Big Pharma companies have been backing away from women’s health in recent years, with Merck & Co. being the latest example. But to the CEO of Organon, the newly formed company that’s built upon that portfolio and others from Merck, now is the perfect time to launch a drugmaker specializing in the field.
Thursday, Merck officially spun off Organon with its women’s health, legacy products and biosimilars franchises, which collectively brought in $6.53 billion in sales last year. The newco will debut on the New York Stock Exchange today under the symbol “OGN.”
How’s the company going to grow amid a general ebb of women’s health interest among large corporations? Is the company’s large ex-U.S. presence a blessing or a curse? Is Organon interested in AbbVie’s reportedly for-sale women’s health franchise? Fierce Pharma recently sat down—virtually—with Organon CEO Kevin Ali to talk about his plan for the newco.
Right timing for women's health
Not many Big Pharma companies maintain a women’s health segment these days. Still, Ali believes that’s no indication of the opportunity in the field, and that it’s certainly not a reason to belittle a company focused on it.
Recent social movements have clearly given women a louder voice. “I have never seen a time in my lifetime where the voice of women has been more resonant than it is today,” Ali said. “As we speak, women are demanding change, demanding choice, demanding access for greater amount of innovation in the space of women's health.”
The global women’s health market is projected to be worth $50 billion by 2025, according to CB Insights. Ali pointed to the high 40% to 45% unintended pregnancy rate across the globe to illustrate a field with significant unmet need. To him, the problem isn’t about innovation lag but a lack of attention.
As a standalone drugmaker, Ali says Organon can give the women’s health business the “prioritization and focus” that the franchise previously didn’t get from Merck as the Big Pharma’s focused its efforts on oncology and vaccines. And with about 80% of its more than 10,000 employees coming from Merck, Organon will have a very strong culture, he added.
Even without the protection of a Big Pharma company, the Organon name carries its own halo effect. The original Organon, founded in 1923 in the Netherlands, was a pioneer in contraception and fertility solutions until it was acquired in 2007 by Schering-Plough, which later merged with Merck. The high brand recognition will make the newco’s commercial efforts easier, Ali said.
“OB-GYNs … have incredible respect and incredible memories for the name of Organon,” Ali said. “So we brought back Organon on a version 2.0 because we wanted the world to know what we were about.”
Currently, Organon’s women’s health portfolio—and the entire company’s—is led by the birth control implant Nexplanon. Hurt by the pandemic, sales for the product dropped 13.6% in 2020 to $680 million. But as clinical visits rebound, the company believes the underlying demand of the long-acting reversible contraceptive remains strong. It’s also conducting studies to extend Nexplanon’s use to five years from the current three-year indication. When it’s all said and done, Ali expects Nexplanon to reach beyond blockbuster sales.
Another birth control product, NuvaRing, was the previous sales king in the Organon portfolio. But it fell off the U.S. patent cliff in late 2019, and then sales plummeted 73.2% last year to $236 million.
Starting from 2022, the company will have “washed out” of the effects of the NuvaRing loss of exclusivity, Ali said. Looking across its entire portfolio, Organon expects very low-single digit generic erosions from 2022 as many of its established brands have been off patent for many years, he said.
China and international markets offer stability
At launch, a large part—78.5% by 2020’s tally—of Organon’s business, including nearly its entire established brands portfolio, resides outside the U.S. Plus, no single product represents more than 10% of sales. No single market constitutes over 20% of the company’s business.
Ali described that sales makeup as offering the new company stability. “When you have such a diverse business you can essentially handle shocks to the business,” he said. Plus, having its established drugs segment out of the U.S. is a blessing because “there’s just more and more squeeze in the [U.S.] system” among what he called “commoditized generic products.”
China, Organon’s second-largest market with $873 million in 2020 sales, still represents a relatively unstable element as what Ali called “the last big market with a big, reimbursed segment” for Organon’s established brands franchise. The country in recent years introduced the volume-based procurement program, designed to significantly lower the prices of off-patent drugs by offering big chunks of hospital business to winning bidders. As more and more ageing products are included in the scheme, multinational drugmakers’ China businesses have come under pressure.
So far, about 60% of Organon’s established portfolio in the country have already gone through the process, and about another 20% is exposed to the program in the coming year, according to Ali. So the negative impact of pricing discounts going forward will be off from an already-reduced base, he said.
Before Organon, Ali led Merck’s international commercial operations for markets outside of the U.S. Prior to that he was president of the company’s emerging markets region.
“In China, you have more and more part of the population who are willing to pay out of pocket for access to high-quality, trusted brands,” Ali said. “Whenever you have an out-of-pocket market, it’s more resilient because governments really focus on the reimbursed market to squeeze in terms of pricing. So that's why I think going forward, over the next five, six years, we’ll see more stability.”
Beyond legacy brands, Ali also sees great potential from China for Organon’s women’s health portfolio. The country’s experiencing a drop in birth rates, and women in China today are deciding to put off having families until later in life to focus on their careers, Ali observed. That’s where Organon’s fertility offerings could come in and help, he said.
M&A to drive expansion
Organon’s women’s health ambitions lie beyond contraception and fertility. Thin on in-house R&D capability, the company’s turning to mergers and acquisitions for expansion.
Shortly before the official spinoff, Merck bought Alydia Health for Organon with a $50 million deposit and $165 million from Organon once it runs solo, plus potential milestone payments. The deal gives Organon the Jada device, which is designed to treat postpartum hemorrhage, a leading cause of death associated with giving childbirth.
That’s just one example of the potential areas Organon may look to bolster with dealmaking. The company may also look at other disorders that are unique to women or that disproportionately affect women, Ali said, including uterine fibroids, menopausal symptoms and endometriosis.
Altogether, the company has identified over 140 assets drugs and devices in various stages of development that it could take a closer look at for M&As to “slowly and carefully and, most importantly, thoughtfully” build its pipeline, Ali said.
In the end, innovation is the company's primary focus for M&A. The company plans to deploy its M&A war chest on “one-offs” like Alydia, Ali explained. What it’s not interested in buying? Large deals featuring a broad, established portfolio.
“Going after something bigger like, for example, a large portfolio of products that have older products that are somewhat out there and have a kind of life cycle is not something of interest to me because it’s not focused on innovation,” he said.
That’s as clear as a CEO can get in saying “no” to AbbVie’s women’s health portfolio. Word has it that AbbVie has recently revived the potential auction of Allergan’s legacy women’s health products, which the Botox maker had tried to sell before the two companies’ $63 billion merger. The franchise is reportedly worth $5 billion and includes such marketed drugs as birth control pill Lo Loestrin.
Differences from Viatris
Organon's spinoff comes shortly after the combination of Mylan and Pfizer’s Upjohn established drugs portfolio to form Viatris, another large new independent drugmaker. Both Viatris and Organon have a large off-patent drug portfolios, and both aim to use the steady cash flow generated from them for striking deals. Plus, both companies have been positioning themselves as a commercial partner of choice thanks to their large commercial and manufacturing footprints. The two firms’ business models look so similar that Bernstein analyst Ronny Gal recently suggested that it makes sense for them to merge into one.
But Ali sees “significant difference” between the two companies. Organon doesn’t sell “commoditized generics” but only off-patent originals; it doesn’t have exposure to some reputational problems such as that related to opioids; and despite an established drug business, Organon’s focused on being a leader in women’s health, from which it expects over a third of its business by 2025, Ali said.
“This is a women’s health company,” Ali said of Organon. “We feel that the world needs a company that is not watered down but focused on women’s health and solving these needs. And that vision and that passion and that purpose is what drives us.”