Good day, and thank you for standing by. Welcome to the Vitrolife presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand over the call to your first speaker today, Mr. Thomas Axelsson. Thank you. Please go ahead.
Thank you very much, and welcome to Vitrolife presentation today, the 9th of July. The topic today is that Vitrolife acquires Igenomix, by that we will create a global leader in reproductive health. Today's speaker, if you go to page number two, is Mikael Engblom, the CFO of the company, and myself, Thomas Axelsson, and I am the CEO of the company. If you go to page number three, you will see what we are trying to cover today in this short meeting. Since we don't have so much time, let's go into directly the transaction highlights on page number four. The reason behind this is from our side quite obvious. Vitrolife is, as you know, a company that are producing, selling, products and especially medical devices.
What we are producing, what we are doing is to increase the outcome of the process up until you do the selection or the evaluation of the embryo. We have products that are reducing the stress, w e have products that are also for having an ability to judge the process itself and also at the end vitrify the products. Igenomix, we are not competing at all. Igenomix is a company, and they have a leadership in reproductive genetic testing services. They are coming in this process before the couple has decided to go into an IVF journey, and they are also having products to check and to advise, and to be involved in the testing of the embryo, and also products for the process after the embryo are tested and will be implanted. Please go to page number five.
That was a very, very quick introduction, and let's go into, you know, what we are trying to create then. The ambition from both sides, and I would like to say both sides, because this is an acquisition, but I see this as two companies coming from different sides but having the same kind of attitude, having the same kind of goal, and we have also been running our companies quite similar. The companies are built upon the situation that we have a goal to create the best possible outcome of an IVF cycle or within the reproductive health cycle. It is two strong brand names. It is two companies that are basing their product development and their interactions with the clinics, with providing good services, good products, and also an R&D focus.
Igenomix has a very, let's say, impressive situation with the R&D, definitely best in class within this field. Coming back to that later on. Both has capabilities to work together with the customers, and we are serving them both on a global basis. However, there are still some blind spots for Igenomix that hopefully Vitrolife can contribute, and there are also situations where Igenomix has a great relationship with some customers that Vitrolife has an opportunity to increase that relationship due to the services and support that Igenomix has done. Both companies are growing. Both company has a very good financial profile. We are both making money. We are both having a strong cash flow generation.
It is two companies that are mature in that stage, in that We are not, let's say, within a situation where it is technology that has to be developed. It is a situation where both companies can create product sales and at the same time, through our own structure, do R&D and continue to improve the outcome. Let's go into page number six. You know, you are seeing that Igenomix in perspective. You will see on page number seven then, you know, they are the global leader in reproductive genetic testing service. The sales, EUR 122 million. We are coming back to the financials later on. They have a good profitability, EUR 36 million.
What's very impressive is the scientific publications, 492 publications, and behind that is a long-term development within the company and the structure that has been managed by Carlos Simón. What the company has and what is the base for this growth is also a situation that 14% of the people inside Igenomix holds a PhD, and there are very impressive numbers of masters, so i t is a knowhow organization that Vitrolife are going to acquire, and together then we will be able to then join the development side. 560 full-time employee, December last year, and they are continuing to recruiting more competence. They have labs in 21 jurisdictions, and they serve around 80 countries globally right now. Please go to page number eight. The testing portfolio.
They have a testing portfolio that is quite impressive. It is from preconception to the pre-implantation analysis side, and I will come back to that more in detail, prenatal and also rare diseases. It is a full portfolio of testing for the complete process then within reproductive and personalized medicine. Please go to page number nine. On page number nine, it's two tests I would like to have a quick description on, that is the genetic evaluation tools, PGT-A. The ones that has been following Vitrolife before knows that we have PGT-A. We are in this case not doing the services. We are selling and we have currently developed one kit for the usage when you do a PGT-A. Igenomix has their own testing, they have developed also their own algorithms that are quite impressive.
What they also have is a testing, it is also, you know, their own proprietary rights, that is the ERA testing. Both of them then is for checking the genetic embryo and also the endometrial evaluation then. You know, all of this is completely in line with the concept, the idea within Vitrolife about helping the customer, helping the patient to shorten the time to pregnancy. That's just an example on the product range that Igenomix has and what ambition has been within Vitrolife and how these two can combine each other and where the testing regarding the situation of the two most important factors can be described in this picture. Please go to page number 10.
This is just another example, we're not going too much into details about the different kind of tests, is that t hey have a couple of key competitive advantages on PGT-A. As I mentioned before, they have their own proprietary data and algorithm, and t hey also have a huge technical expertise to provide competitive advantages in different ways. On the endometrium side, endometrium-related test, on the earlier page I mentioned ERA. It's the same there, prepared test, and t he tests that they have are also showing very good clinical outcome. Within the company, an interesting area also for growth, for being able to expand into new areas where it's coming more or less from the customer, a situation, a demand, a question if Igenomix can fulfill their demand, and Igenomix are doing it.
They have currently developed and are in the phase of meeting more customers within this niche area, especially from a geographical and specific panel area. Please go to page number 11. There are many different tests if you look into this diagnostic industry. What Igenomix are doing is that they have been focusing on products tests that makes a clinical difference, has a clinical value. What you can see on this page is a couple of examples on products that has a complexity level, so it's not so easy to compete. It is not just to set up a laboratory. It is a complexity level together with a clinical value, and t here are the tests that I just mentioned.
As you can see, it is PGT-A, it is ERA testing, another side is the liquid biopsy, which is an interesting one at the top. Development in different areas goes on within this company. Please go into page number 12. Two examples, portfolios now that are backed by science. I talked about the impressive number of publications, and y ou can see that on the right side on page number 12. They've done 492 publications, and t he company has published 40 times per year for the last five years. One of the examples you can see on the left side of a publication is the ERA example. The ERA example shows that their products, their services, their algorithms combined are increasing the clinical outcome.
As you can see, there is a difference, a well significant difference within the delivery. On the left side below that one, you have a PGT-A example. PGT-A can be done by and are being done by many different, even clinics and also by different kind of different centers. This is an example on when you provide good services and good algorithms, what you can do for a sample that has been sent to different laboratories and see how they are able to rate a euploid situation. Please go to page number 13. Talked about the decentralized organization, this is part of the success of Igenomix, it is also the same kind of ambition that Vitrolife has, and that is to be a company that are within a niche market.
When you are in a niche market, we have to be close to the customers. Decentralized structure, it is decentralized with laboratories in many countries, in many places. The reason is that they can then talk to the customer, they can react very quickly, so t he support to the customer, to the clinics is key for the growth, and that is the strategy that Igenomix has had, very similar to the situation that Vitrolife are in, growing together with the customers locally. Please go to page number 14. Initially, I said that it is two companies that together are having good growth, and o n page number 14, you can see there is a proven track record of driving attractive growth and profitability. Once again, the same kind of idea of running the company's profitable growth are shown in reality on page 14 for Igenomix.
Transaction rationale. Let's go to page number 16 it is. I have explained quickly about a couple of those, but to repeat them, it is that we will together be able to fulfill the customer need, and we can grow the customer base. The synergies between the products and within the reproductive health is quite high, both in cross-selling products and also that we can have a combined platform sharing, integrating platform for that. Number-wise, of course, it makes sense that we can then have synergies regarding how we are doing the development and also synergies regarding in how we can meet the customers, and a ll of this is around Vitrolife's thoughts for acquiring Igenomix. It is to get into this high-growth IVF diagnostic testing center.
The growth rate within the IVF diagnostic testing sector is higher than the growth rate of the IVF cycle itself. It is to come into growing segment, be involved in developing this segment in different fields, and then having an effective structure to meet the customers and provide that kind of service. If we go into page number 17, I will just repeat a little bit regarding it so you can see how we have done the strategic development. Page 17, the ones who know Vitrolife knows well. On this page, look on the evaluation. You see the time-lapse. What we have done here is that we know through studies that the challenge is what you can see on page number 18. That challenge is when the transfer, what embryo to choose and how is the endometrium.
An IVF clinic that works extremely well, they are successful. Even if they are successful, they can have use of more tools, and they are successful because they're using some tools too, so o n this page, you know, that is from the Assisted Reproduction Technology, from 2018, we can see that it is around 40-45% of the transfers that you do that are ending with a good result, a live birth, so t here is a challenge. It is not really the challenge about when you do retrieval up until you have done the culturing. It is what embryo to choose and are the endometrium ready. Page number 19, you can see that Vitrolife has been working on embryo evaluation time-lapse. We have initially, and we are working with it, is also the PGT-A. Two techniques to do embryo evaluation.
Igenomix, they don't have any products for the morphology. They have products for doing the embryo evaluation like PGT-A. What Igenomix has that Vitrolife do not have is the situation in the genetic testing, and that is the right embryo, yes, of course, through the testing, but also the right timing because t here are a situation that recurring implantation problem. The reason behind it can be that the endometrium is not ready to receive the embryo, even if the embryo looks good. Those two together is Vitrolife's thoughts to get a full synergy for the customer, for the patients, and t he same thing is for Igenomix, that combining a good embryo is a key thing also for judging the ability to do a very good IVF cycle for the clinic.
In summary, you have a competent embryo and also that the endometrium is ready to receive it. That's the basic story and the transaction rationale from a clinical point of view, and that will reflect also in the growth and the development of these two identities together. By that, go into transaction terms and structure on page number 20, and then I hand over to Mika.
Thank you. Let's jump into page number 21 then. We're based on expected pro forma sales for the 12-month period ending in June 2021. We forecast that sales will amount to SEK 2.460 billion, and w e forecast that the EBITDA will amount to SEK 864 million, and that is excluding the COVID-19 testing revenue and profitability impact that we consider non-recurring. Of course there will be an immediate effect on the top line for the combination, but a lso, as Thomas mentioned, we see long-term growth opportunities in this growing segment. When it comes to synergies, as Thomas touched upon, we do see cross-selling opportunities on the revenue side.
We see opportunities in the innovation side from the evaluation business, for example. When it comes to the financial impact, we're looking at somewhere like 68% on a pro forma basis, last 12 months, accretive to sales and about 45% EBITDA, and w e have a strong cash flow from the business that we are acquiring. When it comes to the net debt situation, we will be well below three, which is our target. We expect to be somewhere in the region of 2x EBITDA in net debt, and t hat of course creates opportunities. I mean, financially, we will not be limited through this acquisition, and we are able to use this new platform to grow further.
Switch to page 22, and I will take you through a little bit of the highlights in the terms structure. The transaction is the EUR 1,250 million then, SEK 12.7 billion enterprise value, and t he way we have financed this is that it's a mix then of issue in kind to the sellers, it's a directed share issue that was performed last night, and w e have the cash balances in the company. We had a net cash position when we went into this, and we also have secured new committed debt facilities.
We have had the transaction supported by our largest owners, William Demant and Bure, as well as new shareholders, Fjärde AP-fonden and AMF. The transaction is then subject to customary closing conditions and regulatory approvals in a few jurisdictions. If we move to page number 23, I will go through the financing and share issue a little bit more in detail. First, we have the issue in kind to the sellers of EUR 626 million, and that corresponds to about 12.7% of the outstanding shares. Then there is a commitment that William Demant, Bure Equity, and Fjärde AP-fonden will purchase EUR 300 million of those shares from the sellers.
Then we have the new share issue that we completed last night of SEK 3.6 billion, and that was directed towards institutional investors through an accelerated bookbuilding procedure. On top of that, we have then the EUR 274 million cash and debt component, and the debt was provided by SEB and Nordea. All in all, we expect the number of shares to increase from 108 million to about 135 million shares, and that's equal to a dilution of close to 20%. The issue in kind is conditional upon the approval at the Vitrolife extraordinary general meeting, which will be summoned for in the autumn.
We have secured that 47% of the shareholders will vote in favor of issuing these shares at that AGM. With that, page number 24, the timeline. Announcement yesterday, we had the share issue last night and the directed share issue, and then the AGM will be done during the autumn. We will come back with specific time regarding that, and then we expect closing to happen in Q4 after the regulatory approvals. With that, operator, we are ready for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Again, as a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be taken by an operator. If you wish to cancel your request, please press the hash key. Once again, star one should you wish to ask a question. Our first question is from the line of Björn Olander from Murgata Equity. Thank you. Please ask your question.
Yes. Thank you for taking my questions. First of all, a very interesting combination, and I think it really improves one of your weak spots, in my opinion. The first question, I limit myself to two. I can ask many questions, but I limit myself to two. The first on integration and synergies, you mentioned a bit about potential for future developments and so on, and that makes sense to sort of, I suppose, combine time-lapse, and these types of technologies, a nd also some sales synergies, which I expect are quite limited, given the strong positions both companies have on the customer side, but o n the cost side, are there any cost synergies? I suppose since you don't have any labs and so on.
Suppose they are going to be quite limited, or is this going to be some kind of a more integration with sales, on a sales level as well? I mean, sales organization level, so to speak. Basically, how much sales synergies will it be, and also, are there any cost synergies? That's the first question.
Hi, Björn, it's Thomas here. I think it was two questions combined then. The first one was around the product development, and the situation there, and the technique. Yes, we see synergies and how can you see the synergies regarding the R&D? That is to understand what the customers is asking for and how you can combine that with product development. Just one example is that the development of time-lapse, as you know, is something that we have done for many years. The development of media is what we are also doing. That is a stress-free environment, and it's also to be able to do the morphology checking.
What with the Igenomix that has a skill knowhow in a field that we don't know about, you know, the combination there for product development can, for instance, be that non-invasive techniques. The ability to do algorithms is something that Igenomix has within genetic testing, so t he combination of those two is just an example where the two teams together can hopefully do something that is decreasing the cost for the customer, making it a lot easier to use, you know, that's key also for the customer, and improving the clinical outcome. That's just one example of it where you can see that there are combination of things within the development that is not only regarding the reproductive genetic testing, where Vitrolife will not be able to do anything for Igenomix.
On the other side, Igenomix will not do anything for our, let's say, traditional disposable products, but c ombined in front of the customer are a development potential. Regarding the synergies on sales, regarding the cost synergies also. On the sales side, it is flattering that you said that we have a very, very strong position. I would like to say yes, we have a strong position, but there is still a lot to do. There are opportunities in going in and doing cross-selling. It is opportunities for us to use the decentralized organizations of the genetic laboratories combined with hopefully then a larger local sales force from our side and vice versa. Of course, there are sales synergies. There is also situations where customer currently are asking for, let's say, leverage of their size.
I'm talking about the consolidation of IVF, of IVF clinics. So sure that stronger offer here of both being able to provide products, services for those products, and also genetic testing is a strong cross-selling opportunity. I do think I covered those things. I don't really remember all your questions, Björn.
Yeah. I mean, the cost synergies, I mean, there are labs and in some markets you probably have a sales organization and so on. Does it make sense to sort of squeeze out some cost synergies from that? I suppose it will be quite limited in that case.
It's interesting that you mention cost. What I see is profitable growth. I mean, how will we be able to grow? Y ou know, we are not buying Igenomix, and Igenomix is not accepting shares from us, you know. It is a situation where we believe that the combination will create profitable growth, and t hat's the key thing. I am not going to, o ur intention is definitely not to go in and do any kind of cost cutting and trying to find, let's say, synergies by taking away structures for development or structures for sales and marketing. Definitely not.
That's very good. In order to grow, I think you have to invest, so that sounds reasonable. The second or maybe the third, or however we count it, the current offering from your Illumina agreement, which is sort of partly in the same area but more for, I think customers who have their own capabilities and so on. How should that be viewed in relation to the Igenomix offering? I mean, partly of course complements, but are they also some, I mean, in principle, you could sell kits to clinics through that agreement a s well, yeah.
Yeah. Yeah.
Any thought on that would be interesting.
Yes, yes. Quickly. Looking from the customer perspective, currently, you know, where genetic testing is done or let's say where they wanna have results from genetic testing within the IVF clinics, if you're only looking on the IVF side right now. Roughly an estimate 80+ of all the tests is being sent outside their IVF laboratory globally. From our perspective is if you say the Vitrolife perspective, we have found out that there is two questions that is being asked if you run an IVF clinic. It is should I build up my own laboratory or should I send it to an outside genetic laboratory?
In those situations, we have not been able to provide a good answer on 80% of the cases because we have not had any partnership or anything with a service place. We've only been selling, you know, the products for doing the PGT-A. First is that it is two different approaches from the customer. Our intention and our belief is that we can fulfill both groups, you know, both the ones that wanna do their own testing and the ones that wanna send it to outside. Another thing is it is only regarding PGT-A. Igenomix is so much more. You know, the situation within the testing portfolio for Igenomix is preconception testing. It is more tests within the pre-implantation side. It is prenatal rare diseases.
To view the testing portfolio within Igenomix, it is not really fair to compare that with only Vitrolife's position within PGTA. I think that we have larger portfolio, a better service opportunity, but also still being able to provide products and support to those that would like to run their own genetic testing for PGTA.
Yeah. Okay. Very good. Thank you very much.
Our next question is from the line of Patrik Ling from DNB. Thank you. Please ask your questions.
Thank you, guys. I have a few questions. First of all, could you say anything about any potential integration costs?
Should I take it? Okay, Mika, I can take it. The integration cost, as I view it depends what I, you know, I said to Björn earlier question then I don't see that it is going to be so much synergies within the cost side. Of course, there are going to be a few synergies probably within some functions, but t his case is not built upon cost synergies.
Okay. I wasn't talking about really costs for or cost savings, but rather if there are any, you know, legal costs or stuff like that we should keep in mind when you actually integrate it.
Yeah, I can, I can imagine that. We will of course have some transaction related costs, where, I mean, with the, with the new share issue and the bank loans and the due diligence process and the filings for regulatory approvals and so and things like that, and w e expect these to be in the range of EUR 15 million in total in that ballpark.
Will those costs primarily hit 2021 or will we 2022 will be a pretty clean year, or how should we see it?
Yes. Yes. I mean, based on our, you know, timeline, we expect that to hit this year.
Okay, great. Thank you. Next question is really margin development in Igenomix. I mean, when we look at the numbers, they look to be I mean, they still have very high EBITDA margins, but clearly below your level. What do you see driving those margin upwards? Is it more volume or is it anything else? Has the company reached what you would consider a critical volume already or are there anything else that could improve the margins over time?
Well, we are seeing that the business has certain economies of scale as the laboratories are doing more tests, so w e are seeing certain opportunities to improve margins over time.
Do you care to elaborate on where you think they could end up in a positive long-term scenario?
No. I mean, we're not doing any forecast and of course we haven't, you know, completed the acquisition yet, so I mean, there is of course a lot of things that we should learn more about, but we see certain opportunities in that direction.
When it comes to margin, do you think that a reasonable base case for us that needs to do some calculations here is the sales and EBITDA excluding the COVID-19 testing? Is that where we should start?
Yes. I mean, we don't look upon the COVID-19 testing as a long-term or recurring business, so I think it's wise to exclude those when you do, you know, future forecasts.
Good. My last question is really if you could elaborate a little bit on the rare disease testing. I mean, that, is that related to, you know, IVF clinics or is it related to, you know, anywhere in the healthcare systems where you want to test for rare diseases?
It is coming out from a cooperation between hospitals and the clinics that belongs to hospitals and also from the development. It is currently there are a couple of panels, so it is prenatal and it is reproductive panels, and it is also other panels that are being involved in this field, in this side, a nd especially, you know, for specific areas. I am not right now in a position to go through the rare diseases. I have not gone into those kind of just say know-how. I prefer to wait a couple of months up until we have finalized this acquisition to learn more about it and also to understand more about the potentials that looks quite good, but I would like to know more about them before I start to talk about them.
Okay. Should we think about it as, you know, couples coming into a clinic and they know that there are some rare diseases in their family history, and they are testing for that, or is this something that we should see as something that's potentially much broader for you?
Yes, much broader. I mean, what you are mention first is one area, but it is a much broader perspective on what they have developed and what they currently are looking into, and what they currently have started to work with some customers on.
Okay. Would you like to say anything about how large that rare disease testing is in Igenomix today? The part that is not related to IVF clinics, that is.
Currently is very small.
That's like 10% or below?
Yes, like below.
Okay, great. Thank you, guys. That was all for me.
Thank you.
Our next question is from the line of Ulrik Trattner from Carnegie. Thank you. Please ask your question.
Thank you very much. Good morning, and congratulations on acquisition. I know I've been on to you guys that you should be doing acquisition, so obviously a relief and really great that you're doing this. Now looking at this, it looks like this is really now comparing up to Cooper Companies, them also operating in their sort of labs and having their wider product range and diagnostic testing. Just how does Igenomix stack up to Cooper Company's offering within this area?
Yeah, I'm not going to talk about Cooper. What I see, you know, in this area is that we have a wider portfolio. We have also a development, and that's the key thing with Igenomix that you can just see on the publications and what's coming out of that kind of pipeline, and the development of some specific fields, you know, like the ERA area, so i t is a situation where it is an intellectual growth organization that we think is a competitive edge.
Just how should we sort of Looking at this from a sort of wider perspective, how should we view this acquisition? There are a multitude of tests that can be sort of added. Looking at sperm analysis, should we view this as sort of a new platform to do additional M&A, to buy an additional diagnostic test kits, to call it, or integrating that into Igenomix?
I mean, the first thing is to close this business. Of course, we have looked into, you know, what are the different kind of areas for our strategic development. As you said initially, you know, we have talked about that we will go into technology. We will continue to focus on the areas where it is a challenge within the IVF. You know, challenge has to be to understand when is the right time to actually transfer an embryo. How does the embryo look like? How can you have a stress-free environment? So if we are getting more tools and we can find tools that are fitting into this process of doing better that are increasing the outcome. You just mentioned the sperm side.
Yeah, there are a couple of areas there. It's not anything that we have I can say directly, it's not anything that is my key focus right now.
Okay, great. Thanks. Just last question on my side. Just trying to wrap my head around how this sort of your current product offering from the collaboration with Illumina, how it all sort of fits together. I know that Björn asked a question about this earlier. Is there any way that we should be able to see that your product range within genomic testing fits into Igenomix? Is there any sort of infringement on your current collaboration with Illumina? It would be helpful if you could shed some more light on that, please.
Yeah. I mean, as Thomas mentioned, I mean, we don't see these products as co-competing businesses. I mean, we're selling the kits to clinics who would like to do in-house testing and Igenomix is providing the service. In terms of, you know, how all these contracts are being laid out, I mean, We don't go into to details on that.
Okay, great. That was everything from me. Thank you very much, and c ongratulations again.
Thank you.
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Okay. If that's the case, thank you very much. The attention was 30 minutes, and we are up to almost 45 minutes, so t hank you for listening in. Bye.
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