Hello, everyone, and Welcome to Today's Conference Call. Throughout this call, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Today, I am pleased to present CEO, Mattias Perjos, and CFO, Lars Sandström. Please go ahead.
Thank you very much, and welcome to today's call. We would like to go through the background and rationale for the acquisition that we have announced today. So we can move directly to slide number two, please. So the headline here is that Getinge has signed an agreement to acquire Applikon Biotechnology, and the rationale for this, in essence, is that we would like to strengthen the offer to our biopharma customers. As you already know, we are already a world leader in solutions to prevent contamination in pharmaceutical production and to ensure integrity of research results. And with the acquisition of Applikon Biotechnology, we are acquiring a leading company in advanced bioreactor systems for bioprocessing and cell and gene therapy.
The company has about SEK 450 million in revenue, and this is entirely towards the global biopharma bioreactor systems market, which is a market that is valued at about SEK 10 billion at the moment, and with an expected growth of 10% per year in the coming 5 years. We can then move over to page number 3. We will describe the offer and the core competencies a bit more in detail. If we start with the portfolio of Applikon, it's five main components. One is the bioreactors themselves. So the company has a comprehensive range, and a high degree of flexibility to tune also the reactors towards the specific customer application.
They also have a very strong offer when it comes to controllers, for controlling the, the process, and, this is a proprietary, product, and it's, it's a well-industrialized, platform, with also connectivity for automation, which is a, a key thing customers are asking more and more for. Applikon also has a portfolio of, sensors for monitoring the process, and the, the comprehensive range, and it consists both of, of single- use and, multi-use sensors. And then in addition to this, the company has, a suite of software as well, also proprietary, well-industrialized, and, really sophisticated way of, managing data, connected to the, to the process. And last but not least, this is also a bit of a project business.
They have the tools needed for this validated platforms and a proven Stage-G ate model for efficient product management together with our customers as well. So, that's those are the main cornerstones in the portfolio. If we then look at the core competencies of Applikon, flexibility is one of them, so we're being able to configure individual solutions to customers, but based on a standardized product offer. There's also a key competence when it comes to scalability, which is more and more sought after by customers in this segment. It's a wide portfolio from detection and development to production. I mentioned control systems as well.
This is one of the key strengths, and you will see in a couple of pictures here how this matches what Getinge has today. The competence that we believe is a good addition to Getinge as a company also. There's also an efficiency theme when it comes to core competencies. So there's some newly launched software enabling seamless process up and down scaling, which is attractive to customers in this segment. So, and, about 75% of the sales of Applikon is configured to order, and 25% is truly bespoke or completely customized solutions. That summarizes the offer as such and the main competence of Applikon. We can then move to page 4, please.
So this is a picture that describes the competitive position, and we've divided the market into single and multiple use bioreactors and also divided it in size. And the overall market in terms of bioreactor size is from 1 mL up to 5,000 L, a big big span. Applikon is currently present in three out of four segments. They are a market leader in the multiple-use small reactor segment, and has newly developed and launched Applikon AppliFlex ST, which is for the small reactor single-use segment, and this is one of the attractive growth drivers for the business going forward.
In the multiple-use large bioreactor segment, the market is a bit more fragmented, but Applikon is a leading player there, there as well. If you look at some of the key points here as well, Applikon is a market leader for multiple-use reactors and also in control systems. Control systems can also be used on other platforms as well, not just the Applikon hardware. They have a unique ability to upscale research to production, which helps the time to market for customers, and this is a high value part of the value proposition.
It's an attractive profile in terms of recurring revenue based on single-use reactors and service, and also sensors, which, as I mentioned, are both single use and multi-use. I also mentioned the launch of AppliFlex ST during 2019. So this is one of the first inroads into the small bioreactor single-use segment. In addition to this, we believe the company has a strong R&D pipeline, and one of the key rationales for the acquisition is that Getinge—we believe we are an ideal partner to help Applikon commercialize. With that, we can move to page 5, please.
Page number five is intended to describe the fit with Getinge Life Science a little bit more in detail, and we believe this is a true win-win for both organizations. If we look at this from a portfolio perspective, Applikon is a leader in early phases of the value chain, whereas Getinge has a stronghold in the end part, the fill and finish part of the biopharma production. There's a good mix of multi and high-growth single-use products, and today there is no competition between Applikon and Getinge. It's completely complementary, and it enables us together to offer a higher degree of end-to-end solutions towards the same customers because we have mostly the same customer base.
There are some customers that are unique to the company, which also presents another cross-selling opportunity we believe. If we look at this then from a geographical perspective, Applikon has direct sales today in North and South America, in the U.K., and in Benelux, and they work through distributors in the rest of the world. So this is another area where Getinge's global presence in both sales and service is an excellent platform for continuing to grow the business, at least in line with the attractive market growth that we have in this segment. Then there's a technology perspective on this as well. So, the bioreactors are in stainless steel and are in a way pressure vessels with a similar technology to Getinge's sterilizer chambers.
And so there's some synergies there from a technology manufacturing perspective. Applikon also has a vast expertise when it comes to controllers and related software, and this is an area where Getinge has a little bit of a shortage or capacity issue today. So it's another area of potential synergy between the two companies. And in general, we believe that there's a good transfer of know-how between the organization in automation and also single-use bags or liner systems for assets. So there's some leverage here in terms of the chambers for that. So that's a quick description of the fit between the two businesses today. We can move then to page number 6, please.
So we'll just try to describe the value creation a little bit from a shareholder perspective, as well. We do expect that this is a business that will help long-term margin expansion for sure, the life science business area, but also for Getinge in the longer term. So we look at the immediate effect, for next year is going to be a growth increase in terms of net sales. So we're adding approximately SEK 450 million in net sales for Getinge, and with a positive growth outlook, as I mentioned as well.
It's also, say, one of the rationales is to strengthen the portfolio for diversified growth in the Biopharma segment, and we see significant potential for cross-selling between the companies, given that there's both good overlap in terms of customers that we can serve to a higher degree, and there are also some customers that are unique to both organizations that we will help each, each other into. So, that's positive from a growth, growth and sales perspective. If we then look at the margin, piece of this, there is no material impact on Getinge's EBITDA margin or, or earnings per share, earnings per share in 2020.
We do expect, though, in the coming years, that we will expand, as we expand the business with sales of some of the newly launched products and what is also in the R&D pipeline of Applikon, that we will see margin expansion in the coming years. So, that's a key thing from a shareholder value perspective. We then look at the balance sheet impact on the acquisition. Our net debt will increase by approximately SEK 840 million at the closing of the first quarter of 2020, meaning that the leverage will go up by 0.2 times EBITDA. There's also an earn-out mechanism in this acquisition.
So, it's capped at SEK 630 million, and this is to be paid out after the closing of, mostly after the closing of 2021, depending on targets that we have set together with the sellers in the process. So that's the main or the key points from a financial perspective. And with that, we can move to page number seven, and I will close the description with a couple of key takeaways from this acquisition. We believe this is a good offer, fit, and growth potential for our life science business. We are truly strengthening the offer towards our biopharma customers. It's a perfect fit from a portfolio, geographical, customer, and technological perspective.
We have also said and agreed with the sellers that the organizational setup of Applikon Biotechnology will remain during the earn-out period. We are addressing an end market valued at about SEK 10 billion, and the market growth in the coming years is estimated to be around 10%. If you look at the financial consequences, then in summary, SEK 450 million in added net sales. Margin expansion expected in the coming years for life science, but no material impact on Getinge's EBITDA margin and earnings per share for 2020. The purchase price to be paid at closing in the first quarter of 2020 is SEK 840 million, or EUR 80 million.
Getinge's leverage, leverage is expected to be impacted by approximately 0.2 turns in the first quarter of 2020. And there's a maximum earn-out to potentially be paid in 2021, at the end of 2021, which is capped at EUR 60 million or roughly SEK 630 million. So that's a short description of the acquisition that we're announcing today. And with that, I open up for questions. Thank you.
Thank you. And ladies and gentlemen, if you do wish to ask a question, please press zero and then one on your telephone keypad now. The first question is from the line of Annette Lykke from Handelsbanken. Please go ahead, your line is open.
Thank you so much. I just want to ask if you could please say a little bit about how you see the growth drivers in the market of $10 billion. What is the underlying growth driving these +10% per annum? And then, my second question would be on these bioreactors. It sounds like a very critical part of the production. What is the lead time to generate orders within this? Is it on par with the solutions you already have within life science? Or should we expect this maybe to take a little bit longer time as you take over distribution in critical markets like U.S. and Europe? Thank you.
Yeah, thank you, Annette. The growth drivers here is similar to for the rest of our life science business, really. It is the trend towards biological drugs as opposed to chemical drugs. That's really the, and also more customized drugs. And higher demands on shortening the time to market for customers as well is another growth driver for the business. So essentially, the same type of drivers that we have for our life science business today. It's a little bit higher than the growth average of our current life science business, but essentially the same drivers in the background. And then the sales cycle, I think, you can assume that it's roughly the same as, certainly not longer than our current life science business. It's similar, if anything, maybe a little bit shorter.
Okay. Thank you very much.
Next question is from Patrick Uhlen from DNB Markets. Please go ahead, your line is open.
Yes. Hi, three questions, if I may. First, could you tell us a little bit about the distribution agreement that this company have with its distributors? How long these contracts are, and if it's easier for you to sort of move them over into your own proprietary organization. Secondly, could you also tell us a little bit about what will trigger the potential earn-outs, if there's something that we can track? And thirdly, could you also address a little bit what type of risks that you see within this company's R&D portfolio? Is it more research or is it more development projects? Thank you.
Yeah, thank you very much. The first question on the distribution agreement, it varies a lot between individual markets and distributors, but I would like to highlight that the intention is not to necessarily move a lot of agreements and do this just ourselves. The primary goal here is to develop the untapped parts of the markets together with Applikon, using the Getinge network for this. When it comes to the earn-out as such, it is measured on EBITDA over the next two years. And here I would like to highlight that it would be great if we were able to pay the whole earn-out, because that would make it a much more successful acquisition also for us.
So the multiple that we pay on this goes down if those milestones are achieved. But when it would comes to the risks, it's I would say, of course, the risk is probably more in the commercialization of what's in the pipeline now, that we actually succeed in this. That's, I think, one of the key themes for us. The company has a good track record over many years, I think, in both developing new products and serving customers effectively.
Okay, great. Thank you very much.
Next question is from David Adlington from JP Morgan. Please go ahead, your line is open.
Hey, guys, a few questions. So, firstly, maybe you could just give us some help around the current margin profile of the business, either gross margins or EBITDA margins would be useful, you know, where they are expected to be for this year, where they were the year before, and how you expect them to evolve from here. Similarly, just in terms of growth, what's the top line revenue growth are they expecting to post in 2019? I'll leave that the first two, and then I'll come back with a couple other couple.
Mm-hmm. Okay. When it comes to EBITDA margins, it's similar to our current life science business. When it comes to the forward-looking perspective, on a EBITDA level, it will be slightly dilutive to our life science business, 2020, but then accretive in the coming years as we launch some of the new products here and develop the market together with them. When it comes to growth, it's been a bit of a lumpy business in the past. They've burnt themselves a little bit on some going a little bit too far in customization. So a lot of this has been corrected during 2018 and 2019. It's more steady state now, and the expectation is that we will grow at least in line with the market from 2020 onwards.
So can I just push what the growth was, what, what the growth is expected to be in 2019?
So we haven't disclosed that actually. We only say that it's SEK 450 million net sales increase for us.
Okay, and you give any color in terms of why the vendor is selling?
Yes, it's mostly from two things, really. One is the succession planning. The three founders were the ones who did an MBO several years ago, and are planning, as the CEO, I guess, is first in line for retirement at some stage as well. So, that's a key factor here. The second is that the company is at a stage where the commercial reach is a bit of a bottleneck for growth. They see an opportunity to really scale up with a stronger commercial partner, which Getinge will be. So those two things, the planning for succession and really realizing the commercial potential of some of the newly launched products, but also what's in the pipeline going forward.
Okay. And then final question. You're obviously coming up against some fairly large players here in kind of Thermo and Sartorius and a couple of others as well. Just wondered how you position this business and the kind of key USPs for this business versus the competition.
Yeah, sure. I think we had—there's some respectable competition here, also, companies that we know very well from our presence in this business already. And I think some of the key USPs here is the scalability that I touched on earlier. Possibility to scale both up and down from research into production. We believe that the controllers and the software systems as well are key selling points here. They can also be used on other companies' platforms. So those are, I guess, some of the key elements that we'd like to highlight.
Great, thanks so much.
Just as a reminder, if you do have a question, please press zero one on your telephone keypad now. Next question is from Johan Unnérus from Pareto Securities. Please go ahead, your line is open.
Thank you for taking my question. I hope you can hear me. Yes, if some have been taken already or addressed, clarification there on the access to market and expanding on the distribution region, is that something you will need to increase your FTEs on that part, or will you work in a different way with the current distribution agreements?
I think we will the main expansion is outside actually the current distribution agreements. I think that the company has a good network of partners, and our primary focus is really to expand in areas where they do not cover properly today. And that's one key asset, and is getting a sales force as well, where we believe that our people can be trained to sell this the products of Applikon. So that's the number one priority. There are a couple of geographies where we may look at adding resources as well, but this is a little bit too early to say now.
It depends a little bit on the joint analysis we will do here once the acquisition closes. There are a couple of areas where we may look at also co-locating our people with the Applikon people, but that's also a question that we will deal with in dialogue with the current management.
Thank you. That's useful. On the R&D and the pipeline activity, how many FTE are involved in that part?
We haven't. We are not going to disclose any breakdown of the 180 people that comes with the company, but they have a good track record of or a strong focus on R&D.
Okay. On the gap in the market, the large bioreactors and single-use, perhaps you mentioned that earlier, is this something that we can expect you to move into eventually?
It's something we may consider as we go along. It's not the number one priority now. It's a market that is dominated by GE and Sartorius today, and I think Applikon has chosen to focus on the left bottom quadrant of the single-use market here. So that's our primary focus in the first few years, at least.
Hello? I lost you there, but I don't know if you can hear me again.
Yeah, I can, I can hear you. So,
So the-
Did you hear the end? Yeah.
I lost after GE, and I understand that you may consider this going forward, but it's not the number one priority.
No, I think the first priority in market expansion is with new products in the small single-use reactors. I mentioned the AppliFlex launch they've done this year that we will continue to drive.
Okay. Very interesting. Thank you.
There are currently no further questions registered, so I'll hand the call back to the speakers. Please go ahead.
All right. Thank you very much. I've also nothing to add. I think we've summarized this in a good way now. Thank you very much for joining the call today, and wish you a good rest of the day.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.