare options for women that enable them to live their best lives every day. This is why I came to Organon. When we put women at the center of our research and development pipeline, we can look at the following questions: Can we help physicians diagnose their condition earlier? Can we develop a diagnostic tool to monitor the progression of symptoms or even the effectiveness of treatment? Is there a device that would help physicians and patients monitor or manage their condition? And then there are, of course, therapeutics and Biologics which can manage symptoms and daily well-being and for some illnesses, be disease modifying? We will look to impact all phases of a woman's life with conditions starting in adolescence and continuing with contraception and pregnancy, migraines, endometriosis, in fibroids infertility, osteoporosis, menopause and so on. We want to be a source of innovation and information for healthcare providers and patients, providing a choice in treatment and supporting access for patients globally. We have begun looking at specific conditions that impact women's health where there are unmet medical needs that have a large potential impact. Across the board in women's health, there is a healthy landscape of innovation with more than 140 assets at various stages of development, covering therapies as well as devices and diagnostics. A number of these assets are, for example, focused on endometriosis. Endometriosis affects 1 in 10 premenopausal women in the United States, yet less than half are diagnosed and treated. Since a definitive diagnosis is often elusive, young women who are having pain and excessive bleeding may spend years without a diagnosis and suffer as it gets worse. Bringing forward a new diagnostic tool to help physicians diagnose and monitor the progression of the disease would provide women an understanding of their disease and a choice. Because if you are in that group of women with endometriosis to progress to the point of infertility, you may want to seek medical intervention earlier like harvesting and freezing your egg for future pregnancies. Along with earlier diagnostic modalities, we are interested in improved treatments. Not only are there opportunities to bring forward medicines that relieve the pain and bleeding associated with endometriosis, but there are also early-stage disease modifying therapies being developed. Imagine if we could diagnose this disease earlier and easier, provide safe and effective symptomatic management, and develop a disease modifying therapy, then we will have provided those women with options and treatments that help them identify and manage their disease and plan for their future. This is why I'm so excited about this new approach because the healthcare companies our size generally focus on one modality, drugs, devices or diagnostics. However, as we search the horizon of potential solutions, we are willing to bring in and develop multiple modalities with a holistic approach to women's health. Organon research and development will be more than 700 strong, including global regulatory and medical affairs organizations bringing seasoned capabilities and processes to act quickly on later stage therapies and move them to market. We have regional and local regulatory and pharmacovigilance capability directly in 58 markets and the ability to reach more than 100 boarding markets around the world. We will work closely with local health authorities to get products registered and on market. We will engage and educate healthcare providers and generate the insights and data to help payers make decisions about access and payment. These capabilities provide a strong foundation from day 1 as well as the positioning us as partner of choice. Let me give you an example of our approach. As you heard earlier today, we recently announced our intent to acquire Alydia Health, which developed a product called the Jada System. It is a simple, yet novel medical device that treats postpartum hemorrhage. Postpartum hemorrhage is a leading cause of morbidity and mortality in women globally not just in developing nations. So this device will help women, not just in the United States, but also around the world. Alydia is committed to developing products that can be used in lower- and middle-income countries. Where expectant women may not have the access to the same level of delivery support that we have in countries like the United States. With our global footprint, we can support this imperative with active development and clinical study of the device, discussions with health authorities in different countries and education of healthcare providers. The Alydia acquisition is a reflection of our ability to be nimble and directive in building our portfolio and development pipeline. We don't need to invest billions of dollars into discovery and early stage research. Instead, we can focus on organic and inorganic investments that holistically address unmet and under recognized medical needs. As you have already heard from my colleagues, we start our company and our R&D portfolio with solid opportunities to invest, develop and register Elonva in the United States and China, and ZOELY in the United States. And we will also invest in clinical studies to explore expanding the indication of Nexplanon from 3 to 5 years. Our vision is to be the #1 company for women's health in the world, and we think we can do this by focusing on women's everyday health needs, which impact their ability to live their best lives. We are not focused on just unicorns or blockbuster drugs. For too long, for too many common conditions, women have been told that it's just what comes with being a woman, such as heavy, painful and irregular menstrual bleeding or aging such as incontinence or menopause symptoms. The time is right for Organon to bring forward better options for patients and healthcare providers, and ensure women have the information to make their right choices for themselves. And we believe this approach will be successful, the ability to identify diseases earlier, the ability to modify the course of diseases or healthcare conditions and the ability to improve the quality of life for women at all stages. I believe that we can get there with our team in research and development. We are committed to putting women at the center of all we do. Thank you for your time and attention, and I would like to now introduce Matt Walsh.

Good morning. I'm Matt Walsh, CFO of Organon. I'm excited to lead the finance organization for many reasons. And because I've spent most of my career in the CFO seat, and have been involved in a few other spins, I can tell you from experience that there are a set of characteristics here that I think set up Organon very well for success. First, as you've heard today from our key leaders, Organon is a significantly sized, diversified global healthcare business that is substantially derisked in terms of LOE risk and pricing risk, especially in the United States. The core base of stability and cash flow of the Established Brands business, our largest business generates cash flow well in excess of reinvestment needs. The cash flow from the Established Brands business will give us the ability, the oxygen, if you will, to fund investment in our 2 key growth markets: women's health and biosimilars. Both of these businesses are in markets that are large and growing. We're already in them in a meaningful way, and we see a pretty clear path to growth right along with these markets. So against that backdrop, I'd like to share more detail about how our business and financial plans tie together. Today, I'll cover 3 topics. In the form of questions they are: one, what does 2021 our rebaselining year? What does it look like? Two, what's the longer-term earnings power of this business? And three, what is our capital allocation policy? How do we intend to deploy capital? The best way to answer question number one, what does 2021 look like is to start with revenue. And let's use our 2020 actuals to set the appropriate context. In 2020, products and supply sales for Organon totaled $6.6 billion on a full year pro forma basis. As we look at the walk across to 2021, broken down by key driver, you can see we expect the total LOE impact to be approximately $400 million to $500 million. That would include LOE in Japan for Zetia, NuvaRing in the U.S., Dulera in the U.S. and Atozet in certain markets. After 2021, we face only modest new LOE exposure. I'll walk you through our LOE exposure past, present, and future, in a moment. There's another $200 million to $300 million impact related to volume-based procurement, or VBP in China, where 9 Organon products have had additional impact versus 2020. As you've heard today, about 60% of our portfolio has already gone through VBP, and we continue to manage VBP through our successful transition from the hospital channel to the retail channel within China. We expect approximately $100 million to $200 million net price reduction during the year across all Organon products not subject to LOE. And this low single-digit percentage impact is generally consistent with recent historical performance. We do see some continued COVID impact in 2021. And we estimate that to be about $300 million, which is about $100 million better than last year. Women's health continues to feel the impact from fewer in person doctor visits for both contraception and fertility and established brands has felt a disproportionately smaller impact in targeted products, for example, in asthma medication. We continue to keep our eye on COVID impacts in 2021 as the pandemic continues around the world. We are seeing growth in 2021 in key areas of the business, mainly driven by our key growth businesses, women's health and biosimilars, as well as geographically in China, ex VBP. And then finally, if foreign currency exchange rates remain consistent with where they were towards the end of April, we would expect a small tailwind of approximately $200 million due to FX translation. All of these drivers lead to our current expectation that full year 2021 revenue will be in the range of $6.1 billion to $6.4 billion on a pro forma basis as if Organon were stand-alone for the entire year. The LOE picture is an important one as it relates to 2021 being an inflection and rebaselining year for us. So let's take a closer look here. As you heard from Susi, the largest LOEs in the Established Brands business are behind us. Zetia Vytorin was a significant revenue contributor that lost exclusivity between 2016 in the U.S., 2018 in the EU, and 2019 in Japan. There is no product with that kind of exposure, even close to that size left in the portfolio. Specifically, new LOEs in this portfolio are limited to 4 products and only in selected markets. Dulera is impacted by LOE in the United States in 2021 and Canada in 2024. Atozet in Japan in 2023 and in the EU in 2024. Rosuzet in Japan in 2024. And finally, Arcoxia will experience LOE in selected markets. The total revenue globally on these 4 products was just over $1 billion in 2020. Now after 2021, the remaining cumulative impact from these new LOEs is approximately $250 million, which, together with the trailing effects of earlier LOEs, like Zetia Vytorin and NuvaRing, represent together a low single-digit headwind to the business. Against this lower LOE profile relative to history, combined with the renewed investment and management focus that Ger spoke about earlier, we believe we can significantly flatten the glide path revenue CAGR to the point of being almost flat. It's still slightly negative, but only modestly so. And we are looking forward to our established brands business being a significant source of free cash flow over the foreseeable future. So turning to our view on 2021. Now we won't always provide the level of detailed guidance that we'll be showing today. But as a new company, we thought it important to provide enhanced guidance to level set on several key P&L line items. For 2021, full year pro forma as if the spin-off happened on January 1, we expect revenue to be in the range of $6.1 billion to $6.4 billion, which is essentially all organic. We included de minimis partial year revenue contribution from the recently announced acquisition of Alydia Health, that we expect to close concurrent with the spin-off of Organon. Any other business development we may subsequently announce would be incremental to these numbers. We expect gross margin to be in the low to mid-60% range. We expect R&D expense to be in the mid-single-digit range as a percentage of revenue. And what this really represents is mostly R&D infrastructure and a relatively small amount of variable spend on the organic life cycle management opportunities that we're planning to undertake for products currently in the portfolio. As we fill out a pipeline of new products in development in the coming years, our R&D expense would rise to support those programs. We expect SG&A expense to be in the range of mid-20% of sales. This would put us at an adjusted EBITDA margin in the range of 36% to 38% for 2021. While these numbers are full year run rate numbers, as you think about phasing throughout the year, you can expect the back half of the year margins to be lower than this range by about 1 point to 1.5 points based on seasonality of spending. This is primarily related to delayed spending due to COVID as well as timing of spending for life cycle management programs, the standup of Alydia Health and other investments that we will initiate post spin. Below the line, interest expense for 2021 is expected to be approximately $400 million for the year, which reflects our new debt structure as a stand-alone company. All debt instruments comprising the structure, by the way, are now complete and funded. D&A is expected to be in the range of $100 million to $115 million. We expect our ongoing non-GAAP effective tax rate to be in the range of 17.5% to 19.5%, with book and cash taxes being similar. Tax guidance for the stub year of 2021 becomes more challenging to provide a confidence until we have more granular understanding of the opening balance sheet. For modeling purposes, we believe applying the ongoing rate for the stub period will be appropriately conservative. With regard to shares outstanding, given the exchange ratio related to the spin of 1/10 of a share of Organon common stock for each share of Merck common stock, our initial shares outstanding will be approximately 250 million. To be clear, this is not a fully diluted share count which in regular course, would be a line item you could expect us to guide to. Now turning to cash flow items. A regular dividend has yet to be declared by the Organon Board, but it has been contemplated as part of the spin. So for modeling purposes, I can share that over the longer term, we intend to target our dividend in the low 20% area as a percentage of free cash flow. We expect that CapEx as a percentage of revenue will be in the range of 3% to 4% for 2021, excluding onetime capital costs. This consists mainly of maintenance CapEx in our manufacturing plants and IT-related spending. As a new organization, we will very likely have a onetime use of cash to build to a steady state working capital position. The amount of this build is not yet finalized, and this is another item that depends on deeper precision around the opening balance sheet, which is underway as we speak. As part of the transaction, we will incur onetime costs post-spin. As we see things today, the onetime total cash costs are expected to be approximately $600 million, roughly 2/3 of which are expected to be incurred between 2021 and 2022. This number includes both GAAP and non-GAAP costs as well as capital outlays. So 2021 is our rebaselining year, what does the longer-term growth trajectory of this business look like? Recall, this is the second of the 3 topics I said we would be covering in the finance section. On the revenue line, we believe we are well positioned for organic revenue growth in the low to mid-single digits on a constant currency basis. This will be driven by stabilization in the established brands portfolio and growth in both women's health and biosimilars, each of which has the potential to grow at low double-digit CAGRs in the intermediate term. Now a little more color. Consolidated revenue performance over the period should be pretty consistent year-to-year with no single year representing outsized performance up or down relative to the CAGR. We do expect to realize operating leverage in the P&L over time, beginning as the TSAs roll off after the initial 2-year period. We expect gross margin to remain essentially steady reflecting a balance of opposing forces on our product mix. Now creating upward lift on margins would be our women's health business and the trend of our geographic mix of sales. Buffering that on the downside would be biosimilars because we are sharing profits with our partner and the overall global net pricing environment. Moving to capital allocation. In terms of our capital allocation priorities, we believe that a dividend will be an important part of the equity story and total shareholder return for a company like Organon. And of course, once a dividend is installed, it becomes priority #1 in terms of capital allocation. Over the long term, we're targeting the dividend at a low 20s percentage of free cash flow, which will be very manageable. As CFO, I'm looking past the dividend to still having substantial ability to fund other value-creating priorities. And that starts with our organic growth plans in the form of CapEx going into our manufacturing plants and capital deployed to pursue life cycle management opportunities within our current product portfolio. Business development will be an important part of the growth story. At this stage of the company's journey, our business development activity can be characterized in American baseball parlance as singles and doubles, smaller deals. And we will be balancing business development with debt reduction, as we're targeting a leverage ratio of less than 3.5x debt to adjusted EBITDA and an overall commitment to a BB/Ba2 parent rating. Now the business can comfortably support higher leverage levels. I mean, we as management wouldn't lose any sleep over it. But we are cognizant of balancing stakeholder preferences. We also believe that there is value to be created by applying dollars to debt reduction while we are above 3.5x. This is the final slide of today's presentation. You've heard our key strategic messages multiple times from our key business leaders. I'm sure our path forward is clear to you by now, but just to summarize how we intend to create lasting value at Organon. First, the geographic and product diversity across all 3 franchises is a key asset. Second, we already have strong market positions in both women's health and biosimilars, and both are sizable markets that are growing. Third, with LOE risk largely behind us in the established brands business portfolio, we expect Organon can grow low to mid-single digits off of our 2021 baseline. Fourth, Organon will have strong cash flow that will give us the financial flexibility we need to execute our growth strategy while satisfying multiple capital deployment objectives. Fifth and finally, our global focus on socially important issues, such as women's health and access to low-cost biologic therapies, under the governance and managerial structure which we've put in place, which evidences our sincerity and actioning diversity, inclusion, should create value across the spectrum of Organon stakeholders, including our equity shareholders who have been the primary focus of our presentation today. Thank you very much for your interest in Organon and giving our team of Organon founders the chance to tell you about our growth plans as an independent company. This is a journey we are all very excited to begin. And with that, we'll now proceed to the question-and-answer session.

Thanks, Matt. That ends our formal presentations today. The Organon management team is now happy to take your questions. With me here in New Jersey are Matt, Sandy and Joe; and from Switzerland are Kevin, Susi, Simon, Elisabeth and Ger. As a reminder, we're taking questions both live from the phone line or electronically via the webcast. We're going to begin with questions from the phone line. Eiley, will you please line up the queue?

[Operator Instructions] Our first question today from the phone line comes from Gregg Gilbert with Truist.

Thanks for the learning opportunity, folks. Well done. Kevin and Matt, as you consider external opportunities to make women's health a larger part of the business, which is clearly part of the mission, it sounds like the plan is those singles and doubles. But are you open to larger deals to accelerate things to transform? Or do the leverage targets and/or philosophies you have make that unlikely? And then I'll ask a second question on biosimilars. Joe, are you pursuing interchangeability for biosimilar Humira? And how do you expect that dynamic to play out in this potentially very crowded market? And maybe a more provocative question would be, are you interested in or have plans to pursue biosimilar PD-1s.

So thank you for the question. I'll get started on the business development question. Look, at this point right now, we're not interested in essentially looking at big deals. We're looking at, what Matt said, singles and doubles because we believe there are significant opportunities out there. We were talking about 140 different opportunities in various stages of development across the world. Very, very interesting R&D that's happening right now. We're serious about business development. We've already made our first deal with Alydia Health with the Jada System, and we'll continue to do more. So stay tuned. But right now, we feel we have the operating cash in order to be able to use it to make some sizable, rather, some significant deals in the space of where we're looking at to expand the aperture of what we're doing right now in reproductive health, to go outside to those areas that are unique to women in terms of the conditions or those that actually disproportionately affect women. So we feel very comfortable with our strategy right now. And with that, I'll hand it over to Matt for any other comments that he'd like to make.

No, thank you, Kevin. So we certainly have the ability, Gregg, with our strong operating cash flow and capacity on the balance sheet to look at larger deals, but I'm completely aligned with Kevin on his statement that in the early going here, the highest value on a risk-adjusted basis is likely to be realized with pursuing smaller deals that are well within the context of our annual operating cash flow. Joe?

Gregg, this is Joe. Thanks for the question on biosimilars. With respect to the HADLIMA launch in 2023, we're really enthusiastic about our order of entry positioning. We expect to be second to market. And really well positioned. And we know order of entry is a critical value driver in the biosimilar space. And we also expect that market to move very quickly to biosimilars, unlike the infliximab biosimilar market. Given the role and influence of the pharmacy benefit managers, we expect to see significant traction of biosimilars. So we're really excited about the opportunity for our Humira biosimilar launch.

Great. Thanks, Gregg.

Our next question will come from David Risinger with Morgan Stanley.

Yes. Thank you, again, for the very comprehensive presentation today. I have a number of questions. I'll just limit it to 2. So first, obviously, NEXPLANON has tremendous growth potential, but I wanted to understand late decade generic risk. So could you first discuss the challenges generics will have, but then second, if you could comment more specifically on whether Organon is aware of and expecting generics to actually launch upon expiry? And then second, with respect to the longer-term biosimilar pipeline for launches mid- to late decade, could you just talk about what is already in your contract, what your pipeline candidates are with Samsung that you're already developing to launch beyond Humira in 2023? And then which ones are -- and I'm assuming all the rest would be potential candidates, right? You put up a slide showing major drugs that are losing exclusivity. But I just don't have a good sense for what is already in development between Merck and Samsung and what is not?

We'll start with Simon on the question about NEXPLANON potential generic entry.

Yes, thanks for the question. So when we think about generic entrance for NEXPLANON, it's very unclear. And it's a very complex pathway that we see for a generic entry. One possible way will be through bioequivalence. That comes with its own set of risks and complexities. You only have to look no further than our own NuvaRing whereby generics have entered through that bioequivalence pathway. But in the U.S., for example, we saw a generic -- the first generic approved in the U.S. almost 2 years post-LOE in the U.S. for NuvaRing by taking that BE pathway. Another option could be to do a full clinical program, Phase III registration study. Again, very expensive, complex and comes with its own set of risks. And again, examples within contraception there with complex drug device combinations would be, for example, Mirena with a sole generic entrant into the U.S. market came through that pathway. And we see many years post-patent for Mirena, there's still only one U.S. generic available today in the U.S. market. So it's very unclear, it's very complex to see exactly what's going to happen post-patent in the U.S. Of course, that's late 2027.

I mean are we aware of any generic filer so far?

We haven't seen activities being filed yet with the FDA that we're aware of.

Thank you. And Joe, on the long-term biosimilar pipeline?

Yes. So first, I'll say, thanks for the question, David. Like our 5 products that we have today, the 3 immunology assets and the 2 oncology assets with Samsung, we're in a really good position with respect to the growth trajectory over the next several years. And then longer term, we continue to have discussions with Samsung as well as other partners about all of the biologic opportunities that are going to be coming to market in the next several years. Of course, we'll start with immunology and oncology, just because we have deep experience in these areas. We have global experience. We understand buy-and-bill markets, we understand pharmacy markets. So that's a natural starting point for us as we think about the next wave of biosimilars. Stelara biosimilar opportunity is certainly an example of that. However, we expect to be opportunistic about other therapy areas in addition to oncology and immunology. Think about respiratory disease, think about rare disease drugs. So in summary, we have a natural starting point with immunology and oncology as well as Samsung. But over time, we expect to be very active and very opportunistic as we think about the market overall.

And Gregg had asked about the PD-1s, would they be included?

Yes. PD-1s longer-term at the end of the decade is certainly something that's in our plans as we seek to prosecute new opportunities with partners.

Great. Thank you, David.

Our next question comes from Chris Schott with JPMorgan.

My question was about some of the incremental investments in the business that you're making to generate growth. I guess, just 2-part question. One, are those fully reflected in your 2021 guidance? Or should we be thinking about a further step-up in spend going forward as you implement the strategy? And maybe second with that, how quickly do you think that these investments and increased focus can translate to an uptick in sales growth? Is that something we see this year or something that will take some time to implement? My second question was maybe just coming back to the concept of biosimilars and maybe just thoughts on value brands versus biosimilars. I think using the PD-1s as an example, we've seen a number of companies looking to do value brands as a way to access some of these larger markets prior to patent expiration. How do you think about Organon playing in that space? Or is the strategy a very kind of biosimilar-centric approach?

Matt, I think the first part is for you.

Sure. So for the LCM opportunities, Chris, the -- all of our estimates related to LCM activities are included in the 2021 guidance. And they're also included when we start to talk about the organic revenue CAGR in the low to mid-single digits. That also includes the impact of LCM programs, which, of course, like other R&D programs, are characterized by upfront spending and then realization of revenues later in the planning horizon.

Great. Second part of the question, I believe it's for you, Joe.

Sure. Yes. I think when we think about value brands versus biosimilar brands, our focus today is on biosimilar brands with our partners at Samsung. We have very deep experience along the value chain, including global commercialization of different kinds of assets. So on day 1, we really feel like we're exceptionally well positioned to continue to execute and commercialize on biosimilar opportunities out into the future. That's what we're bringing to the table as a global commercial partner. So our expectation is we want to leverage that set of experiences in the U.S., Canada, Europe, which are all very different markets. We want to take that experience, work with Samsung as well as additional partners and really leverage that and further our growth trajectory.

Thanks, Chris.

Our next question comes from Umer Raffat with Evercore ISI.

Thank you all for all the details. Three quick ones, if I may. First, as we think about the margins on NEXPLANON, how much higher is it versus a corporate margin? I know you alluded to that a bit, but if you could just give us a little more color given the significance of it. Secondly, for generics on NEXPLANON, would they need to have 3-year stability data? And finally, it's an interesting one. As I think about biosimilar opportunity, theoretically, there wouldn't be any holds barred on you being able to pursue a KEYTRUDA biosimilar. And my question really is, is there any arrangement of sorts whereby Organon could launch an authorized generic or a first to launch biosimilar on KEYTRUDA?

Great. Thanks, Umer. I think Matt, first on margins?

Sure. So for the question on margins, we disclose revenue by product in granular detail in the Form-10, and that will be characteristic of all of our subsequent filings. We do not disclose margin by product, Umer, we have no plans to do that. But as the key products across the women's health portfolio that has IP protection, you would be quite correct in surmising that it is amongst our highest margin products.

Simon, I believe, part 2 was for you with respect to NEXPLANON.

Yes. So with regards to stability data, it's important to note that NEXPLANON has a 3-year shelf life. And then, of course, it can be inserted for a duration of 3 years. So that means 6 years of stability data. Obviously, with our life cycle management and our pursuit of the 5-year duration, then that effectively adds another 2 years of stability data that's going to be required in order to be able to get to a full 5 years of duration. That's our current understanding today.

And Joe, I believe, part 3 was for you.

Sure. Yes. I won't comment on the authorized generic of KEYTRUDA. However, I will comment on for Organon, we are certainly interested in biosimilar opportunities for the IO products. Again, that's a significant end-of-the-decade opportunity that we see, and we're certainly starting to think about that today and planning for the future.

Great. Thank you, Umer.

Our next question comes from Dana Flanders with Guggenheim.

My first is just on women's health. And wondering if you could kind of compare and contrast the relative kind of maturity of long-acting contraceptives in some of your key regions. And so how much of NEXPLANON's growth is U.S. versus ex U.S. and kind of any markets that are underpenetrated from your perspective, just from a category perspective? And my second question, I was wondering if you could provide any color on how to think about the margin differential between established brands and your growth segments? And as you look to grow margins off of '21, is there a margin opportunity in established brands, even though revenues are expected to stay stable? Or is it mostly coming from women's health?

Great. Thank you, Dana. Simon part 1, I believe, on NEXPLANON and contraceptives U.S. versus ex US.

Yes, sure. So the U.S. today represents about 70% of total NEXPLANON global sales. When we think forward around our growth opportunities, we see double-digit growth potential, more than a blockbuster opportunity for NEXPLANON. And that growth will come throughout the world, will definitely depend and count on the U.S. to drive their fair share of significant growth for us. But we also see fantastic growth opportunities in Europe, where reimbursement is not as good as what we see in the U.S. And so we see opportunity to expand reimbursement and access in Europe. And then also in Latin America. We see significant opportunity in that market, significant unmet medical need around rates -- high rates of unintended pregnancy, teen pregnancy. And so we're going to very focus in that space. In fact, we've provided some additional resource to try and open up access in Brazil. And 2 weeks ago, we got reimbursement for the first time for NEXPLANON in Brazil. And that's important with Brazil being the second largest contraceptive market in the world. It's very important that we've got a strong position there.

Great. Thank you, Simon. Matt, the question on margins.

Sure. So on the margin question, we talked about in the prepared comments what the margin drivers would be on a higher level. But if we're talking about them by individual business unit, we certainly see margin-up opportunity in women's health based on the product mix. Biosimilars from a margin trend perspective, we see balance there. And we also see balance in the established brands business as well, as we will see benefits from geographic mix of sales to higher-margin regions. But then you've got the general pricing environment for the established brands business, being characterized by low single-digit price impact, to be negative year-on-year.

Great. Thank you, Dana.

Our next question comes from Steve Scala with Cowen.

I have a couple of questions. First, does the IP for most, if not all, Organon originated products reside in the Netherlands or somewhere else outside the U.S.? And if in the Netherlands, does it take advantage of the Dutch Patent Box. Second question is, I would like to go back to the most basic points and ask why it makes sense to focus predominantly on women's health as opposed to a multipronged strategy, which would include cardiology and/or respiratory or maybe solely cardiology? In 2020, Organon had more sales in cardiology and similar sales in respiratory and women's health, and they declined less. The cardiology and respiratory markets are many fold larger than women's health and have much more development activity, so there's more licensing opportunity. So women's health provides a smaller sales base, smaller target market and fewer licensing opportunities. Kevin, you mentioned that there were no large pure-play women's health companies, but there are no large cardiology or respiratory companies either. So I assume you disagree. Maybe you can tell me why.

Kevin, why don't we start with you on Steve's second question.

Yes, Steve. So great question. And I can tell you right now what some of the reasons that really led us to really land on becoming a women's health company. First of all, we do have a fantastic reproductive health business, not only in NEXPLANON, which will be a $1 billion product coming in the near future, but also in our fertility franchise, which, as Elisabeth said, is kind of a cottage industry that is potentially growing. So when you look at -- look around the corner, look what's happening, what's coming out, you've got some very interesting R&D happening in the space. As I mentioned, 140 assets in various stages of development. You've got reasonable, what I would consider reasonable valuations in the space. And most importantly, you have significant unmet needs. When I think about the fact that unintended pregnancy rate being nearly 50% and when I think about the fact that uterine fibroids are -- only 20% of them are actually diagnosed in the U.S. alone and the kind of significant bleeding and pain that comes from that and how it disproportionately affects women of color and women of lower socioeconomic status, when I think about menopausal symptoms, and the fact of the matter is, there is no clear nonhormonal therapy available. These are huge potential opportunities for us. And so unmet need, given the fact that this is a purpose-driven company, 85% of the people that are going to make up of Organon are coming from Merck. And that kind of purpose has really been a rallying cry for the people in the company to actually be very passionate about doing something special in the space. And so we believe very strongly that the R&D is there, that the fact that voice of women is more resonant than ever, that there are no single pure-play women's health companies out there and that we have a very healthy balance sheet to do some very interesting business development opportunities going forward. So overall, we believe that's the road that actually we need to pursue going forward and that's the road that we ultimately have decided on being our journey as being a purpose-driven company.

Great. Thanks, Kevin. Matt, on intellectual property location and taxation?

Yes. So from a tax perspective, we've got critical mass of employees and assets in 3 regions: United States, Switzerland and the Netherlands. And we've organized our tax planning to suit those things, including the placement of intellectual property within those 3 key regions where it makes the most sense, and that was all done in the planning period and the run-up for the launch.

Great. Thanks, Steve.

Our next question comes from Terence Flynn with Goldman Sachs.

Thanks for all the details today. I think in terms of, in the past Merck had commented on revenue mix for Organon. And over time, I think they had guided to by 2024, having about at least half of the revenue coming from women's health and biosimilars. I know you gave some targets today. But just wanted to check if you could give any more color on the revenue mix over time. And then on the R&D spend, also a question kind of longer term, what do you think is the right level of steady state R&D as a percentage of revenue for this company? And then the last question is just as you think about other hurdles to NEXPLANON uptake, maybe from any end user surveys you've done, what else beyond just out-of-pocket spend are you focused on in terms of driving uptake in the broader market?

Great. Thanks, Terence. Matt, I think there's 2 for you, and then perhaps the NEXPLANON question, Simon.

Sure. So we'll tackle the revenue mix question first. And you more or less answered it in the way you asked the question. Right now, the established brands businesses a little bit more than 2/3 of our revenue base today. Biosimilars and women's health will both be growing faster than that business. And so by the time you get to the end of, let's say, a 5-year planning horizon, you are right at about a 50% of the revenue mix being those growth businesses, not a lot of color to add to that. What was the second question for me?

It was about R&D and kind of steady state as a percentage of sales of Organon.

Sure. So I mentioned in my comments that R&D expense as a percentage of revenue was roughly 5%, and that's largely infrastructure. So when I think about, let's say, in my past, when I've been associated with companies that were predominantly externally sourced innovation and pipeline, R&D expense tended to trend towards double -- low double-digit percentage of revenues. So on a directional basis, we're starting at 5%. As we fill the pipeline, R&D expense as a percentage of revenues can be expected to grow. Could it grow to be around 10%-ish of sales? That would not be unusual based on my experience with a company that was very similarly structured that didn't have any basic drug discovery research and effectively outsourced and partnered all of that.

Great, Thanks. Simon, on NEXPLANON, hurdles to uptake?

Yes. Yes, sure. So firstly, you're right. The key focus to begin with will be on driving expanded access. 96% of NEXPLANON sales come from markets where we have reimbursement. And we're fortunate, whether it's in the U.S. through the ACA and a number of other core markets, we have good access today. But this has not been a focus for Merck. Their focus has been driving improved access for KEYTRUDA, GARDASIL. And Organon, we're really focused on improving the reimbursed access to NEXPLANON around the globe. A second area of focus will be broadening the prescribing base for NEXPLANON. What we know is a key driver for using NEXPLANON is making sure that physicians have completed the NEXPLANON training. And if you look at -- in 2020, last year, between COVID and our normal level of focus and investment in training, we trained about 15,000 physicians worldwide on how to use NEXPLANON to make sure that they're confident in offering NEXPLANON, confident in the insertion and -- sorry, the insertion and removal process. But when we talk to customers, when we talk to countries, we see the demand to be trained on NEXPLANON is significantly higher. In fact, we anticipate that we will train about 40,000 physicians every year on NEXPLANON to make sure that they are confident and ready to start using NEXPLANON. So that's a level of training that we simply haven't been able to do while in Merck. And then when we look to our life cycle management opportunities, there's no doubt about it that extending the duration of use to up to 5 years, while that gives us a clear benefit in 3 years of data exclusivity around that claim, we also see that, that claim will enable NEXPLANON to be seen as a far more attractive option for women, including family complete mothers, and so we think that, that is going to be a really key driver as well.

Great. Thanks for the question, Terence. We've got a number of questions coming in via the webcast. A number around China. Elisabeth, what gives you confidence that you can -- I'm sorry, Susi, it seems like China is an area of opportunity for you rather than risk. Could you talk about how your portfolio is relatively better positioned?

Yes. Thank you for that question. We are very confident that we will show continued strong performance in that we will continue to be able to mitigate the exposure to VBP. And there are several reasons why I'm saying that. First and foremost, unlike other companies, our portfolio is very differentiated with none of our products really exceeding in China 20% of our revenue. So we have a differentiated portfolio. We don't just have 1 or 2 very big products. Then also we cover indications and we're indicated for diseases and conditions where the patient is a key decision maker. There's a lot of brand loyalty in that space. And patients are willing to pay out-of-pocket to go to the pharmacy and avoid going to the hospital, and we can leverage that also with our e-commerce tools. And then what we also need to be aware is that the majority of our established brands portfolio in China has already gone through or has been exposed to VBP already, 2/3, with another 20% expected end of this year. And back in 2017, we anticipated this to happen. We foresee this regulation and the impact it has. So we started to build our capabilities and skills and structure in the retail business in China as one of the first multinational companies. We even established a separate business unit for the established brands' retail segment. And the team in China, under Merck, has been very successful in driving this business. Right now, it accounts to 40% of the revenue in China, and it's growing by 20%. And then last but really not least, a big portion of our growth in China will come from fertility and fertility will not be exposed to VBP.

Great. Thank you, Susi. Another webcast question related to fertility. Elisabeth, what gives you confidence that you can reclaim market share in the fertility business?

Thank you for that question. Well, first of all, maybe I can elaborate on what Susi was talking about in China. China is a -- is set to become the world's biggest fertility market. And the number of infertile couple is large, 15% to 20%. And that translates into around 500,000 treatments a year. And just to put that number in proportion, if we look at the 40 largest markets around the European region, that total number is 900,000. So what we are watching with interest now in China is how the government is starting to interfere to really address this issue of the low birth rates. And we have seen them, first and foremost, removing the very famous 2-child policy in an attempt to make families want more children. But what we have also heard recently is that the Prime Minister is planning to address fertility as an area of focus in the next 5-year financial plan. So I think the time for Organon to move into this world's biggest fertility market is ripe. We are going to work with the policymakers there. We have a team in place in China that will address the increasing need among the patients. We will go into the large number of new hospital clinics that are popping up. And with that tremendous opportunity in China, that is going to be a key driver in us for gaining share.

Great. Thanks, Elisabeth. Perhaps time for a couple more questions. Can we go back to the phone line, please, Eiley?

Our next question will come from Navin Jacob with UBS.

A couple, if I may. I just want to clarify the slide with the long-term guidance algorithm where you provide some trajectories for the individual business units and where you note that adjusted EBITDA will grow faster than revenue. Is that for the time period of 2021 through 2025? I just want to clarify that time point. And then secondly, with regards to -- I just want to dig in a little bit more into the comment about R&D as a percent of revenue of 5% and that you'll predominantly be conducting discovery research via external R&D, so to speak, or acquisition. I'm wondering how you think about that in terms of what that means for your multiple as a company, either on an EBITDA basis and/or PE basis? How -- what are the comps that you're looking at that you feel that Organon should be trading at?

Thanks, Navin. Matt?

Well, so there are a number of companies and really every company, to some extent, outsources innovation, to a greater or lesser degree. We will certainly be on the very heavy side of that. But from a valuation perspective, I think it will all come down to what is the productivity of any pharma company's pipeline, whether it's in-sourced or outsourced. So I think, ultimately, our success in commercialization of innovation, regardless of how it's sourced, will be where the rubber hits the road on valuation.

Any comment on potential comps for a company like Organon?

Well, in terms of comparable companies, I would say it's very challenging currently to find a company that has the unique set of characteristics that Organon has. We've got roughly 2/3 of the company being a base of high cash flow, predictable established products. We've got good growth positions that are about 1/3 of our business today, but in growth markets that should enable these businesses to become an increasingly large part of the company. We've got the right capital structure to pursue that growth. And so at least -- for me, personally, I've been challenged to find another company that's out there that's similarly structured as Organon in terms of the businesses that we have and the capital structure that we have to go after those opportunities. So comps is a tough one.

Got it. And the first part of Navin's question was just around the long-term guidance algorithm. What period of time are we referring to when you think about growth?

Thank you. So all of our commentary, when we're talking about directionally where should the business go over the longer term, that's principally based upon a 5-year planning horizon out to 2025.

Great. Thanks, Navin. Final question please, Eiley.

Our last question today comes from Seamus Fernandez with Guggenheim.

Great. So just a couple here. I was hoping you guys could help us understand the blended device drug business opportunity that you see going forward? Historically, businesses like that have struggled in other areas. Just hoping you could help us understand a little bit of what that 140 deal landscape looks like from a smaller BD perspective. And if this also includes diagnostic as well as therapeutic? Maybe just help us understand a little bit of what that growth opportunity looks like. On biosimilars, just hoping you can give us a little bit of a sense of the structure of margins for the revenue that you guys are going to book. And if there's any opportunity for Samsung to walk away from these agreements? Is there any time frame within which Samsung could walk? And then lastly, just the $200 million that you mentioned in terms of the year-over-year hit from COVID. As the business normalizes in the second half of '21 into '22, can you just give us a little bit of visibility on the products that were most impacted? And do you assume most of these will come back in '22 as health systems normalize? Or were some of those sales just lost because of the potential generics coming to market like with NuvaRing.

So I believe the first part of the question might be appropriately answered by Sandy with respect to R&D and the types of things we may be looking at.

Sure. Thank you for that question. I think what's really interesting and different about Organon is that we really intend to put women in the center of the pipeline. And when we do that, that does give us the opportunity to look at diagnostics or devices and/or therapeutics biologics to address the undermet and unmet medical need. I've got just world-class set of scientists and clinicians that are examining the business development opportunities that we've seen so far. And this is really even before we spin. And so imagine the activity that we'll see after we spin. It's really exciting. And I think from my point of view, it's not just about finding innovation. But it is also about creating data sets that engage physicians and payers in information exchange, but also to the patients, provides choice of different therapies as well as access. So I think it's really important that we take a look across those 140 opportunities. And I do think that we'll be able to pull it together, find the right opportunities for women to improve their health every single day.

Sandy, thanks. The question on the structure of margins in the biosimilar business and the Samsung relationship. Maybe it's Matt and Joe?

So I'll start with the margins. So in the relationship with Samsung, you would see 100% of the revenues for our partner products showing up in Organon's reported results with the profit share that's owed to Samsung, which is generally speaking, 50%, deducted in the P&L. And so it looks like the margin for those products would be -- would put the biosimilar products about half of the margin of the -- most of the remainder of our portfolio. But it really is driven by the deduction for the partner share of income. In terms of the way the contract is structured with Samsung, the teeth of the agreement, if you will, really is on a product-by-product basis. When we are partnered on a specific product, we are exclusive to each other for 10 years from the date of commercial launch. I don't know if you have anything...

No, I think Matt covered it. And at the conclusion of the 10 years for each product, we'll have the opportunity with Samsung to renegotiate further contract.

Great. Thanks. I think the final part of the question was the products that are being impacted by COVID and that impact, describe it a little bit more.

Sure. So the -- we have seen approximately half of the impact, whether we're talking about the COVID impact in 2020 or the COVID impact in 2021, the mix has been roughly the same with about half of it being felt in the women's health business. And once again, those are largely physician-administered products, more elective procedures and those kinds of patient activities have seen reductions as a result of pandemic with the other half being in the established brands business for things like asthma medications. But once again, that is a proportionately smaller impact to established brands than it has been to women's health. But I think that really the important -- the most important part of that analysis of COVID is, we don't see any change to the underlying trends that Simon was discussing in his section. The trend towards long-acting reversible contraceptions has been slowed down by COVID, but not fundamentally changed. And we see the same prospects for growth, as Elisabeth mentioned, for fertility, for example, in China, that has just been slowed down by the pandemic, but that thesis, that is still fundamentally sound.

Great. Thank you. Thanks, Seamus, and thank you all for participating today, and thank you for your great questions. I'm going to turn it over to Kevin now for a few closing remarks.

Thank you, Peter, and I'll be very brief. We really want to leave you with 4 points that hopefully will give you more confidence and reasons to believe in the future of Organon. First, Organon will be a growth company. Starting in 2022 and moving forward, we're going to see low to mid-single-digit growth from Organon. Second, this is a company that is a purpose-driven company. The whole focus on being a leader, a global leader in women's health and the vision for better and healthier every day for every woman is something that all rank and file, that our employees believe in and are passionate behind. Third, we will do business development. We have the capacity to do business development, especially as we open the aperture beyond reproductive health and start to go into areas that are unique to women as well as those areas that disproportionately affect women to start to build that pipeline for Organon as we go into the future. And finally, Organon is a fit-for-purpose company. From day 1, we're going to hit the ground running. And we have a number of very talented executives and leaders in this organization. And we have some of the best and brightest that is coming over from Merck into the Organon family. And not to forget, we have a fantastic Board, a very diverse and capable Board that will help guide us as we start to go through this journey together. So I want to thank you for tuning in today, and I look forward to working with all of you in the very near future. Thank you very much.