Organon & Co.: Form 10-Q for the period ended Sep 30, 2024

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “forecast,” “intend,” “would,” “seek,” “continue,” and other words of similar meaning, or negative variations of any of the foregoing. These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, pricing pressures globally, 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; an inability to fully execute on our product development and commercialization plans in the United States, Europe, and elsewhere internationally; an inability to adapt to the industry-wide trend toward highly discounted channels; difficulties implementing or executing on our acquisition strategy, difficulties integrating such acquisitions (including our recent acquisition of Dermavant) or any other failure to recognize the benefits of such acquisitions; changes in tax laws or other tax guidance which could adversely affect our cash tax liability, effective tax rates, and results of operations and lead to greater audit scrutiny; expanded brand and class competition in the markets in which Organon & Co. (“Organon,” the “Company,” “we,” “our,” or “us”) operates; global tensions, which may result in disruptions in the broader global economic environment; governmental initiatives that adversely impact our marketing activities, particularly in China; volatility in our stock price; political and social pressures, or regulatory developments, that adversely impact demand for, availability of, or patient access to contraception or fertility products; recent Supreme Court decisions and other developments impacting regulatory agencies and their rule making, including related financial market reactions, tax planning and international trade practices; difficulties with performance of third parties we rely on for our business growth; the failure of any supplier to provide substances, materials, or services as agreed; the increased cost of supply, manufacturing, packaging, and operations; difficulties developing and sustaining relationships with commercial counterparties; competition from generic products as our products lose patent protection; any failure by us to obtain an additional period of market exclusivity in the United States for Nexplanon subsequent to the expiration of certain current patents in 2027; the impact of the 2024 United States presidential election and any resulting public policy changes affecting women and their health care decisions, including changes in financial outcomes resulting from candidate positions on healthcare topics and the possible impact on related laws, regulations and policies following the election; the impact of higher selling and promotional costs; the impact of cyberattacks or other events that may affect our information technology systems or those of third parties; and other factors discussed in our most recently filed Annual Report on Form 10-K and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.

General

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist the reader in understanding our financial condition and results of operations. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and with our audited financial statements, including the accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. Operating results discussed herein are not necessarily indicative of the results of any future period.

We are a global health care company with a focus on improving the health of women throughout their lives. We develop and deliver innovative health solutions through a portfolio of prescription therapies and medical devices within women’s health, biosimilars and established brands. We have a portfolio of more than 60 medicines and products across a range of therapeutic areas. We sell these products through various channels including drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. We operate six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, our group of companies.

Recent Developments

Business Development

Dermavant Sciences Ltd. (“Dermavant”)

On October 28, 2024, Organon acquired Dermavant, a company dedicated to developing and commercializing innovative therapeutics in immuno-dermatology. Dermavant’s novel product, Vtama® (tapinarof) cream, 1%, for the topical treatment of mild, moderate, and severe plaque psoriasis in adults, was approved by the U.S. Food and Drug Administration (FDA) in May 2022. It is currently being reviewed by the FDA for the treatment of atopic dermatitis, also known as eczema, in adults and children 2 years of age and older. Atopic dermatitis is one of the most common inflammatory dermatological conditions in adults, presenting a higher disease burden for women compared to men.

The transaction will be accounted for as an acquisition of a business. Consideration consists of an upfront payment of $175 million and a $75 million milestone payment upon regulatory approval, as well as payments of up to $950 million for the achievements of certain commercial milestones, tiered royalties on net sales, and the assumption of liabilities, including certain debt obligations, which would be accounted for at fair value on the acquisition date. Organon incurred costs associated with the transaction of approximately $4 million recognized in Selling, general and administrative expenses for the three and nine months ended September 30, 2024.

Suzhou Centergene Pharmaceuticals (“Centergene”)

In September 2024, we entered into license and supply agreements with Centergene acquiring the exclusive commercialization rights to its investigational asset, SJ02, a long-acting recombinant human follicle-stimulating hormone carboxyl-terminal peptide fusion protein (FSH-CTP) designed for controlled ovarian stimulation (COS) in combination with a gonadotropin-releasing hormone (GnRH) antagonist to facilitate the development of multiple follicles in women undergoing assisted reproductive technology (ART) programs. Under the terms of the agreement, we will pay $12 million of which $6 million will be paid in the fourth quarter of 2024 and $6 million is payable when we obtain the manufacturing license, which are refundable if the regulatory approval is not obtained or marketing authorization cannot be transferred, and additional regulatory and sales-based milestones of up to $170 million. We will recognize regulatory and sales-based milestones when the achievement is probable.

Eli Lilly (“Lilly”)

In December 2023, we announced an agreement with Lilly to become the sole distributor and promoter of the migraine medicines Emgality and Rayvow in Europe. Lilly will remain the marketing authorization holder and will manufacture the products for sale. Under the terms of the agreement, we paid an upfront payment of $50 million upon closing of the transaction in January 2024, and recognized sales-based milestones when the achievement was deemed probable. In the first quarter of 2024, we recognized an intangible asset of $220 million, comprised of the $50 million upfront payment and $170 million of sales-based milestones that were deemed probable. The intangible asset will be amortized over 10 years.

In August of 2024, we expanded the agreement with Lilly to become the sole distributor and promoter for Emgality in the following additional markets: Canada, Colombia, Israel, South Korea, Kuwait, Mexico, Qatar, Saudi Arabia, Taiwan, Turkey and the United Arab Emirates. We paid an upfront payment of $23 million for the expansion of territory upon closing of the transaction in August 2024, and recognize sales-based milestones when the achievement is probable. As of September 30, 2024, we recognized an additional intangible asset of $113 million, comprised of the $23 million upfront payment and $90 million related to the sales-based milestones that were deemed probable. The intangible asset will be amortized over 10 years.

As of September 30, 2024, we had accrued $20 million in Accrued and Other current liabilities and $240 million in Other noncurrent liabilities in total related to the probable sales-based milestones.

Operating Results

Sales Overview

($ in millions)

Worldwide sales were $1.6 billion for the three months ended September 30, 2024 an increase of 4%, compared to 2023. Worldwide sales were negatively impacted by approximately 1% or $18 million, due to unfavorable foreign exchange.

Excluding foreign exchange, sales increases for the three months ended September 30, 2024 primarily reflect the performance of:

• Nexplanon, due to increased demand, favorable price and discount rates in the United States and increased demand in international markets, partially offset by the timing of tenders in Latin America;
• Hadlima, due to the launch in the United States in July 2023 and a modest increase in international markets; and
• Emgality and Rayvow, due to the acquisition of the distribution and promotion rights from Lilly in 2024.

This performance was offset by decreases for the three months ended September 30, 2024 in:

• NuvaRing, due to ongoing generic competition and the negative impact of increased government discount rates in the United States;
• Ontruzant, due to the timing of tenders in Brazil and lower demand in the United States and Europe; and
• Cozaar® (losartan) and Hyzaar® (losartan / hydrochlorothiazide) due to the unfavorable pricing in Japan.

Worldwide sales were $4.8 billion for the nine months ended September 30, 2024, an increase of 3%, compared to 2023. Worldwide sales during the nine months ended September 30, 2024 were negatively impacted by approximately 2% or $76 million, due to unfavorable foreign exchange.

Excluding foreign exchange, sales increases for the nine months ended September 30, 2024 primarily reflect the performance of:

• Nexplanon, due to increased demand, favorable price and discount rates in the United States and increased demand in international markets and our institutional business in Africa;
• Hadlima, due to the launch in the United States in July 2023 and a modest increase in international markets;
• Diprospan™ 1 (betamethasone), due to recovery from the manufacturing issues resulting from the regulatory inspection finding at the Heist manufacturing location that impacted the manufacturing of selected injectable steroid brands in the first quarter of 2023 (the “Market Action”); and
• Emgality and Rayvow, due to the acquisition of the distribution and promotion rights from Lilly in 2024.

This performance was offset by decreases for the nine months ended September 30, 2024 in:

• NuvaRing, due to ongoing generic competition and the negative impact of increased government discount rates in the United States;
• Zetia® (ezetimibe), which is marketed as Ezetrol™ in most countries outside the United States; Vytorin® (ezetimibe / simvastatin), which is marketed as Inegy™ outside of the United States, primarily driven by the decrease in demand and unfavorable pricing in Japan, partially offset by increased demand in China; and
• Cozaar and Hyzaar, driven by the negative impact of volume-based procurement (“VBP”) in China and unfavorable pricing in Japan.

The loss of exclusivity (“LOE”) negatively impacted sales of certain of our products by approximately $3 million and $15 million during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, respectively, based on the decrease in volume period over period, mainly impacting AtozetTM 1 (ezetimibe and atorvastatin) in Japan. VBP in China had a $13 million negative impact on our sales during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. VBP in China did not have an impact for the three months ended September 30, 2024. We expect VBP to continue to impact our established brands product portfolio for the next several quarters.

Our operations include a portfolio of products. Highlights of the sales of our products for the three and nine months ended September 30, 2024 and 2023 are provided below. See Note 5 “Product and Geographic Information” to the Condensed Consolidated Financial Statements for further details on sales of our products.

Women’s Health

($ in millions)

(1) Sales of the authorized generic version of NuvaRing were previously included in Other Women’s Health.

Contraception

Worldwide sales of Nexplanon, a single-rod subdermal contraceptive implant, increased 10% and 17% for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to increased demand, favorable price and discount rates in the United States and increased demand in international markets. In addition, sales for the three months ended September 30, 2024, were partially offset by the timing of tenders in Latin America, and sales for the nine months ended September 30, 2024, were impacted by an increase in demand in our institutional business in Africa.

Worldwide sales of NuvaRing, a vaginal contraceptive product, declined 45% and 34% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to ongoing generic competition and the negative impact of increased government discount rates in the United States. We expect a continued decline in NuvaRing sales as a result of generic competition.

Worldwide sales of MarvelonTM 1 (desogestrel and ethinyl estradiol pill) and MercilonTM 1 (desogestrel and ethinyl estradiol pill), combined oral hormonal daily contraceptive pills not approved or marketed in the United States but available in certain countries outside the United States, remained consistent for the three months ended September 30, 2024, compared to 2023. Sales increased 6% for the nine months ended September 30, 2024, compared to 2023, as a result of increased demand in various international markets.

Fertility

Worldwide sales of Follistim AQ, a fertility treatment, increased 16% for the three months ended September 30, 2024, compared to 2023, due to increased demand in the United States and launches in various international markets, partially offset by unfavorable discount rates in the United States. Sales declined 4% for the nine months ended September 30, 2024, compared to 2023, due to a one-time buy-in as a result of our exit from our Interim Operating Model Agreement in the United States with Merck & Co., Inc. (“Merck”), during the fourth quarter of 2023 and unfavorable discount rates in the United States, partially offset by increased demand in the United States and launches in various international markets.

Worldwide sales of ganirelix acetate injection, a fertility treatment, increased 3% for the three months ended September 30, 2024, compared to 2023, primarily due to increased demand in the United States. Sales declined 7% for the nine months ended September 30, 2024, compared to 2023, primarily due to generic competition partially offset by increased demand in the United States.

Other Women’s Health

Worldwide sales of Jada, a device intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted, increased 24% and 40% for the three and nine months ended September 30, 2024, compared to 2023, respectively. The sales increase is due to continued uptake in the United States following the Jada launch in early 2022.

Biosimilars

($ in millions)

* Calculation not meaningful.

Renflexis is a biosimilar to Remicade2 (infliximab) for the treatment of certain autoimmune conditions. Sales increased 3% and 4% for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to continued demand growth in the United States and Canada, partially offset by unfavorable discount rates in the United States. We have commercialization rights to Renflexis in countries outside of Europe, Korea, China, Turkey, and Russia.

Ontruzant is a biosimilar to Herceptin2 (trastuzumab) for the treatment of HER2-overexpressing breast cancer and HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma. Sales for the three months ended September 30, 2024, compared to 2023, declined 49%, due to the timing of tenders in Brazil and lower demand in the United States and Europe. Sales for the nine months ended September 30, 2024, compared to 2023, increased 15%, driven by increased demand as a result of tenders in Brazil partially offset by lower demand in the United States and Europe. We have commercialization rights to Ontruzant in all countries except in Korea and China.

Brenzys is a biosimilar to Enbrel2 (etanercept) for the treatment of certain inflammatory diseases. Sales in the three and nine months ended September 30, 2024, compared to 2023, increased 98% and 38%, respectively, driven by the timing of government orders in Brazil. We have commercialization rights to Brenzys in countries outside of the United States, Europe, Korea, China, and Japan.

Hadlima is a biosimilar to Humira2 (adalimumab) for the treatment of certain autoimmune and autoinflammatory conditions. We have commercialization rights to Hadlima in countries outside of the EU, Korea, China, Turkey, and Russia. We recorded sales of $40 million and $98 million during the three and nine months ended September 30, 2024, respectively, reflecting an increase due to the launch in the United States in July 2023 and a modest increase in international markets. Hadlima is currently approved in the United States, Australia, Canada, and Israel.

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)

(1) Sales of the authorized generic version of Zetia were previously included in Other Cardiovascular.

Combined global sales of Zetia and Vytorin, medicines for lowering LDL cholesterol, increased 5% for the three months ended September 30, 2024, compared to 2023, primarily driven by increased demand in China partially offset by unfavorable pricing in Japan. Sales declined 9% for the nine months ended September 30, 2024, compared to 2023, primarily driven by the decrease in demand and unfavorable pricing in Japan, partially offset by increased demand in China.

Sales of Atozet, a medicine for lowering LDL cholesterol, declined 1% and remained consistent for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to LOE in Japan and the timing of tenders in the

Latin America region partially offset by increased demand in certain markets in Europe. We anticipate a significant decline in sales beginning in the fourth quarter of 2024 due to LOE, which occurred late in the third quarter, in certain markets in Europe.

Combined global sales of Cozaar and Hyzaar, medicines for the treatment of hypertension, declined 13% and 17% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to the unfavorable pricing in Japan. Sales for the nine months ended September 30, 2024 were impacted by VBP in China.

Respiratory

($ in millions)

(1) Sales of the authorized generic version of Nasonex were previously included in Other Respiratory.

Worldwide sales of Singulair® (montelukast sodium), a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, decreased 7% for the three months ended September 30, 2024, compared to 2023, due to unfavorable pricing in Japan and China. Sales decreased 5% for the nine months ended September 30, 2024, compared to 2023, due to decreased demand and price decreases in Japan.

Global sales of Nasonex® (mometasone), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, increased 5% and 1% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to increased demand across international markets partially offset by the phasing of shipments in various international markets.

Global sales of Dulera® (formoterol/fumarate dihydrate), which is also marketed as Zenhale™ in certain markets outside of the United States, a combination medicine for the treatment of asthma, remained relatively consistent for the three months ended September 30, 2024, compared to 2023. Sales increased 5% for the nine months ended September 30, 2024, compared to 2023, primarily due to the favorable impact of increased demand in the United States and Canada.

Non-Opioid Pain, Bone and Dermatology

($ in millions)

Sales of Arcoxia™ ¹ (etoricoxib), a medicine for the treatment of arthritis and pain, increased 8% and 2% for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to increased demand in China and favorable pricing in the Asia Pacific region partially offset by a decrease in demand in various international markets.

Sales of Diprospan, a corticosteroid approved for treatment of a wide range of inflammatory conditions, increased 19% and 78% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to recovery from the manufacturing issues resulting from the Market Action. In the first quarter of 2023, we resolved the regulatory inspection findings. We expect sales recovery to continue through the end of 2024.

Other

($ in millions)

* Calculation not meaningful.

Sales of Emgality and Rayvow were $29 million and $69 million for the three and nine months ended September 30, 2024, due to the acquisition of the distribution and promotion rights from Lilly in 2024.

Worldwide sales of Proscar® (finasteride), a medicine for the treatment of symptomatic benign prostate enlargement, declined 8% and 6% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to decreased demand in China.

Gross Profit, Expenses and Other

($ in millions)

* Calculation not meaningful.

Cost of Sales

Cost of sales increased 8% and 9% for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to unfavorable product mix, foreign exchange translation and higher inflation impacts to material and distribution costs.

Gross Profit

Gross profit for the three and nine months ended September 30, 2024, compared to 2023, was impacted by increased sales due to volume, partially offset by unfavorable product mix and price, foreign exchange translation and higher inflation impacts to material and distribution costs.

Selling, General and Administrative

Selling, general and administrative expenses decreased 22% and 9% for the three and nine months ended September 30, 2024, compared to 2023, respectively, due to the $80 million charge in 2023 related to the Microspherix legal matter and lower costs associated with the implementation of our Enterprise Resource Planning (“ERP”) system.

Research and Development

Research and development expenses decreased 19% and 14% for the three and nine months ended September 30, 2024, compared to 2023, respectively, primarily due to a decrease in clinical study activity and lower personnel costs due to a reduction in headcount related to our restructuring initiatives.

Acquired In-Process Research and Development and Milestones

For the three months ended September 30, 2024, acquired in-process research and development and milestones of $51 million primarily represent the research and development milestones related to our agreement with Henlius, which were determined to be probable of being achieved. For the nine months ended September 30, 2024, acquired in-process research and development and milestones of $81 million primarily represent the research and development milestones of $70 million for our agreement with Henlius and $10 million for our agreement with Cirqle, which were determined to be probable of being achieved. For the nine months ended September 30, 2023 acquired in-process research and development and milestones of $8 million represent the upfront and development milestones related to the Claria transaction.

Restructuring Costs

For the nine months ended September 30, 2024, we incurred $23 million, of headcount-related restructuring expense related to the ongoing optimization of our internal operations, primarily the research and development function.

Interest Expense

Interest expense for the three months ended September 30, 2024, compared to 2023, decreased 6% due to lower interest rates on the refinanced debt and our cross-currency swaps. Interest expense for the nine months ended September 30, 2024, compared to 2023, decreased 3% due to lower interest rates on the refinanced debt and our cross-currency swaps, partially offset by approximately $4 million in debt issuance costs related to the refinancing of our long-term debt. Beginning in May 2024, the difference between the interest rate received of 7.3125% and paid of 5.8330% under the cross-currency swap agreements is recorded in Interest expense.

Exchange Gains (Losses)

For the three and nine months ended September 30, 2024, the reduction in exchange losses was driven by less volatility in foreign exchange compared to the prior year and the favorable changes in spot rates of our forward contracts.

Other Expense, net

Other expense decreased for the three and nine months ended September 30, 2024, compared to 2023.

Taxes on Income

The effective income tax rates were (11.3)% and 16.1% for the nine months ended September 30, 2024 and 2023, respectively. These effective income tax rates reflect the beneficial impact of foreign earnings, offset by the impact of U.S. inclusions under the Global Intangible Low-Taxed Income regime and a partial valuation allowance recorded against non-deductible U.S. interest expense. There was a favorable impact to the 2024 year-to-date effective tax rate, which was driven by the favorable closure of the two non-US tax audits and a return to provision adjustment for the Switzerland entity.

In the third quarter of 2024, the Swiss tax authority confirmed to the Company the applicable useful life of an existing tax asset. As a result, the Company has now concluded it is more likely than not it will utilize the entirety of the tax asset. As such, the Company released a $210 million related valuation allowance.

Effective January 1, 2024, multiple jurisdictions, most notably, a majority of the European Union member states, implemented the Organization for Economic Co-operation and Development’s Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least €750 million. We have evaluated the effect of this for the first three quarters of 2024 and do not expect that it will have a material effect on a full year basis.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $763 million. We have historically generated and expect to continue to generate positive cash flow from operations. Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility. 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 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.

During the second quarter of 2024, we refinanced a portion of our long-term debt. These transactions extended certain maturity dates, resulted in lower interest rates for certain of our long-term debt and increased the capacity of our revolving credit facility. See Note 10 “Long-Term Debt” to the Condensed Consolidated Financial Statements included elsewhere in this report for further information on our long-term debt transactions.

Working capital is defined as current assets less current liabilities and was $2.0 billion and $1.6 billion as of September 30, 2024 and December 31, 2023, respectively. The increase in working capital was primarily driven by increased cash from positive cash flows, inventory purchases, and current assets due to the timing of tax payments and a decline in our payables, due to the timing of payments.

Net cash provided by operating activities was $549 million for the nine months ended September 30, 2024, compared to $402 million for the same period in the prior year. The increase in cash provided by operating activities was primarily attributable to the increase in our operating results, which was the result of increased sales period over period.

Net cash used in investing activities was $217 million for the nine months ended September 30, 2024, compared to $179 million for the same period in the prior year, primarily due to the $73 million upfront payments related to the agreement with Lilly and the additional $26 million payments related to milestones, partially offset by lower capital spending as a result of the completion of the implementation of our ERP system.

Net cash used in financing activities was $286 million for the nine months ended September 30, 2024, compared to $492 million for the same period in the prior year. The decrease in cash used in financing activities was driven by the $250 million voluntary prepayment on the U.S. dollar-denominated term loan in the nine months ended September 30, 2023, compared to a $7.5 million voluntary prepayment on the U.S. dollar-denominated term loan and $36 million of debt issuance costs related to the long-term debt refinancing in the nine months ended September 30, 2024.

As part of our post-spinoff plan, we have approved an initiative to further optimize our manufacturing and supply network. As part of this initiative, we will continue to separate our supply chain through planned exits from supply agreements from Merck through 2031. This will enable us to redefine our appropriate sourcing strategy, and move to fit-for-purpose supply chains, while focusing on delivering efficiencies. We anticipate we will incur costs associated with this separation, including but not limited to accelerated depreciation, exit premiums and fees, technology transfer costs, stability and qualification batch costs, one-time resourcing costs, regulatory and filing costs, capital investment, and inventory stock bridges.

Our contractual obligations as of September 30, 2024, which require material cash requirements in the future, consist of contractual milestones, purchase obligations and lease obligations. During the fourth quarter, we anticipate paying higher cash taxes than the fourth quarter of 2023. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 for further details. As of September 30, 2024, there have been no material changes to our contractual obligations outside of the ordinary course of business.

During the third quarter of 2024, we paid cash dividends of $0.28 per share. On October 31, 2024, the Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of our common stock. The dividend is payable on December 12, 2024, to stockholders of record at the close of business on November 12, 2024.

Critical Accounting Estimates

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 3 “Summary of Accounting Policies” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. See Note 2 “Basis of Presentation” to the Condensed Consolidated Financial Statements for information on the adoption of new accounting standards during 2024. There have been no changes to our accounting policies as of September 30, 2024. A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates are disclosed in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Organon’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 2 “Basis of Presentation” to the Condensed Consolidated Financial Statements included elsewhere in this report.

There have been no changes to our market risk during the quarter ended September 30, 2024. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth under Item 7A.—Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2023.

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)) as of the period ending September 30, 2024. Based upon that evaluation, our CEO and our CFO concluded that, as of September 30, 2024, the end of the period covered by this report, our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended September 30, 2024, there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in our risk factors from those disclosed in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2023.