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 ~~September 30, 2022~~March 31, 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 ~~October 30, 2022: 254,364,409~~April 28, 2023: 255,061,747

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Table of Contents

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Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Organon & Co.

Condensed Consolidated Statements of Income

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Revenues	Revenues	$	1,537	$	1,600	$	4,689	$	4,701	Revenues		$	1,538	$	1,567
Costs, Expenses and Other	Costs, Expenses and Other									Costs, Expenses and Other
Cost of sales	Cost of sales	551		609		1,700		1,783		Cost of sales		580		561
Selling, general and administrative	Selling, general and administrative	440		388		1,234		1,186		Selling, general and administrative		435		371
Research and development	Research and development	127		86		329		229		Research and development		129		96
Acquired in-process research and development and milestones	Acquired in-process research and development and milestones	10		25		107		25		Acquired in-process research and development and milestones		8		—
Restructuring costs	Restructuring costs	11		1		11		3		Restructuring costs		4		—
Interest expense	Interest expense	108		98		303		160		Interest expense		132		97
Exchange losses (gains)	Exchange losses (gains)	4		1		(21)		6		Exchange losses (gains)		9		(4)
Other expense, net	Other expense, net	4		3		15		16		Other expense, net		6		4
		1,255		1,211		3,678		3,408				1,303		1,125
Income From Continuing Operations Before Income Taxes		282		389		1,011		1,293
Income From Operations Before Income Taxes										Income From Operations Before Income Taxes		235		442
Taxes on Income	Taxes on Income	55		66		202		144		Taxes on Income		58		94
Net Income From Continuing Operations		227		323		809		1,149
Loss From Discontinued Operations - Net of Tax		—		—		—		—

Net Income	Net Income	$	227	$	323	$	809	$	1,149	Net Income		$	177	$	348

Earnings per Share - Basic:
Continuing operations		$	0.89	$	1.27	$	3.19	$	4.53
Discontinued operations		—		—		—		—
Net Earnings per Share - Basic		$	0.89	$	1.27	$	3.19	$	4.53
Earnings per Share:										Earnings per Share:

Earnings per Share - Diluted:
Continuing operations		$	0.89	$	1.27	$	3.17	$	4.52
Discontinued operations		—		—		—		—
Net Earnings per Share - Diluted		$	0.89	$	1.27	$	3.17	$	4.52

Basic										Basic		$	0.70	$	1.37

Diluted										Diluted		$	0.69	$	1.36

Weighted Average Shares Outstanding:	Weighted Average Shares Outstanding:									Weighted Average Shares Outstanding:
Basic	Basic	254,348		253,534		253,986		253,530		Basic		254,392		253,583
Diluted	Diluted	255,067		254,172		255,094		254,011		Diluted		256,170		255,052

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

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Table of Contents

Organon & Co.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, $ in millions)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Net Income	Net Income	$	227	$	323	$	809	$	1,149	Net Income		$	177	$	348
Other Comprehensive (Loss) Income, Net of Taxes:
Other Comprehensive Income (Loss), Net of Taxes:										Other Comprehensive Income (Loss), Net of Taxes:
Benefit plan net loss and prior service credit, net of amortization	Benefit plan net loss and prior service credit, net of amortization	—		(3)		—		(11)		Benefit plan net loss and prior service credit, net of amortization		—		(1)
Cumulative translation adjustment	Cumulative translation adjustment	(97)		(23)		(173)		129		Cumulative translation adjustment		30		(15)
		(97)		(26)		(173)		118				30		(16)
Comprehensive Income	Comprehensive Income	$	130	$	297	$	636	$	1,267	Comprehensive Income		$	207	$	332

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

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Table of Contents

Organon & Co.

Condensed Consolidated Balance Sheets

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	499	$	737	Cash and cash equivalents	$	459	$	706
Accounts receivable (net of allowance for doubtful accounts of $8 in 2022 and $7 in 2021)		1,440		1,382
Inventories (excludes inventories of $96 in 2022 and $76 in 2021 classified in Other Assets)		879		915
Accounts receivable (net of allowance for doubtful accounts of $9 in 2023 and $9 in 2022)						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)						Inventories (excludes inventories of $87 in 2023 and $148 in 2022 classified in Other assets)	1,121		1,003
Other current assets	Other current assets	774		726		Other current assets	755		747
Total current assets	Total current assets	3,592		3,760		Total current assets	3,780		3,931
Property, plant and equipment, net	Property, plant and equipment, net	906		973		Property, plant and equipment, net	1,055		1,018
Goodwill	Goodwill	4,603		4,603		Goodwill	4,603		4,603
Other intangibles, net		670		651
Intangibles, net						Intangibles, net	621		649
Other assets	Other assets	666		694		Other assets	704		754
		$	10,437	$	10,681		$	10,763	$	10,955
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current Liabilities	Current Liabilities					Current Liabilities
Current portion of long-term debt	Current portion of long-term debt	$	8	$	9	Current portion of long-term debt	$	8	$	8
Trade accounts payable	Trade accounts payable	1,028		1,382		Trade accounts payable	996		1,132
Accrued and other current liabilities	Accrued and other current liabilities	1,075		1,021		Accrued and other current liabilities	1,150		1,188
Income taxes payable	Income taxes payable	217		185		Income taxes payable	192		184
Total current liabilities	Total current liabilities	2,328		2,597		Total current liabilities	2,346		2,512
Long-term debt	Long-term debt	8,691		9,125		Long-term debt	8,703		8,905
Deferred income taxes	Deferred income taxes	43		4		Deferred income taxes	30		19
Other noncurrent liabilities	Other noncurrent liabilities	441		463		Other noncurrent liabilities	421		411
Commitments and Contingencies
Organon & Co. Equity
Common stock, $0.01 par value Authorized - 500,000 Issued and outstanding - 254,364 in 2022 and 253,545 in 2021		3		3
Contingencies (Note 15)						Contingencies (Note 15)

Organon & Co. Stockholders' Deficit						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						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	Accumulated deficit	(383)		(998)		Accumulated deficit	(206)		(331)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(686)		(513)		Accumulated other comprehensive loss	(534)		(564)
Total Deficit		(1,066)		(1,508)
Total Stockholders' Deficit						Total Stockholders' Deficit	(737)		(892)
		$	10,437	$	10,681		$	10,763	$	10,955

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

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Table of Contents

Organon & Co.

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

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


		Common Stock			Additional Paid-In Capital				Accumulated Deficit		Net Investment from Merck & Co., Inc.			Accumulated Other Comprehensive Loss				Total				Common Stock					Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive (Loss) Income		Total
		Shares	Par Value										Shares								Par Value									Total
Balance at July 1, 2021		253,516	$	3			$	—			$	(1,473)				$	—			$	(464)		$	(1,934)
Net income		—	—		—				323		—			—				323
Other comprehensive loss, net of taxes		—	—		—				—		—			(26)				(26)
Cash dividends declared on common stock ($0.28 per share)		—	—		—				(74)		—			—				(74)
Stock-based compensation		29	—		—				15		—			—				15
Net transfers from Merck & Co., Inc., including Separation Adjustments		—	—		—				81		—			(3)				78

Balance at September 30, 2021		253,545	$	3	$	—			$	(1,128)	$	—		$	(493)			$	(1,618)

Balance at July 1, 2022		254,321	$	3	$	—			$	(551)	$	—		$	(589)			$	(1,137)

Balance at January 1, 2022																					Balance at January 1, 2022	253,550			$	3			$			—	$	(998)			$	(513)	$	(1,508)
Net income	Net income	—	—		—				227		—			—				227			Net income	—			—		—				348				—		348
Other comprehensive loss, net of taxes	Other comprehensive loss, net of taxes	—	—		—				—		—			(97)				(97)			Other comprehensive loss, net of taxes	—			—		—				—				(16)		(16)
Cash dividends declared on common stock ($0.28 per share)	Cash dividends declared on common stock ($0.28 per share)	—	—		—				(74)		—			—				(74)			Cash dividends declared on common stock ($0.28 per share)	—			—		—				(71)				—		(71)
Stock-based compensation plans and other	Stock-based compensation plans and other	43	—		—				15		—			—				15			Stock-based compensation plans and other	87			—		—				15				—		15
Net transfers to Merck & Co., Inc. including Separation Adjustments																					Net transfers to Merck & Co., Inc. including Separation Adjustments	—			—		—				(18)				—		(18)
Balance at March 31, 2022																					Balance at March 31, 2022	253,637			$	3	$	—			$	(724)			$	(529)	$	(1,250)

Balance at September 30, 2022		254,364	$	3	$	—			$	(383)	$	—		$	(686)			$	(1,066)
Balance at January 1, 2023																					Balance at January 1, 2023	254,370			$	3	$	—			$	(331)			$	(564)	$	(892)
Net income																					Net income	—			—		—				177				—		177
Other comprehensive income, net of taxes																					Other comprehensive income, net of taxes	—			—		—				—				30		30
Cash dividends declared on common stock ($0.28 per share)																					Cash dividends declared on common stock ($0.28 per share)	—			—		—				(73)				—		(73)
Stock-based compensation plans and other																					Stock-based compensation plans and other	62			—						21				—		21

Balance at March 31, 2023																					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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~~Table of Contents~~

~~Organon & Co.~~

~~Condensed Consolidated Statements of Equity (continued)~~

~~(Unaudited, $ in millions, except shares)~~

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 — — — 419 730 — 1,149
Other comprehensive income, net of taxes — — — — — 118 118
Cash dividends declared on common stock — — — (74) — — (74)
Stock-based compensation 29 — — 23 — — 23
Net transfers from Merck & Co., Inc., including Separation Adjustments — — — 81 588 11 680
Net consideration paid to Merck & Co., Inc. in connection with Separation — — — — (9,000) — (9,000)
Issuance of common stock in connection with the Separation and reclassification of Net investment from Merck & Co., Inc. 253,516 3 — (1,577) 1,574 — —
Balance at September 30, 2021 253,545 $ 3 $ — $ (1,128) $ — $ (493) $ (1,618)
Balance at January 1, 2022 253,550 $ 3 $ — $ (998) $ — $ (513) $ (1,508)
Net income — — — 809 — — 809
Other comprehensive loss, net of taxes — — — — — (173) (173)
Cash dividends declared on common stock — — — (218) — — (218)
Stock-based compensation plans and other 814 — 41 — — 41
Net transfers from Merck & Co., Inc., including Separation Adjustments — — — (17) — — (17)
Balance at September 30, 2022 254,364 $ 3 $ — $ (383) $ — $ (686) $ (1,066)

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

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Table of Contents

Organon & Co.

Condensed Consolidated Statements of Cash Flows

(Unaudited, $ in millions)
Nine Months Ended September 30,
2022 2021
Cash Flows from Operating Activities
Net income from continuing operations $ 809 $ 1,149
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities:
Depreciation 72 64
Amortization 88 69
Impairment of assets 9 —
Acquired in-process research and development and milestones 107 25
Deferred income taxes (18) (212)
Stock-based compensation 52 44
Unrealized foreign exchange (gain) loss (45) 37
Other 24 7
Net changes in assets and liabilities
Accounts receivable (119) (376)
Inventories (134) (90)
Other current assets (76) 177
Trade accounts payable (323) 944
Accrued and other current liabilities 108 386
Due from/due to related party — (164)
Income taxes payable 45 7
Other (8) 46
Net Cash Flows Provided by Operating Activities from Continuing Operations 591 2,113
Cash Flows from Investing Activities
Capital expenditures (133) (133)
Proceeds from sale of property, plant and equipment 3 2
Acquired In Process Research & Development (105) (25)
Purchase of product rights and asset acquisition, net of cash acquired (124) (192)
Net Cash Flows Used in Investing Activities from Continuing Operations (359) (348)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt — 9,470
Repayments of debt (106) (10)
Payment of long-term debt issuance costs — (118)
Repayments of short-term borrowings from Merck & Co., Inc., net — (1,512)
Net consideration paid to Merck & Co. Inc. in connection with the Separation — (9,000)
Net transfers (to) from Merck & Co., Inc. (17) 454
Employee withholding taxes related to share-based awards (11) —
Dividend payments (217) (74)
Net Cash Flows Used in Financing Activities from Continuing Operations (351) (790)
Discontinued Operations
Net Cash Provided by Operating Activities — 298
Net Cash Used in Investing Activities — —
Net Cash Used in Financing Activities — (356)
Net Cash Flows Used in Discontinued Operations — (58)
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Continuing Operations (119) 21
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Discontinued Operations — —
Net (Decrease) Increase in Cash and Cash Equivalents (238) 938
Cash and Cash Equivalents, Beginning of Period 737 12
Cash and Cash Equivalents of Discontinued Operations, Beginning of Period — 58
Total Cash and Cash Equivalents, End of Period 499 1,008
Less: Cash and Cash Equivalents of Discontinued Operations, End of Period — —
Cash and Cash Equivalents, End of Period $ 499 $ 1,008


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

Acquired in-process research and development and milestones	8		—
Deferred income taxes	3		(4)
Stock-based compensation	22		15
Unrealized foreign exchange loss (gain)	2		(6)
Other	8		6
Net changes in assets and liabilities
Accounts receivable	39		54
Inventories	(38)		14
Other current assets	(3)		(37)
Trade accounts payable	(139)		(298)
Accrued and other current liabilities	(47)		(45)

Income taxes payable	6		30
Other	19		(7)
Net Cash Flows Provided by Operating Activities	114		123
Cash Flows from Investing Activities
Capital expenditures	(46)		(33)

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

Repayments of debt	(252)		(2)




Net transfers to Merck & Co., Inc.	—		(18)
Employee withholding taxes related to stock-based awards	(1)		—
Dividend payments	(73)		(71)
Net Cash Flows Used in Financing Activities	(326)		(91)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	19		(12)
Net Decrease in Cash and Cash Equivalents	(247)		(43)
Cash and Cash Equivalents, Beginning of Period	706		737
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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Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Background and Nature of Operations

Organon & Co. ~~(“Organon”~~("Organon" or the ~~“Company”~~"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 six manufacturing facilities, which are located in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom. Unless otherwise indicated, trademarks appearing in italics throughout this document are trademarks of, or are used under license by, 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 ~~U.S.~~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.

~~On June 2, 2021, Organon~~ A number of Organon's established brands lost exclusivity years ago 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 Stockhave faced generic competition 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."

some time.

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. 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 31 months. 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 13 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.~~

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~~Table of Contents~~

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

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 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 legal entities established to operate the Organon Products business (the "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.2022.

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~~Company's operations in China as of ~~September 30, 2022~~March 31, 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 three and nine months ended September 30, 2022. Refer~~report which are difficult to ~~Note 3 of the audited 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 Accounting Standards Update ("ASU") 2022-02,~~ ~~Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~, an amendment to the accounting for credit losses on financial instruments. This amendment eliminates the recognition and measurement guidance on troubled 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 theirpredict.

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

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 troubled debt restructurings. Entities can elect to adopt the guidance on troubled 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 does not expect the adoption of this guidance to have a material impact on the Consolidated Financial Statements.

Recently Adopted Accounting Standards

In ~~November 2021, the FASB issued ASU 2021-10,~~ ~~Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,~~ 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. The 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.

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 adoption is permitted, including adoption in an interim period and subject to different transition requirements.~~ The adoption of this guidance ~~will~~did not have an impact on the ~~Company’s~~Company's Consolidated Financial Statements for prior acquisitions; however, the impact 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 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 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~~Acquisitions and Licensing Arrangements

~~The Company has an agreement with Samsung Bioepis Co., Ltd.~~Claria Medical, Inc. ("~~Samsung Bioepis"~~Claria") 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).~~

In ~~August 2022,~~January 2023, the ~~U.S. Food and Drug Administration ("FDA") approved~~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 ~~citrate-free, high-concentration (100 mg/mL) formulation~~terms of ~~Hadlima™ (adalimumab-bwwd), a biosimilar referencing~~ ~~Humira® (adalimumab) (trademark of Abbvie Biotechnology Ltd). During~~ the ~~third quarter of 2022,~~agreement, Organon paid ~~Samsung Bioepis $18 million. This amount~~$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 ~~recognized~~expensed as ~~an intangible asset which will be amortized over~~Acquired in-process research and development and milestones in our Condensed Consolidated Statement of Income for the ~~estimated useful life of approximately 10 years.~~three months ended March 31, 2023.

~~Samsung Bioepis~~

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

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 ~~eligible~~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 ~~additional payments associated with pre-specified clinical~~the sale of generic etonogestrel/ethinyl estradiol vaginal ring is included in Other Women's Health.

(2)Includes manufacturing sales to Merck and ~~regulatory milestones. As of September 30, 2022, potential future regulatory milestone payments of $25 million remain under the agreement.~~third parties for current and prior periods.

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

~~Summarized information related to this collaboration is~~Revenues by geographic area where derived are as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
($ in millions) 2022 2021 2022 2021
Sales $ 129 $ 139 $ 346 $ 305
Cost of sales 86 83 221 183
Selling, general and administrative 18 18 60 50


	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)

($ in millions) September 30, 2022 December 31, 2021
Receivables from Samsung included in Other current assets
$ 10 $ 15
Payables to Samsung included in Trade accounts payable
24 21
Primarily reflects manufacturing sales to Merck and third parties for current and prior periods.

~~4. Acquisitions and Licensing Arrangements~~6. Stock-Based Compensation Plans

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

~~In July 2022,~~Employee stock options are granted to purchase shares of Company stock at the ~~Company entered into~~fair market value at the time of grant. Generally, stock options have a ~~research collaboration~~contractual term of ten years and ~~license agreement with Cirqle for~~vest one-third each year over a ~~novel investigational non-hormonal, on-demand contraceptive candidate. Under~~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 ~~agreement, Cirqle is responsible for conducting preclinical studies according~~Company's PSU awards allow the recipients of such awards to earn a variable number of common shares based on the ~~mutually agreed research plan. Organon obtained exclusive worldwide rights to develop and commercialize~~cumulative results of specified performance factors. The Company has PSU awards based on the ~~asset.~~following performance factors:

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

~~Under~~ •the ~~terms~~results of the ~~research collaboration and license agreement, Organon expensed a $10 million upfront payment during the third quarter~~cumulative free cash flow ("FCF") of ~~2022. Cirqle is eligible to receive potential regulatory and commercial milestone payments of up to $360 million and tiered royalties based on net sales. As of September 30, 2022,~~ the Company ~~recognized the $10 million upfront payment as~~ ~~Acquired in-process research and development and milestones~~ ~~expense. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable.~~over a three year period

~~Shanghai Henlius Biotech, Inc. ("Henlius")~~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.

~~In June 2022, Organon~~For RSUs and ~~Henlius, a global biopharmaceutical company, entered into a definitive agreement whereby Organon is licensing commercialization rights for biosimilar candidates referencing~~ ~~Perjeta® (pertuzumab, HLX11), (a trademark~~PSUs, dividends declared during the vesting period are payable to the employees only upon vesting. RSU and PSU distributions will be in shares of ~~Genentech, Inc.), used for~~Company stock after the ~~treatment~~end of ~~certain patients with HER2+ breast cancer in combinations with trastuzumab and chemotherapy and~~ ~~Prolia~~®/~~Xgeva® (denosumab, HLX14), (trademarks of Amgen Inc.) used for~~ the treatment of certain patients with osteoporosis with high risk of fracture and for the prevention of skeletal-related events in patients with multiple myeloma and in patients with bone metastasis from solid tumors. Organon obtained exclusive global commercialization rights except for China; including Hong Kong, Macau and Taiwan. The agreement includes an optionvesting or performance period, subject to ~~negotiate an exclusive license for global commercialization rights for a biosimilar candidate referencing~~ ~~Yervoy® (ipilimumab, HLX13)~~(a trademark of Bristol-Myers Squibb Company). Ipilimumab is used for the treatment of certain patients with unresectable or metastatic melanoma, as adjuvant treatment of certain patients with cutaneous melanoma, certain patients with renal cell carcinoma, colorectal cancer, hepatocellular carcinoma, non-small cell lung cancer, malignant pleural mesothelioma and esophageal cancer.

~~Under~~ the terms ~~of the license agreement, Organon paid a $73 million upfront payment during the third quarter of 2022, of which $3 million was reflected in~~ ~~Other current assets.~~ ~~Henlius is eligible~~applicable to receive potential developmental, regulatory and commercial milestone payments of up to $468 million. During the nine months ended September 30, 2022, the Company paid milestones of $97 million, reflecting a $70 million upfront payment and $27 million related to certain development milestones which were recognized as ~~Acquired in-process research and development and milestones~~ expense during the second quarter of 2022. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable. Henlius will be responsible for development and, if approved, will supply the products to Organon.such awards.

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

~~Daré Bioscience, Inc. ("Daré")~~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

~~In March 2022, Organon and Daré, a leader in women’s health innovation, entered into an agreement whereby Organon licensed~~

The weighted average fair value of options was determined using the ~~global commercial rights to~~ 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

~~Xaciato®~~
~~(clindamycin phosphate vaginal gel, 2%).~~ ~~Xaciato~~ ~~is an FDA-approved medication~~

A summary of the equity award transactions for the ~~treatment~~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 ~~bacterial vaginosis (BV)~~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 ~~females 12 years~~operating expense ratably over the weighted average vesting period of ~~age and older.~~ 2.28 years.

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~~Xaciato~~ ~~received both Qualified Infectious Disease Product (QIDP) and Fast Track designations from the FDA for the treatment~~Table of ~~bacterial vaginosis.~~Contents

~~Under~~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 ~~terms~~Company intends to restructure approximately 130 positions, with the majority of the ~~license agreement, Organon paid a $10 million upfront payment during the third quarter~~position eliminations occurring in selected markets outside of ~~2022. Daré is eligible to receive potential regulatory and commercial 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 first half of 2023. During the nine months ended September 30, 2022 management determined that the first~~our commercial milestone was deemed probable of occurring, and recognized an intangible asset of $12.5 million reflecting the $10 million upfront payment and $2.5 million commercial milestone. The intangible asset will be amortized over its useful life of 12 years. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable.

~~Bayer AG~~

~~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 China, including Hong Kong and Macau, and 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 was paid during the second quarter of 2022. In the third quarter of 2022, Organon paid $30 million to acquire the product rights in Vietnam.~~This resulted in Organon recognizing an intangible asset of $72 million in total related to the product rights with the remainder of the consideration recorded to~~ ~~Inventories~~ ~~for the fair value of acquired inventory during 2022. The intangible assets related to currently marketed products will be amortized over their estimated useful lives of 10 years.~~

~~Alydia Health~~

organizations. During the three months ended ~~September 30, 2022, a cumulative sales-based contingent milestone payment, related to~~March 31, 2023, $5 million of restructuring charges have been paid, with the ~~Jada~~ ~~system device, was determined~~majority of the severance payments expected to be ~~probable~~paid by the end of ~~being achieved and~~the 2023 fiscal year. For the three months ended March 31, 2023, the Company ~~recognized an intangible asset and noncurrent liability~~recorded restructuring charges of ~~$25 million. The intangible asset is subject~~$4 million, which relate to ~~amortization over its expected useful life.~~severance costs for eliminated positions.

~~For details regarding Organon's 2021 acquisitions~~Liabilities for costs associated with restructuring activities were $19 million and ~~licensing agreements, see Note 5 to the audited Consolidated Financial Statements~~$20 million at March 31, 2023 and December 31, 2022, respectively, and are included primarily in ~~the Company's 2021 Form 10-K.~~Accrued and other current liabilities.

5.8. 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 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 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 that includes certain annual minimum purchase commitments.

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. The notional amount of forward contracts was ~~$1.3~~$1.5 billion as of ~~September 30, 2022~~March 31, 2023 and ~~$2.1 billion as of~~

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~~Table of Contents~~

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

December 31, ~~2021.~~2022, respectively. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated 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)	($ in millions)	Fair Value Measurement Level	September 30, 2022		December 31, 2021		($ in millions)	Fair Value Measurement Level	March 31, 2023		December 31, 2022
Forward contracts in Other current assets	Forward contracts in Other current assets	2	$	35	$	19	Forward contracts in Other current assets	2	$	12	$	6
Forward contracts in Accrued and other current liabilities	Forward contracts in Accrued and other current liabilities	2	23		5		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.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
($ in millions)	($ in millions)	2022		2021		2022		2021		($ in millions)		2023		2022
Foreign currency gains in Other comprehensive income		$	176	$	38	$	303	$	94
Foreign currency (losses) gains in Other comprehensive income										Foreign currency (losses) gains in Other comprehensive income		$	(42)	$	37

The Condensed Consolidated Statements of Income 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
September 30, Nine Months Ended
September 30,
($ in millions) 2022 2021 2022 2021
Allocated net loss in Revenues
$ — $ 1 $ — $ 56
Foreign exchange loss (gain) in Other expense, net
4 1 (21) 6

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.


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

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

Organon has established accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Under these agreements, Organon factored ~~$61~~$68 million and ~~$87~~$43 million of accounts receivable as of ~~September 30, 2022~~March 31, 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 Statements of Cash Flows.

~~-14-~~-15-

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

~~6. Inventories~~

~~Inventories consisted of:~~

($ in millions) September 30, 2022 December 31, 2021
Finished goods $ 403 $ 377
Raw materials 71 95
Work in process 479 490
Supplies 40 40
Total (approximates current cost) $ 993 $ 1,002
Decrease to LIFO costs (18) (11)
$ 975 $ 991
Recognized as:
Inventories $ 879 $ 915
Other assets 96 76
Inventories valued under the last in, first out ("LIFO") method 82 52

~~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.

~~During the third quarter of 2021, the Company recorded $24 million within~~ ~~Other noncurrent liabilities~~ ~~due to estimated unavoidable losses associated with the supply contract. The charge was recognized as a component of~~ ~~Cost of sales~~ ~~during the third quarter of 2021 and the nine months ended September 30, 2021.~~

~~7. Long-Term~~11. Long- Term Debt

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


($ in millions)	($ in millions)	September 30, 2022		December 31, 2021		($ in millions)	March 31, 2023		December 31, 2022
Term Loan B Facility:	Term Loan B Facility:					Term Loan B Facility:
LIBOR plus 300 bps term loan due 2028	LIBOR plus 300 bps term loan due 2028	$	2,793	$	2,893	LIBOR plus 300 bps term loan due 2028	$	2,543	$	2,793
LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million)	LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million)	708		843		LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million)	800		787
4.125% secured notes due 2028	4.125% secured notes due 2028	2,100		2,100		4.125% secured notes due 2028	2,100		2,100
2.875% euro-denominated secured notes due 2028 (€1.25 billion)	2.875% euro-denominated secured notes due 2028 (€1.25 billion)	1,196		1,412		2.875% euro-denominated secured notes due 2028 (€1.25 billion)	1,357		1,331
5.125% notes due 2031	5.125% notes due 2031	2,000		2,000		5.125% notes due 2031	2,000		2,000
Other borrowings	Other borrowings	8		10		Other borrowings	8		7
Other (discounts and debt issuance costs)	Other (discounts and debt issuance costs)	(106)		(124)		Other (discounts and debt issuance costs)	(97)		(105)
Total principal long-term debt	Total principal long-term debt	$	8,699	$	9,134	Total principal long-term debt	$	8,711	$	8,913
Less: Current portion of long-term debt	Less: Current portion of long-term debt	8		9		Less: Current portion of long-term debt	8		8
Total Long-term debt, net of current portion	Total Long-term debt, net of current portion	$	8,691	$	9,125	Total Long-term debt, net of current portion	$	8,703	$	8,905

~~Other borrowings represent debt assumed in connection with the acquisition~~The nature and terms of ~~Forendo Pharma in December 2021.~~

~~In June 2021, the Company entered into a credit agreement (the “Senior Credit Agreement”) providing for a~~our Term Loan B Facility, ~~consisting of (i) a U.S. Dollar-denominated senior secured “tranche B” term loan~~Notes and Other borrowings are described in ~~the amount of $3.0 billion due 2028 (ii) a euro-denominated senior secured “tranche B” term loan~~detail in ~~the amount of €750 million due 2028;~~Note 11 "Long-Term Debt and ~~(iii) a Revolving Credit Facility (“Revolving Credit Facility”),~~Leases" in ~~an aggregate principal amount of up to $1 billion, with a five-year term that matures in 2026.~~

~~-15-~~

~~Table of Contents~~

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

~~The interest rate~~our 2022 Annual Report 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% and subject to a step-down to 0.375% based on meeting a leverage ratio target. There were no outstanding balances under the Revolving Credit Facility as of September 30, 2022 or December 31, 2021.Form 10-K.

Long-term debt was recorded at the carrying amount. The estimated fair value of long-term debt (including current portion) is as follows:


($ in millions)	($ in millions)	September 30, 2022		December 31, 2021		($ in millions)	March 31, 2023		December 31, 2022
Long-term debt (includes a reduction for amortized debt issuance costs)		$	7,772	$	9,412
Long-term debt						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 $218 million for the nine months ended September 30, 2022~~ related to its debt ~~instruments.~~instruments of $65 million for the three months ended March 31, 2023. The average maturity of the Company's long-term debt as of ~~September 30, 2022~~March 31, 2023 is approximately ~~6.3~~5.7 years and the weighted-average interest rate on total borrowings as of ~~September 30, 2022~~March 31, 2023 is ~~4.5%~~5.4%.

On ~~June 6, 2022,~~March 30, 2023, the Company made a discretionary prepayment of ~~$100~~$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		$	2
2023	2023	8		2023	$	6
2024	2024	8		2024	9
2025	2025	8		2025	9
2026	2026	11		2026	9
2027				2027	9
Thereafter	Thereafter	8,768		Thereafter	8,766

-16-

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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 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 certain markets in 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. As of March 31, 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

-17-

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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").

The ~~Senior Credit~~Separation was completed pursuant to the Separation and Distribution Agreement ~~contains customary financial covenants,~~and other agreements with Merck related to the Separation, including, but not limited to a ~~total leverage ratio covenant, which measures~~tax matters agreement (the "Tax Matters Agreement" or "TMA"), an employee matters agreement (the "Employee Matters Agreement" or "EMA"), Interim Operating Model Agreements ("IOM Agreements"), Manufacturing and Supply Agreements, Intellectual Property License Agreements, Regulatory Agreements and a transition services agreement (the "Transition Service Agreement" or "TSA").

Following the ~~ratio~~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 ~~(i) consolidated total debt~~services under the TSA generally will terminate within 25 months following the spin-off; however, the provision of certain services has been extended to ~~(ii) consolidated earnings before interest, taxes, depreciation~~at least 35 months. Additionally, under manufacturing and amortization, and subject to other adjustments, that must meet certain defined limits which are tested on a quarterly basis. In addition, the Senior Credit Agreement contains covenants that limit, among other things, Organon’s ability to prepay, redeem or repurchase its subordinated and junior lien debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, redeem or repurchase equity interests, and create or become subject to liens. As of September 30, 2022,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 ~~as of September 30, 2022,~~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 to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

~~-16-~~-18-

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Notes to 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.

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 ~~September 30, 2022,~~March 31, 2023, approximately ~~3,285~~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' 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 October 2010. On July 11, 2022, the District Court entered an Order to Show Cause as to why the Court should not dismiss either with prejudice or conditionally all of plaintiffs' claims that are not dependent on the preempted failure to warn claims.

~~Accordingly,~~ On November 18, 2022, as a result of ~~September 30,~~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, ~~approximately~~those plaintiffs filed their Notice of Appeal to the Third Circuit challenging the District Court's preemption ruling. 974 of 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 ~~September 30, 2022,~~March 31, 2023, approximately ~~2,030~~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 ~~September 30, 2022,~~March 31, 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 four Femur Fracture cases pending in other state courts.

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

~~-17-~~-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 September 30, 2022, there was one 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 wereThere 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 ~~September 30, 2022,~~March 31, 2023, Merck had 18 cases pending outside the United States, of which 12 relate to Implanon and six 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.

As of ~~September 30, 2022, only three cases remain~~March 31, 2023, one case remains pending in the United States, ~~(1) a case currently pending in the MDL; (2)~~ a matter involving ~~Propecia~~Proscar® ~~in state court in Los Angeles, California in which Merck's motion for summary judgment was granted and subsequently appealed; and (3) a matter involving~~ ~~Proscar~~(finasteride) in the United States District Court for the Eastern District of California in which Merck's motion to dismiss was granted by the District ~~Court. In the~~ ~~Propecia~~ ~~case in the MDL, the~~ Court, ~~granted Merck's motion for partial summary judgment on September 8, 2022. In the~~ ~~Proscar~~ ~~case,~~but the plaintiff can appeal the decision. The Company is also defending 1615 product liability cases outside the United States, two of which are class actions and ~~four~~three 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. In one such enforcement matter in Spain concerning ~~NuvaRing®~~ NuvaRing~~(etonogestrel/ethinyl estradiol vaginal ring)~~, the National Commission on Markets and Competition ~~(CNMC)~~("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 ~~is appealable~~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™~~ ~~(adalimumab-bwwd)~~Hadlima

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.

~~-18-~~

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

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 ~~September 30, 2022,~~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 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$15~~$22 million and $9$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~~

~~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.

~~-19-~~

~~Table of Contents~~

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

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 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.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
($ in millions) 2022 2021 2022 2021
Stock-based compensation expense recognized in:
Cost of sales $ 3 $ 3 $ 9 $ 8
Selling, general and administrative 12 10 35 26
Research and development 3 2 8 10
Income tax benefits 3 3 11 9

~~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:~~

~~Nine Months Ended September 30,~~

~~2022~~

~~Expected dividend yield~~

~~3.12~~

~~Risk-free interest rate~~

~~2.47~~

~~Expected volatility~~

~~43.43~~

~~Expected life (years)~~

~~5.89~~

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~~Table of Contents~~

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

~~A summary of the equity award transactions for the nine months ended September 30, 2022 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, 2022 4,394 $ 34.35 $ 8.63 3,280 $ 36.69 120 $ 51.63
Granted 556 $ 34.93 $ 11.34 2,299 $ 34.87 373 $ 45.23
Vested/Exercised (15) $ 37.39 $ 9.72 (1,251) $ 37.50 — $ —
Forfeited/Cancelled (160) $ 35.72 $ 9.70 (242) $ 35.76 (7) $ 51.63
Outstanding as of September 30, 2022 4,775 $ 34.36 $ 8.91 4,086 $ 35.48 486 $ 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 September 30, 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 4,585 $ 34.36 $ — 7.48 2,429 $ 32.98 $ — 6.23
Restricted Share Units 3,781 96 2.03
Performance Share Units 402 11 2.63

~~The amount of unrecognized compensation costs as of September 30, 2022 was $145 million, which will be recognized in operating expense ratably over the weighted average vesting period of 2.08 years.~~

~~10. Taxes on Income~~

The effective income tax rates were 19.6% and 17.1% for the three months ended September 30, 2022 and 2021, respectively, and 20.0% and 11.2% for the nine months ended September 30, 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 first nine months of 2021 reflects the beneficial impact of foreign earnings, a $70 million tax benefit relating to a portion of the non-U.S. step-up of tax basis as well as 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, 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 nine months ended September 30, 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.

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 third quarter 2022 results. The Company is currently assessing future impacts of this recently enacted legislation.

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

~~11. Other Comprehensive Income (Loss)~~

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

($ in millions) Employee
Benefit
Plans Cumulative
Translation
Adjustment Accumulated Other
Comprehensive
Loss
Balance at July 1, 2021, net of taxes $ (26) $ (438) $ (464)
Other comprehensive loss, pretax (3) (23) (26)
Tax — — —
Other comprehensive loss, net of taxes (3) (23) (26)
Transfer of benefit plans from Merck affiliates (3) — (3)
Balance at September 30, 2021, net of taxes $ (32) $ (461) $ (493)
Balance at July 1, 2022, net of taxes $ (13) $ (576) $ (589)
Other comprehensive loss, pretax — (97) (97)
Tax — — —
Other comprehensive loss, net of taxes — (97) (97)
Balance at September 30, 2022, net of taxes $ (13) $ (673) $ (686)

($ in millions) Employee
Benefit
Plans Cumulative
Translation
Adjustment Accumulated Other
Comprehensive
(Loss) Income
Balance at January 1, 2021, net of taxes $ (32) $ (590) $ (622)
Other comprehensive (loss) income, pretax (1) 129 128
Tax (10) — (10)
Other comprehensive (loss) income, net of taxes (11) 129 118
Transfer of benefit plans to/from Merck affiliates 11 — 11
Balance at September 30, 2021, net of taxes $ (32) $ (461) $ (493)
Balance at January 1,2022, net of taxes $ (13) $ (500) $ (513)
Other comprehensive loss, pretax (1) (173) (174)
Tax 1 — 1
Other comprehensive loss, net of taxes — (173) (173)
Balance at September 30, 2022, net of taxes $ (13) $ (673) $ (686)

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~~Table of Contents~~

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

~~12. 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
($ in millions) U.S. Int’l Total U.S. Int’l Total U.S. Int’l Total U.S. Int’l Total
Women’s Health
Nexplanon/Implanon NXT $ 151 $ 78 $ 229 $ 120 $ 55 $ 175 $ 401 $ 194 $ 595 $ 389 $ 154 $ 543
Follistim AQ 27 33 60 29 32 61 79 100 179 81 97 178
NuvaRing 27 23 50 21 28 49 65 68 133 68 79 147
Ganirelix Acetate Injection 6 30 36 5 20 25 20 77 97 19 66 85
Cerazette — 15 15 — 18 18 — 47 47 — 53 53
Other Women's Health (1)
24 39 63 18 35 53 80 108 188 80 111 191
Biosimilars
Renflexis 54 7 60 48 6 54 145 20 166 119 17 136
Ontruzant 15 14 29 9 47 56 35 52 87 20 81 101
Brenzys — 24 24 — 14 14 — 52 52 — 35 35
Aybintio — 10 10 — 10 10 — 29 29 — 26 26
Hadlima — 6 6 — 5 5 — 14 14 — 9 9
Established Brands
Cardiovascular
Zetia 2 85 87 1 90 91 7 280 287 6 276 282
Vytorin 1 30 31 3 38 41 6 98 104 8 119 127
Atozet — 109 109 — 114 114 — 350 350 — 347 347
Rosuzet — 17 17 — 15 15 — 55 55 — 48 48
Cozaar/Hyzaar 2 68 70 3 84 87 11 244 256 9 256 265
Other Cardiovascular (1)
1 34 35 1 48 49 3 117 120 3 145 148
Respiratory
Singulair 3 92 94 2 98 100 8 308 316 10 289 300
Nasonex — 49 49 — 49 48 9 173 182 3 141 144
Dulera 31 9 40 48 8 56 98 30 127 121 25 146
Clarinex — 25 26 2 27 28 3 96 99 5 78 83
Other Respiratory (1)
11 10 21 14 5 18 34 32 66 43 20 64
Non-Opioid Pain, Bone and Dermatology
Arcoxia — 64 64 — 65 65 — 185 185 — 184 184
Fosamax 1 35 36 1 45 46 2 115 117 3 130 132
Diprospan — 28 28 — 34 34 — 91 91 — 92 92
Other Non-Opioid Pain, Bone and Dermatology (1)
2 63 65 9 69 79 10 200 210 12 201 213
Other
Proscar — 26 27 — 27 27 1 76 77 1 91 92
Propecia 2 28 30 1 33 34 5 90 95 5 96 101
Other (1)
6 81 87 10 83 95 21 230 251 32 230 262
Other (2)
— 39 39 1 51 52 — 115 116 (2) 171 168
Revenues $ 366 $ 1,171 $ 1,537 $ 346 $ 1,254 $ 1,600 $ 1,043 $ 3,646 $ 4,689 $ 1,035 $ 3,666 $ 4,701

~~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.~~

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~~Table of Contents~~

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

~~Revenues by geographic area where derived are as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
($ in millions) 2022 2021 2022 2021
Europe and Canada $ 363 $ 410 $ 1,243 $ 1,314
United States 366 346 1,043 1,035
Asia Pacific and Japan 283 287 888 874
China 241 252 721 693
Latin America, Middle East, Russia and Africa 236 238 665 595
Other (1)
48 67 129 190
Revenues $ 1,537 $ 1,600 $ 4,689 $ 4,701

~~(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.~~

~~13. 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 Model Agreements ("IOM") agreements, Manufacturing and Supply Agreement, Tax Matters Agreement, Employee Matters Agreement as well as Intellectual Property License Agreements and Regulatory Agreements. For the three and nine months ended September 30, 2022, material transactions occurred in connection with the IOM 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 Consolidated Financial Statements in the Company's 2021 Form 10-K.

•IOM agreements - Merck and Organon entered into a series of 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.

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~~Table of Contents~~

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

~~The amounts due under such agreements were:~~

($ in millions) September 30, 2022 December 31, 2021
Due from Merck in Accounts receivable
$ 412 $ 403
Due to Merck in Accounts payable
623 928

~~Sales and cost of sales resulting from the manufacturing and supply agreements with Merck were:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
($ in millions) 2022 2021 2022 2021
Sales $ 38 $ 41 $ 104 $ 54
Cost of sales 31 35 91 48

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. The Condensed Consolidated Financial Statements reflect an allocation of these costs. Some of these services continue to be provided by Merck to the Company on a temporary basis under the Transition Services Agreement. The allocations reflected in the Condensed Consolidated Statements of Income for continuing operations are as follows:

Nine Months Ended
September 30,

~~($ in millions)~~

~~2021~~

~~Cost of sales~~

~~Selling, general and administrative~~

~~134~~

~~Research and development~~

~~238~~

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.

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~~Table of Contents~~

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

~~Related party transactions~~

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

Nine Months Ended
September 30,

~~($ in millions)~~

~~2021~~

~~Included in continuing operations~~

~~Supply sales to Merck affiliates~~

~~143~~

~~Purchases from Merck affiliates~~

~~Cost reimbursements and fees from Merck affiliates~~

~~Included in discontinued operations~~

~~Supply sales to Merck affiliates~~

~~Purchases from Merck affiliates~~

~~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 nine months ended September 30, 2021 were as follows:~~


	~~Nine Months Ended September 30,~~
~~($ in millions)~~	~~2021~~ ~~(1)~~
~~Cash pooling and general financing activities~~	$	~~168~~
~~Cost allocations, excluding non-cash stock-based compensation~~	~~(209)~~
~~Taxes deemed settled with Merck~~	~~(259)~~
~~Allocated derivative and hedging (losses) gains~~	~~(88)~~
~~Net transfers (from) to Merck & Co., Inc.~~ ~~as reflected in the Condensed Consolidated Statement of Cash Flows for Continuing Operations~~ ~~(2)~~	$	~~(388)~~
~~Net transfers to (from) Merck included in Net Cash Provided by (Used in) Discontinued Operations~~	~~597~~
~~Total net transfers to Merck as included in the Condensed Consolidated Statement of Cash Flows~~	$	~~209~~
~~Stock-based compensation expense (includes $3 of discontinued operations for the nine months ended~~ ~~September 30, 2021)~~	~~(32)~~
~~Net assets contributed by Merck affiliates~~	~~(778)~~
~~Derecognition of amounts in~~ ~~Accumulated other comprehensive loss~~ ~~related to employee benefit plan transfers to Merck affiliates~~	13
~~Net transfers (from) to Merck & Co., Inc.~~ ~~as reflected in the Condensed Consolidated Statement of Equity~~	$	~~(588)~~

~~(1)~~ ~~Amounts represent activity through the date of the Separation.~~

~~(2)~~ Net transfers (from) to Merck & Co., Inc. as reflected in the Condensed Consolidated Statement of Cash Flows for Continuing Operations for the nine months ended September 30, 2021 include Separation adjustments of $66 million, identified after the date of the Separation.

Prior to the Separation, transfers between the Organon Entities, the Transferred 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 and nine months ended September 30, 2021.

~~-26-~~

~~Table of Contents~~

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

~~14. 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:~~


	Nine Months Ended September 30,
~~($ in millions)~~		~~2021~~
~~Sales~~		$	93
~~Costs, Expenses and Other~~
~~Cost of Sales~~		65
~~Selling, general and administrative~~		15
~~Research and development~~		4

~~Other (income) expense, net~~		4
~~Income from discontinued operations before taxes~~		$	5
~~Taxes on income~~		5
~~Income from discontinued operations, net of taxes~~		$	—

Discontinued operations include related party sales of $12 million for the nine months ended September 30, 2021. Costs for inventory purchases from related parties were $53 million for the nine months ended September 30, 2021.

~~15. Earnings per Share ("EPS")~~

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 share for all periods presented prior to the Separation. For the three and nine months ended September 30, 2021, these shares are treated as issued and outstanding as of 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, PSU's, and RSU's. On June 2, 2021, and in accordance with the Employee Matters Agreement, all Merck stock options, PSU's and RSU's were converted using the conversion ratios set forth in the Employee Matters Agreement. Merck stock options, PSU's and RSUs were converted into Organon stock option awards and RSUs. 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.

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~~Table of Contents~~

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

~~The calculation of basic and diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021 was as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
($ in millions and shares in thousands, except per share amounts) 2022 2021 2022 2021
Net income:
Income from continuing operations $ 227 $ 323 $ 809 $ 1,149
Income from discontinued operations — — — —
Net income $ 227 $ 323 $ 809 $ 1,149
Basic weighted average number of shares outstanding 254,348 253,534 253,986 253,530
Stock awards and equity units (share equivalent) 719 638 1,108 481
Diluted weighted average common shares outstanding 255,067 254,172 255,094 254,011
Earnings per Share - Basic:
Continuing operations $ 0.89 $ 1.27 $ 3.19 $ 4.53
Discontinued operations — — — —
Net Earnings per Share - Basic $ 0.89 $ 1.27 $ 3.19 $ 4.53
Earnings per Share - Diluted:
Continuing operations $ 0.89 $ 1.27 $ 3.17 $ 4.52
Discontinued operations — — — —
Net Earnings per Share - Diluted $ 0.89 $ 1.27 $ 3.17 $ 4.52
Anti-dilutive shares excluded from the calculation of EPS 6,313 4,800 4,432 5,015

~~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 and nine months ended September 30, 2022 was based on the weighted-average number of common shares outstanding for the period beginning after June 2, 2021 (the "Distribution date").

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~~Table of 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 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.

~~Separation from Merck~~Recent Developments

As previously disclosed, 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"). 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 as of the close of business on May 17, 2021. 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 with the Distribution. 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 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.Business Development

~~For~~Claria Medical, Inc. ("Claria")

In January 2023, the ~~periods subsequent~~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 paid $8 million upfront and has the option to ~~June 2, 2021,~~acquire Claria for an additional $47 million, payable if and when the option is exercised. The $8 million was expensed as ~~a standalone publicly-traded company, Organon presents its financial statements on a consolidated basis. The~~Acquired in-process research and development and milestones in our Condensed Consolidated ~~Financial Statements have been prepared in accordance with accounting principles generally accepted in~~Statement of Income for the ~~United States of America.~~three months ended March 31, 2023.

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Table of Contents

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 13 to the Condensed Consolidated Financial Statements for additional details).

~~Recent Developments~~

~~Business Development~~

~~Cirqle Biomedical ("Cirqle")~~

In July 2022, the Company entered into a research collaboration and license agreement with Cirqle for a novel investigational non-hormonal, on-demand contraceptive candidate. Under the terms of the agreement, Cirqle is responsible for conducting preclinical studies according to the mutually agreed research plan. Organon obtained exclusive worldwide rights to develop and commercialize the asset.

Under the terms of the research collaboration and license agreement, Organon expensed a $10 million upfront payment during the third quarter of 2022. Cirqle is eligible to receive potential regulatory and commercial milestone payments of up to $360 million and tiered royalties based on net sales. As of September 30, 2022, the Company recognized the $10 million upfront payment as ~~Acquired in-process research and development and milestones~~ ~~expense. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable.~~

~~Shanghai Henlius Biotech, Inc. ("Henlius")~~

~~In June 2022, Organon and Henlius, a global biopharmaceutical company, entered into a definitive agreement whereby Organon is licensing commercialization rights for biosimilar candidates referencing~~ ~~Perjeta® (pertuzumab, HLX11), (a trademark of Genentech, Inc.), used for the treatment of certain patients with HER2+ breast cancer in combinations with trastuzumab and chemotherapy and~~ ~~Prolia~~®/~~Xgeva~~® (denosumab, HLX14), (trademarks of Amgen Inc.) used for the treatment of certain patients with osteoporosis with high risk of fracture and for the prevention of skeletal-related events in patients with multiple myeloma and in patients with bone metastasis from solid tumors. Organon obtained exclusive global commercialization rights except for China; including Hong Kong, Macau and Taiwan. The agreement includes an option to negotiate an exclusive license for global commercialization rights for a biosimilar candidate referencing ~~Yervoy® (ipilimumab, HLX13)~~(a trademark of Bristol-Myers Squibb Company). Ipilimumab is used for the treatment of certain patients with unresectable or metastatic melanoma, as adjuvant treatment of certain patients with cutaneous melanoma, certain patients with renal cell carcinoma, colorectal cancer, hepatocellular carcinoma, non-small cell lung cancer, malignant pleural mesothelioma and esophageal cancer.

~~Under the terms of the license agreement, Organon paid a $73 million upfront payment during the third quarter of 2022, of which $3 million was reflected in~~ ~~Other current assets.~~ Henlius is eligible to receive potential developmental, regulatory and commercial milestone payments of up to $468 million. During the nine months ended September 30, 2022, the Company paid milestones of $97 million, reflecting a $70 million upfront payment and $27 million related to certain development milestones which were recognized as ~~Acquired in-process research and development and milestones~~ expense during the second quarter of 2022. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable. Henlius will be responsible for development and, if approved, will supply the products to Organon.

~~Daré Bioscience, Inc. ("Daré")~~

~~In March 2022, Organon and Daré, a leader in women’s health innovation, entered into an agreement whereby Organon licensed the global commercial rights to~~ ~~Xaciato®~~ ~~(clindamycin phosphate vaginal gel, 2%).~~ ~~Xaciato~~ ~~is an FDA-approved medication for the treatment 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 license agreement, Organon paid a $10 million upfront payment during the third quarter of 2022. Daré is eligible to receive potential regulatory and commercial 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 first half of 2023. During the nine months ended September 30, 2022 management determined that the first commercial milestone was deemed probable of occurring, and recognized an intangible asset of $12.5 million reflecting the $10 million upfront payment and $2.5 million commercial milestone. The intangible asset will be amortized over its useful life of 12 years. The remaining potential milestone payments will be recognized by Organon when achievement of the contractual milestones is probable.

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~~Bayer AG~~

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 during ~~2021~~2022 and ~~2022.~~

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

China, which have slowed down with recent policies in China to ease the zero-COVID strategy. We believe that global health systems and patients continue to adapt to the evolving impacts of ~~the COVID-19 pandemic, including the slower than expected ramp up of qualified personnel hiring.~~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 September 30, % Change % Change Excluding Foreign Exchange Nine Months Ended September 30, % Change % Change Excluding Foreign Exchange
($ in millions) 2022 2021 2022 2021
United States $ 366 $ 346 6 % 6 % $ 1,043 $ 1,035 1 % 1 %
International 1,171 1,254 (7) % 2 % 3,646 3,666 (1) % 6 %
Total $ 1,537 $ 1,600 (4) % 3 % $ 4,689 $ 4,701 — % 5 %

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


	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 $1.5 billion for the three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of 4%2% compared with ~~2021. The decrease is primarily~~2022. Worldwide sales were negatively impacted by approximately 5%, or $71 million, due to ~~the~~ unfavorable ~~impact of~~foreign exchange. Excluding foreign exchange, ~~of $106 million and the timing of tenders in Brazil.Offsetting these declines are~~sales increases primarily ~~due to~~reflect the ~~strong~~ performance of ~~women's health product~~ ~~Nexplanon®~~ ~~(etonogestrel implant) (sold as~~Marvelon™ (desogestrel and ethinyl estradiol pill) and Mercilon™ (desogestrel and ethinyl estradiol pill), resulting from the recent transaction with Bayer Healthcare where Organon gained full rights in selected territories in Southeast Asia and China during 2022, Renflexis, ~~Implanon NXT™~~ ~~in some countries outside the U.S.),~~driven primarily ~~due to the impact of favorable pricing and~~by continued demand ~~uptake in the United States as well as volume~~ growth ~~across Mexico, Latin America and the institutional business in Africa. Worldwide sales also reflects the continued uptake of~~ ~~Renflexis®~~ ~~(infliximab-abda)~~ in the United States and ~~strong performance for~~ ~~Brenzys™ (etanercept) in Latin America and Canada.~~

Worldwide sales were $4.7 billion for the nine months ended September 30, 2022, which is consistent with 2021. Worldwide sales were negatively impacted due to the unfavorable impact of foreign exchange of $254 million, the generic competition for women’s health product ~~NuvaRing~~® (etonogestrel/ethinyl estradiol vaginal ring) and the authorized generic etonogestrel/ethinyl estradiol vaginal ring in the United States and unfavorable discount rates and lower volume growth in the United States related to ~~Dulera®~~ ~~(formoterol/fumarate dihydrate)~~.Offsetting these declines are increases primarily due to strong performance of Nexplanon due to the impact of favorable pricing and demand uptake in the United States as well as volume growth across Mexico, Latin America and the institutional business in Africa and strong volume growth for products within the established brands business, particularly for respiratory products ~~Nasonex®~~ ~~(mometasone)~~Canada and ~~Singulair®~~Atozet™ (~~montelukast sodium) primarily~~

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~~in Japan and China. Worldwide sales also reflect strong performance in biosimilar products mainly in the United States, resulting from the continued uptake of~~ ~~Renflexis®~~ ~~in the United States and the strong performance of cardiovascular products, primarily~~ ~~Atozet™ (ezetimibe~~ezetimibe and atorvastatin calcium) (marketed outside of the United States), due to increased demand in ~~France~~France. This performance was partially offset by declines in Zetia® (ezetimibe) (marketed in most countries outside of the United States as Ezetrol™) and ~~Spain.~~Vytorin® (ezetimibe/simvastatin) (marketed outside of the United States as Inegy™)driven by the impact of volume-based procurement ("VBP") in China and increased competition and lower performance in Europe coupled with the impact of the Diprospan™ (betamethasone cream) market actions taken during the first quarter of 2023. Within our established brands portfolio, respiratory products were positively impacted in the prior year, due to higher demand from competitors' supply disruptions in Japan.

The loss of exclusivity ("LOE") negatively impacted sales by approximately ~~$40~~$2 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to the ~~nine~~three months ~~September 30, 2021,~~ended March 31, 2022, based on the decrease in volume period over period, mainly impacting NuvaRing in the United States. ~~There was no material impact from LOE for the three months ended September 30, 2022 compared to the prior year quarter.Volume-based procurement ("VBP")~~VBP in China had a ~~de minimus~~$27 million negative impact on sales during the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to the ~~prior periods.~~three months ended March 31, 2022. Organon expects VBP to impact the Company's ~~Established Brands~~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 ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are provided below. See Note 12 5 "Product and Geographic Information"to the Condensed Consolidated Financial Statements for further details on sales of our products.

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Table of Contents

~~Women’s~~

Women's Health


		Three Months Ended September 30,				% Change				% Change Excluding Foreign Exchange				Nine Months Ended September 30,						% Change				% Change Excluding Foreign Exchange							Three Months Ended March 31,		% Change			% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021								2022			2021							($ in millions)								2023	2022
Nexplanon/Implanon NXT	Nexplanon/Implanon NXT	$	229	$	175			31	%			34	%		$	595		$	543			10	%				12	%	Nexplanon/Implanon NXT					$	165		$	171		(3)	%	(1)	%
NuvaRing	NuvaRing	50		49		3	%			5	%			133			147			(10)	%			(7)	%	NuvaRing						40	41				(2)		(1)
Marvelon/Mercilon																										Marvelon/Mercilon						37	24				58		65
Follistim AQ	Follistim AQ	60		61		(1)	%			2	%			179			178			1	%			3	%	Follistim AQ						55	61				(10)		(7)
Ganirelix Acetate Injection	Ganirelix Acetate Injection	36		25		42	%			52	%			97			85			14	%			21	%	Ganirelix Acetate Injection						30	30				—		3

Contraception

Worldwide sales of Nexplanon,, a single-rod subdermal contraceptive implant, ~~increased 31% and 10%~~declined 3% for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021, respectively,~~2022, primarily due to the impact of ~~favorable pricing and demand uptake in the United States, the favorable impact from~~ the timing of tenders in ~~Latin America~~various international markets and ~~volume growth from~~ the ~~institutional business~~impact of distributors' buying patterns in ~~Africa.~~prior periods in the U.S.

Worldwide sales of NuvaRing, a vaginal contraceptive product, ~~remained substantially consistent~~declined 2% for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021. Sales of~~ ~~NuvaRing~~ ~~declined 10% for the nine months ended September 30,~~ 2022, ~~compared to 2021,~~ 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 a 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 of the agreement, we are reimbursed on a cost-plus basis by the generic manufacturer for supplying finished goods and receive a share of the net profits recorded by the generic manufacturer. 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 $9 million and $12 millionUnited States, increased 58% for the three months ended ~~September 30,~~March 31, 2023, compared to 2022 as a result of the recent transaction with Bayer Healthcare where Organon gained full rights in selected territories in Southeast Asia and 2021, respectively, and $34 million and $63 million for the nine months ended September 30, 2022 and 2021, respectively. The decline in revenue for the nine months ended September 30, 2022, is due to the entry of a new market participant. Given the nature of this arrangement, we expect revenues under this arrangement to continue to decline significantly for the remainder ofChina during 2022.

Fertility

Worldwide sales of Follistim AQ~~® (marketed in most countries outside the United States as~~ ~~Puregon~~™), a fertility treatment, ~~remained consistent~~declined 10% for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021, primarily~~2022, due to ~~higher demand~~the unfavorable impact of COVID-19 in China ~~during~~and an unfavorable shift in customer mix and discount rates in the ~~first and third quarters of 2022 following the COVID lockdowns and continuous~~United States, partially offset by an increase in product demand ~~growth~~ in the United States.

Worldwide sales of ~~ganirelix acetate injection~~Ganirelix Acetate Injection (marketed in certain countries outside the United States as ~~Orgalutran~~Orgalutran™™), a fertility treatment, ~~increased~~remained consistent for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021, respectively driven by demand uptake in the international markets.~~2022.

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Biosimilars
Three Months Ended September 30, % Change % Change Excluding Foreign Exchange Nine Months Ended September 30, % Change % Change Excluding Foreign Exchange
($ in millions) 2022 2021 2022 2021
Renflexis $ 60 $ 54 11 % 12 % $ 166 $ 136 22 % 23 %
Ontruzant 29 56 (47) % (45) % 87 101 (14) % (11) %
Brenzys 24 14 71 % 75 % 52 35 48 % 53 %
Hadlima 6 5 16 % 20 % 14 9 51 % 54 %

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.


	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)

Renflexis~~® (infliximab-abda)~~ is a biosimilar to Remicade® (infliximab) (a trademark of Janssen Biotech, Inc.) for the treatment of certain inflammatory diseases. Sales growth of ~~11% and 22%~~34% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, was driven primarily by continued demand growth ~~favorable channel mix and favorable discount rates~~ 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 in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 declined ~~47% and 14%~~7%, ~~respectively,~~ driven by ~~the timing of tenders in Brazil and~~ the competitive pressures in Europe offset by the continued uptake in the United States since its launch in July ~~2020.~~2020 and the favorable phasing and timing of tenders in Brazil. We have commercialization rights to Ontruzant in countries outside of Korea and China.

-24-

~~Brenzys~~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 three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased ~~71% and 48%~~31%, ~~respectively,~~ primarily driven by the timing of tenders in ~~Brazil and volume growth in Canada.~~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 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. ~~In August 2022, the U.S. Food and Drug Administration approved the citrate-free, high-concentration (100 mg/mL) formulation of~~ ~~Hadlima~~. We ~~have~~ recorded sales of ~~$6 million and $14~~$5 million during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, reflecting ~~an increase of 16% and 51%~~a decline from modest sales during the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022 in markets outside of the U.S.

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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 September 30,				% Change				% Change Excluding Foreign Exchange				Nine Months Ended September 30,						% Change				% Change Excluding Foreign Exchange							Three Months Ended March 31,		% Change			% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021								2022			2021							($ in millions)								2023	2022
Zetia/Vytorin	Zetia/Vytorin	$	118	$	132			(11)	%			(3)	%		$	390		$	409			(4)	%				1	%	Zetia/Vytorin					$	112		$	137		(18)	%	(13)	%
Atozet	Atozet	109		114		(4)	%			9	%			350			347			1	%			11	%	Atozet						128	119				8		13
Rosuzet		17		15		12	%			36	%			55			48			14	%			31	%
Cozaar/Hyzaar	Cozaar/Hyzaar	70		87		(20)	%			(13)	%			256			265			(3)	%			2	%	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, declined ~~11% and 4%~~18% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021, respectively,~~2022, primarily driven by the impact of VBP in China and increased competition and lower performance in Europe ~~and the impact of foreign exchange, partly~~partially offset by ~~volume growth~~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, ~~decreased 4%~~increased 8% for the three months ended ~~September 30, 2022 and increased 1% for the nine months ended September 30, 2022,~~March 31, 2023, compared to ~~2021,~~2022, primarily due to increased demand in France and ~~Spain offset by~~ the ~~negative impact~~timing of ~~foreign exchange.~~

~~Sales of~~ ~~Rosuzet™~~ ~~(ezetimibe and rosuvastatin calcium) (marketed outside of~~customers' buying patterns in several markets in the United States), a medicine for lowering LDL cholesterol, increased 12% and 14% for the three and nine months ended September 30, 2022, compared to 2021, primarily due to higher demand in Japan offset by the impact of foreign exchange.Asia Pacific region.

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, declined ~~20% and 3%~~9% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021, respectively,~~2022, primarily due to ~~the impact of foreign exchange.~~wholesaler and distributor buying patterns in China, competitors' supply disruptions in various markets during 2022 and ongoing generic competition.

Respiratory


		Three Months Ended September 30,				% Change				% Change Excluding Foreign Exchange				Nine Months Ended September 30,						% Change				% Change Excluding Foreign Exchange							Three Months Ended March 31,		% Change			% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021								2022			2021							($ in millions)								2023	2022
Singulair	Singulair	$	94	$	100			(6)	%			4	%		$	316		$	300			5	%				14	%	Singulair					$	120		$	130		(8)	%	—	%
Nasonex	Nasonex	49		48		2	%			5	%			182			144			27	%			32	%	Nasonex						69	75				(8)		(4)
Dulera	Dulera	40		56		(28)	%			(28)	%			127			146			(13)	%			(12)	%	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, ~~decreased 6%~~declined 8% for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021 primarily driven by~~2022, because of the ~~impact~~alleviation of ~~foreign exchange offset by demand resulting from competitors' supply disruptions in Japan.~~ our competitors~~Singulair~~ '~~sales increased 5% for the nine months ended September 30, 2022, compared to 2021 primarily attributable to volume recovery from the COVID-19 pandemic and demand resulting from competitors'~~ supply disruptions in Japan ~~offset by~~during 2022, which had positively impacted demand for Singulair in 2022, as well as theunfavorable 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 2% for~~declined 8% during the three months ended ~~September 30, 2022, compared~~March 31, 2023, due to 2021, primarily driven by increased demand in Canada and the Middle East region as well as higher demand resulting from competitors' supply disruptions in Japan offset by the impact of foreign exchange. ~~Nasonex~~ sales increased 27% during the nine months ended September 30, 2022 primarily driven by higher demand resulting from competitors' supply disruptions in Japan and increased demand across several markets, offset by the impact of

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~~Table of Contents~~

~~foreign exchange. In addition, sales during the nine months ended September 30, 2022 included~~ a $10 million milestone payment related to a regulatory approval ~~in the United States.~~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, ~~decreased 28% and 13%~~increased 15% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021, respectively,~~2022, primarily due to ~~unfavorable government rates and lower~~ volume growth, and the favorable impact from discount rates in the United States.

Non-Opioid Pain, Bone and Dermatology


		Three Months Ended September 30,				% Change			% Change Excluding Foreign Exchange			Nine Months Ended September 30,					% Change			% Change Excluding Foreign Exchange						Three Months Ended March 31,		% Change			% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021						2022			2021					($ in millions)							2023	2022
Arcoxia	Arcoxia	$	64	$	65		(2)	%		2	%		$	185	$	184		1	%			5	%	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, ~~were slightly lower for~~increased 17% during the three months ended ~~September 30, 2022,~~March 31, 2023 compared to ~~2021,~~2022, primarily due to ~~the impact of foreign exchange. Sales of~~ ~~Arcoxia~~ ~~increased 1% during the nine months ended September 30, 2022 compared to 2021, primarily due to the higher demand~~customers buying patterns in ~~China and~~ the South East Asia region ~~offset by~~and higher demand in China.

Sales of Diprospan, a corticosteroid approved for treatment of wide range of inflammatory conditions, declined 54% during the ~~impact~~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 ~~foreign exchange.~~selected injectable steroid brands. As of March 31, 2023, we have resolved the regulatory inspection findings.

Other


		Three Months Ended September 30,				% Change			% Change Excluding Foreign Exchange			Nine Months Ended September 30,					% Change			% Change Excluding Foreign Exchange					Three Months Ended March 31,	% Change			% Change Excluding Foreign Exchange
($ in millions)	($ in millions)	2022		2021						2022			2021					($ in millions)						2023	2022
Proscar	Proscar	$	27	$	27		(4)	%		3	%		$	77	$	92		(16)	%		(13)	%	Proscar				$	27		$	24	13	%	22	%

Worldwide sales of ~~Proscar~~Prosc,ar, a medicine for the treatment of symptomatic benign prostate enlargement, ~~declined 4% and 16%~~increased 13% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~2021, respectively,~~2022, primarily due to ~~lower~~increased demand in ~~China and the impact of foreign exchange.~~China.

Costs, Expenses and Other
Three Months Ended September 30, % Change Nine Months Ended September 30, % Change
($ in millions) 2022 2021 2022 2021
Cost of sales $ 551 $ 609 (10) % $ 1,700 $ 1,783 (5) %
Selling, general and administrative 440 388 13 % 1,234 1,186 4 %
Research and development 127 86 48 % 329 229 44 %
Acquired in-process research and development and milestones 10 25 (60) % 107 25 *
Restructuring costs 11 1 * 11 3 *
Interest expense 108 98 10 % 303 160 89 %
Exchange losses (gains) 4 1 * (21) 6 *
Other expense, net 4 3 33 % 15 16 (6) %
$ 1,255 $ 1,211 4 % $ 3,678 $ 3,408 8 %


	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.

~~Cost of Sales~~

Cost of sales decreased 10% for the three months ended September 30, 2022 compared to 2021 primarily due to product mix and a $24 million charge in 2021, that pertained to unavoidable losses associated with a long-term vendor supply contract conveyed as part of the Separation, offset by favorable foreign exchange. For the nine months ended September 30, 2022, cost of sales decreased 5% compared to the same period in 2021, primarily reflecting lower supply sales compared to the prior year, pre-spin allocated costs related to the Separation and a $24 million charge pertaining to unavoidable losses associated with a long-term vendor supply contract incurred during the prior year that were not incurred during the nine months ended September 30, 2022, offset by, favorable foreign exchange. During the nine months ended September 30, 2022, the Company recorded an impairment charge of $9 million related to a product right for a biosimilar product.

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Cost of Sales

~~Gross margin was 64%~~Cost of sales increased 3% for the three ~~and nine~~ months ended ~~September 30, 2022 compared with 62% for the same periods in 2021. The gross margin increase~~March 31, 2023, compared to the ~~prior year reflects lower margin supply sales, pre-spin allocated~~same period in 2022, primarily due to product mix as well as higher employee-related costs and distribution related ~~to the Separation incurred during the prior year~~costs, which ~~were not incurred during the three and nine months ended September 30, 2022 and~~increased as a ~~$24 million charge in 2021 which pertained to unavoidable losses associated with a long-term vendor supply contract conveyed as part~~result of ~~the Separation.~~inflationary pressures.

Selling, General and Administrative

Selling, general and administrative expenses increased ~~13%~~17% for the three months ended ~~September 30, 2022~~March 31, 2023, due to higher ~~selling~~promotional and ~~promotional~~employee-related costs ~~related to our women's health portfolio. For~~and costs incurred in connection with the nine months ended September 30, 2022, selling, general and administrative expenses increased 4% due to selling and promotional costs related to our women's health portfolio partially offset by pre-spin allocated costs related toseparation from Merck, which includes the ~~Separation incurred during~~implementation of the ~~prior year which were not incurred during the nine months ended September 30, 2022.~~enterprise resource planning system.

Research and Development

Research and development expenses increased ~~48% and 44%~~34% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, primarily due to higher costs associated with the Company's recent acquisitions of clinical stage assets, increased clinical study activity and higher employee-related costs.

Acquired In-Process Research and Development and Milestones

~~Acquired in-process research and development and milestones for~~For the three months ended ~~September 30, 2022 represents the upfront milestones related to the Cirqle transaction. For the nine months ended September 30, 2022~~March 31, 2023, acquired in-process research and development and milestones ~~represents the upfront and development milestones~~of $8 million related to the Cirqle and Henlius transactions. Acquired in-process research and development and milestones for the three and nine months ended September 30, 2021 represents the upfront milestones related to the licensing agreement with ObsEva.Claria transaction.

Restructuring Costs

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company incurred ~~$11~~$4 million ~~related to~~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 ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, interest expense increased, due to increased interest rates, unamortized debt fees and discounts expensed as part of the ~~$9.5 billion~~prepayment on the U.S. Dollar-denominated term loan and the impact of ~~debt, which was incurred by the Company during the second quarter of 2021.~~exchange rates.

Exchange Losses (Gains)

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the change in exchanges losses (gains) was driven by foreign currency translation losses as well as the ~~fluctuations in foreign exchange and the exchange rate~~ impact onof the portion of Euro-denominated debt not designated as a net investment ~~hedge.~~hedge in the prior year period.

Other expense, net

For the three months ended March 31, 2023, other expense, net, remained relatively consistent with the prior year.

Taxes on Income

The effective income tax rates were ~~19.6%~~24.6% and ~~17.1%~~21.3% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 20.0% and 11.2% for the nine months ended September 30, 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 first nine months of 2021 reflects the beneficial impact of foreign earnings, the $70 million tax benefit relating to~~regime and a ~~portion of the non-U.S. step-up of tax basis as well as the income tax benefit recognized in connection with the conclusion of the Internal Revenue Service (IRS) examination of Merck’s 2015-2016~~partial valuation allowance recorded against non-deductible U.S. federal income tax returns. As a result of that examination conclusion, we reflected an allocation from Merck of $18 million in the Condensed 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 nine months ended September 30, 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.interest expense.

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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 ~~third~~first quarter ~~2022~~2023 results. The Company ~~is currently assessing~~will continue to assess future impacts of this ~~recently enacted~~ legislation.

~~Income/Loss from Discontinued Operations~~

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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 three and nine months ended September 30, 2022 and 2021.~~

Analysis of Liquidity and Capital Resources

Liquidity and Capital Resources

As of ~~September 30, 2022,~~March 31, 2023, Organon had cash and cash equivalents of ~~$499~~$459 million. ~~On June 6,~~

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 ~~Company made~~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 ~~discretionary~~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 ~~of $100 million~~ 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 $1.3 billion as of September 30, 2022 and $1.2 billion as of December 31, 2021. The increase in working capital of continuing operations was primarily driven by a decrease in trade accounts payable.

Net cash provided by operating activities was $591 million for the nine months ended September 30, 2022 compared to $2.1 billion for the same period in the prior year. The decrease in cash provided by operating activities in 2022 was primarily attributable to the decrease in trade payables, including balances with Merck.

Net cash used in investing activities was $359 million for the nine months ended September 30, 2022 compared to $348 million for the same period in the prior year, primarily reflecting the asset acquisition of ~~Marvelon~~ ~~and~~ ~~Mercilon~~ and licensing agreements with Daré, Henlius and Cirqle in the nine months ended September 30, 2022 and the asset acquisition of Alydia Health and the licensing agreement with ObsEva in the nine months ended September 30, 2021.

Net cash used in financing activities was $351 million for the nine months ended September 30, 2022 compared to $790 million for the same period in the prior year. The change in cash used in financing activities reflects the settlement of the transactions with Merck in connection with the Separation in 2021 and the prior year issuance of long term debt, partially offset by the payment of dividends in the current year.

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, constraints in energy supply, 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 nine months ended September 30, 2022 and the year ended December 31, 2021, Organon’s combined revenues from Ukraine and Russia were approximately 2% of total revenues. As of September 30, 2022, the Company’s assets in Ukraine and Russia are not material.

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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 September 30, 2022, there have been no material changes to our contractual obligations, or settlements of tax matters outside the ordinary course of business.

During the third quarter of 2022, Organon paid cash dividends of $0.28 per share. On November 3, 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 December 15, 2022 to stockholders of record at the close of business on November 14, 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.

The economy of Turkey was deemed hyperinflationary during the second quarter of 2022. Consequently, in accordance with U.S. GAAP, the Company began remeasuring its monetary assets and liabilities for those operations in earnings beginning in the second quarter of 2022. The impact to the Company's results is immaterial.

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 ~~September 30, 2022.~~March 31, 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.

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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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 has been 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 ~~September 30, 2022.~~March 31, 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.

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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 ~~September 30, 2022.~~March 31, 2023. Based upon that evaluation, our CEO and our CFO concluded that, as of March 31, 2023, the end of the period ~~ending September 30, 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 September 30, 2022 have~~that materially affected, or are reasonably likely to materially affect, ~~our~~the Company's internal ~~controls~~control over financial reporting.

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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.

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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).


		*	Filed herewith
		**	Furnished herewith

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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: ~~November 4, 2022~~May 5, 2023						/s/ Kathryn DiMarco
						Kathryn DiMarco
						Senior Vice President Finance - Corporate Controller

Date: ~~November 4, 2022~~May 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 Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Stockholders' Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	87
	Notes to Condensed Consolidated Financial Statements (unaudited)	98

















Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2922
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3829
Item 4.	Controls and Procedures	3929
PART II	OTHER INFORMATION	4029
Item 1.	Legal Proceedings	4029
Item 1A.	Risk Factors	4029
Item 6.	Exhibits	4130
	Signatures