Organon & Co. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing does not provide a standalone fourth-quarter financial summary. Organon is a global healthcare company focused on women’s health, biosimilars and established brands, selling in more than 140 countries.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $6.263 billion | $6.174 billion | +1% reported; +3% excluding foreign exchange |
| Income before income taxes | $673 million | $1.122 billion | -40% |
| Net income | $1.023 billion | $917 million | +12% |
| Diluted EPS | $3.99 | $3.59 | +11% |
| Cash from operating activities | $799 million | $858 million | -7% |
Approximate gross profit was $3.748 billion, or 59.8% of revenue. Approximate operating income, calculated from reported revenue less cost of sales, SG&A, R&D, acquired IPR&D and restructuring costs, was $1.257 billion, or 20.1% of revenue. These are derived figures, not separately presented measures in the filing.
Revenue by portfolio: Women’s Health $1.702 billion (+2%); Biosimilars $593 million (+23%); Established Brands $3.847 billion (-1%). International revenue was $4.785 billion, approximately 76% of total sales. Notable product movements included growth in Renflexis, Ontruzant, Hadlima, Follistim AQ and Jada, offset by declines in Zetia/Vytorin, Cozaar/Hyzaar, NuvaRing and Diprospan. China’s volume-based procurement program reduced 2023 sales by $95 million year over year.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $693 million; working capital was $1.6 billion, up from $1.4 billion. Current assets were $4.508 billion and current liabilities $2.918 billion.
- Long-term debt was $8.760 billion in principal (reported carrying value $8.760 billion including current debt); the balance sheet shows $8.751 billion long-term, net of current portion, plus $9 million current. Weighted-average borrowing cost was 5.7%; most principal is due in 2028. The company was in compliance with financial covenants and had no revolver balance at year-end.
- Cash from investing activities was a $260 million outflow; capital expenditures were $251 million. Financing activities used $569 million, including a $250 million voluntary term-loan prepayment and $294 million of dividends paid.
- Annual cash dividends were $1.12 per share. The board declared a further quarterly dividend of $0.28 in February 2024, while noting future dividends remain discretionary.
Changes, unusual items and management outlook
- Net income rose despite a 40% decline in pretax income, largely because the company recorded a $476 million tax benefit related to termination of a Swiss tax arrangement, net of a $210 million valuation allowance. The resulting effective tax rate was -52.2%, versus 18.3% in 2022; this is a material non-recurring factor when assessing earnings.
- Expenses increased: cost of sales +10%, SG&A +11%, R&D +12%, restructuring costs $62 million, and interest expense +25% to $527 million. SG&A included an $80 million charge for the Microspherix legal settlement; the case was settled and dismissed in December 2023.
- Management expects continued VBP pressure on established brands over the next several quarters and expects Diprospan sales recovery to continue over the next twelve months. It anticipates higher cash taxes in 2024 and continued capital investment, principally in IT. No quantified company-wide revenue or earnings guidance is provided in the supplied filing text.
- Organon announced a European distribution and promotion agreement for Lilly’s Emgality and Rayvow; the $50 million upfront payment was made in January 2024. The company also plans to separate its supply chain from Merck through planned exits from supply agreements through 2031, with associated transition and investment costs.
Principal risks and contingencies
- Key-product concentration, generic and biosimilar competition, pricing and reimbursement pressure, and China’s procurement and reimbursement policies may constrain revenue and margins. Nexplanon’s key device patents are expected to expire in 2025 outside the U.S. and 2027 in the U.S.; additional U.S. exclusivity is uncertain.
- Debt is substantial relative to cash and the company has restrictive covenants. Contractual obligations include $1.9 billion of potential milestone payments (timing and likelihood uncertain), $1.2 billion of purchase obligations, and $189 million of lease payments.
- The company relies on partners and third parties for biosimilar development and supply, and has sole-source dependencies for some materials and manufacturing. One supplier is a significant gateway for sales in Japan and China.
- Legal matters include product-liability cases relating to Fosamax, Nexplanon/Implanon and Propecia/Proscar, among others. The company says it generally cannot reasonably estimate possible losses for these matters; it has no insurance for most product liabilities. Environmental liabilities accrued were $19 million, with approximately $15 million of remediation expenditures estimated for 2024–2028.
- Other risks include regulatory and product-quality actions, foreign exchange, cybersecurity and data privacy, and ongoing reliance on Merck for certain transitional services and supply arrangements. Management and the auditor reported effective internal control over financial reporting at year-end.
Investor facts to verify
- How much of 2023 earnings and the year-over-year EPS increase is attributable to the Swiss tax benefit, and what is a sustainable tax rate?
- Whether operating cash generation can support debt service, dividends, capital spending and supply-chain separation costs while debt remains about $8.8 billion.
- Trends in VBP-related sales and pricing in China, and the pace of recovery in Diprospan after the manufacturing disruption.
- The trajectory of Nexplanon, including patent and exclusivity outcomes, and the company’s ability to offset generic erosion in mature brands.
- Potential cash exposure from product litigation, the $1.9 billion of contingent milestones, and purchase commitments; confirm timing and likelihood where available.