Good morning, ladies and gentlemen, and welcome to Siemens Healthineers Analyst Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on page two of the Siemens Healthineers presentations. This conference call may include forward-looking statements. These statements are based on the company current expectation and certain assumptions, and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call to your host today, Mr. Marc Koebernick, the Head of Investor Relations. Please go ahead, sir.
Thank you, Frankie. Good morning, ladies and gentlemen, analysts and investors. Thank you for joining us on such short notice for our analyst call regarding the acquisition of Corindus Vascular Robotics. The press release and presentation were released at 7:00 A.M. this morning. You can find all of the documents also on our website if you don't have them in your inbox. I am on the line together with our CFO, Jochen Schmitz, and the Head of our Advanced Therapies segment, Michel Therin , who will be talking you through the rationale and also the expectations of the acquisition. Following that, there will be a chance for you to ask your questions to Jochen and Carsten. May I just humbly remind you of the good old two-question rule? Yes, also in acquisition, some things never change. I pass the word over to our CFO, Jochen Schmitz.
Thanks, Marc. Good morning, a very warm welcome also from my side. We are very excited to announce that we have entered into a merger agreement to acquire Corindus Vascular Robotics. Let me start with putting today's announcement in the context of our Strategy 2025. We communicated our strategy at our Capital Market Day in January 2018 prior to our IPO. With our IPO being one and a half years ago, we now approach the next level of our strategy, the upgrading phase. One key element of upgrading is to tap into adjacent growth markets. This is exactly what we do with adding robotics to our Advanced Therapies segment to enhance our position in precision medicine and enter into therapies of tomorrow. Corindus has a leading position in vascular robotics with a compelling technology platform for robotic-assisted coronary, peripheral, and neurovascular procedures.
These acquisitions, combined with our strong Advanced Therapies portfolio, will help further advance the growth of vascular robotics. The integration of our technologies will ultimately lead to improved patient outcomes. To give you some more detail, let's start with a brief overview of our Advanced Therapies segment. For this, I would like to hand over to Carsten Bertram, our Head of Advanced Therapies, who was very instrumental in making this deal happen. Carsten.
Thank you, Jochen, and also a good morning from my side. Advanced Therapies is the segment where we capture new opportunity for growth, we do that with our core strength in imaging. Last year, we delivered a revenue of EUR 1.5 billion, which was increased by 5% organically year-over-year. We also show industry-leading margin. Last year, we closed around 20% of adjusted profit margin. This is the results of our strong growth and our innovation leaderships, enabled by our also industry-leading R&D intensity, which returns innovator margins. At the same time, we have a very resilient business with a high share of frequent revenue of roughly 40% coming from our very steadily growing service business. Also, our global presence makes us resilient. As you can see on the chart, our revenue are well distributed in all geographies.
From a portfolio standpoint, we can summarize our offering with two main product categories, mobile C-arm and angiography system. With these products, we serve multiple clinical fields. The first one is cardiology for image-guided treatment, for example, for coronary artery disease. In interventional radiology, we serve with image guidance, complex neurovascular, and interventional oncological procedures like stroke treatment or tumor embolization. For radiation oncology, we deliver also imaging support for planning of radiotherapy procedures. Finally, in surgery, we provide imaging and guidance for different kinds of surgeries. For example, minimally invasive tumor resection or ablation, or also orthotrauma and spine surgery. For all these therapies, we offer a comprehensive innovation imaging system, which are, so to speak, enabling the eyes of the physician to see through the body. Those fields grow in relevance.
The procedure growth is steady, and we can see even further the rise of complex procedures. For example, in coronary to peripheral or neurovascular intervention, we see an increasing number of reopening of clogged vessels. It's important to notice that the precision and the speed to reopen these vessels, for example, in the case of strokes, are critical. This is the kind of speed and precision that can decide if after leaving the hospital, you can walk or reside in a wheelchair. To manage the rise of this complexity, physicians will more and more rely on assistance coming from different support, different application, and we see robotic assistance as one of those assistance that will be more and more frequently used. Why? Because it addresses some of the key challenges that every physician are facing.
Performing those procedures more efficiently, performing them also with higher accuracy, this at every time, ultimately leading to a higher quality of care. With that, let me introduce you the acquisition in that exciting field. Corindus Vascular Robotics is the forerunner in robotic-assisted endovascular intervention. They are located in the U.S., close to Boston, and with around 100 employees, they develop, they design, they manufacture, and they sell robots for assisting endovascular procedures. They have a complete technology platform for that. The company has started this journey back in 2012. They have now a second-generation platform, which is CE marked and FDA approved for now a few years. At the same time, they have built a very strong and unique IP portfolio in the field of endovascular robotics.
Both putting the first system on the market and its unique IP position clearly states Corindus as a forerunner in endovascular robotics, with a clear first-mover advantage. The impact of this technology on endovascular procedures will be very significant. With the support of robotics, physicians will perform this catheter-based procedure with higher precision, and this precision in guiding the catheter is expected to lead to significantly better outcome. You have, for that, to imagine how the procedures are done today without robotic assistance. They are all manually delivered, and the hand of the physician has to steer very long and thin devices, navigating through the body. Imagine a 1.5-meter-long catheter or guide wire, and with one hand from the distal end, you need to pilot the progression of that guide wire or that catheter in the brain or in the heart, or distal in the leg.
Even for an experienced physician, this is not that easy, and this can be a very complicated task for some of the complex procedures that are now performed. If you imagine to do that using a joystick, which move the catheter for you at a very high millimeter precision, you significantly increase the control of both the catheter, the devices, and the success of the whole procedures. I was saying that the robotic advantage that I just described will be even further fostered in the future by a tight integration to our imaging system. The innovative angiography system that we propose will continue to be the eyes of the physician, and the robot will be enhancing the hands of the physician.
Imagine to have 2D, 3D images relied to the robotic platform and the hands of the surgeons that will tightly integrate how procedures will be delivered. Again, the tight integration of the precision robotics and our imaging system will add up to a major benefit for physicians as they will perform procedures combining eyes and hands enhancement. Now let me drive you through what the integration would mean between Siemens Healthineers and Corindus. With Corindus, we aim to combine robotics and imaging system in one tightly integrated solution. This solution is targeted to transform the delivery of interventional procedures. That has the potential to shape new markets. That market offers significant upside. First of all, it will continue to capitalize on the fast-growing procedural rate that we can see in that space.
We can foresee and aspire to raise roughly 15% of complex endovascular intervention assisted or done with the help of a robot in the mid to the long term. Our goal is clearly to combine Siemens Healthineers and Corindus in that unique solution. Tightly integrating the robotics precision of a technology forerunner with the leading position of Siemens Healthineers in image-guided therapy into one unique offering. Additionally, we will leverage our unique scale, so our install base and our global customer service coverage, and we brought to market by our global sales and marketing organization. Finally, at the right time, that combination will benefit from Siemens Healthineers' industry-leading R&D expertise.
With Corindus, we have a unique investment into one of the most exciting fields within therapy today, which is set for disruptive innovation and shaping a high-growth market, and thereby returning innovative margins in the future. With that, I would like to hand over back to Jochen. Jochen?
Thank you, Carsten. Since Corindus is a listed company in the U.S., you might already be familiar with their profile. By the way, they have their Q2 earnings call this morning, East Coast time. Let me start with giving you a few transactional details. The offer price of $4.28 reflects our view on the significant market and synergy opportunity, and the premium paid is in line with market precedents in this field, robotics and high-growth MedTech space. We will acquire 100% of the common shares outstanding. Fully diluted, there are 258 million shares. Our offer price results in an enterprise value of roughly $1.1 billion. Since both sides saw the unique value creation opportunity, the Corindus board fully support the transaction. Of course, the transaction is subject to shareholder and regulatory approval.
Let's have a quick look at financing leverage in our business profile after the closing of the transaction. The transaction will be all cash and financed with a new acquisition financing term loan by Siemens AG, of course, at arm's length. Post-closing, Siemens Healthineers' leverage will remain well within our framework of solid investment-grade rating territory. The acquisition will add highly accretive top-line growth due to the high growth potential of robotics in MedTech. This high growth potential paired with synergies and our scale, gives us full confidence of also a very attractive bottom-line potential going forward. We expect this bottom-line potential to materialize more in the midterm as the starting point of this business is currently of limited size. With the very high growth potential in the near and midterm, this will build up to a sizable business driving then top and bottom line.
With regards to EPS accretiveness, current thinking is fiscal year 2023. About 18 months-24 months later, we will also gain our cost of capital. Now, lastly, some comments on the general timing. We expect the closing to take place in our first quarter of our fiscal year 2020, i.e., between October and December 2019. As already highlighted at our Q4 results, we will give a strategic and financial update, and we'll also put the relevance of this acquisition in the broader context of Siemens Healthineers. At our Meet the Management in December, Carsten will offer additional insights on Advanced Therapies combined with Corindus. Let me conclude that we are convinced that this combination of robotics with Siemens Healthineers' scale is a unique value creation opportunity. With this, I hand it back to the operator for Q&A.
Thank you, gentlemen. We will start with the question and answer sessions. We would like to ask you to limit yourself to two questions. If you wish to start a question, please press the star or asterisk key, followed by the digit one on telephone keypad. Again, ladies and gentlemen, please press star one on the telephone keypads. We will take our first question from David Adlington from JPMorgan. Your line is open. Please go ahead.
Morning, guys. Thanks for taking the questions. I've got a few, but I'll give you the two. Just wondered if you could talk about the price of the machine and particularly the price of the second generation versus the first generation. Then maybe secondly, just as a surgeon, maybe you could point towards the key selling points for a surgeon. Does it make my procedures faster? Do I get better outcomes? Any color you can give there.
Yeah. Thanks, David. I think, Carsten, could you start with answering the question, I can may add something to it if necessary, yeah?
Yes, for sure. The current price of the system is in the U.S. at roughly EUR 480,000. It's not expected to be different from the first to the second generation. In terms of value proposition, the key messaging is, as you said, it's making it faster, making it more precise with lowering the cost of the procedures. Just to be precise, this is only for physicians who are doing endovascular procedures. It's not a surgical robot like other type of robot that you may be familiar with. This one is really unique. It's driving endovascular procedures.
Thanks. Maybe a follow-up there. I just wondered if you can sort of talk about how much faster it makes the procedures. How many more procedures can a surgeon do in a day?
For complex procedures, the saving will have to be demonstrated with evidence, that is, which is starting to get developed. We can see up to 20% of time savings for some of those procedures, which are procedures which can lay for couple of hours sometime. This is a substantial, significant time saving.
Thank you.
Maybe one aspect also, Dave, I think it also allows to do those procedures where they were not done before. With the robotic assistance, it might also be possible to do them in more remote places, yeah? I think that also allows, I would say, something which is currently not possible at all, not only, I would say, the speed of the procedure, but also where and how often it can be performed.
Yeah. You're right, Jochen. This is an important component as well. Today, this is not the current practice, but tomorrow, to envision that those procedures can be run from at distance.
Could modify completely patient access to some of those sophisticated procedure.
Thank you.
Thank you. We will now take our next question from Scott Bardo from the company of Berenberg.
Yeah. Thanks very much.
Go ahead.
Thanks very much for taking my questions. First of all, it seems like a very sensible bolt-on for your robotic vascular interventions business. Just to understand a little bit more, is the intention to have a fully integrated solution with the ARTIS pheno system? Is this a potentially unique proposition to Siemens Healthineers, something that couldn't be replicated by other companies or systems, given your existing position here? I just want to understand how this collaborative combination is unique to Siemens. The second question, please. Obviously, at face glance, the acquisition multiple is high, 37x next year's forecasted sales is a punchy multiple. Does this reflect, in a sense, the lack of opportunities for M&A deployment across the broader group? Perhaps then you could talk about what the change of the profile of this business will be under Siemens Healthineers.
Do you expect to materially improve upon the revenues that are currently being forecasted for this business? How quickly can you work down its current loss-making status? Perhaps a little bit of thoughts about the financial profile under Siemens, please.
Yeah. Thanks, Scott. Michel , I will start with the second question, and you might can answer the first one. Obviously, your territory. Scott, I think I gave some guidance on the financial profile. We expect to see this is a heavy synergy case because it is based on, I would say, a unique technology position of Corindus together. They combined with our scale and reach in the healthcare field. We expect immediately, almost immediately, as a short and midterm, significant growth rates, but starting from a low base. With regard to the financials, we expect to see EPS accretiveness, I would say, latest 2023. I just do not want to oversell it. That might also be 2022, but I think currently it's safer to say 2023. We will see in the beginning. Let's assume it works like we have envisioned it in our first quarter.
We will see operationally, roughly in the first quarter, I would say, a dilution in Healthineers just coming from this of 20 to 30 basis points. There will also be some one-time cost in similar arena. The PPA might be in the EUR 4 million-EUR 50 million range. Obviously, this is still dependent on the accounting outcome. That is how it will work into the 2020 numbers. What we expect to see, again, relatively immediately near midterm, significant growth coming from it, increasing the base, and then moving relatively quickly into a break-even scenario, and then being EPS accretive, and then, as I said beforehand, 18 to 24 months later, gaining cost of capital.
Understood
for the first question. Sorry.
Yeah. The robot today is used independently as a standalone equipment, independently from the imaging system. Down the road, obviously, one of the key benefits will be to integrate that robot to our imaging suite. Mainly the ARTIS icono suite that we recently presented to the market.
Scott, I'm not too sure if you wanted to ask something on-.
On the numbers in between.
Yeah, in between. Sorry.
Thank you, Jochen. If I understand your comments correctly, we should expect the acquisition to be dilutive in 2020 and 2021, maybe break even or so in 2022, if I understood correctly, and then some accretion thereafter. Is that a correct characterization?
Sounds very reasonable to me. Yep.
Makes sense.
And-
The group currently have, I think, a four to six % growth profile for your Advanced Therapies business. Am I correct in assuming that now this will be more of a high single-digit growth profile you see for this division going forward?
It definitely will help them to improve their growth profile going forward. How quickly we will see a significant uptick, we need to see, because as I mentioned before, the size of Corindus itself is still relatively limited. Even showing significant growth rate on their side will not immediately move the needle significantly, but it is definitely one of the drivers behind moving our Advanced Therapies over time into a higher growth category. Absolutely. We will try to give you a bit more feeling for it maybe in November.
Yeah. We will do this, for sure.
Yeah.
We need also be mindful it's a public listed company. We cannot talk too much about them.
Okay. Thanks for my questions, guys.
Thank you. We will now take our next question from Veronika Dubajova from Goldman Sachs. Your line is open. Please go ahead.
Good morning, gentlemen, and thank you for taking my questions. I will keep it to two as well. The first one is, I was hoping you could talk a little bit about the size of the installed base as it stands today, and any idea of where you think you might get to over the medium term, whether it's the next three or five years. That would be helpful to understand. My second question is a slightly technical one. Philips are a shareholder, and I believe they have a right of first refusal. Do you anticipate any issues in closing the deal, or have you had a conversation here and we should be thinking of you as the ultimate owner of this asset as opposed to other bidders emerging down the line? Thank you.
Thanks, Veronika. I will start with your second question. I think we are obviously very mindful about the shareholder structure of the target. We envision this to be, I would say, a regular process between signing and closing. I think we do not foresee any particular problems there. Even not interfering of Philips. You never know. With regard to the installed base, I think, Carsten, are you back online?
Yes, I am.
Five can take-
So they-
Yeah.
Yeah. They sold basically 50 robots last year in 2018, and they are on the track to sell 100 this year. That give you roughly the size of the installed base. The installed base is by far mainly dominating today in the U.S., with only a few outside of the U.S. In term of penetration, I mentioned that on the mid to long term, we expect up to 15% of procedural adoption in complex procedures. Meaning multiple thousands of systems in the world.
That's very helpful. Can I just ask on the sort of revenue build here. I mean, obviously you have the placement of the robot. Is there a recurring consumable cost that comes with it that generates sort of a recurring revenue stream, or should we be thinking of this more as a traditional equipment business that you have today, which is the sale of the robot and then a service fee thereafter?
Yeah. Thank you for the question. I should have precised that during my presentation. You have, of course, the capital equipment, which is the robot itself. For every procedures, you need to use a sterile cassette, which is hosting the devices. That cassette, that single-use sterile devices, is the recurrent revenue contribution to that business model.
Can you give us a little bit of color on cost of that?
Yeah. The cost is roughly between EUR 400 and EUR 500 per procedure.
That's perfect. Okay. Thank you very much.
Thank you. We'll take our next question from Oliver Metzger from Commerzbank. Your line is open. Please go ahead.
Yeah. Hi. It's Oliver Metzger from Commerzbank. I have two questions from my side. The first one is about your target to bring a combined integrated solution to the market. Could you give us a rough feeling about what time period we talk to reach this target? The second one is on the bottom line. Currently, Corindus is loss-making. You said that you expect the turnaround midterm. Do you think that you could achieve the break even earlier now in a combined unit than Corindus on a standalone base?
Thanks, Oliver. Let me start with the second question. I mentioned before, this is definitely a case which is built on significant synergies there between Corindus and us. It's obvious that this also helps on the bottom line timing. I think it's a clear case. We expect to see, in particular with regard to growth rates, which are the driver behind the bottom-line development, a clear advantage of combining the company. By the way, this is heavily shared also by the board of Corindus. I think this is obvious. Carsten, you might talk about the combined-
Yeah, for sure.
solution.
The integration will be a roadmap of several iterations of progressive integration. We start by making available all the information that is on an imaging system to the robotic cockpit and vice versa, in order to have a full transparency of information circulating from the two systems. Progressively, we will integrate the remote control of both the robots and the imaging system. It's a little bit too early to give you precise milestones for what will happen when. We plan to be a little bit more descriptive in our Meet the Management meeting in December. Okay, great. Thank you very much.
We take one last question then.
We will take our last question from Sebastian Walker from UBS. Your line is open. Please go ahead.
Hi there. Thanks for taking my questions. One, just to clarify on the penetration target of 15%, that relates to several thousand systems it sounds like. That implies a kind of maybe a 50 basis point penetration rate today, or could you just talk about how many of these types of relevant procedures we're seeing in the market today? That's the first one. Then, in terms of Corindus's position, you talk about them being the market leader here, could you talk about how the system compares with, say, other competitors in this field? Thanks.
Thanks, Sebastian. I think, Michel, those questions you should kick it off, yeah?
Yeah. Today the penetration is negligible. As I mentioned, the install base is too small. Thanks to the direction that I have mentioned, we estimate that a significant portion of the complex procedures will be robotically assisted in the five-10 years horizon. It will start in cardiac procedures, like for chronic total occlusion of the coronary vessels. It will extend also in the lower limb, and then progressively neurovascular and potentially also in interventional oncology procedures for tumor embolization. The ramp-up will be dependent on the availability of the evidence to support that and the progressive deployment of the message engine. That's all the first question. Can you briefly repeat the second piece of the question?
Sure. If I could actually maybe just follow up on the first one quickly. In terms of that evidence around throughput or surgery time and better outcomes, what kind of timeline are you looking at to be able to provide that?
There are already some evidence that has been released in the last six to 12 months. The procedure is effective. The reduction in dose exposure for the staff and for the physician is very significant, more than 95%. The procedure, as showed, exactly the same kind of efficiency for the safety purposes of the procedures. They have started to collect larger sets of database, larger sets of clinical data to demonstrate the clinical benefit, and that will continue. It probably will need a couple of years to have a full comprehensive list of evidence across the multiple indication.
Got it. Thank you. Sorry, the other question was just, in terms of how the competitive landscape. What are the other systems?
Yeah.
that are out there, and how does Corindus compare?
It's difficult to have a very detailed analysis there because there is almost no competition today. Corindus is clearly the forerunner in that space. There is one small company who is developing a technology that could be seen as somewhere equivalent, but they are significantly behind. Corindus is the only one who have broad regulatory approvals in multiple significant territories like the U.S., Europe, for multiple indication.
Great. Thank you very much.
Okay. I think that takes us to the end of our call. I believe most likely we will not hear each other before November, but you never know. Yeah? Anyway, with these words, I'll lead you back to your holidays or wherever I maybe interrupted you. Yeah? Thanks, guys. Bye.
Bye.
That will conclude today's conference call. Thank you for participation. Ladies and gentlemen, a recording of this call will be available on the investor relations section of the Siemens Healthineers website. The website address is www.corporate.siemens-healthineers.com/investor#relations.