Terumo Corporation (4543.T) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you very much for joining us for the explanatory meeting about the acquisition despite the short notice, despite your busy schedule. I would like to now officially open the explanatory meeting about the OrganOx acquisition where 4 of us, Mr. Hikaru Samejima, CEO; Mr. Jin Hagimoto, Group Executive Officer, CFO; and Mr. Kenichi Hata, Group Executive Officer and General Manager of Strategic Planning Department; and myself, Otaka, General Manager of the Corporate Planning Department. Well, first of all, the overview of the acquisition will be presented by Mr. Samejima to be followed by about 1-hour Q&A. This is the hybrid meeting. We have analysts on site and investors are participating online. And for the online participants, I hope you can use the Zoom simultaneous interpretation function, Japanese, English, the choice is available. [Operator Instructions] And the screen will be projecting the Japanese language and the presentation materials in both languages are put on our website. So now Mr. Samejima will present you the outline of the acquisition.

Good day, everyone. I'm Samejima, CEO of Terumo. Thank you very much for joining us today on such short notice despite the hot weather. Thank you very much. And I'm so glad that you're here in our new office. So on August 23, Terumo Corporation signed an agreement to acquire OrganOx headquartered in Oxford, U.K. And today, I'd like to explain the background and the future outlook of this acquisition. Terumo makes its entry into organ transplantation through acquisition of OrganOx, an innovative specialist, which develops and manufactures devices for preserving a transplant organ. Let me first give you the overview. This acquisition involves the purchase of 100% of OrganOx outstanding shares for a total cash consideration of $1.5 billion. The fund will be sourced from cash on hand and borrowings. The agreement was signed on August 23, 2025, and we aim to complete the closing within this fiscal year. Back in 2008, OrganOx spun off the University of Oxford and has been globally deploying its metra device for preserving transplanted livers. So this is a spinout from the university. So 2 members of the commercial core team are on the Oxford academia. So there is so much involvement on their part about academic and professional perspective. So they are indeed a community to help as many patients as possible. So that's the fundamental spirit. And the company has been globally deploying its metra device for preserving transplanted livers. It got CE marking in 2016 as the first normothermic perfusion device, and it was also FDA approved in 2021, and it was launched in the U.S. in 2022 with its 199 employees, the company's calendar 2024 sales revenue was $71 million, and this acquisition is expected to be the biggest ever for a spin-out from the University of Oxford. In 2017, Terumo began supplying CDI sensors for metra deeping -- and deepened our insight into OrganOx and its technology. With Terumo Ventures' recent investment in this particular year, we have been building relationship with the company. And regarding the significance of this acquisition, this acquisition is strategic and essential for the Terumo Group. Entering the organ preservation, a new growth domain, we can chart a growth trajectory beyond the extensions of our existing businesses. It is a key step to achieving the bold growth beyond GS26 that I have been advocating for as CEO. Terumo time-honored tech and expertise and OrganOx's innovative devices and know-how put together should globally increase transplant opportunities and globally contribute to address the serious unmet need shortages of transplant organs. We also expect entering the high-growth organ transplantation market and acquiring a highly profitable business model to elevate Terumo's corporate value significantly. And I'm confident that this deal will contribute to maximizing Terumo Group value with synergies with our existing business for creation of new solutions. So this acquisition is essential to unlock Terumo's future and open doors to our next growth stage. The following slides provide you more details on these points. Organ transplantation for end-stage organ failures is extremely effective and its global demand is rapidly increasing. The global number of organ transplants exceed 150,000 per year, but supply falls short of demand and many patients die while on the waiting list. 470,000 patients are registered on the waiting list, but some patients aren't listed because of the supply shortages, some patients with deteriorating conditions go off the list and pass away. And so the number of waiting patients is estimated to be potentially 10x the number of actual transplantations. So with rapidly increasing demand, continued high growth of the market is expected. And here is the organ type breakdown. So this acquisition marks our entry into the liver transplantation where one of the biggest unmet needs exists. The challenges of transplant liver shortages are twofold, few donors and low utilization rate of donated livers. In particular, DCD or a Donation after Circulatory Death makes things difficult. Livers are vulnerable to ischemia. Transplantation rate is high for brain-dead donors with intact blood circulation, but the rate is extremely low as the post circulatory death donors, which are far more numerous, that constraints the overall donor pool. Livers may only be preserved for short time, limiting transport distances often requiring emergency surgeries, lowering health care providers' QOL. And not a few potentially transplantable livers end up not being transplanted for safety concerns because it's difficult to quantitatively assess organ function. OrganOx's technology directly addresses the challenges in the liver transportation by helping to both increase the number of available donors and improve the utilization rate of donated livers. The preservation method used in OrganOx metra device known as NMP differs from conventional techniques that rely on cooling to minimize damage. Instead, NMP circulates oxygen and nutrient-rich preservation fluid through the organ at near body temperature, enabling significantly longer preservation time. While traditional method allows for only a few hours of liver preservation, metra has received regulatory approval for up to 12 hours in the U.S. and up to 24 hours in Europe. This extended preservation window enables the use of donors from distant locations and allows for planned non-emerging surgeries. In addition, metra's real-time monitoring and automated control systems ensure stable management of the organs condition during preservation. This not only improves transplant outcomes by using organ with preserved functionality, but also enables more accurate assessments of organ vitality potentiality, allowing for the use of organs that would otherwise have been discarded. In addition to expanding our business through existing liver preservation devices, we also anticipate growth through development of new solutions. One such initiative is the development of a compact version of our current product known as metra L. By making the device smaller and easier to transport, we aim to increase its adoption across a wider range of clinical settings. Furthermore, we are planning to expand beyond liver transplantation into kidney transplantation. Kidneys represent a large segment of the organ transplant market and transplant from donors after cardiac death are more common. However, major challenges remain. The high discard rate of recovered kidney is a real problem. By leveraging metra's real-time monitoring and automated control capabilities, we aim to reduce the discard rate of transplantable kidneys and make more effective use of these valuable medicine -- medical resources. We were targeting practical implementation around 2030 and preparations are already underway to accelerate the growth of existing metra business. OrganOx has achieved rapid growth by offering innovative solutions to address the clinical unmet need of organ shortages. Since the launch of metra in the U.S. market in 2022, the company has expanded presence swiftly, surpassing JPY 10 billion in annual revenue last year. With the continued expansion of the market driven by NMP technology, OrganOx is now on growth trajectory that we realistically envisioned annual sales reaching JPY 100 billion within the next decade. From a profitability stand standpoint, the company achieved positive adjusted EBITDA just 1 year after the U.S. launch, which is very rare for any start-up companies. Let me talk about the financial impact. Excluding amortization of intangible assets and onetime expenses, the acquisition is expected to contribute positively to adjusted operating profit. Following the closing, we plan to disclose further details regarding goodwill and intangible fixed assets. In terms of earnings per share, the acquisition is also expected to have a positive impact starting next fiscal year once special factors related to the transaction are excluded. The funds for the acquisition will be sourced from cash on hand and asset financing. Beyond the growth driven by OrganOx's proprietary technology, we believe that creating synergies with the Terumo Group will generate even greater value for both companies. As many of you know, the Terumo Group possesses a broad product portfolio and advanced technological capabilities, enabling us to create powerful synergies across multiple domains. OrganOx's perfusion technology enables the recreation of physiological environment for organs such as the liver, even outside the human body. This approach closely resembles Terumo's perfusion technology, which supports organ function by circulating, oxygenating, regulating the temperature of blood outside the body. By combining these 2 technology, it is possible to build a more advanced in vitro circulation environment. Beyond the TCB domain, combining the Terumo Group's unique technology and expertise with OrganOx products enables the development of innovative solution with the potential to transform the future of transplant medicine. To fully leverage this broad integration, the business will initially operate flexibly and dynamically as a new unit will [ report ] directly me as the CEO rather than being placed under an existing company division. OrganOx will serve as a strategic platform to accelerate Terumo's entry into organ transplantation. In addition to perfusion technology, this access to clinical call points and R&D network will enhance our existing operations and drive new growth through the complementary technologies and products. As mentioned at the onset, the purpose of this acquisition is to achieve leapfrog growth for us. The integration with OrganOx will bring high-growth business domain to Terumo, where synergies with our broad portfolio of existing products and technology will continue to expand the scope of future solution offering. Most importantly, OrganOx technologies and products are clearly helping to solve major challenges in organ transplantation challenges that align perfectly with Terumo's strategic direction, delivering donated organs as precious medical resources in optimal condition to patient is a direct embodiment of Terumo's promise and a steadfast commitment to those we serve. The acquisition represent a bold challenge to contribute to the future of medicine, leveraging the technologies and expertise Terumo has cultivated over the years. We are confident that entering the organ transplantation field will allow us to build an even more advanced and impactful portfolio. That concludes my slide presentation, but I'd like to make a few comments before I finish. I, see, ever since I became CEO last year, I have made a criteria -- there are a few criteria that are important for identifying targeting companies or scanning of the target companies. Is this target company really be able to give a groundbreaking technology to contribute medicine for the health of patients? The other one is like a differentiation, uniqueness, something it's very difficult for competitors to copy. Do they have that technology or business model? Number three, do we have synergy, leveraging synergy with Terumo? Number four, of course, financial growth potential and profitability. Number five is how close our cultures are. But I would say it's very rare to find 5 boxes being checked. And I actually told to you, it's very difficult to find all the conditions being met as a top management. In this transaction, it's very rare. We found a very important treasury, very excited because it checks all the boxes. If looking back a few years from today, we are confident that we will be uploaded with this transaction. Thank you very much.

With that, we'd like to get into question and answer. I'd like to first ask sell-side analysts to raise questions. And we would also extend time to give sometime to ask questions for people who are joining us remotely. [Operator Instructions] Yamaguchi-san, please, you are the first.

I'm with Citi. My name is Yamaguchi. Let me ask you a couple of questions. Well, you mentioned JPY 100 billion approximately. And let's say, regional expansion, the organ category expansion and the size of the device is pretty important. I heard about that some time ago. So to what extent would you expand when you have JPY 100 billion in scope? Or is that 2030x? What is the premise necessary for achieving that?

Well, regarding the specific breakdown, I'm not quite ready to address. But in terms of regions, currently, U.S. has been the central market. Of course, we're thinking -- we should be thinking about expanding into other markets. And as I mentioned in the presentation, the kidney -- entry into kidney, we're targeting to enter into that around 2030. And of course, the existing version upgrading maybe one way, but this is a new area and many players are trying to enter into. So we want to maintain a differentiation. So upgrading, therefore, will be necessary, I think.

Well, when would you launch the small devices that said?

Well, not quite next year, but certainly sometime before 2030.

Okay. Let me ask you another question. You have existing competitors addressing this kind of device. U.S. has certain companies with the devices and they have infrastructure and you're making a new entry to make big change. Is that the kind of a business that you're trying to address? Maybe you have already launched that kind of endeavor. So what could be the biggest factor to take the shares?

Well, technology for organ transplantation exists in large numbers, but the normothermic technology is few, not so many players and real-time monitoring and automated control. The OrganOx has a special algorithm so that the organs will be maintained at the optimal condition when they are transported. So that's the great value of the company. So in 2022, the -- following U.S. launch, the growth is pretty big and the organ transplantation center, medical doctors, surgeons really highly rate OrganOx devices because of that.

Mr. Barker, please.

Steve Barker from Jefferies Securities. So let's say last year's revenue was about doubled, but this year, how fast the growth is expected to grow the top line? What do you say?

Well, the growth percentage for this year, I mean, it goes back to Samejima-san's comment. We would hit JPY 100 billion or higher, hit JPY 100 billion in 10 years. So in terms of CAGR, it's going to be more than 10%. Of course, the growth rate will be faster in earlier years. And -- but we can share that with more details, including the timing of it after the closure.

And just -- just happened just the other day. So this was not being -- the air freight was not being used in the past. But after the regulated, it becomes more convenient. Do you think that will accelerate the growth?

Well, in the U.S., organ transplant, mode of transportation, majority of them are tracked. Land transportation is, it takes up about 70%. Airfreight is about 30% in the U.S. So now it's -- it can be carried in the airplane. It's not going to be double, right? But it will be nonneglectable incremental growth is coming from the airplane mode of transportation.

Next question, please, Mr. [ Otake ].

My name is [indiscernible] at Mitake. So I need to pick 1 question. So let me ask you about the differentiation. Obviously, liver, their products, they were earlier in the U.S. And this is the European company. You have a greater share in Europe. But for the CDI 50 -- 500, that has been used in the bypass surgeries and the CDI sensor is installed. So you have been on your watch for a long time. So you have your strength. And the real-time monitoring, say the portal, the artery and the pressure and the circulation, you have been watching that and the competitors have been doing that. And the CO2, O2 and the bile acid, glucose, what about their productions, you have been watching that. And to what extent is that strength? Is that -- am I right, you only have 3 buttons or so, a stop, start, stop and just one more. So is this strength about the real-time monitoring delivered function is well assessed and the operation is easy? So are these strength?

Well, 2 more things for differentiation, I believe. The automated control, so it doesn't require the human involvement. And one more thing, the other company, should I say that? Well, it's actually a different business model, I have to say. So it's basically about the air transportation and ours has a flexibility. So cost is different. And the cost difference is pretty big, I believe.

I see. So let me ask you another thing, the cost. According to the materials, I saw the cost is less than 50%, maybe 40%, if I remember right. Well, that's too much. Okay. So National OCS program, they have a huge program, your competitor. And so harvesting to transplantation end-to-end is their business model. So your business model is about the device and the disposable and the transportation is in-house?

No. On the partnership.

Okay. So the price-wise, you have the price advantage?

Well, the cost is almost half. So these 2 are the advantages. The real-time monitoring is possible, easy to use and the low price. These are the differentiating positives, right. Asset-light, SG&A light, that's the kind of the business model we're looking at.

Next question, please. Yes, Saito-san.

My name is Saito from JPMorgan Securities. So the numbers of the cases of transplants and that forecast of the volume is my question. Numbers of transplant cases, is that growing? If it's growing, what drives that growth? Can you just give me a little more context why it's growing -- the market is growing?

Well, just as OrganOx or other companies have been over the last several years is adopting, introducing very new technologies. So the traditional way was simply putting to that ice box, right? But it's very difficult, right? The preservation time is shorter. You don't have much control of the state of the organs. But now preservation time is much longer. Therefore, it can drive the numbers of cases for transplant for sure.

And -- I'm sorry, talking about the time for preservation, but that's one, right? But -- so what is about the total addressable market size because including opportunity loss, right? Because it's less leakages happening for organizations.

Well, I earlier talked about supply is where the bottleneck is happening. Supply is now becoming bigger because of technology innovations. Then the registered patients, the supply is the bottleneck today, right? So some patients who are so -- the symptom being very gotten worse, they should be receiving transplant, but they will not be having access to because supply was the bottleneck. That means like we have more supply. All the patients otherwise not be able to receive transplant will be able to receive transplant. That's how the market is growing.

So in terms of percentage, it's so 10% or more. Is that how the market -- you expect the market to grow 10% or plus?

You're asking me about market. 2-digit growth.

Next question, please. Yoshihara-san, please.

UBS Securities, my name is Yoshihara. I understand you're heading for closing and intangible assets are yet to be disclosed. The ROIC is difficult to calculate, but I'm trying to get a general image.

So maybe some of the factors reduce the ROIC. Well, I may be wrong about the calculation, but you need to enhance the top line 50%. Otherwise, it doesn't pay in 5 years to come.

Well, can you make comments about that wherever possible? And another question. I'm not familiar with the technology of this company, but let's say, any businesses of yours -- does the company's technology have any synergies with your existing businesses? Can you tell us about the synergy?

Okay. Regarding ROIC, let me respond to your question. Well, you're right in part. Well, the ultimate numbers will be disclosed post the closing. But when we are in the early phase, it's going to be negatively kicking in immediately after closing it. But to what extent we have positive contributions, that's an important factor. So as of now, as we think about the business model, we are thinking about -- towards the end of the last year of the midterm plan, it should be generating a positive contributions. Well, of course, it's purely based on the current rough estimate. And of course, we will certainly have more specific detailed numbers down the road.

Okay. So in 6, 7 years, it turns positive?

Well, a bit more than 6 or 7 years, but certainly less than 10 years, it should be positive.

Okay. So contribution to ROIC, you mean just the acquired business alone, not including any peripheral things?

Well, we've been looking at the company stand-alone in our analysis. Well, stand-alone, ROIC is already positive, and the business is asset-light. So if we look at the business per se, ROIC is already positive. However, the current acquisition involves assets, intangible assets and other things. So if you consider all of them, it may take 6, 7 or a bit more years before the Terumo Group as a whole has to see the integration. Regarding the synergy, let me respond. Well, there should be some synergy. So in the presentation and in response to the question, we touched upon the automated control. So our components can be used and the controls can use our components. So their technology, our components, put them together, maybe we can do something more as a general image. And as I mentioned, this is the Oxford span technology. So Terumo Venture is also -- used to also pay attention to other technologies as well. So unique technologies other than this one can be put together.

Okay. Let me ask you another question. But this acquisition, I believe, is a very good acquisition, but let me ask this question. Is this the end -- the investors may have the feedback. The Terumo's -- the catheter business is the core business. I believe that's the investors' understanding. And after the release, the stock price slightly decreased. So unexpectedly, the price stock price made a different move?

Well, last year, April 1, I took office as the CEO. So in this industry, in terms of the growth strategy, the M&A is essential. No M&A, no discontinuous or leapfrog the growth. So this May, the drug filling factory was acquired. And this time, we're acquiring this. And of course, this is not the end of the story. Any good deals come across -- we come across, of course, we should certainly happy -- we should be happily considering that.

Mori-san, you are next.

My name is Mori from Nomura Securities. What I got confused a bit is, is this truly essential? Do they really have to have in terms of organ transplant? Today, ice box, right, cheap, established, very simple and easy. But with the perfusion, then marginal organs, organs otherwise being discarded can be saved. That makes sense, right? But what about your technology or future development? Can you make the perfusion approach that essential? I think that's the key question. How do you see that pathway? Are you confident you can do that?

Well, metra currently using one of the many components, which is CDI. We are the supplier of the hardware. But other components in the mid- to long run, we can replace them to Terumo products, that's like one aspect of it. And -- but this -- now is before -- if this system essential or not, if you wear the shoes of patients, for kidney, except dialysis, there is no alternative. Many patients don't have no alternative approaches with many different diseases, including -- but those are the patients, without anything -- any intervention, they could lose their life. With this innovative approach, we could have a new matching. Otherwise, not much of both, organs, kidney. We can expand the numbers of match. And that will be a key step for medicine and the ambient temperature mechanical perfusion is getting a lot of attention, and these companies have been growing very fast over the last 3 years in the U.S. So I would say we are confident this is a system technology that are essential. And we have -- and by combining our core technologies, we can give more value to the sales front -- to the patients. I have no doubt about that.

Now second question, if you think about receiving side of that technology, I'd think about costs and cost. And how much do you want to invest for cost for patients to decide whether they want to go for organ transplant option or not. Is that insurance have to cover that? They -- like their philosophy, their -- but many different factors. I guess your approach is you want to have marginal organs being saved up and -- but in the next 3 years, before going to the marginal, so you want to match patients otherwise being not matched. That might be giving a high growth because that might be easier to be matched. But you need to, in the future, expand the market. But then there are law regulation and philosophy, religious belief. How can you expand the market, build more potential patients? I think this is going to be an important challenge for you in the years' time. But can you make me more confident that you can really build more potential market?

No. Well, first, reality today is supply is very small versus demand. So we will develop the low-hanging group. And so -- but it's not low-hanging group is going to be dry up in several years because with this technology, many more lives of the patients are going to be safe. Like I said, there are a lot of patients who needs to be registered, but couldn't get the organs because they can't be on the list, because the problem supply. Numbers of the transplant is 150,000 today, but there are patients who dropped off from the list, 10x bigger than who are receiving the organs. So we can expect very fast growth for the time being for some times to come. I'm very confident about that.

May I also add a comment on this topic? During the due diligence process that we have done, supply will -- we looked at the potential of supply catching up to the demand. But innovation is catching up very fast. We look at different announcements from the medical conferences. So the original source of [ cancer ] has been treated. It's staying at liver, but then it can be metasized to other areas. This technology can be very useful for that kind of patient. So I think the demand is also going to be expanding once this technology gets established and we have it for sure. And is this a sense do we have to have this? And it's more than patients, right? QOL for medical practitioners are very important. In a real world, 6 hours or 7 hours is the preservation time. All the matching is taking place in the evening to night. That means they have to work, do the surgery in the middle of the night. But by stretching to 12 hours, you can do it from the morning time to evening time, the regular working hours. QOL for medical practitioner doctors are going to be improved. This is also a very important driver. I just wanted to add that comment.

Yes. Ueda-san, please.

I'm with Goldman Sachs. My name is Ueda. Let me first ask you a question about this very timing -- acquisition at this very timing. Why is that? Well, according to the presentation, you touched upon the innovative aspect and the need. It's been there for quite some time. And I understand the company has been doing business with Terumo for quite some time. So through Terumo Ventures, there was some investment and things rapidly developed into this acquisition. So what is the very significance of your involvement?

Thank you for the question. Well, we started out with 2017, PCV -- DCD, the business has been doing business about CDI sensors. And during that time, we only had a vague understanding that, that kind of business existed. But just this spring, Terumo Ventures was making investments. And naturally, we took a very -- a good look at this company. It was necessary. And so we rapidly deepened our understanding into the company. And then we found it a very nice acquisition candidate. That's why.

Okay. And let me ask you a follow-on question. Your involvement in Terumo's entry and then what things the OrganOx could not single handily do, what kind of things are made possible?

Well, it may not necessarily relate to this very timing, but one of the main components has been sourced from Terumo. And regarding other components in the mid- to long term, such other components could be replaced to Terumo components. And there may be other synergies, for example, post organ transplantation, patients need to be taken care of. For example, apheresis. It's important to put the patients on apheresis. And Terumo BCT is not all into that, but Terumo and this company together may produce more business to Terumo BCT as well.

Okay. And regarding the future business market size, you talked about the organ breakdown of the transplantation and the kidney is pretty big, I understand. So in terms of the number of the transplants, liver and kidney involve different business models? Or are they as big as each other?

Well, value-based, there's not much difference between the liver and the kidney. And as was presented, liver is vulnerable to ischemia, kidney -- excuse me, the vulnerability to ischemia is so different between the 2 organs. So in terms of value, according to our calculation, there's not much difference between the 2 organs. So liver will soon be bigger in a few years. The kidney transplantation count is much more, but the value-based liver should be growing more. So basically, we try to deploy the business in conjunction with the liver. And the health care providers QOL is very big.

So in terms of the sequence, first, liver, then kidney. Okay.

Tokunaga-san, you're next.

My name is Tokunaga from Morgan Stanley. Now looking at the pipeline, metra L and metra K, so how long -- or how much additional investment are required before the launch? And give me about how much will require and how soon they are coming launched?

I'm not disclosing the amount of investment, but the timing has been covered in the presentation. K is 2030, L is slightly earlier than that.