EX-99.1 5 d56612dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

                    , 2021

Dear Merck Shareholder:

On                     , 2021, the board of directors of Merck & Co., Inc. approved the spin-off of its women’s health, biosimilars and established brands businesses into a new, publicly traded company, Organon & Co. After the spin-off, Merck will continue to aspire to be the premier research-intensive global biopharmaceutical company focused on bringing to market innovations for unmet medical need as the source of long-term value creation for patients and shareholders.

Merck is taking advantage of its position of strength to reshape its portfolio, streamline its business, further increase its focus on innovation and drive even higher sustained growth and profitability. We believe Merck will benefit from an even more intense focus on high-science and innovation as the source of long-term value creation. The spin-off of Organon will also enable Merck to evolve its operating model and achieve operating efficiencies.

As a result of the spin-off, each Merck shareholder will receive            of a share of Organon common stock for every Merck share of common stock held on                     , 2021, the record date for the distribution. You do not need to take any action to receive the common stock of Organon to which you are entitled as a Merck shareholder. The distribution will not affect the number of outstanding shares of Merck common stock or any of your rights as a Merck shareholder.

Please read the attached information statement, which is being provided to all Merck shareholders who hold common stock on                    , 2021. It describes the separation in detail and contains important information about Organon and the upcoming stock transaction.

Sincerely,

Kenneth C. Frazier

Chairman of the Board and Chief Executive Officer

Merck & Co., Inc.


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                    , 2021

Dear Future Organon Shareholder:

I’m pleased to welcome you as a future shareholder of Organon & Co., which will be an independent company after its spin off in 2021 from Merck.

Organon will be founded with our long-term vision in mind: to create a better and healthier every day for every woman around the world. We plan to build on our foundational strengths in reproductive health and assemble an array of health solutions to serve women across their lives. Through our journey, we aim to achieve a differentiated leadership position by delivering what society needs—improving the health of women.

Organon will be a global pharmaceutical company with a portfolio of more than 60 trusted medicines. Our portfolio is comprised of our growing contraception and fertility business including patent-protected Nexplanon (etonogestrel implant), an expanding biosimilars business and is led by a stable franchise of trusted established medicines. Organon’s portfolio of products generate strong cash flows that will support investments in future growth opportunities in women’s health. We will pursue opportunities to partner with innovators looking to commercialize their products by leveraging our scale around the world, with presence in more than 140 markets. Organon will focus on revenue growth using an efficient operating model to improve margins and generate strong cash flow to fund our long-term vision.

Organon will be a new company, but one born out of Merck with its incredible legacy and commitment to integrity and excellence. We are positioned to make a real difference, both in terms of unleashing the full potential of our current portfolio as well as advancing other important health solutions to improve the health of women.

I encourage you to learn more about Organon by reading the attached information statement. We have applied to be listed on the New York Stock Exchange under the symbol “OGN.”

This is a unique opportunity and the time is right to establish a company like Organon. I, on behalf of our people 10,000 strong, are looking forward to building a strong company that benefits you and our other stakeholders.

Sincerely,

Kevin Ali

Chief Executive Officer

Organon & Co.


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED                 , 2021

INFORMATION STATEMENT

Organon & Co.

 

 

This information statement is being furnished in connection with the distribution by Merck to its shareholders of all of the outstanding shares of common stock of Organon & Co., a wholly owned subsidiary of Merck that will hold directly or indirectly the assets and liabilities associated with Merck’s women’s health, biosimilars and established brands businesses. To implement the distribution, Merck will distribute all of the shares of Organon common stock on a pro rata basis to the Merck shareholders in a manner that is intended to be tax-free for U.S. federal income tax purposes.

For each share of Merck common stock held by you as of the close of business on                     , 2021, the record date for the distribution, you will receive             of a share of Organon common stock. You will receive cash in lieu of any fractional shares of Organon common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of Merck common stock in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of Organon common stock in connection with the separation. Shares of Organon common stock are expected to be distributed by Merck to you on                     , 2021. The date of distribution of the Organon common stock is referred to in this information statement as the “distribution date.”

No vote of Merck shareholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send Merck a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of Merck common stock or take any other action to receive your shares of Organon common stock.

There is no current trading market for Organon common stock, although Organon expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and that “regular-way” trading of Organon common stock will begin on the first trading day following the completion of the distribution. Organon intends to apply to have its common stock authorized for listing on the New York Stock Exchange (“NYSE”) under the symbol “OGN.”

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 22.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is                    , 2021.

A Notice of Internet Availability of Information Statement Materials containing instructions for how to access this information statement was first mailed to Merck’s shareholders on or about                    , 2021. This information statement will be mailed to Merck’s shareholders who previously elected to receive a paper copy of Merck’s materials.


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Presentation of Information

 

Questions and Answers about the Separation and Distribution

     1  

Information Statement Summary

     7  

Risk Factors

     22  

Cautionary Statement Concerning Forward-Looking Statements

     41  

Dividend Policy

     43  

Capitalization

     43  

Unaudited Pro Forma Financial Information

     44  

Selected Historical Financial Data

     52  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     54  

Business

     75  

Management

     114  

Executive Compensation

     124  

Certain Relationships and Related Party Transactions

     126  

Security Ownership of Certain Beneficial Owners and Management

     134  

The Separation and Distribution

     135  

Material U.S. Federal Income Tax Consequences

     139  

Description of Certain Indebtedness

     143  

Description of Capital Stock

     144  

Where You Can Find More Information

     148  

Index to Financial Statements

     F-1  

 

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Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Organon assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Organon” and “the company” refer to Organon & Co., a Delaware corporation, and its consolidated subsidiaries as they will exist assuming the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. References to Organon’s historical business and operations refer to the business and operations of Merck’s women’s health, biosimilars and established brands businesses that will be transferred to Organon in connection with the separation and distribution. References in this information statement to “Merck” or “Parent” refer to Merck & Co., Inc., a New Jersey corporation, and its consolidated subsidiaries, giving effect to the distribution, unless the context otherwise requires.

“Distribution” or “distribution” refers to the distribution of all of the shares of Organon common stock owned by Merck to shareholders of Merck as of the record date.

“Separation” or “separation” refers to the separation of the women’s health, biosimilars and established brands businesses from Merck through a distribution of shares of Organon common stock to the Merck shareholders as of the record date.

“Spin-off” or “spin-off” refers to the contribution of property by Merck in one or more transfers to Organon in exchange for Organon stock, cash and the assumption of certain liabilities, together with the distribution.

Trademarks, Trade Names and Service Marks

Organon owns or has rights to use the trademarks, service marks and trade names that it uses in conjunction with the operation of its business. Logos and trademarks referred to in this information statement belong to Organon or are licensed for our use. Solely for convenience, we refer to our trademarks in this information statement without the TM and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this information statement are the property of their respective owners.

Industry, Ranking and Market Data

This information statement contains various historical and projected information concerning our industry, the markets in which we participate and our positions in these markets. Some of this information is from industry publications and other third-party sources, and other information is from our own analysis of data received from these third-party sources, our own internal data, market research that we commission and our public filings. All of this information involves a variety of assumptions, limitations and methodologies and is inherently subject to uncertainties, and therefore you are cautioned not to give undue weight to it.

 

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Questions and Answers about the Separation and Distribution

 

What is Organon and why is Merck separating Organon’s business and distributing Organon’s common stock?

Organon, which is currently a wholly owned subsidiary of Merck, was formed to hold Merck’s women’s health, biosimilars and established brands businesses. The separation of Organon from Merck and the distribution of Organon common stock are intended to provide you with equity investments in two separate, independent public companies that will be able to focus on each of their respective business strategies. Merck and Organon expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the sections entitled “The Separation and Distribution—Background” and “The Separation and Distribution—Reasons for the Separation.”

 

Why am I receiving this document?

Merck is delivering this document to you because you are a holder of shares of Merck common stock. If you are a holder of shares of Merck common stock as of the close of business on                     , 2021, each share of Merck common stock that you held at the close of business on such date will entitle you to receive             of a share of Organon common stock. This document will help you understand how the separation and distribution will affect your investment in Merck and your investment in Organon after the separation.

 

How will the separation of Organon from Merck work?

To accomplish the separation, Merck will distribute all of the outstanding shares of Organon common stock to Merck shareholders on a pro rata basis.

 

Why is the separation of Organon structured as a distribution?

Merck believes that a tax-free distribution for U.S. federal income tax purposes of shares of Organon stock to Merck shareholders is an efficient way to separate its women’s health, biosimilars and established brands businesses in a manner that will create long-term value for Merck, Organon and their respective shareholders.

 

What is the record date for the distribution?

The record date for the distribution will be                     , 2021.

 

When will the distribution occur?

It is expected that all of the shares of Organon common stock will be distributed by Merck on                     , 2021 to holders of shares of Merck common stock at the close of business on                     , 2021, the record date.

 

What do shareholders need to do to participate in the distribution?

Shareholders of Merck as of the record date will not be required to take any action to receive Organon common stock in the distribution, but you are urged to read this entire information statement carefully. No shareholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of Merck common stock or take any other action to receive your shares of Organon common stock. Please do not send in your Merck stock certificates. The distribution will not affect the number of outstanding shares of Merck common stock or any rights of Merck shareholders, although it will affect the market value of each outstanding share of Merck common stock.

 

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How will shares of Organon common stock be issued?

You will receive shares of Organon common stock through the same or substantially similar channels that you currently use to hold or trade shares of Merck common stock, whether through a brokerage account or other channel. Receipt of shares of Organon common stock will be documented for you in substantially the same manner that you typically receive shareholder updates, such as monthly broker statements or other plan statements.

 

  If you own shares of Merck common stock as of the close of business on the record date, including shares owned in certificated form, Merck, with the assistance of Equiniti Trust Company (Organon’s transfer agent and registrar), the settlement and distribution agent, will electronically distribute shares of Organon common stock to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. Your bank or brokerage firm will credit your account for the shares. For any shares of Merck common stock that are held in your Merck dividend reinvestment account as of the close of business on the record date, you will receive shares of Organon common stock in a new Organon dividend reinvestment program account that will be created for you. Organon will not issue any physical stock certificates to any shareholders, even if requested.

 

If I am enrolled in the Merck dividend reinvestment program, will I automatically be enrolled in the Organon dividend reinvestment program?

Yes. If you elected to have your Merck cash dividends applied toward the purchase of additional shares of Merck common stock, the shares of Organon common stock you receive in the distribution will be automatically enrolled in the Organon dividend reinvestment program sponsored by Equiniti Trust Company, unless you notify Equiniti Trust Company Services that you do not want to reinvest Organon cash dividends in additional shares of Organon common stock. For contact information for Equiniti Trust Company, see “Description of Capital Stock—Transfer Agent and Registrar.”

 

How many shares of Organon common stock will I receive in the distribution?

You will receive             of a share of Organon common stock for each share of Merck common stock held as of the close of business on                     , 2021, the record date. Based on approximately             shares of Merck common stock outstanding as of                     , 2021, and assuming a distribution of all of Organon’s common stock and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), Organon expects that a total of approximately             shares of Organon common stock will be distributed to Merck’s shareholders. For additional information on the distribution, see “The Separation and Distribution.”

 

Will Organon issue fractional shares in the distribution?

No. Organon will not issue fractional shares of its common stock in the distribution. Fractional shares that Merck shareholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares and may be subject to tax.

 

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What are the conditions to the distribution?

The distribution is subject to several conditions, including, among others:

 

   

the receipt of opinions from Merck’s tax advisors to the effect that the distribution and certain related transactions will qualify as tax-free to Merck and its shareholders under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the “Code”);

 

   

the making of a distribution of approximately $         billion from Organon to Merck, and the determination by Merck in its sole discretion that following the separation Merck will have no further liability or obligation whatsoever with respect to any of the financing arrangements that Organon will be entering into in connection with the separation;

 

   

the receipt of an opinion from an independent appraisal firm to the Merck Board of Directors confirming the solvency of Merck giving effect to the distribution of Organon and confirming the solvency of Organon giving effect to the cash dividend that is in form and substance acceptable to Merck in its sole discretion;

 

   

the U.S. Securities and Exchange Commission (the “SEC”) declaring effective Organon’s registration statement on Form 10 of which this information statement forms a part, and the making available of the information statement to all holders of shares of Merck common stock as of the close of business on                     , 2021, the record date;

 

   

no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect;

 

   

the shares of Organon common stock to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution; and

 

   

no other event or development existing or having occurred that, in the judgment of Merck’s Board of Directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions.

 

  Merck and Organon cannot assure you that any or all of these conditions will be met. In addition, Merck will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date and the distribution date and the distribution ratio. Merck does not intend to notify its shareholders of any modifications to the terms of the separation that, in the judgment of its Board of Directors, are not material. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”

 

What is the expected date of completion of the distribution?

The completion and timing of the distribution are dependent upon a number of conditions. It is expected that the shares of Organon

 

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common stock will be distributed by Merck on                     , 2021 to the holders of shares of Merck common stock at the close of business on the record date. However, we cannot assure you as to the timing of the distribution or that all conditions to the distribution will be met.

 

Can Merck decide to cancel the distribution of Organon common stock even if all the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. See the section entitled “The Separation and Distribution—Conditions to the Distribution.” Until the distribution has occurred, Merck has the right to terminate the distribution, even if all of the conditions are satisfied.

 

What if I want to sell my Merck common stock or my Organon common stock?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

 

What is “regular-way” and “ex-dividend” trading of Merck stock?

Beginning on or shortly before the record date and continuing until the time of the distribution, it is expected that there will be two markets in shares of Merck common stock: a “regular-way” market and an “ex-dividend” market. Shares of Merck common stock that trade in the “regular-way” market will trade with an entitlement by the purchaser of such shares to shares of Organon common stock distributed pursuant to the distribution. Shares that trade in the “ex-dividend” market will trade without an entitlement by the purchaser of such shares to shares of Organon common stock distributed pursuant to the distribution.

 

  If you decide to sell any shares of Merck common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of Merck common stock with or without your right to receive Organon common stock pursuant to the distribution.

 

Where will I be able to trade shares of Organon common stock?

Organon intends to apply to list its common stock on the NYSE under the symbol “OGN.” Organon anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date and will continue until the time of the distribution and that “regular-way” trading in Organon common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell shares of Organon common stock until the time of the distribution, but your transaction will not settle until after the distribution. Organon cannot predict the trading prices for its common stock before, on or after the distribution date.

 

What will happen to the listing of shares of Merck common stock?

Shares of Merck common stock will continue to trade on the NYSE after the distribution.

 

Will the number of shares of Merck common stock that I own change as a result of the distribution?

No. The number of shares of Merck common stock that you own will not change as a result of the distribution.

 

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Will the distribution affect the market price of my Merck common stock?

Yes. As a result of the distribution, Merck expects the trading price of shares of Merck common stock immediately following the distribution to be different than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of Organon. The combined trading prices of one share of Merck common stock and one share of Organon common stock after the distribution may be equal to, greater than or less than the trading price of one share of Merck common stock before the distribution.

 

What are the material U.S. federal income tax consequences of the contribution and the distribution?

Assuming that the spin-off qualifies as a tax-free transaction under Sections 355 and 368 of the Code, Merck shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes solely as a result of the spin-off, except to the extent of any cash received in lieu of fractional shares. With respect to such cash received in lieu of a fractional share, however, you will recognize gain or loss for U.S. federal income tax purposes. For more information regarding the potential U.S. federal income tax consequences to Merck and to you of the separation and the distribution, see the section entitled “Material U.S. Federal Income Tax Consequences.”

 

How will I determine my tax basis in the shares of Organon common stock I receive in the distribution?

For U.S. federal income tax purposes, your aggregate basis in the common stock that you hold in Merck and the new Organon common stock received in the distribution (including any fractional share interest in Organon common stock for which cash is received) will equal the aggregate basis in the shares of Merck common stock held by you immediately before the distribution, allocated between your shares of Merck common stock and the Organon common stock (including any fractional share interest in Organon common stock for which cash is received) you receive in the distribution in proportion to the relative fair market value of each on the distribution date.

 

  You should consult your tax advisor about the particular consequences of the distribution to you, including the application of the tax basis allocation rules and the application of state, local and foreign tax laws.

 

What will Organon’s relationship be with Merck following the distribution?

Organon will enter into a separation and distribution agreement with Merck to effect the separation and provide a framework for Organon’s relationship with Merck after the distribution. Organon and Merck will also enter into certain other agreements, including one or more transition services agreements, manufacturing and supply agreements, trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements. These agreements will provide for the separation between Merck and Organon of the assets, employees, liabilities and obligations (including investments, property, employee benefits and tax-related assets and liabilities) of Merck attributable to periods prior to, at and after the distribution. These agreements will also govern the relationship between Merck and Organon subsequent to the

 

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completion of the distribution. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”

 

Who will manage Organon after the distribution?

Organon benefits from having in place a management team with an extensive background in the women’s health, biosimilars and established brands businesses. Led by Kevin Ali, who will be Organon’s Chief Executive Officer after the distribution, Organon’s management team possesses deep knowledge of, and extensive experience in, its industry. For more information regarding Organon’s management team and leadership structure, see “Management.”

 

Are there risks associated with owning Organon common stock?

Yes. Ownership of Organon common stock is subject to both general and specific risks related to Organon’s business, the industry in which it operates, its ongoing relationships with Merck and its status as a separate, publicly traded company. Ownership of Organon common stock is also subject to risks related to the separation and distribution. These risks are described in the “Risk Factors” section of this information statement. You are encouraged to read that section carefully.

 

Does Organon plan to pay dividends?

Prior to completion of the distribution, the Board of Directors of Organon will adopt a policy with respect to the payment of dividends on Organon common stock following the distribution. Organon currently expects that it will initially pay regular cash dividends, however, the declaration and payment of any dividends in the future by Organon will be subject to the sole discretion of its board of directors and will depend upon many factors. See “Dividend Policy.”

 

Who will be the distribution agent, transfer agent and registrar for the Organon common stock?

The distribution agent, transfer agent and registrar for the Organon common stock will be Equiniti Trust Company. For questions relating to the transfer or mechanics of the stock distribution, you should contact:

 

  Equiniti Trust Company

1110 Centre Pointe Curve

Suite 101

Mendota Heights, MN 55120 USA

800-522-9114

 

How can I contact Merck or Organon with any questions?

Before the distribution, if you have any questions relating to Merck’s business performance, you should contact:

 

  Merck Investor Relations

investor_relations@merck.com

908-740-1468

After the distribution, Organon shareholders who have any questions relating to Organon’s business performance should contact:

 

  Organon Investor Relations

investor_relations@organon.com

551-430-6000

 

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Information Statement Summary

The following is a summary of information discussed in this information statement. This summary may not contain all the details concerning the separation or other information that may be important to you. To better understand the separation and distribution and Organon’s business and financial condition, you should carefully review this entire information statement. Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of all the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Organon,” “the company,” “we,” “us” and “our” refer to Organon & Co. and its consolidated subsidiaries as they will exist assuming the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. References in this information statement to “Merck” refer to Merck & Co., Inc., a New Jersey corporation, and its consolidated subsidiaries, giving effect to the distribution, unless the context otherwise requires.

This information statement describes the businesses to be transferred to Organon by Merck in the separation as if the transferred businesses were Organon’s businesses for all historical periods described. References in this information statement to Organon’s historical assets, liabilities, products, businesses or activities of Organon’s business are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the transferred businesses as the businesses were conducted as part of Merck and its subsidiaries prior to the separation.

Company Overview

Organon is a science-based global pharmaceutical company that develops and delivers innovative health solutions through a portfolio of prescription therapies within women’s health, biosimilars and established brands. No other large global pharmaceutical company has women’s health as its primary therapeutic area of focus. Our women’s health portfolio has historically delivered strong revenues, underpinned by our contraceptives products, which include Nexplanon / Implanon NXT, our patented long-acting reversible contraceptive, with its sales growing at an 11% CAGR between 2010 and 2020. Our biosimilars portfolio has delivered more than $650 million in sales since 2017, and we expect growth will be fueled by planned launches in the United States and Europe. Finally, our established brands portfolio continues to generate strong operating profit across many markets, including the United States, China, Japan, Korea and countries in Europe, despite loss of market exclusivity across a majority of brands. For many of our products, the impacts of loss of patent exclusivity events in the United States and Europe have passed, and, as a result, combined with enhanced management focus, an established supply chain and targeted resourcing, we believe that our portfolio will continue to deliver strong, reliable operating profit at low promotional and development expense requirements. See “Business—Products” for more information on loss of patent exclusivity for our key products.

Our mission is to be the world’s leading women’s health company and deliver a better and healthier every day for every woman. We plan to build on our strengths in reproductive health to assemble an array of health solutions to serve women from adolescence to menopause and beyond. We are focused on generating strong and growing cash flow by selectively investing in development and inorganic opportunities to drive innovation and future growth across our core areas. Our portfolio of diverse and branded products is supported by commercialization and market access, regulatory affairs, manufacturing and clinical development expertise globally. Our global footprint lends scale to our business by enabling management to identify and focus on unique market opportunities across our broad portfolio.

Our women’s health, biosimilars and established brands portfolios, together with the expertise and experience of our employees, enable us to pursue an exciting innovation agenda, carving out a unique position in the health care sector. Our product portfolio is unified by a central focus on patient needs addressed by our



 

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therapies, a commitment to driving organic and inorganic growth, a heritage of successful commercialization and clinical development, and a disciplined approach to cost and operational efficiency. We believe our women’s health portfolio, in combination with our biosimilars and established brands portfolios, will enable us to deliver value to patients and the health care system while creating value for our shareholders. We also believe our geographic scale, long heritage and sustained successes within women’s health will enable us to become the commercialization and distribution partner of choice for smaller women’s health companies. Our global commercial capabilities and market access, established relationships with health care providers, patients and payors and clinical expertise support our long-term strategy to launch therapies and recognize development opportunities within and beyond our existing portfolios.

Our business strategy is focused on advancing our mission to be the world’s leading women’s health company, pursuing growth in biosimilars and maximizing opportunities from our established brands portfolio. In particular:

 

   

We believe there is significant growth potential in women’s health broadly. In addition to our ten marketed products, we intend to focus our growth efforts in two areas, on needs and conditions that uniquely impact women, generally referred to as the core women’s health market, and on needs and conditions that disproportionately impact women. We estimate that the combined global market for pharmaceuticals in the core women’s health market, which includes therapeutic areas such as contraception and fertility, endometriosis and uterine fibroids, was $33 billion in 2020. We project that the core women’s health market will grow to $40 billion by 2026. In addition, we estimate that the segment of therapeutic areas that disproportionately impact women, such as osteoporosis, lupus, urinary tract infections, migraines and celiac disease, will grow annually at an approximately 10% CAGR from 2020 to 2026, adding a further $21 billion to the core women’s health market size estimates.

 

   

Our existing biosimilars portfolio positions us for success in this attractive and fast growing area of health care. We estimate the total size of the global market for biosimilars was approximately $17.3 billion as of September 2020, reflecting 60 biosimilars approved in the European Union (“EU”) and 29 approved in the United States. Industry publications estimate that 54 major biologics, with an aggregate market value of approximately $220 billion, will lose patent protection in the next decade, which has potential to expand the biosimilars global market to over $30 billion in the next decade or so. We do not have biosimilars corresponding to all biologics that will lose patent protection in the next decade. All five biosimilars in our portfolio have launched in certain countries globally, including two biosimilars in the United States. We intend to expand our biosimilars portfolio through commercialization of additional products and expanded marketing of existing products. We believe our size, capabilities and experience position us competitively in this area.

 

   

Our established brands portfolio consists of 49 products covering cardiovascular, respiratory, dermatology and non-opioid pain management. A number of our established brands that face generic competition still contribute meaningful profitability. We intend to stimulate the performance of our established brands products through renewed focus and attention on strategic marketing to create a significant source of capital to fuel the company’s growth aspirations. We believe our established brands products will, over time, continue to deliver meaningful revenue and operating profit that can be redirected into organic and inorganic growth opportunities in key product areas and geographies. Our established brands portfolio is supported by our large commercial and manufacturing capabilities, including a global network that enables us to distribute products to patients in more than 140 countries and territories.



 

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Key Products

 

Women’s Health   Biosimilars   Established Brands
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
   

LOGO

LOGO

In 2020, the Organon Products segment recorded revenue of $6.5 billion and generated $2.3 billion of net income. We expect to be well positioned for low to mid-single digit annual revenue growth off of a 2021 base year. We operate on a global scale and our global network enables us to distribute products to patients in more than 140 countries and territories around the world, with approximately 80% of 2020 Organon Products segment revenue, or $5.1 billion, generated outside the United States. Upon the separation, we will have approximately 9,950 employees worldwide, with approximately 4,030 employees focusing on sales, marketing and key commercialization activities and approximately 730 employees focusing on clinical development, safety, and medical affairs and product registration. Additionally, we expect to operate six manufacturing sites globally and have approximately 3,020 manufacturing employees.

Our operations are principally managed on a products basis and include two operating segments, the Organon Products segment and the Merck Retained Products segment. We consider the Organon Products segment to be our only business going forward, and, as such, all discussion and financial information presented in this section relates only to the Organon Products segment.

Upon separation, Merck will retain operations of the Merck Retained Products segment, and we will no longer present financial information related to this segment in our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Organon is a Delaware corporation incorporated on March 11, 2020. Our corporate offices are located at 30 Hudson Street, Jersey City, New Jersey 07302.



 

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Strengths

We have a number of advantages that distinguish us from our competitors and support our strategy:

 

   

Leading portfolio of health solutions for women. We intend to be the world’s leading women’s health company, with a long history of innovative, first-to-market contraceptive products. We have a broad offering of contraception and fertility brands that we believe have long-term growth potential, and we are one of only two global contraception manufacturers operating in the highly fragmented contraception market. Our portfolio of ten products includes Nexplanon / Implanon NXT, globally one of the highest revenue-generating long-acting reversible contraceptives, or LARC, a class of contraceptives recognized as the most effective method of hormonal contraception available to patients with a lower long-term average cost. Our management team has the development and commercial expertise to drive innovation in therapeutics and drug-device combinations across the women’s health landscape through opportunities related to our existing portfolio and by externally sourcing therapies through in-licensing, acquisition and other business development transactions with innovators seeking to benefit from our global commercial presence in women’s health.

 

   

Growing position in biosimilars. We have a growing position in biosimilars. We have strong, global commercialization capabilities, with a portfolio spanning oncology and immunology treatments, two areas primed for significant growth in biosimilars. We plan to continue evaluating opportunities in other potential therapeutic areas, including ophthalmology, diabetes and neuroscience. Our oncology biosimilars have been launched in 20 countries and our immunology biosimilars have been launched in five countries. All five biosimilars in our portfolio have launched in certain countries globally, including two biosimilars in the United States. We expect that our biosimilars business will continue to generate growth in the near term.

 

   

Market Leading Established Brands. In established brands, we have a broad and robust portfolio of mature brands generally beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management. Our established brands portfolio generates strong operating profit, which we anticipate will continue to fund our future growth. We have proven development, regulatory, manufacturing and commercial capabilities, which we believe will support growth in targeted existing geographies, new geographies, and through new indications and line extensions.

 

   

Broad and fit-for-purpose capabilities. We have enterprise capabilities delivered by seasoned leaders in global commercialization and market access, regulatory affairs, manufacturing and clinical development. In particular, our capabilities include:

 

   

Global commercialization expertise: Our experienced team will execute targeted investment in, and successful commercialization of, organic growth opportunities across our global portfolio. These efforts will be supported by data-driven, science-based decision-making and execution at scale, enabled by data and analytics and by digital engagement of health care providers and patients.

 

   

Development capabilities: We have approximately 730 employees focused on clinical development, safety, medical affairs and product registration. Our employees have deep expertise in these areas that we believe will facilitate generation of robust clinical data capable of enabling rapid global product registration, as well as valuable insights to expand the commercial reach of our portfolio.

 

   

Digital and omni-channel marketing capabilities: We market our products using a digital and omni-channel approach, reaching a broad base of market participants, including health care providers, patients and policy makers and payors in a cost-efficient manner. Our health care



 

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provider, patient and payor-focused relationship management is facilitated by an integrated digital ecosystem that coordinates health care provider and patient engagement across many channels, including face-to-face, email, social media, mobile and websites.

 

   

Strategic alliances: We have an extensive track record of managing strategic alliances and creating value through global partnerships to guide investment and growth in inorganic pipeline opportunities. For example, our collaboration with Samsung Bioepis Co., Ltd. (“Samsung Bioepis”) allows us to work together with a biopharmaceutical company that complements our capabilities and strengths.

 

   

Established manufacturing and supply chain: Beyond our commercial capabilities, we expect to have approximately 440 employees operating in supply chain management, which we believe, together with our manufacturing capabilities, will enable us to maintain a high-quality, reliable global supply chain. See “Business—Manufacturing Capabilities and Global Supply Chain.”

 

   

Geographic scale and platform. In 2020, we generated $5.1 billion in sales outside the United States, representing approximately 80% of our total Organon Products segment sales. Our footprint spans the globe with a direct presence in 58 countries and the ability to deliver therapies to patients in more than 140 countries and territories. We plan to initially focus on 14 key markets, which currently generate approximately 75% of our global sales, and we expect our broader geographic reach and manufacturing capabilities to drive long-term growth and expansion opportunities. Specifically, in women’s health and biosimilars, we believe our global footprint will enable us to expand the market for our current products in order to meet the increasing demand for these products. We also believe our geographic scale, long heritage and sustained successes within women’s health will enable us to become the commercialization and distribution partner of choice for smaller women’s health companies. In established brands, where opportunities vary significantly depending on the exact dynamics and characteristics of each country, we believe our geographic scale enables us to capitalize on global opportunities and increase brand share by responding to these dynamics.

 

   

Strong financial profile with significant free cash flow generation and improving operating leverage. In 2020, the Organon Products segment generated approximately $2.3 billion in operating cash flow and spent $255 million on capital expenditures. The Organon Products segment also generated Adjusted EBITDA of $3.1 billion on $6.5 billion of sales, representing an EBITDA margin of approximately 47%. We anticipate we will continue to generate significant cash flow and expect our operating leverage to improve in the future.

 

   

Scientific heritage, expertise and culture of excellence inherited from Merck. Merck’s rich, over-125-year scientific heritage is imbued in our strong scientific principles, innovative development strategies and quality-focused culture. Building on our heritage of regulatory and scientific expertise, we expect to have the capabilities to continue to optimize pathways for clinical development and regulatory approvals. We also expect to have the data generation capabilities required to support patient access, formulary placement and reimbursement.

 

   

Strong, leading and established brand in the area of women’s health. The Organon brand has a long history in the area of women’s health, both with patients and health care providers, and with employees who initially came to Merck through the acquisition of Organon. Our proud heritage in women’s health began with Organon’s launch of one of the first-ever combined hormonal oral contraceptives, Lyndiol, in 1962. This was followed by an impressive series of innovative firsts, including:

 

   

the launch of Marvelon in 1981, the first lower dose (30mcg) estrogen combined oral contraceptive with a selective progestin,

 

   

the launch of Livial in 1987, the first non-estrogen gonadomimetic hormonal replacement treatment,



 

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the launch of Follistim / Puregon (“Follistim”), the first recombinant follicle-stimulating hormone available in the United States for infertility,

 

   

the launch of NuvaRing in 2001, the first once-a-month contraceptive ring, and

 

   

the launch of Nexplanon / Implanon NXT in 2011, the first and only single-rod radiopaque contraceptive implant with preloaded applicator.

 

   

Experienced management team and Board with track record of successful performance. Our executive management team has a strong track record of leadership, performance and execution in the pharmaceutical industry. Together, they bring a diverse set of leadership experience at respected companies both within and beyond the biopharmaceutical industry. Our CEO and a majority of our executive leadership team have been appointed from within Merck where they each established reputations as global leaders. Our management team is supported by a seasoned Board of Directors providing guidance and strategic vision based on a diverse set of backgrounds and experiences. The extensive company and industry experience of our management team as well as our Board of Directors will serve as a source of strength and innovation to guide us into the future.

Strategies

Our strategy is to be the world’s leading women’s health company by leveraging our historical strength in this area and investing in therapies and innovations that support the medical needs of women, to pursue growth in biosimilars and to maximize opportunities from our established brands, all while reinvesting our strong operating cash flow to fund growth initiatives across our portfolio. We believe our portfolio will benefit from the increased investment and attention we can provide as an independent company. Our focus will be to:

 

   

Leverage our existing position in women’s health to become the global leader in this space. No other large global pharmaceutical company has women’s health as its primary therapeutic area of focus. We intend to be the world’s leading women’s health company to address the needs and conditions that uniquely and disproportionately impact women. We plan to achieve this by leveraging our scale, deep experience, geographic reach, strong relationships with payors, health care providers, large clinics and important stakeholder groups such as societies, patients and scientific leaders to grow revenue for our contraception and fertility brands and expand into additional women’s health therapeutic areas, and through strategic acquisitions and collaborations. In 2020, approximately one quarter of our revenue was derived from women’s health products and, over time, we expect to grow this share by:

 

   

expanding the marketing and distribution of our key brands, including Nexplanon / Implanon NXT, Follistim and Elonva,

 

   

investing in manufacturing to expand the supply capacity for Nexplanon / Implanon NXT and our fertility product portfolio,

 

   

focusing our contraception commercial strategy on expanding global access to Nexplanon / Implanon NXT and increasing communication and education about LARC, which we believe will expand the market opportunity for Nexplanon / Implanon NXT,

 

   

focusing our fertility commercial strategy on increasing communication and education about antagonist protocols, which we believe will expand the market opportunity for both Follistim and Elonva,

 

   

applying our long history of women’s health scientific development experience to invest in late lifecycle activities that will broaden the geographic footprint of our women’s health portfolio and further enhance the value of the portfolio, and



 

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tracking scientific innovation globally to source commercialized and development-stage inorganic opportunities across women’s health broadly in order to develop products that target specific unmet medical need in conditions that impact women both uniquely and disproportionately.

 

   

Maximize value from our biosimilars portfolio through increased focus and strategic investment. We believe that the biosimilars market offers potential for value creation for a company with our strengths. In the short term, we are focused on commercializing the five biosimilars sourced from our collaboration with Samsung Bioepis, including the recent EU launch of Aybintio in oncology. In the longer term, we expect to focus on expanding our portfolio through ongoing identification and evaluation of new opportunities in therapeutic areas such as oncology, immunology, ophthalmology, diabetes and neuroscience, both through our Samsung Bioepis collaboration and through other potential collaborations. We believe that our focused approach enables us to further capitalize on the momentum in the biosimilars industry to drive growth through commercialization of additional biosimilars and expansion of our existing products into additional countries. In addition, we believe the biosimilars market will continue to favorably mature through continued policy efforts, both in the United States and globally, that recognize the important role biosimilars can play in alleviating cost pressures for health care systems. In addition, we believe our commercial experience, particularly in the areas of tendering and policy, obtained from our prior biosimilars launches (Renflexis in the United States and Ontruzant in the United States and the EU) provides us a competitive advantage in the market.

 

   

Drive near-term growth through investment in our existing portfolio. We believe that our broad portfolio affords us a range of options to drive future growth by developing products that target specific unmet medical need, including in-licenses, commercial collaborations, partnerships and acquisitions consistent with our focused strategy. For example, our established brands portfolio has a particularly strong foothold in emerging markets where we have a broad base of products enabling us to build targeted additional product offerings and developments. We expect that greater managerial focus to capture local market opportunities, along with targeted investments in expanding our geographic footprint, digital promotion and commercial trade channels, will provide new revenue opportunities for select brands in our established brands portfolio. We also believe there are meaningful opportunities to be realized through further investment in, and lifecycle management of, our current products across our portfolios.

 

   

Drive long-term growth through investment in inorganic opportunities. To drive longer-term growth, we intend to expand our scientific capabilities in targeted therapeutic areas through investment in inorganic opportunities and acquisitions in order to further augment our existing product businesses. We believe these investments will help us build a development pipeline that will drive our future revenues.

 

   

Enhance our digital and omni-channel marketing capabilities to drive growth. Our commercial strategy focuses on growing our product portfolio by increasing productivity across our sales force and leveraging digital channels, data and analytics to improve the return on investment in health care provider and patient engagement. We plan to continually expand our digital and omni-channel capabilities to optimize sales opportunities for our products and to further invest in digital engagement models that allow us to reach our customers and patients effectively. We also plan to further strengthen the design and execution of personalized omni-channel campaigns, engaging health care providers and patients through the most cost-effective channels and building upon existing strengths, such as our sophisticated capabilities to successfully target women and maximize our promotional response, which we achieved through nearly 10 years of executing and analyzing women’s health consumer campaigns in the United States.

 

   

Drive efficiency to improve operating leverage and cash flow. As an independent company, we intend to focus on delivering operating efficiencies. We have identified a number of key areas in which we plan to generate cost efficiencies by simplifying our operating model, standardizing and centralizing



 

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service activities and designing and enhancing our commercial model and supply chain functions. We also plan to leverage external providers where there is a cost and service advantage. In addition, we are in the process of implementing systems and process improvements to reduce general and administrative costs, and simplify our infrastructure following the termination of our transition services agreement with Merck. We believe the combination of these efficiencies will allow us to drive growth in free cash flow.

 

   

Deploy our free cash flow to invest in our existing product portfolio, fund inorganic opportunities and return capital to our shareholders. We are committed to the success of our existing product portfolio and plan to make commercial decisions that will allow us to maximize its value. In addition, we plan to invest in inorganic growth opportunities such as in-licenses, commercial collaborations and acquisitions of development-stage or in-market products. We also plan to acquire products that fit within our existing commercial infrastructure, which we believe will generate attractive risk-adjusted returns on investment. There are inorganic growth opportunities, particularly in women’s health and biosimilars, that we plan to target. We believe that our global commercial and market access capabilities, regulatory affairs, specialized manufacturing and clinical development expertise, will enable us to evaluate and integrate external opportunities. In addition, we plan to pay a dividend to our shareholders, pay down debt consistent with our financial policy and, to the extent that we generate excess free cash flow, we will consider returning additional free cash flow to our shareholders via share repurchases.

 

   

Capitalize on our status as a newly independent company to align our talented employee base with our performance expectations and drive a culture of high performance. Our strong heritage of excellence and scientific foundation enables us to approach complex problems with innovative science-based solutions. As a new, independent company, we have a rare opportunity to forge a distinct identity and align hiring, training, development and incentive activities around a clear set of performance expectations related to our core strategy. To establish this culture, we plan to draw upon key aspects of our shared history with Merck while charting a new course. We expect to be a performance-focused and entrepreneurial company with simplified organizational layers and governance, and a focus on alignment and leadership empowerment that enables our leaders to understand and address the evolving and unmet medical need of patients and health care providers around the world.

Summary of Risks Related to Organon’s Business and the Separation

An investment in Organon common stock is subject to a number of risks, including risks related to the separation and distribution. The following list of risk factors is not exhaustive. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Related to Organon’s Business

 

   

We have no history operating as an independent company, and we expect to incur increased administrative and other costs following the separation by virtue of our status as an independent public company. Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Merck. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future, primarily as a result of the following factors: developing an independent ability to operate without access to Merck’s existing



 

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operational and administrative infrastructure, loss of ability to utilize Merck’s size and purchasing power in procuring various goods and services on favorable terms, potential need to obtain additional financing, increased cost of capital for our business and issuance of any debt we expect to incur as part of the separation. Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from Merck.

 

   

Key products generate a significant amount of our profits and cash flows, and any events that adversely affect the markets for our leading products could adversely affect our results of operations and financial condition. Our ability to generate profits and operating cash flow depends largely upon the continued profitability of our key products, such as Nexplanon / Implanon NXT, Cozaar/Hyzaar, Zetia, Singulair and Atozet. As a result of our dependence on key products, any event that adversely affects any of these products or the markets for any of these products could adversely affect our sales, results of operations and cash flows. These adverse events could include increased costs associated with manufacturing, product shortages, increased generic or over-the-counter availability of our products or competitive products, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of these products for any reason. We also expect that competition will continue to adversely affect the sales of these products.

 

   

We face continued pricing pressure with respect to our products. In the United States, we experience and expect to continue experiencing significant pricing pressure from: managed care groups, institutional and governmental purchasers, U.S. federal laws and regulations related to Medicare and Medicaid (including the Medicare Prescription Drug Improvement and Modernization Act of 2003), the Affordable Care Act (the “ACA”) and state activities aimed at regulating prices and increasing price transparency. Outside the United States, numerous major markets have pervasive government involvement in health care funding and, in that regard, extensive pricing and reimbursement mechanisms and processes for pharmaceutical products, which in turn means that we are subject to government decision-making and budgetary actions with respect to our products.

 

   

We face intense competition from competitors’ products. Our products face intense competition from competitors’ products, including lower cost generic versions of our products that have lost market exclusivity, which may be equally safe and as effective as our products but sold at a substantially lower price than our products. Alternatively, our competitors’ products may be safer or more effective, more convenient to use, have better insurance coverage or reimbursement levels or be more effectively marketed and sold than our products. Our efforts to compete with other companies or our failure to maintain our competitive position could adversely affect our business, cash flow, results of operations, financial condition and prospects.

 

   

We expect to have limited in-house research and development capabilities and will rely on future acquisitions, partnerships and collaborations to expand our research and development capabilities, which means we may not be able to develop new products or expand our existing products into new markets to replace the sales of products that lose patent protection, and therefore we may not be able to maintain our current levels of profitability. Upon our separation from Merck, we will have limited in-house research and development staff and facilities, and we do not currently intend to hire or acquire such staff or facilities immediately after the separation and instead, we intend to rely on future acquisitions, partnerships and collaborations with third parties to expand our existing portfolio and research capabilities. In addition, we rely on our collaboration with Samsung Bioepis for the successful development and manufacture of our biosimilars products and expect to do so for the foreseeable future. We also intend to grow our product portfolio of prescription therapies by acquiring products developed by third parties. If our expansion into new products, new indications or formulations of our existing products or expansion of existing products into new markets or new geographies does not offset the sales lost through loss of patent exclusivity, then we may not be able to



 

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maintain our current levels of profitability, and this could adversely affect our business, cash flow, results of operations, financial condition and prospects.

 

   

We may experience difficulties identifying and effecting acquisition opportunities. In identifying, evaluating and selecting acquisition targets, we may encounter intense competition from other companies that have similar business objectives, extensive experience, and greater resources. We may not be successful in implementing our acquisition strategy and fail to achieve growth and value creation. In addition, certain provisions of the tax matters agreement may discourage, delay or prevent acquisition proposals or otherwise limit our ability to pursue certain strategic transactions or engage in other specified transactions for a period of time.

 

   

After the distribution, we expect to have significant indebtedness. We expect to have total indebtedness of approximately $9.5 billion, consisting of term loans and 144A senior notes with such aggregate principal amount. Approximately $         of such amount will be incurred to pay a distribution to Merck, with the remaining net proceeds intended to be used for general corporate purposes. Such indebtedness and any future indebtedness we may incur could restrict our ability to pay dividends and adversely affect our financing options and liquidity position.

 

   

We may be unable to market our products if we do not obtain and maintain required regulatory approvals. Our activities, including the manufacturing and marketing of our products, are subject to extensive regulation by numerous federal and state governmental authorities in the United States and by foreign regulatory authorities, including in the EU, China and Japan. Our failure to obtain approval, significant delays in the approval process or our failure to maintain approval in any jurisdiction will prevent us from marketing and selling the products in that jurisdiction. We would not be able to realize revenues for our products in any jurisdiction where we do not have approval.

 

   

Developments following regulatory approval may adversely affect sales of our products. Even after a product reaches the market, certain developments may decrease demand for our products, including results in post-approval Phase 4 trials or other studies, the re-review of products that are already marketed, the recall or loss of marketing approval of products that are already marketed, changing government standards or public expectations regarding safety, efficacy, quality or labeling changes and scrutiny of advertising and promotion. Further, we are at risk for product liability and consumer protection claims and civil and criminal governmental actions related to our products, research and marketing activities. In addition, dissemination of promotional materials through evolving digital channels serves to increase visibility and scrutiny in the marketplace.

 

   

The health care industry in the United States has been, and will continue to be, subject to increasing regulation and political action. We believe that the health care industry will continue to be subject to increasing regulation and political and legal action at both the Federal and state levels. Recent health care reform legislation, such as the ACA, have resulted in requirements such as a point of service discount and an annual non-tax deductible health care reform fee. In addition, there are currently several proposed draft rules or legislation that may have a material adverse effect on our business, results of operations and financial condition.

The Separation and Distribution

On February 5, 2020, Merck announced that it intended to spin-off its women’s health, biosimilars and established brands businesses and create a standalone pharmaceutical company. Merck announced that it intended to effect the spin-off through a pro rata distribution of all of the common stock of a new entity, which has since been named Organon and holds the assets and liabilities associated with the women’s health, biosimilars and established brands businesses.



 

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On                    , 2021, the Merck Board of Directors approved the distribution of all of Organon’s issued and outstanding shares of common stock on the basis of                 a share of Organon common stock for each share of Merck common stock held as of the close of business on                    , 2021, the record date.

On                    , 2021, the distribution date, each Merck shareholder will receive            of a share of Organon’s common stock for each share of Merck common stock held at the close of business on the record date. Merck shareholders will receive cash in lieu of any fractional shares of Organon common stock that they would have received after application of this ratio. Shareholders will not be required to make any payment, or surrender or exchange their shares of Merck common stock or take any other action to receive their shares of Organon’s common stock in the distribution. The distribution of Organon’s common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see the section entitled “—Conditions to the Distribution.”

Organon’s Post-Distribution Relationship with Merck

Organon will enter into a separation and distribution agreement with Merck, which is referred to in this information statement as the “separation agreement” or the “separation and distribution agreement.” In connection with the separation, Organon will enter into various other agreements to effect the separation and provide a framework for its relationship with Merck after the distribution, including one or more transition services agreements, manufacturing and supply agreements, trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements. These agreements will provide for the allocation between Merck and Organon of Merck’s assets, employees, liabilities and obligations (including investments, property, employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Organon’s separation from Merck. These agreements will also govern certain relationships between Merck and Organon after the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”

Reasons for the Separation

The Merck Board of Directors believes that separating the women’s health, biosimilars and established brands businesses from the remainder of Merck is in the best interests of Merck and its shareholders for a number of reasons, including that the spin-off will:

 

   

give each of Organon and Merck its own dedicated management team, focused on its unique business opportunities and capital needs, thereby allowing each business to pursue more effectively its own distinct operating priorities and strategies;

 

   

give each of Organon and Merck its own source of capital dedicated to its own investment priorities, and allow each of Organon and Merck to implement a capital structure appropriate for its respective cash flow and growth profile;

 

   

give each of Organon and Merck its own equity currency for use in connection with acquisitions; and

 

   

enhance the ability of Organon and Merck to attract and retain qualified management and to better align incentive-based compensation with the performance of each of Organon and Merck’s separate businesses.

The Merck Board of Directors considered a number of potentially negative factors in evaluating the separation, including risks relating to the creation of a new public company and possible increased overall costs, as well as one-time separation costs, but concluded that the potential benefits of the separation outweighed these



 

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factors. For more information, see the sections entitled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Conditions to the Distribution

The distribution is subject to a number of conditions, including, among others:

 

   

the receipt of opinions (the “Tax Opinions”) from Baker & McKenzie LLP and Ernst & Young LLP (the “Tax Advisors”) to the effect that the distribution and certain related transactions will qualify as tax-free to Merck and its shareholders under Sections 355 and 368 of the Code;

 

   

the making of a distribution of approximately $        billion from Organon to Merck, and the determination by Merck in its sole discretion that following the separation Merck will have no further liability or obligation whatsoever with respect to any of the financing arrangements that Organon will be entering into in connection with the separation;

 

   

the receipt of an opinion from an independent appraisal firm to the Merck Board of Directors confirming the solvency of Merck giving effect to the distribution of Organon and confirming the solvency of Organon giving effect to the cash dividend that is in form and substance acceptable to Merck in its sole discretion;

 

   

the SEC declaring effective Organon’s registration statement on Form 10 of which this information statement forms a part, and the making available of the information statement to all holders of shares of Merck common stock as of the close of business on                    , 2021, the record date;

 

   

no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect;

 

   

the shares of Organon common stock to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution; and

 

   

no other event or development existing or having occurred that, in the judgment of Merck’s Board of Directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions.

Merck and Organon cannot assure you that any or all of these conditions will be met. In addition, Merck will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date and the distribution date and the distribution ratio. Merck does not intend to notify its shareholders of any modifications to the terms of the separation that, in the judgment of its Board of Directors, are not material. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”

Corporate Information

Organon & Co. was incorporated in Delaware on March 11, 2020. The address of Organon’s principal executive offices is 30 Hudson Street, Jersey City, New Jersey 07302. Organon’s telephone number is 551-430-6000.

Organon will also maintain an Internet website at www.organon.com. Organon’s website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to shareholders of Merck who will receive shares of Organon common stock in the distribution. It is not and is not to be construed as an



 

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inducement or encouragement to buy or sell any of Organon’s securities. The information contained in this information statement is believed by Organon to be accurate as of the date set forth on its cover. Changes may occur after that date and neither Merck nor Organon will update the information except in the normal course of their respective disclosure obligations and practices.

Summary Historical and Unaudited Pro Forma Financial Information

The following tables set forth summary historical combined and unaudited pro forma financial information. You should read this information in conjunction with the information under “Selected Historical Financial Data,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited annual combined financial statements and the related notes included elsewhere in this information statement.

We derived the selected historical combined financial information for each of the fiscal years in the three-year period ended December 31, 2020 from our audited annual combined financial statements included elsewhere in this information statement.

The selected unaudited pro forma financial information at and for the year ended December 31, 2020 is unaudited and has been derived from our unaudited pro forma financial information included elsewhere in this information statement.



 

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Combined Balance Sheet

 

     Pro Forma
as of
December 31,
2020
    As of December 31,  

($ in millions)

  2020     2019  

Assets

      

Current Assets

      

Cash and cash equivalents

   $ 500     $  70     $ 319  

Accounts receivable (net of allowance for doubtful accounts of $18 in 2020 and $20 in 2019)

     1,092       1,360       1,474  

Inventories (excludes inventories of $127 in 2020 and $93 in 2019 classified in Other Assets)

     913       971       1,071  

Due from related party

     —         —         13  

Other current assets

     929       977       1,078  
  

 

 

   

 

 

   

 

 

 

Total current assets

     3,434       3,378       3,955  
  

 

 

   

 

 

   

 

 

 

Property, Plant and Equipment (at cost)

      

Land

     14       15       7  

Buildings

     647       653       382  

Machinery, equipment and office furnishings

     787       803       824  

Construction in progress

     356       362       143  
  

 

 

   

 

 

   

 

 

 
     1,804       1,833       1,356  

Less: accumulated depreciation

     820       835       676  
  

 

 

   

 

 

   

 

 

 
     984       998       680  
  

 

 

   

 

 

   

 

 

 

Goodwill

     4,603       4,603       4,603  
  

 

 

   

 

 

   

 

 

 

Other Intangibles, Net

     503       503       569  
  

 

 

   

 

 

   

 

 

 

Other Assets

     892       438       741  
  

 

 

   

 

 

   

 

 

 
   $ 10,416     $ 9,920     $ 10,548  
  

 

 

   

 

 

   

 

 

 

Liabilities and Equity

      

Current Liabilities

      

Trade accounts payable

   $ 259     $ 294     $ 258  

Accrued and other current liabilities

     833       752       807  

Due to related party

     —         1,150       34  

Income taxes payable

     109       288       242  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,201       2,484       1,341  
  

 

 

   

 

 

   

 

 

 

Deferred Income Taxes

     121       128       139  
  

 

 

   

 

 

   

 

 

 

Related Party Loans Payable

     —         —         70  
  

 

 

   

 

 

   

 

 

 

Other Noncurrent Liabilities

     9,952       1,822       1,963  
  

 

 

   

 

 

   

 

 

 

Organon & Co. Equity

      

Accumulated deficit

     (254     —         —    

Net investment from Parent

     —         6,108       7,949  

Accumulated other comprehensive loss

     (604     (622     (914
  

 

 

   

 

 

   

 

 

 

Total equity

     (858     5,486       7,035  
  

 

 

   

 

 

   

 

 

 
   $ 10,416     $  9,920     $ 10,548  
  

 

 

   

 

 

   

 

 

 


 

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Combined Statements of Income

 

     Pro Forma
Year Ended
December 31,
2020
     For the Year Ended December 31,  

($ in millions)

   2020      2019      2018  

Sales(1)

   $ 6,607      $ 8,096      $ 9,530      $ 9,777  
  

 

 

    

 

 

    

 

 

    

 

 

 

Costs, expenses and other

           

Cost of sales(2)

     2,316        3,347        3,621        4,693  

Selling, general and administrative

     1,722        1,666        1,922        2,013  

Research and development

     315        304        332        365  

Restructuring costs

     3        70        101        119  

Other (income) expense, net

     436        29        (1      (142
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before taxes

     1,815        2,680        3,555        2,729  

Taxes on income

     315        520        337        576  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,500      $  2,160      $ 3,218      $ 2,153  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Actual results include related party sales of $599 million in 2020, $501 million in 2019 and $432 million in 2018.

(2) 

Actual results include costs for inventory purchases from related parties of $1.0 billion in 2020, $1.1 billion in 2019 and $923 million in 2018.



 

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Risk Factors

You should carefully consider the following risks and other information in this information statement in evaluating Organon and Organon’s common stock. Any of the following risks could materially and adversely affect Organon’s results of operations or financial condition. The risk factors generally have been separated into three groups: risks related to Organon’s business, risks related to the separation and distribution, and risks related to Organon’s common stock.

Risks Related to Our Business

We have no history operating as an independent company, and we expect to incur increased administrative and other costs following the separation by virtue of our status as an independent public company. Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

The historical information about Organon in this information statement refers to Organon’s business as operated by and integrated with Merck. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Merck. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future, primarily as a result of the following factors:

 

   

Prior to the distribution, our business was operated by Merck as part of its broader corporate organization, rather than as an independent company. Merck or one of its affiliates performed various corporate functions for us, such as tax, treasury, finance, internal audit, risk management, legal, information technology, human resources, shareholder relations, compliance, insurance, employee benefits and compensation. Following the distribution, Merck will continue to provide some of these functions to us after we transition to an independent, publicly traded company, as described in “Certain Relationships and Related Person Transactions.” Our historical and pro forma financial results reflect allocations of corporate expenses from Merck for such functions. These allocations will not be indicative of the actual expenses we would have incurred had we operated as an independent, publicly traded company in the periods presented. We will need to make significant investments to replicate or outsource from other providers certain facilities, systems, infrastructure and personnel to which we will no longer have access once the terms of our arrangements with Merck expire. These initiatives to develop our independent ability to operate without access to Merck’s existing operational and administrative infrastructure will be costly to implement, and we will incur additive costs in implementing such initiatives currently provided to us by Merck. In addition, we may be unable to obtain replacement services on similar terms as those provided by Merck. We may not be able to operate our business as efficiently or at comparable costs, and our results of operations may be adversely affected.

 

   

Currently, our business is integrated with the other businesses of Merck. We are able to utilize Merck’s size and purchasing power in procuring various goods and services and have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although we will enter into transition agreements with Merck, these arrangements may not fully capture the benefits we have enjoyed as a result of being integrated with Merck and may result in us paying higher charges than in the past for these services. As a separate, independent company, we may be unable to obtain goods and services at the prices and terms obtained prior to the separation, which could adversely affect our results of operations. As a separate, independent company, we also may not be as successful in negotiating favorable tax treatment with governmental entities. This could adversely affect our results of operations and financial condition.

 

   

Our working capital requirements and capital for our general corporate purposes, including acquisitions, research and development and capital expenditures, have historically been satisfied as part

 

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of the corporate-wide cash management policies of Merck. Following the completion of the distribution, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements.

 

   

After the completion of the distribution, the cost of capital for our business is likely to be higher than Merck’s cost of capital prior to the distribution.

 

   

Our historical financial information does not reflect the issuance of any debt we expect to incur as part of the separation and distribution or our obligations to purchase from Merck certain operations and assets, and assume the corresponding liabilities, of our business after the distribution date.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from Merck. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma financial information of our business, see “Unaudited Pro Forma Financial Information,” “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.

Key products generate a significant amount of our profits and cash flows, and any events that adversely affect the markets for our leading products could adversely affect our results of operations and financial condition.

Our ability to generate profits and operating cash flow depends largely upon the continued profitability of our key products, such as Nexplanon / Implanon NXT, Cozaar/Hyzaar, Zetia, Singulair and Atozet. As a result of our dependence on key products, any event that adversely affects any of these products or the markets for any of these products could adversely affect our sales, results of operations and cash flows. These adverse events could include increased costs associated with manufacturing, product shortages, increased generic or over-the-counter availability of our products or competitive products, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of these products for any reason. We also expect that competition will continue to adversely affect the sales of these products.

We face continued pricing pressure with respect to our products.

We face continued pricing pressure globally and, particularly, in mature markets from managed care organizations, government agencies and programs that could adversely affect our sales and profit margins. We expect pricing pressure to continue in the future. For example, in the United States, we experience significant pricing pressure from: managed care groups, institutional and governmental purchasers, U.S. federal laws and regulations related to Medicare and Medicaid (including the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the ACA) and state activities aimed at regulating prices and increasing price transparency. Changes to the health care system enacted as part of health care reform in the United States, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further pricing pressures. In addition, in the United States, larger customers have received higher rebates on drugs in certain highly competitive categories. We must also compete to be placed on formularies of managed care organizations. Exclusion of a product from a formulary can lead to reduced usage in the managed care organization. Outside the United States, numerous major markets, including the EU, China and Japan have pervasive government involvement in health care funding and, in that regard, extensive pricing and reimbursement mechanisms and processes for pharmaceutical products. Consequently, in those markets, we are subject to government decision-making and budgetary actions with respect to our products. In China, pricing pressure from the Chinese government has increased, including through a series of health care reforms to accelerate generic substitution. While pricing pressure has always existed in China, health care reforms have increased this pressure in part due to the acceleration of generic substitution through the government’s volume-based procurement (“VBP”) and generic quality consistency evaluation (“GQCE”) programs. In Japan, the

 

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pharmaceutical industry is subject to government-mandated biennial price reductions of pharmaceutical products. Furthermore, the government can order re-pricing for specific products if it determines that use of such product will exceed certain thresholds defined under applicable re-pricing rules. The next government-mandated pricing reduction will occur in April 2021 and is expected to impact many Organon products.

We face intense competition from competitors’ products.

Our products face intense competition from competitors’ products, including lower cost generic versions of our products that have lost market exclusivity. Competitors’ products may be equally safe and as effective as our products but sold at a substantially lower price than our products. Alternatively, our competitors’ products may be safer or more effective, more convenient to use, have better insurance coverage or reimbursement levels or be more effectively marketed and sold than our products. Our efforts to compete with other companies or our failure to maintain our competitive position could adversely affect our business, cash flow, results of operations, financial condition and prospects.

We expect to have limited in-house research and development capabilities and will rely on future acquisitions, partnerships and collaborations to expand our research and development capabilities, which means we may not be able to develop new products or expand our existing products into new markets to replace the sales of products that lose patent protection, and therefore we may not be able to maintain our current levels of profitability.

Upon our separation from Merck, we will have limited in-house research and development staff and facilities, and do not currently intend to hire or acquire such staff or facilities immediately after the separation. Instead, we intend to rely on future acquisitions, partnerships and collaborations with third parties to expand our existing portfolio and research capabilities. We also intend to grow our business through new indications or formulations of our existing products or expansion of existing products into new markets or new geographies. However, we expect that our ability to do so will be limited by the scope of our limited intellectual property licenses for certain women’s health products. For example, our license for Nexplanon / Implanon NXT permits use of the underlying technology solely as a contraceptive implant containing only the active pharmaceutical ingredient currently used in the product. We may not be able to offset any sales losses for products that lose or do not have exclusivity by growing sales in other markets. If we cannot produce sufficient revenues from expansion into new products, new indications or formulations of our existing products or expansion of existing products into new markets or new geographies, then we may not be able to maintain our current levels of profitability, and this could adversely affect our business, cash flow, results of operations, financial condition and prospects.

We may experience difficulties identifying and effecting acquisition opportunities.

In identifying, evaluating and selecting acquisition targets, we may encounter intense competition from other companies having a business objective similar to ours. Many of these companies are well established and have extensive experience identifying and effecting these types of strategic acquisitions. Moreover, some of these competitors may possess greater financial, technical, human and other resources than we do. We may not be successful in implementing our acquisition strategy and fail to achieve growth and value creation. In addition, certain provisions of the tax matters agreement, which are intended to preserve the intended tax treatment of the separation and certain related transactions, may discourage, delay or prevent acquisition proposals or otherwise limit our ability to pursue certain strategic transactions or engage in other transactions, including mergers or consolidations for a period of time following the spin-off.

We may be unable to market our products if we do not obtain and maintain required regulatory approvals.

Our activities, including the manufacturing and marketing of our products, are subject to extensive regulation by numerous federal and state governmental authorities in the United States, including the Food and Drug Administration (“FDA”), and by foreign regulatory authorities, including in the EU, China and Japan. In the United States, the FDA administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. Regulation outside the United States also

 

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is primarily focused on drug safety and effectiveness and, in many cases, reduction in the cost of drugs. In addition, regulatory authorities such as the FDA, the European Medicines Agency (“EMA”), China’s National Medical Products Administration (“NMPA”) and Japan’s Ministry of Health, Labour and Welfare have increased their focus on safety when assessing the benefit/risk balance of drugs. These regulatory authorities, including in China and Japan, also have substantial discretion to require additional testing, to delay or withhold registration and marketing approval and to otherwise preclude distribution and sale of a product.

Our applications for regulatory approval may be rejected or otherwise delayed by the FDA or other foreign regulatory authorities. For example, the FDA may issue complete response letters indicating that our applications are not ready for approval. We cannot market our products or new indications or formulations of our existing products unless and until we have obtained all required regulatory approvals in each relevant jurisdiction. Once obtained, we must maintain approval as long as we plan to market products in each jurisdiction where approval is required. Our failure to obtain approval, significant delays in the approval process or our failure to maintain approval in any jurisdiction will prevent us from selling the products in that jurisdiction. We would not be able to realize revenues for our products in any jurisdiction where we do not have approval.

Developments following regulatory approval may adversely affect sales of our products.

Even after a product reaches the market, certain developments may decrease demand for our products, including the following:

 

   

results in post-approval Phase 4 trials or other studies;

 

   

the re-review of products that are already marketed;

 

   

the recall or loss of marketing approval of products that are already marketed;

 

   

changing government standards or public expectations regarding safety, efficacy, quality or labeling changes; and

 

   

scrutiny of advertising and promotion.

In the past several years, clinical trials and post-marketing surveillance of certain marketed drugs of our competitors within the industry have raised concerns that have led to recalls, withdrawals or adverse labeling of marketed products. Clinical trials and post-marketing surveillance of certain marketed drugs also have raised concerns among some health care providers and patients relating to the safety or efficacy of pharmaceutical products in general that have negatively affected the sales of such products. In addition, increased scrutiny of the outcomes of clinical trials has led to increased volatility in market reaction. Further, these matters often attract litigation and, even where the basis for the litigation is groundless, may consume considerable resources.

If previously unknown side effects are discovered or if there is an increase in negative publicity regarding known side effects of any of our products, it could significantly reduce demand for the product or require us to take actions that could negatively affect sales, including removing the product from the market, restricting our distribution or applying for labeling changes. Further, we are at risk for product liability and consumer protection claims and civil and criminal governmental actions related to our products, research and marketing activities. In addition, dissemination of promotional materials through evolving digital channels serves to increase visibility and scrutiny in the marketplace.

Certain of our products currently benefit from patent protection and market exclusivity. When the patent protection and market exclusivity periods for such products expire, we generally experience a significant and rapid loss of sales from those products. Expiry of patent protection and market exclusivity for products that contribute significantly to our sales will adversely affect our business.

We depend upon patents to provide us with exclusive marketing rights for certain of our products for some period of time. Loss of patent protection typically leads to a significant and rapid loss of sales for that product as

 

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lower priced generic versions of that drug become available. In the case of current or future products that contribute significantly to our sales, a loss of market exclusivity could materially adversely affect our business, cash flow, results of operations, financial condition and prospects. For example, the patent that provided United States market exclusivity for NuvaRing expired in April 2018 and generic competition began in December 2019. We experienced a rapid and substantial decline in NuvaRing sales in the United States in 2020 as a result of this generic competition. In addition, we expect to have market exclusivity for Nexplanon / Implanon NXT in the United States until 2027 and the majority of countries where Nexplanon / Implanon NXT is commercialized outside the United States until 2025. See “Business—Products” for details, including the patent protection for certain of our marketed products.

We are dependent on our patent rights for the marketing of certain of our products, and invalidation or circumvention of our patent rights would adversely affect our business.

Patent protections are important to the marketing of certain of our products, particularly certain of our women’s health products in the United States and in most major foreign markets. Patents covering products that we have introduced normally provide market exclusivity, which is important for the successful marketing and sale of certain of our products.

Even if we succeed in obtaining patents covering our products, third parties or government authorities may challenge or seek to invalidate or circumvent our patents and patent applications. It is important for our business to defend successfully the patent rights that provide market exclusivity for our products. We are often involved in patent disputes relating to challenges to our patents or claims by third parties of infringement against us. We defend our patents both within and outside the United States, including by filing claims of infringement against other parties. In particular, manufacturers of generic pharmaceutical products from time to time file abbreviated new drug applications (“ANDAs”) with the FDA seeking to market generic forms of our products prior to the expiration of relevant patents owned or licensed by us. We normally respond by defending our patent, including by filing lawsuits alleging patent infringement. Patent litigation and other challenges to our patents are costly and unpredictable and may deprive us of market exclusivity for a patented product or, in some cases, third-party patents may prevent us from marketing and selling a product in a particular geographic area, negatively affecting our business and results of operations.

Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies or in other circumstances, which could diminish or eliminate sales and profits from those regions and negatively affect our business and results of operations. Further, court decisions relating to other companies’ patents, potential legislation in both the United States and certain foreign markets relating to patents, as well as regulatory initiatives may result in a more general weakening of intellectual property protection.

If one or more of our important products lose patent protection in profitable markets, sales of those products are likely to decline significantly as a result of generic versions of those products becoming available. Our results of operations may be adversely affected by the lost sales unless and until we have launched commercially successful products that replace the lost sales. In addition, if products with intangible assets that were measured at fair value and capitalized in connection with acquisitions experience difficulties in the market that negatively affect product cash flows, we may recognize material non-cash impairment charges with respect to the value of those products.

The health care industry in the United States has been, and will continue to be, subject to increasing regulation and political action.

We believe that the health care industry will continue to be subject to increasing regulation and political and legal action at both the Federal and state levels.

In 2010, the United States enacted major health care reform legislation in the form of the ACA. Various insurance market reforms have advanced and state and federal insurance exchanges were launched in 2014. The

 

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ACA increased the mandated Medicaid rebate from 15.1% to 23.1%, expanded the rebate to Medicaid managed care utilization and increased the types of entities eligible for the federal 340B drug discount program.

The ACA also requires pharmaceutical manufacturers to pay 70% of the cost of the medicine, including biosimilar products, when Medicare Part D beneficiaries are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”), which increased from 50% beginning in 2019 as a result of the Balanced Budget Act of 2018. Also, pharmaceutical manufacturers are required to pay an annual non-tax deductible health care reform fee. The fee is assessed on each company in proportion to its share of prior year branded pharmaceutical sales to certain government programs, such as Medicare and Medicaid.

As discussed in “Business—Competition and Health Care Environment,” there is significant uncertainty about the future of the ACA and, in particular, health care laws generally in the United States. There are various court cases and other regulatory actions ongoing that may result in the invalidation of all or portions of the ACA. If the individual mandate is held to be unconstitutional and not severable from the remainder of the ACA, we expect this would result in invalidation of the Biologics Price Competition and Innovation Act (“BPCIA”), which provides for an abbreviated pathway for obtaining FDA approval of biologic drugs that satisfy certain criteria and which is incorporated into the ACA.

In 2016, the Centers for Medicare & Medicaid Services (“CMS”) issued the Medicaid rebate Final Rule that implemented provisions of the ACA effective April 1, 2016. The rule provided comprehensive guidance on the calculation of Average Manufacturer Price and Best Price, which are two metrics that determine the rebates drug manufacturers are required to pay to state Medicaid programs. On December 31, 2020, CMS published a Final Rule on the Medicaid Program, which, among other things, introduced new definitions of “line extension” and “new formulation.” CMS defined “line extension” as a new formulation of the drug, not including an abuse-deterrent formulation of the drug, and adopted an expansive definition of “new formulation” to include “an extended release formulation or other change in release mechanism, a change in dosage form, strength, route of administration, or ingredients.” This expanded definition will result in a number of drugs being subject to a higher Medicaid rebate. The new definitions of “line extension” and “new formulation” will take effect on January 1, 2022. The Final Rule also revised regulations regarding authorized generic sales when manufacturers calculate the average manufacturer price (AMP), manufacturer reporting requirements under the Medicaid Drug Rebate Program (MDRP), and payments for prescription drugs under the Medicaid program. The implementation date of these revised regulations is January 1, 2023. We will evaluate the financial effects of these elements once there is more certainty.

In addition, as discussed in “Business—Competition and the Health Care Environment,” a Final Rule was issued that allows importation of certain lower-cost prescription drugs from Canada. As a result of this Final Rule, effective November 30, 2020, states or certain other non-federal governmental entities will be able to submit importation program proposals to the FDA for review and authorization of two-year programs (with the opportunity to extend for two more years). This rule is currently facing a legal challenge and is currently pending in federal district court, but if upheld, or if additional future legislative action is taken on drug importation, it would be expected to adversely affect our revenues.

Various executive and legislative actions in the United States have been proposed, or may in the future be proposed, to mandate reduced drug prices. For example, in November 2020, CMS issued a Final Rule which was intended to be effective January 1, 2021 to institute a new pricing system for certain prescription drugs and biologic products covered by Medicare Part B in which Medicare would reimburse no more than the “most favored nation price.” The rule was immediately challenged in at least four federal courts and has been temporarily enjoined from going into effect. The Department of Health and Human Services has indicated that the most favored nation, or MFN, model will not be implemented without further rulemaking.

Additionally in November 2020, the Department of Health and Human Services Office of Inspector General (“OIG”) issued a Final Rule that would, effective January 1, 2022, eliminate the Anti-Kickback Statute safe

 

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harbor for rebates paid to Medicare Part D plans or to pharmacy benefit managers (“PBMs”) on behalf of such plans. While the Company cannot anticipate the effects of this change to the way it currently contracts, this new framework could significantly alter the way it does business with Part D Plan Sponsors and PBMs on behalf of such plans. This rulemaking also established, effective January 1, 2021, a new safe harbor for point of sale discounts at the pharmacy counter and a new safe harbor for certain services arrangements between pharmaceutical manufacturers and PBMs. In response to litigation brought by a trade association on behalf of PBMs, the rule’s effective date has been delayed until January 1, 2023. It remains to be seen whether, and to what extent, these measures will take effect. These executive measures, if upheld, or future legislative action on drug prices may adversely affect our revenues.

We cannot predict the likelihood of additional future changes in the health care industry in general, or the pharmaceutical industry in particular, or what impact they may have on our business, cash flow, results of operations, financial condition and prospects.

We are subject to a variety of United States and international laws and regulations.

We are currently subject to a number of government laws and regulations and, in the future, could become subject to new government laws and regulations. The costs of compliance with such laws and regulations, or the negative results of non-compliance, could adversely affect our business, cash flow, results of operations, financial condition and prospects. The costs of compliance and non-compliance may be particularly significant with respect to health care reform initiatives in the United States or in other countries, including additional mandatory discounts or fees; the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 or other anti-bribery and corruption laws; new laws, regulations and judicial or other governmental decisions affecting pricing, drug reimbursement, and access or marketing within or across jurisdictions; new and increasing data privacy regulations and enforcement, particularly in the EU and the United States; legislative mandates or preferences for local manufacturing of pharmaceutical products; emerging and new global regulatory requirements for reporting payments and other value transfers to health care professionals; environmental regulations; and importation restrictions, embargoes, trade sanctions and legislative or other regulatory changes.

We have significant global operations, which expose us to additional risks, and any adverse event could adversely affect our results of operations and financial condition.

The extent of our operations outside the United States is significant. Risks inherent in conducting a global business include:

 

   

changes in medical reimbursement policies and programs and pricing restrictions in key markets;

 

   

multiple regulatory requirements that could restrict our ability to manufacture and sell our products in key markets;

 

   

trade protection measures and import or export licensing requirements, including the imposition of trade sanctions or similar restrictions by the United States or other governments;

 

   

foreign exchange fluctuations;

 

   

diminished protection of intellectual property in some countries; and

 

   

possible nationalization and expropriation.

In addition, there may be changes to our business and strategic position if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, health epidemics (including the outbreak of the novel Coronavirus Disease 2019 (“COVID-19”)), riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.

 

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We are increasingly dependent on sophisticated software applications and computing infrastructure. Cyber-attacks against our IT systems could result in exposure of confidential information, the modification of critical data or the disruption of our worldwide operations, including manufacturing and sales operations.

We are increasingly dependent on sophisticated software applications, complex information technology systems, computing infrastructure and cloud service providers (collectively, “IT systems”) to conduct critical operations. Certain of these systems are managed, hosted, provided or used by third parties, including Merck, to assist in conducting our business. Disruption, degradation or manipulation of these IT systems through intentional or accidental means by our employees, third parties with authorized access or unauthorized third parties could adversely affect key business processes. Cyber-attacks against our IT systems or third-party providers’ IT systems, such as cloud-based systems, could result in exposure of confidential information, the modification of critical data and/or the failure of critical operations. Misuse of any of these IT systems could result in the disclosure of sensitive personal information or the theft of trade secrets, intellectual property or other confidential business information. We continue to leverage new and innovative technologies across the enterprise to improve the efficacy and efficiency of our business processes; the use of which can create new risks.

In 2017, Merck experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations, and resulting losses. We could experience similar adverse effects from cyber-attacks.

We have implemented a variety of measures to further enhance and modernize our systems to guard against similar attacks in the future, and also is pursuing an enterprise-wide effort to enhance our resiliency against future cyber-attacks, including incidents similar to the 2017 Merck cyber-attack. The objective of these efforts is not only to protect against future cyber-attacks, but also to improve the speed of our recovery from such attacks and enable continued business operations to the greatest extent possible during any recovery period.

Merck has in the past, and we in the future may be, a target of events of this nature. We monitor our data, information technology and personnel usage of IT systems to reduce these risks and continue to do so on an ongoing basis for any current or potential threats. There can be no assurance that our efforts to protect our data and IT systems or the efforts of third-party providers to protect their IT systems will be successful in preventing disruptions to our operations, including our manufacturing and sales operations. Such disruptions could result in loss of revenue, or the loss of critical or sensitive information from our or our third-party providers’ databases or IT systems, or result in financial, legal, business or reputational harm to us and substantial remediation costs.

We carry insurance against certain losses resulting from cyber-attacks, but such insurance may not cover a particular event that arises or the amount of such coverage may not be sufficient to fully compensate us for losses we experience.

We may experience difficulties and delays in manufacturing certain of our products.

We may experience difficulties and delays inherent in manufacturing our products, such as: failure of us or our suppliers to comply with applicable regulations and quality assurance guidelines, which failures may lead to manufacturing shutdowns, product shortages or manufacturing delays; delays related to the construction of new facilities or the expansion of existing facilities; and other manufacturing or distribution problems, including changes in manufacturing production sites and limits to manufacturing capacity resulting from regulatory requirements, changes in types of products produced and physical limitations that could impact supply. In addition, we could experience difficulties or delays in manufacturing our products caused by natural disasters, such as hurricanes. Manufacturing difficulties can result in product shortages, leading to lost sales and reputational harm to us.

 

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The global COVID-19 pandemic is having an adverse impact on our business, operations and financial performance. We are unable to predict the full extent to which the pandemic and related impacts will continue to adversely impact our business, operations, financial performance, results of operations, and financial condition.

Our business and financial results were negatively impacted by the outbreak of COVID-19 in 2020. The continued duration and severity of the COVID-19 pandemic is uncertain, rapidly changing and difficult to predict. The degree to which COVID-19 negatively impacts our results in 2021 will depend on future developments, beyond our knowledge or control, including, but not limited to, the duration of the outbreak, its severity, the success of actions taken to contain or prevent the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

In 2020 and thus far in 2021, the COVID-19 pandemic has impacted our business and we continue to expect that it will impact our business in numerous ways, including but not limited to those outlined below. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments.”

In 2020, the negative impact of COVID-19 to Organon Products segment sales was estimated to be approximately $400 million. A significant amount of our revenue is comprised of physician-administered products, which, despite underlying demand, have been affected by social distancing measures, fewer medical visits and delays in elective procedures. These impacts, as well as the prioritization of COVID-19 patients at health care providers, have resulted in reduced administration of many products within established brands and women’s health, in particular Nexplanon / Implanon NXT, throughout 2020. We expect that the COVID-19 pandemic will negatively affect our sales in 2021.

Despite our efforts to manage these impacts, their ultimate impact will also depend on factors beyond our knowledge or control, including the duration of the COVID-19 pandemic as well as governmental and third-party actions taken to contain or prevent its spread, treat the virus and mitigate its public health and economic effects.

We may be unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective price or we may experience other supply difficulties that could adversely affect our ability to deliver our products and our results of operations and financial condition.

We acquire our components, materials and other requirements for manufacturing from many suppliers and vendors in various countries, including sometimes from ourselves for self-supplied requirements. We endeavor to achieve, either alone or working closely with our suppliers, continuity of our inputs and supplies but we cannot guarantee these efforts will always be successful. For instance, Follistim has been challenged by intermittent supply disruptions over the past several years. Further, while efforts are made to diversify certain of our sources of components and materials, in certain instances there is only a sole source or supplier with no alternatives yet identified. For many of our components and materials for which a single source or supplier is used, alternative sources or suppliers may exist, but we have made a strategic determination to use the single source or supplier. Although we do carry strategic inventory and maintain insurance to help mitigate the potential risk related to any related supply disruption, we cannot assure you that such measures will always be sufficient or effective. Our ability to achieve continuity of our supply may also be affected by public health crises and epidemics/pandemics. A reduction or interruption in supply and an inability to quickly develop acceptable alternative sources for such supply, could adversely affect our ability to manufacture and distribute our products in a timely or cost-effective manner, and our ability to sell our products.

We may not be able to realize benefits from our investments in emerging markets.

We have been taking steps to increase our sales in emerging markets. However, there is no guarantee that our efforts to expand sales in these markets will succeed. Some countries within emerging markets may be

 

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especially vulnerable to periods of global financial instability or may have very limited resources to spend on health care. In order for us to successfully implement our emerging markets strategy, we must attract and retain qualified personnel. We may also be required to increase our reliance on third-party agents within less developed markets. In addition, many of these countries have currencies that fluctuate substantially and, if such currencies devalue and we cannot offset the devaluations, our financial performance within such countries could be adversely affected.

For example, our business in China has grown rapidly in the past few years, and China is now our second largest market, thereby increasing the importance of China to our overall pharmaceutical business. Continued growth of our business in China is dependent upon ongoing development of a favorable regulatory environment, sustained access for our currently marketed products and the absence of trade impediments or adverse pricing controls. Pricing pressure in China has increased as the Chinese government has been taking steps to reduce costs, including implementing healthcare reform that has led to the acceleration of generic substitution, where available. While pricing pressure has always existed in China, health care reform has increased this pressure in part due to the acceleration of generic substitution through the government’s VBP and GQCE programs. In 2019, the government implemented the VBP program through a tendering process for products that have generic substitutes with a GQCE approval. Mature products that have entered into the first three rounds of VBP had, on average, a price reduction of 50%. We expect VBP to be a semi-annual process that will have a significant impact on mature products moving forward. In addition, we anticipate that the reported inquiries made by various governmental authorities involving multinational pharmaceutical companies in China may continue.

For all these reasons, sales within emerging markets carry significant risks. However, at the same time, macro-economic growth of selected emerging markets is expected to outpace Europe and even the U.S., leading to significant increased headcount spending in the countries and access to innovative medicines for patients. In addition, we plan to pivot in China from a primary focus on the public tender market to growth opportunities in the private retail segment. A failure to make such pivot effectively, or a failure to develop and maintain a presence in emerging markets could adversely affect our business, cash flow, results of operations, financial condition and prospects.

We are exposed to market risk from fluctuations in currency exchange rates and interest rates.

We operate in multiple jurisdictions and virtually all our sales outside the United States are denominated in currencies other than the United States dollar. Additionally, we, as part of Merck, have historically entered into, and will in the future enter into, business development transactions, borrowings or other financial transactions that may give rise to currency and interest rate exposure.

Since we cannot, with certainty, foresee and mitigate against such adverse fluctuations in currency exchange rates, interest rates and inflation could negatively affect our business, cash flow, results of operations, financial condition and prospects.

In order to mitigate against the adverse impact of these market fluctuations, we, as part of Merck, may from time to time enter into hedging agreements. While hedging agreements, such as currency options and forwards and interest rate swaps, may limit some of the exposure to exchange rate and interest rate fluctuations, such attempts to mitigate these risks may be costly and not always successful.

We are subject to evolving and complex tax laws, which may result in additional liabilities that may affect results of operations and financial condition.

We are subject to evolving and complex tax laws in multiple jurisdictions. We must apply significant judgment to determine our tax liabilities, and our tax returns are periodically examined by various tax authorities. The ultimate resolution of tax matters may result in payments greater or less than the amounts we have accrued for such tax liabilities. In addition, we may be adversely affected by changes in tax laws and regulations or changes in interpretations of such laws and regulations.

 

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Pharmaceutical products can develop unexpected safety or efficacy concerns.

Unexpected safety or efficacy concerns can arise with respect to marketed pharmaceutical products such as our products, whether or not scientifically justified, which concerns may lead to product recalls, withdrawals or declining sales, as well as product liability, consumer fraud or other claims, including potential civil or criminal governmental actions. Such incidents could have a material impact on our results of operations, cash flows and financial condition.

Reliance on third-party relationships and outsourcing arrangements could materially adversely affect our business.

We depend on third parties, including Merck and other suppliers, alliances with other pharmaceutical and biotechnology companies, and third-party service providers, for key aspects of our business including development, manufacture and commercialization of our products and support for our IT systems. In addition, in connection with the interim operating arrangements we intend to put in place following the separation, we may enter into agreements with third-parties in certain jurisdictions, including China, to continue our business operations in compliance with local regulatory requirements. Failure of these third parties to meet their contractual, regulatory and other obligations to us or the development of factors that materially disrupt the relationships between us and these third parties could adversely affect our business.

The markets for our products, including the women’s health market, may not develop successfully as expected.

Our focus on women’s health is a key component of our strategy. Our ability to successfully execute our growth strategy in this area is subject to numerous risks, both known and unknown, including:

 

   

uncertainty of the development of a market for such products;

 

   

trends relating to, or the introduction or existence of, competing products, technologies or alternative treatments or therapies that may be more effective, safer or easier to use than our products, technologies, treatments or therapies;

 

   

the perception of our products as compared to other products;

 

   

recommendation and support for the use of our products or fertility treatments by influential customers, such as obstetricians, gynecologists, reproductive endocrinologists and treatment centers;

 

   

changes in government policy or regulations could impair or repeal contraception coverage mandates under the ACA or state laws, which may affect payments to us or impose additional coverage limitations or cost-sharing obligations on our patients;

 

   

the availability and extent of data demonstrating the clinical efficacy of our products or treatments;

 

   

competition, including the presence of competing products sold by companies with longer operating histories, more recognizable names and more established distribution networks; and

 

   

other technological developments.

If we are unable to successfully commercialize and create a significant market for our women’s health products, our business and prospects could be harmed.

Biosimilars carry unique risks and uncertainties, which could adversely affect our results of operations and financial condition.

There are unique risks and uncertainties related to biosimilars. The regulation of the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of biosimilars are subject to regulation by the FDA,

 

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the EMA and other regulatory bodies. These laws and regulations differ from, and are not as well-established as, those governing pharmaceutical products or the approval of generic pharmaceutical products. In addition, manufacturing biosimilars, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells and micro-organisms. Any changes to the regulatory framework governing biosimilars or in the ability of our partners to manufacture an adequate supply of biosimilars may adversely affect our ability to commercialize the biosimilars in our portfolio.

We rely on our collaboration with Samsung Bioepis for the successful development and manufacture of our biosimilars products and expect to do so for the foreseeable future.

Our current biosimilars portfolio consists entirely of products developed and manufactured by Samsung Bioepis for which we have worldwide commercialization rights, with certain geographic exceptions specified on a product-by-product basis. Our access rights to each product under our agreement with Samsung Bioepis last for 10 years from each such product’s launch date on a market-by-market basis. See “Business—Third-Party Agreements—Samsung Bioepis Development and Commercialization Agreement.” Our ability to successfully commercialize products in our biosimilars portfolio may depend upon maintaining a successful relationship with Samsung Bioepis. The success of our commercialization activities may also depend, in part, on the performance, operations and regulatory compliance of Samsung Bioepis and its suppliers, over which we do not have control. We cannot assure you that our collaboration will be successful or that we will achieve the benefits of our collaboration.

Product liability insurance for products may be limited, cost prohibitive or unavailable.

We will be responsible for a number of ongoing product liability claims. We also may become subject to significant product liability claims in the future. Product liability insurance has become less available in recent years while the cost of such insurance has increased significantly. As a result, we intend to self-insure substantially all of our risk. We have evaluated our risks and have determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, we have no external insurance with respect to most product liabilities. We will continually assess the most efficient means to address our risk; however, there can be no guarantee that, if deemed necessary or desirable, outside insurance coverage will be obtained or, if obtained, will be sufficient to fully cover product liabilities that may arise.

Social media platforms present risks and challenges.

The inappropriate and/or unauthorized use of certain social media channels could cause brand damage or information leakage or could lead to legal implications, including from the improper collection and/or dissemination of personally identifiable information. In addition, negative or inaccurate posts or comments about us or our products on any social networking platforms could damage our reputation, brand image and goodwill. Further, the disclosure of non-public sensitive information by our workforce or others through external media channels could lead to information loss. Although we have an internal Social Media Policy that guides employees on appropriate personal and professional use of social media about us, the processes in place may not completely secure and protect information. Identifying new points of entry as social media continues to expand also presents new challenges.

Risks Related to the Separation and Distribution

As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.

In connection with the separation, we have begun to install and implement information technology infrastructure to support our critical business functions, including accounting and reporting, manufacturing process control, quality and compliance systems, customer service, inventory control and distribution. We may incur temporary interruptions in business operations if we cannot transition effectively from Merck’s existing

 

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transactional and operational systems, data centers and the transition services that support these functions as we replace these systems. We may not be successful in implementing our new systems and transitioning our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we implement the new systems and replace Merck’s information technology services, or our failure to implement the new systems and replace Merck’s services successfully, could disrupt our business or adversely affect our results of operations. In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired.

The separation may adversely affect our ability to attract and retain key personnel, which could materially harm our business.

Operating as an independent public company will result in new and increased demands on our management team and other employees coming from Merck, which may give rise to increased employee turnover. Our success depends in large part upon continuing leadership and performance of our management team and other key employees. If we lose the services of members of our management team or other key employees, we may not be able to successfully manage our business or achieve our business objectives.

Following the separation, we will need to continue to attract and retain highly qualified scientific, technical and management personnel, as well as personnel with expertise in governmental regulation and commercialization. Our ability to attract, recruit and retain such talent will depend on a number of factors, including the hiring practices of our competitors, our compensation and benefits, work location and work environment and economic conditions affecting our industry generally. We cannot be sure that we will be able to attract and retain quality personnel or that the costs of doing so will not materially increase. If we cannot effectively hire and retain qualified employees, our business, results of operations and prospects could suffer.

Merck may not satisfy its obligations under various transaction agreements that have been or will be executed as part of the separation or we may not have necessary systems and services in place when certain of the transition agreements expire.

In connection with the separation, Organon and Merck will enter into a separation and distribution agreement and will enter into various other agreements, including one or more transition services agreements, manufacturing and supply agreements, trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial or operating agreements. These agreements are discussed in greater detail in the section entitled “Certain Relationships and Related Person Transactions.” Certain of these agreements will provide for the performance of services by each company for the benefit of the other for a period of time after the distribution. We will rely on Merck to satisfy its performance and payment obligations under these agreements. If Merck is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could experience operational difficulties or losses.

If we do not have our own systems and services in place, or if we do not have agreements with other providers of these services when these agreements terminate, we may not be able to operate our business effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services Merck currently provides to us. We may not be successful in effectively or efficiently implementing these systems and services or in transitioning data from Merck’s systems to ours. These systems and services may also be more expensive or less efficient than the systems and services Merck is expected to provide during the transition period.

Potential indemnification liabilities to Merck pursuant to the separation agreement could adversely affect us.

The separation agreement with Merck covers, among other things, the principal corporate transactions required to effect the separation, certain conditions to the distribution, and provisions governing the relationship between Merck and us with respect to and resulting from the separation. For a description of the separation

 

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agreement, see “Certain Relationships and Related Person Transactions—Agreements with Merck—The Separation and Distribution Agreement,” which includes additional details regarding the scope of our indemnification obligations. Among other things, the separation agreement provides for indemnification obligations designed to make us financially responsible for many liabilities that may exist relating to our business activities, whether incurred prior to or after the distribution pursuant to the separation agreement, including any pending or future litigation. These liabilities, which could be material to us, include a general obligation to indemnify Merck for litigation relating to our products, including currently pending litigation relating to Fosamax, Nexplanon / Implanon NXT and Propecia / Proscar. However, we will not be liable for the results of the antitrust litigation related to Zetia or the product liability litigation in Brazil related to Vioxx. For a description of the related legal proceedings, see Note 10 to our audited annual combined financial statements. These indemnification liabilities are intended to ensure that, as between Merck and us, we are responsible for all liabilities we assume in connection with the separation and that we pay for any liability incurred by Merck (including directors, officers, employees and agents) related to our failure to satisfy such obligations or otherwise in respect of the operation of our business, or any breach by us of the separation agreement or any ancillary agreement. Our indemnity obligations to Merck under the circumstances set forth in the separation agreement may be substantial.

There could be significant income tax liability if the Spin-off or certain related transactions are determined to be taxable for U.S. federal income tax purposes.

Merck expects that, prior to completion of the Spin-off, it will receive the Tax Opinions from the Tax Advisors that are expected to conclude, among other things, that the distribution of all of the outstanding Organon shares to Merck shareholders and certain related transactions will qualify as tax-free to Merck and its shareholders under Sections 355 and 368 of the U.S. Internal Revenue Code, except to the extent of any cash received in lieu of fractional shares of Organon common stock. The Tax Opinions are not binding on the Internal Revenue Service (“IRS”). Accordingly, while Merck believes the risk is low, the IRS may reach conclusions with respect to the Spin-off that are different from the conclusions reached in the Tax Opinions. The Tax Opinions will rely on certain facts, assumptions, representations and undertakings from Merck and Organon regarding the past and future conduct of the companies’ respective businesses and other matters, which, if incomplete, incorrect or not satisfied, could alter the conclusions of the party giving such Tax Opinion.

If the proposed Spin-off is ultimately determined to be taxable, the Spin-off could be treated as a taxable dividend to Merck’s shareholders for U.S. federal income tax purposes, and Merck’s shareholders could incur significant U.S. federal income tax liabilities. In addition, Merck would recognize a taxable gain to the extent that the fair market value of Organon common stock exceeds Merck’s tax basis in such stock on the date of the Spin-off. Each of Merck and Organon generally will be responsible for any tax-related losses imposed on Merck or Organon as a result of the failure of a transaction to qualify for tax-free treatment, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to Merck’s or Organon’s respective stock, assets or business, or a breach of the relevant covenants made by Merck or Organon in the Tax Matters Agreement. For a further description of the sharing of such liabilities between Merck and Organon, see “Certain Relationships and Related Person Transactions—Agreements with Merck—Tax Matters Agreement.”

We will not be able to engage in certain corporate transactions after the separation.

To preserve the tax-free treatment to Merck of the separation and the distribution, under the tax matters agreement that we will enter into with Merck, we will be restricted from taking any action that prevents the distribution and related transactions from being tax-free for U.S. federal income tax purposes. Under the tax matters agreement, for the two-year period following the distribution, it is expected that we will be prohibited, except in certain circumstances, from, among other things:

 

   

entering into any transaction resulting in the acquisition of above a certain percentage of our stock or substantially all of our assets, whether by merger or otherwise;

 

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merging, consolidating, or liquidating;

 

   

issuing equity securities beyond certain thresholds;

 

   

repurchasing our capital stock;

 

   

ceasing to actively conduct our business; and

 

   

taking or failing to take any action that prevents the distribution and related transactions from being tax-free.

These restrictions may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our shareholders or that might increase the value of our business. In addition, under the tax matters agreement, we will be required to indemnify Merck against any such tax liabilities as a result of such actions, even if we did not participate in or otherwise facilitate such actions.

After the distribution, certain of our executive officers and directors may have actual or potential conflicts of interest because of their previous positions at Merck.

Because of their current or former positions with Merck, certain of our initial post-distribution executive officers and directors are expected to own shares of Merck common stock and may continue to participate in certain Merck benefit programs. Following the distribution, even though our Board of Directors will consist of a majority of directors who are independent, and our expected executive officers who are currently employees of Merck will cease to be employees of Merck, some Organon executive officers and directors will continue to have financial interests in Merck. Continuing ownership of Merck common stock and continued participation in Merck benefit programs could create, or appear to create, potential conflicts of interest if Organon and Merck pursue the same corporate opportunities or face decisions that could have different implications for us and Merck.

We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business.

The separation and distribution is expected to provide strategic and financial benefits to Organon, but such benefits may be delayed or not be realized at all or to the extent expected for a variety of reasons, including:

 

   

the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;

 

   

the separation will require us to implement interim operational arrangements in certain key markets, including China, to comply with existing regulatory and local manufacturing policies, which may introduce additional complexity to our business than if we were still part of Merck;

 

   

following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Merck;

 

   

following the separation, our business will be less diversified than Merck’s business prior to the separation; and

 

   

the other actions required to separate Merck’s and our respective businesses could disrupt our operations.

If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, our business, financial condition, and results of operations could be adversely affected.

We may have been able to receive better terms from unaffiliated third parties than the terms we will receive in our agreements with Merck.

The agreements we will enter into with Merck in connection with the separation, including one or more transition services agreements, manufacturing and supply agreements, trademark license agreements, intellectual

 

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property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements, were prepared in the context of the separation while we were still a wholly owned subsidiary of Merck. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of Merck.

After the distribution, we will have indebtedness, which could restrict our ability to pay dividends and adversely affect our financing options and liquidity position.

Prior to completion of the distribution, the Board of Directors of Organon will adopt a policy with respect to the payment of dividends on Organon common stock following the distribution. Organon currently expects that it will pay regular cash dividends. However, we expect to have a total indebtedness of approximately $9.5 billion, consisting of term loans and 144A senior notes with such aggregate principal amount that we intend to enter into prior to the distribution. Approximately $         of such amount will be incurred to pay a distribution to Merck, with the remaining net proceeds intended to be used for general corporate purposes. We may also incur additional indebtedness in the future, including to fund future acquisitions. Our current or future indebtedness may in the future impose restrictions on us that could have material adverse consequences by:

 

   

limiting our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions;

 

   

limiting our ability to refinance our indebtedness on terms acceptable to us or at all;

 

   

imposing restrictive covenants on our operations;

 

   

requiring us to dedicate a significant portion of our cash flows from operations to paying the principal of and interest on our indebtedness, thereby reducing funds available for other corporate purposes; and

 

   

making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures. See “Description of Material Indebtedness.”

Challenges in the commercial and credit environment may adversely affect our ability to complete the separation and our future access to capital.

Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or other significantly unfavorable changes in economic conditions. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. These conditions may adversely affect our ability to obtain and maintain our credit ratings prior to and following the distribution.

Risks Related to Our Common Stock

We cannot be certain that an active trading market for our common stock will develop or be sustained after the distribution, and following the distribution, our stock price may fluctuate significantly.

A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue until the time of the distribution. We cannot predict the prices at which shares of our common stock may trade after the distribution, the liquidity of the market for our common stock after the distribution, the effect of the separation and distribution on the trading prices of our common stock or whether the combined market value of the shares of our common stock and the shares of Merck common stock will be less than, equal to or greater than the market value of Merck’s common stock prior to the distribution.

The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

   

actual or anticipated fluctuations in our operating results;

 

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changes in earnings estimated by securities analysts or our ability to meet those estimates;

 

   

the operating and stock price performance of comparable companies;

 

   

changes to the regulatory and legal environment under which we operate; and

 

   

domestic and worldwide economic conditions.

Shareholders often institute securities class action lawsuits when the market price of a public company’s common stock drops significantly, which lawsuits could result in substantial costs to us and could divert the time and attention of our management and other resources.

Shares of our common stock are or will be eligible for future sale, and substantial sales of such shares may cause the price of our common stock to decline.

Any sales of substantial amounts of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. Dispositions of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.

We cannot guarantee the timing, amount or payment of any dividends on our common stock.

Prior to completion of the distribution, our Board of Directors will adopt a dividend policy with respect to the payment of dividends on our common stock following the distribution. We currently expect that we will pay regular cash dividends following the distribution. The timing, declaration, amount and payment of any future dividends to shareholders will fall within the discretion of our Board of Directors. The Board of Directors’ initial and future decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, corporate strategy, capital requirements, debt service obligations, industry practice, legal requirements, regulatory constraints, and other factors that the Board deems relevant. For more information, see “Dividend Policy.” Our ability to pay any dividends will depend on our ongoing ability to generate cash from operations and access capital markets. We cannot guarantee that we will pay any dividends in the future or continue to pay any dividend if we commence paying dividends.

Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

We are a Delaware corporation and our amended and restated certificate of incorporation and bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirors to negotiate with our Board of Directors rather than to attempt a hostile takeover.

Specifically, because we have not chosen to be exempt from Section 203 of the Delaware General Corporation Law, this provision could also delay or prevent a change of control that shareholders may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or their affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

In addition, our amended and restated certificate of incorporation and bylaws will include additional provisions that may have anti-takeover effects and may delay, deter or prevent a takeover attempt that our

 

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shareholders might consider in their best interests. For example, our amended and restated certificate of incorporation and bylaws will:

 

   

permit our Board of Directors to issue one or more series of preferred stock with such powers, rights and preferences as the Board of Directors shall determine;

 

   

subject to a three-year sunset starting with our first annual meeting of shareholders, provide for a classified Board of Directors, with each class serving a staggered three-year term, which could have the effect of making the replacement of incumbent directors more time consuming and difficult;

 

   

provide that, as long as our Board of Directors is classified, our directors can be removed for cause only;

 

   

prohibit shareholder action by written consent;

 

   

provide that special meetings of shareholders can be called only by the Board of Directors;

 

   

provide that vacancies on the Board of Directors could be filled only by a majority vote of directors then in office, even if less than a quorum, or by a sole remaining director;

 

   

establish advance notice requirements for shareholder proposals and nominations of candidates for election as directors.

For additional details, see “Description of Capital Stock—Anti-Takeover Effects of Various Provisions of DGCL and our Amended and Restated Certificate of Incorporation and Bylaws” for a further description of certain of these provisions.

We believe these provisions will protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of us and our shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. In addition, these limitations may adversely affect the prevailing market price and market for our common stock if they are viewed as limiting the liquidity of our stock or discouraging takeover attempts in the future.

Certain of the agreements that we will enter into with Merck will require Merck’s consent to any assignment by us of our rights and obligations under the agreements. The consent and termination rights set forth in these agreements might discourage, delay or prevent a change of control that shareholders may consider favorable. See “—We may not be able to engage in certain corporate transactions after the separation,” “Certain Relationships and Related Person Transactions” and “Description of Capital Stock—Anti-Takeover Effects of Various Provisions of DGCL and our Amended and Restated Certificate of Incorporation and Bylaws” for a more detailed description of these agreements and provisions.

In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Internal Revenue Code. See “Risks Related to the Separation and Distribution—There could be significant income tax liability if the Spin-off or certain related transactions are determined to be taxable for U.S. federal income tax purposes” and “Material U.S. Federal Income Tax Consequences.” Under the tax matters agreement, we would be required to indemnify Merck for the resulting taxes, and this indemnity obligation might discourage, delay or prevent a change of control that shareholders may consider favorable.

 

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Our amended and restated bylaws will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, and the United States federal district courts as the exclusive forum for claims under the Securities Act, which could limit our shareholders’ ability to obtain what such shareholders believe to be a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws will provide that, unless we select or consent to the selection, in writing, of an alternative forum, all internal corporate claims, which include claims in the right of our company (i) that are based upon a violation of a duty by a current or former director, officer, employee or shareholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery, shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have jurisdiction, another state court or a federal court located within the State of Delaware. Furthermore, unless we select or consent to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Our exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive provisions may limit a shareholder’s ability to bring a claim in a judicial forum that he, she or it believes to be favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. It is possible that a court could find these exclusive forum provisions inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, and we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

 

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Cautionary Statement Concerning Forward-Looking Statements

This information statement contains “forward-looking statements.” Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning. Examples of forward-looking statements include, but are not limited to, statements regarding the outlook for our future business and financial performance, such as those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends Affecting our Results of Operations.” Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as:

 

   

difficulties in operating as an independent company;

 

   

costs and temporary business interruptions related to the separation;

 

   

competition from generic and/or biosimilar products as our products lose patent protection;

 

   

expanded competition in the women’s health market;

 

   

difficulties with performance of third parties we will rely on for our business growth;

 

   

difficulties developing and sustaining relationships with commercial counterparties;

 

   

increased “brand” competition in therapeutic areas important to our long-term business performance;

 

   

expiration of current patents or loss of patent protection for our products;

 

   

difficulties and uncertainties inherent in the implementation of our acquisition strategy;

 

   

pricing pressures, both in the United States and abroad, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and health care reform, pharmaceutical reimbursement and pricing in general;

 

   

the impact of the global COVID-19 pandemic and any future pandemic, epidemic, or similar public health threat, on our business, operations and financial performance;

 

   

changes in government laws and regulations, including laws governing intellectual property, and the enforcement thereof affecting our business;

 

   

efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals or declining sales;

 

   

future actions of third-parties including significant changes in customer relationships or changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and forgoing health care insurance coverage;

 

   

loss of key employees or inability to identify and recruit new employees;

 

   

legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products;

 

   

cyber-attacks on our or third-party providers’ information technology systems, which could disrupt our operations;

 

   

lost market opportunity resulting from delays and uncertainties in the approval process of the FDA and foreign regulatory authorities;

 

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increased focus on privacy issues in countries around the world, including the United States and the EU and a more difficult legislative and regulatory landscape for privacy and data protection that continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect directly our business, including recently enacted laws in a majority of states in the United States requiring security breach notification;

 

   

changes in tax laws including changes related to the taxation of foreign earnings;

 

   

changes in accounting pronouncements promulgated by standard-setting or regulatory bodies, including the Financial Accounting Standards Board and the SEC, that are adverse to us; and

 

   

economic factors over which we have no control, including changes in inflation, interest rates and foreign currency exchange rates.

This list should not be considered an exhaustive statement of all potential risks and uncertainties. See “Risk Factors” for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this information statement, including in “Risk Factors.” Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

 

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Dividend Policy

Prior to completion of the distribution, the Board of Directors of Organon will adopt a policy with respect to the payment of dividends on Organon common stock following the distribution. We currently expect that we will pay regular cash dividends following the distribution. The timing, declaration, amount of, and payment of any dividends following the separation by Organon is within the discretion of its Board of Directors and will depend upon many factors, including Organon’s financial condition, earnings, corporate strategy, capital requirements of its operating subsidiaries, covenants associated with certain of Organon’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Organon’s Board of Directors.

Capitalization

Set forth below is our capitalization at December 31, 2020, on a historical and a pro forma basis, which reflects the adjustments described in more detail in the notes to the unaudited pro forma financial information included elsewhere in this information statement. You should read this information in conjunction with those notes, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited annual combined financial statements and the related notes included elsewhere in this information statement.

 

($ in millions)

   Historical     Pro Forma  

Assets:

    

Cash and cash equivalents

   $ 70     $                
  

 

 

   

 

 

 

Liabilities:

    

144A Senior Notes

   $ —       $                

Credit Agreement

     —      

Shareholders’ Equity:

    

Net investment from Parent

     6,108    

Accumulated other comprehensive loss

     (622  
  

 

 

   

 

 

 

Total Capitalization

   $ 5,486     $                
  

 

 

   

 

 

 

 

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Unaudited Pro Forma Financial Information

On                 , 2021, the board of directors of Merck & Co., Inc. approved the spin-off of its women’s health, biosimilars and established brands businesses into a new, publicly traded company, Organon & Co. The spin-off will be effected through a distribution of shares of Organon common stock to the Merck shareholders as of the record date.

The following unaudited pro forma condensed combined financial statements of Organon give effect to the Separation and related adjustments in accordance with Article 11 of the Securities and Exchange Commission’s Regulation S-X. In May 2020, the SEC adopted Release No.33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” or the Final Rule. The Final Rule is effective on January 1, 2021 and the unaudited pro forma condensed combined financial information herein is presented in accordance therewith.

The unaudited condensed combined pro forma balance sheet gives effect to the Separation and related transactions described below as if they had occurred on December 31, 2020. The unaudited pro forma adjustments to the condensed combined statement of income for the year ended December 31, 2020 assume that the Separation and related transactions occurred as of January 1, 2020.

The unaudited pro forma condensed combined statement of income for the years ended December 31, 2020, 2019 and 2018 has been derived from the audited historical combined statement of income of Organon for the years ended December 31, 2020, 2019 and 2018. The unaudited pro forma condensed combined balance sheet as of December 31, 2020 has been derived from the audited historical combined balance sheet of Organon as of December 31, 2020.

The unaudited pro forma condensed combined statement of income for fiscal years 2019 and 2018 has been adjusted to give effect to the impact of removing Merck Retained Products. See Note (a) to the unaudited pro forma financial information below.

The unaudited pro forma condensed combined statement of income for the year ended December 31, 2020 and the unaudited pro forma condensed combined balance sheet as of December 31, 2020 have been prepared to reflect adjustments to Organon’s historical combined financial information for the following transaction and autonomous entity adjustments:

 

   

the removal of Merck Retained Products (see Note (a)) included in Organon’s historical financial statements but retained by Merck;

 

   

the issuance of $9.5 billion of debt at an interest rate of 3.8%;

 

   

the adjustment for differences between Organon’s historical combined balance sheet prepared on a carve-out basis and assets and liabilities expected to be contributed by Merck to Organon;

 

   

the issuance of approximately                shares of Organon’s common stock as part of the spin-off;

 

   

the incremental costs Organon expects to incur as an autonomous entity;

 

   

the one-time expenses associated with separation of Organon; and

 

   

the impact of the separation agreement, the tax matters agreement, transition services agreements, interim operating agreements, the employee matters agreement, manufacturing and supply agreements and other commercial agreements between Organon and Merck and the provisions contained therein.

The unaudited pro forma financial information is for informational purposes only and does not purport to represent what Organon’s financial position and results of operations actually would have been had the Separation and Distribution occurred on the dates indicated, or to project Organon’s financial performance for any future period. The audited annual combined financial statements of Organon have been derived from

 

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Merck’s historical accounting records and reflect certain allocation of expenses. All of the allocations and estimates in such financial statements are based on assumptions that Merck’s management believes are reasonable. The historical combined financial statements of Organon do not necessarily represent the financial position or results of operations of Organon had it been operated as a standalone company during the periods or at the dates presented. As a result, autonomous entity adjustments have been reflected in the pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information reported below should be read in conjunction with Organon’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited annual combined financial statements and the corresponding notes included elsewhere in this information statement.

Unaudited Pro Forma Condensed Combined Statement of Income

 

     Year ended December 31, 2020  
            Transaction Accounting
Adjustments
                         

($ in millions except per share data)

   Historical      Business
Retained
by Merck(a)
    Other
Adjustments
          Autonomous
Entity
Adjustments
          Pro
Forma
 

Sales

   $ 8,096    $ (1,564   $ —       $ 75     (c  )    $ 6,607
  

 

 

    

 

 

   

 

 

     

 

 

     

 

 

 

Costs, Expenses and Other

               

Cost of sales

     3,347      (1,228     —           197     (c),(l)        2,316

Selling, general and administrative

     1,666      (310     5     (i  )      361     (l)        1,722

Research and development

     304      (94     —           105     (l  )      315

Restructuring costs

     70      (10     —           (57     (l  )      3

Other (income) expense, net

     29      6     379     (b  ),(o)      22     (l  )      436
  

 

 

    

 

 

   

 

 

     

 

 

     

 

 

 
     5,416      (1,636     384       628       4,792
  

 

 

    

 

 

   

 

 

     

 

 

     

 

 

 

Income from Continuing Operations Before Taxes

     2,680      72     (384       (553       1,815

Taxes on Income

     520      (24     (81     (e  )      (100     (e)        315
  

 

 

    

 

 

   

 

 

     

 

 

     

 

 

 

Net Income from Continuing Operations

   $ 2,160    $ 96   $ (303     $ (453     $ 1,500
  

 

 

    

 

 

   

 

 

     

 

 

     

 

 

 

Basic Earnings per Common Share from Continuing Operations

                (f)     

Diluted Earnings per Common Share from Continuing Operations

                (g)     

Weighted-average common shares outstanding

               

Basic

                (f)     

Diluted

                (g)     

See accompanying notes to unaudited pro forma financial information.

 

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Unaudited Pro Forma Condensed Combined Statement of Income

 

     Year ended December 31, 2019  

($ in millions)

   Historical      Business
Retained by
Merck(a)
     Pro Forma  

Sales

   $ 9,530    $ (1,753    $ 7,777
  

 

 

    

 

 

    

 

 

 

Costs, Expenses and Other

        

Cost of sales

     3,621      (1,347      2,274

Selling, general and administrative

     1,922      (479      1,443

Research and development

     332      (112      220

Restructuring costs

     101      (23      78

Other (income) expense, net

     (1      67      66
  

 

 

    

 

 

    

 

 

 
     5,975      (1,894      4,081
  

 

 

    

 

 

    

 

 

 

Income from Continuing Operations Before Taxes

     3,555      141      3,696

Taxes on Income

     337      53      390
  

 

 

    

 

 

    

 

 

 

Net Income from Continuing Operations

   $ 3,218    $ 88    $ 3,306
  

 

 

    

 

 

    

 

 

 

See accompanying notes to unaudited pro forma financial information.

Unaudited Pro Forma Condensed Combined Statement of Income

 

     Year ended December 31, 2018  

($ in millions)

   Historical      Business
Retained by
Merck(a)
     Pro Forma  

Sales

   $ 9,777    $ (1,485    $ 8,292
  

 

 

    

 

 

    

 

 

 

Costs, Expenses and Other

        

Cost of sales

     4,693      (1,152      3,541

Selling, general and administrative

     2,013      (446      1,567

Research and development

     365      (103      262

Restructuring costs

     119      (11      108

Other (income) expense, net

     (142      91      (51
  

 

 

    

 

 

    

 

 

 
     7,048      (1,621      5,427
  

 

 

    

 

 

    

 

 

 

Income from Continuing Operations Before Taxes

     2,729      136      2,865

Taxes on Income

     576      4      580
  

 

 

    

 

 

    

 

 

 

Net Income from Continuing Operations

   $ 2,153    $ 132    $ 2,285
  

 

 

    

 

 

    

 

 

 

See accompanying notes to unaudited pro forma financial information.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

 

          As of December 31, 2020  
          Transaction Accounting
Adjustments
                     

($ in millions)

  Historical     Business
Retained by
Merck(a)
    Other
Adjustments
        Autonomous
Entity
Adjustments
        Pro Forma  

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 70   $ (58   $ 488   (h)    $ —         $ 500

Accounts receivable (net of allowance for doubtful accounts of $18)

    1,360     (322     54   (j)      —           1,092

Inventories (excludes inventories of $127 classified in Other assets)

    971     (58     —           —           913

Other current assets

    977     (47     —           (1   (k)      929
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total current assets

    3,378     (485     542       (1       3,434
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Property, Plant and Equipment (at cost)

             

Land

    15     (1     —           —           14

Buildings

    653     (6     —           —           647

Machinery, equipment and office furnishings

    803     (16     —           —           787

Construction in progress

    362     (6     —           —           356
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 
    1,833     (29     —           —           1,804

Less: accumulated depreciation

    835     (15     —           —           820
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 
    998     (14     —           —           984
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Goodwill

    4,603     —         —           —           4,603
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Other Intangibles, Net

    503     —         —           —           503
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Other Assets

    438     (77     282   (b),(e),(i),(o)      249   (k),(n)      892
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 
  $ 9,920   $ (576   $ 824     $ 248     $ 10,416
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Liabilities and Equity

             

Current Liabilities

             

Trade accounts payable

  $ 294   $ (35   $ —         $ —         $ 259

Accrued and other current liabilities

    752     (93     138   (d),(m)      36   (n)      833

Due to related party

    1,150     189     (1,339   (j)      —           —    

Income taxes payable

    288     —         —           (179   (k)      109
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total current liabilities

    2,484     61     (1,201       (143       1,201
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Deferred Income Taxes

    128     —         (7   (e)      —           121
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Other Noncurrent Liabilities

    1,822     (83     9,556   (b),(i)      (1,343   (k),(n)      9,952
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Organon Equity

             

Net investment from Parent

    6,108     (572     (5,536   (j)      —           —    

Common stock, $0.01 par value,                 shares authorized;                 shares issued and outstanding on a pro forma basis

    —         —         —       (j)      —           —    

Accumulated deficit

    —         —         (1,988   (j)      1,734   (k)      (254

Accumulated other comprehensive loss

    (622     18     —           —           (604
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total equity

    5,486     (554     (7,524       1,734       (858
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 
  $ 9,920   $ (576   $ 824       $ 248       $ 10,416
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

See accompanying notes to unaudited pro forma financial information.

 

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Organon

Notes to the Unaudited Pro Forma Financial Information

(a)    The historical Organon financial statements include operations related to other Merck products that will be retained by the Parent (Merck Retained Products) in certain legal entities that will be contributed to Organon in connection with the spin-off. Pro forma adjustments, including income tax, represent the impact of removing the historical results of Merck Retained Products from Organon’s historical financial statements.

(b)    The pro forma condensed combined balance sheet reflects approximately $9.5 billion of borrowings expected to be incurred in connection with the separation and offset by anticipated debt issuance costs of $121 million. Organon plans to distribute approximately $9.0 billion of the proceeds to Merck in connection with the separation. The pro forma condensed combined statement of income reflects estimated interest expense of $386 million related to the $9.5 billion of long-term debt that Organon expects to incur in connection with the separation and amortization of deferred issuance costs. Based on Organon’s currently expected debt rating, the interest rate on the debt is expected to be approximately 3.8%. Interest expense was calculated assuming constant debt levels throughout the periods. Interest expense may be higher or lower if Organon’s actual interest rate or credit ratings change or if Organon prepays its debt with excess cash. A 1/8% change to the annual interest rate would change interest expense by $12 million for the year ended December 31, 2020.

(c)    Reflects the effect of manufacturing and supply agreements that Organon and Merck have entered into or will enter into prior to the Separation. The historical combined statement of income reflects certain Sales and Cost of sales relating to the intercompany arrangements between Organon and Merck in place prior to December 31, 2020. The net adjustment to Sales of $75 million is required to reflect the total sales that Organon will record for product manufactured and sold to Merck at the price expected to be provided for in the manufacturing and supply agreements to be entered into in conjunction with the Separation. The Cost of sales adjustment of $76 million is required to reflect total costs expected to be incurred to manufacture certain products for Merck. The Cost of sales adjustment also includes adjustment of $17 million to reflect approximate cost of products sold by Merck to Organon at the supply price. Historically, inventory transfers from Merck to Organon were recorded at cost.

(d)    Reflects removal of $20 million from Accrued and other current liabilities related to certain litigation matters included in the historical combined balance sheet that will be retained by Merck.

(e)    Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates.

(f)    The number of Organon shares used to compute basic earnings per share for the year ended December 31, 2020 is based on the number of shares of Organon common stock assumed to be outstanding on December 31, 2020, assuming the anticipated distribution ratio of                share of Organon common stock for each share of Merck common stock outstanding. The assumed number of outstanding shares of common stock is based on the number of Merck common shares of                outstanding as of                 .

(g)    The number of shares used to compute diluted earnings per share is based on the number of basic shares of Organon common stock as described in Note (f) above, plus incremental shares assuming exercise of dilutive outstanding options and vesting of other outstanding stock awards expected to be issued by Organon as replacement awards to Merck employees transferring to Organon.

(h)    Reflects an adjustment to represent $500 million of cash at the balance sheet date, which is the approximate amount of cash Organon will have following the completion of the Separation.

(i)    Reflects the addition of net benefit plan liabilities of $56 million and deferred benefit plan costs of $43 million that will be transferred to Organon by Merck prior to completion of the Separation and related transactions. The net benefit plan liabilities are excluded from the historical combined balance sheet as Organon is not the plan sponsor for the related benefit plans. The benefit plan expenses associated with these liabilities are

 

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included in Organon’s historical combined statement of income. The deferred benefit plan costs relate to service crediting Merck will provide to employees transferred to Organon in connection with the Separation for purposes of early retirement eligibility and subsidies under certain U.S.-defined benefit plan retained by Merck. The pro forma condensed combined statement of income reflects $5 million of amortization related to the deferred benefit plan costs.

(j)    Represents the reclassification of Merck’s net investment in Organon, including the additional net assets expected to be contributed by Merck and other pro forma adjustments, into Accumulated deficit and Common stock, par value $0.01, to reflect the number of shares of Organon common stock expected to be outstanding at the distribution date. The assumed number of outstanding shares of common stock is based on the number of Merck common shares of                outstanding as of                and an assumed pro-rata distribution ratio of                share of Organon common stock for each share of Merck common stock.

(k)    For purposes of the unaudited pro forma condensed combined financial information, Organon’s income tax liabilities attributable to its one-time transition tax assessed on previously undistributed earnings of its international subsidiaries pursuant to the TCJA were removed. These income tax liabilities were computed using a separate return methodology yielding approximately $161 million that was recorded within Income Taxes Payable and $1.3 billion that was recorded within Other Noncurrent Liabilities.

Organon is responsible for unrecognized tax benefits, net of indirect deferred tax benefits, to the extent a reserve relates exclusively to separate tax returns filed by Organon. Accordingly, to remove unrecognized tax benefits included in the historical combined balance sheet that were calculated on a separate return basis but will not be settled or paid by Organon, the pro forma condensed combined financial information reflects a decrease to Other current assets in the amount of $1 million, a decrease to Other Assets in the amount of $18 million, a decrease to Income taxes payable in the amount of $18 million, and a decrease to Other Noncurrent Liabilities in the amount of $193 million.

(l)    As a standalone public company, Organon expects to incur certain additional costs including costs resulting from:

 

   

separation and establishment of Organon as a standalone company including incremental costs related to commercial, manufacturing, research and business support functions that were previously shared with Merck;

 

   

costs to perform financial reporting and regulatory compliance, and costs associated with accounting, auditing, tax, legal, information technology, human resources, investor relations, risk management, treasury and other general and administrative related functions;

 

   

higher costs for the services to be provided by Merck to Organon under the transition services agreement with respect to information technology services, research and development, distribution, support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services;

 

   

one-time expenses associated with the separation of Organon’s information systems and facilities;

 

   

compensation including new equity-based awards in connection with the Separation;

 

   

insurance premiums; and

 

   

depreciation and amortization related to information technology infrastructure investments.

As a result, Organon expects to incur approximately $535 million of expenses (including one-time expenses of approximately $165 million expected to be incurred within 12 months following the completion of the Separation), in addition to Merck’s corporate and shared costs allocated in the historical combined financial statements. Accordingly, the pro forma condensed combined financial statements have been adjusted to depict

 

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the Company as an autonomous entity. The additional expenses have been estimated based on assumptions that management believes are reasonable. However, actual additional costs that will be incurred could be different from the estimates and would depend on several factors, including the economic environment and strategic decisions made in areas such as separation, manufacturing, selling and marketing, research and development, information technology and infrastructure.

(m)    The pro forma condensed combined balance sheet reflects $158 million in Accrued and other current liabilities with respect to additional employee related obligations of employees expected to be transferred from Merck to Organon prior to separation. These liabilities were excluded from the historical combined balance sheet as the related employees were not fully dedicated to Organon.

(n)    The pro forma condensed combined balance sheet reflects $267 million in Other assets, $36 million in Accrued and other current liabilities and $231 million in Other Noncurrent liabilities, with respect to additional right-of-use assets and related lease liability for Organon’s real estate leases executed at December 31, 2020 that had not yet commenced.

(o)    The pro forma condensed combined balance sheet reflects $110 million in Other assets with respect to a note receivable from a third party contract manufacturer expected to be contributed by Merck to Organon upon completion of negotiations currently ongoing with the third party. The pro forma condensed combined statement of income reflects $7 million of related interest income.

 

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Unaudited Pro Forma Non-GAAP Financial Measures

Earnings before interest, income taxes, depreciation and amortization (EBITDA), Adjusted EBITDA and Adjusted Net Income (non-GAAP financial measures) are alternative views of our performance that we provide because management believes this information enhances investors’ understanding of our results as it permits investors to understand how management assesses performance. Further discussion on non-GAAP financial measures is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement.

The unaudited pro forma non-GAAP financial measures presented below have been prepared to provide certain non-GAAP information for Organon, giving effect to the pro forma adjustments to Organon’s historical results of operations to arrive at Organon’s pro forma results of operations, more fully described above. The unaudited pro forma non-GAAP measures assume that the Separation and related transactions occurred as of January 1, 2020.

A reconciliation between pro forma Net Income from Continuing Operations, Pro Forma EBITDA and Pro Forma Adjusted EBITDA is as follows:

 

($ in millions)

   2020  

Pro Forma Net Income from Continuing Operations

   $ 1,500

Interest expense, net

     379

Taxes on income

     315

Depreciation

     116

Amortization

     85
  

 

 

 

Pro Forma EBITDA

   $ 2,395
  

 

 

 

Restructuring costs

     3

Organon formation costs

     238
  

 

 

 

Pro Forma Adjusted EBITDA

   $ 2,636
  

 

 

 

A reconciliation between pro forma financial measures and pro forma adjusted financial measures is as follows:

 

($ in millions)

   2020  

Pro Forma Income from Continuing Operations before taxes

   $ 1,815

Amortization

     85

Restructuring costs

     3

Organon formation costs

     238
  

 

 

 

Pro Forma Adjusted income before taxes

     2,141
  

 

 

 

Pro Forma Taxes on income

     315

Estimated tax benefit on above items

     55
  

 

 

 

Pro Forma Adjusted taxes on income

     370
  

 

 

 

Pro Forma Adjusted Net Income

   $ 1,771
  

 

 

 

 

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Selected Historical Financial Data

The following table presents our selected historical combined financial data as of and for each of the fiscal years in the three-year period ended December 31, 2020 and certain unaudited pro forma financial information. We derived the selected historical combined financial data as of December 31, 2020 and 2019, and for each of the fiscal years in the three-year period ended December 31, 2020, from our audited annual combined financial statements. The selected unaudited pro forma financial information at and for the year ended December 31, 2020 is unaudited and has been derived from our unaudited pro forma financial information included elsewhere in this information statement. You should read this information in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited annual combined financial statements and the related notes thereto, which are included elsewhere in this information statement. Organon & Co. was incorporated in Delaware on March 11, 2020 and will hold Merck’s women’s health, biosimilars and established brands businesses after the separation and distribution described herein. The contribution of these businesses to Organon will begin to occur over a period of several months prior to the distribution, and Organon will have no operations prior to any such contribution. We have prepared our historical combined financial statements as if Organon had conducted Merck’s women’s health, biosimilars and established brands businesses through all relevant periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Basis of Presentation of Our Financial Information.”

Selected Combined Financial Data

 

($ in millions)

   Pro Forma
Year Ended
December 31,
2020
    2020      2019     2018  

Results for Year:

         

Sales(1)

   $ 6,607     $ 8,096      $ 9,530     $ 9,777  

Cost of sales(2)

     2,316       3,347        3,621       4,693  

Selling, general and administrative

     1,722       1,666        1,922       2,013  

Research and development

     315       304        332       365  

Restructuring costs

     3       70        101       119  

Other (income) expense, net

     436       29        (1     (142

Income before taxes

     1,815       2,680        3,555       2,729  

Taxes on income

     315       520        337       576  

Net income

     1,500       2,160        3,218       2,153  

Capital expenditures

     255       278        109       101  

Depreciation

     116       72        69       68  

Other Data:

         

EBITDA(3)

   $ 2,395     $ 2,827      $ 3,896     $ 4,387  

Adjusted EBITDA(3)

     2,636       3,026        3,997       4,393  

Adjusted Net Income(3)

     1,771       2,396        3,286       3,550  

Year-End Position:

         

Working capital

   $ 2,233     $ 894      $ 2,614     $ 2,169  

Property, plant and equipment, net

     984       998        680       651  

Total assets

     10,416       9,920        10,548       10,494  

Total equity

     (858     5,486        7,035       6,348  

 

(1) 

Actual results include related party sales of $599 million in 2020, $501 million in 2019 and $432 million in 2018.

(2) 

Actual results include costs for inventory purchases from related parties of $1.0 billion in 2020, $1.1 billion in 2019 and $923 million in 2018.

(3) 

Earnings before interest, income taxes, depreciation and amortization (EBITDA), Adjusted EBITDA and Adjusted Net Income (non-GAAP financial measures) are alternative views of our performance that we provide because management believes this information enhances investors’ understanding of our results as it permits investors to understand how management assesses performance. Further

 

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  discussion and a reconciliation of U.S. GAAP financial measures to EBITDA, Adjusted EBITDA and Adjusted Net Income are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement. The information on EBITDA, Adjusted EBITDA and Adjusted Net Income should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

Our operations are principally managed on a products basis and include two operating segments, the Organon Products segment and the Merck Retained Products segment.

The Organon Products segment is engaged in developing and delivering innovative health solutions through our portfolio of prescription therapies within women’s health, biosimilars, and established brands (the “Organon Products”). We sell these products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. We expect to operate six manufacturing facilities in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the UK.

The Organon Products segment portfolio includes:

 

   

Women’s Health: We have innovative contraception and fertility brands that we believe have long-term growth potential, such as Nexplanon/Implanon NXT, globally one of the highest revenue generating LARCs, a class of contraceptives which are recognized as the most effective type of hormonal contraception available to patients with a lower long-term average cost.

 

   

Biosimilars: Our current portfolio spans immunology and oncology treatments. We expect that our biosimilars business will continue to generate growth in the near term as we continue to expand our existing products into new markets. All five of the biosimilars in our portfolio have launched in certain countries globally, including two biosimilars in the United States.

 

   

Established Brands: We have a broad portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management. Our established brands portfolio generates strong operating profit which we anticipate will continue to fund our future growth.

The Merck Retained Products segment reflects the results of certain Merck non-United States legal entities that will be contributed to Organon in connection with the spin-off (the “Transferring Entities” and each, a “Transferring Entity”). The Transferring Entities include operations related to other Merck products that will be retained by Merck (the “Merck Retained Products”). See “Basis of Presentation of Our Financial Information.”

Separation from Merck

On                , 2021, the board of directors of Merck approved the spin-off of its women’s health, biosimilars and established brands businesses into a new, independent publicly traded company, Organon & Co., through a distribution of our publicly traded stock to Merck shareholders.

Completion of the spin-off is subject to certain conditions which are described more fully under “The Separation and Distribution—Conditions to the Distribution,” including receipt of the Tax Opinions from the Tax Advisors to the effect that the distribution and certain related transactions will qualify as tax-free to Merck and its shareholders under Sections 355 and 368 of the Code.

Basis of Presentation of Our Financial Information

Our audited historical combined financial statements have been prepared on a standalone basis and are derived from Merck’s consolidated financial statements and accounting records. The combined financial statements reflect our financial position, results of operations and cash flows as we were operated as part of Merck prior to the spin-off, in conformity with U.S. GAAP. The assets, liabilities, revenue and expenses of the Company have been reflected in our combined financial statements on a historical cost basis, as included in the

 

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consolidated financial statements of Merck, using the historical accounting policies applied by Merck. These combined financial statements do not purport to reflect what our results of operations, comprehensive income, financial position, equity or cash flows would have been had we operated as a standalone public company during the periods presented.

Our combined financial statements were prepared following a legal entity approach, which resulted in the inclusion of the following:

 

   

Certain assets and liabilities, results of operations and cash flows attributable to the sales of products in the Organon Products segment that will be contributed to us prior to the consummation of the spin-off, and

 

   

The Transferring Entities, which have historically included the results from the sales of products included both in the Organon Products segment and the Merck Retained Products segment. Each Transferring Entity’s historical operations, including its results of operations, assets and liabilities, and cash flows have been fully reflected in these combined financial statements; however, prior to the consummation of the spin-off, the products in the Merck Retained Products segment will be contributed to newly formed Merck entities that will be retained by Merck. Upon full contribution of the Merck Retained Products by us to Merck and its affiliates, the historical results of operations of such products in the Merck Retained Products segment will be reflected as discontinued operations in the Organon financial statements.

During the fourth quarter of 2020, in contemplation of the spin-off:

 

   

The Merck Retained Products business in certain Transferring Entities was distributed to Merck affiliates (the “MRP Distribution”) and the Merck Retained Products segment’s results of operations, assets and liabilities, and cash flows for such Transferring Entities are included in these combined financial statements through the date of distribution to Merck affiliates.

 

   

The Organon Products business in certain jurisdictions has been transferred by Merck affiliates to legal entities established to operate the Organon Products business and, as noted above, such entities will be contributed to Organon (the “Organon Entities”).

Our businesses have historically functioned together with the other businesses controlled by Merck. Accordingly, we relied on Merck’s corporate and other support functions for our business. Therefore, certain corporate and shared costs have been allocated to us (see Note 2 to our audited annual combined financial statements).

Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, us during the periods presented, though the allocations may not be indicative of the actual costs that would have been incurred had we operated as a standalone public company. Actual costs that may have been incurred had we been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.

The combined balance sheet reflects all of the assets and liabilities that are either specifically identifiable or are directly attributable to us and our operations, as well as the assets and liabilities attributable to Merck Retained Products in the Transferring Entities. However, the balance sheet at December 31, 2020 excludes the assets and liabilities of the Merck Retained Products in certain Transferring Entities that were distributed to the Parent in the fourth quarter of 2020 as part of the MRP Distribution. The assets and liabilities in the remaining Transferring Entities attributable to Merck Retained Products will be distributed to the Parent prior to the spin-off. Property, plant and equipment reflected in the combined balance sheet is primarily attributable to the six manufacturing facilities we expect to operate. No assets or liabilities are reflected in the combined balance sheet for amounts related to derivatives and hedging activities.

 

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Merck maintains various employee benefit plans which our employees participate in, and a portion of the costs associated with these plans has been included in our combined financial statements. The combined balance sheet only includes assets and liabilities relating to plans for which the entity being transferred is the plan sponsor; most of these plans are on the Transferring Entities and substantially all of the related assets and liabilities were transferred to Merck as part of the MRP Distribution in the fourth quarter of 2020 or will be prior to the spin-off.

Income tax expense and deferred tax balances in the combined financial statements have been calculated on a separate tax return basis. Our operations are included in the tax returns of certain Organon Entities, Transferring Entities or the respective Merck entities of which our business is a part. In the future, as a standalone company, we will file tax returns on our own behalf, and our deferred taxes and effective income tax rate may differ from those in the historical periods.

Merck utilizes a centralized approach to cash management and the financing of its operations. Cash generated by us is routinely transferred into accounts managed by Merck’s centralized treasury function and cash disbursements for our operations are funded as needed by Merck. Cash and cash equivalents of the Organon Entities and the Transferring Entities are reflected in our combined balance sheet. Balances held by the Organon Entities and the Transferring Entities with Merck for cash transfers and loans are reflected as Due from related party, Due to related party or Related Party Loans Payable. All other cash, cash equivalents, short-term investments and related transfers between Merck and us are generally held centrally through accounts controlled and maintained by Merck and are not specifically identifiable to us. Accordingly, such balances have been accounted for through Net investment from Parent. Merck’s third-party debt and related interest expense have not been attributed to us because we are not the legal obligor of the debt and the borrowings are not specifically identifiable to us. However, in connection with the spin-off, we expect to incur indebtedness as set forth under “Description of Certain Indebtedness.” Such indebtedness would cause us to record additional interest expense in future periods.

Relationship with Merck

Following the spin-off, certain functions that Merck provided to us prior to the spin-off will either continue to be provided to us by Merck under a transition services agreement or will be performed using our own resources or third-party service providers. Additionally, under manufacturing and supply agreements, we will manufacture certain products for Merck or its applicable affiliate and Merck will manufacture certain products for us or our applicable affiliate. We expect to incur certain costs in establishing ourselves as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.

Concurrent with the spin-off, we will enter into certain agreements with Merck. See “Certain Relationships and Related Person Transactions—Agreements with Merck.”

Key Trends Affecting Our Results of Operations

 

   

Generic Competition: The majority of our established brands products are beyond market exclusivity. However, these products continue to represent a significant value opportunity arising from long-term sustainable revenue streams and well-established supply chains that together generate significant operating profit relative to low promotional and development expenses.

 

   

Sustained Shift Towards Long-Acting Reversible Contraceptives: Although daily contraceptive pills remain the largest market segment, the LARC market segment, which includes Nexplanon/Implanon NXT, has experienced significant growth in the years leading up to 2019 due to a sustained shift from daily oral contraception to LARC. This was driven by payors, providers and patients looking for options beyond commonly used daily contraceptive pills. The COVID-19 pandemic negatively affected

 

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the LARC segment during 2020 due to clinic closures and the postponement of non-essential medical procedures during country lockdowns. However, LARC segment growth quickly rebounded during months when clinic restrictions were removed and the sustained shift to LARC is expected to continue with fundamental drivers unchanged.

 

   

Increased Access to Fertility Solutions: We believe governments and payors are implementing favorable policies across major markets that, in turn, drive growth in the market for women’s health therapies. For example, in the United States, there has been an increase in fertility insurance mandates and employer coverage, albeit subject to certain exemptions.

 

   

Emergence of Biosimilars: Biologics continue to experience strong growth trends. However, given the high cost of many of these treatments, biosimilars, as a more affordable alternative, represent a significant opportunity for patients, providers, and payors once a biologics product loses patent protection. Moreover, a significant number of biologics are expected to lose exclusivity over the next decade, representing a large opportunity for more biosimilar approvals.

 

   

Increased Competitive Pressures: The markets in which we conduct our business and the pharmaceutical industry in general are highly competitive and highly regulated. Our competitors include other worldwide research-based pharmaceutical companies, smaller research companies with more limited therapeutic focus and generic drug manufacturers.

COVID-19

In March 2020, the World Health Organization (“WHO”) declared the outbreak of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. Although COVID-19-related disruptions, including patients’ inability to access health care providers, prioritization of COVID-19 patients, as well as social distancing measures have negatively affected our results, we remain confident in the underlying demand for our products.

In 2020, the negative impact of the COVID-19 pandemic to Organon Products segment sales was estimated to be approximately $400 million. A significant portion of our revenue is comprised of physician-administered products, which, despite underlying demand, have been affected by social distancing measures, as well as fewer medical visits and elective procedures. These impacts, as well as the prioritization of COVID-19 patients at health care providers, resulted in reduced administration of many products within established brands and women’s health, in particular Nexplanon/Implanon NXT, throughout 2020. The COVID-19 pandemic also had a negative effect on sales within the Merck Retained Products segment as discussed below.

We believe that global health systems and patients have largely adapted to the impacts of the COVID-19 pandemic, but our assumption is that ongoing residual negative impacts will persist, particularly during the first half of 2021. We expect that the negative impact to Organon Products segment revenues in 2021 will be less than the negative impact in 2020, principally affecting products within established brands and women’s health, primarily Nexplanon/Implanon NXT. The COVID-19 pandemic will also continue to negatively affect sales within the Merck Retained Products segment in 2021.

Operating expenses in 2020 were positively affected by the COVID-19 pandemic, primarily driven by lower promotional and selling costs as discussed below.

 

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Operating Results

 

($ in millions)

   2020      2019      2018  

Sales

   $ 8,096    $ 9,530    $ 9,777
  

 

 

    

 

 

    

 

 

 

Costs, Expenses and Other

        

Cost of sales

     3,347      3,621      4,693

Selling, general and administrative

     1,666      1,922      2,013

Research and development

     304      332      365

Restructuring costs

     70      101      119

Other (income) expense, net

     29      (1      (142
  

 

 

    

 

 

    

 

 

 
     5,416      5,975      7,048
  

 

 

    

 

 

    

 

 

 

Income Before Taxes

     2,680      3,555      2,729

Taxes on Income

     520      337      576
  

 

 

    

 

 

    

 

 

 

Net Income

   $ 2,160    $ 3,218    $ 2,153
  

 

 

    

 

 

    

 

 

 

Sales Overview

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

United States

   $ 1,402      (30 )%      (30 )%    $ 1,997      —       —     $ 1,995

International

     6,694      (11 )%      (9 )%      7,533      (3 )%      —       7,782
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,096      (15 )%      (14 )%    $ 9,530      (3 )%      —     $ 9,777
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Worldwide sales were $8.1 billion in 2020, a decline of 15% compared with 2019. Sales for the Organon Products segment were $6.5 billion in 2020, a decline of 16% compared with 2019, primarily due to recent generic competition for women’s health product NuvaRing, and ongoing generic competition for products within the established brands business, particularly for respiratory products Singulair and Nasonex, and cardiovascular products Zetia and Vytorin. As described above, the COVID-19 pandemic negatively affected sales in 2020, contributing to declines in established brands, particularly respiratory and cardiovascular products, as well as declines in women’s health products, particularly Nexplanon/Implanon NXT, Follistim AQ and Orgalutran. The Organon Products segment sales decline was partially offset by revenue resulting from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring, higher sales of biosimilars resulting from the continued uptake of Renflexis in existing markets and the launch of Ontruzant into new markets, as well as higher sales of cardiovascular product Atozet. Sales for the Merck Retained Products segment were $1.6 billion in 2020, a decline of 11% compared with 2019.

Worldwide sales were $9.5 billion in 2019, a decline of 3% compared with 2018. Sales for the Organon Products segment were $7.8 billion in 2019, a decline of 6% compared with 2018, primarily due to ongoing generic competition in the established brands business, particularly for Zetia, Vytorin, Nasonex, antidepressant Remeron, and non-opioid pain product Arcoxia. Higher sales of biosimilars resulting from the ongoing launches of Renflexis, Ontruzant and Brenzys, as well as higher sales of Nexplanon/Implanon NXT, and cardiovascular products Rosuzet and Atozet, partially offset the Organon Products segment revenue decline. Sales for the Merck Retained Products segment were $1.8 billion in 2019, an increase of 18% compared with 2018.

 

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Sales by Product Details

Sales of our products were as follows:

 

($ in millions)

  2020     2019     2018  
    U.S.     Int’l     Total     U.S.     Int’l     Total     U.S.     Int’l     Total  

Organon Products Segment

                 

Women’s Health

                 

Nexplanon/Implanon

  $ 488   $ 192   $ 680   $ 568   $ 219   $ 787   $ 495   $ 208   $ 703

NuvaRing

    110     127     236     742     136     879     722     180     902

Follistim AQ

    84     109     193     103     138     241     115     153     268

Orgalutran

    11     69     81     25     86     112     48     93     141

Cerazette

    —         67     67     —         71     71     —         90     90

Biosimilars

                 

Renflexis

    122     13     135     94     3     97     26     1     27

Ontruzant

    3     113     115     —         83     83     —         20     20

Brenzys

    —         74     74     —         72     72     —         16     16

Established Brands

                 

Cardiovascular

                 

Zetia

    (1     483     482     14     575     590     45     813     857

Vytorin

    12     171     182     16     269     285     10     487     497

Atozet

    —         453     453     —         391     391     —         347     347

Rosuzet

    —         130     130     —         120     120     —         58     58

Cozaar/Hyzaar

    21     365     386     24     418     442     23     431     453

Zocor

    2     75     77     6     107     112     5     116     121

Respiratory

 

Singulair

    18     444     462     29     669     698     20     688     708

Dulera

    188     35     222     188     30     217     199     28     227

Nasonex

    12     206     218     9     284     293     23     353     376

Clarinex

    7     123     130     8     133     142     10     145     155

Asmanex

    75     8     83     84     10     94     100     13     113

Non-Opioid Pain, Bone and Dermatology

                 

Arcoxia

    —         258     258     —         288     288     —         335     335

Fosamax

    4     176     180     9       188       197       4       205       209  

Diprospan

    —         118     118     —         102     102     —         102     102

Diprosone

    1     82     83     1     83     84     (1     92     91

Other

                 

Proscar

    2     174     176     2     202     203     2     183     185

Propecia

    10     119     129     11     120     131     12     119     131

Sinemet

    (1     78     77     1     78     79     4     98     102

Remeron

    2     61     64     3     79     82     2     130     132

Other Organon Products segment(1)

    232       807       1,041     60     826     885     131     793     926
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Organon Products segment sales

    1,402       5,130       6,532     1,997     5,780     7,777     1,995     6,297     8,292
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Merck Retained Products

 

Keytruda

    —         529     529     —         493     493     —         309     309

Januvia/Janumet

    —         76     76     —         110     110     —         113     113

Gardasil/Gardasil 9

    —         52     52     —         70     70     —         63     63

Zostavax

    —         50     50     —         65     65     —         76     76

Simponi

    —         49     49     —         69     69     —         92     92

Varivax

    —         1     1     —         93     93     —         19     19

Supply sales to Merck affiliates

    —         542     542     —         501     501     —         432     432

Other Merck Retained Products segment(1)

    —         265     265     —         352     352     —         381     381
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Merck Retained Products segment sales

    —         1,564     1,564     —         1,753     1,753     —         1,485     1,485
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,402     $ 6,694     $ 8,096   $ 1,997   $ 7,533   $ 9,530   $ 1,995   $ 7,782   $ 9,777
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

United States plus international may not equal total due to rounding.

 

(1)

Includes sales of products not listed separately, revenue resulting from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring, allocated amounts from revenue hedging activities, and manufacturing sales to Merck and third parties.

 

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A discussion of performance for select products in the businesses follows.

Organon Products Segment

Women’s Health

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Nexplanon/Implanon

   $ 680      (14 )%      (13 )%    $ 787      12     14   $ 703

NuvaRing

     236      (73 )%      (73 )%      879      (3 )%      (2 )%      902

Follistim AQ

     193      (20 )%      (20 )%      241      (10 )%      (7 )%      268

Orgalutran

     81      (28 )%      (27 )%      112      (21 )%      (18 )%      141

Contraception

Worldwide sales of Nexplanon/Implanon NXT, a single-rod subdermal contraceptive implant, declined 14% in 2020 primarily due to lower demand in the United States and in the EU resulting from the COVID-19 pandemic. Global sales of Nexplanon/Implanon NXT grew 12% in 2019 primarily due to higher demand and pricing in the United States.

Worldwide sales of NuvaRing, a vaginal contraceptive product, declined 73% in 2020 due to generic competition in the United States. The patent that provided market exclusivity for NuvaRing in the United States expired in April 2018 and generic competition began in December 2019. Accordingly, we are experiencing a rapid and substantial decline in NuvaRing sales in the United States and we expect the decline to continue. In addition to sales of branded NuvaRing, we have an agreement with a generic manufacturer that authorizes the sale of generic etonogestrel/ethinyl estradiol vaginal ring. Under the terms of the agreement, we are reimbursed on a cost-plus basis by the generic manufacturer for supplying finished goods and receive a share of the net profits recorded by the generic manufacturer. In 2020, we recorded revenue of $148 million related to this arrangement. We expect revenue under this arrangement to decline significantly in 2021. Global NuvaRing sales declined 3% in 2019 primarily due to lower demand in the EU due to ongoing generic competition, largely offset by higher sales in the United States reflecting higher pricing that was partially offset by lower demand.

Fertility

Worldwide sales of Follistim AQ (marketed in most countries outside the United States as Puregon), a fertility treatment, declined 20% in 2020 largely due to lower demand globally resulting from the COVID-19 pandemic. Worldwide sales of Follistim AQ declined 10% in 2019 primarily due to lower demand in the EU and in the United States, partially offset by higher demand in China.

Worldwide sales of Orgalutran, a fertility treatment, declined 28% in 2020 primarily due to lower pricing in the United States, as well as lower demand in international markets attributable both to the COVID-19 pandemic and generic competition. Worldwide sales decreased 21% in 2019 primarily due to lower demand in the United States as a result of generic competition.

Biosimilars

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change      % Change
Excluding
Foreign
Exchange
     2018  

Renflexis

   $ 135      39     39   $ 97        *        *      $ 27

Ontruzant

     115      38     37     83        *        *        20

Brenzys

     74      3     4     72        *        *        16

 

*

Calculation not meaningful.

 

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The following biosimilar products are part of a development and commercialization agreement between Merck and Samsung Bioepis entered into in 2013. See “Business—Third-Party Agreements—Samsung Bioepis Development and Commercialization Agreement” and Note 4 to our annual combined financial statements. Our commercialization territories under the agreement vary by product as noted below.

Renflexis (infliximab-abda) is a biosimilar to Remicade (infliximab) for the treatment of certain inflammatory diseases. Sales growth in 2020 and 2019 was driven primarily by continued uptake in the United States since launch in 2017. Higher demand in Canada also contributed to the sales increase in 2020. We have worldwide commercialization rights to Renflexis in countries outside the EU, Korea, China, Turkey and Russia.

Ontruzant (trastuzumab-dttb) is a biosimilar to Herceptin (trastuzumab) for the treatment of HER2-overexpressing breast cancer and HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma. Sales growth in 2020 was driven by the launch in Brazil. Sales growth in 2019 was driven by continued uptake in the EU since launch in early 2018. In December 2019, the WHO announced that Ontruzant is the first biosimilar medicine approved for WHO pre-qualification. With this designation, Ontruzant is eligible for procurement through international agencies, which could give many more women with HER2-positive breast cancer access to this essential medicine in low-income countries. We have worldwide commercialization rights to Ontruzant in countries outside of Korea and China.

Brenzys (etanercept) is a biosimilar to Enbrel (etanercept) for the treatment of certain inflammatory diseases. Sales in 2020 were relatively flat compared to 2019. Sales growth in 2019 was driven by the launch in Brazil. We have worldwide commercialization rights to Brenzys in countries outside of the United States, the EU, Korea, China and Japan.

Aybintio (bevacizumab) is a biosimilar to Avastin (bevacizumab) for the treatment of metastatic carcinoma of the colon or rectum, metastatic non-squamous, non-small cell lung cancer, metastatic renal cell carcinoma, metastatic cervical cancer, epithelial ovarian, fallopian tube, or primary peritoneal cancer and metastatic breast cancer. Aybintio was approved in the EU in August 2020 and was launched in September 2020. We currently have no plan for the timing of any launch of Aybintio in the United States nor do we know when such timing would be determined. We have commercialization rights to Aybintio in the United States, Canada, Germany, Italy, France, the UK and Spain.

Hadlima (adalimumab-bwwd) is a biosimilar to Humira (adalimumab) for the treatment of certain inflammatory diseases. We have worldwide commercialization rights to Hadlima in countries outside of the EU, Korea, China, Turkey and Russia. Samsung Bioepis reached a global settlement with AbbVie permitting us to launch Hadlima in the United States in June 2023 and outside of the United States starting in 2021. Hadlima is currently approved in the United States, Australia, Canada, and Israel. Hadlima was launched in Australia and Canada in February 2021.

Established Brands

Established brands represents a broad portfolio of well-known brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management, for which generic competition varies by market.

Cardiovascular

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Zetia/Vytorin

   $ 664      (24 )%      (24 )%    $ 874      (35 )%      (34 )%    $ 1,355

Atozet

     453      16     16     391      13     18     347

Rosuzet

     130      8     9     120      107     115     58

Cozaar/Hyzaar

     386      (13 )%      (11 )%      442      (3 )%      2     453

Zocor

     77      (31 )%      (32 )%      112      (7 )%      (4 )%      121

 

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Combined global sales of Zetia (marketed in most countries outside of the United States as Ezetrol) and Vytorin (marketed outside of the United States as Inegy), medicines for lowering LDL cholesterol, declined 24% in 2020 primarily driven by lower sales of Ezetrol in Japan and Ezetrol and Inegy in the EU. The patent that provided market exclusivity for Ezetrol in Japan expired in September 2019 and generic competition began in June 2020. The EU patents for Ezetrol and Inegy expired in April 2018 and April 2019, respectively. Accordingly, the Company is experiencing sales declines in these markets as a result of generic competition and expects the declines to continue. The overall sales decline in 2020 also reflects lower pricing due to loss of exclusivity in Australia. Partially offsetting the sales decline in 2020 were higher sales of Ezetrol in China, reflecting higher demand that was partly offset by lower pricing. Combined global sales of Zetia and Vytorin declined 35% in 2019 primarily due to lower sales in the EU, as well as in Australia due to generic competition.

Sales of Atozet (marketed outside of the United States), a medicine for lowering LDL cholesterol, grew 16% in 2020 primarily due to higher demand in most markets, particularly in the EU, Japan and other countries in the Asia Pacific region. Sales of Atozet grew 13% in 2019 primarily due to higher demand in the EU and Korea.

Sales of Rosuzet (marketed outside of the United States), a medicine for lowering LDL cholesterol, grew 8% in 2020 primarily due to higher demand in Korea and Japan. We expect sales of Rosuzet to decline in 2021 due to the expiration of a distribution agreement in Korea. Sales of Rosuzet more than doubled in 2019, primarily due to the launch in Japan, as well as higher demand in Korea.

Combined global sales of Cozaar, and its companion agent Hyzaar (a combination of Cozaar and hydrochlorothiazide that is marketed in Japan as Preminent), a medicine for the treatment of hypertension, declined 13% in 2020 primarily due to lower demand in China, Japan and the EU. Combined global sales of Cozaar and Hyzaar declined 3% in 2019 primarily due to the unfavorable effect of foreign exchange. Excluding the unfavorable effect of foreign exchange, sales performance reflects higher demand in the Asia Pacific region, particularly in China, partially offset by lower demand and lower pricing in Japan.

Worldwide sales of Zocor, a statin for modifying cholesterol, declined 31% in 2020 primarily due to lower demand in China, and decreased 7% in 2019 primarily due to lower sales in the EU and Japan.

Respiratory

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Singulair

   $ 462      (34 )%      (34 )%    $ 698      (1 )%      1   $ 708

Dulera

     222      2     2     217      (4 )%      (4 )%      227

Nasonex

     218      (26 )%      (24 )%      293      (22 )%      (19 )%      376

Worldwide sales of Singulair, a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, declined 34% in 2020 primarily due to lower demand in China and Japan attributable in part to the COVID-19 pandemic. Global sales of Singulair declined 1% in 2019 primarily reflecting the unfavorable effect of foreign exchange. Excluding the unfavorable effect of foreign exchange, sales performance in 2019 reflects higher demand in China and a favorable adjustment to customer discounts in the United States, largely offset by lower demand and lower pricing in Japan and the EU.

Global sales of Dulera Inhalation Aerosol, a combination medicine for the treatment of asthma, increased 2% in 2020 due to higher demand in Canada. We expect sales of Dulera to decline in 2021 due to generic competition in the United States. Sales of Dulera declined 4% in 2019 due to lower demand in the United States.

 

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Global sales of Nasonex, an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, declined 26% in 2020 primarily due to continued generic competition in Japan, as well as lower demand in several other international markets resulting from the COVID-19 pandemic, partially offset by higher demand in China. Global sales decreased 22% in 2019 primarily due to ongoing generic competition in Japan and the United States.

Non-Opioid Pain, Bone and Dermatology

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Arcoxia

   $ 258      (11 )%      (8 )%    $ 288      (14 )%      (10 )%    $ 335

Sales of Arcoxia, for the treatment of arthritis and pain, declined 11% in 2020 primarily due to lower demand in the Asia Pacific region related to the COVID-19 pandemic, partially offset by higher demand in the EU. Sales of Arcoxia declined 14% in 2019 primarily due to lower demand in the EU and Latin America.

Other

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Proscar

   $ 176      (13 )%      (13 )%    $ 203      10     15   $ 185

Remeron

     64      (22 )%      (21 )%      82      (38 )%      (36 )%      132

Worldwide sales of Proscar, for the treatment of symptomatic benign prostate enlargement, declined 13% in 2020 primarily due to lower demand in China. Global sales of Proscar increased 10% in 2019 due to higher volumes in China reflecting a recovery from supply constraints in the prior year.

Worldwide sales of Remeron, for the treatment of depression, declined 22% in 2020 and 38% in 2019 primarily due to lower demand in Japan. Remeron lost market exclusivity in Japan in December 2018.

Merck Retained Products Segment

 

($ in millions)

   2020      % Change     % Change
Excluding
Foreign
Exchange
    2019      % Change     % Change
Excluding
Foreign
Exchange
    2018  

Keytruda

   $ 529      7     16   $ 493      60     67   $ 309

Januvia/Janumet

     76      (31 )%      (23 )%      110      (3 )%      3     113

Gardasil/Gardasil 9

     52      (27 )%      (23 )%      70      11     16     63

Zostavax

     50      (23 )%      (22 )%      65      (15 )%      (11 )%      76

Simponi

     49      (30 )%      (30 )%      69      (25 )%      (22 )%      92

Varivax

     1      (99 )%      (98 )%      93        *       *       19

 

*

Calculation not meaningful.

As discussed above, prior to the consummation of the spin-off, the products in the Merck Retained Products segment will be contributed to newly formed Merck entities that will be retained by Merck. Upon full contribution of the Merck Retained Products segment by us to Merck and its affiliates, the historical results of operations of such products in the Merck Retained Products segment will be reflected as discontinued operations in the Organon financial statements. As described in “Basis of Presentation of Our Financial Information” above, the MRP Distribution that occurred in the fourth quarter of 2020 contributed to lower sales of the Merck Retained Products in 2020 compared with 2019.

 

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Keytruda is an anti-PD-1 (programmed death receptor-1) therapy approved for the treatment of many types of cancer. Sales of Keytruda in the Transferring Entities grew 7% in 2020 and 60% in 2019 primarily driven by higher demand reflecting both uptake across approved indications and the launch of new indications in the UK, Brazil and Switzerland entities. However, the COVID-19 pandemic had a dampening effect on growing demand in 2020. Sales growth in 2020 was partially offset by lower sales resulting from the MRP Distribution.

Januvia and Janumet are medicines that help lower blood sugar levels in adults with type 2 diabetes. Combined sales of Januvia and Janumet in the Transferring Entities declined 31% in 2020 largely due to lower volumes in the UK entity attributable in part to the MRP Distribution, as well as lower pricing in the Brazil entity. Combined sales of Januvia and Janumet in the Transferring Entities were relatively flat in 2019 compared with 2018.

Gardasil/Gardasil 9 are vaccines to help prevent certain cancers and other diseases caused by certain types of human papillomavirus (HPV). Sales of Gardasil/Gardasil 9 in the Transferring Entities declined 27% in 2020 due to lower demand in the UK entity attributable both to the COVID-19 pandemic and to the MRP Distribution. Sales of Gardasil/Gardasil 9 in the Transferring Entities grew 11% in 2019 primarily due to higher volumes in the UK entity.

Zostavax is a vaccine to help prevent shingles (herpes zoster) in adults 50 years of age and older. Sales of Zostavax in the Transferring Entities declined 23% in 2020 and 15% in 2019 primarily due to lower government tenders in the UK. The sales decline in 2020 was also attributable to the MRP Distribution.

Simponi is a once-monthly subcutaneous treatment for certain inflammatory diseases. Sales of Simponi in the Transferring Entities declined 30% in 2020 and 25% in 2019 primarily driven by lower demand in the UK entities due to the launch of biosimilars for a competing product. The sales decline in 2020 was also attributable to the MRP Distribution.

Varivax is a vaccine to help prevent chickenpox (varicella). Sales of Varivax in the Transferring Entities declined 99% in 2020 driven by lower sales in the Brazil entity due to government tenders. Sales growth of Varivax in the Transferring Entities in 2019 was driven by higher sales in the Brazil entity due to government tenders.

Costs, Expenses and Other

 

($ in millions)

   2020      % Change     2019     % Change     2018  

Cost of sales

   $ 3,347      (8 )%    $ 3,621     (23 )%    $ 4,693

Selling, general and administrative

     1,666      (13 )%      1,922     (5 )%      2,013

Research and development

     304      (9 )%      332     (9 )%      365

Restructuring costs

     70      (31 )%      101     (15 )%      119

Other (income) expense, net

     29        *       (1     *       (142
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,416      (9 )%    $ 5,975     (15 )%    $ 7,048
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Calculation not meaningful.

Cost of Sales

Cost of sales includes expenses for the amortization of intangible assets which totaled $85 million in 2020, $285 million in 2019 and $1.6 billion in 2018. The decline in amortization expenses in 2020 compared with 2019 is primarily due to the intangible assets related to Nasonex, Clarinex and Atozet, which were fully amortized at the end of 2019. The decline in amortization expenses in 2019 as compared with 2018 is primarily due to the intangible assets related to Zetia and Vytorin, which were almost fully amortized at the end of 2018.

 

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Gross margin was 58.7% in 2020, 62.0% in 2019 and 52.0% in 2018. The gross margin decline in 2020 compared with 2019 reflects pricing pressure and product mix, partially offset by lower amortization of intangible assets as noted above. The gross margin increase in 2019 compared with 2018 was primarily due to lower amortization of intangible assets noted above.

Selling, General and Administrative

Selling, general and administrative expenses declined 13% in 2020 primarily due to lower selling and promotional costs, reflecting lower travel and meeting expenses, due in part to the impact of the COVID-19 pandemic, as well as lower costs due to the MRP Distribution. These declines were partially offset by costs incurred to establish Organon as a standalone entity. Selling, general and administrative expenses declined 5% in 2019 primarily due to lower selling and promotional costs on products within established brands, partially offset by higher spending to support the ongoing launches of biosimilars and higher spending on the Merck Retained Products, particularly Keytruda.

Research and Development

Research and development expenses declined 9% in 2020 primarily due to lower costs from post-marketing research activities, as well as lower costs due to the MRP Distribution, partially offset by higher spending associated with Organon development programs. Research and development expenses declined 9% in 2019, primarily reflecting lower costs from post-marketing research activities, as well as lower spending driven by the conclusion of certain clinical development programs. The decline was partially offset by higher spending for clinical trials and research collaborations associated with the Merck Retained Products.

Restructuring Costs

Certain of our operations have been affected by restructuring plans initiated by Merck. These restructuring plans include a global restructuring program approved in 2019 focused primarily on further optimizing Merck’s manufacturing and supply network and reducing its global real estate footprint. Our operations were also affected by previous restructuring plans designed to streamline Merck’s cost structure, which included the elimination of positions in sales, administrative and headquarters organizations, as well as the sale or closure of certain manufacturing and research and development sites, and the consolidation of office facilities. Separation costs incurred were associated with actual headcount reductions made by Merck, as well as those headcount reductions that were probable and could be reasonably estimated. Also included in restructuring costs are costs associated with facilities to be sold or closed, asset abandonment, shut-down and other related costs (see Note 5 to our audited annual combined financial statements).

Other (Income) Expense, Net

For details on the components of Other (income) expense, net, see Note 13 to our audited annual combined financial statements.

 

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Table of Contents

Segment Profits

 

     Organon
Products
     Merck
Retained
Products
    Total      Organon
Products
     Merck
Retained
Products
    Total     Organon
Products
    Merck
Retained
Products
    Total  

$ in millions

   2020      2019     2018  

Sales

   $ 6,532    $ 1,564   $ 8,096    $ 7,777    $ 1,753   $ 9,530   $ 8,292   $ 1,485   $ 9,777

Costs, Expenses and Other

                     

Cost of sales

     2,119      1,228     3,347      2,274      1,347     3,621     3,541     1,152     4,693

Selling, general and administrative

     1,356      310     1,666      1,443      479     1,922     1,567     446     2,013

Research and development

     210      94     304      220      112     332     262     103     365

Restructuring costs

     60      10     70      78      23     101     108     11     119

Other (income) expense, net

     35      (6     29      66      (67     (1     (51     (91     (142
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Taxes

   $ 2,752    $ (72   $ 2,680    $ 3,696    $ (141   $ 3,555   $ 2,865   $ (136   $ 2,729
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organon Products Segment

Organon Products segment profits declined 26% in 2020 primarily due to lower sales, partially offset by lower amortization of intangible assets, lower selling and promotional spending due in part to the COVID-19 pandemic, and favorability in other (income) expense, net.

Organon Products segment profits grew 29% in 2019 primarily due to lower amortization of intangible assets. Declines in selling and promotional spending related to established brands, lower research and development spending resulting from the conclusion of certain clinical trials, and lower restructuring costs also contributed to the increase in Organon Products segment profits. Partially offsetting Organon Products segment profit growth in 2019 were lower sales, as well as unfavorability in other (income) expense, net, largely due to a gain on the settlement of certain patent litigation recorded in 2018.

Merck Retained Products Segment

Merck Retained Products segment losses declined 49% in 2020 primarily due to lower selling and promotional spending, partially offset by lower sales and unfavorability in other (income) expense, net.

Merck Retained Products segment losses increased 3% in 2019 primarily reflecting higher selling and promotional spending and unfavorability in other (income) expense, net, partially offset by higher sales.

Taxes on Income

The effective income tax rates of 19.4% in 2020, 9.5% in 2019 and 21.1% in 2018 reflect the beneficial impact of foreign earnings and the unfavorable impact of the amortization of intangible assets. The effective income tax rate in 2019 also reflects the favorable impact of a $258 million net tax benefit related to the settlement of certain federal income tax matters.

Net Income

Net income was $2.2 billion in 2020, $3.2 billion in 2019 and $2.2 billion in 2018.

 

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EBITDA, Adjusted EBITDA and Adjusted Net Income

Earnings before interest, incomes taxes, depreciation and amortization (EBITDA), Adjusted EBITDA, and Adjusted Net Income (non-GAAP financial measures) are alternative views of our performance that we provide below because management believes this information enhances investors’ understanding of our results as it permits investors to understand how management assesses performance. EBITDA, Adjusted EBITDA and Adjusted Net income are expected to be important internal measures for us. Our management intends to use these measures internally for planning and forecasting purposes and to measure our performance along with other metrics. Also, we anticipate that our senior management’s annual compensation will be derived in part using these non-GAAP measures. Additionally, EBITDA and Adjusted EBITDA are important metrics for debt investors who utilize debt to EBITDA ratios. Since EBITDA, Adjusted EBITDA and Adjusted Net Income are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of a similar measure of other companies. These metrics should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP. As discussed above, our combined balance sheet and statement of income do not include an allocation of third-party debt or interest expense from Merck because we were not the legal obligor of the debt and because Merck’s borrowings were not directly attributable to our business. However, in connection with the spin-off, we expect to incur debt and such indebtedness would cause us to record additional interest expense in future periods. See “Description of Certain Indebtedness.”

Organon Products Adjusted EBITDA and Organon Products Adjusted Net Income

Organon Products Adjusted EBITDA and Organon Products Adjusted Net Income exclude Adjusted EBITDA and Adjusted Net Loss attributable to the Merck Retained Products. As noted above, prior to the consummation of the spin-off, the Merck Retained Products will be contributed to newly formed Merck entities that will be retained by Merck and the historical results of operations related to the Merck Retained Products will be reflected as discontinued operations in the Organon financial statements.

A reconciliation between GAAP net income, EBITDA, Adjusted EBITDA and Organon Products Adjusted EBITDA is as follows:

 

($ in millions)

   2020      2019      2018  

Net income as reported under GAAP

   $ 2,160    $ 3,218    $ 2,153

Interest income, net

     (10      (13      (15

Taxes on income

     520      337      576

Depreciation

     72      69      68

Amortization

     85      285      1,605
  

 

 

    

 

 

    

 

 

 

EBITDA

   $ 2,827    $ 3,896    $ 4,387
  

 

 

    

 

 

    

 

 

 

Restructuring costs (excluding depreciation costs above)

     73      101        121  

Organon formation costs

     126      —          —    

Gain on settlement of certain patent litigation

     —          —          (115
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 3,026    $ 3,997    $ 4,393
  

 

 

    

 

 

    

 

 

 

Less: Merck Retained Products Adjusted EBITDA(1)

     (54      (110      (121
  

 

 

    

 

 

    

 

 

 

Organon Products Adjusted EBITDA

   $ 3,080    $ 4,107    $ 4,514
  

 

 

    

 

 

    

 

 

 

 

(1) 

Calculated as net loss under GAAP of $(96) million, $(88) million and $(132) million in 2020, 2019 and 2018, respectively, excluding net interest income, income taxes, depreciation and restructuring costs, which aggregated $(42) million, $22 million and $(11) million in 2020, 2019 and 2018, respectively.

 

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A reconciliation between GAAP financial measures and adjusted financial measures is as follows:

 

($ in millions)

   2020     2019     2018  

Income before taxes as reported under GAAP

   $ 2,680   $ 3,555   $ 2,729

Amortization

     85     285     1,605

Restructuring costs

     73     108     126

Other items:

      

Organon formation costs

     126     —         —    

Gain on settlement of certain patent litigation

     —         —         (115
  

 

 

   

 

 

   

 

 

 

Adjusted income before taxes

     2,964     3,948     4,345
  

 

 

   

 

 

   

 

 

 

Taxes on income as reported under GAAP

     520     337     576

Estimated tax benefit on above items

     48     67     219

Net tax benefit from the settlement of certain federal income tax matters

     —         258     —    
  

 

 

   

 

 

   

 

 

 

Adjusted taxes on income

     568     662     795
  

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 2,396   $ 3,286   $ 3,550
  

 

 

   

 

 

   

 

 

 

Less: Merck Retained Products Adjusted Net Loss(1)

     (86     (66     (120
  

 

 

   

 

 

   

 

 

 

Organon Products Adjusted Net Income

   $ 2,482   $ 3,352   $ 3,670
  

 

 

   

 

 

   

 

 

 

 

(1) 

Calculated as net loss under GAAP of $(96) million, $(88) million and $(132) million in 2020, 2019, and 2018, respectively, excluding restructuring costs and non-GAAP tax effects, which aggregated $(10) million, $(22) million and $(12) million in 2020, 2019 and 2018, respectively.

Items excluded from Adjusted EBITDA and Adjusted Net Income are as follows:

 

   

The amortization of intangible assets recorded in connection with business acquisitions and licensing activities (see Note 8 to our audited annual combined financial statements).

 

   

Costs related to restructuring actions, including employee separation costs and costs associated with facilities to be sold or closed, asset abandonment, shut-down and other related costs (see Note 5 to our audited annual combined financial statements).

 

   

Other items are adjusted for after they are evaluated on an individual basis considering their quantitative and qualitative aspects. Typically, these consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from Adjusted EBITDA and Adjusted Net Income in 2020 are costs incurred to establish Organon as a standalone entity, primarily employee-related and information technology costs. Excluded from Adjusted EBITDA and Adjusted Net Income in 2018 is a gain on the settlement of certain patent litigation (see Note 10 to our audited annual combined financial statements).

 

   

EBITDA and Adjusted EBITDA by definition exclude all income taxes. Adjusted Net Income excludes the estimated tax benefit on the reconciling items and a net tax benefit related to the settlement of certain federal income tax matters in 2019 (see Note 14 to our audited annual combined financial statements).

Analysis of Liquidity and Capital Resources

Historic Liquidity and Capital Resources

We have historically participated in Merck’s centralized treasury management, including its centralized cash pooling and overall financing arrangements. We have historically generated, and expect to continue to generate, positive cash flow from operations. Due to our participation in Merck’s centralized treasury management, the only cash and cash equivalents we have reported on our balance sheet are attributable to the Organon Entities and the Transferring Entities.

 

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Working capital was $894 million in 2020, $2.6 billion in 2019 and $2.2 billion in 2018. The decrease in working capital in 2020 compared with 2019 was primarily due to an increase in related party current liabilities coupled with a decrease in cash and cash equivalents resulting from the establishment of new Organon Entities and subsequent activity between these entities and Merck affiliates. The decline in working capital in 2020 was also attributable to a decrease in accounts receivable due to lower sales and the MRP Distribution, a decline in prepaid taxes and lower inventory also related to the MRP Distribution.

The increase in working capital in 2019 as compared with 2018 was primarily driven by an increase in inventories and a related increase in the income tax consequences deferred for intra-entity inventory transfers reflected in other current assets, a decrease in related party current liabilities due to activity during the period and timing of settlement, a decline in income taxes payable, and an increase in cash and cash equivalents.

Cash provided by operating activities was $2.2 billion in 2020, $2.8 billion in 2019 and $3.7 billion in 2018. Cash provided by operating activities is being unfavorably affected by sales declines. The lower cash provided by operating activities in 2019 compared with 2018 is also attributable in part to higher tax payments related to settlements with the Internal Revenue Service.

Cash used in investing activities was $258 million in 2020, $102 million in 2019 and $69 million in 2018, mostly reflecting capital expenditures.

Cash used in financing activities was $2.2 billion in 2020, $2.6 billion in 2019 and $4.2 billion in 2018, reflecting transactions with Merck (see Note 17 to our audited annual combined financial statements).

Merck has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Merck factored $227 million and $488 million of accounts receivable related to us in the fourth quarter of 2020 and 2019, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the combined statement of cash flows.

Post Spin-Off Liquidity and Capital Resources

Subsequent to the spin-off, we will no longer participate in cash management and funding arrangements with Merck. Our ability to fund our operations and capital needs depends upon our ability to generate ongoing cash from operations and to access the capital markets. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings, payment of dividends and strategic business development transactions.

We expect to incur indebtedness in connection with the spin-off, of which a portion will be paid to Merck as a distribution. See “Description of Certain Indebtedness.” Following the debt incurrence, distribution to Merck and cash contributed from Merck in connection with the formation of various Organon entities, we expect to begin operations as an independent company with cash and cash equivalents as set forth under “Capitalization.” We believe that our financing arrangements, future cash from operations and access to capital markets will provide adequate resources to fund our future cash flow needs.

Our contractual obligations as of December 31, 2020 were as follows:

 

     Payments Due by Period  

($ in millions)

   Total      2021      2022—2023      2024—2025      Thereafter  

Purchase obligations(1)

   $ 954    $ 170    $ 308    $ 260    $ 216

Leases(2)

     79      22      35      19      3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,033    $ 192    $ 343    $ 279    $ 219
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes inventory purchase commitments.

(2)

Amounts exclude reasonably certain lease renewals that have not yet been executed (see Note 9 to our audited annual combined financial statements).

 

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Purchase obligations are enforceable and legally binding obligations for purchases of goods and services. Payments of the transition tax related to the Tax Cuts and Jobs Act of 2017 (the “TCJA”) are not reflected in the table above as this liability is expected to be retained by Merck pursuant to the tax matters agreement that Merck and Organon will enter into in connection with the separation. In addition, Organon is expected to be responsible for unrecognized tax benefits pursuant to the tax matters agreement to the extent a reserve relates exclusively to separate tax returns filed by Organon. These reserves amounted to $50 million at December 31, 2020. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for unrecognized tax benefits beyond one year, a reasonable estimate of the period of cash settlement for years beyond 2021 cannot be made and as such, are not reflected in the table above. Contingent milestone payments related to collaborative arrangements are not reflected in the table above because they are not considered contractual obligations until the successful achievement of the related regulatory approval milestones.

Financial Instruments Market Risk Disclosures

Foreign Currency Risk Management

We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely affected by fluctuations in foreign exchange rates. We are primarily exposed to foreign exchange risk with respect to forecasted transactions and net assets denominated in the euro, Japanese yen and Chinese renminbi. Merck manages the impact of foreign exchange rate movements on its affiliate’s earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments. Merck has established revenue hedging and balance sheet risk management programs to protect against the volatility of future foreign currency cash flows and changes in fair value caused by volatility in exchange rates that we participate in. Accordingly, the combined statement of income includes the impact of Merck’s derivative financial instruments that is deemed to be associated with our operations and has been allocated to us utilizing a proportional allocation method. The fair values of outstanding derivative instruments have not been allocated to our combined balance sheet. Following the spin-off, we intend to implement a foreign currency risk management program on our own behalf.

We estimate a hypothetical 10% adverse movement in foreign currency exchange rates would not be material to our financial position, results of operations or cash flows.

Interest Rate Risk Management

Our combined balance sheet and statement of income do not include an allocation of third-party debt or interest expense from Merck because we are not the legal obligor of the debt and the borrowings were not directly attributable to our business. We expect to incur indebtedness in connection with the spin-off, at which time our exposure to interest rate risk is expected to increase.

Critical Accounting Estimates

The audited annual combined financial statements are prepared in conformity with GAAP and, accordingly, include certain amounts that are based on management’s best estimates and judgments. Estimates are used in determining the allocation of costs and expenses from Merck, and are used in determining such items as provisions for sales discounts and returns, depreciable and amortizable lives, recoverability of inventories, valuation of goodwill and intangibles, amounts recorded for contingencies, environmental liabilities and other reserves, pension and share-based compensation assumptions, restructuring costs, and taxes on income. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates.

Revenue Recognition

Recognition of revenue requires evidence of a contract, probable collection of sales proceeds and completion of substantially all performance obligations. We act as the principal in our customer arrangements

 

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and therefore record revenue on a gross basis. The majority of our contracts have a single performance obligation—the promise to transfer goods. Shipping is considered immaterial in the context of the overall customer arrangement and damages or loss of goods in transit are rare. Therefore, shipping is not deemed a separately recognized performance obligation.

Revenues from sales of products, including sales of Merck Retained Products to affiliates by the Organon Entities and the Transferring Entities, are recognized at a point in time when control of the goods is transferred to the customer, which we have determined is when title and risks and rewards of ownership transfer to the customer and we are entitled to payment.

The nature of our business gives rise to several types of variable consideration including discounts and returns, which are estimated at the time of sale generally using the expected value method, although the most likely amount method is used for prompt pay discounts.

In the United States, sales discounts are issued to customers at the point-of-sale, through an intermediary wholesaler (known as chargebacks), or in the form of rebates. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. In addition, revenues are recorded net of time value of money discounts if collection of accounts receivable is expected to be in excess of one year.

The provision for aggregate customer discounts in the United States covers chargebacks and rebates. Chargebacks are discounts that occur when a contracted customer purchases through an intermediary wholesaler. The contracted customer generally purchases product from the wholesaler at its contracted price plus a mark-up. The wholesaler, in turn, charges us back for the difference between the price initially paid by the wholesaler and the contract price paid to the wholesaler by the customer. The provision for chargebacks is based on expected sell-through levels by our wholesale customers to contracted customers, as well as estimated wholesaler inventory levels. Rebates are amounts owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. The provision for rebates is based on expected patient usage, as well as inventory levels in the distribution channel to determine the contractual obligation to the benefit providers. We use historical customer segment utilization mix, sales forecasts, changes to product mix and price, inventory levels in the distribution channel, government pricing calculations and prior payment history in order to estimate the expected provision. Amounts accrued for aggregate customer discounts are evaluated on a quarterly basis through comparison of information provided by the wholesalers, health maintenance organizations, pharmacy benefit managers, federal and state agencies, and other customers to the amounts accrued.

We continually monitor our provision for aggregate customer discounts. There were no material adjustments to estimates associated with the aggregate customer discount provision in 2020, 2019 or 2018.

Summarized information about changes in the aggregate customer discount accrual related to sales in the United States is as follows:

 

($ in millions)

   2020      2019  

Balance January 1

   $ 365    $ 404

Provision

     1,770      1,885

Payments

     (1,792      (1,924
  

 

 

    

 

 

 

Balance December 31

   $ 343    $ 365
  

 

 

    

 

 

 

Accruals for chargebacks are reflected as a direct reduction to accounts receivable and accruals for rebates as current liabilities. The accrued balances relative to these provisions included in Accounts receivable and Accrued and other current liabilities were $41 million and $302 million, respectively, at December 31, 2020 and were $52 million and $313 million, respectively, at December 31, 2019.

 

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Outside of the United States, variable consideration in the form of discounts and rebates are a combination of commercially-driven discounts in highly competitive product classes, discounts required to gain or maintain reimbursement, or legislatively mandated rebates. In certain European countries, legislatively mandated rebates are calculated based on an estimate of the government’s total unbudgeted spending and our specific payback obligation. Rebates may also be required based on specific product sales thresholds. We apply an estimated factor against our actual invoiced sales to represent the expected level of future discount or rebate obligations associated with the sale.

We maintain a returns policy that allows our customers in the United States to return product within a specified period prior to and subsequent to the expiration date (generally, three to six months before and 12 months after product expiration). The estimate of the provision for returns is based upon historical experience with actual returns. Additionally, we consider factors such as levels of inventory in the distribution channel, product dating and expiration period, whether products have been discontinued, entrance in the market of generic competition, changes in formularies or launch of over-the-counter products, among others. Outside of the United States, returns are only allowed in certain countries on a limited basis.

Our payment terms for customers in the United States are typically 36 days from receipt of invoice. Outside of the United States, payment terms are typically 30 days to 90 days, although certain markets have longer payment terms.

Contingencies and Environmental Liabilities

We are involved in various claims and legal proceedings of a nature considered normal to our business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters (see Note 10 to our audited annual combined financial statements).

We record accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable.

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by us; the development of our legal defense strategy and structure in light of the scope of the litigation; the number of cases being brought against us; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of December 31, 2020 and 2019 of approximately $35 million and $40 million, respectively, represents our best estimate of the minimum amount of defense costs to be incurred in connection with our outstanding litigation; however, events such as additional trials and other events that could arise in the course of the litigation could affect the ultimate amount of legal defense costs to be incurred by us. We will continue to monitor our legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, we believe it would be appropriate to do so.

We believe that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on us. Expenditures for remediation and environmental liabilities were $1 million in 2020, and are estimated at $18 million in the aggregate for the years 2021 through 2025. In management’s opinion, the liabilities for all environmental matters that are probable and reasonably estimable have been accrued and totaled $24 million and $21 million at December 31, 2020 and 2019,

 

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respectively. These liabilities are undiscounted, do not consider potential recoveries from other parties and will be paid out over the periods of remediation for the applicable sites, which are expected to occur primarily over the next 15 years. Although it is not possible to predict with certainty the outcome of these matters, or the ultimate costs of remediation, management does not believe that any reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed $20 million in the aggregate. Management also does not believe that these expenditures should result in a material adverse effect on our financial condition, results of operations or liquidity for any year.

Impairments of Long-Lived Assets

We assess changes in economic, regulatory and legal conditions and make assumptions regarding estimated future cash flows in evaluating the value of our property, plant and equipment, goodwill and other intangible assets.

We periodically evaluate whether current facts or circumstances indicate that the carrying values of our long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether an impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. If quoted market prices are not available, we estimate fair value using a discounted value of estimated future cash flows approach.

Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired. Goodwill, attributable only to the Organon Products reporting unit, is evaluated for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that fair value is less than carrying value. Some of the factors considered in the assessment include general macroeconomic conditions, conditions specific to the industry and market, cost factors which could have a significant effect on earnings or cash flows, and overall financial performance. If we conclude it is more likely than not that fair value is less than carrying value, a quantitative fair value test is performed. If carrying value is greater than fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill). As of the most recent goodwill impairment testing date, the reporting unit’s fair value exceeded its carrying value by a substantial amount.

Other acquired intangible assets are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives. When events or circumstances warrant a review, we will assess recoverability from future operations using pretax undiscounted cash flows derived from the lowest appropriate asset groupings. Impairments are recognized in operating results to the extent that the carrying value of the intangible asset exceeds its fair value, which is determined based on the net present value of estimated future cash flows.

The judgments made in evaluating impairment of long-lived intangibles can materially affect our results of operations.

Taxes on Income

Income tax expense and deferred tax balances in the audited annual combined financial statements have been calculated on a separate tax return basis. Our operations are included in the tax returns of certain Organon Entities, Transferring Entities or the respective Merck entities of which our business is a part. We believe the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable. One of these assumptions is that we, on a standalone basis, will not benefit from certain tax incentives that historically benefited Merck.

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. We establish valuation allowances for our deferred tax

 

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assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. We evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, we do not recognize any portion of the benefit in the financial statements. We recognize interest and penalties associated with uncertain tax positions as a component of Taxes on income in the combined statement of income.

We do not maintain an income taxes payable to or from account as it is deemed to be settled with the tax paying entities in the respective jurisdictions. These settlements are reflected as changes in Net investment from Parent on the combined balance sheet. However, our combined balance sheet reflects balances with taxing authorities for certain Organon Entities and Transferring Entities and the one-time transition tax resulting from the TCJA, as well as for unrecognized income tax benefits along with related interest and penalties. We and Merck will enter into a tax matters agreement prior to the separation. See “Certain Relationships and Related Party Transactions—Agreements with Merck—Tax Matters Agreement.”

 

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Business

Overview

Organon is a science-based global pharmaceutical company that develops and delivers innovative health solutions through a portfolio of prescription therapies within women’s health, biosimilars and established brands. No other large global pharmaceutical company has women’s health as its primary therapeutic area of focus. Our women’s health portfolio has historically delivered strong revenues, underpinned by our contraceptives products, which include Nexplanon / Implanon NXT, our patented long-acting reversible contraceptive, with its sales growing at an 11% CAGR between 2010 and 2020. Our biosimilars portfolio has delivered more than $650 million in sales since 2017, and we expect growth will be fueled by planned launches in the United States and Europe. Finally, our established brands portfolio continues to generate strong operating profit across many markets, including the United States, China, Japan, Korea and countries in Europe, despite loss of market exclusivity across a majority of brands. For many of our products, the impacts of loss of patent exclusivity events in the United States and Europe have passed, and, as a result, combined with enhanced management focus, an established supply chain and targeted resourcing, we believe that our portfolio will continue to deliver strong, reliable operating profit at low promotional and development expense requirements. See “—Products” for more information on loss of patent exclusivity for our key products.

Our mission is to be the world’s leading women’s health company and deliver a better and healthier every day for every woman. We plan to build on our strengths in reproductive health to assemble an array of health solutions to serve women from adolescence to menopause and beyond. We are focused on generating strong and growing cash flow by selectively investing in development and inorganic opportunities to drive innovation and future growth across our core areas. Our portfolio of diverse and branded products is supported by commercialization and market access, regulatory affairs, manufacturing and clinical development expertise globally. Our global footprint lends scale to our business by enabling management to identify and focus on unique market opportunities across our broad portfolio.

Our women’s health, biosimilars and established brands portfolios, together with the expertise and experience of our employees, enable us to pursue an exciting innovation agenda, carving out a unique position in the health care sector. Our product portfolio is unified by a central focus on patient needs addressed by our therapies, a commitment to driving organic and inorganic growth, a heritage of successful commercialization and clinical development, and a disciplined approach to cost and operational efficiency. We believe our women’s health portfolio, in combination with our biosimilars and established brands portfolios, will enable us to deliver value to patients and the health care system while creating value for our shareholders. We also believe our geographic scale, long heritage and sustained successes within women’s health will enable us to become the commercialization and distribution partner of choice for smaller women’s health companies. Our global commercial capabilities and market access, established relationships with health care providers, patients and payors and clinical expertise support our long-term strategy to launch therapies and recognize development opportunities within and beyond our existing portfolios.

Our business strategy is focused on advancing our mission to be the world’s leading women’s health company, pursuing growth in biosimilars and maximizing opportunities from our established brands portfolio. In particular:

 

   

We believe there is significant growth potential in women’s health broadly. In addition to our ten marketed products, we intend to focus our growth efforts in two areas, on needs and conditions that uniquely impact women, generally referred to as the core women’s health market, and on needs and conditions that disproportionately impact women. We estimate that the combined global market for pharmaceuticals in the core women’s health market, which includes therapeutic areas such as contraception and fertility, endometriosis and uterine fibroids, was $33 billion in 2020. We project that the core women’s health market will grow to $40 billion by 2026. In addition, we estimate that the segment of therapeutic areas that disproportionately impact women, such as osteoporosis, lupus, urinary tract infections, migraines and celiac disease, will grow annually at an approximately 10% CAGR from 2020 to 2026, adding a further $21 billion to the core women’s health market size estimates.

 

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Our existing biosimilars portfolio positions us for success in this attractive and fast growing area of health care. We estimate the total size of the global market for biosimilars was approximately $17.3 billion as of September 2020, reflecting 60 biosimilars approved in the EU and 29 approved in the United States. Industry publications estimate that 54 major biologics, with an aggregate market value of approximately $220 billion, will lose patent protection in the next decade, which has potential to expand the biosimilars global market to over $30 billion in the next decade or so. We do not have biosimilars corresponding to all biologics that will lose patent protection in the next decade. All five biosimilars in our portfolio have launched in certain countries globally, including two biosimilars in the United States. We intend to expand our biosimilars portfolio through commercialization of additional products and expanded marketing of existing products. We believe our size, capabilities and experience position us competitively in this area.

 

   

Our established brands portfolio consists of 49 products covering cardiovascular, respiratory, dermatology and non-opioid pain management. A number of our established brands that face generic competition still contribute meaningful profitability. We intend to stimulate the performance of our established brands products through renewed focus and attention on strategic marketing to create a significant source of capital to fuel the company’s growth aspirations. We believe our established brands products will, over time, continue to deliver meaningful revenue and operating profit that can be redirected into organic and inorganic growth opportunities in key product areas and geographies. Our established brands portfolio is supported by our large commercial and manufacturing capabilities, including a global network that enables us to distribute products to patients in more than 140 countries and territories.

Key Products

 

Women’s Health   Biosimilars   Established Brands
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
LOGO   LOGO   LOGO
   

LOGO

LOGO

In 2020, the Organon Products segment recorded revenue of $6.5 billion and generated $2.3 billion of net income. We expect to be well positioned for low to mid-single digit annual revenue growth off of a 2021 base year. We operate on a global scale and our global network enables us to distribute products to patients in more than 140 countries and territories around the world, with approximately 80% of 2020 Organon

 

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Products segment revenue, or $5.1 billion, generated outside the United States. Upon the separation, we will have approximately 9,950 employees worldwide, with approximately 4,030 employees focusing on sales, marketing and key commercialization activities and approximately 730 employees focusing on clinical development, safety, and medical affairs and product registration. Additionally, we expect to operate six manufacturing sites globally and have approximately 3,020 manufacturing employees.

Our operations are principally managed on a products basis and include two operating segments, the Organon Products segment and the Merck Retained Products segment. We consider the Organon Products segment to be our only business going forward, and, as such, all discussion and financial information presented in this section relates only to the Organon Products segment.

Upon separation, Merck will retain operations of the Merck Retained Products segment and we will no longer present financial information related to this segment in our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Organon is a Delaware corporation incorporated on March 11, 2020. Our corporate offices are located at 30 Hudson Street, Jersey City, New Jersey 07302.

Strengths

We have a number of advantages that distinguish us from our competitors and support our strategy:

 

   

Leading portfolio of health solutions for women. We intend to be the world’s leading women’s health company, with a long history of innovative, first-to-market contraceptive products. We have a broad offering of contraception and fertility brands that we believe have long-term growth potential, and we are one of only two global contraception manufacturers operating in the highly fragmented contraception market. Our portfolio of ten products includes Nexplanon / Implanon NXT, globally one of the highest revenue generating long-acting reversible contraceptives, or LARC, a class of contraceptives recognized as the most effective method of hormonal contraception available to patients with a lower long-term average cost. Our management team has the development and commercial expertise to drive innovation in therapeutics and drug-device combinations across the women’s health landscape through opportunities related to our existing portfolio and by externally sourcing therapies through in-licensing, acquisition and other business development transactions with innovators seeking to benefit from our global commercial presence in women’s health.

 

   

Growing position in biosimilars. We have a growing position in biosimilars. We have strong, global commercialization capabilities, with a portfolio spanning oncology and immunology treatments, two areas primed for significant growth in biosimilars. We plan to continue evaluating opportunities in other potential therapeutic areas, including ophthalmology, diabetes and neuroscience. Our oncology biosimilars have been launched in 20 countries and our immunology biosimilars have been launched in five countries. All five biosimilars in our portfolio have launched in certain countries globally, including two biosimilars in the United States. We expect that our biosimilars business will continue to generate growth in the near term.

 

   

Market Leading Established Brands. In established brands, we have a broad and robust portfolio of mature brands generally beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management. Our established brands portfolio generates strong operating profit, which we anticipate will continue to fund our future growth. We have proven development, regulatory, manufacturing and commercial capabilities, which we believe will support growth in targeted existing geographies, new geographies, and through new indications and line extensions.

 

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Broad and fit-for-purpose capabilities. We have enterprise capabilities delivered by seasoned leaders in global commercialization and market access, regulatory affairs, manufacturing and clinical development. In particular, our capabilities include:

 

   

Global commercialization expertise: Our experienced team will execute targeted investment in, and successful commercialization of, organic growth opportunities across our global portfolio. These efforts will be supported by data-driven, science-based decision-making and execution at scale, enabled by data and analytics and by digital engagement of health care providers and patients.

 

   

Development capabilities: We have approximately 730 employees focused on clinical development, safety, medical affairs and product registration. Our employees have deep expertise in these areas that we believe will facilitate generation of robust clinical data capable of enabling rapid global product registration, as well as valuable insights to expand the commercial reach of our portfolio.

 

   

Digital and omni-channel marketing capabilities: We market our products using a digital and omni-channel approach, reaching a broad base of market participants, including health care providers, patients and policy makers and payors in a cost-efficient manner. Our health care provider, patient and payor-focused relationship management is facilitated by an integrated digital ecosystem that coordinates health care provider and patient engagement across many channels, including face-to-face, email, social media, mobile and websites.

 

   

Strategic alliances: We have an extensive track record of managing strategic alliances and creating value through global partnerships to guide investment and growth in inorganic pipeline opportunities. For example, our collaboration with Samsung Bioepis allows us to work together with a biopharmaceutical company that complements our capabilities and strengths.

 

   

Established manufacturing and supply chain: Beyond our commercial capabilities, we expect to have approximately 440 employees operating in supply chain management, which we believe, together with our manufacturing capabilities, will enable us to maintain a high-quality, reliable global supply chain. See “—Manufacturing Capabilities and Global Supply Chain.”

 

   

Geographic scale and platform. In 2020, we generated $5.1 billion in sales outside the United States, representing approximately 80% of our total Organon Products segment sales. Our footprint spans the globe with a direct presence in 58 countries and the ability to deliver therapies to patients in more than 140 countries and territories. We plan to initially focus on 14 key markets, which currently generate approximately 75% of our global sales, and we expect our broader geographic reach and manufacturing capabilities to drive long-term growth and expansion opportunities. Specifically, in women’s health and biosimilars, we believe our global footprint will enable us to expand the market for our current products in order to meet the increasing demand for these products. We also believe our geographic scale, long heritage and sustained successes within women’s health will enable us to become the commercialization and distribution partner of choice for smaller women’s health companies. In established brands, where opportunities vary significantly depending on the exact dynamics and characteristics of each country, we believe our geographic scale enables us to capitalize on global opportunities and increase brand share by responding to these dynamics.

 

   

Strong financial profile with significant free cash flow generation and improving operating leverage. In 2020, the Organon Products segment generated approximately $2.3 billion in operating cash flow and spent $255 million on capital expenditures. The Organon Products segment also generated Adjusted EBITDA of $3.1 billion on $6.5 billion of sales, representing an EBITDA margin of approximately 47%. We anticipate we will continue to generate significant cash flow and expect our operating leverage to improve in the future.

 

   

Scientific heritage, expertise and culture of excellence inherited from Merck. Merck’s rich, over-125-year scientific heritage is imbued in our strong scientific principles, innovative development

 

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strategies and quality-focused culture. Building on our heritage of regulatory and scientific expertise, we expect to have the capabilities to continue to optimize pathways for clinical development and regulatory approvals as well as data generation capabilities required to support patient access, formulary placement and reimbursement.

 

   

Strong, leading and established brand in the area of women’s health. The Organon brand has a long history in the area of women’s health, both with patients and health care providers, and with employees who initially came to Merck through the acquisition of Organon. Our proud heritage in women’s health began with Organon’s launch of one of the first-ever combined hormonal oral contraceptives, Lyndiol, in 1962. This was followed by an impressive series of innovative firsts, including:

 

   

the launch of Marvelon in 1981, the first lower dose (30mcg) estrogen combined oral contraceptive with a selective progestin,

 

   

the launch of Livial in 1987, the first non-estrogen gonadomimetic hormonal replacement treatment,

 

   

the launch of Follistim, the first recombinant follicle-stimulating hormone available in the United States for infertility,

 

   

the launch of NuvaRing in 2001, the first once-a-month contraceptive ring, and

 

   

the launch of Nexplanon / Implanon NXT in 2011, the first and only single-rod radiopaque contraceptive implant with preloaded applicator.

 

   

Experienced management team and Board with track record of successful performance. Our executive management team has a strong track record of leadership, performance and execution in the pharmaceutical industry. Together, they bring a diverse set of leadership experience at respected companies both within and beyond the biopharmaceutical industry. Our CEO and a majority of our executive leadership team have been appointed from within Merck where they each established reputations as global leaders. Our management team is supported by a seasoned Board of Directors providing guidance and strategic vision based on a diverse set of backgrounds and experiences. The extensive company and industry experience of our management team as well as our Board of Directors will serve as a source of strength and innovation to guide us into the future.

Strategies

Our strategy is to be the world’s leading women’s health company by leveraging our historical strength in this area and investing in therapies and innovations that support the medical needs of women, to pursue growth in biosimilars and to maximize opportunities from our established brands, all while reinvesting our strong operating cash flow to fund growth initiatives across our portfolio. We believe our portfolio will benefit from the increased investment and attention we can provide as an independent company. Our focus will be to:

 

   

Leverage our existing position in women’s health to become the global leader in this space. No other large global pharmaceutical company has women’s health as its primary therapeutic area of focus. We intend to be the world’s leading women’s health company to address the needs and conditions that uniquely and disproportionately impact women. We plan to achieve this by leveraging our scale, deep experience, geographic reach, strong relationships with payors, health care providers, large clinics and important stakeholder groups such as societies, patients and scientific leaders to grow revenue for our contraception and fertility brands and expand into additional women’s health therapeutic areas, and through strategic acquisitions and collaborations. In 2020, approximately one quarter of our revenue was derived from women’s health products and, over time, we expect to grow this share by:

 

   

expanding the marketing and distribution of our key brands, including Nexplanon / Implanon NXT, Follistim and Elonva,

 

   

investing in manufacturing to expand the supply capacity for Nexplanon / Implanon NXT and our fertility product portfolio,

 

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focusing our contraception commercial strategy on expanding global access to Nexplanon / Implanon NXT and increasing communication and education about LARC, which we believe will expand the market opportunity for Nexplanon / Implanon NXT,

 

   

focusing our fertility commercial strategy on increasing communication and education about antagonist protocols, which we believe will expand the market opportunity for both Follistim and Elonva,

 

   

applying our long history of women’s health scientific development experience to invest in late lifecycle activities that will broaden the geographic footprint of our women’s health portfolio and further enhance the value of the portfolio, and

 

   

tracking scientific innovation globally to source commercialized and development-stage inorganic opportunities across women’s health broadly in order to develop products that target specific unmet medical need in conditions that impact women both uniquely and disproportionately.

 

   

Maximize value from our biosimilars portfolio through increased focus and strategic investment. We believe that the biosimilars market offers potential for value creation for a company with our strengths. In the short term, we are focused on commercializing the five biosimilars sourced from our collaboration with Samsung Bioepis, including the recent EU launch of Aybintio in oncology. In the longer term, we expect to focus on expanding our portfolio through ongoing identification and evaluation of new opportunities in therapeutic areas such as oncology, immunology, ophthalmology, diabetes and neuroscience, both through our Samsung Bioepis collaboration and through other potential collaborations. We believe that our focused approach enables us to further capitalize on the momentum in the biosimilars industry to drive growth through commercialization of additional biosimilars and expansion of our existing products into additional countries. In addition, we believe the biosimilars market will continue to favorably mature through continued policy efforts, both in the United States, and globally, that recognize the important role biosimilars can play in alleviating cost pressures for health care systems. In addition, we believe our commercial experience, particularly in the areas of tendering and policy, obtained from our prior biosimilars launches (Renflexis in the United States and Ontruzant in the United States and the European Union (“EU”)), provides us a competitive advantage in the market.

 

   

Drive near-term growth through investment in our existing portfolio. We believe that our broad portfolio affords us a range of options to drive future growth by developing products that target specific unmet medical need, including in-licenses, commercial collaborations, partnerships and acquisitions consistent with our focused strategy. For example, our established brands portfolio has a particularly strong foothold in emerging markets where we have a broad base of products enabling us to build targeted additional product offerings and developments. We expect that greater managerial focus to capture local market opportunities, along with targeted investments in expanding our geographic footprint, digital promotion and commercial trade channels, will provide new revenue opportunities for select brands in our established brands portfolio. We also believe there are meaningful opportunities to be realized through further investment in, and lifecycle management of, our current products across our portfolios.

 

   

Drive long-term growth through investment in inorganic opportunities. To drive longer-term growth, we intend to expand our scientific capabilities in targeted therapeutic areas through investment in inorganic opportunities and acquisitions in order to further augment our existing product businesses. We believe these investments will help us build a development pipeline that will drive our future revenues.

 

   

Enhance our digital and omni-channel marketing capabilities to drive growth. Our commercial strategy focuses on growing our product portfolio by increasing productivity across our sales force and leveraging digital channels, data and analytics to improve the return on investment in health care provider and patient engagement. We plan to continually expand our digital and omni-channel

 

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capabilities to optimize sales opportunities for our products and to further invest in digital engagement models that allow us to reach our customers and patients effectively. We also plan to further strengthen the design and execution of personalized omni-channel campaigns, engaging health care providers and patients through the most cost-effective channels and building upon existing strengths, such as our sophisticated capabilities to successfully target women and maximize our promotional response, which we achieved through nearly 10 years of executing and analyzing women’s health consumer campaigns in the United States.

 

   

Drive efficiency to improve operating leverage and cash flow. As an independent company, we intend to focus on delivering operating efficiencies. We have identified a number of key areas in which we plan to generate cost efficiencies by simplifying our operating model, standardizing and centralizing service activities and designing and enhancing our commercial model and supply chain functions. We also plan to leverage external providers where there is a cost and service advantage. In addition, we are in the process of implementing systems and process improvements to reduce general and administrative costs, and simplify our infrastructure following the termination of our transition services agreement with Merck. We believe the combination of these efficiencies will allow us to drive growth in free cash flow.

 

   

Deploy our free cash flow to invest in our existing product portfolio, fund inorganic opportunities and return capital to our shareholders. We are committed to the success of our existing product portfolio and plan to make commercial decisions that will allow us to maximize its value. In addition, we plan to invest in inorganic growth opportunities such as in-licenses, commercial collaborations and acquisitions of development-stage or in-market products. We also plan to acquire products that fit within our existing commercial infrastructure, which we believe will generate attractive risk-adjusted returns on investment. There are inorganic growth opportunities, particularly in women’s health and biosimilars, that we plan to target. We believe that our global commercial and market access capabilities, regulatory affairs, specialized manufacturing and clinical development expertise, will enable us to evaluate and integrate external opportunities. In addition, we plan to pay a dividend to our shareholders, pay down debt consistent with our financial policy and, to the extent that we generate excess free cash flow, we will consider returning additional free cash flow to our shareholders via share repurchases.

 

   

Capitalize on our status as a newly independent company to align our talented employee base with our performance expectations and drive a culture of high performance. Our strong heritage of excellence and scientific foundation enables us to approach complex problems with innovative science-based solutions. As a new, independent company, we have a rare opportunity to forge a distinct identity and align hiring, training, development and incentive activities around a clear set of performance expectations related to our core strategy. To establish this culture, we plan to draw upon key aspects of our shared history with Merck while charting a new course. We expect to be a performance-focused and entrepreneurial company with simplified organizational layers and governance, and a focus on alignment and leadership empowerment that enables our leaders to understand and address the evolving and unmet medical need of patients and health care providers around the world.

 

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Products

We are engaged in developing and delivering innovative health solutions through a diverse portfolio of products serving patient needs across multiple therapeutic areas and product categories, consisting of women’s health, biosimilars and established brands. These portfolios are further described below, together with select details for products within each group. Our sales for each of our product groups are as follows:

 

($ in millions)

   2020      2019      2018  

Women’s Health

   $ 1,555      $ 2,264      $ 2,293  

Biosimilars

   $ 330      $ 253      $ 64  

Established Brands

   $ 4,540      $ 5,159      $ 5,887  

Approximately 90% of our 2020 sales came from products that no longer have patent exclusivity in the United States or EU. Within this group, Cozaar/Hyzaar, which lost patent protection in the United States and EU in 2010, saw a revenue decline of approximately 41% in that year; Nuvaring experienced a 73% decline in sales in 2020 following loss of patent protection in major markets in April 2018 and generic entry in the United States in 2019; Singulair, which lost patent protection in the United States in 2012 and in the EU in 2013, saw a revenue decline of approximately 78% in 2013 as compared to 2011; and Zetia, which saw generic entry in the United States in December 2016, and lost patent protection in the United States in 2017 and in the EU in 2018, saw a revenue decline of approximately 77% in 2019 as compared to 2016.

Women’s Health Portfolio

In 2020, our women’s health portfolio accounted for $1.6 billion, or approximately 24%, of Organon Products segment sales, with approximately 45%, or $697 million, generated outside the United States. Our women’s health products are sold by prescription in two therapeutic areas, contraception, with key brands such as Nexplanon / Implanon NXT and NuvaRing, and fertility, with key brands such as Follistim and Elonva. We are a global leader by revenue in the hormonal contraception market, offering a broad portfolio of products across three core hormonal contraceptive market segments: daily pill, monthly ring and LARC. Our women’s health products are sold in over 90 markets worldwide, including the United States, China, Canada, Australia, Brazil, Mexico and many other countries in the EU, South America, Asia and Africa.

Women’s Health Market and Opportunity

We intend to pursue opportunities in the broad women’s health market as part of our future strategy. Our classification of women’s health includes two areas: needs and conditions that uniquely impact women, generally referred to as the core women’s health market; and needs and conditions that disproportionately impact women. We estimate that the combined global market for pharmaceuticals in the core women’s health market, which includes therapeutic areas such as contraception and fertility, endometriosis and uterine fibroids, was $33 billion in 2020. We project that the core women’s health market will grow to $40 billion by 2026. In addition, we estimate that the segment of therapeutic areas that disproportionately impact women, such as osteoporosis, lupus, urinary tract infections, migraines and celiac disease, will grow annually at an approximately 10% CAGR from 2020 to 2026, adding a further $21 billion to the core women’s health market size estimates.

We believe governments and payors are implementing favorable policies across major markets that, in turn, drive growth in the market for women’s health therapies. For example, in the United States, there has been an increase in fertility insurance mandates and employer coverage, albeit subject to certain exemptions. In Canada, there is strong public and private reimbursement for contraception, accompanied by increased use of LARCs. Across Latin America, there is a significant untapped opportunity for LARCs, particularly given high rates of unintended pregnancy. The women’s health market has also been traditionally underserved in terms of science-

 

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based solutions that address unmet medical need. Despite the pipeline of new women’s health products in development set to launch across the women’s health market later in 2021 and beyond, the unmet need and limited treatment options continue to exist across several therapeutic areas. For example, there is potential to develop non-hormonal long-acting contraceptives, oral therapies for fertility to replace injections, non-narcotic, non-hormonal treatments for endometriosis, non-hormonal treatments for menopause symptoms, and new drug-device combinations such as combining prescription therapies with delivery devices that increase product efficacy and safety. We believe the potential for innovation in the areas outlined above, in addition to areas of unmet need in conditions that disproportionately impact women, represents attractive opportunities to grow our business.

In addition, according to Evaluate Pharma data for 2019, there are more than 140 pipeline assets in women’s health in development across phase 1-3. We believe that this level of innovation will translate into an increased flow of licensing and acquisition opportunities for us in the future.

Our Women’s Health Strategy

Pharmaceutical companies that participate in the women’s health market generally fall into two categories– small specialty players with a concentrated focus but small scale, and large diversified players with a limited, opportunistic attention to their women’s health portfolio. There is currently no large player with women’s health broadly as their primary therapeutic area of focus. As such, we distinguish ourselves by pairing our portfolio with large-scale size and global distribution capabilities. In order to grow our women’s health business in the long-term, we intend to invest in both internal and external innovation. Internally, we intend to pursue clinical development opportunities related to our existing portfolio of therapies that we believe will expand the geographic reach, provide additional benefits for patients and increase the value of our offerings. For example, we are currently developing a next-generation version of Nexplanon / Implanon NXT that will extend the period of contraception provided. Externally, we intend to source innovation and expand our share of the global women’s health market through strategic acquisitions, in-licenses and commercial collaborations that leverage our global footprint, strong relationships with health care providers, patients and payors and deep experience within women’s health. We intend to focus on commercial assets and development-stage assets that have demonstrated clinical proof of concept where we can leverage our in-house capabilities and experience to accelerate and better maximize these late-stage clinical development and commercialization opportunities. We are initially planning to focus on opportunities that leverage our existing relationships with health care providers in obstetrics and gynecology (“OBGYN”), and fertility practices and plan to evaluate both therapeutics and drug-device combinations.

Contraception

In 2020, our contraception products accounted for $1.2 billion, or approximately 19%, of Organon Products segment sales, with approximately 40%, or $490 million, generated outside the United States.

Contraception Market and Commercial Strategy

We have an estimated global market share of approximately 12.6% in hormonal contraception and approximately 30% in the LARC market segment, each as measured by reported 2020 revenue. Although daily contraceptive pills remain the largest market segment, the LARC market segment, which includes Nexplanon / Implanon NXT, has experienced significant growth in the years leading up to 2019 due to a sustained shift from daily oral contraception to LARC. This was driven by payors, providers and patients looking for options beyond commonly used daily contraceptive pills. For example, in the United States, the share of LARC usage has increased from 5.6% in the period from 2006 to 2010, to 10.3% in the period from 2015 to 2017. In 2020, however, the COVID-19 pandemic resulted in reduced administration of many products within women’s health, in particular for Nexplanon / Implanon NXT. The COVID-19 pandemic negatively affected the LARC segment during 2020 due to clinic closures and the postponement of non-essential medical procedures during country lockdowns. However, LARC segment growth quickly rebounded during months when clinic restrictions were removed and the sustained shift to LARC is expected to continue with fundamental drivers unchanged. We believe a continued shift toward LARC methods represents an opportunity both inside and outside the United States. Scientific research has indicated that the adoption of LARC can reduce rates of

 

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unintended pregnancy and we believe that it can also enhance other family planning related outcomes. We expect the body of similar evidence to increase over the next several years, and we plan to actively support ongoing work in this area. Based on revenue and market share, we are favorably positioned to capitalize on this opportunity in the contraception market.

Global growth rates for hormonal contraception vary. Growth rates in emerging markets continue to outpace rates in developed markets as governments prioritize a range of methods to boost economic development, including public funding for the expansion of family planning services to increase rates of female participation in the workforce. We plan to work with payors and other health care stakeholders to improve insurance coverage of our highly effective contraceptive products such as Nexplanon / Implanon NXT.

The traditional sales model for contraceptive products is to market primarily to obstetricians, gynecologists and other health care professionals that prescribe contraceptive products to patients. However, women with knowledge of contraceptive options are the key decision makers regarding the selection of the contraceptive product that meets their individual lifestyle needs. We plan to advance market awareness of contraceptive options primarily through advancing education. We plan to work closely with women’s health societies, governments, health care professionals and other key stakeholders to advance education regarding contraceptive options such that women and health care professionals are familiar with our products. To further increase growth opportunities across our contraception portfolio and leverage brand loyalty among patients and health care providers, we intend to increase our investments in both face-to-face and digital methods of medical education.

Contraception Products

Our contraception portfolio currently consists of the following key products:

Nexplanon / Implanon NXT

We expect our core product focus in contraception to be Nexplanon, also known in some markets outside of the United States by the brand name Implanon NXT. In 2020, Nexplanon / Implanon NXT accounted for $680 million, or approximately 44%, of our total women’s health portfolio sales, with approximately 28%, or $192 million, generated outside the United States. This represents an 11% CAGR growth in sales between 2010 and 2020. Nexplanon / Implanon NXT is a prescription medication for the prevention of pregnancy in women lasting up to three years and is reversible upon removal. Nexplanon / Implanon NXT is a small, thin and flexible arm implant that is placed discreetly under the skin of the inner, upper arm by a health care provider. It is a progestin-only, radiopaque, removable implant, containing 68mg of etonogestrel pre-loaded into an applicator. Nexplanon / Implanon NXT prevents pregnancy in several ways, most importantly by suppressing ovulation, and is typically prescribed in women who are not looking to become pregnant in the near future and do not want the inconvenience of taking a daily contraceptive.

We expect to have market exclusivity for Nexplanon / Implanon NXT in the United States until 2027 and the majority of countries where Nexplanon / Implanon NXT is commercialized outside the United States until 2025. Our Nexplanon / Implanon NXT commercial strategy involves continued and expanded private and public reimbursement for Nexplanon / Implanon NXT within countries where hormonal contraception is well accepted, including in the United States. We intend to focus our commercial efforts on education and training to assist providers to understand Nexplanon / Implanon NXT, become confident with offering Nexplanon / Implanon NXT as one appropriate option for women seeking hormonal contraception, and become skilled with the insertion and removal procedure of Nexplanon / Implanon NXT. We also intend to increase education of contraceptive options to women. In addition, we plan to invest in increasing Nexplanon / Implanon NXT supply capacity to meet expected future demand increases.

NuvaRing

In 2020, NuvaRing accounted for $236 million, or approximately 15%, of our total women’s health portfolio sales, with approximately 53%, or $126 million, generated outside the United States. NuvaRing

 

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(etonogestrel / ethinyl estradiol vaginal ring) is a monthly vaginal contraceptive ring combination of progestin and estrogen used to prevent pregnancy in women. NuvaRing is prescribed for women that want a monthly contraceptive option, and it prevents pregnancy by suppressing ovulation.

Patent expiration for NuvaRing in the United States, and most countries outside of the United States, occurred in April 2018. Generic versions of NuvaRing were first approved in Europe in December 2018 and in the United States in December 2019. Generic entrants have since entered the United States and select European markets following such approvals. We saw a rapid and substantial decline in United States NuvaRing sales during 2020 due to generic competition. Our focus will be on markets outside of the United States where NuvaRing sales are expected to be relatively stable after initial declines immediately following entry of generic competition.

Cerazette

In 2020, Cerazette accounted for $67 million, or approximately 4%, of our total women’s health portfolio sales. Cerazette (desogestrel) is a progestin-only, daily pill used to prevent pregnancy in women. Progestin-only products like Cerazette, are typically used by women wanting effective hormonal contraception for whom estrogen-containing contraceptives may not be medically appropriate. Cerazette prevents pregnancy by suppressing ovulation. Cerazette is not approved or marketed in the United States but is broadly available globally outside the United States.

Patent expiration for Cerazette occurred in most markets in 2011 and 2012. At the time of patent expiry, Cerazette was the leading progestin-only contraceptive pill globally based on revenue. Generic entrants have entered most markets where Cerazette is commercialized. The progestin-only contraceptive pill market continues to see modest growth globally, creating opportunities for Cerazette.

Marvelon and Mercilon

In 2020, Marvelon and Mercilon accounted for $95 million, or approximately 6%, of our total women’s health portfolio sales. Marvelon and Mercilon (desogestrel and ethinyl estradiol pill) are both combinations of progestin and estrogen used as daily pills to prevent pregnancy. Marvelon contains a higher daily dose of estrogen than Mercilon. Marvelon and Mercilon both prevent pregnancy by suppressing ovulation. We no longer have market exclusivity for these products.

Fertility

We are one of only a few major global manufacturers offering a multi-drug fertility portfolio to fertility clinics and to specialty pharmacies and wholesalers who supply such clinics. In 2020, our fertility products accounted for $319 million, or approximately 20%, of our total women’s health portfolio sales, with approximately 65%, or $206 million, generated outside the United States.

Fertility products fall broadly into two categories: products used in “long agonist” protocols and products used in “antagonist” protocols. The difference between the protocols principally relates to the type and amount of product used to stimulate the ovaries and the length of use. The antagonist protocol is generally recognized as a safer procedure for patients and has demonstrated similar pregnancy rates for patients when compared to the long agonist protocol. The antagonist protocol is also considered more patient-friendly because it requires fewer days of therapy and fewer injections. In contrast, the long agonist protocol is administered for several weeks along with daily follicle-stimulating hormone (“FSH”) products. Our FSH product, Follistim, is used in both long agonist and antagonist protocols, while our Elonva product (a sustained FSH), substitutes for seven daily FSH injections and is indicated for the antagonist protocol. Recognizing the patient benefits from antagonist protocols, we intend to focus our commercial strategy on communication of the advantages of this protocol. We believe this strategy will expand the market opportunity for both Follistim and Elonva because both products are well-

 

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positioned in patient-friendly antagonist protocols. In addition, we intend to build upon Merck’s long heritage within the fertility market through focused investment in manufacturing and distribution for continued reliable, high-quality supply to health care providers and patients around the globe.

Global Fertility Market and Strategy

There are three major global fertility drug manufacturers, including our company, as well as several single-product players. We estimate the hormonal fertility market was approximately $3.7 billion in 2020. The market experienced 7.3% global growth from 2015 to 2020, with even faster growth in the United States and China. Large fertility markets such as the United States and China, with growing rates of in vitro fertilization (“IVF”) cycles, are critical to future product performance. In addition, in the United States, there has been an increase in fertility insurance mandates and employer coverage, albeit subject to certain exemptions. In these and other larger fertility markets, we intend to remain highly focused on expanding profitable access to fertility treatments.

Specialist health care providers, many of whom own their own fertility clinics, are the most important decision makers regarding which treatment options are used for each patient in each IVF treatment. Health care providers often tailor treatment protocols to individual patients to increase effectiveness. We intend to build on our long history and strong relationships with fertility clinics to improve services and patient access to our competitive fertility portfolio. In addition, market characteristics have resulted in a concentration in the private practice market, where specialists are embracing new treatment protocols and in particular, the shortened antagonist protocols.

Our Fertility Products

Our portfolio currently consists of three products used primarily for IVF treatment cycles:

Follistim AQ / Puregon

In 2020, Follistim accounted for $193 million, or approximately 12%, of our total women’s health portfolio sales, with approximately 56%, or $109 million, generated outside the United States. Follistim (follitropin beta injection) is a recombinant FSH used to promote the development of multiple ovarian follicles in assisted reproduction technology procedures, such as IVF, embryo transfer, gamete intrafallopian transfer and intracytoplasmic sperm injection. Follistim belongs to the group of gonadotrophic hormones used by women trying to get pregnant using IVF.

Follistim has been challenged by intermittent supply disruptions over the past several years. We intend to make new investments in our fertility supply chain to bolster supply stabilization and expansion. We also expect to invest in a needle change for our injector pen and new instructions for use meant to enhance patient experience. We no longer have market exclusivity for Follistim and a biosimilar version was launched in the EU in 2014. However, the market share of the biosimilar version remains below 4%.

Elonva

In 2020, Elonva accounted for $21 million in total sales. We expect that our Elonva revenue will grow, and we plan to continue to invest in expanding Elonva’s market reach. Elonva (corifollitropin alfa) is an ovarian follicle stimulant with the same mechanism of action as recombinant FSH, but characterized by a prolonged duration of FSH activity. Due to its ability to initiate and sustain growth of multiple ovarian follicles for an entire week, a single subcutaneous injection of the recommended dose of Elonva may replace the first seven injections of any daily recombinant FSH preparation in an ovarian stimulation treatment cycle. Elonva belongs to the group of gonadotrophic hormones used by women trying to get pregnant using IVF. Elonva’s profile offers particular value because women do not need to self-inject daily during IVF cycles. Elonva has not been approved in the United States or in China, but it is approved and widely available in many other global markets where we operate. We are currently reassessing our Elonva worldwide strategy with the opportunity to potentially launch in additional markets.

 

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Orgalutran

In 2020, Orgalutran accounted for $81 million, or approximately 5%, of our total women’s health portfolio sales, with approximately 86%, or $69 million, generated outside the United States. Orgalutran (ganirelix acetate) is an injectable competitive gonadotropin-releasing hormone (“GnRH”) antagonist. Orgalutran is used in fertility treatment in combination with FSH (Follistim) to prevent ovulation. By using Orgalutran, clinicians can continue stimulating follicle growth while preventing ovulation before egg collection. We do not have market exclusivity for Orgalutran.

Biosimilars Portfolio

In 2020, our biosimilars portfolio accounted for $330 million, or approximately 5%, of Organon Products segment sales, with approximately 62%, or $206 million, generated outside the United States. Our biosimilars portfolio and experience provide an opportunity to benefit from future growth anticipated in this area.

We believe that through a combination of management focus and strategic investment, we expect that our biosimilars business will continue to generate growth in the near term. Our biosimilars portfolio consists of therapies in oncology and immunology for which we have worldwide commercialization rights with certain geographic exceptions specified on a product-by-product basis pursuant to an agreement between Merck and Samsung Bioepis entered into in February 2013. The biosimilars (with reference products in parenthesis) currently covered by this agreement are Adalimumab (Humira), Bevacizumab (Avastin), Infliximab (Remicade), Trastuzumab (Herceptin) and Etanercept (Enbrel). All five biosimilars products covered by the agreement have launched in certain countries globally, including two biosimilars in the United States. Our oncology biosimilars have so far been launched in 20 countries, while our immunology biosimilars have been launched in five countries, including the United States, Canada, Australia and Ukraine. Once a biosimilar product is launched, our access rights to that product under the agreement last for 10 years on a market-by-market basis from the date of launch. Based on this experience, we believe we are well-positioned to become a commercial partner of choice for future collaborations with Samsung Bioepis or other potential partners to commercialize additional biosimilars products.

Biosimilars Market and Opportunity

Biosimilars are lower-cost alternatives to existing biologic medicines that treat some of life’s most serious diseases. Biosimilar therapies have no clinically meaningful differences in the safety profile, potency and purity from their reference biologic medicines. As a result, biosimilars create new choices and competition in the biologics marketplace and have the potential to lower costs for patients and the health care system, potentially expanding the therapeutic options available to fight important diseases, such as cancer, rheumatoid arthritis, psoriasis and inflammatory bowel disease.

As of December 31, 2020, the global biologics market represented an approximately $300 billion revenue opportunity, with an expected CAGR of approximately 10% until 2024. Given the high cost of many of these biologic treatments, biosimilars, as a more affordable alternative, represent a significant opportunity for patients, providers and payors once a biologics product loses patent protection.

We estimate the total size of the global market for biosimilars was approximately $17.3 billion as of September 2020, reflecting 60 biosimilars approved in the EU and 29 in the United States. In 2019, the European and United States markets accounted for 70% and 14%, respectively, of global biologics, but 34% and 56%, respectively, of global biosimilars. Industry publications estimate that 54 major biologics, with an aggregate market value of approximately $220 billion, will lose patent protection in the next decade, which has potential to expand the global biosimilars market to over $30 billion, based on external estimates. We do not have biosimilars corresponding to all biologics that will lose patent protection in the next decade. This long-term growth is driven in part by an increasingly favorable regulatory framework that has increased the rate of approvals in the United States and the EU, as well as potentially increased demand in new and existing untapped markets, such as China, where only a few biosimilars have so far been approved.

 

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We believe the future outlook for biosimilars is promising, particularly in the United States where broad health care provider, patient and payor acceptance of biosimilars and policy trends continue in a favorable direction, and where initial pricing pressure may not be as significant as in other geographies such as the EU. We believe we are well-positioned to capitalize on the United States market opportunity for biosimilars given our launch experience across our commercial team. We expect that our biosimilars business will continue to generate growth in the near term.

Our Biosimilars Strategy

In the short term, our biosimilars strategy is focused on commercializing the five biosimilars sourced from our collaboration with Samsung Bioepis. We believe the commercial experience obtained from our prior biosimilars launches (Renflexis in the United States and Ontruzant in the United States and the EU) provides us a competitive advantage in the market. All five biosimilars products in our portfolio have launched, two of which are the oncology biosimilars, Ontruzant and Aybintio. We launched Ontruzant in the United States in April 2020 and launched Aybintio in the EU in September 2020. We currently have no plan for the timing of any launch of Aybintio in the United States nor do we know when such timing would be determined. We expect to drive future value through the commercialization of Hadlima, an adalimumab biosimilar, with launches in Australia and in Canada in 2021 and in the United States in 2023. In the long-term, given the favorable outlook for the biosimilars industry, we intend to expand our portfolio through the identification and evaluation of new assets that face biosimilar competition in therapeutic areas such as oncology, immunology, ophthalmology, diabetes and neuroscience, among others, both through our Samsung Bioepis collaboration and through other potential collaborations.

Our Biosimilars Products

The portfolio currently consists of three immunology products, Brenzys, Renflexis and Hadlima, and two oncology products, Ontruzant and Aybintio. Aybintio was recently launched in the EU. For the year ended December 31, 2020, the biologics comparable to our biosimilars products generated sales (unless otherwise noted) in the following amounts, according to public filings:

 

Our Biosimilar

  

Biologic Product

 

Global Sales of
Biologic Product
(1)

  

Launch of Our Biosimilar

Hadlima

   Humira   $19.8 billion(2)    Australia—February 2021; Canada—February 2021; Israel—approved as of February 2021 and expected to be launched third-quarter 2021; and United States—approved as of July 2019 and expected to be launched June 2023.

Brenzys

   Enbrel   $6.4 billion    Canada—September 2016; Brazil—September 2019; Australia—April 2017; and Israel—January 2021.
Renflexis    Remicade   $4.5 billion   

United States—July 2017;