Organon & Co. (OGN) Earnings Call Transcript & Summary

Good afternoon, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be hosting a fireside chat with the Organon management team today. From the company, we have Kevin Ali, the company's CFO (sic) [ CEO ]; as well as Matt Walsh, the company's CFO. So Kevin and Matt, Happy New Year, and thanks for speaking with us today.

A pleasure.

Excellent. Well, this is your first presentation at the JPMorgan Healthcare Conference post the Merck spin. And would love to maybe kick off the conversation with just some opening remarks from both of you as you think about Organon's positioning, as we think about the kind of the spin out of Merck and heading into 2022. So with that, maybe turn it over to Kevin.

Thank you. Thank you, Chris, and it's good to be with you. It's a shame we couldn't be in person. Hopefully, let's keep our fingers crossed, next year, we can potentially do this in person.

Fingers crossed.

Fingers crossed. But now we're -- we spun out June 3 from Merck as a spin out. And I got to say, we're exceptionally very proud of what we've been able to achieve in the very short period of time. This has not been an easy spin from the perspective of -- this is not a separate business unit that was easily to spin out. It was very integrated within Merck, and a lot of things have been done on both sides of the fence to make sure that this is going to be a flawless spin out. And ultimately, what we've been able to achieve in the first 6 months of life is nothing short of remarkable. We've clearly had a very solid second quarter and then a very good third quarter. We made some signals at that stage in the third quarter earnings call where we believed that the fourth quarter was going to be exceedingly robust for NEXPLANON, our key product. I'm here to say that, that is still to be the case. We're having a very, very good, very, very good quarter for NEXPLANON, nice rebound there. We've always believed that, that product has a tremendous opportunity ahead of it. And we have patent protection until 2027 with the opportunity to extend it to 2030 with a life cycle management process we're going through right now. So that will be our $1 billion blockbuster, and that is essentially something that we're very proud of. In the interim, we also did 3 deals. We did -- the first deal we did was acquire Alydia Health, a Menlo Park-based company with a very unique device called Jada for the treatment of postpartum hemorrhage, abnormal bleeding, a major contributor to maternal morbidity and mortality across the world. A woman dies every 4 minutes somewhere in the world due to the complications from postpartum hemorrhage. And this is a very unique innovation in the space. We're off to a great start with our Jada device. We then made 2 acquisition -- one in-licensing from ObsEva for, again, another significant unmet need in preterm labor. There are probably about 15 million babies across the world that are born preterm every year, and all the complications that comes out of that. And then ultimately, the last deal we did was we acquired Forendo. Forendo is a company out of Finland that has a very unique product, 6219, for the treatment of endometriosis, a completely new mechanism of action. Look for us in 2022 to do more deals, but probably balancing out the portfolio with near-term or actually products that are already on the market. So that ultimately, we've got -- we're building a very balanced view of the way that we deal with our portfolio, the way that we deal with our -- in building our pipeline of products and assets. Also look for us to do some more deals in the biosimilar space and continuing that case. So the reasons to believe in Organon are very simple. We spun out with the proposition that this would be a low to mid-single-digit growth company going forward over the near term. We are committed to that. We see that in our near-term future, but also the opportunity to meet some really significant unmet needs by being a women's health-focused company. We've done that with the 3 acquisitions -- or rather, the 3 business deals that we've done. We've got more to do, there's plenty in the space, and we've got the free cash flow in order to be able to do that. We also look at biosimilars as a really opportunistic opportunity for us to continue to grow the top line. And finally, our Established Brands business, that's one of the reasons that it was a good time to spin out this company because the Established Brands business has gone through many or mostly all of the LOEs that existed. Now we're stabilizing. We see going forward by what we see in terms of what's happening in the markets, very stabilized business going forward. That will throw off a lot of cash, a lot of margin for us to continue to reinvest in the business so that ultimately we build out a business that continue to surprise both investors and analysts as we go forward. So we're very committed. We're very enthusiastic, and we feel very pleased from what we've seen over the first 6 months. And we're very enthusiastic about the year to come.

So just adding to that from a financial standpoint. We will be providing 2022 earnings guidance when we report Q4 and full year in mid-February. So while that's a few weeks away, we're hoping to use today to maybe do a little -- sort of set expectations for the major drivers we see in the business as we go from '21 into '22. I think on the Q3 earnings call and certainly since then, the topic we've been asked most about is margins. I think you were part of that during the earnings call. And so why don't we start there? As we go from '21 to '22, what do we see in terms of margin? So I'll start with gross margin. And I think there, we're seeing some pretty good stability. Where we might see either pricing pressure or inflationary cost pressures, we think those will be largely offset by favorable product mix as well as productivity on the manufacturing side. So we see good balance within gross margins. From an operating expense perspective, let's sort of wind the clock back a bit. When we launched, Merck spent well over a year purposefully laying out the operating expense structure of the company. And that -- just to dimensionalize that, it was about 10,000 people which was well suited for the 58 countries where we have a direct presence and the 6 manufacturing plants that we have. But when we launched, Chris, we only had about 8,000 of those people in place. We had about 2,000 people to hire and a pretty aggressive timing schedule as to how we would hire and onboard those people. And I think mainly due to the pandemic, we were behind that. So it created some transitional favorability in our numbers. Like when you look at the Q3 numbers we reported, it was our first quarter stand-alone, was almost a 40% adjusted EBITDA margin. And that was largely predicated upon a bit slower onboarding of those employee expenses. But we think really by the time that we get into 2022, we will be much closer to full staffing. And so what you're going to see there is basically the achievement of what we thought we would see back when we spun. From an R&D perspective. When we launched, we were heavy on the D side. And that 5% of revenues that was R&D was basically development, not much in the way of variable costs to support clinical programs. But since we've launched, we've done the acquisition of Alydia Health. We've done the ObsEva collaboration and the acquisition of Forendo. Those all require investment, and so you'll see some of that in the form of increased R&D expense as we're looking to drive future revenue growth. So -- and I think this was in response to your question, Chris. I set up sort of a metaphor of goalpost as people think about margins. On the left goal post, you have the implied Q4 EBITDA margin based on the full year guidance that we gave against 3 quarters of actuals. So you could do that math and you could get to a 33% adjusted EBITDA margin for Q4, which we said was at the time was conservative, and that's still the way we feel. And then the right goalpost, you have our full year guidance of 36% to 38%, let's take the midpoint, say, 37% is your right goalpost. We thought at the time, we still think now, that where 2022 will ultimately settle when we conclude our budget process, we're almost done, is somewhere at about the midpoint of those 2 things, of those 2 goalposts. And so really, what you're looking at when you step back is next year's EBITDA margin should look a lot like this year's full year. But we are upping our R&D expense, so it reflects the reinvestment that we're putting into the company to drive revenue growth beyond 2025. So just wanted to get that out there. We do see stability in the overall margins, but for the reinvestment in R&D. Now all that discussion of margins obviously has to start someplace, and that's revenues. And we've been saying for some time that we think the business on a sustained basis can deliver low to mid-single-digit revenue growth at constant currency. As we're working our way to the end of the budget process, that is what we're seeing in the business at local currencies. Now we've got about 75% of our revenues are ex U.S., and so foreign exchange translation is a relatively consequential decision for us, and the U.S. dollar has been strengthening. So this is -- as we're in the final stages of our budget, we have to figure out what slate of rates we want to base our guidance on. And there are certain decisions we could make on FX where investors would see that low to mid-single-digit revenue growth in our guidance. But there's also scenarios that we're running where that's harder to see just due to the strengthening of the U.S. dollar. And we'll be much more specific when we get to mid-February, when we provide that quantitative guidance. But just wanted to give you a sense, and investors, a sense of where we are likely to land.

Yes. Very, very helpful comments. I think that's obviously have been a big topic of conversation over the last few months here.

Maybe starting first on those financial questions, and we'll dig into the core business. I guess first thing, you mentioned 10,000-person organization fully staffed, you're at about 8,000. Where are we in terms of adding those heads? Should we think about kind of starting 2022, you're pretty close to that 10,000-person number? Or is that going to be still building as the year progresses?

So as of December 31, we had about 2/3 of that number hired, whether they're onboarded or offers accepted. So not too much more to go now.

Okay. Great. And then on the R&D step-up, I totally understand the investments and kind of the R side of R&D needs to be built out. Is 2022 going to be a reasonable level for a normalized R&D spend? Or is this a multiyear process as you continue to bring assets in-house, that we could continue to think about R&D as a percent of sales growing maybe faster than top line for the next several years?

So it will really depend on how fast the pipeline grows and what kind of programs are in it, Chris. So it's a challenging question to answer right about now. We think we're seeing about 2 points -- 2 percentage points of R&D growth year-on-year '22 versus '21. But we'll have to see what '22 brings in terms of what additional -- what additions we make to the pipeline. So it's -- that will be heavily dependent on the mix of what we put into the pipeline.

Okay. Great. And a few more on this. Just wanted to think about offsets in cost. I mean, it seems like there's some infrastructure coming on board, there's R&D ramping. Are there efficiencies that we can think about from an Organon perspective as we look out over time? And as you operate as a stand-alone company, that you can pull expenses out? And what's -- help us frame what that could look like and time lines that we could maybe think about that.

Yes. So there are opportunities for us to streamline the business. That will come in -- really in 2023 once we fully exit the TSAs from Merck. Just to dimensionalize that. When we launched there was a 2-year agreement with Merck that covered some 470 different TSA activities. And we are working those off in a regimented fashion. We're on schedule. There could be efficiencies coming as we replace those various services with our own stand-alone services. That number may be consequential, there are pushes and pulls. There are things that we will be able to do more efficiently than the services provided for Merck, there may be several services where it does cost us more than Merck. But net-net, as Kevin and I look at this, we are looking for the stand-up of the company and the elimination of those TSA services at a discount to what we're currently paying Merck. The second, though, and this one will be heavier weighted, the impact should be larger, is we are launching with a global commercial and manufacturing supply chain infrastructure that can handle more. So whether it's more volume from products that are in our current portfolio or products that we onboard through acquisition, we should be able to do that with just nominal incremental costs. And so there's operating leverage to be had through volume, whether it's organic growth or volume that we acquire. I think that would end up being the more consequential piece. And we should see some passive favorability due to product mix because our women's health business is our -- it's our most profitable business. We don't break out the businesses separately, but our women's health business on a margin basis is our highest-margin business, and it is likely to grow faster than our biosimilars business. And with Established Brands being sort of steady, there will be a margin up opportunity just through mix. And we'll certainly see that, we think, in 2022 versus 2021.

Okay. Great. And maybe just to wrap up this whole discussion. Is it reasonable to think about 2022 as maybe a trough for the company's operating margins? Or is that more like a reasonable -- whatever that range ends up being, is like -- is that a reasonable way to think about the next few years beyond '22?

I think it's really going to depend on 2 things. How fast we can grow revenues and what the composition of the pipeline is that results in potential future R&D expenses. But I don't see the need to increase, let's say, SG&A expenses or those kind of fixed or infrastructure costs that maybe you see a harder path to value creation through growing those kinds of costs. If we're growing R&D costs, it's because we have confidence in clinical programs that will ultimately result in approved products. We feel much better about those kind of spending increases. We'll be working hard to keep our administrative and infrastructure costs under control.

Great. All very helpful. I appreciate that color as we head into the year. So maybe Kevin, a question for you as we think about women's health as one of your big growth drivers. Can you just maybe, as a starting point, frame the type of investments that Organon is looking to make in its portfolio, and how that compares to the way that Merck was investing and thinking about these assets? I'm just trying to -- I'm [ still trying to get ] my hands around like how much of this is there's some really low-hanging fruit because some of these franchises just weren't getting the resources given everything else going on at Merck. So maybe just to start off the conversation, I'd love to hear your perspective there.

Yes. Within Merck, the women's health business was something like 3% of the overall revenue base for Merck. So it really didn't get any type of attention, not from an R&D perspective for sure, and clearly not from an operational sales force perspective, either for commercial perspective. So when we took over this business, especially when we start to think about bifurcating kind of the women's health business into contraception as well as then into fertility. Fertility was completely suboptimized and really kind of a cash cow type of business, although albeit it's very small. And the contraception business, essentially some older oral contraception. And then there is this hidden gem called NEXPLANON, as I mentioned earlier, with patent protection for some time. And that is the business that we see investments in. For example, for the first time that I can ever remember, we had a DTC campaign with a celebrity spokesperson just this last year starting in the summer, and it's really garnered a lot of attention. And secondly, physicians -- or rather, health care providers, whether it's physicians, pharmacists -- or rather, nurses or PAs, they need to be certified on knowing how to insert and remove the rod of NEXPLANON. And we have essentially blown past anything that Merck ever did. In the midst of a pandemic in the third and fourth quarters, we had more of those requests for certifications than we can remember. And so as a result of that, you start to see that the kind of investment in senior management attention given to both NEXPLANON, as well as our fertility business, is starting to see. As I mentioned, we had a very solid fourth quarter for NEXPLANON in the midst of the pandemic. And that is ultimately, I think, a sign, a proof point that this business is very responsive to senior management attention, to focused investments, both in terms of direct commercial investments as well as other things that we can do in order to really drive the business forward. So that didn't happen at Merck, but it clearly is our front and focal point in Organon.

Right. You mentioned NEXPLANON is supposed to get a very good 4Q. I know this is a business that's had some COVID impact as we've gone through the last 1.5 years or 2 years, like however long it's been. Feels like an eternity. Can you just talk a little bit about what you're anticipating, whether it's Delta or now Omicron, is the impact? Is it less than we saw last time around? Or maybe some of these initiatives you're talking about, are those just overwhelming any shorter-term disruptions that the pandemic is causing?

Well, you can get really taken aback by all the infection rates that we currently see today. But thankfully, that's not translating into hospitalizations and death rates. So I truly believe that what's going to happen right now in the U.S. and ultimately what's going to prove to be the case in Europe and the rest of the emerging markets is that people will just continue to start to seek support for things like wellness visits. In spite of the fact that wellness visits were down 20% 2021 versus a pre-pandemic period, we still saw a significant growth on NEXPLANON. So it kind of signals to you that we're kind of decoupling from that headwind of wellness visits being down by the fact that people are actually requesting NEXPLANON. Physicians and health care providers are actually interested in the product because of the fact that you look at unintended pregnancies in the United States, it's been fairly constant at north of 40% for the last decade. And when you look at that 40%, about 40% of those unintended pregnancies were women that were already on contraception. So it kind of tells you that there is a clear need for a very efficacious, effective, convenient, tolerable solution like a NEXPLANON is, which takes about 1 or 2 minutes to insert and is about 98% effective for a 3-year period.

Yes. Very, very interesting. Can you also help me think through the impact for NEXPLANON, of shifting from a 3-year data set to a 5-year data set? It seemed like certainly it affords you a longer exclusivity period. But do we need to think about the sales impact as that rolls out as -- I mean, I guess the question is can you reset the prices as this is a product that can be used for a longer period of time?

Well, Chris, there are a couple of levers. First is the price lever, which we haven't decided on yet. I mean, we're still looking at probably the next few years until we can kind of come to a decision of what needs to be done on that. So there's always that. Secondly, there is -- there are separate segments. Let's say, for example, the family complete segment. Women who essentially have had their families, they've got another 10, 15 years to think about things like not having to worry about contraception. Imagine if you go to a 5-year indication, you only really need to have 1 or 2 implants and you're pretty much covered for a decade. I think that type of thing will start to attract more and more women who start to think about wanting that type of optionality. And so as a result of that, I do think that there will be some, what I would consider, cannibalization of sorts. But we've only got 5% share. So the type of upside in terms of where we can get share from is significant. And that kind of tells you how big this product can be.

Yes, absolutely. The other product or franchise I'm trying to get my hands around. I know you've talked a lot about the fertility opportunity on a global basis. It seems like a lot of areas this is getting more and more attention. So it seems like a category that could be posed -- kind of poised for significant growth. At the same time, it's a pretty small percent of your portfolio today. So just help me frame out, how big can this become? And how relevant can this become for Organon with the investments you're making?

Well, Chris, this business has been a real surprise for us with limited investment, and we started to invest in the business by bringing on experts. We didn't have a marketing group in Merck that actually focused on fertility. It was just left alone. So we brought in some real high-powered people that come in and really take over the marketing efforts, global marketing efforts there. We've stood up teams across the world and the sales force in terms of making relationships with some of these IVF clinics. We've started to invest in promotional and educational materials. We're looking at business development opportunities in the space for the very fact that there are some tailwinds that we see in the space. First of all, there's only really 3 companies that represent about 80% or 85% of the overall fertility market globally today, and we're one of them. And essentially, that reinvestment has really started to stimulate the business, and we see double-digit growth in 2021, and we see robust growth going forward. And you said it. I mean, Japan has decided to invest in reimbursement for IVF therapies for couples in this year. China is going to a 3-child policy. Let's see what -- how that plays out. Europe and parts of Europe are starting to reimburse for certain different new populations that want to have access to IVF therapy. The donor market, egg freezing market, is expanding in the U.S. These are all signals to us that this is a business worth investing in for long-term growth prospects.

And when you think about the portfolio you have today, do you feel you've got enough breadth in the portfolio? Or is this an area we should be thinking about business development being a priority?

Well, we do have the breadth of the portfolio. We do have a nice mix of products. We also have a long-acting follicular stimulating hormone in ELONVA that we're working to bring onto the market, in 2 key markets, in the U.S. and China. But there are opportunities in BD, both in terms of therapeutics as well as potentially in the device world as well. And we've waded into the device space with our Alydia acquisition. So yes, we're obviously looking at the BD landscape as well, and we've got ongoing discussions as we speak.

Great. I know in your opening remarks, you talked about BD, kind of rounding out BD and maybe things being a little more focused to near-to-market or on-market. Is that true as well in women's health? Or was that the comment about the broader portfolio? So trying to get a sense of it seems like there's some interesting deals this year, but things that were maybe a little harder for The Street to get their hands around today, how these impact Organon over time. And I'm just wondering is, when we think about '22 and beyond, can we think about women's health being an area that there could be some near-term kind of either launches or revenue-generating potential for externally sourced assets?

Short answer is yes. So we're definitely working right now as we speak on very near-term deals that ultimately go -- range from kind of commercial tie-ins all the way to late-stage assets. So look for us to do more in the space, things that you can kind of plug into your models that are more near term. But we're very excited also about the Forendo deal. I mean, listen, I mean, 6219, which is this new mechanism of action to treat endometriosis. We'll be reporting out Phase II probably in the 2024 time frame. That's going to be really an exciting asset going forward and could be transformative for this company. But nevertheless, we're going to be doing more near-term asset deals as well as in biosimilars. You'll see us to do more and more deals in biosimilars as we've got ongoing discussions with potential developers in the space, both in the immunology area as well as oncology areas that we know as well as other areas that we're interested in pursuing.

okay, great. And that's maybe a great transition over to that other kind of growth driver in the business with biosimilars. You've obviously got a nice collection of assets today, elaborate a little bit more on how you think about expanding that portfolio. I guess is the focus near-term launches here as well? Or given Humira coming, et cetera, biosimilar Humira coming, is this more about kind of reloading that pipeline as we look out to maybe like '24, '25, '26, as you think about the external BD.

Well, Chris, clearly, Humira -- or HADLIMA, our Humira biosimilar, all eyes are focused on that. We're fully dedicated and committed to that with our partnership with Samsung Bioepis. That's going to be the largest LOE event in the history of the pharma market in the U.S. And so clearly, there's a lot of competitive pressure on that space, but we're very fortunate to have a citrate-free, high-dose form and coming to market in the first tranche, probably second or third to market, somewhere in that vicinity in the second half of next year. We're working as well with our partners to bring forward an interchangeability indication -- or rather -- indication as well. So no product is going to be launched on the market with a high-dose, citrate-free form that will have interchangeability at launch. But all of us are kind of working to essentially add that in. The table stakes are really the citrate-free, high-dose and then of course an innovative application -- applicator device as well. So that's first and foremost. But having said that, there are a number of interesting assets in the not long term, I would call it more of the near to medium term, that are coming off patent. You can, of course, know what -- you can guess what they are in both immunology and oncology that we're very interested in pursuing. We've got ongoing discussions today. And of course, as you start to look forward, I mean, there's a lot coming off the coming off patent in the immuno-oncology space in the 2028 time frame as well. So that ultimately -- I mean, there's plenty there. And we've been at this for 8 years now. We know the go-to-market, we know the market. We know, we understand how to manage the PBMs and we understand how to launch products as a good partner.

Excellent. And I know this is probably varying going to be varying by product, but how are you envisioning kind of the longer-term sales curves playing out for biosimilars? So are these products that take a few years to establish and then are kind of stable businesses? Are these things that kind of roll over quickly over time? Just as you're looking at like building a portfolio of these, just a little bit about how -- what does the tail look like, I guess, on a typical biosimilar launch in your view?

Yes. So there's an axis of kind of geography and there's an axis of the product itself. And so when I look geographically, Europe, it doesn't matter whether it's a pharmacy-dispensed product or hospital product. The price erosion is pretty quick, pretty dramatic, because Europe has been dealing with biosimilarity for probably the last decade and is very comfortable with that kind of business model. So we've been dealing with that. We understand how to market in that space. But then the U.S. is the emerging market. There is where you see hospital-dispensed product, like a Remicade, and the RENFLEXIS is what we have as Remicade biosimilar, you see double-digit growth year in and year up for the very purpose of 2 reasons. One, J&J is fighting and trying to retain as much share as possible. You see about 70% erosion in the price year-to-date, but that's been for 4.5 years since they've lost exclusivity. And it's a battle in terms of hospital by hospital. That's why it takes -- it's more of a linear type of growth, and we saw double-digit growth last year as well. So that will continue to be kind of a normal continuing upgrade. But then when you look at Humira, that's a whole different animal because that's the first biosimilar large LOE in the pharmacy-dispensed space. [ PBMs ] are much different than individual hospital groups. They work fast, they're very aggressive. And I believe it's going to be much faster. It's not going to be small molecule-like, but it's not going to be that slow, gradual burn. It will be something in the middle of those two.

Yes. And maybe specifically to that opportunity, the Humira opportunity. What are you anticipating in terms of AbbVie's kind of approach here? They're obviously a pretty aggressive commercial organization. I mean, are you thinking of this a big chunk of this market just gets contracted and sticks with the innovator, and that you're only going after maybe a smaller piece of this? Versus just given the pharmacy-dispensed element, and it is a bigger chunk available to you in this case, so trying to think of how you balance those 2.

It's hard to see it play out, but here's the way I see it. Of course, AbbVie is going to do everything in their power to hold on to a $14 billion mammoth product, but I doubt that they're thinking about the kind of price reductions that are essentially going to be required. And I think PBMs are also going to want optionality. They're not stupid in that respect. They're going to want 2 or 3 products kind of battling it out and seeing where -- or maybe even more, seeing where the price could potentially spiral to. And ultimately, volumes, I think, will increase because you'll see more patients coming in from JAK inhibitors, from potentially Enbrel, from potentially other products. And I think the whole market is going to expand just because of the knowledge of Humira and the product. So I do think that there will be something that happens in the first segment, maybe that's the first 6 months. But then after that, it's going to be a free for all. I do think it's going to be very competitive.

Okay. Very helpful. Maybe last question on this topic. How do you think about, as you look to expand the portfolio, working more with Samsung, expanding that JV versus bringing on additional partners? How do you balance those 2 kind of...

We've got a good relationship with Samsung. It's more than 8 years and going strong. So we're obviously discussion with Samsung, but it's not exclusive beyond what we've already been able to wrap up. So we have ongoing discussions with a number of other developers in the space that want to utilize our global footprint, our experience of more than 8 years in the biosimilar space, our knowledge of the space and our history. I think we're unique in that space. Where many other large companies have end to end, they've got everything from manufacturing all the way to commercialization. We're one of those unique players where if you're a developer that can do essentially the development work and you want a contract manufacturing organization, that's something you can contract with, but then you need somebody to essentially create access, create commercial uptake do the key account management and all the other things that go along with succeeding with one of those launches.

Excellent. Just pivoting here in the last, I guess, 5 or 6 minutes or so. COVID headwinds, I think you had mentioned about a $400 million headwind, if I'm remembering correctly, in 2021. How quickly and what do you think needs to happen for that headwind, I guess, to normalize as we go out to 2022?

Well, I think we've already started to see normalization of it in the Established Brands business. I think it's really the -- where we saw the biggest impact on a single product basis was on NEXPLANON. And with the performance that we've seen in Q4, strong performance, Kevin has already alluded to it, we may, through the other efforts that we've initiated, whether it's DTC, advertising or whether it's very aggressive training of health care professionals on the administration of NEXPLANON, we could be effectively countering the prior correlation of NEXPLANON sales with well visits. And if we're -- if this plays out, if we get more data points on this, then we might be able to say at some point during 2022, that there won't be any COVID impact on NEXPLANON sales because of these other initiatives we've undertaken.

Great. Just coming around to the established product division. China, I know it's been the topic of discussion for a while now. Anything we need to just be watching on the regulatory reform front in that market? Is there any tenders that still could be meaningful for Organon? Or are we -- is some of that headwind kind of in a bit in the rearview mirror at this point, I guess, as we think of that piece of the business?

Well, the first time we spoke, there was about 40% of our business, Established Brands business, had moved over to the retail sector, which is a growth sector for us, growing double digit every year. We've been at this retail business for -- since 2017, where we set up essentially teams. We saw what was coming. GQCE clearly was a signal that something was coming in terms of price maneuvers. And so 50 -- now that went from 40% since we spoke about it 6 months, 8 months ago, all the way now we're exiting 2021 with almost 50% of our business now is in the retail sector. Having said that, about 60% of our business has gone through the volume-based procurement process that's already been kind of thinned out from that. 10% will never because that's our fertility business. That remains about 30%. That 30% is going to get hit in this year and in next year in 2023, a majority of it in 2022. And so as a result of that, we'll still face some headwinds from the public sector, which is the hospital business in 2022. 2023, you'll start to see single-digit growth out of China. 2024, you'll start to see double-digit growth going forward because by that time, about 70 plus-ish percent of our business will be totally through the retail channel sector, which is continuing to grow double digit. And of course, our women's health business continues to grow very nicely in fertility, and we're starting to look at contraception as an area for us as well to expand in China. So it's as we expected, it's as we planned.

Excellent. So we kind of think about this year as maybe the last year of contraction and then we're back to a growth trajectory for that market.

Correct.

The other question I get on China, and I'd just love to have your perspective. Obviously, retail has done extremely well for you. Is there a risk to that channel over time that there's either something the government can do or that, yes, similar to what happened in the hospital market, we could -- just this kind of game of whack-a-mole where you established business, and that the government comes out here on that front? Or is that going to be much harder to do in your view, given those dynamics...

I think -- look, those risks, Chris, always exist, of course. But clear for the government is to manage their budgets and to manage their -- what they're dealing with in terms of what they pay for. That's clearly the hospital sector, the public sector, the volume-based procurement, the URP kind of program coming through. They have not turned their attention nor have they given any indication that they're going to go after the retail sector. Because I think indirectly they really do want choice. They want choice for those people that want to pay out of pocket for named brands, they want to give a channel availability for that to exist, and that's the retail sector over time.

Okay. Excellent. Maybe last question in the last minute or 2 here. Coming back to the capital deployment element and business development. I know when you went public, you talked about this kind of window where we think about maybe smaller deals until you get the company to delever a bit. When you look at the landscape out there, are there bigger things that you would want to do that you're precluded from doing currently? Or as you think about the opportunities, do a lot of these fit into a size and form that you can look at most of them today, and we don't have to necessarily think about delevering being a rate limiter for some of the transactions you could be looking at?

Yes. I can tell you right now, there hasn't been a deal that we've had to set aside because we were worried about our ability to complete it. So I don't feel like we're limited in that way. If there's a deal that comes up, it's strategic, meets our capital -- return on capital hurdles, we will find a way to get it done.

Okay. Excellent. And obviously, the cash flow you're generating gives you more and more flexibility as the year progresses, too. Well, again, I think we're out of time. Kevin and Matt, really appreciate the conversation today. Look forward to continued progress of the company, and thanks for joining us.

Thank you, Chris.

Good seeing you, Chris. Take care.

Thank you, guys. Bye.

Bye.