M&A Announcement

Jul 9, 2021

Good day and thank you for standing by. Welcome to the Vitro Life Presentation. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand over the call to your first speaker today, Mr. Thomas Exeltsen. Thank you. Please go ahead. Thank you very much, and welcome to VitroLife presentation today, 9th July. The topic today is that VitroLite Acquires Ideanomics. And by that, we will create a global leader in reproductive health. Today's speaker, if you go to Page number 2, is Mikael Englum, the CFO of the company and myself, Thomas Exoson, and I am the CEO of the company. If you then go to Page number 3, you will see what we are trying to cover today in this And since we don't have so much time, let's go into directed transaction highlights on Page number 4. The reason behind this is from our side quite obvious. VitriLife Would like is, as you know, a company that are producing, selling products and their special medical devices then. And what we are producing, what we are doing is to increase the outcome of the process up until you do the selection for evaluation of the embryo. We have products that are reducing the stress. We have products that are also for having an ability to judge the process itself and also at the end vitrify the products. Agenomics, We are not competing at all. IGenomics is a company and they have a leadership in reproductive genetic testing services. So they are coming in, 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 5. There was a very, very quick introduction. And let's go into 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 2 strong brand names. It is 2 companies that are basing their product development and their interactions with the clinics with providing good services, good products and also And R and D focus. Agenomics has a very, let's say, Impressive situation with the R and 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 blank spots for Agenomics that hopefully VitriLife can contribute. And there are also situations where Agenomics has a great relationship with some customers That ViteLife has an opportunity to increase that relationship due to the services and support that Ideanomics 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. So it is 2 companies that are mature in that stage. In that, we are not, let's say, within the 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 and D and continue to improve the outcome. Let's go into Page number 6. And you are seeing that the Ideanomics in perspective. And you will see on Page number 7 then, they are the global leader in the reproductive genetic testing service. The sales, dollars 122,000,000 We are coming back to the financials later on. They have a good profitability, €36,000,000 What's very impressive is the scientific publications, 4 92 publications and behind that is a long term development within The company and the structure that has been managed by Holosimander. And what the company has and What is the base for this growth is also a situation that 14% of the people inside Agenomics also PhD. And there are very impressive numbers of masters. So it is a know how organization that Vitru Light 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 lapsed in 21 year restrictions and they serve around 80 countries globally right now. Please go to Page number 8. So, the testing portfolio, they have a testing portfolio that is quite impressive. It is from preconception to the pre implantation in the license side, and I will come back to that more in detail, prenatal and also rare diseases. So it is a full portfolio of testing for the complete process then within Reproductive and personalized medicine. Please go to Page number 9. On Page number 9, it's Two tests I would like to have a quick description on, and that is the genetic evaluation tools, PDTA. The ones that has been following in vitro like before knows that we have PGTA. But 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 PDK. Agenomics has their own testing. They have developed also their own L grids that are quite impressive. What they also have is a testing and it is also their own priority rights and that is the Era testing. And both of them then is for checking the genetic embryo and also the endometrial And 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. So that's just an example on the product range that Ideanomics has and what ambition has been within VitroLife And how these 2 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. So we're not going too much into details about the different kind of tests is that They have a couple of key competitive advantages on PDTA. As I mentioned before, they have their own proprietary data and algorithm, And they 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 Ira. It's the same there, prepared test. And the 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 Agenomics can fulfill their demand and Agenomics are doing it. They have currently developed and are In the phase of meeting more customers within this niche area, especially from a geographical Please go to Page number 11. There are many different tests if you're looking into this diagnostic industry. What Ideanomics Are doing is that they have been focusing on product tests that makes a Clinical difference has a clinical value. And 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 the clinical value. And there are the tests that I just mentioned. And as you can see then it is PTA, it is ERAD testing. And 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 you can see that on the right side on Page number 12. They've done 4 92 publications and the company has published 40 times per year for the last 5 years. One of the examples you can see on the left side of the publication then is the Iara And the ER 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 PGTA example. PGTA can be done by and centers. And this is an example on when you provide good services And good algorithm what you can do for example that has been sent to different laboratories and see How they are able to rate a new cloid situation? Please then go to Page number 13. Talked about the decentralized organization, and this is part of the success of argenomics, and it is also the same kind of Decentralized structure. It is decentralized with laboratories in many countries, in many places. And the reason is that they can then talk to the customer, they can react very, very quickly. So the support To the customer, to the clinics is key for the growth and that's the strategy that Ideanomics has had very, very similar to the situation that Vitra Life are in, Growing together with the customers locally. Please go to Page number 14. Initially, I said that it is 2 companies that together are having good growth. And on Page number 14, you can see there's a proven track record of driving attractive growth and profitability. So once again, the same kind of idea of running the company's profitable growth Are shown in reality on Page 14 for Agenomics. Transaction rationale. And 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 all of this is around VitroLite's thoughts for acquiring Agenomics. 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. So 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 17, I will just repeat a little A bit regarding it, so you can see how we have done the strategic development. Page 17, the ones who know, Vitra Life knows well. On this page, look on the evaluation, you see the time lapse. What we have done here is that we know Two studies that the challenge is what you can see on Page number 18. And 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 on this page, that is from the systems Technology from 2018, we can see that it is around 40%, 45% So there is a challenge. It is not really the challenge about when you do a retrieval up until you have done the culturing. It is what embryo to choose and Are in the meeting ready. So Page number 19. You can see that Fitralife has been working on EMBLU evaluation time lapse. We have initially and what we are working with is also the PGTA, 2 techniques to do embryo emulation. Agenomics, they don't have any products for the morphology. They have products for doing the embryo evaluation like PGTA. What Agenomics has that, do not have is the situation in the genetic testing. And that is Right embryo? Yes, of course, through the testing, but also the right timing, because there are situations that recurring implantation problem Often. And this is the reason behind it can be that the endometrium is not ready to receive Even if the embryo looks good. So those two together is VitroLife's thoughts To get a full synergy for the customer for the patients. And the same thing is for Ideanomics, that Combining a good embryo is a key thing also for judging the ability to do a Very good IVF cycle for the clinic. So in summary, to 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 Mikael. Thank you. So let's jump into Page number 21 then. So we are based on Expected pro form a sales for the 12 month period ending in June 2021, We forecast that sales will amount to SEK 2,000,000,000 to SEK 460,000,000. And we forecast that the EBITDA will amount to SEK864 1,000,000 and that is excluding the COVID-nineteen testing revenue and profitability impact that we consider nonrecurring. So of course, there will be an immediate effect on the top line for the combination. But also, 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 form a basis last 12 months accretive to sales and about 45% And we 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 3, which is our target. We expect to be somewhere in the region of 2 times EBITDA in net debt. And That, of course, creates opportunities. I mean, financially, we will not be limited through this acquisition, and we are able 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, and so the transaction is the SEK 1250,000,000 then, SEK 12,700,000,000 Enterprise value. And the way we have financed this is that it's a mix Then of issue in kind to the sellers, and it's a direct to share issue that was performed last night. And we 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, Billunden Mountain Bureau as well as new shareholders, Fjerdaape, And the transaction is then subject to customary closing conditions and regulatory approvals in the So if we move to Page 23, I will go through the financing and share issue a little bit more in detail. So first, we have the issue in kind to the sellers of EUR626,000,000 And that corresponds to about 12.7% of the outstanding shares. And then there is a commitment That we know demand, Bureau Equity and Fairhope Funden will purchase €300,000,000 of those shares from the sellers. Then we have the new share issue that we completed last night of SEK 3,600,000,000 And that was directed to Ward's Institutional Investors through an accelerated book building procedure. And on top of that, we have then the EUR 274,000,000 cash and debt component, 35,000,000 shares and that's equal to a dilution of close to 20%. And The issuance kind is conditional upon the approval at the Richlife Extraordinary General Meeting, which will be summoned for in the autumn. And we have secured that 47% of the shareholders will vote in favor of Issuing these shares at that AGM. So with that, Page number 24, the time line. So announcement yesterday, we had the share issue last night and the direct share issue and then the EGM will be done During the autumn, we will come back with specific time regarding that and then we expect closing to happen in 4th quarter Thank you. Ladies and gentlemen, we will now begin the question and answer session. So our first question is from the line of Bjorn Oleander from Mogarta Equity. 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. So the first question, I limit myself to 2. I I'll ask many questions, but I'll limit myself to 2. So 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 the combined time lapse and these types of technologies and also some sales synergies, which I expect are quite limited given the strong positions you both companies have On the customer side, but on the cost side, are there any cost synergies? I suppose If you don't have any labs and so on, I suppose they are going to be quite limited. Or is this going to be somewhat kind of a more Integration with sales on a sales level as well, I mean, sales organization level, so to speak. So basically, how much sales synergies will it be? And also, are there any cost synergies? That's the first question. Hi, Bjorn, it's Thomas here. I think it was 2 questions combined then. The first one Was around the product development and the situation there and the technique. So Yes. We see synergies and how can you combine how can you see the synergies regarding the R and D? That is to Then what the customer 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 Agenomics that has Skill know how in a field that we know about, the combination there for product Unit testing, so the 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, That's key also for the customer and improving the clinical outcome. So that's just one example of it where you can see that our combination of things within the development. That is not only regarding the reproductive genetic testing where Vitrelyzed will not be able to do anything for Agenomics. And on the other side, Agenomics will not do anything for, well, let's say, traditional disposable products, but combined in front of the customer Our development potential. Regarding the synergies on sales, regarding the cost synergies also, On the sales side, it's flattering that you've 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. So there are opportunities in going in and doing co selling. It is opportunities for us to use the decentralized organizations of the Unetic Laboratories combined with Hopefully, then a larger local sales force from our side and vice versa. So of course, there are sales There is also situations where customer currently are asking for, Let's say, leverage of their size and talk about the consolidation of IVF clinics. For sure that a stronger offer here on both being able to provide products, services for those products and also genetic testing It's a strong cross selling opportunity. I do think I covered those things. I don't really remember all your questions, Bjorn. Yes. I mean, the cost synergies, I mean, there are labs and in some markets, you probably have a sales organization and so on. But 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 mentioned costs. What I see is Profitable growth. I mean, how will we be able to grow? And we are not buying Agenomics, And Ideanomics is not accepting share from us. It is a situation where we believe that the combination We'll create profitable growth. And that's the key thing. I'm not going to our 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. And 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 Ideanomics offering? I mean, partly, of Compliment, but are there also some I mean, in principle, you could sell kits To clinics through that agreement as well, but yes. Yes. And a thought on that would be interesting. Yes, yes, quickly. Looking from the Customer perspective, currently, where genetic testing is done or let's say, where they want to have results from genetic testing within the IVF clinic. If you're only looking on the IVF side right now, roughly an estimate 80 plus We have found out that there is 2 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? And 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 the products for doing the PGTA. So first is that it is 2 different approaches from the customer. Our intention and our belief is that we can Fulfill both groups, both the ones that want to do their own testing and the ones that want to send it to outside. Another thing is that It is only regarding PDTA. Agenomics is so much more. The situation within the testing portfolio for Agenomics is preconception testing. It is more test within the pre implantation side. It is prenatal rare diseases. So to view the testing portfolio within argenomics, it is not really fair to Compare that with only Vitro Life's position within PGTA. So I think that we have a larger portfolio, 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 PDK. Our next question is from the line of Patrick Ling from BNP. Thank you. Please ask your question. 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, it depends on I as you know, I said to Bjorn 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 this 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 legal costs, So stuff like that, that we should keep in mind when you actually integrate it? Yes. I can imagine that we will, of course, I have some transaction related costs, where I mean, with the Ushare issue and the bank loans and the Due diligence process and the filings for regulatory approvals and things like that. And we expect These to be in the range of €15,000,000 in total in that ballpark. And will those costs primarily hit 2021 or will we so 2022 will be a pretty clean year Or how should we speak? Yes. I mean, based on our timeline, we expect that to hit this year. Okay, great. Thank you. Next question is really margin development in Agenomics. 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 we 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 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. And when it comes to Maarten, 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-nineteen testing? Is that where we should start? Yes. I mean, we are we don't look upon the COVID-nineteen testing as a long term or recurring business. So I think It's wise to exclude those when you do in our future forecast. Good. Then 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 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 side and especially for specific areas. I am not right now in a position to go through the rare diseases. I have not to talk about them. Okay. But should we think about it as 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 is something that's potentially much broader for you that Yes, yes, much broader. I mean, what you are mentioning 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 We'll work with some customers on. Okay. Would you like to say anything about how large that rare disease testing is In Agenomics today, the part that is not related to IVF clinics that is? Currently, it's very small. And 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 Ulrich Ratner from Carnegie. Thank you. Please ask your question. Thank you very much and good morning and congratulations on acquisition. And 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. And 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 suggests how does iGenomics stack up to Cooper Companies' offering within this area? Yes, I'm not going to talk about Cooper. What I see in this area is that we have a wider portfolio. We have also a development and that's the key thing with Agenomics 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 like the EIA area. So it is A situation where it is an intellectual growth organization that We think is a competitive edge. And just how should we sort of Looking at this from a wider perspective, how should we view this acquisition? There are 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 and A, to buy an additional diagnostic test kits, Collage or integrating that into Ideanomics. I mean, the first thing is to close this business. Of course, we have looked into What are the different kind of areas for our strategic development? And as you said initially, 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. And the challenge has to be to understand when is the right time to actually transfer an embryo. How does the Ambu 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 and you just mentioned the sperm side. Yes. There are a couple of areas there, but it's not anything that we have in I can say directly, it's not anything that is My key focus right now. Okay, great. Thanks. And 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 sits together? I know Bjorn asked a question about this earlier. Is there sort of any way that we should be able to see that your product range within Genomic testing fits into iGenomics. Is there any sort of infringement on your current collaboration with Illumina? It would be helpful to if we could if you could shed some more light on that, please. Yes. I mean, as Thomas mentioned, I mean, we don't see these products as competing businesses. I mean, we were selling the kits to clinics who would like to do in house testing and the Luminess provide I mean, iGenomics is providing the service. So in terms of how these contracts are being laid out, Hanin, we don't go Two details on that. Okay, great. That was everything from me. Thank you very much and congratulations again. Thank you. Okay. There are no further questions, but the participants will still like to ask questions. And looks like there are no further questions. Please continue. Okay. If that's the case, thank you very much. The attention was So that does conclude