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Sorin Group Strategic Plan 2005-09
Analyst Presentation - March 1st, 2005
2
Disclaimer
This presentation contains management preliminary estimates and forward-looking statements, including information related to Sorin projected 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 thecompany 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 securities of any of the companies mentioned in any jurisdiction.
For more information please contact Sorin Investor Relations Department:
Tel. +39 02 6332201 / 316
3
Drago Cerchiari
Chief Executive Officer
Sorin Group
4
Sorin Group today: the largest European cardiovascular medical devices company
•Strong competitive position in a large natural growth
and technology driven sector
•Proprietary technology platform across product
portfolio
•Global footprint: global production, R&D, sales &
marketing operations
5
President, BU Cardiac Rhythm Management
André-Michel Ballester *
President,BU Vascular Therapy
& New BusinessesGregory Cash *
President, BU Cardiac Surgery
Franco Vallana *
President, InternationalEric Beard *
President, North America
Rodger Stewart *
Chief Executive Officer
Drago Cerchiari *
Chairman
Umberto 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
Sorin Group management team
Corporate functions *
Vice President,BU Renal Care
Alberto Cantaluppi
* Executive Committee members
CFO Anton G. Failla
HRO Giovanni Caruso
Legal Brian Sheridan
Corporate Development Marco Chiadò Piat
6
Integrating a global presence …
Mitroflow
…into one Sorin Group with strong worldwide product brands
7
2004: setting the base for profitable growthSales growth
Costs reduction
* At comparable FX rates
Performance driven culture
Innovation
• Solid platform in CS: +3.3% FY04E*• Continuous growth in CRM: +6.5% FY04E* (+13.9% Q4 04 vs Q4 03*)• Promising growth in VT: +6.1% FY04E* (+33.7% Q4 04 vs Q4 03*)
• Manufacturing restructuring • Operational reorganization • Systems & processes
• Stock option plan• Aggressive performance management system• Talent management program• Systematically raise the level of performance
–New “best-in-class” COBE CV - DIDECO integrated oxygenator platform
–Percutaneous Heart Valve human implant in 2005–Stentless valve Freedom Solo
CS
CRM –New Ovatio Defibrillator System based on GXD platform and with AAIsafeR
–Peak Endocardial Acceleration (PEA) sensor in CHF –Alto2 MSP CRT-D–Symphony AAIsafeR
VT
Bottom up 5-year strategic plan
–Janus DES
8
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
9
Cardiovascular is the fastest growing among the large medical devices segments
Miscellaneous instruments
9
1
10
15
25
40
70
14
Diagnostic equipment
Miscellaneousdisposables
CardiovascularCardiovascularOrthopedics
Dental
Neurosurgery
Other
5-7%
6-8%
4-6%
10-15%
10-12%
10-12%
15-20%
4-6%
Market size 2004 (€ bn) Market growth
Source: Merrill Lynch, Lazard, Julius Baer, Company estimates
Key Growth Drivers
Demographics
Globalization and increased wealth
Unmet clinical needs/ customers embracing new technologies
10
Sorin today: a full range player in a € 15 bncardiovascular market
Cardiac Surgery (CS)
Physician
Pathology -procedure
Market size2004 (€ bn)
MarketCAGR 04-09
Market share (value)
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
Coronary and vascular occlusions (Angioplasty)
Arrhythmia, Heart Failure
2.0 5.8 7.2
5% 7% 13%
Oxys: 40% WWMech.Valves: ~45% EU
~15% USTissue Valves: ~13% EU
IDE in US
Coated (non DES): 5% EUDES: Janus launched in
Nov 04
Pacemakers: ~12% EUICDs: ~ 3% EUCRT-D: ~ 2% EU
Medtronic, Edwards, Guidant, St. Jude, Terumo
J&J, Guidant, Boston Sc., Medtronic, Abbott, Terumo
Medtronic, Guidant, St. Jude, Biotronik
11
Achieving Sorin’s 5-year vision
SORIN GROUP VISION
From strength in Cardiac Surgery to worldwide Cardiovascular leadership
Vascular Therapy
Cardiac Rhythm
Management
Cardiac Surgery
12
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– 2005-09 Objectives
13
Strategic guidelines: paving the way for a profitable growth
Complete integration and extract synergies from core businesses
Build platform for focused business growth in Cardiovascular
Grow our presence in highly profitable and under-penetrated US and Japanese markets while strengthening current position in Europe
Leverage our technology platform and customer base
HOW
14
Sorin market priorities across technologies and customer segments
Sorin applicationsCardiac surgeon
Perfu-sionist
Interv. Cardio-logist
Implan. Cardio-logist
Electro-physio-logist Sorin priority markets
Mech. HV First priority
Tissue HV Second priority
Annuloplasty rings
HLM+Oxy/cust. pack
ATS
PM
CRT-P
ICD
CRT-D
Non drug eluting stent
Drug eluting stent
Peripheral stents
VT
CS-Heart Valves
CRM
Cardiovascular customers
CS-CPB/ATS
15
Sorin applicationsCardiac surgeon
Perfu-sionist
Interv. Cardio-logist
Implan. Cardio-logist
Electro-physio-logist Sorin priority markets
Mech. HV First priority
Tissue HV Second priority
Annuloplasty rings
HLM+Oxy/cust. pack
ATS
PM
CRT-P
ICD
CRT-D
Non drug eluting stent
Drug eluting stent
Peripheral stents
VT
CS-Heart Valves
CRM
Cardiovascular customers
CS-CPB/ATS
Sorin presence across technologies and customer segments
strong
strong
strong
strong
strong
strong
strong
16
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– Cardiac Surgery strategy
– Cardiac Rhythm Management strategy
– Vascular Therapy strategy
– Geographic perspective
– Integration program
– 2005-09 Objectives
17
Franco Vallana
President,
Cardiac Surgery BU
18
Cardiac Surgery vision
Wide, bestWide, best--inin--class product offering class product offering
for the cardiac surgeon and teamfor the cardiac surgeon and team
19
Cardiac Surgery current product portfolio
Mechanical HV
Tissue HV
Annuloplasty Rings
Oxygenators
Heart Lung Machine Autotransfusion
20
Cardiac Surgery strategy and market shares evolution
HEART VALVES• Market share growth in Mechanical HV
• Tissue HV: filling the gap with mechanical HV in EU, building platform in US
• Leadership position in the Percutaneous HV market
• Market share growth in rings
• Expansion in under-penetrated markets
CARDIOPULMONARY
• Customer and patient oriented ECC1 integrated system(s) as a competitive advantage
• Cost leadership position
• ATS2 technology optimisation
• Complementary CS products offering
WW Market share
28%
4%
-
6%
40%
51%
42%
‘09‘04
Mechanical HV
Tissue HV
Percutaneous HV
Annuloplasty Rings
Oxygenators
Heart Lung Machines
Autotransfusion
Product lines
1 Extra Corporeal Circulation2 Autotransfusion System
↑
↑↑
↑↑
↑↑
↑
↑
↑
21
Sorin percutaneous heart valve project
PERCUTANEOUS APPROACH ADVANTAGES
• No chest opening
• No Extra Corporeal Circulation
• Short hospitalization
• Use of a proven and well known biological stentless valve, in clinical
use since 1985, with 30K implants and zero structural failures
• Treatment of patients at high risk in open heart surgery
22
RETROGRADE ANTEGRADE
Minimally Invasive Surgical Approach
Percutaneous Approach
Sorin percutaneous heart valve application One valve to meet cardiac surgeon and interventional cardiologist expectations
23
Cardiac Surgery product pipeline2005 2006 2007 2008 2009
Commercial launches
EU US Japan
HEART VALVES•Tissue
–New anticalcification treatment
•Repair –Semi Rigid Ring
•Percutaneous valve
CBP & ATS•CPB
–New adult oxy–New pediatric oxy–New ECC System–S5 HLM
•ATS–Next Generation
24
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– Cardiac Surgery strategy
– Cardiac Rhythm Management strategy
– Vascular Therapy strategy
– Geographic perspective
– Integration program
– 2005-09 Objectives
25
André-Michel Ballester
President,
Cardiac Rhythm Management BU
26
Cardiac Rhythm Management vision
Pacing Leadership to invest in Pacing Leadership to invest in
future innovation in Heart Failurefuture innovation in Heart Failure
27
CRM current product portfolio
Brady
ICDs
CRT-D
28
CRM innovation: focus on patients benefits
AAISafeR Exclusive mode to preserve spontaneous
AV conduction
Parad+ Most specific VF detection algorithm
(according to recent publication in PACE 2004;
27:976-982)
PEA Peak Endocardial Acceleration (PEA) sensor to
optimize automatically AV and VV delays
29
CRM strategy and market shares evolution
• Strength in pacing leveraged across all CRM segments
• Rapid innovator in Tachy
• Field coverage and competencies expansion
• ‘System approach’ for total therapy delivery
• HF research investments for future innovation
Brady
Tachy
Product lines
US Market share
n.s.
n.s.
‘09‘04EU Market share
12%
3%
‘09‘04
↑↑↑
↑↑
↑↑
↑↑↑
30
Stabilize and Execute
Growth Expansion
CRM summary of strategic direction
Continuous Innovation
Rapid Introduction of New Products
Field Coverage and Training
Talent Management
Product Portfolio Rationalization
Share Gains in all Therapy Segments
US Penetration
31
CRM product pipelineCommercial launches
EU US Japan
BRADY (pacemakers)•Symphony/AAIsafeR• New Living• New Living CHF• Hi Perf PM1• Hi Perf PM2• Hi Perf CRT-P1
ICDs• Alto 2• Ovatio • Hi Perf Def1• Hi Perf Def2• Hi Perf Def3
CRT-D• Ovatio CRT• Hi Perf CRT-D1• Hi Perf CRT-D2• Hi Perf CRT-D3
2005 2006 2007 2008 2009
32
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– Cardiac Surgery strategy
– Cardiac Rhythm Management strategy
– Vascular Therapy strategy
– Geographic perspective
– Integration program
– 2005-09 Objectives
33
Gregory Cash
President,
Vascular Therapy BU
34
Vascular Therapy vision
A leader in vascular therapy through A leader in vascular therapy through
development and marketing of development and marketing of
innovative systemsinnovative systems
35
VT current product portfolio
DES
Non DES
Peripheral
36
Vascular Therapy strategy
• Superior DES technology
− Strong EU market entry (marketing and clinical trials)
− Strategic partner for North America and Japan
• New generation DES platform
• Profitably expand peripheral business
EU Market share
n.s.*
‘09‘04
5%
3%
DES
Non DES
Peripheral
Product lines
↑↑↑
↑↑
↑↑
*launched in November 2004
37
Stent strutcross section
Release in the blood
Effective release
Stent strutcross section
Effective release
Targeted drug delivery Non-targeted drug delivery
VS
Other DES with integral coating
JANUS: unique targeted drug delivery
JANUS
38
SEM – porcine coronary arteries – 7-day follow-upENDOTHELIALIZATION STUDY IN ANIMAL MODEL
Commercial DES
Incomplete endothelial coverage
100 100 µµmm
Janus Carbostent
Excellent endothelial coverage
100 100 µµmm
Animal study: Safety & Efficacy
39
VT product pipeline2005 2006 2007 2008 2009
NON DES- Tecnic Plus- Tecnic 2- Next Generation
Commercial launches
EU US
DES- Janus- Janus Plus- Janus 2- Janus 3
CORONARY
Japan
BALLOONS- Aria- New Aria - Next Generation
PERIPHERALLOWER LIMBSRENALCAROTID
40
Long term clinical follow-up
Study duration
Study definition & Regulatory approval
30 days clinical outcome
Six, nine months angiographic or clinical driven TLR
1. Jupiter I
2. Jupiter II
3. eJanus
4. Diabetes III
5. Janus in small vessels
6. Janus in AMI
7. Stellar (Tecnic 2)
8. Janus vs. Other DES
11. Janus 2P (2nd gen.)
10. Janus 3rd generation
11. Inperia Randomized
12. Flype Study
2008 2009Project/Product 2004 2005 2006 2007
Regulatory studies for homologationin EU, USA and Japan
VT clinical studies plan
41
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– Cardiac Surgery strategy
– Cardiac Rhythm Management strategy
– Vascular Therapy strategy
– Regions Perspectives
– Integration program
– 2005-09 Objectives
42
Strategic guidelines: paving the way for a profitable growth
Complete integration and extract synergies from core businesses
Build platform for focused business growth in Cardiovascular
Grow our presence in highly profitable and under-penetrated US and Japanese markets while strengthening current position in Europe
Leverage our technology platform and customer base
HOW
43
Rodger Stewart
President,
North America Region
44
Growth in US
US
1. Expand the CRM business
• Complete FDA approvals
• Strengthen sales force
• Focus on major metropolitan areas
• Focus on:– Implanting Cardiologists (PM and ICD with
MADIT II and SCD-HeFT)
– Surgeons (through Cardiac Surgery sales force)
– Electrophysiologists (through innovative technology)
45
2. Increase penetration of CS customers
• Gain market share in Mechanical HV
• Tissue HV approval will allow leveraging strong mechanical presence
• Drive new generation ECC concept
• New market penetration with Angel PRP
• Strengthen sales process and clinical education
• Leverage CS/CRM synergies
US
Growth in US
46
Eric Beard
President,
International Region
47
Growth in the International region
GROUP 1
LOW PENETRATION EUROPEAN MARKETSGROUP 2
LARGE COUNTRIES WITH HIGH CS BASE
GROUP 3 REST OF THE WORLD COUNTRIES
48
Strategic priorities Group 1
•
GERMANY
FRANCE
SPAIN
ITALY
UNITEDKINGDOM
JAPAN
• Gain market share in all lines
• Establish strong position in tachy
• Lead Janus DES share
• Meaningful endovascular player
• Successful new product launches
• Profitability growth through price, mix and margin
improvements
49
Leverage leadership position in CPB
SMALL DIRECTSALES NETWORKSMALL DIRECT
SALES NETWORKINDIRECT SALES
NETWORKINDIRECT SALES
NETWORKCOMBINATION
DIRECT / INDIRECTCOMBINATION
DIRECT / INDIRECT
NordicSwitzerlandPortugal
BelgiumHolland
AustriaGreeceCzech
Strategic priorities Group 2
50
Explore the Market
via Distributors
Explore Explore the Market the Market
via Distributors via Distributors
Establish SpecializedDistributors
Network
Establish Establish SpecializedSpecializedDistributors Distributors
NetworkNetwork
OpenOpenRepresentation Representation
OfficeOffice
Direct BuyDirect Buy--Sell Sell OrganizationOrganization
Latin America,Latin America,South EastSouth East Asia,Asia,MagrebMagreb, , TurkeyTurkey
China, AustraliaChina, AustraliaCzechCzech, Middle , Middle EastEast,,
KoreaKorea, Taiwan, Taiwan
OtherOther
Group 3 ROW development roadmap priorities
Low priorityLow pricesWeak dollar
Business ethicsNeed low cost offering
Focus on bottom line and CF
High priorityMarket size and growthProduct sophisticationTherapy development
Combination price/volume
51
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– Cardiac Surgery strategy
– Cardiac Rhythm Management strategy
– Vascular Therapy strategy
– Regions Perspectives
– Integration program
– 2005-09 Objectives
52
Strategic guidelines: paving the way for a profitable growth
Complete integration and extract synergies from core businesses
Build platform for focused business growth in Cardiovascular
Grow our presence in highly profitable and under-penetrated US and Japanese markets while strengthening current position in Europe
Leverage our technology platform and customer base
HOW
53
Integration rationale
Acquisitions and aggregation of companies
90’s -2003
Sales back to growth2004
Integration to extract underlying synergies
2005 - 2006
HOW Driving cost reduction and rationalization
Leveraging intangibles(core competencies, talents, brands, infrastructures, …)
Building a performance-driven culture
54
Cost reduction projects on track
G&A and Legal Entities
• From 64 to 32 legal entities • G&A reduction
• Centralisation and rationalisation under way
Supply chain & Working Capital
• New logistics and distribution model
Manufacturing
Operating cost reduction and working capital containment
Operations re-organization
• Implementation under way
Purchasing
• Integration under wayHeart Valve
Renal Care • Integration under way
CPB/ATS • Integration plan
€ 50 M benefits onEbitda in 2006
55
Agenda
•Sorin in the cardiovascular market
•Strategic plan 2005-09
– Strategic guidelines
– 2005-09 Objectives
56
Drago Cerchiari
Chief Executive OfficerSorin Group
Anton Giorgio Failla
Chief Financial Officer
Sorin Group
57
P&L 2005 Guidance
2004 E
Net revenues 723.3 > +8%Cardiac Surgery 418.5Cardiac Rhythm Management 174.7
Vascular Therapy 23.8
Renal Care 105.7
EBITDA 68.3 > +30%Ebitda Margin 9.4% ~11.5%
EBIT 4.1 > +400%
0.6% ~3.0%
* At comparable FX rates
€ Million
Ebit Margin
Revenue
+3.8%
2005 Pvs. 2004 E *
58
2005 guidance: key growth drivers
Growth in 2005 will be boosted in 2H thanks to:
VT
• Jupiter II clinical trial data on Janus to be released in September
CS
• Performa, best-in-class adult oxygenator launch (EU, US)
CRM
• New Living and New Living CHF (PEA) launches (EU)
• Ovatio (AAIsafeR, Parad+) launch (EU, US)
• Ovatio CRT-D (Parad+) launch (EU)
59
5-year plan
2004 E 2007 P*
Net revenues 723.3
EBITDA 68.3
9.4%
EBIT 4.1
0.6%
* At an exchange rate €/$ = 1.28
€ Million
2009 P*
~ 1000
~ 140
~ 14%
~ 80
~ 8%
~ 1300
~ 260
~ 20%
~ 190
~ 15%
CAGR 04-09
100%
30%
12%
Ebitda Margin
Ebit Margin
60
EBITDA variance Percent
EBITDA 2004
Product mix
Geogra-phic mix
GP impro-vement(Price/ COGS)*
Cost reduction projects
Additional R&D and S&M expenses
EBITDA 2009
* Most COGS improvements included in cost reduction projects
68 ~30~30
~0~50 ~20
~100
~ 260
Volume effect
at 2004 volumes
61
80% growth from CRM and VT
2004 2007 2009
CS
VT
58%
24%3%
15%
723
45%
34%
10%11%
~300
~ 1000 ~300
~ 1300
38%
40%
12%
10%
57%25%
15%3%
CRMRC
CS
VT
59%22%
15%
4%
VT
RC
CS CRM€ Million, percent
CRM
RC
62
Revenue growth by geography
2004 2007 2009
Europe
Japan
59%
22%7%
12%
58%
24%
8%10%
52%
31%
9%8%
56%29%
10%5%
EuropeRoW
Japan
NA
31%
55%
12%
2%
NA
RoWJapan
Europe€ Million, percent
NA
RoW*
* Includes EW OEM sales
723~300
~ 1000~300
~ 1300
63
A plan designed to maximize shareholders value
Double-Digit Growth• Aggressive growth in the fastest developing segments of CV market
(CRM and VT)
• Balanced geographic growth focusing both on US, Europe and Japan
Doubling Profitability• Significant cost savings via manufacturing restructuring
• Significant efficiency improvement via operational reorganization
Relentless pursuit of Innovation
Performance-driven Culture