UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 10-Q

________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File No. 001-40235

Organon & Co.

(Exact name of registrant as specified in its charter)


Delaware		46-4838035
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

30 Hudson Street, Floor 33
Jersey City,	New Jersey	07302
(Address of principal executive offices) (zip code)

(Registrant’s telephone number, including area code) (551) 430-6900


			Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	OGN	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,”" “"smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐☒	Accelerated filer	☐

Non-accelerated filer	☒☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding as of the close of business on ~~May 2, 2022: 253,637,179~~April 28, 2023: 255,061,747

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Organon & Co.

Condensed Consolidated ~~Statement~~Statements of Income

(Unaudited, $ in millions except ~~share~~shares in thousands and per share amounts)

Three Months Ended March 31,
2022 2021
Revenues $ 1,567 $ 1,506
Costs, Expenses and Other
Cost of sales 561 591
Selling, general and administrative 371 382
Research and development 96 67
Restructuring costs — 1
Other (income) expense, net 97 (2)
1,125 1,039
Income From Continuing Operations Before Income Taxes 442 467
Taxes on Income 94 72
Net Income From Continuing Operations 348 395
Income From Discontinued Operations - Net of Tax — 4
Net Income $ 348 $ 399
Earnings per Share Attributable to Organon & Co. Stockholders - Basic:
Continuing operations $ 1.37 $ 1.56
Discontinued operations — 0.02
Net Earnings per Share Attributable to Organon & Co. Stockholders $ 1.37 $ 1.58
Earnings per Share Attributable to Organon & Co. Stockholders - Diluted:
Continuing operations $ 1.36 $ 1.56
Discontinued operations — 0.02
Net Earnings per Share Attributable to Organon & Co. Stockholders $ 1.36 $ 1.58
Weighted Average Shares Outstanding:
Basic 253,583,000 253,516,000
Diluted 255,052,000 253,516,000


	Three Months Ended March 31,
		2023		2022
Revenues		$	1,538	$	1,567
Costs, Expenses and Other
Cost of sales		580		561
Selling, general and administrative		435		371
Research and development		129		96
Acquired in-process research and development and milestones		8		—
Restructuring costs		4		—
Interest expense		132		97
Exchange losses (gains)		9		(4)
Other expense, net		6		4
		1,303		1,125
Income From Operations Before Income Taxes		235		442
Taxes on Income		58		94


Net Income		$	177	$	348

Earnings per Share:


Basic		$	0.70	$	1.37




Diluted		$	0.69	$	1.36

Weighted Average Shares Outstanding:
Basic		254,392		253,583
Diluted		256,170		255,052

~~Organon & Co.~~

~~Condensed Consolidated Statement of Comprehensive Income~~

~~(Unaudited, $ in millions)~~

Three Months Ended March 31,
2022 2021
Net Income $ 348 $ 399
Other Comprehensive Loss, Net of Taxes:
Benefit plan net loss and prior service credit, net of amortization (1) (2)
Cumulative translation adjustment (15) (66)
(16) (68)
Comprehensive Income $ 332 $ 331

The accompanying notes are an integral part of these interim Condensed Consolidated Financial Statements.

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Organon & Co.

Condensed Consolidated ~~Balance Sheet~~Statements of Comprehensive Income

(Unaudited, $ in ~~millions, except share data)~~millions)

March 31, 2022 December 31, 2021
Assets
Current Assets
Cash and cash equivalents $ 694 $ 737
Accounts receivable (net of allowance for doubtful accounts of $11 in
2022 and $7 in 2021)
1,322 1,382
Inventories (excludes inventories of $30 in 2022 and $76 in 2021 classified in Other Assets) 946 915
Other current assets 757 726
Total current assets 3,719 3,760
Property, plant and equipment, net 970 973
Goodwill 4,603 4,603
Other intangibles, net 665 651
Other assets 640 694
$ 10,597 $ 10,681
Liabilities and Equity
Current Liabilities
Current portion of long-term debt $ 9 $ 9
Trade accounts payable 1,081 1,382
Accrued and other current liabilities 1,014 1,021
Income taxes payable 202 185
Total current liabilities 2,306 2,597
Long-term debt 9,085 9,125
Deferred income taxes 2 4
Other noncurrent liabilities 454 463
Commitments and Contingencies 0 0
Organon & Co. Equity
Common stock, $0.01 par value
Authorized - 500,000,000
Issued and outstanding - 253,637,179
3 3
Accumulated deficit (724) (998)
Accumulated other comprehensive loss (529) (513)
Total Deficit (1,250) (1,508)
$ 10,597 $ 10,681


	Three Months Ended March 31,
		2023		2022
Net Income		$	177	$	348
Other Comprehensive Income (Loss), Net of Taxes:
Benefit plan net loss and prior service credit, net of amortization		—		(1)
Cumulative translation adjustment		30		(15)
		30		(16)
Comprehensive Income		$	207	$	332

The accompanying notes are an integral part of these interim Condensed Consolidated Financial Statements.

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Organon & Co.

Condensed Consolidated ~~Statement of Equity~~Balance Sheets

(Unaudited, $ in millions except ~~shares)~~shares in thousands and per share amounts)

Common Stock Additional Paid-In Capital Accumulated Deficit Net Investment from Merck & Co., Inc. Accumulated
Other
Comprehensive
(Loss) Income Total
Shares Par Value
Balance at January 1, 2021 — $ — $ — $ — $ 6,108 $ (622) $ 5,486
Net income attributable to Organon & Co. — — — — 399 — 399
Other comprehensive loss, net of taxes — — — — — (68) (68)
Net transfers to Merck & Co., Inc. — — — — (1,096) 1 (1,095)
Balance at March 31, 2021 — $ — $ — $ — $ 5,411 $ (689) $ 4,722
Balance at January 1, 2022 253,550,029 $ 3 $ — $ (998) $ — $ (513) $ (1,508)
Net income attributable to Organon & Co. — — — 348 — — 348
Other comprehensive loss, net of taxes — — — — — (16) (16)
Cash dividends declared on common stock ($0.28 per share) — — — (71) — — (71)
Stock-based compensation plans and other 87,150 — — 15 — — 15
Net transfers from Merck & Co., Inc., including Separation Adjustments — — — (18) — — (18)
Balance at March 31, 2022 253,637,179 $ 3 $ — $ (724) $ — $ (529) $ (1,250)


	March 31, 2023		December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	459	$	706
Accounts receivable (net of allowance for doubtful accounts of $9 in 2023 and $9 in 2022)	1,445		1,475
Inventories (excludes inventories of $87 in 2023 and $148 in 2022 classified in Other assets)	1,121		1,003
Other current assets	755		747
Total current assets	3,780		3,931
Property, plant and equipment, net	1,055		1,018
Goodwill	4,603		4,603
Intangibles, net	621		649
Other assets	704		754
	$	10,763	$	10,955
Liabilities and Equity
Current Liabilities
Current portion of long-term debt	$	8	$	8
Trade accounts payable	996		1,132
Accrued and other current liabilities	1,150		1,188
Income taxes payable	192		184
Total current liabilities	2,346		2,512
Long-term debt	8,703		8,905
Deferred income taxes	30		19
Other noncurrent liabilities	421		411
Contingencies (Note 15)

Organon & Co. Stockholders' Deficit
Common stock, $0.01 par value Authorized - 500,000 Issued and outstanding - 254,432 in 2023 and 254,370 in 2022	3		3
Accumulated deficit	(206)		(331)
Accumulated other comprehensive loss	(534)		(564)
Total Stockholders' Deficit	(737)		(892)
	$	10,763	$	10,955

The accompanying notes are an integral part of these interim Condensed Consolidated Financial Statements.

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Organon & Co.

Condensed Consolidated ~~Statement~~Statements of Stockholders' Equity (Deficit)

(Unaudited, $ in millions, except shares in thousands and per share amounts)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total
	Shares	Par Value
























Balance at January 1, 2022	253,550	$	3	$	—	$	(998)	$	(513)	$	(1,508)
Net income	—	—		—		348		—		348
Other comprehensive loss, net of taxes	—	—		—		—		(16)		(16)
Cash dividends declared on common stock ($0.28 per share)	—	—		—		(71)		—		(71)
Stock-based compensation plans and other	87	—		—		15		—		15
Net transfers to Merck & Co., Inc. including Separation Adjustments	—	—		—		(18)		—		(18)
Balance at March 31, 2022	253,637	$	3	$	—	$	(724)	$	(529)	$	(1,250)

Balance at January 1, 2023	254,370	$	3	$	—	$	(331)	$	(564)	$	(892)
Net income	—	—		—		177		—		177
Other comprehensive income, net of taxes	—	—		—		—		30		30
Cash dividends declared on common stock ($0.28 per share)	—	—		—		(73)		—		(73)
Stock-based compensation plans and other	62	—				21		—		21

Balance at March 31, 2023	254,432	$	3	$	—	$	(206)	$	(534)	$	(737)

The accompanying notes are an integral part of these interim Condensed Consolidated Financial Statements.

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Organon & Co.

Condensed Consolidated Statements of Cash Flows

(Unaudited, $ in millions)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income from continuing operations		$	348	$	395
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities:
Net income						Net income	$	177	$	348
Adjustments to reconcile net income to net cash flows provided by operating activities:						Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation	Depreciation	25		18		Depreciation	28		25
Amortization	Amortization	28		20		Amortization	29		28

Acquired in-process research and development and milestones						Acquired in-process research and development and milestones	8		—
Deferred income taxes	Deferred income taxes	(4)		(25)		Deferred income taxes	3		(4)
Stock-based compensation	Stock-based compensation	15		11		Stock-based compensation	22		15
Unrealized foreign exchange (gain) loss		(6)		7
Unrealized foreign exchange loss (gain)						Unrealized foreign exchange loss (gain)	2		(6)
Other	Other	6		—		Other	8		6
Net changes in assets and liabilities	Net changes in assets and liabilities					Net changes in assets and liabilities
Accounts receivable	Accounts receivable	54		(40)		Accounts receivable	39		54
Inventories	Inventories	14		(33)		Inventories	(38)		14
Other current assets	Other current assets	(37)		141		Other current assets	(3)		(37)
Trade accounts payable	Trade accounts payable	(298)		4		Trade accounts payable	(139)		(298)
Accrued and other current liabilities	Accrued and other current liabilities	(45)		70		Accrued and other current liabilities	(47)		(45)
Due from/due to related party		—		769

Income taxes payable	Income taxes payable	30		(52)		Income taxes payable	6		30
Other	Other	(7)		15		Other	19		(7)
Net Cash Flows Provided by Operating Activities from Continuing Operations		123		1,300
Net Cash Flows Provided by Operating Activities						Net Cash Flows Provided by Operating Activities	114		123
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Capital expenditures	Capital expenditures	(33)		(38)		Capital expenditures	(46)		(33)
Purchase of product rights		(30)		—
Net Cash Flows Used in Investing Activities from Continuing Operations		(63)		(38)

Acquired in-process research and development and milestones						Acquired in-process research and development and milestones	(8)		—
Purchase of product rights and asset acquisition, net of cash acquired						Purchase of product rights and asset acquisition, net of cash acquired	—		(30)
Net Cash Flows Used in Investing Activities						Net Cash Flows Used in Investing Activities	(54)		(63)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities

Repayments of debt	Repayments of debt	(2)		—		Repayments of debt	(252)		(2)
Repayments of short-term borrowings from Merck & Co., Inc., net		—		(566)

Net transfers to Merck & Co., Inc.	Net transfers to Merck & Co., Inc.	(18)		(551)		Net transfers to Merck & Co., Inc.	—		(18)
Employee withholding taxes related to stock-based awards						Employee withholding taxes related to stock-based awards	(1)		—
Dividend payments	Dividend payments	(71)		—		Dividend payments	(73)		(71)
Net Cash Flows Used in Financing Activities from Continuing Operations		(91)		(1,117)
Discontinued Operations
Net Cash Provided by Operating Activities		—		204
Net Cash Used in Investing Activities		—		—
Net Cash Used in Financing Activities		—		(244)
Net Cash Flows Used in Discontinued Operations		—		(40)
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Continuing Operations		(12)		(13)
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Discontinued Operations		—		(1)
Net (Decrease) Increase in Cash and Cash Equivalents		(43)		91
Net Cash Flows Used in Financing Activities						Net Cash Flows Used in Financing Activities	(326)		(91)
Effect of Exchange Rate Changes on Cash and Cash Equivalents						Effect of Exchange Rate Changes on Cash and Cash Equivalents	19		(12)
Net Decrease in Cash and Cash Equivalents						Net Decrease in Cash and Cash Equivalents	(247)		(43)
Cash and Cash Equivalents, Beginning of Period	Cash and Cash Equivalents, Beginning of Period	737		12		Cash and Cash Equivalents, Beginning of Period	706		737
Cash and Cash Equivalents of Discontinued Operations, Beginning of Period		—		58
Total Cash and Cash Equivalents, End of Period		694		161
Less: Cash and Cash Equivalents of Discontinued Operations, End of Period		—		20
Cash and Cash Equivalents, End of Period	Cash and Cash Equivalents, End of Period	$	694	$	141	Cash and Cash Equivalents, End of Period	$	459	$	694

The accompanying notes are an integral part of these interim Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements (unaudited)

1. Background and Nature of Operations

Organon & Co. ~~(“Organon”~~("Organon" or the "Company") is a global health care company ~~formed through~~with a ~~spinoff from Merck & Co., Inc. (“Merck”) to~~ focus on improving the health of women throughout their lives. Organon develops and delivers innovative health solutions through a portfolio of prescription therapies and medical devices within women's health, biosimilars and established brands (the "Organon Products"). Organon has a portfolio of more than 60 medicines and products across a range of therapeutic areas. The Company sells 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. The Company operates 6six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United ~~Kingdom ("UK").~~Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, the Organon group of companies.

The ~~Company’s~~Company's operations include the following product portfolios:

•~~Women’s Health: the Company has a portfolio of~~Women's Health: Organon's women's health products are sold by prescription primarily in two therapeutic areas, contraception, ~~and fertility~~with key brands such as Nexplanon®~~(etonogestrel~~ (etonogestrel implant) (sold as Implanon ~~NXT™~~ NXT™ in some countries outside the ~~US)~~United States) and NuvaRing® (etonogestrel / ethinyl estradiol vaginal ring), and fertility, with key brands such as Follistim AQ® (follitropin beta injection) (marketed in most countries outside the United States as Puregon™). Nexplanon® is a long-acting reversible contraceptive, which is a class of contraceptives that ~~are~~is recognized as one of the most effective ~~type~~types of hormonal contraception available to patients with a ~~lower~~low long-term average cost. Other women’s health products include the Jada® System, which is intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted and a license from Daré Biosciences for the global commercial rights to Xaciato™ (clindamycin phosphate vaginal gel, 2%), an FDA-approved medication for the treatment of bacterial vaginosis ("BV") in females 12 years of age and older.

•~~Biosimilars: the Company’s~~Biosimilars: Organon's current portfolio spans across immunology and oncology treatments. Organon's oncology biosimilars have been launched in more than 20 countries and Organon's immunology biosimilars have been launched in five countries. All five ~~of the~~ biosimilars in ~~Organon’s~~Organon's portfolio have launched in ~~certain countries globally, including~~Canada, and two ~~biosimilars~~biosimilars; Ontruzant® (trastuzumab-dttb)and Renflexis® (infliximab-abda)have been launched in the United States.

•Established ~~Brands: the Company~~Brands: Organon has a portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management. A number of Organon's established brands lost exclusivity years ago and have faced generic competition for some time.

On June 2, 2021, Organon and Merck entered into a Separation and Distribution Agreement (the "Separation and Distribution Agreement"). Pursuant to the Separation and Distribution Agreement, Merck agreed to spin off the Organon Products into Organon, a new, publicly traded company (the "Separation").

In connection with the Separation, on June 2, 2021, Merck distributed (the "Distribution"), on a pro rata basis, to holders of the outstanding shares of common stock of Merck, par value $0.50 per share (the "Merck Common Stock") on May 17, 2021 (the "Record Date"), all of the outstanding shares of common stock, par value $0.01 per share, of Organon (the "Common Stock"). Each Merck stockholder was entitled to receive one-tenth of a share of the Common Stock for each share of Merck Common Stock held on the Record Date. Organon is now a standalone publicly traded company and, on June 3, 2021, regular-way trading of the Common Stock commenced on the New York Stock Exchange under the ticker symbol "OGN."

The Separation was completed pursuant to the Separation and Distribution Agreement and other agreements with Merck related to the Separation, including, but not limited to a tax matters agreement (the "Tax Matters Agreement" or "TMA"), an employee matters agreement (the "Employee Matters Agreement" or "EMA") and a transition services agreement (the "Transition Service Agreement" or "TSA"). Following the Separation, certain functions continue to be provided by Merck under the TSA or are being performed using the Company’s own resources or third-party service providers. Additionally, under manufacturing and supply agreements, the Company manufactures certain products for Merck, or its applicable affiliate and Merck manufactures certain products for the Company or its applicable affiliate (see Note 14 for additional details). The Company incurred certain costs in its establishment as a standalone public company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company.

2. Basis of Presentation

The accompanying unaudited financial statements ~~for all periods presented, including the historical results of the Company prior to June 2, 2021, are referred to as "Condensed Consolidated Financial Statements", and~~ have been prepared ~~pursuant~~in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with the instructions to ~~the rules~~Form 10-Q and ~~regulations for reporting on Form 10-Q.~~Article 10 of Regulation S-X. Accordingly, certain information and disclosures required by ~~U.S. generally accepted accounting principles ("GAAP")~~GAAP for complete consolidated financial statements are not included herein. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the ~~Company’s~~Company's opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. All intercompany transactions and accounts within Organon have been eliminated. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in ~~Organon’s~~Organon's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Prior to the Separation on June 2, 2021, the Company’s historical Consolidated financial statements were prepared on a standalone basis and were derived from Merck’s consolidated financial statements and accounting records. The assets, liabilities, revenue and expenses of the Company were reflected in the Condensed Consolidated Financial Statements on a

~~-7-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~
~~(continued)~~

historical cost basis, as included in the consolidated financial statements of Merck, using the historical accounting policies applied by Merck, following a legal entity approach. For such periods prior to the Separation, certain corporate and shared costs were allocated to the Company based on a specific identification basis or, when specific identification was not practicable, a proportional cost allocation method. Refer to Note 2 of the audited Consolidated Financial Statements in the Company's 2021 Form 10-K for additional details on Organon's basis of presentation during periods prior to the Separation, at Separation and post Separation.

The Company’s historical results prior to the Separation included certain Merck non-U.S. legal entities that were conveyed to Organon in connection with the Separation (collectively, the "Transferred Entities" and each, a "Transferred Entity") and included operations related to other Merck products that were retained by Merck (the "Merck Retained Products"). The Merck Retained Products business of the Transferred Entities was contributed by the Company to Merck and its affiliates and any remaining assets and liabilities were transferred as of June 2, 2021. Accordingly, the historical results of operations of the Merck Retained Products have been reflected as discontinued operations in these Condensed Consolidated Financial Statements.

For periods prior to the Separation, income tax expense in the Condensed Consolidated Statement of Income was calculated on a separate tax return basis and the Company’s operations were included in the tax returns of certain Organon Entities, Transferred Entities, or the respective Merck entities of which the Company’s business was a part. As of June 2, 2021 and in connection with the Separation, the Company adjusted its deferred tax balances and computed its related tax provision to reflect operations as a standalone entity. As a standalone entity, the Company files tax returns on its own behalf, and tax balances and effective income tax rates may differ from the amounts reported in the historical periods.

Certain assets and liabilities, including accounts receivables, inventories and trade payables included on the Condensed Consolidated Balance Sheet prior to the Separation, were retained by Merck post-Separation and therefore were recorded through Net investment from Merck & Co., Inc. in the Company’s Condensed Consolidated Financial Statements. As part of the Separation, Net investment from Merck & Co., Inc. was reclassified to Common Stock and Accumulated Deficit

Use of Estimates

The presentation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with U.S. GAAP require management to make estimates and assumptions that affect the amounts reported, as further described in our Form 10-K for the year ended December 31, ~~2021.~~2022. Accordingly, actual results could differ materially from management's estimates and assumptions.

~~Due~~

The Company continues to ~~the significant~~experience uncertainty ~~that exists~~ relative to the duration and overall impact of COVID-19, specifically, in the ~~COVID-19 pandemic, our~~Company's operations in China. The future operating performance in that region, particularly in the short-term, may be subject to volatility. The assessment of certain accounting matters and specifically its effect on the Company's results require consideration of forecasted financial information in the context of the information reasonably available to the Company and the ~~unknown~~ future impacts of COVID-19 on the ~~COVID-19 pandemic at~~Company's operations in China as of March 31, ~~2022~~2023 and through the date of this ~~report.~~

~~Recently Adopted Accounting Standards~~

~~There were no recently issued accounting standards adopted by the Company during the first quarter of 2022. Refer~~report which are difficult to ~~Note 3 of the audited Condensed Consolidated Financial Statements in Organon's Form 10-K for the year ended December 31, 2021 for standards adopted in 2021.~~

~~Recently Issued Accounting Standards Not Yet Adopted~~

In March 2022, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting for credit losses on financial instruments. This amendment eliminates the recognition and measurement guidance on trouble debt restructurings for creditors that have adopted the new credit losses guidance in Accounting Standards Codification 326 ("ASC 326"), and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present gross write-offs by year of origination in their vintage disclosures. The guidance is effective for the Company on January 1, 2023, including interim periods. Early adoption is permitted, and the amendment applied prospectively, except for the recognition and remeasurement of trouble debt restructurings. Entities can elect to adopt the guidance on trouble debt restructurings using either a prospective or modified retrospective transition. If an entity elects to apply a modified retrospective transition, it will record a cumulative effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of adoption on its Condensed Consolidated Financial Statements.

In November 2021, the FASB issued new guidance requiring disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model. The guidance increases transparency about the types of transactions, the accounting for the transactions, and the effect of the transactions to the Company’s financial statements. The guidance is effective for annual periods in 2022 and can be applied on a prospective or retrospective basis. Thepredict.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

~~Company is currently evaluating the impact of adoption on its Consolidated Financial Statements. The Company does not anticipate a material impact to its Consolidated Financial Statements.~~

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, guidance to improve the accounting for contract assets and contract liabilities from acquired revenue contracts with customers in a business combination. The guidance addresses diversity in practice and inconsistency related to the recognition of an acquired contract liability, payment terms and their effect on subsequent revenue recognized by an acquirer. The guidance isbecame effective for the Company on January 1, 2023 and its amendments will be applied prospectively to business combinations occurring on or after the effective date of the guidance. ~~Early~~The adoption ~~is permitted, including adoption in~~of this guidance did not have an ~~interim period and subject to different transition requirements. The Company is currently evaluating~~impact on the Company's Consolidated Financial Statements for prior acquisitions; however, the impact ~~of adoption~~in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.

Recently Issued Accounting Standards Not Yet Adopted

The following summarizes recent Accounting Standards Updates ("ASUs") issued by the FASB that could have a material impact on ~~its Condensed Consolidated Financial Statements.~~our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 and December 31, ~~2022.~~2022, the sunset date was subsequently deferred to December 31, 2024 based on the amendment issued in December 2022 under ASU 2022-06, Reference Rate Reform (Topic 848). The Company is ~~currently~~still evaluating the impact ~~of adoption~~to its LIBOR-based debt. Based on ~~its Condensed Consolidated Financial Statements. The~~the evaluation thus far, the Company does not anticipate a material impact to ~~its~~the Consolidated Financial ~~Statements.~~Statements as a result of reference rate reform.

3. ~~Samsung Collaboration~~

The Company has an agreement with Samsung Bioepis Co., Ltd. ("Samsung Bioepis") to develop and commercialize multiple pre-specified biosimilar candidates, which have since launched and are part of the Company’s product portfolio. Under the agreement, Samsung Bioepis is responsible for preclinical and clinical development, process development and manufacturing, clinical trials and registration of product candidates, and the Company has an exclusive license for worldwide commercialization with certain geographic exceptions specified on a product-by-product basis. The Company’s access rights to each product under the agreement last for 10 years from each product’s launch date on a market-by-market basis. Gross profits are shared equally in all markets with the exception of Brazil where gross profits are shared 65% to Samsung Bioepis and 35% to the Company. Since the Company is the principal on sales transactions with third parties, the Company recognizes sales, cost of sales and selling, general and administrative expenses on a gross basis. Generally, profit sharing adjustments are recorded either to ~~Cost of sales~~ ~~(after commercialization) or~~ ~~Selling, general and administrative~~ ~~expenses (prior to commercialization).~~

Samsung Bioepis is eligible for additional payments associated with pre-specified clinical and regulatory milestones. At March 31, 2022, potential future regulatory milestone payments of $25 million remain under the agreement.

~~Summarized information related to this collaboration is as follows:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Sales $ 99 $ 81
Cost of sales 65 53
Selling, general and administrative 18 15

($ in millions) March 31, 2022 December 31, 2021
Receivables from Samsung included in Other current assets
$ 26 $ 15
Payables to Samsung included in Trade accounts payable
23 21

4. Acquisitions and Licensing Arrangements

Claria Medical, Inc. ("Claria")

In ~~February 2022,~~January 2023, the Company made a strategic investment in Claria, a privately-held company developing an investigational medical device being studied for use during minimally invasive laparoscopic hysterectomy. Under the terms of the agreement, Organon ~~acquired the product rights and related inventory from Bayer AG to~~ ~~Marvelon™ (ethinylestradiol, desogestrel) and~~ ~~Mercilon™ (ethinylestradiol, desogestrel), combined oral hormonal daily contraceptive pills, in the People’s Republic of China, including Hong Kong and Macau,~~paid $8 million upfront and has ~~entered into an agreement~~the option to acquire ~~the rights to these products in Vietnam.~~ ~~Marvelon~~ ~~and~~ ~~Mercilon~~ ~~are already owned, manufactured, and marketed by Organon as prescription oral contraceptives in 20 other markets. The transaction was accounted~~Claria for ~~as an asset acquisition. In the first quarter of 2022, Organon paid $30 million to acquire the product rights and inventory in China and accrued~~ an additional ~~$35~~$47 million, ~~related to these rights which will be paid during~~payable if and when the ~~second quarter~~option is exercised. The $8 million was expensed as Acquired in-process research and development and milestones in our Condensed Consolidated Statement of ~~2022. This resulted in Organon recognizing an intangible asset of $42 million related to the product rights with the remainder of the consideration recorded to~~ ~~Inventory~~Income for the ~~fair value of~~three months ended March 31, 2023.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

~~acquired inventory~~4. Earnings per Share ("EPS")

The calculations of basic and diluted earnings per common share are as follows:


	Three Months Ended March 31,
($ in millions and shares in thousands, except per share amounts)		2023		2022



Net income		$	177	$	348

Basic weighted average number of shares outstanding		254,392		253,583
Stock awards and equity units (share equivalent)		1,778		1,469
Diluted weighted average common shares outstanding		256,170		255,052

EPS:


Basic		$	0.70	$	1.37




Diluted		$	0.69	$	1.36

Anti-dilutive shares excluded from the calculation of EPS		6,495		4,860

Diluted EPS is computed by giving effect to all potentially dilutive stock awards that are outstanding. The computation of diluted EPS excludes the effect of the potential exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

5. Product and Geographic Information

The Company's operations include the following product portfolios, which constitute one operating segment engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies within women's health, biosimilars and established brands.

Revenues of the Company's products were as follows:


	Three Months Ended March 31,
		2023	2022
($ in millions)				U.S.		Int'l		Total		U.S.		Int'l		Total
Women's Health
Nexplanon/Implanon NXT				$	114	$	52	$	165	$	116	$	55	$	171
Follistim AQ				26		29		55		30		31		61
NuvaRing				15		24		40		16		24		41
Ganirelix Acetate Injection				6		23		30		8		22		30
Marvelon/Mercilon				—		37		37		—		24		24
Other Women's Health (1)				26		28		54		27		26		52
Biosimilars
Renflexis				55		7		62		42		4		46
Ontruzant				13		8		21		7		15		22
Brenzys				—		19		19		—		14		14
Aybintio				—		10		10		—		10		10
Hadlima				—		5		5		—		6		6
Established Brands
Cardiovascular
Zetia				2		81		83		3		96		99
Vytorin				2		28		29		2		36		38
Atozet				—		128		128		—		119		119
Rosuzet				—		18		18		—		22		22
Cozaar/Hyzaar				2		83		85		8		86		93
Other Cardiovascular (1)				1		40		41		1		38		39
Respiratory
Singulair				3		117		120		3		127		130
Nasonex				—		69		69		9		65		75
Dulera				38		8		46		31		9		40
Clarinex				1		39		39		1		37		38
Other Respiratory (1)				12		5		17		12		11		22
Non-Opioid Pain, Bone and Dermatology
Arcoxia				—		71		71		—		60		60
Fosamax				—		37		38		1		40		41
Diprospan				—		14		14		—		31		31
Other Non-Opioid Pain, Bone and Dermatology (1)				4		59		63		3		66		69
Other
Proscar				—		27		27		—		24		24
Propecia				2		31		33		1		29		30
Other (1)				4		76		80		8		74		83
Other (2)				—		39		39		—		37		37
Revenues				$	326	$	1,212	$	1,538	$	329	$	1,238	$	1,567

Totals may not foot due to rounding. Trademarks appearing above in italics are trademarks of, or are used under license by, the Organon group of companies.

(1) Includes sales of products not listed separately. Revenues from Marvelon/Mercilon were previously reported as part of Other Women's Health. Revenue from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring is included in Other Women's Health.

(2)Includes manufacturing sales to Merck and third parties for current and prior periods.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Revenues by geographic area where derived are as follows:


	Three Months Ended March 31,
($ in millions)		2023		2022
Europe and Canada		$	400	$	436
United States		326		329
Asia Pacific and Japan		324		314
China		225		236
Latin America, Middle East, Russia and Africa		214		209
Other (1)		49		43
Revenues		$	1,538	$	1,567

(1) Primarily reflects manufacturing sales to Merck and third parties for current and prior periods.

6. Stock-Based Compensation Plans

The Company grants stock option awards, performance share units ("PSUs") and restricted share units ("RSUs") pursuant to its 2021 Incentive Stock Plan.

Employee stock options are granted to purchase shares of Company stock at the fair market value at the time of grant. Generally, stock options have a contractual term of ten years and vest one-third each year over a three-year period, subject to limited exceptions.

RSUs are stock awards that are granted to employees and entitle the holder to shares of common stock as the awards vest. RSU awards generally vest one-third each year over a three-year period. The fair value of the stock option and RSU awards is determined and fixed on the grant date based on the Company's stock price.

The terms of the Company's PSU awards allow the recipients of such awards to earn a variable number of common shares based on the cumulative results of specified performance factors. The Company has PSU awards based on the following performance factors:

•total stockholder return of the Company relative to an index of peer companies ("relative TSR") specified in the awards

•the results of the cumulative free cash flow ("FCF") of the Company over a three year period

For FCF and relative TSR awards, the Company recognizes compensation costs ratably over the performance period. The PSU awards will generally vest at the end of the three year performance period, however, the number of shares delivered will vary based upon the attained level of performance. For PSUs with a performance-based FCF goal, stock-based compensation expense is recognized based on the probability of the achievement of the financial performance metric for the respective vesting period and is assessed at each reporting date. For PSUs with a market-based relative TSR goal, stock-based compensation expense is recognized based on the estimated fair value of the award at the grant date regardless of the actual number of shares earned. PSU awards generally vest after three years.

For RSUs and PSUs, dividends declared during the vesting period are payable to the employees only upon vesting. RSU and PSU distributions will be in shares of Company stock after the end of the vesting or performance period, subject to the terms applicable to such awards.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Stock-based compensation expenses incurred by the Company were as follows:


	Three Months Ended March 31,
($ in millions)		2023		2022
Stock-based compensation expense recognized in:
Cost of sales		$	4	$	3
Selling, general and administrative		15		10
Research and development		3		2
Total		$	22	$	15

Income tax benefits		$	5	$	3

The weighted average fair value of options was determined using the following assumptions:


	Three Months Ended March 31,
	2023		2022
Expected dividend yield	4.82	%	3.12	%
Risk-free interest rate	3.56		2.47
Expected volatility	42.30		43.43
Expected life (years)	5.89		5.89

A summary of the equity award transactions for the three months ended March 31, 2023 are as follows:


	Stock Options					Restricted Share Units			Performance Share Units
(shares in thousands)	Shares	Weighted average exercise price		Weighted average grant date fair value		Shares	Weighted average grant date fair value		Shares	Weighted average grant date fair value
Outstanding as of January 1, 2023	4,729	$	34.34	$	8.91	5,048	$	33.27	486	$	46.72
Granted	1,124	23.52		6.55		3,730	23.56		—	—
Vested/Exercised	—	—		—		(1,080)	32.00		—	—
Forfeited/Cancelled	(82)	36.12		8.70		(221)	34.54		—	—
Outstanding as of March 31, 2023	5,771	$	32.21	$	8.45	7,477	$	28.57	486	$	46.72

The following table summarizes information about equity awards outstanding that are vested and expected to vest and equity awards outstanding that are exercisable as of March 31, 2023:


	Equity Awards Vested and Expected to Vest						Equity Awards That are Exercisable
(shares in thousands; aggregate intrinsic value in millions)	Awards	Weighted Average Exercise Price		Aggregate Intrinsic Value		Remaining Term	Awards	Weighted Average Exercise Price		Aggregate Intrinsic Value		Remaining Term
Stock Options	5,517	$	32.21	$	—	7.55	2,536	$	33.03	$	—	5.90
Restricted Share Units	6,809			176		2.36
Performance Share Units	291			8		1.67

The amount of unrecognized compensation costs as of March 31, 2023 was $211 million, which will be recognized in operating expense ratably over the weighted average vesting period of 2.28 years.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

7. Restructuring

In 2022, Organon initiated restructuring activities to optimize its internal operations by reducing headcount through selected markets and functions. As a result of this program, the Company intends to restructure approximately 130 positions, with the majority of the position eliminations occurring in selected markets outside of the U.S. in our commercial organizations. During the three months ended March 31, 2023, $5 million of restructuring charges have been paid, with the majority of the severance payments expected to be paid by the end of the 2023 fiscal year. For the three months ended March 31, 2023, the Company recorded restructuring charges of $4 million, which relate to severance costs for eliminated positions.

Liabilities for costs associated with restructuring activities were $19 million and $20 million at March 31, 2023 and December 31, 2022, respectively, and are included primarily in Accrued and other current liabilities.

8. Taxes on Income

The effective income tax rates were 24.6% and 21.3% for the three months ended March 31, 2023 and 2022, 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 US interest expense.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022. Provisions of the bill that relate to tax include the minimum tax on book income, a 1% excise tax on stock buybacks and certain tax incentives to promote clean energy. There are no impacts of the legislation to the first quarter 2023 results. The Company will continue to assess future impacts of ~~2022. The intangible~~this legislation.

9. Inventories

Inventories consisted of:


($ in millions)	March 31, 2023		December 31, 2022
Finished goods	$	479	$	482
Raw materials	58		44
Work in process	631		601
Supplies	56		44
Total (approximates current cost)	$	1,224	$	1,171
Decrease to LIFO costs	(16)		(20)
	$	1,208	$	1,151
Recognized as:
Inventories	$	1,121	$	1,003
Other assets	87		148

Inventories valued under the last in, first out ("LIFO") method	85		77

Amounts recognized as Other assets ~~related~~ are comprised primarily of raw materials and work in process inventories and are not expected to ~~currently marketed products~~be converted to finished goods that will be ~~amortized over their estimated useful lives of 10 years.~~sold within one year. The Company has a long-term vendor supply contract that includes certain annual minimum purchase commitments.

~~The transaction to acquire the rights to these products in Vietnam is expected to close in the second quarter of 2022 and is subject to customary closing conditions, including regulatory approval.~~

~~For details regarding Organon's 2021 acquisitions and licensing agreements, See Note 5 to the audited Consolidated Financial Statements in the Company's 2021 Form 10-K.~~

5.10. Financial Instruments

Foreign Currency Risk Management

The Company has a balance sheet risk management and a net investment hedging program to mitigate against volatility of changes in foreign exchange rates.

The Company uses a balance sheet risk management program to partially mitigate the exposure of net monetary assets of its subsidiaries that are denominated in a currency other than a ~~subsidiary’s~~subsidiary's functional currency from the effects of volatility in

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

foreign exchange. In these instances, Organon principally utilizes forward exchange contracts to partially offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro, Swiss franc and Japanese yen. For exposures in developing country currencies, the Company enters into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument.

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in ~~Other (income) expense, net~~Exchange losses (gains).. The forward contracts are not designated as hedges and are marked to market through ~~Other (income) expense, net.~~Exchange losses (gains). Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year. ~~As of March 31, 2022 and December 31, 2021, the fair value of these contracts was recorded as an asset of $29 million and $19 million, respectively, in~~ ~~Other current assets~~ ~~and a liability of $31 million and $5 million, respectively, in~~ ~~Accrued and other current liabilities.~~The notional amount of forward contracts was ~~$1.6~~$1.5 billion as of March 31, ~~2022~~2023 and ~~$2.1 billion as of~~ December 31, ~~2021.~~2022, respectively. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated ~~Statement~~Statements of Cash Flows.

The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following financial instruments were recorded at their estimated fair value. The recurring fair value measurement of our assets and liabilities were as follows:


($ in millions)	Fair Value Measurement Level	March 31, 2023		December 31, 2022
Forward contracts in Other current assets	2	$	12	$	6
Forward contracts in Accrued and other current liabilities	2	6		24

Foreign exchange risk is also managed through the use of economic hedges on foreign currency ~~debt (see~~balances. See Note ~~7). In each quarter subsequent to the Separation, €1.75~~11 "Long- Term Debt" for additional details. €1.987 billion in the aggregate of both the euro-denominated term loan (€~~750~~737 million) and of the 2.875% euro-denominated secured notes (€1.25 billion) has been designated and is effective as an economic hedge of the net investment in euro-denominated subsidiaries. ~~As a result, $37 million of foreign~~

Foreign currency (losses) gains due to spot rate fluctuations on the euro-denominated debt instruments ~~are~~ included in foreign currency translation adjustments in resulting from hedge designation were as follows:


	Three Months Ended March 31,
($ in millions)		2023		2022
Foreign currency (losses) gains in Other comprehensive income		$	(42)	$	37

~~Other Comprehensive Income~~ ~~for the three months ended March 31, 2022.~~

The Condensed Consolidated ~~Statement~~Statements of Income ~~includes~~include the impact of actual net ~~gains~~(gains) and losses of Organon's derivative financial ~~instruments, as well as the impact of Merck’s derivative financial instruments prior to the Separation allocated to the Company utilizing a proportional allocation method:~~instruments:

Three Months Ended March 31,
($ in millions) 2022 2021
Allocated net (gains) loss in Sales
$ — $ 32
Foreign exchange (gains) loss in Other (income) expense, net
(4) (4)


	Three Months Ended March 31,
($ in millions)		2023	2022

Foreign exchange loss (gain) in Exchange losses (gains)		9	(4)

Prior to the Separation, Merck managed the impact of foreign exchange rate movements on its affiliates’ 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 established revenue hedging and balance sheet risk management programs that the Company participated in to protect against the volatility of future foreign currency cash flows and changes in fair value caused by volatility in exchange rates.

Organon has established accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Under these agreements, Organon factored ~~$93~~$68 million and ~~$87~~$43 million of accounts receivable at

~~-10-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated ~~Statement~~Statements of Cash Flows.

~~6. Inventories~~

~~Inventories consisted of:~~

($ in millions) March 31, 2022 December 31, 2021
Finished goods $ 373 $ 377
Raw materials 78 95
Work in process 500 490
Supplies 40 40
Total (approximates current cost) $ 991 $ 1,002
Decrease to LIFO costs (15) (11)
$ 976 $ 991
Recognized as:
Inventories $ 946 $ 915
Other assets 30 76

~~Inventories valued under the last in, first out ("LIFO") method comprised $72 million and $52 million at March 31, 2022 and December 31, 2021, respectively. Amounts recognized as~~
~~Other assets~~ are comprised primarily of raw materials and work in process inventories and are not expected to be converted to finished goods that will be sold within one year. The Company has a long-term vendor supply contract conveyed as part of the Separation that includes certain annual minimum purchase commitments.

~~7. Long-Term Debt and Leases~~

~~Long-Term Debt~~

~~The following is a summary of Organon's total debt:~~

($ in millions) March 31, 2022 December 31, 2021
Term Loan B Facility:
LIBOR plus 300 bps term loan due 2028 $ 2,893 $ 2,893
LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million) 825 843
4.125% secured notes due 2028 2,100 2,100
2.875% euro-denominated secured notes due 2028 (€1.25 billion) 1,385 1,412
5.125% notes due 2031 2,000 2,000
Other borrowings 10 10
Other (discounts and debt issuance costs) (119) (124)
Total principal long-term debt $ 9,094 $ 9,134
Less: Current portion of long-term debt 9 9
Total Long-term debt, net of current portion $ 9,085 $ 9,125

~~Other borrowings represent debt assumed in connection with the acquisition of Forendo Pharma in 2021.~~

In June 2021, the Company entered into a credit agreement (the “Senior Credit Agreement”) providing for a Term Loan B Facility, consisting of (i) a U.S. Dollar denominated senior secured “tranche B” term loan in the amount of $3.0 billion due 2028 (ii) a euro denominated senior secured “tranche B” term loan in the amount of €750 million due 2028; and a Revolving Credit Facility (“Revolving Credit Facility”), in an aggregate principal amount of up to $1 billion, with a five-year term that matures in 2026.

The interest rate on revolving loans under the Revolving Credit Facility is subject to a step-down based on meeting a leverage ratio target. A commitment fee applies to the unused portion of the Revolving Credit Facility, initially equal to 0.50%

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

11. Long- Term Debt

The following is a summary of Organon's total debt:


($ in millions)	March 31, 2023		December 31, 2022
Term Loan B Facility:
LIBOR plus 300 bps term loan due 2028	$	2,543	$	2,793
LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million)	800		787
4.125% secured notes due 2028	2,100		2,100
2.875% euro-denominated secured notes due 2028 (€1.25 billion)	1,357		1,331
5.125% notes due 2031	2,000		2,000
Other borrowings	8		7
Other (discounts and debt issuance costs)	(97)		(105)
Total principal long-term debt	$	8,711	$	8,913
Less: Current portion of long-term debt	8		8
Total Long-term debt, net of current portion	$	8,703	$	8,905

The nature and ~~subject to a step-down to 0.375% based~~terms of our Term Loan B Facility, Notes and Other borrowings are described in detail in Note 11 "Long-Term Debt and Leases" in our 2022 Annual Report on ~~meeting a leverage ratio target. There were no outstanding balances under~~Form 10-K.

Long-term debt was recorded at the ~~Revolving Credit Facility as of March 31, 2022 or December 31, 2021.~~

carrying amount. The estimated fair value of long-term debt ~~(including~~(including current portion) at March 31, 2022 was $9.0 billion compared with a carrying value (which includes a reduction for amortized debt issuance costs) of $9.1 billion and, at December 31, 2021, was $9.4 billion compared with a carrying value of $9.1 billion. is as follows:


($ in millions)	March 31, 2023		December 31, 2022
Long-term debt	$	8,236	$	8,294

Fair value was estimated using inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability and would be considered Level 2 in the fair value hierarchy.

The Company made interest payments ~~of $32 million~~ related to its debt instruments ~~during~~of $65 million for the ~~quarter~~three months ended March 31, ~~2022.~~2023. The average maturity of the Company's long-term debt atas of March 31, ~~2022~~2023 is approximately ~~6.7~~5.7 years and the weighted-average interest rate on total borrowings ~~for the three months ended~~as of March 31, ~~2022~~2023 is ~~3.9%~~5.4%.

On March 30, 2023, the Company made a discretionary prepayment of $250 million on the U.S. Dollar-denominated term loan.

The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows:


($ in millions)	($ in millions)			($ in millions)
2022		$	7
2023	2023	9		2023	$	6
2024	2024	9		2024	9
2025	2025	37		2025	9
2026	2026	43		2026	9
2027				2027	9
Thereafter	Thereafter	9,108		Thereafter	8,766

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

12. Accumulated Other Comprehensive Income (Loss)

Changes in Accumulated other comprehensive income (loss) by component are as follows:


($ in millions)	Employee Benefit Plans		Cumulative Translation Adjustment		Accumulated Other Comprehensive Loss (Income)



















Balance at January 1, 2022, net of taxes	$	(13)	$	(500)	$	(513)
Other comprehensive loss, pretax	(1)		(15)		(16)
Tax	—		—		—
Other comprehensive loss, net of taxes	(1)		(15)		(16)

Balance at March 31, 2022, net of taxes	$	(14)	$	(515)	$	(529)

Balance at January 1, 2023, net of taxes	$	10	$	(574)	$	(564)
Other comprehensive income, pretax	—		30		30
Tax	—		—		—
Other comprehensive income, net of taxes	—		30		30

Balance at March 31, 2023, net of taxes	$	10	$	(544)	$	(534)

13. Samsung Collaboration

The ~~Senior Credit Agreement contains customary financial covenants, including a total leverage ratio covenant,~~Company has an agreement with Samsung Bioepis Co., Ltd. ("Samsung Bioepis") to develop and commercialize multiple pre-specified biosimilar candidates, which ~~measures~~have since launched and are part of the ~~ratio~~Company's product portfolio. Under the agreement, Samsung Bioepis is responsible for preclinical and clinical development, process development and manufacturing, clinical trials and registration of ~~(i) consolidated total debt to (ii) consolidated earnings before interest, taxes, depreciation~~product candidates, and ~~amortization, and subject to other adjustments, that must meet~~the Company has an exclusive license for worldwide commercialization with certain ~~defined limits which are tested~~geographic exceptions specified on a ~~quarterly basis beginning September 30, 2021. In addition,~~product-by-product basis. The Company's access rights to each product under the ~~Senior Credit Agreement contains covenants that limit, among other things, Organon’s ability~~agreement last for 10 years from each product's launch date on a market-by-market basis. Gross profits are shared equally in all markets with the exception of certain markets in Brazil where gross profits are shared 65% to ~~prepay, redeem~~Samsung Bioepis and 35% to the Company. Since the Company is the principal on sales transactions with third parties, the Company recognizes sales, cost of sales and selling, general and administrative expenses on a gross basis. Generally, profit sharing adjustments are recorded either to Cost of sales (after commercialization) or ~~repurchase its subordinated~~Selling, general and ~~junior lien debt, incur~~administrative expenses (prior to commercialization).

Samsung Bioepis is eligible for additional ~~debt, make acquisitions, merge~~payments associated with ~~other entities, pay dividends or distributions, redeem or repurchase equity interests,~~pre-specified clinical and ~~create or become subject to liens.~~regulatory milestones. As of March 31, ~~2022,~~2023, potential future regulatory milestone payments of $25 million remain under the agreement.

Summarized information related to this collaboration is as follows:


	Three Months Ended March 31,
($ in millions)		2023		2022
Sales		$	116	$	99
Cost of sales		84		65
Selling, general and administrative		18		18


($ in millions)	March 31, 2023		December 31, 2022
Receivables from Samsung included in Other current assets	$	20	$	21
Payables to Samsung included in Trade accounts payable	28		72

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

14. Third-Party Arrangements

On June 2, 2021, Organon and Merck & Co., Inc. ("Merck") entered into a Separation and Distribution Agreement (the "Separation and Distribution Agreement"). Pursuant to the Separation and Distribution Agreement, Merck agreed to spin off the Organon Products into Organon, a new, publicly-traded company (the "Separation").

Following the Separation, certain functions continue to be provided by Merck under the TSA or are being performed using the Company's own resources or third-party service providers. Under the TSA, Merck is providing Organon various services and, similarly, Organon is providing Merck various services. The provision of services under the TSA generally will terminate within 25 months following the spin-off; however, the provision of certain services has been extended to at least 35 months. Additionally, under manufacturing and supply agreements, the Company ismanufactures certain products for Merck, or its applicable affiliate, and Merck manufactures certain products for the Company, or its applicable affiliate. For details on the rights and responsibilities of the parties under the agreements, refer to Note 18 to the audited Consolidated Financial Statements in ~~compliance~~the Company's 2022 Form 10-K.

For the three months ended March 31, 2023, material transactions occurred in connection with ~~all financial covenants~~the IOM agreements.

The amounts due under such agreements were:


($ in millions)	March 31, 2023		December 31, 2022
Due from Merck in Accounts receivable	$	344	$	374
Due to Merck in Accounts payable	521		543

Sales and ~~no default or event~~cost of ~~default has occurred.~~sales resulting from the manufacturing and supply agreements with Merck were:


	Three Months Ended March 31,
($ in millions)		2023		2022
Sales		$	30	$	33
Cost of sales		28		29

8.15. Contingencies

Organon is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters. ~~In the opinion of~~

Organon records accruals for contingencies when it is ~~unlikely~~probable that a liability has been incurred and the ~~resolution of these matters will~~amount can be ~~material~~reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to ~~Organon's financial condition, results of operations or cash flows.~~be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

Given the nature of the litigation discussed in this note and the complexities involved in these matters, Organon is unable to reasonably estimate a possible loss or range of possible loss for such matters until Organon knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation, and (v) any other factors that may have a material effect on the litigation.

Organon records 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. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected

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Notes to ~~be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.~~Condensed Consolidated Financial Statements (unaudited) (continued)

Organon's decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. Organon has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for most product liabilities.

Reference is made below to certain litigation in which Merck, but not Organon, is named as a defendant. Pursuant to the Separation and Distribution Agreement, Organon is required to indemnify Merck for liabilities relating to, arising from, or resulting from such litigation.

~~-12-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~
~~(continued)~~

Product Liability Litigation

Fosamax

Merck is a defendant in product liability lawsuits in the United States involving Fosamax® (alendronate sodium) (the "Fosamax Litigation"). As of March 31, ~~2022,~~2023, approximately ~~3,460~~3,245 cases comprising the Fosamax Litigation are pending against Merck in either federal or state court. Plaintiffs in the vast majority of these cases generally allege that they sustained femur fractures and/or other bone injuries ("Femur Fractures") in association with the use of Fosamax.

All federal cases involving allegations of Femur Fractures have been or will be transferred to a multidistrict litigation in the District of New Jersey ("Femur Fracture MDL"). In the only bellwether case tried to date in the Femur Fracture MDL, Glynn v. Merck, the jury returned a verdict in Merck's favor. In addition, in June 2013, the Femur Fracture MDL court granted Merck's motion for judgment as a matter of law in the Glynn case and held that the plaintiff's failure to warn claim was preempted by federal law.

In August 2013, the Femur Fracture MDL court entered an order requiring plaintiffs in the Femur Fracture MDL to show cause why those cases asserting claims for a femur fracture injury that took place prior to September 14, 2010, should not be dismissed based on the court's preemption decision in the Glynn case. Pursuant to the show cause order, in March 2014, the Femur Fracture MDL court dismissed with prejudice approximately 650 cases on preemption grounds. Plaintiffs in approximately 515 of those cases appealed that decision to the U.S. Court of Appeals for the Third Circuit ("Third Circuit"). In March 2017, the Third Circuit issued a decision reversing the Femur Fracture MDL court's preemption ruling and remanding the appealed cases back to the Femur Fracture MDL court. In May 2019, the U.S. Supreme Court decided that the Third Circuit had incorrectly concluded that the issue of preemption should be resolved by a jury, and accordingly vacated the judgment of the Third Circuit and remanded the proceedings back to the Third Circuit to address the issue in a manner consistent with the Supreme Court's opinion. In November 2019, the Third Circuit remanded the cases back to the District Court in order to allow that court to determine in the first instance whether the plaintiffs' state law claims are preempted by federal law under the standards described by the Supreme Court in its opinion. On March 23, 2022, the District Court granted Merck's motion and ruled that ~~Plaintiffs'~~plaintiffs' failure to warn claims are preempted as a matter of law to the extent they assert that Merck should have added a Warning or Precaution regarding atypical femur fractures prior to ~~September~~October 2010. ~~Whether~~On July 11, 2022, the ~~Plaintiffs will attempt~~District Court entered an Order to ~~move forward~~Show Cause as to why the Court should not dismiss either with prejudice or conditionally all of plaintiffs' claims that are not dependent on ~~other claims, or seek~~the preempted failure to ~~appeal~~warn claims. On November 18, 2022, as a result of the Order to Show Cause, the District Court entered a Final Judgment resulting in the dismissal with prejudice of all plaintiffs in the MDL. On December 16, 2022, those plaintiffs filed their Notice of Appeal to the Third Circuit challenging the District Court's ~~ruling is not yet known.~~

~~Accordingly, as~~preemption ruling. 974 of ~~March 31, 2022, approximately~~the 975 cases ~~were actively~~previously pending in the Femur Fracture ~~MDL.~~MDL have either been dismissed or are on appeal to the Third Circuit. Plaintiff's motion to remand one case back to its transferor court is pending.

As of March 31, ~~2022,~~2023, approximately ~~2,205~~1,990 cases alleging Femur Fractures have been filed in New Jersey state court and are pending in Middlesex County. The parties selected an initial group of cases to be reviewed through fact discovery, and Merck ~~has~~ continued to select additional cases to be reviewed.

As of March 31, ~~2022,~~2023, approximately 275 cases alleging Femur Fractures have been filed and are pending in California state court. All of the Femur Fracture cases filed in California state court have been coordinated before a single judge in Orange County, California.

Additionally, there are 4four Femur Fracture cases pending in other state courts.

Discovery is presently stayed in the Femur Fracture MDL and in the state court in California.

-19-

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Nexplanon/Implanon

Merck is a defendant in lawsuits brought by individuals relating to the use of Nexplanon and Implanon™ (etonogestrel implant). ~~In the United States, as of March 31, 2022, there was 1 filed product liability action involving~~ ~~Nexplanon~~ pending in the Western District of Arkansas (in which Organon is also named as a defendant). The court's schedule for the matter provides for a trial date in the fourth quarter of 2023, should it be necessary. In addition, there were 2There are two filed product liability actions involving Implanon, both of which are pending in the Northern District of Ohio as well as 56 unfiled cases involving Implanon alleging similar injuries, which have been tolled under a written tolling agreement. As of March 31, ~~2022,~~2023, Merck had 18 cases pending outside the United States, of which 1412 relate to Implanon and 4six relate to Nexplanon.

Propecia/Proscar

~~Merck is a defendant in product liability lawsuits in the United States involving~~
~~Propecia®~~ ~~(finasteride) and/or~~ ~~Proscar®~~ (finasteride). The federal lawsuits were consolidated for pretrial purposes in federal multidistrict litigation in the Eastern District of New York (the "MDL"), and the matters in state court in New Jersey were consolidated in Middlesex County ("N.J. Coordinated Proceedings"). In 2018, Merck and the Plaintiffs' Executive Committee in the MDL and the Plaintiffs' Liaison Counsel in the N.J. Coordinated Proceedings entered into an agreement to resolve the lawsuits for an aggregate amount of $4.3 million. The settlement was subject to certain contingencies, including 95% plaintiff participation and a per plaintiff clawback if the participation rate was less than 100%. The contingencies were satisfied and the settlement agreement has been finalized.

~~-13-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

As of March 31, ~~2022, only 3 cases remain~~2023, one case remains pending in the United States, ~~including a case currently pending in the MDL,~~ a matter involving ~~Propecia~~Proscar® ~~in state court in Los Angeles, California and a matter involving~~ ~~Proscar~~(finasteride) in the United States District Court for the Eastern District of ~~California.~~California in which Merck's motion to dismiss was granted by the District Court, but the plaintiff can appeal the decision. The Company is also defending 1815 product liability cases outside the United States, 2two of which are class actions and 4three of which are putative class actions.

Governmental Proceedings

From time to time, Organon's subsidiaries may receive inquiries and may be the subject of preliminary investigation activities from competition and/or other governmental authorities, including in markets outside the United States. These authorities may include regulators, administrative authorities, and law enforcement and other similar officials, and these preliminary investigation activities may include site visits, formal or informal requests or demands for documents or materials, inquiries or interviews and similar matters. Certain of these preliminary inquiries or activities may lead to the commencement of formal proceedings. Should those proceedings be determined adversely to Organon, monetary fines and/or remedial undertakings may be required. Subject to certain exceptions specified in the Separation and Distribution Agreement, Organon assumed liability for all pending and threatened legal matters related to products transferred to Organon, including competition investigations resulting from enforcement activity concerning Merck's conduct involving Organon's products. Organon could be obligated to indemnify Merck for fines or penalties, or a portion thereof, resulting from such investigations. ~~Organon is aware of~~In one such enforcement ~~activity pending~~matter in ~~Europe.~~Spain concerning NuvaRing, the National Commission on Markets and Competition ("CNMC") recently imposed a fine on Merck in the amount of €39 million for abuse of a dominant position in the market for contraceptive vaginal rings from June 2017 to April 2018. The CNMC decision to impose the fine has been appealed to the National High Court in Spain. If the fine ultimately stands, Organon could be obligated to indemnify Merck for a portion thereof.

Hadlima

~~Hadlima™~~ ~~(adalimumab-bwwd)~~

In July 2021, Organon received a Civil Investigation Demand ("CID") from the Office of the Attorney General for the State of Washington. The CID requests answers to interrogatories, as well as various documents, regarding certain activities related to adalimumab and adalimumab biosimilars. Organon is cooperating with the government's investigation and has produced information in response to the CID.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file Abbreviated New Drug Applications ~~("ANDAs")~~ with the ~~U.S. Food and Drug Administration ("FDA")~~FDA seeking to market generic forms of Organon's products prior to the expiration of relevant patents owned by Organon. To protect its patent rights, Organon may file patent infringement lawsuits against such generic companies. Similar lawsuits defending Organon's patent rights may exist in other countries. Organon intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products, potential payment of damages and legal fees, and, with respect to products acquired through acquisitions, potentially significant intangible asset impairment charges.

-20-

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Nexplanon

In June 2017, Microspherix LLC ("Microspherix") sued Organon in the U.S. District Court for the District of New Jersey asserting that the manufacturing, use, sale and importation of Nexplanon infringed several of Microspherix's patents that claim radio-opaque, implantable drug delivery devices. Microspherix is claiming damages from September 2014 until the patents expired in May 2021. Organon brought Inter Partes Review ~~("IPR")~~ proceedings in the United States Patent and Trademark Office ("USPTO") and successfully stayed the district court action. The USPTO invalidated some, but not all, of the claims asserted against Organon. Organon appealed the decisions that found claims valid, and the Court of Appeals for the Federal Circuit affirmed the USPTO's decisions. The matter is no longer stayed in the district court, and Organon is currently litigating the invalidity and non-infringement of the remaining asserted claims. A claim construction hearing was held on March 2, 2022, and ~~any further dates in the schedule will be set based on the date the court issues~~ a claim construction ~~order.~~order issued on February 27, 2023. This case is scheduled for trial before a jury in Camden, New Jersey starting on October 16, 2023.

Other Litigation

~~There~~

In addition to the matters described above, there are various other pending legal proceedings involving Organon, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of Organon as of March 31, 2023, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to Organon's financial condition, results of operations or cash flows either individually or in the aggregate.

Legal Defense Reserves

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

~~-14-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

actual costs incurred by Organon; the development of Organon's legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against Organon; and 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 legal defense reserve as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was $9$22 million ~~for both periods~~and $17 million, respectively, and represented Organon's best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by Organon. Organon will continue to monitor its 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, it believes it would be appropriate to do so.

~~9. Stock-Based Compensation Plans~~

Under the 2021 Incentive Stock Plan, the Company grants stock option awards, performance share units ("PSUs") and restricted share units ("RSUs"). Employee stock options are granted to purchase shares of Company stock at the fair market value at the time of grant. Generally, stock options have a contractual term of ten years and vest one-third each year over a three-year period, subject to limited exceptions. RSUs are stock awards that are granted to employees and entitle the holder to shares of common stock as the awards vest. RSU awards generally vest one-third each year over a three-year period. The fair value of the stock option and RSU awards is determined and fixed on the grant date based on the Company’s stock price. The terms of the Company's PSU awards allow the recipients of such awards to earn a variable number of shares based on total stockholder return of the Company relative to an index of peer companies ("relative TSR") specified in the awards. For PSUs with a market-based relative TSR goal, stock-based compensation expense is recognized based on the estimated fair value of the award at the grant date regardless of the actual number of shares earned. PSU awards generally vest after three years. For RSUs and PSUs, dividends declared during the vesting period are payable to the employees only upon vesting. RSU and PSU distributions will be in shares of Company stock after the end of the vesting or performance period, subject to the terms applicable to such awards.

~~Stock-based compensation expense incurred by the Company was as follows:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Stock-based compensation expense recognized in:
Cost of sales $ 3 $ 2
Selling, general and administrative 10 5
Research and development 2 4
Income tax benefits 3 2

~~The Company used the Black-Scholes model to determine the fair value of the stock options as of the grant date using the following assumptions:~~


	~~Three Months Ended March 31, 2022~~
~~Expected dividend yield~~	~~3.12~~	%
~~Risk-free interest rate~~	~~2.47~~	%
~~Expected volatility~~	~~43.43~~	%
~~Expected life (years)~~	~~5.89~~

~~-15-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

~~A summary of the transactions under the 2021 Incentive Stock Plan as of March 31, 2022 follows:~~

Stock Options Restricted Share Units Performance Share Units
(shares in thousands) Shares Weighted average exercise price Weighted average grant date fair value Shares Weighted average grant date fair value Shares Weighted average grant date fair value
Outstanding as of December 31, 2021 4,394 $ 34.35 $ 8.63 3,280 $ 36.69 120 $ 51.63
Granted 556 $ 34.93 $ 11.34 2,250 $ 34.93 — $ —
Vested/Exercised (15) $ 37.39 $ 9.72 (116) $ 44.18 — $ —
Forfeited/Cancelled — $ — $ — (41) $ 36.36 — $ —
Outstanding as of March 31, 2022 4,935 $ 34.40 $ 8.93 5,373 $ 35.80 120 $ 51.63

~~The following table summarizes information about equity awards outstanding that are vested and expected to vest and equity awards outstanding that are exercisable at March 31, 2022:~~

Equity Awards Vested and Expected to Vest Equity Awards That are Exercisable
(shares in thousands; aggregate intrinsic value in millions) Awards Weighted Average Exercise Price Aggregate Intrinsic Value Remaining Term Awards Weighted Average Exercise Price Aggregate Intrinsic Value Remaining Term
Stock Options 4,650 $ 34.40 $ 7 8.03 1,439 $ 30.59 $ 7 5.38
Restricted Share Units 4,936 — 188 2.44 — — — —
Performance Share Units 207 — 8 2.38 — — — —

~~The amount of unrecognized compensation costs as of March 31, 2022 was $178 million, which will be recognized in operating expense ratably over the weighted average vesting period of 2.42 years.~~

~~10. Other (Income) Expense, Net~~

~~Other (income) expense, net, consisted of:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Exchange (gains) losses $ (4) $ (4)
Interest expense 97 —
Other, net 4 2
$ 97 $ (2)

~~Interest expense for the first three months of 2022 primarily reflects amounts incurred in connection with the issuance of debt during the second quarter of 2021. See Note 7 for details.~~

~~11. Taxes on Income~~

The effective income tax rates were 21.3% and 15.5% for the three months ended March 31, 2022 and 2021, 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. The effective income tax rate for the three months ended March 31, 2021, also reflects the Internal Revenue Service ("IRS") conclusion of its examinations of Merck’s 2015-2016 U.S. federal income tax returns. As a result, the Company reflected an allocation from Merck of $18 million representing the Company's portion of the payment made to the IRS in the Condensed Consolidated Financial Statements. The Company's portion of reserves for unrecognized tax benefits for the years under examination exceeded the allocated adjustments relating to this examination period and therefore the Company included a $29 million net tax benefit also included in the three months ended March 31, 2021. This net benefit reflects reductions in reserves for unrecognized tax benefits and other related liabilities for tax positions relating to the years that were under examination.

~~-16-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

~~The Company is subject to income tax in the United States (federal, state and local) as well as other jurisdictions outside of the United States in which we operate.~~

~~12. Other Comprehensive Income (Loss)~~

~~Changes in~~ ~~Accumulated other comprehensive loss~~ ~~by component are as follows:~~

($ in millions) Employee
Benefit
Plans Cumulative
Translation
Adjustment Accumulated Other
Comprehensive
Income (Loss)
Balance at January 1, 2021, net of taxes $ (32) $ (590) $ (622)
Other comprehensive income (loss), pretax 1 (66) (65)
Tax (3) — (3)
Other comprehensive income (loss), net of taxes (2) (66) (68)
Transfer of benefit plans from Merck affiliates $ 1 $ — 1
Balance at March 31,2021, net of taxes $ (33) $ (656) $ (689)
Balance at January 1, 2022, net of taxes $ (13) $ (500) $ (513)
Other comprehensive income (loss), pretax (1) (15) (16)
Tax — — —
Other comprehensive loss, net of taxes (1) (15) (16)
Balance at March 31, 2022, net of taxes $ (14) $ (515) $ (529)

~~13. Product and Geographic Information~~

The Company’s operations include the following product portfolios, which constitute 1 operating segment engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies within women’s health, biosimilars and established brands.

~~-17-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

~~Revenue of the Company’s products were as follows:~~

Three Months Ended March 31,
2022 2021
($ in millions) U.S. Int’l Total U.S. Int’l Total
Women’s Health
Nexplanon/Implanon NXT $ 116 $ 55 $ 171 $ 141 $ 42 $ 183
Follistim AQ 30 31 61 25 27 52
NuvaRing 16 24 41 21 24 45
Ganirelix Acetate Injection 8 22 30 8 21 29
Cerazette — 18 18 — 17 17
Other Women's Health (1)
27 31 57 40 33 73
Biosimilars
Renflexis 42 4 46 35 4 38
Ontruzant 7 15 22 4 19 22
Brenzys — 14 14 — 10 10
Aybintio — 10 10 — 8 8
Hadlima — 6 6 — 2 2
Established Brands
Cardiovascular
Zetia 3 96 99 2 89 92
Vytorin 2 36 38 3 38 41
Atozet — 119 119 — 112 112
Rosuzet — 22 22 — 15 15
Cozaar/Hyzaar 8 86 93 3 87 90
Other Cardiovascular (1)
1 38 39 1 38 39
Respiratory
Singulair 3 127 130 5 102 107
Nasonex 9 65 75 2 41 43
Dulera 31 9 40 31 8 38
Clarinex 1 37 38 1 23 25
Other Respiratory (1)
12 11 22 16 6 23
Non-Opioid Pain, Bone and Dermatology
Arcoxia — 60 60 — 56 56
Fosamax 1 40 41 1 37 38
Diprospan — 31 31 — 26 26
Other Non-Opioid Pain, Bone and Dermatology (1)
3 66 69 (1) 62 61
Other
Proscar — 24 24 — 32 32
Propecia 1 29 30 2 29 31
Other (1)
8 74 83 11 78 89
Other (2)
— 37 37 — 69 69
Total Revenue $ 329 $ 1,238 $ 1,567 $ 351 $ 1,155 $ 1,506

~~Totals may not foot due to rounding. Trademarks appearing above in italics are trademarks of, or are used under license by, the Organon group of companies.~~

~~(1)~~ ~~Includes sales of products not listed separately. Revenue from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring is included in Other Women's Health.~~

~~(2)Includes manufacturing sales to Merck and third parties for current and prior periods and allocated amounts from revenue hedging activities through the date of Separation.~~

~~-18-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

~~Combined revenue by geographic area where derived are as follows:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Europe and Canada $ 436 $ 434
United States 329 351
Asia Pacific and Japan 314 278
China 236 206
Latin America, Middle East, Russia and Africa 209 167
Other (1)
43 70
$ 1,567 $ 1,506

~~(1)~~ ~~Primarily reflects manufacturing sales to Merck and third parties for current and prior periods and allocated amounts from revenue hedging activities through the date of Separation.~~

During 2021, the Company realigned its geographic presentation of sales to reflect the internal management view of Organon as a stand-alone entity. Accordingly, prior period sales by geographic area have been recast to reflect these changes.

~~14. Third Party Arrangements and Related Party Disclosures~~

~~Pursuant to the Separation, Merck ceased to be a related party to Organon and accordingly, no related party transactions or balances have been reported since June 2, 2021.~~

In connection with the Separation, the Company entered into the Separation and Distribution Agreement, which contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of Organon and Merck as part of the Separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the Organon business with Organon and financial responsibility for the obligations and liabilities of Merck’s remaining business with Merck, (iii) procedures with respect to claims subject to indemnification and related matters, (iv) the allocation between Organon and Merck of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the Distribution, as well as the right to proceeds and the obligation to incur certain deductibles under certain insurance policies, and (v) procedures governing Organon’s and Merck’s obligations and allocations of liabilities with respect to ongoing litigation matters that may implicate each of Merck’s business and Organon’s business.

Organon entered into other agreements with Merck that govern aspects of Organon’s relationship with Merck following the Separation, including the Transition Services Agreement, Interim Operating Agreements, Manufacturing and Supply Agreement, Tax Matters Agreement, Employee Matters Agreement as well as Intellectual Property License Agreements and Regulatory Agreements. For the first quarter of 2022, material transactions occurred in connection with the Interim Operating Agreements. For details on the rights and responsibilities of the parties under the IOM agreements, refer below; for all other agreements refer to Note 19 to the audited Condensed Consolidated Financial Statements in the Company's 2021 Form 10-K.

•Interim Operating Model Agreements - Merck and Organon entered into a series of interim operating model ("IOM") agreements pursuant to which Merck and certain of its affiliates that held licenses, permits and other rights in connection with marketing, import and/or distribution of Organon products in various jurisdictions prior to the Separation will continue to market, import and distribute such products until such time as the relevant licenses and permits are transferred to Organon or its affiliates, while permitting Organon (or Merck, as applicable) to recognize revenue relating to the sale of its respective products, to the extent practicable. Under such IOM agreements and in accordance with the Separation and Distribution Agreement, the relevant Merck entity will continue operations in the affected market on behalf of Organon, with Organon receiving all of the economic benefits and burdens of such activities. Organon began receiving these economic benefits as of June 2, 2021. Based on the terms of the IOM agreements, the Company determined it is the Principal under these arrangements. Organon holds, all risks, and rewards of ownership inclusive of risk of loss, market risk and benefits related to the inventory. Additionally, Organon has latitude in pricing, has the ability to direct Merck regarding decisions over inventory, and is responsible for all credit and collections risks and losses associated with the related receivables. As such, Organon recognizes these sales on a gross basis.

~~-19-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

The amount due from Merck under such agreements was $358 million and $403 million at March 31, 2022 and December 31, 2021, respectively, and is reflected in accounts receivable. The amount due to Merck under these agreements was $700 million and $928 million at March 31, 2022 and December 31, 2021, respectively, and is included in accounts payable.

~~For the first quarter of 2022, sales and cost of sales resulting from the manufacturing and supply agreements with Merck were $33 million and $29 million, respectively.~~

Prior to the Separation, the Company did not operate as a standalone business and the Condensed Consolidated Financial Statements were derived from the consolidated financial statements and accounting records of Merck. The following disclosure summarizes activity between the Company and Merck up to the Separation, including the affiliates of Merck that were not part of the Separation.

~~Cost allocations from Merck~~

Merck provided significant corporate, manufacturing, selling, marketing, administrative, research services and resources to the Company. Some of these services continue to be provided by Merck to the Company on a temporary basis under the Transition Services Agreement. The Condensed Consolidated Financial Statements reflect an allocation of these costs. The allocations reflected in the Condensed Consolidated Statement of Income for continuing operations are as follows:

Three Months Ended March 31,
($ in millions) 2022 2021
Cost of sales $ — $ 56
Selling, general and administrative — 88
Research and development — 25
$ — $ 169

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

~~Related party transactions~~

~~The following transactions represent activity between Organon Entities and Transferred Entities with other Merck affiliates prior to the Separation:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Included in continuing operations
Supply sales to Merck affiliates $ — $ 85
Purchases from Merck affiliates — 37
Cost reimbursements and fees from Merck affiliates — 1
Included in discontinued operations
Supply sales to Merck affiliates $ — $ 12
Purchases from Merck affiliates — 50

~~Net transfers to Merck & Co., Inc.~~

~~Prior to the Separation, net transfers to Merck were included within~~ ~~Net investment from Merck & Co., Inc.~~ ~~on the Condensed Consolidated Statement of Equity and represent the net effect of transactions between the Company and Merck. The components of~~ ~~Net transfers to Merck & Co., Inc.~~ ~~for the three months ended March 31, 2021 were as follows:~~

~~-20-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~


	~~Three Months Ended March 31,~~
~~($ in millions)~~	~~2021~~
~~Cash pooling and general financing activities~~	$	~~867~~
~~Cost allocations, excluding non-cash stock-based compensation~~	~~(158)~~
~~Taxes deemed settled with Merck~~	~~(123)~~
~~Allocated derivative and hedging (losses) gains~~	~~(35)~~
~~Net transfers (from) to Merck & Co., Inc.~~ ~~as reflected in the Condensed Consolidated Statement of Cash Flows for Continuing Operations~~	$	~~551~~
~~Net transfers to (from) Merck included in Net Cash Provided by (Used in) Discontinued Operations~~	~~482~~
~~Total net transfers to Merck as included in the Condensed Consolidated Statement of Cash Flows~~	$	~~1,033~~
~~Stock-based compensation expense (includes $3 of discontinued operations for the three months ended~~ ~~March 31, 2021)~~	~~(11)~~
~~Net assets contributed by Merck affiliates~~	72
~~Derecognition of amounts in~~ ~~Accumulated other comprehensive loss~~ ~~related to employee benefit plan transfers to Merck affiliates~~	1
~~Net transfers (from) to Merck & Co., Inc.~~ ~~as reflected in the Condensed Consolidated Statement of Equity~~	$	~~1,095~~

Prior to the Separation, transfers between the Organon Entities, the Transferring Entities and Merck affiliates were recognized in Net transfers to Merck & Co., Inc. in the Condensed Consolidated Statement of Equity at Merck’s historical cost. Additionally, in connection with the Separation, certain assets and liabilities included in the pre-Separation balance sheet were retained by Merck and certain assets and liabilities not included in the pre-Separation balance sheet were transferred to Organon. Adjustments for transfers are reflected in the Company's Condensed Consolidated Financial Statements for the three months ended March 31, 2021.

~~15. Discontinued Operations~~

In contemplation of the Separation, the Merck Retained Products business in the Transferred Entities was distributed to Merck affiliates and, accordingly, the historical results of operations, assets and liabilities, and the cash flows of the Merck Retained Products for such Transferred Entities are reflected as discontinued operations.

~~The components of Income (loss) from discontinued operations, net of tax for the Merck Retained Products business are as follows:~~

Three Months Ended March 31,
($ in millions) 2022 2021
Sales $ — $ 89
Costs, Expenses and Other
Cost of Sales — 52
Selling, general and administrative — 14
Research and development — 4
Other (income) expense, net — 10
Income from discontinued operations before taxes $ — $ 9
Taxes on income — 5
Income from discontinued operations, net of taxes $ — $ 4

Discontinued operations includes related party sales of $12 million for the three months ended March 31, 2021. Costs for inventory purchases from related parties was $50 million for the three months ended March 31, 2021.

~~16. Earnings per Share~~

On June 2, 2021, the date of the Separation, $253,516,000 shares of the Common Stock were distributed to Merck stockholders of record as of the Record Date. This share amount is utilized for the calculation of basic and diluted earnings per

-21-

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

share for all periods presented prior to the Separation. For the first three months of 2021, these shares are treated as issued and outstanding at January 1, 2021 for purposes of calculating historical basic and diluted earnings per share.

Prior to the Separation, certain of the Company's employees participated in stock-based compensation plans sponsored by Merck. Under these plans employees were granted stock options, performance share units ("PSUs"), and restricted stock units ("RSUs"). On June 2, 2021, and in accordance with the Employee Matters Agreement, all Merck stock options, PSUs and RSUs were converted using the conversion ratios set forth in the Employee Matters Agreement. Merck stock options, PSUs and RSUs were converted into Organon RSUs and option awards. Awards were equitably adjusted to reflect the spin-off and to preserve the same intrinsic value and general terms and conditions (including vesting) as were in place immediately prior to the adjustments.

~~The calculation of basic and diluted earnings per common share for the three months ended March 31, 2022 and 2021 was as follows:~~

Three Months Ended March 31,
($ in millions and shares in thousands, except per share amounts) 2022 2021
Net income attributable to Organon:
Income from continuing operations $ 348 $ 395
Income from discontinued operations — 4
Net income attributable to Organon $ 348 $ 399
Basic weighted average number of shares outstanding 253,583 253,516
Stock awards and equity units (share equivalent) 1,469 —
Diluted weighted average common shares outstanding 255,052 253,516
Earnings Per Share Attributable to Organon common stockholders - Basic
Income from continuing operations $ 1.37 $ 1.56
Income from discontinued operations — 0.02
Basic earnings per common share attributable to Organon common stockholders $ 1.37 $ 1.58
Earnings Per Share Attributable to Organon common stockholders - Diluted
Income from continuing operations 1.36 1.56
Income from discontinued operations — 0.02
Diluted earnings per common share attributable to Organon common stockholders $ 1.36 $ 1.58

~~For periods prior to the Separation, it is assumed that there were no dilutive equity instruments as there were no equity awards of Organon outstanding prior to the Separation.~~

For periods subsequent to the Separation and the Distribution, diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are outstanding. The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive. The weighted-average number of common shares outstanding for basic and diluted earnings per share for the three months ended March 31, 2022 was based on the weighted-average number of common shares outstanding for the period beginning after the Distribution date.

For the first three months of 2022, 4.9 million of common shares issuable under stock-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

~~Dividend Program~~

In February 2022, the Board of Directors declared a quarterly dividend of $0.28 per share on Organon’s stock that was paid on March 17, 2022 to stockholders of record at the close of business on February 28, 2022. During each of the second and third quarters of 2021, the Company's Board of Directors also declared a quarterly cash dividend of $0.28 per share on Organon's Common Stock.

~~17. Subsequent Events~~

~~Organon and Daré Bioscience, Inc., a leader in women’s health innovation ("Daré"), entered into an agreement whereby Organon will license global rights to~~ ~~Xaciato®~~ ~~(clindamycin phosphate vaginal gel, 2%).~~ ~~Xaciato~~ ~~is an FDA-approved~~

~~-22-~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~ ~~(continued)~~

~~medication for the treatment~~Table of ~~bacterial vaginosis (BV) in females 12 years of age and older.~~ ~~Xaciato~~ ~~received both Qualified Infectious Disease Product (QIDP) and Fast Track designations from the FDA for the treatment of bacterial vaginosis.~~

Under the terms of the agreement, Daré will receive a $10 million upfront payment from Organon. Daré is eligible to receive potential milestone payments of up to $182.5 million and tiered double-digit royalties based on net sales. ~~Xaciato~~ is expected to be available commercially in the U.S. in the fourth quarter of 2022. Completion of the transaction is subject to review under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions. The transaction is expected to close during the second quarter of 2022.Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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" or "continue." 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, expanded brand and class competition in the markets in which Organon operates; political and social pressures, or regulatory developments, that adversely impact demand for, availability of, or patient access to contraception or fertility products; difficulties with performance of third parties Organon relies on for its 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 Organon's products lose patent protection; expiration of current patents or loss of patent protection for Organon's products; difficulties and uncertainties inherent in the implementation of Organon's acquisition strategy or failure to recognize the benefits of such acquisitions; 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; and other factors discussed in Organon's most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the "Business," "Risk Factors," "Cautionary Factors that May Affect Future Results" 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 the Company’s financial condition and results of operations. The following discussion and analysis should be read in conjunction with the Company’s 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.~~10-K for the year ended December 31, 2022. Operating results discussed herein are not necessarily indicative of the results of any future period.

Organon & Co. ~~(“Organon”~~("Organon" or the "Company") is a global ~~healthcare~~health care company ~~formed through~~with a ~~spinoff from Merck & Co., Inc. (“Merck”) to~~ focus on improving the health of women throughout their lives. Organon develops and delivers innovative health solutions through a portfolio of prescription therapies and medical devices within women's health, biosimilars and established brands (the "Organon Products"). Organon has a portfolio of more than 60 medicines and products across a range of therapeutic areas. The Company sells 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. The Company operates six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United ~~Kingdom ("UK").~~Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, the Organon group of companies.

~~Separation from Merck~~

~~As previously disclosed, on June 2, 2021, Organon and Merck entered into~~Recent Developments

Business Development

Claria Medical, Inc. ("Claria")

In January 2023, the Company made a ~~Separation and Distribution Agreement (the "Separation and Distribution Agreement"). Pursuant to~~strategic investment in Claria, a privately-held company developing an investigational medical device being studied for use during minimally invasive laparoscopic hysterectomy. Under the Separation and Distribution Agreement, Merck agreed to spin off the Organon Products into Organon, a new, publicly traded company (the "Separation"). The Separation from Merck was completed on June 2, 2021, in which Organon's Common Stock was distributed to all holders of outstanding shares of Merck Common Stock asterms of the ~~close~~agreement, Organon paid $8 million upfront and has the option to acquire Claria for an additional $47 million, payable if and when the option is exercised. The $8 million was expensed as Acquired in-process research and development and milestones in our Condensed Consolidated Statement of business on May 17, 2021 (the "Record Date"). For each share of Merck Common Stock held, such holder received one tenth of one share of Common Stock, and holders received cash in lieu of any fractional share of Common Stock they otherwise would have been entitled to receive in connection withIncome for the ~~Distribution. Organon is now a~~three months ended March 31, 2023.

~~-23-~~-22-

Table of Contents

standalone publicly traded company, and on June 3, 2021, regular-way trading of the Common Stock commenced on the New York Stock Exchange ("NYSE") under the symbol "OGN." Until the Separation on June 2, 2021, Organon’s historical Consolidated financial statements were prepared on a standalone basis and were derived from Merck’s consolidated financial statements and accounting records.

For the periods subsequent to June 2, 2021, as a standalone publicly traded company, Organon presents its financial statements on a consolidated basis. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

The Separation was completed pursuant to the Separation and Distribution Agreement and other agreements with Merck related to the Separation, including, but not limited to, a Tax Matters Agreement, an Employee Matters Agreement and a Transition Services Agreement (See Note 14 for additional details).

~~Recent Developments~~

~~Business Development~~

~~In February 2022, Organon acquired the product rights and related inventory from Bayer AG to~~
~~Marvelon™ (ethinylestradiol, desogestrel) and~~ ~~Mercilon~~™ (ethinylestradiol, desogestrel), combined oral hormonal daily contraceptive pills, in the People’s Republic of China, including Hong Kong and Macau, and has entered into an agreement to acquire the rights to these products in Vietnam. ~~Marvelon~~ ~~and~~ ~~Mercilon~~ are already owned, manufactured, and marketed by Organon as prescription oral contraceptives in 20 other markets. The transaction was accounted for as an asset acquisition. In the first quarter of 2022, Organon paid $30 million to acquire the product rights and inventory in China and accrued an additional $35 million related to these rights which will be paid during the second quarter of 2022. This resulted in Organon recognizing an intangible asset of $42 million related to the product rights with the remainder of the consideration recorded to ~~Inventory~~ ~~for the fair value of acquired inventory during the first quarter of 2022. The intangible assets related to currently marketed products will be amortized over their estimated useful lives of 10 years.~~

COVID-19 Update

~~Organon remains focused on protecting the safety of its employees and supporting Organon’s communities in response to the~~

COVID-19 ~~pandemic. COVID-19-related~~related disruptions, including ~~patients’~~patients' inability to access health care providers, prioritization of COVID-19 patients, as well as social distancing measures, ~~have~~ negatively affected our ~~results.~~

~~Our product portfolio is comprised~~results during 2022 and we expect that it will continue to affect our operations, specifically, in China in 2023. During 2022 and the first quarter of ~~physician prescribed products, mainly~~2023, our business was impacted by lockdowns in ~~established brands,~~selective cities across China, which have ~~been affected by social distancing measures and fewer medical visits. Additionally, our portfolio~~slowed down with recent policies in ~~women's health includes products that are physician administered, which have been affected by limited access~~China to ~~physicians and healthcare centers. These impacts, as well as~~ease the prioritization of COVID-19 patients at health care providers, resulted in reduced administration of many products within established brands particularly for respiratory and cardiovascular products and women's health product ~~Nexplanon®~~ ~~(etonogestrel implant) (sold as~~ ~~Implanon NXT™~~ ~~in some countries outside the US), throughout the prior year.~~

zero-COVID strategy. We believe that global health systems and patients continue to adapt to the evolving impacts of ~~the COVID-19 pandemic.~~COVID-19. Due to the ~~significant~~ uncertainty that exists relative to the duration and overall impact of ~~the~~ COVID-19 ~~pandemic~~ resulting from resurgences in COVID-19 infections or new strains of the virus, our future operating performance in China, particularly in the short-term, may be subject to volatility.

Operating Results

~~Sales Overview~~
Three Months Ended March 31, % Change % Change Excluding Foreign Exchange
($ in millions) 2022 2021
United States $ 329 $ 351 (6) % (6) %
International 1,238 1,155 7 % 13 %
Total $ 1,567 $ 1,506 4 % 8 %

~~U.S. plus international may not equal total due to rounding~~.

~~-24-~~

Sales Overview


	Three Months Ended March 31,			% Change		% Change Excluding Foreign Exchange
($ in millions)	2023	2022
United States		$	326	$	329		—	%	—	%
International		1,212		1,238			(2)		3
Total		$	1,538	$	1,567		(2)	%	3	%

Worldwide sales were ~~$1.6~~$1.5 billion for the ~~first~~ three months ended March 31, 2023, a decrease of ~~2022, an increase of 4%~~2% compared with ~~the first three months of 2021. The~~2022. Worldwide sales ~~increase is primarily~~were negatively impacted by approximately 5%, or $71 million, due to ~~strong volume growth for products within~~unfavorable foreign exchange. Excluding foreign exchange, sales increases primarily reflect the ~~established brands business, particularly for respiratory products~~ performance of~~Nasonex®~~ Marvelon™ ~~(mometasone)~~(desogestrel and ethinyl estradiol pill) and ~~Singulair®~~Mercilon™ (~~montelukast sodium)~~desogestrel and ethinyl estradiol pill), resulting from the recent transaction with Bayer Healthcare where Organon gained full rights in ~~Japan~~selected territories in Southeast Asia and China during 2022, Renflexis, driven primarily by continued demand growth in the United States and ~~to a lesser extent, for cardiovascular products~~ ~~Rosuzet™~~ ~~(ezetimibe and atorvastatin calcium)~~Canada and Atozet™ (ezetimibe and atorvastatin calcium)~~. Worldwide sales also reflect strong performance in biosimilar products mainly in~~ (marketed outside of the United ~~States, Canada and Europe, resulting from the continued uptake~~States), due to increased demand in France. This performance was partially offset by declines in Zetia® (ezetimibe) (marketed in most countries outside of~~Renflexis®~~ ~~(infliximab-abda) in~~ the United States as ~~well as strong performance of women's health fertility product~~ ~~Follistim®~~Ezetrol™) and Vytorin® (~~follitropin beta injection). These increases were offset by lower sales~~ezetimibe/simvastatin) (marketed outside of ~~women's health products~~ ~~Nexplanon, primarily due to distributors' buying patterns in~~ the United States as ~~well as generic~~Inegy™)driven by the impact of volume-based procurement ("VBP") in China and increased competition ~~for women’s health product~~and lower performance in Europe coupled with the impact of the ~~NuvaRing®~~Diprospan ~~(etonogestrel/ethinyl estradiol vaginal ring) and~~™ (betamethasone cream) market actions taken during the ~~authorized generic etonogestrel/ethinyl estradiol vaginal ring~~first quarter of 2023. Within our established brands portfolio, respiratory products were positively impacted in the ~~United States.~~prior year, due to higher demand from competitors' supply disruptions in Japan.

The loss of exclusivity ("LOE") negatively impacted sales by approximately ~~$30~~$2 million during the ~~first quarter of 2022~~three months ended March 31, 2023, compared to the ~~first quarter of 2021,~~three months ended March 31, 2022, based on the decrease in volume period over period, mainly impacting NuvaRing in the United States. ~~Volume-based procurement ("VBP")~~VBP in China had a ~~de minimis~~$27 million negative impact on sales during the ~~first quarter of 2022~~three months ended March 31, 2023, compared to the ~~prior period.~~three months ended March 31, 2022. Organon expects VBP to impact the Company's established brands product portfolio for the next several quarters.

~~Organon’s~~

Organon's operations include a portfolio of products. Highlights of the sales of ~~Organon’s~~Organon's products for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 are provided below. See Note 13 5 "Product and Geographic Information"to the Condensed Consolidated Financial Statements for further details on sales of our products.

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~~Women’s~~Table of Contents

Women's Health


		Three Months Ended March 31,				% Change				% Change Excluding Foreign Exchange								Three Months Ended March 31,	% Change		% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021										($ in millions)			2023	2022
Nexplanon/Implanon NXT	Nexplanon/Implanon NXT	$	171	$	183			(7)	%			(5)	%			Nexplanon/Implanon NXT						$	165	$	171				(3)	%	(1)	%
NuvaRing	NuvaRing	41		45		(10)	%			(6)	%				NuvaRing					40		41					(2)		(1)
Marvelon/Mercilon															Marvelon/Mercilon				37		24					58		65
Follistim AQ	Follistim AQ	61		52		17	%			20	%				Follistim AQ				55		61					(10)		(7)
Ganirelix Acetate Injection	Ganirelix Acetate Injection	30		29		2	%			6	%				Ganirelix Acetate Injection				30		30					—		3

Contraception

Worldwide sales of Nexplanon,, a single-rod subdermal contraceptive implant, declined ~~7% in~~3% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023 compared to ~~the first three months of 2021,~~2022, primarily due to ~~lower volume~~the impact of the timing of tenders in various international markets and the ~~United States resulting from~~impact of distributors' buying patterns in prior periods ~~partially offset by a favorable impact from the timing of tenders in Latin America and volume growth due to changes in wholesaler and distributor buying patterns~~ in the ~~UK.~~U.S.

Worldwide sales of NuvaRing, a vaginal contraceptive product, declined ~~10% in~~2% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, compared to ~~the first three months of 2021 primarily~~2022, due to ongoing generic competition in the United States. We expect a continued decline in NuvaRing sales as a result of generic competition. ~~In addition to~~

Worldwide sales of ~~branded~~ ~~NuvaRing~~Marvelon and Mercilon, ~~we have an agreement with a generic manufacturer that authorizes the sale of generic etonogestrel/ethinyl estradiol vaginal ring~~combined oral hormonal daily contraceptive pills not approved or marketed in the United ~~States. Under~~States but available in certain countries outside the ~~terms~~United States, increased 58% for the three months ended March 31, 2023, compared to 2022 as a result of the ~~agreement, we are reimbursed on a cost-plus basis by the generic manufacturer for supplying finished goods~~recent transaction with Bayer Healthcare where Organon gained full rights in selected territories in Southeast Asia and receive a share of the net profits recorded by the generic manufacturer. Under the terms of the agreement, our share in the profits declines over time as new participants enter the market. Revenues from this arrangement were $11 million and $32 million for the first quarter of 2022 and 2021, respectively. The decline in revenue for the first three months of 2022 is due to the entry of a new market participant. Given the nature of this arrangement, we expect revenue under this arrangement to continue to decline significantly for the remainder ofChina during 2022.

Fertility

Worldwide sales of Follistim AQ~~® (marketed~~, a fertility treatment, declined 10% for the three months ended March 31, 2023 compared to 2022, due to the unfavorable impact of COVID-19 in ~~most countries outside~~China and an unfavorable shift in customer mix and discount rates in the United States, as ~~Puregon™ ), a fertility treatment, increased 17%~~partially offset by an increase in ~~the first three months of 2022 compared to the first three months of 2021, primarily due to higher~~product demand ~~in China and continuous volume growth~~ in the United States.

Worldwide sales of Ganirelix Acetate Injection (marketed in certain countries outside the United States as Orgalutran™), a fertility treatment, ~~slightly increased during~~remained consistent for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, compared to ~~the first three months of 2021.~~2022.

~~-25-~~

Biosimilars


	Three Months Ended March 31,			% Change		% Change Excluding Foreign Exchange
($ in millions)	2023	2022
Renflexis		$	62	$	46		34	%	34	%
Ontruzant		21		22			(7)		(6)
Brenzys		19		14			31		36
Hadlima		5		6			(20)		(16)

~~Biosimilars~~

Three Months Ended March 31, % Change % Change Excluding Foreign Exchange
($ in millions) 2022 2021
Renflexis $ 46 $ 38 21 % 21 %
Ontruzant 22 22 — % 5 %
Brenzys 14 10 40 % 44 %
Hadlima 6 2 * *

* Calculation not meaningful.

The following biosimilar products are part of a development and commercialization agreement between Organon and Samsung Bioepis entered into in 2013. See Note 3 to the Condensed Consolidated Financial Statements. Our commercialization territories under the agreement vary by product as noted below.

Renflexis~~® (infliximab-abda)~~ is a biosimilar to Remicade® (infliximab) (a trademark of Janssen Biotech, Inc.) for the treatment of certain inflammatory diseases. Sales growth inof 34% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, was driven primarily by continued demand growth ~~and favorable channel mix~~ in the United ~~States.~~States and Canada. We have commercialization rights to Renflexis in countries outside Europe, Korea, China, Turkey and Russia.

Ontruzant® (trastuzumab-dttb) is a biosimilar to Herceptin® (trastuzumab) (a trademark of Genentech, Inc.) for the treatment of HER2-overexpressing breast cancer and HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma. Sales ~~for~~in the ~~first~~ three months ~~of 2022 slightly increased~~ended March 31, 2023 declined 7%, driven by the competitive pressures in Europe offset by the continued uptake in the United States since its launch in July 2020 ~~partially offset by competitive pressures~~and the favorable phasing and timing of tenders in ~~Europe.~~Brazil. We have commercialization rights to Ontruzant in countries outside of Korea and China.

~~Brenzys~~

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Table of Contents

Brenzys™™ (etanercept) is a biosimilar to Enbrel® (etanercept) (a trademark of Immunex Corporation)for the treatment of certain inflammatory diseases. Sales in the ~~first~~ three months ~~of 2022~~ended March 31, 2023 increased ~~40%~~31%, primarily ~~due to volume growth in Canada and~~driven by the timing of ~~shipments~~tenders in Brazil. We have commercialization rights to Brenzys in countries outside of the United States, Europe, Korea, China and Japan.

Hadlima™ (adalimumab-bwwd) is a biosimilar to Humira® (adalimumab) (a trademark of AbbVie ~~Technology~~Biotechnology Ltd.) 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 outside of the United States starting in 2021 and in the United States in ~~June~~July 2023. Hadlima is currently approved in the United States, Australia, Canada, and Israel. Hadlima was launched in Australia and Canada in February 2021. ~~Following these launches, we~~We recorded sales of $6$5 million during the ~~first~~ three months ~~of 2022, an increase~~ended March 31, 2023, reflecting a decline from modest sales during the ~~first~~ three months ended March 31, 2022 in markets outside of ~~2021.~~the U.S.

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


		Three Months Ended March 31,				% Change				% Change Excluding Foreign Exchange								Three Months Ended March 31,	% Change		% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021										($ in millions)			2023	2022
Zetia/Vytorin	Zetia/Vytorin	$	137	$	133			3	%			7	%			Zetia/Vytorin						$	112	$	137				(18)	%	(13)	%
Atozet	Atozet	119		112		6	%			14	%				Atozet					128		119					8		13
Rosuzet		22		15		44	%			58	%
Cozaar/Hyzaar	Cozaar/Hyzaar	93		90		3	%			7	%				Cozaar/Hyzaar				85		93					(9)		(2)

Combined global sales of Zetia~~® (ezetimibe) (marketed in most countries outside of the United States as~~ ~~Ezetrol™~~) and Vytorin®~~(ezetimibe/simvastatin) (marketed outside of the United States as~~ ~~Inegy™~~), medicines for lowering LDL cholesterol, ~~increased 3% during~~declined 18% for the ~~first~~ three months ofended March 31, 2023, compared to 2022, primarily driven by ~~higher demand~~the impact of ~~Ezetrol~~ ~~resulting from expanded access~~VBP in China and ~~competitors' supply disruptions~~increased competition and lower performance in ~~Japan.~~

~~-26-~~

Europe partially offset by growing demand in the retail channel in China.

Sales of ~~Atozet™~~Atozet ~~(ezetimibe and atorvastatin calcium) (marketed outside of the United States)~~, a medicine for lowering LDL cholesterol, increased 6%8% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, compared to ~~the first three months of 2021~~2022, primarily due to increased demand in France ~~Spain, Japan~~ and ~~Mexico.~~the timing of customers' buying patterns in several markets in the Asia Pacific region.

~~Sales of~~ ~~Rosuzet™~~ (ezetimibe and rosuvastatin calcium) (marketed outside of the United States), a medicine for lowering LDL cholesterol, increased 44% in the first three months of 2022 compared to the first three months of 2021 primarily due higher demand in Japan.

Combined global sales of ~~Cozaar~~Cozaar® ~~® (losartan~~(losartan potassium), and ~~Hyzaar~~Hyzaar®® (losartan potassium and hydrochlorothiazide) (a combination of ~~Cozaar~~losartan potassium and hydrochlorothiazide that is marketed in Japan as Preminent™), a medicine for the treatment of hypertension, ~~increased 3% in~~declined 9% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, compared to ~~the first three months of 2021,~~2022, primarily due to ~~favorable volume demand resulting from~~wholesaler and distributor buying patterns in China, competitors' supply disruptions in various ~~markets.~~markets during 2022 and ongoing generic competition.

Respiratory


		Three Months Ended March 31,				% Change				% Change Excluding Foreign Exchange								Three Months Ended March 31,	% Change		% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021										($ in millions)			2023	2022
Singulair	Singulair	$	130	$	107			21	%			27	%			Singulair						$	120	$	130				(8)	%	—	%
Nasonex	Nasonex	75		43		74	%			80	%				Nasonex					69		75					(8)		(4)
Dulera	Dulera	40		38		4	%			4	%				Dulera				46		40					15		16

Worldwide sales of ~~Singulair~~Singulair® (montelukast sodium), a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, ~~increased 21% in~~declined 8% for the ~~first~~ three months ~~of 2022~~ended March 31, 2023, compared to 2022, because of the ~~first three months~~alleviation of ~~2021, primarily attributable to volume recovery from the COVID-19 pandemic and demand resulting from~~our competitors' supply disruptions in Japan ~~China and~~during 2022, which had positively impacted demand for Singulair in 2022, as well as the ~~Middle East region.~~unfavorable impact of foreign exchange.

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Table of Contents

Global sales of ~~Nasonex~~Nasonex® (mometasone), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, ~~increased 74% in~~declined 8% during the ~~first~~ three months ~~of 2022 compared~~ended March 31, 2023, due to the first three months of 2021, primarily driven by higher demand resulting from competitors' supply disruptions in Japan, recovery from the COVID-19 pandemic in China, and increased demand in Brazil. In addition, sales during the first three months of 2022 include a $10 million milestone payment related to a regulatory ~~approval.~~approval received during 2022 partially offset by increased demand across several markets.

Global sales of Dulera®(formoterol/fumarate dihydrate), a combination medicine for the treatment of asthma, ~~remained relatively flat~~increased 15% for the three months ended March 31, 2023, compared to 2022, primarily due to volume growth, and the favorable impact from discount rates in the ~~first three months of 2022 compared to the first three months of 2021.~~United States.

Non-Opioid Pain, Bone and Dermatology


		Three Months Ended March 31,				% Change			% Change Excluding Foreign Exchange							Three Months Ended March 31,	% Change		% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021								($ in millions)			2023	2022
Arcoxia	Arcoxia	$	60	$	56		7	%		12	%			Arcoxia						$	71	$	60			17	%	22	%
Diprospan													Diprospan					14		31				(54)	%	(54)	%

Sales of Arcoxia™ (etoricoxib) (marketed outside of the United States), a medicine for the treatment of arthritis and pain, increased ~~7% in~~17% during the ~~first~~ three months ~~of 2022~~ended March 31, 2023 compared to ~~the first three months of 2021~~2022, primarily due to customers buying patterns in the South East Asia region and higher demand in ~~China and~~China.

Sales of Diprospan, a corticosteroid approved for treatment of wide range of inflammatory conditions, declined 54% during the ~~Middle East region.~~three months ended March 31, 2023 compared to 2022, due to the regulatory inspection finding at the Heist manufacturing location that impacted the manufacturing of selected injectable steroid brands. As of March 31, 2023, we have resolved the regulatory inspection findings.

Other


		Three Months Ended March 31,				% Change			% Change Excluding Foreign Exchange						Three Months Ended March 31,	% Change	% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021								($ in millions)		2023	2022
Proscar	Proscar	$	24	$	32		(25)	%		(24)	%		Proscar					$	27	$	24	13	%	22	%

Worldwide sales of ~~Proscar~~Prosc,ar, a medicine for the treatment of symptomatic benign prostate enlargement, ~~declined 25% in the first three months of 2022 compared to the first three months of 2021, primarily due to lower demand in China.~~

~~-27-~~

~~Costs, Expenses and Other~~
Three Months Ended March 31, % Change
($ in millions) 2022 2021
Cost of sales $ 561 $ 591 (5) %
Selling, general and administrative 371 382 (3) %
Research and development 96 67 43 %
Restructuring costs — 1 *
Other (income) expense, net 97 (2) *
$ 1,125 $ 1,039 8 %

* Calculation not meaningful.

~~Cost of Sales~~

Cost of sales decreased 5% in the first three months of 2022, compared to the first three months of 2021, primarily reflecting lower supply sales compared to the prior year, as well as pre-spin allocated costs related to the Separation incurred during the prior year which were not incurred duringincreased 13% for the three months ended March 31, ~~2022.~~

~~Gross margin was 64% in the first three months of 2022 compared with 61% in the first three months of 2021. The gross margin increase~~2023, compared to ~~the prior year reflects lower margin supply~~2022, primarily due to increased demand in China.

Costs, Expenses and Other


	Three Months Ended March 31,					% Change
($ in millions)		2023			2022
Cost of sales			$	580		$	561	3	%
Selling, general and administrative			435			371		17
Research and development			129			96		34
Acquired in-process research and development and milestones			8			—		*
Restructuring costs			4			—		*
Interest expense			132			97		36
Exchange losses (gains)			9			(4)		*
Other expense, net			6			4		50
			$	1,303		$	1,125	16	%

* Calculation not meaningful.

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Cost of Sales

Cost of sales ~~as well as pre-spin allocated costs related to the Separation incurred during the prior year which were not incurred during~~increased 3% for the three months ended March 31, ~~2022.~~2023, compared to the same period in 2022, primarily due to product mix as well as higher employee-related costs and distribution related costs, which increased as a result of inflationary pressures.

Selling, General and Administrative

Selling, general and administrative expenses ~~decreased 3% in~~increased 17% for the ~~first~~ three months ~~of 2022 reflecting~~ended March 31, 2023, due to higher promotional and employee-related costs and costs incurred in ~~2021 to establish Organon as a standalone entity, lower employee related costs, partially offset by higher selling and promotional costs.~~connection with the separation from Merck, which includes the implementation of the enterprise resource planning system.

Research and Development

Research and development expenses increased ~~43% in~~34% for the ~~first~~ three months ~~of 2022,~~ended March 31, 2023, primarily due to higher costs associated with the ~~company's~~Company's recent acquisitions of clinical stage assets, increased clinical study activity and higher ~~employee~~employee-related costs.

Acquired In-Process Research and Development and Milestones

For the three months ended March 31, 2023, acquired in-process research and development and milestones of $8 million related ~~costs.~~to the Claria transaction.

Restructuring Costs

For the three months ended March 31, 2023, the Company incurred $4 million of headcount related restructuring expense as part of the restructuring activities which were initiated during 2022 to optimize its internal operations.

Interest Expense

For the three months ended March 31, 2023, interest expense increased, due to increased interest rates, unamortized debt fees and discounts expensed as part of the prepayment on the U.S. Dollar-denominated term loan and the impact of exchange rates.

Exchange Losses (Gains)

For the three months ended March 31, 2023, the change in exchanges losses (gains) was driven by foreign currency translation losses as well as the impact of the portion of Euro-denominated debt not designated as a net investment hedge in the prior year period.

Other ~~(Income) Expense, Net~~expense, net

~~Other (income)~~

For the three months ended March 31, 2023, other expense, net, ~~increased $99 million in the first three months of 2022 compared~~remained relatively consistent with the ~~first three months of 2021, primarily attributable to $97 million of interest expense related to long-term debt.~~prior year.

Taxes on Income

The effective income tax rates were ~~21.3%~~24.6% and ~~15.5%~~21.3% for the ~~first quarter of~~three months ended March 31, 2023 and 2022, ~~and 2021, respectively, and~~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. The effective~~regime and a partial valuation allowance recorded against non-deductible U.S. interest expense.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022. Provisions of the bill that relate to tax include the minimum tax on book income, a 1% excise tax ~~rate for~~on stock buybacks and certain tax incentives to promote clean energy. There are no impacts of the legislation to the first quarter 2023 results. The Company will continue to assess future impacts of 2021 also reflects the income tax benefit recognized in connection with the conclusion of the Internal Revenue Service (IRS) examination of Merck’s 2015-2016 U.S. federal income tax returns. As a result of that examination conclusion, we reflected an allocation from Merck of $18 million in the Consolidated Financial Statements representing our portion of the payment made to the IRS. Our portion of reserves for unrecognized tax benefits for the years under examination exceeded the allocated adjustments relating to this examination period. Therefore, for the three months ended March 31, 2021, we reflected a $29 million net tax benefit. This net benefit reflects reductions in reserves for unrecognized tax benefits and other related liabilities for tax positions relating to the years that were under examination.legislation.

~~Income/Loss from Discontinued Operations~~

The historical results of certain Merck non-U.S. legal entities that were contributed to Organon in connection with the Separation included operations related to other Merck products that were retained by Merck. The Merck Retained Products business of the Transferred Entities were contributed by Organon to Merck and its affiliates. Accordingly, the historical results of operations of the Merck Retained Products have been reflected as discontinued operations in the Condensed Consolidated Financial Statements for all periods presented.

There was no income or loss from discontinued operations, net of taxes for the first three months of 2022. Income from discontinued operations, net of taxes, for the first three months of 2021 was $4 million.

~~-28-~~-27-

Table of Contents

Analysis of Liquidity and Capital Resources

Liquidity and Capital Resources

As of March 31, ~~2022,~~2023, Organon had cash and cash equivalents of ~~$694~~$459 million.

Working capital remained consistent at $1.4 billion as of March 31, 2023 and December 31, 2022, respectively.

Net cash provided by operating activities was $114 million for the three months ended March 31, 2023 compared to $123 million for the same period in the prior year. The decrease in cash provided by operating activities was primarily attributable to lower net income offset by the changes in working capital balances, largely reflecting a prior year reduction in the net balances due to Merck.

Net cash used in investing activities was $54 million for the three months ended March 31, 2023 compared to $63 million for the same period in the prior year, primarily reflecting the strategic investment in Claria and an increase in capital expenditures in the three months ended March 31, 2023 compared with the asset acquisition of Marvelon and Mercilon in the three months ended March 31, 2022.

Net cash used in financing activities was $326 million for the three months ended March 31, 2023 compared to $91 million for the same period in the prior year. The increase in cash used in financing activities was driven by the $250 million voluntary prepayment on the U.S. Dollar-denominated term loan.

Organon will continue to monitor the impacts of the conflict between Ukraine and Russia, which may negatively impact Organon's operations, financial position or cash flows. For the three months ended March 31, 2023 and 2022, Organon's combined revenues from Ukraine and Russia were approximately 2% of total revenues. As of March 31, 2023, the Company's assets in Ukraine and Russia are not material.

Our contractual obligations as of March 31, 2023, which require material cash requirements in the future, consist of contractual milestones, purchase obligations and lease obligations. In addition, Organon is responsible for settlement of certain tax matters, that the Company expects to pay during 2023. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K for further details. The Company owes a $25 million milestone upon acceptance of the IND filing for ebopiprant. We anticipate the milestone could be triggered as early as the second quarter of 2023. As of March 31, 2023, there have been no material changes to our contractual obligations, or settlements of tax matters outside the ordinary course of business.

During the first quarter of 2023, Organon paid cash dividends of $0.28 per share. On May 4, 2023, the Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of the Company's common stock. The dividend is payable on June 15, 2023, to stockholders of record at the close of business on May 15, 2023.

The Company has historically generated and expects to continue to generate positive cash flow from operations. We plan to continue to fund our ongoing operating, investing and financing requirements mainly through cash flows from operations, available liquidity through cash on hand, available capacity under our Revolving Credit Facility and access to capital markets.

Working capital of continuing operations was $1.4 billion at March 31, 2022 and $1.2 billion in December 31, 2021. The increase in working capital of continuing operations was primarily driven by a decrease in trade accounts payable, partially offset a decrease in accounts receivable.

Cash provided by operating activities was $123 million in the first three months of 2022 compared to $1.3 billion in the first three months of 2021. The decrease in cash provided by operating activities in 2022 was primarily attributable to the decrease in trade payables, including balances with Merck.

~~Cash used in investing activities was $63 million in the first three months of 2022 and $38 million in the first three months of 2021, primarily reflecting the asset acquisition of~~ ~~Marvelon~~ ~~and~~ ~~Mercilon~~ ~~and capital expenditures.~~

Cash used in financing activities was $91 million in the first three months of 2022 and $1.1 billion in the first three months of 2021. The change in cash used in financing activities reflects the settlement of the transactions with Merck in connection with the Separation in 2021, partially offset by the payment of dividends in the first quarter of 2022 (see Note 14 to our Condensed Consolidated Financial Statements).

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.

In February 2022, the armed conflict between Ukraine and Russia escalated, which may adversely impact Organon’s business. Specifically, trade sanctions, travel bans and asset and financial freezes announced by the United States, European Union and other countries against Russian entities and designated individuals, as well as counter-measures announced by Russia, have impacted and may continue to impact many global businesses in direct and indirect ways (including, but not limited to, product shipping delays, supply shortages, delays in regulatory approvals and audits, currency exchange rates and exchange controls). Such actions may negatively impact the financial institutions, vendors, manufacturers, suppliers, partners and other third parties with whom Organon conducts business. Organon will continue to monitor the impacts of the conflict, which may negatively impact Organon’s operations, financial position or cash flows. For the quarter ended March 31, 2022 and the year ended December 31, 2021, Organon’s combined revenues of Ukraine and Russia were approximately 2% of total revenues. As of March 31, 2022, the Company’s assets in Ukraine and Russia are not material.

Our contractual obligations as of December 31, 2021, which require material cash requirements in the future, consist of purchase obligations and lease obligations. In addition, Organon is responsible for settlement of certain tax matters, of which the Company expects to pay during 2022. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for further details. As of March 31, 2022, there have been no material changes to our contractual obligations, or settlements of tax matters outside the ordinary course of business.

During the first quarter of 2022, Organon paid cash dividends of $0.28 per share. In May 2022, the Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of the Company's common stock. The dividend is payable on June 16, 2022 to stockholders of record at the close of business on May 16, 2022.

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.

Critical Accounting Estimates

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 3 to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, ~~2021.~~2022. See Note 2 to the Condensed Consolidated Financial Statements for information on the adoption of new accounting standards during ~~2022.~~2023. There have been no changes to our accounting policies as of March 31, ~~2022.~~2023. 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 Form 10-K for the year ended December 31, ~~2021.~~2022.

~~-29-~~

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 2 to the Condensed Consolidated Financial Statements.

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Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

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 ~~had historically managed our foreign currency risk through Merck foreign currency programs. We~~ are primarily exposed to foreign exchange risk with respect to forecasted transactions and net assets denominated in the euro, Swiss franc, and Japanese yen. ~~Upon Separation, we~~We established a balance sheet risk management program and a net investment hedge to mitigate against volatility of changes in foreign exchange rates. ~~Each quarter subsequent to Separation, €1.75 billion of our euro-denominated debt is designated as a hedge of the net investment of euro-denominated subsidiaries.~~ See Note 510 to the Condensed Consolidated Financial Statements included elsewhere in this report for further information on Organon’s risk management.

Interest Rate Risk

Our long-term debt portfolio consists of both fixed and variable-rate instruments. For any variable rate debt, interest rate changes in the underlying index rates will impact future interest expense. We do not hold any derivative contracts that hedge our interest rate risk; however, we may consider entering into such contracts in the future.

There have been no changes to Organon’s market risk during the quarter ended March 31, ~~2022.~~2023. 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, ~~2021.~~2022.

Item 4. Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period ending March 31, ~~2022.~~2023. Based upon that evaluation, our CEO and our CFO concluded that, as of March 31, 2023, the end of the period ~~ending March 31, 2022,~~covered by this report, the Company's 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.

~~Our Annual Report on Form 10-K for~~

In 2022, the Company began an implementation of an enterprise resource planning ("ERP") system, which will replace the existing core financial system. The ERP system is designed to accurately maintain the Company's financial records used to report operating results. The implementation of the consolidated financial reporting module will be completed during the 2023 fiscal year and the implementation of the general ledger modules will occur in phases and will be completed by the first half of 2024. The Company will evaluate each quarter whether there are changes that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

During the quarter ended ~~December~~March 31, ~~2021 did not include a report of management's assessment regarding~~2023, there have been no changes in internal control over financial reporting ~~or an attestation of the Company's independent registered public accounting firm due to the transition period established by the rules of the SEC for newly created public companies.~~

~~No changes in our internal controls over financial reporting during the quarter ended March 31, 2022 have~~that materially affected, or are reasonably likely to materially affect, ~~our~~the Company's internal ~~controls~~control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The information called for by this Item is incorporated herein by reference to Note 815 included in Part I, Item. 1.

Item 1A. Risk Factors

There have been no material changes in the Company's risk factors from those disclosed in Item ~~1A,~~1A. Risk Factors, in our Form 10-K for the year ended December 31, ~~2021.~~2022.

~~-30-~~-29-

Table of Contents

~~Items~~Item 6. Exhibits


Number			Description


	*31.1	—	Certification of Principal Executive Officer (CEO) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	*31.2	—	Certification of Principal Financial Officer (CFO) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	**32.1	—	Section 1350 Certification of Principal Executive Officer (CEO) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	**32.2	—	Section 1350 Certification of Principal Financial Officer (CFO) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		—	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		—	XBRL Taxonomy Extension Schema Document.

101.CAL		—	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		—	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		—	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		—	XBRL Taxonomy Extension Presentation Linkbase Document.

	104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

		+	~~Management contract or compensatory plan or arrangement~~
		*	Filed herewith
		**	Furnished herewith
		†	Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish a copy of any omitted schedule or exhibit to the SEC upon request; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.

~~-31-~~-30-

Table of Contents

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						ORGANON & CO.

Date: May ~~6, 2022~~5, 2023						/s/ Kathryn DiMarco
						Kathryn DiMarco
						Senior Vice President Finance - Corporate Controller

Date: May ~~6, 2022~~5, 2023						/s/ Matthew Walsh
						Matthew Walsh
						Chief Financial Officer


		Page No.
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated ~~Statement~~Statements of Income	3
	Condensed Consolidated ~~Statement~~Statements of Comprehensive Income	3
	~~Condensed~~ ~~Consolidated~~ ~~Balance Sheet~~	4
	Condensed Consolidated ~~Statement of Equity~~ Balance Sheets	5
	Condensed Consolidated ~~Statement~~Statements of ~~Cash Flows~~Stockholders' Equity (Deficit)	6
	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8

















Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2322
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3029
Item 4.	Controls and Procedures	3029
PART II	OTHER INFORMATION	3029
Item 1.	Legal Proceedings	3029
Item 1A.	Risk Factors	3029
Item 6.	Exhibits	3130
	Signatures


	March 31, 2022		December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	694	$	737
Accounts receivable (net of allowance for doubtful accounts of $11 in 2022 and $7 in 2021)	1,322		1,382
Inventories (excludes inventories of $30 in 2022 and $76 in 2021 classified in Other Assets)	946		915
Other current assets	757		726
Total current assets	3,719		3,760
Property, plant and equipment, net	970		973
Goodwill	4,603		4,603
Other intangibles, net	665		651
Other assets	640		694
	$	10,597	$	10,681
Liabilities and Equity
Current Liabilities
Current portion of long-term debt	$	9	$	9
Trade accounts payable	1,081		1,382
Accrued and other current liabilities	1,014		1,021
Income taxes payable	202		185
Total current liabilities	2,306		2,597
Long-term debt	9,085		9,125
Deferred income taxes	2		4
Other noncurrent liabilities	454		463
Commitments and Contingencies	0		0
Organon & Co. Equity
Common stock, $0.01 par value Authorized - 500,000,000 Issued and outstanding - 253,637,179	3		3
Accumulated deficit	(724)		(998)
Accumulated other comprehensive loss	(529)		(513)
Total Deficit	(1,250)		(1,508)
	$	10,597	$	10,681