Eckert & Ziegler SE (EUZD.XC) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. We hope you are enjoying JPMorgan Healthcare Conference. I'm Nikhil Gondalia, VP in the Healthcare Investment Banking team at JPMorgan. This afternoon, we have Dr. Harald Hasselmann, CEO of Eckert & Ziegler presenting. There will be time for Q&A at the end. For now, over to you, Dr. Hasselmann.

Good afternoon, everybody. Thanks for coming. Thanks for joining, and I can promise you there's a lot to learn about our company, which is at the market for more than 30 years. We are a listed company, Berlin-based and more to follow if I go through my presentation. This is a usual disclaimer before I start with the overview of the company. So normally, we would say size matters. But here, the situation is a different one. It is not the size which is important. It is one of the key success criteria is the number of locations. As we are producing nothing else but radioactive material, which is used for medical purposes and for industry purposes, it is important that we have more than one site in order to be close to the customer. That's why we have increased the number of locations during the last years by close to 20 different sites around the globe, and I will illustrate that in more detail when we go further down the presentation. We have EUR 300 million in revenues and approximately 1,000 employees working for Eckert & Ziegler since 35 years. The Management Board is composed out of North American people sitting here in Los Angeles, but also in Berlin, in South America. Now if we talk about the size of Eckert & Ziegler, we are a midsized company, but we are offering all the service and the products of a multi- conglomerate company. And that's why we have presence and revenue in North and South America and equally sized in Europe. Because here, you see last year's number, EUR 140 million for North and South America, EUR 100 million in Europe and more and more importantly growing is the Chinese and Asian business where we are working together with the Chinese joint venture partner. If you look to the numbers of 2024, so not last year's numbers, but those which were published on a full year perspective, then you see here a split between our 2 segments. One is the segment in green. We call that the Isotope Industry segment and the other one is the Medical segment. In '24, the revenue was split precisely 50-50%, whereas the profit is more heavier on the medical side. There, the gross margin is higher. The growth engine is stronger, and we expect that also in the years to come. So for '25, numbers will be published in March, but also in the outer years that the growth will be stronger in the medical part. Here, we are working with 300 people, whereas in the industry segment, it's around 600. Now let's talk a little bit before I come to those, which is of highest interest for those who are listening here in the room, but also on screen for the medical part. Before I come to that, I want to spend some minutes on the industry, on the isotope part. Here, we have a product portfolio of properly 10 different profit centers, and they are producing all kinds of radioisotope material, which is used in the industry sector for validation, calibration and security technology. Here, you see some pictures of those radioactive batteries or products which we are producing for different purposes. They are for oil well logging, that is one of the most important profit center in that segment because it is used to find new oil sources. It's used for exploration. It's highly profitable. But we also have density measurement tools or level measurement tools. And you see here the radioisotopes, which are used, and we are sourcing them in from different sources around the globe. But we are not only sourcing in, we are also sourcing out. That means we are taking care of all the waste management of decontamination topics with low radioactive waste. We collect them, we store it and then we take care of that. We acquired a company in South America and Argentina some years ago, and they are producing a generator. A generator is a coffee box, a coffee machine, which lasts for a certain time of weeks or months or even a year depends on what kind of generator we are talking here. You see in the upper corner of that picture, you see a technetium generator. Technetium-99 is used for SPECT cameras. And we acquired that company in order to offer that service, that product for South American countries and later on also for other countries to follow, combined with cold kits with non-radioactive kits in order to detect to image noncancer-related diseases, which we are offering out of that company. The other part is the medical part. And what you see here on the comic is basically the structure how radioligand therapy works. You see the orange, the purple part. That's you, that is the cancer cell. You see the blue part that is the pharma part, that is the kit, the molecule, the protein, the product which is produced, developed by the pharma companies. And then at the end, you see the radioactive material that is Eckert & Ziegler. The radioactive isotope is linked to the product, to the molecule, to the product of radiopharma. And then together, it finds its way to the cancer cell and there it destroys the cancer, purely the cancer. And that is the modus vivendi, how radioligand therapy works. And that is what the expertise of Eckert & Ziegler can be described of. We are doing nothing else but producing these radioisotopes in different formats, in different molecules, in different structures, in different packaging forms. One possibility is a generator. I mentioned already the technetium generator. Here on this picture, you see another generator that is a gallium-68 generator, but we are also wrapping the radioisotope in patient individual vials for single usage, whereas the generator lasts for a year and can be used for multiple purposes. We have other products also in the cancer area. These are implants, prostate implants, IsoSeeds, routine applicators and other kinds of technical devices. Finally, we are also producing hot cells. These are lead-shielded working benches, work benches. For those customers who do want to produce their own material, they want to handle radioactive material in a secured environment, and that's why we are producing these hot cells out of Dresden in Germany for customers around the world. Why is the field of radioligand therapy so interesting? Why is this growing so fast? The common and well-known reasons are listed here. It's increased number of patients. It's the elderly people, the aging society. And more and more patients cannot only be imaging diagnosed by radioligand therapy, but can also be cured or even healed with products coming out of pharma together with our radioisotopes. That's why if we have a look to the pharma companies who are more and more acquiring smaller companies in order to follow what has positively demonstrated by Novartis when they launched their first product for neuroendocrine tumors years ago and then followed by product against prostate cancer, also the other big pharma companies want to have a strong footprint in the radiotherapy area. And you see here companies like Bayer and Eli Lilly and Bristol-Myers, they are all acquiring and paying a lot of money to smaller companies in order also to participate on that journey. And hopefully, and that is our target, all these companies or at least the majority of these companies will become our customers, either by supplying them with our radioisotopes or by offering other services to them. If you look to the future development of radioisotopes or radioligand therapy, there's a common understanding that by 2030, the overall market with all products being available is north of USD 30 billion. And what we see here is the development in blue. There you see the strong uptake of radiotherapeutics of theranostics, the combination of imaging and therapy, and it's growing. And we see then if you look to the numbers of '24 and even '25, that what has been predicted comes to reality, and we are very optimistic that the trend will continue, that the growth will continue. And if you look and listen to the other companies who have been presenting their story here at the JP conference that also the other companies are following that direction. Why is it so attractive for our company, Eckert & Ziegler? We are offering the most demanding radioisotopes. You see them here, it's gallium for imaging, it's lutetium for treatment, it's Y-90 for treatment, it's actinium for treatment. And I mentioned earlier, the equipment part, the lead-shielded, the working places. And we have linked these isotopes with those customers who were willing to publish and being announced by us as our customers. Looking to the future, there are existing products available. But if you look, for instance, to lutetium, approximately 200 clinical studies are currently on its way. For actinium, it's less because it's not as far advanced as lutetium is, but I'm pretty confident that this is to follow in the size of numbers of studies. But here, for the time being, 200 studies are presently under investigation. And hopefully, most of them will come up also to be commercialized later on. Here are those studies which are most advanced. And in addition to those which are known like the Novartis products, we do expect more products to come, and it's Eckert & Ziegler's clear commitment and objective to also become a supplier of all these newly launched products by the years, which I mentioned here in the right part of that slide. If you look to the market potential, currently, about 10,000 to 20,000 patients are treated with commercialized and registered products. But if you look to 5 years ahead from us, then we do believe that the numbers being treated with lutetium-based products is multiplied with a factor of 5. So we are coming to 60,000, 70,000 patients, and that is also made in a much bigger pie in terms of revenue compared to today's situation. The same applies to actinium. That is the next big thing. Here also, we do expect that by the end of this decade, there will be more products at the market and some of them are listed here from big companies like Novartis, Bayer, Bristol-Myers and EZ, but there is more to come. I just mentioned the number of studies which are available. I'm pretty confident that the majority will also have positive results here. As of today, we expect that at the beginning by '29, when the first products are going to be commercialized, something around 5,000 patients will be treated. And then 10 years later, at least 12,000 to 20,000 patients should be treated, and that will be also seen then in the revenues, which we forecast. We might -- we probably are conservative, but Eckert & Ziegler has always been conservative and then overdelivered. But that is the market expectation, how we see it. What is our current customer base look like? We have customers for lutetium. We have reservation of supply contracts for actinium. And for CMO and CDMO, I have also listed some of those companies with whom we are working together as of today. And you see smaller companies and you see also bigger companies. So the race is open for all these companies launching products and supplied with isotopes from Eckert & Ziegler, of course, others, the pandemic and also the wars around the globe have proven evidence that pharma companies will always have 2 or 3 suppliers. And our objective is to participate in that supply race and to be one of the preferred supplier. If you look to the results of last year, the overall results will be only published by March of this year. But important for us is that our flagship that is the gallium-68 generator for the imaging procedure of neuroendocrine tumors, but also for prostate cancer has now approved not only in all European countries, but also in Japan. Japan is equally high price and North America, very important. We also will sell the GalliaPharm in China this year. We are doing CMO work for companies in Germany, in Europe, but also in Boston, in our Boston facility. One company, Archeus has been mentioned here. We have different supply agreements, and we are doing strategic partnerships with companies who are developing compounds for the treatment of cancer. Here, you see some pictures where we are currently spending the money we earn. We are having an amount of approximately EUR 20 million on a yearly basis, which we invest into CapEx. And why are we doing that? We have a strong belief that our gallium business, our flagship, which represents approximately 50% of our medical business needs more capacity. That's why we are investing into an expansion of our existing production facility, and that is a picture which was taken a month ago, and that will go online by '27 in order to double the production capacity of our gallium business. This is a picture of China, close to Shanghai. We invested into a facility together with a Chinese partner. We have the strong belief that it is important also to produce in China. And you can -- that is at least my understanding, you can only be successful if you produce in China for the Chinese market, and we are doing that together with a Chinese partner. And here, you see the building, the cyclotron for the production of isotope has been implanted just now by the end of last year. And that's why the building looks big. It is big. But in terms of protection, you need thick walls and you need place also for CDMO works for the production of radioisotopes, and that is close to Shanghai. So you're all welcome to visit us there in Jintan, where we will open the facility in summer this year. Now this is the strategy and the numbers which are mirroring Eckert & Ziegler's strategy. And I can say this strategy pays off because we are concentrating on what we know and what we can and where our competencies are, and that is isotopes. And I mentioned earlier on that we are doing that with 2 arms. One is the industry part, one is the medical part. Overall, EUR 220 million for the first 9 months with an EBIT adjusted of EUR 50 million and a free cash flow rate of 10%. These are the key figures I would like you to take home. And then if we go to the 2 segments, you see one segment in green, the other in orange, and I will come to these numbers in a second. Overall, we are growing in the first 9 months by 4% top line, 9% bottom line, and we have an EBIT adjusted margin of north of 23%. Here again, the numbers, 4% growth, 9% growth in EBIT adjusted. And let's have a look to the medical part here. The most -- the biggest part is coming from GalliaPharm, the gallium generator. We were growing FX adjusted by 16%. Now due to the weaker dollar, it is only 15% on a euro per euro level. Generators are strong. Actinium, we had a license deal with the Chinese company earlier this year, and we are developing our CDMO work quite successfully. Profit-wise, it's even stronger. So our profitability grows, and you see that also in the absolute amounts from EUR 25 million up to EUR 30 million in the first 9 months, and an EBIT adjusted margin of 26% compared to 23% in the previous year. Isotope product had a weak start of the year. You remember for those who are more closer to our company that we had an awful cyber attack at the beginning of the year. That's why we couldn't produce and deliver in the beginning of the year, and it took a while until, in particular, that segment could catch up what they missed in the beginning of the year. That's why here, the numbers were weaker for the first months, but I'm pretty confident that by the year's end numbers, we will produce good results. Now the regional split is mentioned here, 40% approximately is generated in Europe, 40% is generated in Americas. So that is equally splitted. And Asia, in particular, China is growing strongly by 30% compared to last year to the first 9 months, which I mentioned here with EUR 30 million compared to EUR 28 million last year. The core of Eckert & Ziegler is the radiopharmaceutical business, and that's growing. That's growing over the years. And you see here from '27 onwards, a 10 years' perspective, including also the inorganic growth where we acquired the Argentina business in 2022, there was hyperinflation. That's why the sales revenues, which were generated in Argentina were contradicted by strong hyperinflation, but that has now come not to an end, but has strongly improved. Overall, we see a growth of the radiopharmaceutical business in the first 9 months by 7%. Year-end guidance is EUR 150 million. I will confirm our guidance on my last slide. But here again, I can already say that the numbers are really looking confident compared to our guidance. Key figures, some key figures. We have cash of EUR 120 million. We have only EUR 20 million in loan, which we have repaid. So currently, it's EUR 15 million. So we can finance both our dividends, our CapEx out of our cash flow, which we are generating. The balance sheet looks relatively boring. We have an equity ratio north of 50%. And here, you see the key figures. EBIT adjusted growing, cash flow is here, free cash flow is 10%, ROCE is 18%. For those who are interested in all these financial data, I'm happy to enter into discussion. But basically, the numbers are pretty confirming our strategy. Last slide, and that is despite the challenges which we have had, we are confident that by the end of the year, we deliver what we promised at the beginning of the year, that is the guidance EUR 320 million is a corridor in terms of revenue and EUR 78 million EBIT adjusted. There's a corridor, of course, plus/minus. But overall, that is the number which we published and what we are confident to reconfirm March this year. Now is what we are trying to deliver? Does this match with the reality? And if you compare here our own track record that was published by Berenberg, who is taking care of our coverage, they are saying the green ones is there where we published a guidance and where at least we beat it or were even better in terms of sales, EBIT and net income. And there are 2 incidents where we missed it, but in 90%, we fulfilled what we promised, and that is our mission to make our shareholders happy in terms of deliver what we promised. For those who want to learn more or hear it again what Eckert & Ziegler is doing, there are more conferences coming up during this year. But for those who, in particular, want to see the first quarter that is in May 12, we will publish -- and this year's result will be published in March 26. Happy to see all of you again at one of these conferences, either in person or virtually. Thanks very much. That is my presentation, and I'm happy to take any questions from you or from the audience.

Thanks very much. Do we have any questions from the floor? Please don't be shy. I know it's late. Yes.

Zain Ebrahim, JPMorgan. Just a question on the isotopes business. You showed the 6% decline in the first half, and apologies if I missed it, but what's driving that? And how are you seeing the trajectory going forward and the moving parts to maybe drive a recovery there? And then second question is on the radiopharmaceutical side in terms of the interest that you're seeing with customers because we're hearing a lot about radiopharmaceuticals here at the conference and developments there. So how you're thinking about the growth outlook for that business?

The growth -- what?

The growth outlook for radiopharmaceuticals going forward?

Okay. So the first question is you are always punished if you are delivering a super result. And the IP result in '24 was extraordinary high. Now if you compare the '25 result with an extraordinary high result in '24, it is basically no surprise if you then get a small dip. If you look to the longer trend of the IP, it's a constant growth of worldwide GDP of 5%. That's why I can reconfirm that also the outer years will continue to grow in that range. It is just the punishment of having a strong year, in particular, in oil well logging, which was very strong in '24. And then in '25, we were going back to normal business, and that's why we were lagging that extra plus result. If I come to your second question, I share the optimism, and I share the bright outlook of the business in which we are in. And that's why I can confirm the slide which I presented here with coming to more than EUR 30 billion by the year 2030 of the overall area. Now to put some water in the wine is we always will have companies who will not manage what they promise. And that is -- we see that also a company in Germany is winding up a small company, but they want to develop a drug and now they have to confess that it is not working. They are lacking money. It's difficult to get. So not everything will materialize as planned or at all. And that's why it's good that Eckert & Ziegler has a broad range of customers and is not only focusing on one radioisotope, but is also offering a huge variety in that corridor of what we can, what we want and what we do, but has more radioisotopes to offer. At the end of the day, if radioligand therapy delivers what it aims to do, namely deliver at the right time, at the right place at the right quality, then that therapy has a very, very high chance of being the game changer. Now if this was a conference of ADCs or cell and gene therapy, I would imagine that also there was a lot of optimism for cell and gene therapy potential. Here, we see more radioligand therapy companies showing up, and that is because prostate cancer of Novartis has been so effective that everybody wants to follow in that route. And that's why it's good. But we must pay attention that we also fulfill our promises in not order to give possibilities to other to bite into that optimism.

I've got a couple of questions. You've seen a lot of recent success in your CDMO business. What are your plans for that business going forward? And do you have plans to accelerate growth and expansion in that part of the business?

If you had asked me 5 years ago whether Eckert & Ziegler is a typical CMO or CDMO company, most likely, I would have said no. And then we said, let's find a way to enable our business to sell more radioisotopes. And then we say, if we can lock it to some kind of services, then it might be even better for pure selling the radioisotopes. Now in last year, that business, that CMO and CDMO business for the first time has become profitable by its own because more and more customers are saying, okay, there's a good landscape of CDMO companies in North America, but there are not so many in Europe. And as Eckert & Ziegler is offering both North America and Europe and in future also for China, this is some attractiveness for companies approaching us and saying, can we make sure that you can also provide services to us. And that's why we will follow that possibility when we will offer these services on an individual basis, in an ideal scenario combined to our radioisotopes, but there are also good examples of pharma companies who are saying we bring our own radioisotope, and we lack on your -- we rely on your CMO facilities. So both is offered. And as long as the customer is happy and pays, we are also happy.