SORIN 16.01.04 Analyst Presentation x weblibrary.corporate-ir.net/library/17/175/175517/items/218303/2004...This presentation contains management preliminary estimates and ... President

Analyst Presentation

Milan - January 16, 2004

1

This presentation contains management preliminary estimates and forward-looking statements, including information related to Sorinprojected financial performance and the expected development of the med-tech industry, in particular in the cardiovascular and renal care segments. These statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, as of this date, though by their nature future estimates are uncertain and difficult to predict. Actual results or experience could differ materially from the information contained herein.

This communication does not constitute an offer or solicitation for the sale, purchase or acquisition of securitiesof any of the companies mentioned in any jurisdiction.

DISCLAIMER

2

AGENDA

• Background and history of the Sorin Group

• Umberto Rosa, Chairman

• Achievements to date and current performance

• Drago Cerchiari, CEO

• Aldo Lombardi, CFO

• The new Sorin: market-driven strategy and aligned organization


• Eric Beard, President International

• Bruno Inguaggiato, President CRM

• Stefano Rimondi, SVP RC

• Franco Vallana, President CS

3

SORIN GROUP PROFILE

• The Sorin Group, created through the demerger of Snia’s biomedical operations, is the largest cardiovascular medical device group in Europe

• The Sorin Group operates in the following segments of the medical technology market:

– Cardiac Surgery (CS)

– Vascular Therapy (VT)

– Cardiac Rhythm Management (CRM)

– Renal Care (RC)

4

MILESTONES: HOW WE CREATED THE NEW SORIN GROUP

Jan 2004

Listing on MTACompany Foundation Entering the Sorin Group

70’s 200240’s . . . 60’s 80’s 1992 1999 20032001

5

CARDIOVASCULAR: A LARGE AND FAST GROWING MARKET

• € 14 billion Cardiovascular market, high-growth expectations due to:

- Aging population and changes in lifestyle = expanding customer base and increasing penetration rate

- Economic development and wealth distribution = new geographical markets, increasing market size

- Technological innovation = new and less invasive therapies, driving demand for new products with higher ASP

• Significant barriers to entry = competition restricted to established players

An attractive business with significant and sustainable growth

6

KEY FACTS

• 2003E Net Revenues of € 715 million

• 4,800 employees

• 500+ patents and 1,000+ trademarks

• 450+ R&D people across Europe and North America

• Excellence in technology built on 30+ years of experience

• 5,000+ health care centers served, approx. 900 salespeople

• Over 1 million cardiovascular devices sold and over 3.5 million dialyzers per year

7

AGENDA












8

WHAT WE HAVE ACHIEVED TO DATE

What we have achieved to date: a global presence in the most attractive segments of Cardiovascular

The new Sorin: leveraging key assets to achieve sustained profitable growth

• Development of key assets

• Some key factors limiting performance

BUT …

• Market-driven strategy

• Aligned organization

AND …

9

KEY ASSETS

WW technological and commercial leadership in Cardiac Surgery

Strong technology and intellectual property platform also in high growth segments (Vascular Therapy, Cardiac Rhythm Management)

Unprecedented product reliability

1

2

3

Global reach

4

10

KEY ASSET - WW LEADERSHIP IN CARDIAC SURGERY

• 21% WWLeading market share (both in Cardiopulmonary and valves)

Leading market share (both in Cardiopulmonary and valves)

• 80 countries

• 400+ dedicated direct salespeople Global and effective distribution networkGlobal and effective distribution network

• Excellence in design-to-manufacturing process • Low costs in cardiopulmonary

• High quality valves

Excellence in manufacturingExcellence in manufacturing

• Synergy: the new mini by-pass system• Soprano: tissue valve with optimal haemodynamics

• Revolutionary Percutaneous valve technology

Strong R&D pipeline due to continuous innovation

Strong R&D pipeline due to continuous innovation

1

11

KEY ASSET - STRONG TECHNOLOGY IN HIGH GROWTH SEGMENTS: CARBOFILMTM APPLICATION IN STENTS

Market need / opportunity

• Stents (used to treat coronary artery desease) are among the largest and fastest growing product segments in Cardiovascular

• Stents can cause thrombosis if not completely biocompatible

• One of the most important clinical needs is minimize the risk of thrombosis

Sorin solution: CarbofilmTM

coating for stents

• CarbofilmTM, a thin film of turbostratic carbon, originally developed by Sorinfor heart valves

• It has been proven to be one of the most bio-compatible materials with excellent mechanical properties and manufacturability

Impact

• 180,000 stents implanted so far

• 7,000+ patients in 14 clinical studies/34 centers

• Zero thrombosis

2

12

PEA (Peak Endocardial Acceleration)

AAIsafeR

Alto 2

• An implantable sensor that can measure the actual beating of the heart and thus provide the right therapy both for brady and tachy arrhythmias

• The only algorithm that paces the heart physiologically (i.e. from the atrium) avoiding unnecessary ventricular stimulation

PARAD/PARAD+• Proprietary software that

discriminates fibrillation episodes (potentially lethal) from physiological heart rhythm accelerations

Market need/opportunity

• CRM, € 6.6 bn market growing at 11% per year

• Increasing importance of “intelligent” devices that clearly diagnose heart electrical activity, delivering as needed stimulation

Sorin solutions

KEY ASSET - STRONG TECHNOLOGY IN HIGH GROWTH SEGMENTS: CRM

2

13

KEY ASSET - UNPRECEDENTED PRODUCT RELIABILITY: THE HEART VALVES EXAMPLE

• 30+ years of experience

• 750,000 implants since the 70’s

• Approx. 40 million cycles (open/close) per year

Zero structural defects

• Superior haemodynamics and design skills

• Fully integrated manufacturing process

• Impeccable quality control

• Carbon coating skills

3

14

KEY ASSET - GLOBAL REACH

• 11 brands with strong global reputation

• 1,000+ trademarksBrand portfolioBrand portfolio

• Direct and indirect sales force in approx. 80 countries worldwide

• Approx. 900 salespeople worldwide

Sales and distributionSales and distribution

• European and US production sitesManufacturingManufacturing

• 450+ R&D people across Europe and North America

• Approx. 60 joint projects with universities and hospitals worldwide

Research centersResearch centers

4

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FACTORS LIMITING SORIN PERFORMANCE

... but synergies and integration potential still to be fully captured

Multiple acquisitions

... but relatively lower focus on marketing and time-to-market

Strong technology focus

... with management focus not fully dedicated to medical technology

Part of a diversified holding company

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0

100

200

300

400

500

600

700

800

1998 1999 2000 2001 2002 2003E

0%

5%

10%

15%

20%Net Revenues% EBITDA

Size doubled in 5 years, growthmainly driven byacquisitions, but:

• Declining profitability

• Flat 2003 to 2002 Net Revenues

RECENT PERFORMANCE€ mm

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FINANCIAL HIGHLIGHTS€ mm

Net Revenues

EBITDA3

EBIT

Net income

EBITDA margin

EBIT margin

Net debt

Shareholders’ equity

Gearing

(1) 2002 Pro-forma accounts to reflect retroactively the capital increase, the dividend payment and the partial proportional demerger; 2002PF does not include Carbomedics (acquired on 21.01.2003). 9 months ended 30/09/2003 PF accounts to reflect retroactively the partial proportional demerger.

(2) Before goodwill amortization and grants(3) EBITDA equals EBIT plus depreciation and amortization, write -downs and provisions

2002 PF1

671.9

98.8

37.0

14.9

14.7%

5.5%

172.1

467.0

0.37

2003E

~ 715

~ 12%

~ 2%

~ 310

n.a.

n.a.

9m ended30/09/2003 PF1

Gross profit2

Gross profit margin

317.0

47.2%

527.3

61.9

9.3

-15.4

11.7%

1.8%

317.6

n.a.

n.a.

47.2%

249.0

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NET REVENUES

2002 Exchange rate effect

Change in consolidation area*

Operations 2003E

(33)

715672

80

* Carbomedics and Soludia

(4)

Variance analysis 2003E vs 2002€ mm

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SALES BY GEOGRAPHY AND BUSINESS UNITPercent

* 100% = € 527.3 mm as of 30 September 2003

23.8

7.4

9.2

59.6 23.1

3.3

59.1

14.5

Europe

North America

Japan

RoW

Cardiac Rhythm Management

Renal Care

Vascular Therapy

Cardiac Surgery

By Geography * By Business Unit *

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CAPITAL STRUCTURE

Total capitalisation and gearing Net debt (30/09/2003PF)

441.6467.0

324.4

172.1

73%

37%

0

100

200

300

400

500

600

700

800

900

0

10

20

30

40

50

60

70

80

Net debt

Shareholders' equity

Gearing

€ mm

• Long term debt includes € 146.9 mm for the financing of recent acquisitions

• Net debt as of 31.12.2003 is expected around € 305-310 mm

€ 317.6 mm

ST Net Debt LT Debt Net Debt2002 PF 1H03 PF

164.7

152.9

317.6

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AGENDA












22

THE NEW SORIN

• Development of key assets

• Some key factors limiting performance

BUT …

What we have achieved to date: a global presence in the most attractive segments of Cardiovascular

The new Sorin: leveraging key assets to achieve sustained profitable growth

• Market-driven strategy

• Aligned organization

AND …

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CARDIOVASCULAR: WHERE WE START FROMCardiac Surgery (CS)

Physician

Pathology -procedure

Market size2003 (€ bn)

CAGR 03-08

Market share

Main players

Vascular Therapy (VT) Cardiac Rhythm Management (CRM)

Cardiac surgeon and team

Interventional cardiologist/radiologist

Cardiologist / electro-physiologist

Coronary diseases (by-pass), valve dysfunction (replacement and repair procedures), heart transplant

Coronary and vascular occlusions (Angioplasty)

Arrhythmia, Heart Failure

1.8 5.6 6.6

5% 11% 11%

• Europe: 36%• North America: 14%• WW: 21%

• Europe: 3.1%• WW: 0.5%

• Europe: 8.1%• North America: 0.4%• WW: 2.2%

Medtronic, Edwards, Guidant, St. Jude, Terumo

J&J, Guidant, Boston Sc., Medtronic, Abbott, Terumo

Medtronic, Guidant, St. Jude, Biotronik

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CARDIOVASCULAR: 04-08 MARKET-DRIVEN STRATEGY

Sorin group vision

A recognized worldwide leader in haemodynamics and a true innovator in Cardiac Rhythm Management by building on leadership in Cardiac Surgery and delivering on innovation

Vascular Therapy

Cardiac Rhythm

Management

Cardiac Surgery

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CARDIAC SURGERY: 04-08 MARKET-DRIVEN STRATEGY

Cardiac Surgery

• Innovate and extend product range

• Expand in underpenetratedgeographies

• Leverage commercial synergies in the US (Cobe/Carbomedics in mechanical valves) and worldwide

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CS: STRATEGY BY PRODUCT SEGMENT

Market CAGR2003-2008 (%)

Minimally invasive

Annuloplasty rings

Tissue valves

Mechanical valves

Perfusion disposables & equipments

10 20 30 400 5 15 25 35

Sorin 2003 WW market share (%)

Maintain leadership• Innovate

product range– Mini by-pass– Broader CS

product range

• Improve market share in US through Cobe/ Carbomedicsintegration

Market size

~€ 100 mm

~€ 500 mm

-5

0

5

10

15

20Leverage leadership in perfusion and mechanical valves to penetrate high growth segments• Leading

technology in tissue valves

• Technologies across BUs to develop minimally invasive devices

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SYNERGY: A REVOLUTIONARY MINI BY-PASS SYSTEM

• State-of-the-art cardiopulmonary system that integrates in a single unit all the main elements of a cardiopulmonary by-pass

• Lower patient blood dilution and related side effects

• Utilisation in both traditional by-pass and beating-heart surgical procedures; optimal to address paediatric patients

• Already launched in US (Premium pricing)

• Physiological/less invasive extracorporeal circulation

• Symplification of cardiopulmonary by-pass set-up

Customer requirements for still-heart surgery

Synergy

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• Pericardial tissue valve for the aortic position, with superior haemodynamicperformance

• Supra-annular seating allows for the maximization of blood flow

• Patented detoxification process

• Over 18 years of clinical experience with bovine pericardium heart valves

• Prosthesis wrapped on a percutaneous catheter and introduced through femoral access (no chest opening)

LEADING TISSUE VALVES TECHNOLOGY TO BE APPLIED TO PERCUTANEOUS HEART VALVE REPLACEMENT

Leading Tissue valve technology Revolutionary Percutaneous valve

Today … Tomorrow …

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VASCULAR THERAPY: 04-08 MARKET-DRIVEN STRATEGY

• Maximize the potential of our innovative technologies to become a player in the highest growth segments

Vascular Therapy

30

-40

-30

-20

-10

0

10

20

30

40

VT: STRATEGY BY PRODUCT SEGMENT

Drug eluting stents

Peripheral stents


Sorin 2003 WW market share (%)

10 20

Passive stents

1550

Market size

~€ 0.3 bn

~€ 1 bn• Marketing and

clinical investments to prove superiority of Sorin stents (in particular on thrombosis and restenosis)

• Explore partnerships to maximize US value and to develop peripheral stents

Unique proprietary Carbofilmtechnology ensures zero thrombosis rate on all Sorin stents

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JANUS DISTINCTIVE FEATURES

Janus: the Sorin solution

Customer requirements for Drug Eluting Stents (DES)

• Further reduce restenosis rate

• Eliminate risk of thrombosis

• Avoid unwanted impact of drugs

Drug releasing sculpture

Integral Carbofilm coating

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Carbofilm

Coating

Stent

Architecture

Drug Loading

Process

Drug Eluting

Machine

2 European Patents

6 US Patents

1 European Patent (1 pending)

1 US Patent (1 pending)

3 European Patents (2 pending)

2 US Patents (2 pending)

4 European Patents (3 pending)

3 US Patents

JANUS CARBOSTENT INTELLECTUAL PROPERTY COVERAGE

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CARDIAC RHYTHM MANAGEMENT: 04-08 MARKET-DRIVEN STRATEGY

• Launch of newly registered technologies worldwide– Grow CRM in US– Gain market share in

Europe in ICD and CRT-D– Extract synergies from

ELA integration (Manufacturing, R&D, Sales & Marketing)

CRM

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-10

-5

0

5

10

15

20

25

30

35

CRM: STRATEGY BY PRODUCT SEGMENT

CRT-D

ICD

10 205 150


Sorin 2003 ww market share (%)

• US: accelerate CRT-D FDA approval

• EU: leverage position in pacemakers to push new product range:

– Alto 2 ICD, with reduced size (39cc), launched in 2003

– Alto 2 MSP CRT-D to be launched in EU in 2004

– PEA: potential applications for ICD and CRT-D

Market size

~€ 1 bn

~€ 2 bn

• Focus on marketing of Sorin outstanding technology:

– Symphony, the highest standard in pacing, launched in 2003

– AAIsafeR proprietary algorithm

Pacemaker

• Full integration of electronic platform (GXD 2)

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NEW CRM PRODUCT RANGE

• SYMPHONY - The highest standard in pacemaker functionality: wide range of therapies, efficient AF prevention, small (24gr, 10.5 cc, 6.4 mm) and long lasting (8.7 years)

• Launched in 2003

Pacing

• ALTO 2 - Reduced size (39cc)

• Prevention algorithms and improved programming SW• Launched in 2003

ICD

• ALTO 2 MSP - High voltage device for Congestive Heart Failure by means of Cardiac Resynchronization Therapy

• To be launched in EU in 2004

CRT-D

• New common platform for all devices (Sorin & ELA brands)

• Low current consumption, large scale data memory, fast telemetry• To be launched in 2005

GXD 2 Platform

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GROW CRM IN US

• US CRM market = 70% of worldwide market, highly profitable

• Majority of CRM product range already FDA approved

• Sorin already possesses strong assets in US:

– Reputation (ELA, Cobe, Carbomedics)

– Relationships with leading customers

– Managerial infrastructure (incl. Regulatory and Clinical affairs)

• Speeding-up approval of new product range

• Gaining market acceptance through a dedicated clinical development team

• Leveraging existing CS infrastructure and customer relationships

• Further developing a direct salesforce in selected areas

• Developing partnerships to increase distribution coverage

Why How

37

RENAL CARE: STRATEGY BY PRODUCT SEGMENT

-5

0

5

10

Solutions, blood lines & ancillaries

Haemodialysismachines


Sorin 2003 European market share (%)10 20

Dialyzers

1550

Market size

~€ 0.1 bn

~€ 0.5 bn

• Expansion of product range

• Synthetic membrane dialyzers• New up-to-date

machine

• Bio-feedback

• Innovative, single-patient tailored dialysis techniques (e.g., Haemodiafiltration on-line)

• Technology cross-fertilization: new business opportunities in treatment of other diseases (e.g., Congestive Heart Failure)

• “All powder” concentrate

• Captive lines

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EXECUTION BY AN ALIGNED ORGANIZATION

Focus on extracting synergies from integration (revenues and costs)

Customer-centric organization

Strengthened management team

1

2

3

39

Cardiac Surgery Vascular Therapy Cardiac Rhythm Management

G&A costs• Reduction of legal entities• Rationalization and consolidation of overheads• Centralization of common purchasing

Manufacturing costs

• Rationalize/specialize sites by core manufacturing competencies• Optimize make/buy• Optimize physical distribution and inventory levels across the whole

"manufacturing system"

Sales and marketing

• Account management, customer-centric geographies• Leverage on customer relationships and reputation across businesses• Optimization of customer support and sales channels within geographies

R&D• Integration of Sorin

and Ela• Integration of Sorin

and Carbomedics• Synergies with

Cardiac Surgery

Regulatory • Integrate local teams to leverage relationships with regulatory bodies

- PRIORITY AREAS FOR SYNERGIES RESULTING FROM INTEGRATION1

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• Italy • France• Germany• Spain• UK• Other EU Countries• Japan

• USA• Canada

• Eastern Europe• South Africa &

Sub Sahara• Middle East &

North Africa• India & Pakistan• China & Far East• Oceania• Latin AmericaSVP, BU Renal Care

Stefano Rimondi

President, BU CRMBruno Inguaggiato

BU Vascular Therapy& New BusinessesA.I. Franco Vallana

President, BU Cardiac SurgeryFranco Vallana

VP, Bus. Dev. & Strat. PlanAnton Failla

Chief Information OfficerTBD

Chief Scientific OfficerTBD

VP, Chief Financial OfficerAldo Lombardi

SVP, Corporate DevelopmentCarlo Vanoli

SVP, HR & OrganizationGiovanni Caruso

Chief Executive OfficerDrago Cerchiari

President, International

Eric Beard

RoW

A.I. Eric Beard

President, North AmericaRodger Stewart

ChairmanUmberto Rosa

- CUSTOMER-CENTRIC ORGANIZATION2

41

- REGIONS VS. BUSINESS UNITS

SVP, BU Renal CareStefano Rimondi

President, BU CRMBruno Inguaggiato

BU Vascular Therapy& New BusinessesA.I. Franco Vallana

President, BU Cardiac SurgeryFranco Vallana


Eric Beard

RoW

A.I. Eric Beard

President, North AmericaRodger Stewart

VP, Bus. Dev. & Strat. PlanAnton Failla

Chief Information OfficerTBD

Chief Scientific OfficerTBD

VP, Chief Financial OfficerAldo Lombardi

SVP, Corporate DevelopmentCarlo Vanoli

SVP, HR & OrganizationGiovanni Caruso


ChairmanUmberto Rosa

Regions

• Geographical P&L accountability for all businesses

• Customer centric approach

• Account management

• Leverage local market opportunities

• Strong, focused tactical marketing supported by strategic marketing

Business Units

• WW P&L accountability for a given business

• Drive innovation

• Strategic marketing

• Drive manufacturing & supply chain excellence

2

42

• 4 new hires with over 100 years of cumulated experience in the industry

• 7 managers with 150 years of cumulated experience in Sorin to ensure continuity

- STRENGTHENED MANAGEMENT TEAM3

SVP, BU Renal Care

President, BU CRM

BU Vascular Therapy& New Businesses

President, BU Cardiac Surgery

VP, Bus. Dev. & Strat. Plan Chief Information Officer

Chief Scientific Officer VP, Chief Financial Officer

SVP, Corporate Development SVP, HR & OrganizationGiovanni Caruso

Chairman

Stefano Rimondi

Bruno Inguaggiato

A.I. Franco Vallana

Franco Vallana

Anton Failla TBD

TBD Aldo Lombardi

Carlo Vanoli

Eric Beard Rodger Stewart

Umberto Rosa

• 4 positions still to be filled


President, North America

A.I. Eric Beard

RoW


43

SORIN GROUP ROAD MAP FOR THE NEW SORINYear

Phase

CS

VT

CRM

Main product launches

2004 2005 2006 2007 2008

• Synergy mini by-pass

• Genius (2nd generation mini by-pass)

• Tissue valve (US)

• Janus (EU)

• Symphony (pacemaker)

• Alto2 (ICD)

• CRT-D (EU)

• New electronic platform

• Alto 2 in Japan

• CRT-D (US)

• Percutaneous valve

2003

• Integration and cost reduction

• Launching new product ranges in EU

• Investing to prepare US expansion (distribution, clinical trials)

Growth and profitability driven by:• US expansion• Full benefits from integration

• Janus (US)

44

GROWTH DRIVERS 2003-2008 (€ mm)

Key initiatives

2003E CS VT CRM RC New Business

2008

•Mini by-pass

•Tissue valve •Product range expansion

•Percutaneousvalve

•International expansion

•DES in Europe and US

•Peripheral stents

•US expansion

•ICD and CRT-D in Europe

•New machine

•New dialyzers

•Platelet gel

•Others (Red blood cells drug loading)

715

c.a. 25%Expansion in North America c.a. 34%

45

INVESTMENT HIGHLIGHTS

• Worldwide leader in haemodynamics & the largest European cardiovascular medical devices company

• Strong competitive positioning in a large and fast-growing market

• Proprietary technology platform across product portfolio

• Global footprint: global production, R&D, sales & marketing operations

• Skilled and international management team

• “Pure play” investment

Leading med-tech player, well positioned to capitalise on future profitable growth and

expansion opportunities

Analyst Presentation

Q&A

Documents

SORIN 16.01.04 Analyst Presentation x weblibrary.corporate-ir.net/library/17/175/175517/items/218303/2004...This presentation contains management preliminary estimates and ... President