ORGANON & CO., 10-Q filed on 6/21/2021
Quarterly Report
v3.21.2
Cover Page - shares
3 Months Ended
Mar. 31, 2021
Jun. 15, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2021  
Document Transition Report false  
Entity File Number 001-40235  
Entity Registrant Name Organon & Co.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 46-4838035  
Entity Address, Address Line One 30 Hudson Street, Floor 33  
Entity Address, City or Town Jersey City  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 07302  
City Area Code (551)  
Local Phone Number 430-6900  
Title of 12(b) Security Common Stock ($0.01 par value)  
Trading Symbol OGN  
Security Exchange Name NYSE  
Entity Current Reporting Status No  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   253,516,000
Entity Central Index Key 0001821825  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
v3.21.2
Condensed Combined Statement of Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Income Statement [Abstract]    
Sales [1] $ 1,506 $ 1,780
Costs, Expenses and Other    
Cost of sales [2] 591 538
Selling, general and administrative 382 317
Research and development 67 45
Restructuring costs 1 12
Other (income) expense, net (2) 24
Costs, Expenses And Other 1,039 936
Income From Continuing Operations Before Income Taxes 467 844
Taxes on Income 72 110
Net Income From Continuing Operations 395 734
Income (Loss) From Discontinued Operations - Net of Tax [3] 4 (31)
Net Income $ 399 $ 703
Basic    
Continuing operations (in dollars per share) $ 1.56 $ 2.90
Discontinued operations (in dollars per share) 0.02 (0.12)
Net earnings per share attributable to Organon & Co. stockholders - Basic (in dollars per share) 1.58 2.78
Diluted    
Continuing operations (in dollars per share) 1.56 2.90
Discontinued operations (in dollars per share) 0.02 (0.12)
Net earnings per share attributable to Organon & Co. stockholders - Diluted (in dollars per share) $ 1.58 $ 2.78
Earnings Per Share, Basic and Diluted, Other Disclosures    
Number of Basic shares outstanding 253,516,000 253,516,000
Number of Diluted shares outstanding 253,516,000 253,516,000
[1] Continuing operations includes related party sales of $85 million for the three months ended March 31, 2021. There were no related party sales for the three months ended March 31, 2020.
[2] Continuing operations includes costs for inventory purchases from related parties of $37 million for the three months ended March 31, 2021. There were no costs for inventory purchases from related parties for the three months ended March 31, 2020.
[3] Discontinued operations includes related party sales of $12 million for the three months ended March 31, 2021 and $144 million for the three months ended March 31, 2020, and costs for inventory purchases from related parties of $50 million for the three months ended March 31, 2021 and $313 million for the three months ended March 31, 2020.
v3.21.2
Condensed Combined Statement of Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Continuing Operations    
Related party sales $ 85 $ 0
Costs for inventory purchases 37 0
Discontinued Operations    
Related party sales 12 144
Costs for inventory purchases $ 50 $ 313
v3.21.2
Condensed Combined Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Statement of Comprehensive Income [Abstract]    
Net Income $ 399 $ 703
Other Comprehensive Loss, Net of Taxes:    
Benefit plan net (loss) gain and prior service (cost) credit, net of amortization (2) 8
Cumulative translation adjustment (66) (158)
Other comprehensive income (loss) (68) (150)
Comprehensive Income $ 331 $ 553
v3.21.2
Condensed Combined Balance Sheet - USD ($)
$ in Millions
Mar. 31, 2021
Dec. 31, 2020
Current Assets    
Cash and cash equivalents $ 141 $ 12
Accounts receivable (net of allowance for doubtful accounts of $14 in 2021 and $18 in 2020) 1,010 1,038
Inventories (excludes inventories of $104 in 2021 and $127 in 2020 classified in Other assets) 924 913
Other current assets 782 930
Current assets of discontinued operations 120 674
Total current assets 2,977 3,567
Property, Plant and Equipment, net 986 984
Goodwill 4,603 4,603
Other Intangibles, net 482 503
Other Assets 535 361
Noncurrent Assets of Discontinued Operations 59 91
Assets 9,642 10,109
Current Liabilities    
Trade accounts payable 264 259
Accrued and other current liabilities 759 659
Due to related party 1,520 1,339
Income taxes payable 288 288
Current liabilities of discontinued operations 44 128
Total current liabilities 2,875 2,673
Deferred Income Taxes 125 128
Other Noncurrent Liabilities 1,847 1,739
Noncurrent Liabilities of Discontinued Operations 73 83
Commitments and Contingencies
Organon & Co. Equity    
Net investment from Merck & Co., Inc. 5,411 6,108
Accumulated other comprehensive loss (689) (622)
Total Equity 4,722 5,486
Liabilities and Equity $ 9,642 $ 10,109
v3.21.2
Condensed Combined Balance Sheet (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2021
Dec. 31, 2020
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 14 $ 18
Inventories classified in Other Assets $ 104 $ 127
v3.21.2
Condensed Combined Statement of Equity - USD ($)
$ in Millions
Total
Net Investment from Merck & Co., Inc.
Merck and Co., Inc.
Accumulated Other Comprehensive Loss
Beginning balance at Dec. 31, 2019 $ 7,035 $ 7,949 $ (914)
Stockholders' Equity [Roll Forward]      
Net income attributable to Organon & Co. 703 703  
Other comprehensive loss, net of taxes (150)   (150)
Net transfers to Merck & Co., Inc. (559) (559)  
Ending balance at Mar. 31, 2020 7,029 8,093 (1,064)
Beginning balance at Dec. 31, 2020 5,486 6,108 (622)
Stockholders' Equity [Roll Forward]      
Net income attributable to Organon & Co. 399 399  
Other comprehensive loss, net of taxes (68)   (68)
Net transfers to Merck & Co., Inc. (1,095) (1,096) 1
Ending balance at Mar. 31, 2021 $ 4,722 $ 5,411 $ (689)
v3.21.2
Condensed Consolidated Statement of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Cash Flows from Operating Activities    
Net income from continuing operations $ 395 $ 734
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities:    
Depreciation 18 12
Amortization 20 21
Deferred income taxes (25) (15)
Share-based compensation 11 10
Unrealized foreign exchange loss 7 0
Net changes in assets and liabilities    
Accounts receivable (40) (156)
Inventories (33) (10)
Other current assets 141 160
Trade accounts payable 4 (3)
Accrued and other current liabilities 70 (23)
Due from/due to related party 769 0
Income taxes payable (52) 7
Other 15 10
Net Cash Flows Provided by Operating Activities from Continuing Operations 1,300 747
Cash Flows from Investing Activities    
Capital expenditures (38) (40)
Proceeds from sale of property, plant and equipment 0 1
Net Cash Flows Used in Investing Activities from Continuing Operations (38) (39)
Cash Flows from Financing Activities    
Repayments of short-term borrowings from Merck & Co., Inc., net (566) 0
Net transfers to Merck & Co., Inc. (551) (708)
Net Cash Flows Used in Financing Activities from Continuing Operations (1,117) (708)
Discontinued Operations    
Net Cash Provided by (Used in) Operating Activities 204 (81)
Net Cash Used in Investing Activities 0 (10)
Net Cash (Used in) Provided by Financing Activities (244) 90
Net Cash Flows Used in Discontinued Operations (40) (1)
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Continuing Operations (13) 0
Effect of Exchange Rate Changes on Cash and Cash Equivalents from Discontinued Operations (1) 2
Net Increase in Cash and Cash Equivalents 91 1
Cash and Cash Equivalents, Beginning of Period 12 0
Cash and Cash Equivalents of Discontinued Operations, Beginning of Period 58 319
Total Cash and Cash Equivalents, End of Period 161 320
Less: Cash and Cash Equivalents of Discontinued Operations, End of Period 20 320
Cash and Cash Equivalents, End of Period $ 141 $ 0
v3.21.2
Background and Nature of Operations
3 Months Ended
Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Background and Nature of Operations Background and Nature of Operations
Organon & Co. ("Organon" or the "Company") is a global healthcare company that develops and delivers innovative health solutions through a portfolio of prescriptions therapies within women's health, biosimilars and established brands. The Company sells these products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. The Company operates six manufacturing facilities in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom ("UK").
On June 2, 2021, Organon & Co. 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 its women’s health, biosimilars and established brands into Organon, a new, publicly traded company (the "Separation").
In connection with the Separation, Merck distributed (the "Distribution") on June 2, 2021, 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 shareholder was entitled to receive one-tenth of a share of the Common Stock for each share of Merck Common Stock held on the Record Date. Organon is now a standalone publicly traded company and, on June 3, 2021, regular-way trading of the Common Stock commenced on the New York Stock Exchange ("NYSE") under the ticker symbol "OGN."
The Separation was completed pursuant to the Separation and Distribution Agreement and other agreements with Merck related to the Separation, including, but not limited to a tax matters agreement (the "Tax Matters Agreement" or "TMA"), an employee matters agreement (the "Employee Matters Agreement" or "EMA") and a transition services agreement (the "Transition Service Agreement" or "TSA") (see Note 18 for additional details).
These condensed combined financial statements reflect the combined historical results of operations, financial position and cash flows of the Company.
The Company’s operations are principally managed on a products basis that include the following product portfolios:
Women’s Health: the Company has innovative contraception and fertility brands, such as Nexplanon/Implanon NXT, a long-acting reversible contraceptive, a class of contraceptives which are recognized as the most effective type of hormonal contraception available to patients with a lower long-term average cost.
Biosimilars: the Company’s current portfolio spans across immunology and oncology treatments. All five of the biosimilars in Organon’s portfolio have launched in certain countries globally, including two biosimilars in the United States.
Established Brands: the Company has a portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management.
The historical results of certain Merck non-U.S. legal entities that were contributed to Organon in connection with the Separation ("Transferring Entities" and each, a "Transferring Entity") included operations related to other Merck products that were retained by Merck ("Merck Retained Products"). As of the first quarter of 2021, substantially all of the Merck Retained Products business of the Transferring Entities was contributed by the Company to Merck and its affiliates. Accordingly, the historical results of operations of the Merck Retained Products have been reflected as discontinued operations in these condensed combined financial statements (see Note 2).
v3.21.2
Basis of Presentation
3 Months Ended
Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
The Company’s historical combined financial statements have been prepared on a standalone basis and are derived from Merck’s consolidated financial statements and accounting records. The condensed combined financial statements reflect the Company’s financial position, results of operations and cash flows as it was operated as part of Merck prior to the Separation, in conformity with U.S. generally accepted accounting principles ("GAAP"). The assets, liabilities, revenue and expenses of the Company have been reflected in these condensed combined financial statements on a historical cost basis, as included in the consolidated financial statements of Merck, using the historical accounting policies applied by Merck. These condensed combined financial statements do not purport to reflect what the Company’s results of operations, comprehensive income, financial position, equity or cash flows would have been had the Company operated as a standalone public company during the periods presented.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. 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 opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Organon’s Registration Statement Form 10, as amended, filed on April 29, 2021 (the "Form 10").
These condensed combined financial statements were prepared following a legal entity approach, which resulted in the inclusion of the following:
Certain assets and liabilities, results of operations and cash flows attributable to the sales of Organon Products that have been or were contributed to Organon prior to the consummation of the Separation, and
The Transferring Entities, which have historically included the results from the sales of both Organon Products and the Merck Retained Products. Each Transferring Entity’s historical operations, including its results of operations, assets and liabilities, and cash flows have been fully reflected in these condensed combined financial statements.
During the first quarter of 2021, in contemplation of the Separation:
Substantially all of the Merck Retained Products business of the Transferring Entities was distributed to Merck and its affiliates ("MRP Distribution") and, accordingly, the historical results of operations, assets and liabilities, and the cash flows of the Merck Retained Products for such Transferring Entities are reflected as discontinued operations.
Substantially all of the Organon Products business was transferred by Merck affiliates to legal entities established to operate the Organon Products business and, as noted above, such entities have been contributed to Organon ("Organon Entities").
The Company’s businesses have historically functioned together with the other businesses controlled by Merck. Accordingly, the Company relied on Merck’s corporate and other support functions for its business. Therefore, certain corporate and shared costs have been allocated to the Company based on a specific identification basis or, when specific identification is not practicable, a proportional cost allocation method, including:
(i) expenses related to Merck support functions that are provided on a centralized basis within Merck, including expenses for facilities, executive oversight, treasury, finance, legal, human resources, shared services, compliance, procurement, information technology and other corporate functions;
(ii) certain manufacturing and supply costs incurred by Merck’s manufacturing division, including facility management, distribution, logistics, planning and global quality. These costs include material, manufacturing costs and variances, distribution expenses, supply chain management, contract manufacturing and quality charges, among others;
(iii) certain costs incurred by Merck’s human health division in relation to selling and marketing activities, and related administrative support functions, that are not routinely allocated to therapeutic areas;
(iv) costs incurred by Merck’s research laboratories for activities related to drug discovery and development, as well as medical and regulatory affairs;
(v) restructuring costs (see Note 4) and share-based compensation expenses (see Note 9); and
(vi) certain compensation expenses maintained on a centralized basis such as certain employee benefit expenses.
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, though the allocations may not be indicative of the actual costs that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Following the Separation, certain functions that Merck provided to the Company prior to the Separation will either continue to be provided to the Company by Merck under the Transition Services Agreement or will be performed using the Company’s own resources or third-party service providers. Additionally, under manufacturing and supply agreements, the Company will manufacture certain products for Merck or its applicable affiliate and Merck will manufacture certain products for the Company or its applicable affiliate. The Company expects to incur certain costs in its establishment as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.
The condensed combined balance sheet reflects all of the assets and liabilities that are either specifically identifiable or are directly attributable to the Company and its operations, as well as assets and liabilities attributable to the discontinued operations of the Merck Retained Products.
In connection with the Separation, certain assets and liabilities including accounts receivables, inventories and trade payables included on the condensed combined balance sheets as of March 31, 2021 were retained by Merck and will be adjusted through Net investment from Merck & Co., Inc. in the Company’s combined financial statements for the second quarter of 2021.
Property, plant and equipment reflected in the condensed combined balance sheet is primarily attributable to the six manufacturing facilities the Company operates and certain information technology assets. No assets or liabilities are reflected in the condensed combined balance sheet for amounts related to derivatives and hedging activities.
Merck maintains various employee benefit plans which the Company’s employees participate in, and a portion of the costs associated with these plans has been included in the Company’s combined financial statements. The condensed combined balance sheet at December 31, 2020 only includes assets and liabilities relating to plans for which the entity being transferred is the plan sponsor. During the first quarter of 2021, certain pension assets and obligations were transferred by Merck into Organon Entities that are the plan sponsor and, accordingly, the condensed combined balance sheet at March 31, 2021 includes assets and liabilities of the newly set up plans of Organon Entities.
Income tax expense and deferred tax balances in the condensed combined financial statements have been calculated on a separate tax return basis. The Company’s operations are included in the tax returns of certain Organon Entities, Transferring Entities or the respective Merck entities of which the Company’s business is a part. As a standalone entity, the Company will file tax returns on its own behalf, and its deferred taxes and effective income tax rate may differ from those in the historical periods.
Merck utilized a centralized approach to cash management and the financing of its operations. Cash generated by the Company was routinely transferred into accounts managed by Merck’s centralized treasury function and cash disbursements for the Company’s operations prior to the Separation were funded as needed by Merck. Cash and cash equivalents of the Organon Entities and the Transferring Entities are reflected in the Company’s condensed combined balance sheet. Balances held by the Organon Entities and the Transferring Entities with Merck for cash transfers and loans are reflected as Due to related party. All other cash, cash equivalents, short-term investments and related transfers between Merck and the Company were generally held centrally through accounts controlled and maintained by Merck and were not specifically identifiable to the Company. Accordingly, such balances have been accounted for through Net investment from Merck & Co., Inc. Merck’s third-party debt and related interest expense have not been attributed to the Company because the Company is not the legal obligor of the debt and the borrowings are not specifically identifiable to the Company.
During the second quarter of 2021, Merck issued an aggregate of $9.5 billion of debt in connection with the Separation. As part of the Separation, the debt was assumed by the Company. Such indebtedness will cause the Company to record additional interest expense in future periods (see Note 18 for additional details).
As the separate legal entities that make up the Company’s business were not historically held by a single legal entity, Net investment from Merck & Co., Inc. is shown in lieu of shareholders’ equity in these condensed combined financial statements. Net investment from Merck & Co., Inc. represents Merck’s interest in the recorded assets of the Company and the cumulative investment by Merck in the Company through the periods presented, inclusive of operating results.
All intercompany transactions and accounts within Organon have been eliminated. For the Organon Entities and the Transferring Entities, transactions with Merck affiliates are included in the condensed combined statement of income and related balances are reflected as Due to related party, Due from related party or Related Party Loans Payable in the continuing operations and discontinued operations, as applicable. Other balances between the Company and Merck are considered to be effectively settled in the combined financial statements at the time the transactions are recorded. The total net effect of these intercompany transactions considered to be settled is reflected in the condensed combined statement of cash flows within financing activities and in the condensed combined statement of equity as Net transfers to Merck & Co., Inc. See Note 15 for additional details.
Certain amounts presented in the prior period have been reclassified to conform to the current period presentation.
Use of Estimates
The presentation of these condensed combined financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Accordingly actual results could differ materially from management's estimates and assumptions.
The COVID-19 pandemic continued to negatively affect the Company's results during the first quarter of 2021. 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 us and the unknown future impacts of the COVID-19 pandemic at March 31, 2021 and through the date of this report.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective January 1, 2021. There was no impact to the Company’s combined financial statements upon adoption.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective January 1, 2021. There was no impact to the Company’s combined financial statements upon adoption.
Recently Issued Accounting Standard Not Yet Adopted
In March 2020, the FASB issued 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 through December 31, 2022. The Company is currently evaluating the impact of adoption on its combined financial statements.
v3.21.2
Samsung Collaboration
3 Months Ended
Mar. 31, 2021
Revenue from Contract with Customer [Abstract]  
Samsung Collaboration Samsung Collaboration
In 2013, Merck entered into an agreement with Samsung Bioepis Co., Ltd. ("Samsung Bioepis") to develop and commercialize multiple pre-specified biosimilar candidates, which have since launched and are part of the Company’s product portfolio. Under the agreement, Samsung Bioepis is responsible for preclinical and clinical development, process development and manufacturing, clinical trials and registration of product candidates, and the Company has an exclusive license for worldwide commercialization with certain geographic exceptions specified on a product-by-product basis. The Company’s access rights to each product under the agreement last for 10 years from each product’s launch date on a market-by-market basis. Gross profits are shared equally in all markets with the exception of Brazil where gross profits are shared 65% to Samsung Bioepis and 35% to the Company. Since the Company is the principal on sales transactions with third parties, the Company recognizes sales, cost of sales and selling, general and administrative expenses on a gross basis. Generally, profit sharing adjustments are recorded either to Cost of sales (after commercialization) or Selling, general and administrative expenses (prior to commercialization).
In addition to an upfront payment upon execution of the arrangement, Samsung Bioepis is eligible for additional payments associated with pre-specified clinical and regulatory milestones. At March 31, 2021, 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)20212020
Sales$81 $68 
Cost of sales53 40 
Selling, general and administrative15 19 
($ in millions)March 31, 2021December 31, 2020
Receivables from Samsung included in Other current assets
$13 $52 
Payables to Samsung included in Trade accounts payable
13 13 
v3.21.2
Restructuring
3 Months Ended
Mar. 31, 2021
Restructuring and Related Activities [Abstract]  
Restructuring RestructuringRestructuring costs directly attributable to the Company as well as charges allocated for the three months ended March 31, 2021 were not material. For the three months ended March 31, 2020, restructuring costs allocated to the Company were $12 million. These were comprised of $5 million related to separation costs and $7 million related to other restructuring activities. Liabilities for costs associated with restructuring activities related to the Organon Entities and the Transferring Entities included primarily in Accrued and other current liabilities were $12 million and $17 million at March 31, 2021 and December 31, 2020, respectively. The amount accrued at March 31, 2021 primarily reflects the future planned exit of a long-term contract.
v3.21.2
Financial Instruments
3 Months Ended
Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments Financial Instruments
Merck manages 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 has established revenue hedging and balance sheet risk management programs that the Company participates in to protect against the volatility of future foreign currency cash flows and changes in fair value caused by volatility in exchange rates. Accordingly, the condensed combined statement of income includes the impact of Merck’s derivative financial instruments that is deemed to be associated with the Company’s operations and has been allocated to the Company utilizing a proportional allocation method. For the three months ended March 31, 2021 and 2020, the Company recognized allocated net losses (gains) of $32 million and $(11) million, respectively, in Sales. In the first three months of 2021 and 2020, the Company recognized allocated net losses (gains) of $3 million and $(48) million, respectively, in Other (income) expense, net. Additionally, direct and allocated foreign currency transaction gains and losses included in Other (income) expense, net in the first three months of 2021 and 2020 were net (gains) losses of $(7) million and $61 million, respectively.
Concentrations of Credit Risk
Historically, the Company’s operations formed part of Merck’s monitoring of concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which Merck conducted business. Credit exposure limits were established to limit a concentration with any single issuer or institution.
The majority of the Company’s accounts receivable arise from product sales in the United States, Europe and China and are primarily due from drug wholesalers and retailers, hospitals, government agencies, managed health care providers and pharmacy benefit managers. The Company’s customers with the largest accounts receivable balances are McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation, which represented, in aggregate, approximately 20% of total accounts receivable at March 31, 2021. Bad debts have been minimal. The Company does not normally require collateral or other security to support credit sales.
Merck has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Merck factored $181 million and $227 million of accounts receivable related to the Company in the first quarter of 2021 and the fourth quarter of 2020, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the condensed combined statement of cash flows.
v3.21.2
Inventories
3 Months Ended
Mar. 31, 2021
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories consisted of:
($ in millions)March 31, 2021December 31, 2020
Finished goods$399 $351 
Raw materials and work in process573 630 
Supplies57 60 
Total (approximates current cost)1,029 1,041 
Decrease to LIFO costs(1)(1)
 $1,028 $1,040 
Recognized as:
Inventories$924 $913 
Other assets104 127 
Inventories valued under the LIFO method comprised $90 million and $48 million at March 31, 2021 and December 31, 2020, respectively. Amounts recognized as Other assets are comprised almost entirely of raw materials and work in process inventories not expected to be sold within one year.
v3.21.2
Property, Plant, and Equipment
3 Months Ended
Mar. 31, 2021
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Property, Plant and Equipment
($ in millions)March 31, 2021December 31, 2020
Land$13 $14 
Building595 647 
Machinery, equipment and office furnishings795 787 
Construction in progress400 356 
Less: accumulated depreciation(817)(820)
Property, Plant and Equipment, net$986 $984 
v3.21.2
Contingencies
3 Months Ended
Mar. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
Contingencies Contingencies
The Company 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 the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial condition, results of operations or cash flows.
Given the nature of the litigation discussed below and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company 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.
The Company 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. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.
The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. The Company 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 Section 4.02 of the Separation and Distribution Agreement between Organon and Merck, 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 ("Fosamax Litigation"). As of March 31, 2021, approximately 3,485 cases 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. Briefing on the issue is closed, and the parties await the decision of the District Court.
Accordingly, as of March 31, 2021, approximately 970 cases were actively pending in the Femur Fracture MDL.
As of March 31, 2021, approximately 2,235 cases alleging Femur Fractures have been filed in New Jersey state court and are pending before Judge James Hyland in Middlesex County. The parties selected an initial group of cases to be reviewed through fact discovery, and Merck has continued to select additional cases to be reviewed.
As of March 31, 2021, 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 five Femur Fracture cases pending in other state courts.
Discovery is presently stayed in the Femur Fracture MDL and in the state court in California.
Nexplanon/Implanon
Merck is a defendant in lawsuits brought by individuals relating to the use of Implanon and Nexplanon. In the United States, as of March 31, 2021, there were two filed product liability actions involving Implanon, both of which are pending in the Northern District of Ohio. In addition, there are 56 unfiled cases alleging similar injuries, which have been tolled under a written tolling agreement. There was one filed action related to Nexplanon in the United States seeking compensation for alleged injuries or medical bills involving a complicated removal of Nexplanon. The plaintiff voluntarily dismissed the action without prejudice in March 2021. As of March 31, 2021, Merck had 25 cases pending outside the United States, of which 20 relate to Implanon and five relate to Nexplanon.
Propecia/Proscar
Merck is a defendant in product liability lawsuits in the United States involving Propecia and/or Proscar. The lawsuits were filed in various federal courts and in state court in New Jersey. The federal lawsuits were then consolidated for pretrial purposes in a federal multidistrict litigation in the Eastern District of New York (the "MDL"), and Judge Brian Cogan now presides over these matters. The matters pending in state court in New Jersey were consolidated in Middlesex County ("N.J. Coordinated Proceedings"). The N.J. Coordinated Proceedings have now concluded. Merck is also defending a Propecia matter in state court in Los Angeles, California.
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 above mentioned Propecia/Proscar 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. At March 31, 2021, fewer than 10 cases remain pending in the United States. The Company is also defending 16 product liability cases outside the United States.
Vioxx
Merck Sharp & Dohme Farmaceutica Ltda. is a named defendant in product liability cases in Brazil alleging personal injury or economic loss as a result of the purchase or use of Vioxx, including two individual actions and seven putative class action proceedings. Organon will not be liable for the results of the Vioxx litigation.
Governmental Proceedings
From time to time, Organon’s subsidiaries may receive inquiries and may be the subject of preliminary investigation activities from competition and other governmental authorities 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 the Company, monetary fines and/or remedial undertakings may be required.
Commercial and Other Litigation
Zetia Antitrust Litigation
Merck, MSD, Schering Corporation and MSP Singapore Company LLC (collectively, the Merck Defendants) are defendants in putative class action and opt-out lawsuits filed in 2018 on behalf of direct and indirect purchasers of Zetia alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. The cases have been consolidated for pretrial purposes in a federal multidistrict litigation before Judge Rebecca Beach Smith in the Eastern District of Virginia. In December 2018, the court denied the Merck Defendants’ motions to dismiss or stay the direct purchaser putative class actions pending bilateral arbitration. In August 2019, the district court adopted in full the report and recommendation of the magistrate judge with respect to the Merck Defendants’ motions to dismiss on non-arbitration issues, thereby granting in part and denying in part Merck Defendants’ motions to dismiss. In addition, in June 2019, the representatives of the putative direct purchaser class filed an amended complaint, and in August 2019, retailer opt-out plaintiffs filed an amended complaint. In December 2019, the district court granted the Merck Defendants’ motion to dismiss to the extent the motion sought dismissal of claims for overcharges paid by entities that purchased generic ezetimibe from Par Pharmaceutical, Inc. (Par Pharmaceutical) and dismissed any claims for such overcharges. In November 2019, the direct purchaser plaintiffs and the indirect purchaser plaintiffs filed motions for class certification. In August 2020, the district court granted in part the direct purchasers’ motion for class certification and certified a class of 35 direct purchasers and, in November 2020, the U.S. Court of Appeals for the Fourth Circuit granted the Merck Defendants’ motion for permission to appeal the district court’s order. The Fourth Circuit will hear argument in Defendants’ appeal on May 6, 2021. Also, in August 2020, the magistrate judge recommended that the court grant the motion for class certification filed by the putative indirect purchaser class. The Merck Defendants objected to this report and recommendation and are awaiting a decision from the district court.
In August 2020, the Merck Defendants filed a motion for summary judgment and other motions, and plaintiffs filed a motion for partial summary judgment, and other motions. Those motions are now fully briefed, and the court will likely hold a hearing on the competing motions. Trial in this matter has been adjourned.
In September 2020, United Healthcare Services, Inc. filed a lawsuit in the United States District Court for the District of Minnesota against Merck and others (the UHC Action). The UHC Action makes similar allegations as those made in the Zetia class action. In September 2020, the United States Judicial Panel on Multidistrict Litigation transferred the case to the Eastern District of Virginia to proceed with the multidistrict Zetia litigation already in progress.
In December 2020, Humana Inc. filed a lawsuit in the Superior Court of the State of California, County of San Francisco, against Merck and others, alleging defendants violated state antitrust laws in multiple states. Also, in December 2020, Centene Corporation and others filed a lawsuit in the Superior Court of the State of California, County of San Francisco, against the same defendants as Humana. Both lawsuits allege similar anticompetitive acts to those alleged in the Zetia class action.
Organon will not be liable for the results of the Zetia Antitrust litigation.
Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications ("NDAs") with the U.S. Food and Drug Administration ("FDA") seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company 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.
Nexplanon In June 2017, Microspherix LLC ("Microspherix") sued the Company 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 those patents expire in May 2021. The Company 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 the Company. The Company appealed the decisions finding 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 the Company is currently litigating the invalidity and non-infringement of the remaining asserted claims.
Other Litigation
There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, 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 the Company’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 the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of March 31, 2021 and December 31, 2020 of approximately $30 million and $35 million, respectively, represents the Company’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 the Company. The Company 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.
v3.21.2
Share-based Compensation Plans
3 Months Ended
Mar. 31, 2021
Share-based Payment Arrangement [Abstract]  
Share-based Compensation Plans Share-Based Compensation Plans
Merck has share-based compensation plans under which it grants restricted stock units ("RSUs") and performance share units ("PSUs") to certain management level employees. In addition, employees and non-employee directors of Merck may be granted options to purchase shares of Merck’s common stock at the fair market value at the time of grant.
For the three months ended March 31, 2021, share-based compensation expense for Merck awards related to the Company's employees has been recognized on a specific identification basis for employees transferred from Merck. Additionally, Merck's corporate employee share-based compensation expense has been allocated based on revenue and recognized in the condensed combined statement of income. For the three months ended March 31, 2020, since the Company operated together with other Merck businesses, the Company has determined that it is not practicable to specifically identify share-based compensation expense for Merck awards related to the Company’s employees. Accordingly, such expense, as well as expense related to Merck’s corporate and shared functional employees, has been allocated to the Company on a proportional cost allocation method, primarily based on revenue or directly identifiable costs, depending on the employee’s function. The amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company for the periods presented.
Total direct and allocated share-based compensation expense for the three months ended March 31, 2021, the allocated share-based compensation expense for the three months ended March 31, 2020 and the respective income tax benefits recognized by the Company in the condensed combined statement of income are as follows:
Three Months Ended March 31,
($ in millions)20212020
Share-based compensation expense$11 $10 
Income tax benefits2 
In connection with the Separation, awards under Merck's share-based compensation plans related to the Company's employees have been transferred to Organon in accordance with the terms of Article VI of the EMA.
v3.21.2
Pension and Other Postretirement Benefit Plans
3 Months Ended
Mar. 31, 2021
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefit Plans Pension and Other Postretirement Benefit PlansThe Organon Entities and the Transferring Entities are the plan sponsors for certain defined benefit pension plans and these condensed combined financial statements reflect the periodic benefit costs and funded status of such plans. Organon pension plans are primarily comprised of plans in Belgium, Korea, Germany and Italy. The Company uses December 31 as the year-end measurement date for these plans.
Further, Merck has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. Merck also provides medical benefits, principally to its eligible U.S. retirees and their dependents through its other postretirement benefit plans. Liabilities associated with these plans are not reflected in the Company’s condensed combined balance sheet. The condensed combined statement of income includes expense allocations for these benefits which were determined using a proportional allocation method. Total benefit plan expense allocated to the Company amounted to $18 million and $13 million for the three months ended March 31, 2021 and 2020, respectively.
Net Periodic Benefit Cost
The net periodic benefit cost for pension plans of the Organon Entities and the Transferring Entities consisted of $1 million of service cost for both the three months ended March 31, 2021 and 2020.
v3.21.2
Other (Income) Expense, Net
3 Months Ended
Mar. 31, 2021
Other Income and Expenses [Abstract]  
Other (Income) Expense, Net Other (Income) Expense, Net
Other (income) expense, net, consisted of:
Three Months Ended March 31,
($ in millions)20212020
Exchange (gains) losses $(4)$13 
Other, net2 11 
 $(2)$24 
v3.21.2
Taxes on Income
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Taxes on Income Taxes on IncomeThe effective income tax rates of 15.5% and 13.0% for the three months ended March 31, 2021 and 2020, respectively, reflect the beneficial impact of foreign earnings. During the three months ended March 31, 2021, the Internal Revenue Service ("IRS") concluded its examinations of Merck’s 2015-2016 U.S. federal income tax returns. As a result, the Company reflected an allocation from Merck of $18 million representing the Company's portion of the payment made to the IRS in the condensed combined 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 is including a $29 million net tax benefit during the three months ended March 31, 2021. This net benefit reflects reductions in reserves for unrecognized tax benefits and other related liabilities for tax positions relating to the years that were under examination.
v3.21.2
Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2021
Equity [Abstract]  
Other Comprehensive Income (Loss) Other Comprehensive Income (Loss)
Changes in Accumulated other comprehensive loss by component are as follows:
($ in millions)Employee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance at January 1, 2020, net of taxes
$(354)$(560)$(914)
Other comprehensive income (loss), pretax10 (158)(148)
Tax(2)— (2)
Other comprehensive income (loss), net of taxes(158)(150)
Balance at March 31, 2020, net of taxes
$(346)$(718)$(1,064)
Balance at January 1, 2021, net of taxes
$(32)$(590)$(622)
Other comprehensive income (loss), pretax1 (66)(65)
Tax(3) (3)
Other comprehensive loss, net of taxes(2)(66)(68)
Transfer of benefit plans to Merck affiliates1  1 
Balance at March 31, 2021, net of taxes
$(33)$(656)$(689)
v3.21.2
Product and Geographic Information
3 Months Ended
Mar. 31, 2021
Segment Reporting [Abstract]  
Product and Geographic Information Product and Geographic InformationThe Company’s operations are principally managed on a products basis and include one operating segment engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies within women’s health, biosimilars and established brands.
Sales of the Company’s products were as follows:
Three Months Ended March 31,
20212020
($ in millions)U.S.Int’lTotalU.S.Int’lTotal
Women’s Health
Nexplanon/Implanon NXT$141 $42 $183 $149 $45 $195 
Follistim AQ25 27 52 21 21 41 
NuvaRing
21 24 45 26 37 63 
Orgalutron
8 21 29 (1)16 16 
Cerazette
 17 17 — 17 17 
Other Women's Health (1)
40 33 73 22 37 59 
Biosimilars
Renflexis35 4 38 26 28 
Ontruzant4 19 22 — 22 22 
Brenzys 10 10 — 18 18 
Other Biosimilars (1)
 10 10 — — — 
Established Brands
Cardiovascular
Zetia2 89 92 (2)147 145 
Vytorin3 38 41 50 53 
Atozet 112 112 — 122 122 
Cozaar/Hyzaar3 87 90 95 102 
Rosuzet 15 15 — 32 32 
Zocor1 14 15 (1)25 24 
Other Cardiovascular (1)
 24 24 — 33 33 
Respiratory
Singulair5 102 107 151 155 
Nasonex2 41 43 65 71 
Dulera31 8 38 72 11 83 
Clarinex1 23 25 50 51 
Asmanex16 2 18 27 29 
Other Respiratory (1)
 4 5 10 
Non-Opioid Pain, Bone and Dermatology
Arcoxia 56 56 — 70 70 
Fosamax1 37 38 40 41 
Diprospan 26 26 — 29 29 
Diprosone 20 20 20 20 
Other Non-Opioid Pain, Bone and Dermatology (1)
(1)42 41 48 49 
Other
Proscar 32 32 — 42 43 
Propecia2 29 31 27 30 
Sinemet 18 18 — 21 21 
Remeron1 17 17 14 14 
Other (1)
10 43 54 22 46 69 
Other (2)
 69 69 23 25 
Total sales$351 $1,155 $1,506 $393 $1,387 $1,780 
U.S. plus international may not equal total due to rounding.
(1) Includes sales of products not listed separately. Revenue from an arrangement for the sale of generic etonogestrel/ethinyl estradiol vaginal ring is included in Other Women's Health.
(2) Includes allocated amounts from revenue hedging activities and manufacturing sales to Merck and third parties.
Combined sales by geographic area where derived are as follows:
Three Months Ended March 31,
($ in millions)20212020
Europe and Canada$490 $495 
United States351 393 
Asia Pacific and Japan285 419 
China205 219 
Latin America, Middle East, Russia and Africa203 238 
Other(1)
(28)16 
 $1,506 $1,780 
(1) Primarily reflects allocated amounts from revenue hedging activities.
During the first quarter of 2021, the Company realigned its geographic presentation of sales to reflect internal management view of Organon as a stand-alone entity. Accordingly, prior period sales by geographic area have been recasted to reflect these changes.
v3.21.2
Related Party Disclosures
3 Months Ended
Mar. 31, 2021
Related Party Transactions [Abstract]  
Related Party Disclosures Related Party Disclosures
The Company has not historically operated as a standalone business and the condensed combined financial statements are derived from the consolidated financial statements and accounting records of Merck. The following disclosure summarizes activity between the Company and Merck, including the affiliates of Merck that are not part of the planned Separation.
Cost allocations from Merck
Merck provides significant corporate, manufacturing, selling, marketing, administrative, research services and resources to the Company. Some of these services will continue to be provided by Merck to the Company on a temporary basis under the Transition Services Agreement. The condensed combined financial statements reflect an allocation of these costs. See Note 2 for a discussion of these costs and the methodology used to allocate them.
The allocations reflected in the condensed combined statement of income for continuing operations are as follows:
Three Months Ended March 31,
($ in millions)20212020
Cost of sales$56 $131 
Selling, general and administrative88 177 
Research and development25 39 
$169 $347 
Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by Company’s employees and strategic decisions made in areas such as manufacturing, selling, information technology and infrastructure.
Related party transactions
The Organon Entities and Transferring Entities have entered into the following transactions with other Merck affiliates:
Three Months Ended March 31,
($ in millions)20212020
Included in continuing operations
Supply sales to Merck affiliates$85 $— 
Purchases from Merck affiliates37 — 
Cost reimbursements and fees from Merck affiliates1 — 
Included in discontinued operations
Supply sales to Merck affiliates$12 $144 
Purchases from Merck affiliates50 313 

The Company had the following balances with Merck affiliates:
($ in millions)March 31, 2021December 31, 2020
Included in continuing operations
Short term borrowings, net$946 $1,512 
Short term loans and notes payable, net20 — 
Trade payables (receivables), net554 (173)
Due to related party$1,520 $1,339 
Included in discontinued operations
Short term loans receivables, net$ $247 
Short term notes payable, net (25)
Trade payables, net (33)
Due from related party$ $189 
Net transfers to Merck & Co., Inc.
Net transfers to Merck are included within Net investment from Merck & Co., Inc. on the condensed combined statement of equity and represent the net effect of transactions between the Company and Merck. The components of Net transfers to Merck & Co., Inc. are as follows:
Three Months Ended March 31,
($ in millions)20212020
Cash pooling and general financing activities$867 $1,028 
Cost allocations, excluding non-cash share-based compensation(158)(337)
Taxes deemed settled with Merck(123)(42)
Allocated derivative and hedging (losses) gains(35)59 
Net transfers to Merck & Co., Inc. as reflected in the Condensed Combined Statement of Cash Flows for Continuing Operations
551 708 
Net transfers to Merck included in Net Cash Provided by (Used in) Discontinued Operations482 (126)
Total net transfers to Merck as included in the Condensed Combined Statement of Cash Flows1,033 582 
Share-based compensation expense (includes $3 million of discontinued operations for the three months ended March 31, 2020)
(11)(13)
Net assets distributed to (contributed by) Merck affiliates72 (10)
Derecognition of amounts recognized in Accumulated other comprehensive loss related to employee benefit plan transfers to Merck affiliates
1 — 
Net transfers to Merck & Co., Inc. as reflected in the Condensed Combined Statement of Equity
$1,095 $559 

During the first quarter of 2021, transfers between the Organon Entities, the Transferring Entities and Merck affiliates were recognized in Net transfers to Merck & Co., Inc. in the combined statement of equity at Merck’s historical cost (see Note 2) and consisted of (i) the distribution of assets related to the Merck Retained Products business from the Transferring Entities to Merck affiliates, including property, plant and equipment, net, of $7 million, inventories of $40 million, accrued and other current liabilities of $13 million, and other noncurrent liabilities of $7 million partially offset by (ii) the contribution of liabilities related to the Organon Products business from Merck affiliates to Organon Entities, including accrued and other current liabilities of $7 million and other noncurrent liabilities of $38 million.
v3.21.2
Discontinued Operations
3 Months Ended
Mar. 31, 2021
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations Discontinued OperationsDuring the first quarter of 2021, in contemplation of the Separation, substantially all of the Merck Retained Products business in the Transferring Entities was distributed to Merck affiliates and, accordingly, the historical results of operations, assets and liabilities, and the cash flows of the Merck Retained Products for such Transferring Entities are reflected as discontinued operations.
The components of Income (loss) from discontinued operations, net of tax for the Merck Retained Products business for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31,
($ in millions)20212020
Sales$89 $465 
Costs, Expenses and Other
Cost of Sales52 338 
Selling, general and administrative14 90 
Research and development4 27 
Restructuring costs 
Other expense, net10 25 
Income (loss) from discontinued operations before taxes$9 $(20)
Taxes on income5 11 
Income (loss) from discontinued operations, net of tax$4 $(31)

The components of assets and liabilities of discontinued operations that are stated separately as of March 31, 2021 and December 31, 2020 in the condensed combined balance sheets are comprised of the following items:
($ in millions)March 31, 2021December 31, 2020
Assets
Cash and cash equivalents$20 $58 
Accounts receivable94 322 
Inventories3 58 
Due from related party 189 
Other current assets3 47 
Total current assets of discontinued operations120 674 
Property, Plant and Equipment, net1 14 
Other Noncurrent Assets58 77 
Total Noncurrent Assets of Discontinued Operations59 91 
Total Assets of Discontinued Operations$179 $765 
Liabilities
Trade accounts payable$22 $35 
Accrued and other current liabilities22 93 
Total current liabilities of discontinued operations44 128 
Deferred Income Taxes4 — 
Other Noncurrent Liabilities69 83 
Total Noncurrent Liabilities of Discontinued Operations73 83 
Total Liabilities of Discontinued Operations$117 $211 
v3.21.2
Earnings per Share
3 Months Ended
Mar. 31, 2021
Earnings Per Share [Abstract]  
Earnings per Share Earnings per ShareOn June 2, 2021, the date of the Separation, 253,516,000 shares of the Common Stock were distributed to Merck shareholders 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 months ended March 31, 2021 and 2020, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share. For periods prior to the Separation, it is assumed that there are no dilutive equity instruments as there were no equity awards of Organon outstanding prior to the Separation.
v3.21.2
Subsequent Events
3 Months Ended
Mar. 31, 2021
Subsequent Events [Abstract]  
Subsequent Events Subsequent Events
Distribution from Merck
Pursuant to the Separation and Distribution Agreement, Merck completed the Separation on June 2, 2021, through the distribution to all holders of outstanding shares of Merck common stock, as of the close of business on the Record Date. For each share of Merck Common Stock held, such holder received one tenth of one share of Common Stock, and holders received cash in lieu of any fractional share of Common Stock they otherwise would have been entitled to receive in connection with the Distribution. Merck distributed 253,516,000 shares of the Common Stock in 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 NYSE under the symbol "OGN."
In connection with the Separation, the Company entered into various agreements, including, but not limited to, the Tax Matters Agreement, the Employee Matters Agreement and the Transition Services Agreement.
The Separation and Distribution Agreement 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 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 among 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.
Agreements that Organon entered into with Merck that govern aspects of Organon’s relationship with Merck following the Separation include:
Transition Services Agreements - Under the TSA, (i) Merck and certain of its affiliates will provide Organon and certain of its affiliates, on an interim, transitional basis, various services and (ii) Organon and certain of its affiliates will provide Merck and certain of its affiliates, on an interim, transitional basis, various services. The services to be provided by Merck will include, among others, information technology, human resources, finance, quality, regulatory, supply chain management, promotional services, distribution services and certain other services, and will generally be provided on a cost or, where applicable, a cost-plus basis. The services generally commenced on the date of the Separation and generally will terminate within 25 months following the date of Separation. Organon will have the right to request the early termination of any or all services generally with advance notice. The services to be provided by Organon will include quality, regulatory, supply chain management, promotional services, distribution services and certain other services and will generally be provided on a cost or, where applicable, a cost-plus basis. The provision of services under the agreement generally commenced on the date of Separation and terminate within 25 months following the Separation. Merck will have the right to request the early termination of any or all services generally with advance notice.
Interim Operating Agreements - Merck and Organon entered into a series of interim operating 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 products, to the extent practicable. Under such interim operating 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.
Manufacturing and Supply Agreements - Merck and Organon and/or their applicable affiliates will enter into a number of manufacturing and supply agreements pursuant to which the relevant Merck entity will (a) manufacture and supply certain active pharmaceutical ingredients for the relevant Organon entity, (b) toll manufacture and supply certain formulated pharmaceutical products for such Organon entity, and (c) package and label certain finished pharmaceutical products for such Organon entity. Similarly, the relevant Organon entity will (a) manufacture and supply certain formulated pharmaceutical products for the relevant Merck entity, and (b) package and label certain finished pharmaceutical products for such Merck entity.
Tax Matters Agreement - The TMA allocates responsibility for all U.S. federal income, state and foreign income, franchise, capital gain, withholding and similar taxes, as well as all non-income taxes. The TMA also provides for
cooperation between Merck and Organon with respect to tax matters, the exchange of information and the retention of records that may affect the tax liabilities of the parties to the TMA. Merck generally is responsible for any income taxes reportable on an originally filed consolidated, combined or unitary return that includes Merck or any of its subsidiaries (and Organon and/or any of its subsidiaries) for any periods or portions thereof ending on or prior to the Distribution. Organon generally is responsible for any income taxes that are reportable on originally filed returns that include only Organon and/or any of its subsidiaries, for all tax periods. Additionally, as a general matter, Merck is responsible for certain income and non-income taxes imposed as the direct result of the Separation or of an internal separation transaction. Organon is responsible for certain taxes that exclusively relate to Organon’s business and for taxes resulting from any breach of certain representations or covenants that Organon made in the TMA. The TMA imposes restrictions on Organon and its subsidiaries during the two-year period following the Distribution. The restrictions are intended to prevent the Distribution and certain related transactions from failing to qualify as tax-free for U.S. federal income tax purposes. During such period, Organon and its subsidiaries generally are prohibited from, among other things, entering into transactions in which all or a portion of the shares of the Common Stock would be acquired or all or a portion of certain assets of Organon and its subsidiaries would be acquired. Organon and its subsidiaries also are prohibited, during such period, from merging or consolidating with any other person, issuing equity securities beyond certain thresholds, and repurchasing Common Stock other than in certain open-market transactions.
Employee Matters Agreement - The Employee Matters Agreement allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Separation.

Other agreements that Organon entered into with Merck include the Intellectual Property License Agreements and Regulatory Agreements.
Alydia Health Acquisition
In March 2021, Merck and Alydia Health entered into a definitive agreement pursuant to which, after the Separation, Organon acquired Alydia Health. Alydia Health is a commercial-stage medical device company focused on preventing maternal morbidity and mortality caused by postpartum hemorrhage or abnormal postpartum uterine bleeding. Alydia’s device, the Jada System, is intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted. The transaction consideration includes a $215 million upfront payment, of which $50 million was paid in April 2021 and the remaining $165 million was paid by Organon upon the close of the acquisition on June 16, 2021. Additionally, there is a $25 million sales-based contingent milestone payment that will be paid by Organon upon achievement. The transaction was accounted for in the second quarter of 2021 as an asset acquisition.
Debt
Bond Assumption
In April 2021, in connection with the Separation, Organon Finance 1 LLC ("Organon Finance 1"), a subsidiary of Merck, issued €1.25 billion aggregate principal amount of 2.875% senior secured notes due 2028, $2.1 billion aggregate principal amount of 4.125% senior secured notes due 2028 and $2.0 billion aggregate principal amount of 5.125% senior unsecured notes due 2031 (collectively, the “notes”). As part of the Separation, on June 2, 2021, Organon and a wholly-owned Dutch subsidiary of Organon, (the "Dutch Co-Issuer") assumed the obligations under the notes as co-issuers, Organon Finance 1 was released as an obligor under the notes, and certain subsidiaries of Organon (the “Guarantors”) agreed to guarantee the notes. Each series of notes was issued pursuant to an indenture dated April 22, 2021. Organon and the Dutch Co-Issuer assumed the obligations under the notes pursuant to a first supplemental indenture to the relevant indenture, and the Guarantors agreed to guarantee the notes pursuant to a second supplemental indenture to the relevant indenture. Organon used the net proceeds from the notes offering, together with available cash on its balance sheet and borrowings under senior secured credit facilities which Organon entered into, to distribute $9.0 billion of the $9.5 billion of proceeds to Merck and to pay fees and expenses related to the Separation.
Credit Agreement
On June 2, 2021, Organon entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Senior Credit Agreement”), providing for:
a Term Loan B Facility (“Term Loan B Facility”), consisting of (i) a U.S. dollar denominated senior secured “tranche B” term loan in the amount of $3.0 billion, and (ii) a Euro denominated senior secured “tranche B” term loan in the amount of €750 million, in each case with a seven-year term that matures in 2028; and
a Revolving Credit Facility (“Revolving Credit Facility” and, together with the Term Loan B Facility, the “Senior Credit Facilities”), in an aggregate principal amount of up to $1 billion, with a five-year term that matures in 2026.
Borrowings made under the Senior Credit Agreement to initially bear interest, in the case of:
revolving loans under the Revolving Credit Facility (i) in U.S. Dollars, at 2.00% in excess of an Adjusted London Interbank Offered Rate (“Adjusted LIBOR”) (subject to a floor of 0.00%) or 1.00% in excess of an alternate base rate ("ABR"), at our option and (ii) in Euros, at 2.00% in excess of an adjusted Euro Interbank Offer Rate (“Adjusted EURIBOR”); and
term loans under the Term Loan B Facility (i) denominated in U.S. Dollars, at 3.00% in excess of Adjusted LIBOR (subject to a floor of 0.50%) or 2.00% in excess of ABR, at our option and (ii) denominated in Euros, at 3.00% in excess of Adjusted EURIBOR (subject to a floor of 0.00%).
The interest rate on revolving loans under the Revolving Credit Facility is subject to a step-down based on meeting a leverage ratio target. A commitment fee applies to the unused portion of the revolving facility, initially equal to 0.50% and subject to a step-down to 0.375% based on meeting a leverage ratio target.
The Revolving Credit Facility contains customary financial covenants, including a total leverage ratio covenant, which measures the ratio of (i) consolidated total debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, must meet certain defined limits which are tested on a quarterly basis in accordance with the terms of the Senior Credit Facilities. In addition, the Senior Credit Agreement will contain covenants that will 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.
The following is a summary of Organon's total debt as described above:
Term Loan B Facility:
LIBOR plus 300 bps term loan due 2028
$3,000 
LIBOR plus 300 bps euro-denominated term loan due 2028 (€750 million)
892 
4.125% secured notes due 2028
2,100 
2.875% euro-denominated secured notes due 2028 (€1.25 billion)
1,488 
5.125% notes due 2031
2,000 
Total principal long-term debt issued$9,480 
v3.21.2
Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Accounting
The Company’s historical combined financial statements have been prepared on a standalone basis and are derived from Merck’s consolidated financial statements and accounting records. The condensed combined financial statements reflect the Company’s financial position, results of operations and cash flows as it was operated as part of Merck prior to the Separation, in conformity with U.S. generally accepted accounting principles ("GAAP"). The assets, liabilities, revenue and expenses of the Company have been reflected in these condensed combined financial statements on a historical cost basis, as included in the consolidated financial statements of Merck, using the historical accounting policies applied by Merck. These condensed combined financial statements do not purport to reflect what the Company’s results of operations, comprehensive income, financial position, equity or cash flows would have been had the Company operated as a standalone public company during the periods presented.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. 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 opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Organon’s Registration Statement Form 10, as amended, filed on April 29, 2021 (the "Form 10").
These condensed combined financial statements were prepared following a legal entity approach, which resulted in the inclusion of the following:
Certain assets and liabilities, results of operations and cash flows attributable to the sales of Organon Products that have been or were contributed to Organon prior to the consummation of the Separation, and
The Transferring Entities, which have historically included the results from the sales of both Organon Products and the Merck Retained Products. Each Transferring Entity’s historical operations, including its results of operations, assets and liabilities, and cash flows have been fully reflected in these condensed combined financial statements.
During the first quarter of 2021, in contemplation of the Separation:
Substantially all of the Merck Retained Products business of the Transferring Entities was distributed to Merck and its affiliates ("MRP Distribution") and, accordingly, the historical results of operations, assets and liabilities, and the cash flows of the Merck Retained Products for such Transferring Entities are reflected as discontinued operations.
Substantially all of the Organon Products business was transferred by Merck affiliates to legal entities established to operate the Organon Products business and, as noted above, such entities have been contributed to Organon ("Organon Entities").
The Company’s businesses have historically functioned together with the other businesses controlled by Merck. Accordingly, the Company relied on Merck’s corporate and other support functions for its business. Therefore, certain corporate and shared costs have been allocated to the Company based on a specific identification basis or, when specific identification is not practicable, a proportional cost allocation method, including:
(i) expenses related to Merck support functions that are provided on a centralized basis within Merck, including expenses for facilities, executive oversight, treasury, finance, legal, human resources, shared services, compliance, procurement, information technology and other corporate functions;
(ii) certain manufacturing and supply costs incurred by Merck’s manufacturing division, including facility management, distribution, logistics, planning and global quality. These costs include material, manufacturing costs and variances, distribution expenses, supply chain management, contract manufacturing and quality charges, among others;
(iii) certain costs incurred by Merck’s human health division in relation to selling and marketing activities, and related administrative support functions, that are not routinely allocated to therapeutic areas;
(iv) costs incurred by Merck’s research laboratories for activities related to drug discovery and development, as well as medical and regulatory affairs;
(v) restructuring costs (see Note 4) and share-based compensation expenses (see Note 9); and
(vi) certain compensation expenses maintained on a centralized basis such as certain employee benefit expenses.
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, though the allocations may not be indicative of the actual costs that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Following the Separation, certain functions that Merck provided to the Company prior to the Separation will either continue to be provided to the Company by Merck under the Transition Services Agreement or will be performed using the Company’s own resources or third-party service providers. Additionally, under manufacturing and supply agreements, the Company will manufacture certain products for Merck or its applicable affiliate and Merck will manufacture certain products for the Company or its applicable affiliate. The Company expects to incur certain costs in its establishment as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.
The condensed combined balance sheet reflects all of the assets and liabilities that are either specifically identifiable or are directly attributable to the Company and its operations, as well as assets and liabilities attributable to the discontinued operations of the Merck Retained Products.
In connection with the Separation, certain assets and liabilities including accounts receivables, inventories and trade payables included on the condensed combined balance sheets as of March 31, 2021 were retained by Merck and will be adjusted through Net investment from Merck & Co., Inc. in the Company’s combined financial statements for the second quarter of 2021.
Property, plant and equipment reflected in the condensed combined balance sheet is primarily attributable to the six manufacturing facilities the Company operates and certain information technology assets. No assets or liabilities are reflected in the condensed combined balance sheet for amounts related to derivatives and hedging activities.
Merck maintains various employee benefit plans which the Company’s employees participate in, and a portion of the costs associated with these plans has been included in the Company’s combined financial statements. The condensed combined balance sheet at December 31, 2020 only includes assets and liabilities relating to plans for which the entity being transferred is the plan sponsor. During the first quarter of 2021, certain pension assets and obligations were transferred by Merck into Organon Entities that are the plan sponsor and, accordingly, the condensed combined balance sheet at March 31, 2021 includes assets and liabilities of the newly set up plans of Organon Entities.
Income tax expense and deferred tax balances in the condensed combined financial statements have been calculated on a separate tax return basis. The Company’s operations are included in the tax returns of certain Organon Entities, Transferring Entities or the respective Merck entities of which the Company’s business is a part. As a standalone entity, the Company will file tax returns on its own behalf, and its deferred taxes and effective income tax rate may differ from those in the historical periods.
Merck utilized a centralized approach to cash management and the financing of its operations. Cash generated by the Company was routinely transferred into accounts managed by Merck’s centralized treasury function and cash disbursements for the Company’s operations prior to the Separation were funded as needed by Merck. Cash and cash equivalents of the Organon Entities and the Transferring Entities are reflected in the Company’s condensed combined balance sheet. Balances held by the Organon Entities and the Transferring Entities with Merck for cash transfers and loans are reflected as Due to related party. All other cash, cash equivalents, short-term investments and related transfers between Merck and the Company were generally held centrally through accounts controlled and maintained by Merck and were not specifically identifiable to the Company. Accordingly, such balances have been accounted for through Net investment from Merck & Co., Inc. Merck’s third-party debt and related interest expense have not been attributed to the Company because the Company is not the legal obligor of the debt and the borrowings are not specifically identifiable to the Company.
During the second quarter of 2021, Merck issued an aggregate of $9.5 billion of debt in connection with the Separation. As part of the Separation, the debt was assumed by the Company. Such indebtedness will cause the Company to record additional interest expense in future periods (see Note 18 for additional details).
As the separate legal entities that make up the Company’s business were not historically held by a single legal entity, Net investment from Merck & Co., Inc. is shown in lieu of shareholders’ equity in these condensed combined financial statements. Net investment from Merck & Co., Inc. represents Merck’s interest in the recorded assets of the Company and the cumulative investment by Merck in the Company through the periods presented, inclusive of operating results.
All intercompany transactions and accounts within Organon have been eliminated. For the Organon Entities and the Transferring Entities, transactions with Merck affiliates are included in the condensed combined statement of income and related balances are reflected as Due to related party, Due from related party or Related Party Loans Payable in the continuing operations and discontinued operations, as applicable. Other balances between the Company and Merck are considered to be effectively settled in the combined financial statements at the time the transactions are recorded. The total net effect of these intercompany transactions considered to be settled is reflected in the condensed combined statement of cash flows within financing activities and in the condensed combined statement of equity as Net transfers to Merck & Co., Inc. See Note 15 for additional details.
Reclassifications Certain amounts presented in the prior period have been reclassified to conform to the current period presentation.
Use of Estimates
Use of Estimates
The presentation of these condensed combined financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Accordingly actual results could differ materially from management's estimates and assumptions.
The COVID-19 pandemic continued to negatively affect the Company's results during the first quarter of 2021. 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 us and the unknown future impacts of the COVID-19 pandemic at March 31, 2021 and through the date of this report.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards Not Yet Adopted
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective January 1, 2021. There was no impact to the Company’s combined financial statements upon adoption.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective January 1, 2021. There was no impact to the Company’s combined financial statements upon adoption.
Recently Issued Accounting Standard Not Yet Adopted
In March 2020, the FASB issued 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 through December 31, 2022. The Company is currently evaluating the impact of adoption on its combined financial statements
v3.21.2
Samsung Collaboration (Tables)
3 Months Ended
Mar. 31, 2021
Revenue from Contract with Customer [Abstract]  
Collaborative Arrangement and Arrangement Other than Collaborative
Summarized information related to this collaboration is as follows:
Three Months Ended March 31,
($ in millions)20212020
Sales$81 $68 
Cost of sales53 40 
Selling, general and administrative15 19 
($ in millions)March 31, 2021December 31, 2020
Receivables from Samsung included in Other current assets
$13 $52 
Payables to Samsung included in Trade accounts payable
13 13 
v3.21.2
Inventories (Tables)
3 Months Ended
Mar. 31, 2021
Inventory Disclosure [Abstract]  
Schedule of Inventory
Inventories consisted of:
($ in millions)March 31, 2021December 31, 2020
Finished goods$399 $351 
Raw materials and work in process573 630 
Supplies57 60 
Total (approximates current cost)1,029 1,041 
Decrease to LIFO costs(1)(1)
 $1,028 $1,040 
Recognized as:
Inventories$924 $913 
Other assets104 127 
Schedule of Inventory, Noncurrent
Inventories consisted of:
($ in millions)March 31, 2021December 31, 2020
Finished goods$399 $351 
Raw materials and work in process573 630 
Supplies57 60 
Total (approximates current cost)1,029 1,041 
Decrease to LIFO costs(1)(1)
 $1,028 $1,040 
Recognized as:
Inventories$924 $913 
Other assets104 127 
v3.21.2
Property, Plant, and Equipment (Tables)
3 Months Ended
Mar. 31, 2021
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
($ in millions)March 31, 2021December 31, 2020
Land$13 $14 
Building595 647 
Machinery, equipment and office furnishings795 787 
Construction in progress400 356 
Less: accumulated depreciation(817)(820)
Property, Plant and Equipment, net$986 $984 
v3.21.2
Share-based Compensation Plans (Tables)
3 Months Ended
Mar. 31, 2021
Share-based Payment Arrangement [Abstract]  
Share-based Payment Arrangement, Expensed and Capitalized, Amount
Total direct and allocated share-based compensation expense for the three months ended March 31, 2021, the allocated share-based compensation expense for the three months ended March 31, 2020 and the respective income tax benefits recognized by the Company in the condensed combined statement of income are as follows:
Three Months Ended March 31,