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

Good evening. Thank you for joining us. I'm Naoko Saito from JPMorgan. Welcome to JPMorgan Healthcare Conference, Terumo's presentation. Again, it's my pleasure to be introducing Terumo. From the company, we have CEO, Hikaru Samejima for the presentation. And after that, we'll have a Q&A session. With that, I will pass on to Mr. Samejima. Thank you.

Well, thank you for the kind introduction. So good afternoon, everyone, and thank you for joining us today. I'm Hikaru Samejima, CEO of Terumo, a medtech company from Japan. And it's my great honor to have this first opportunity making a presentation at the JPMorgan Healthcare Conference. This is our forward-looking kind of statement. So can you imagine how crucial the very first step of a medical procedure can be. It can make all the difference in the patient's journey to recovery. One indispensable device in vascular access is the guidewire you see here. At first glance, it may look like a simple commoditized product, but it is far from that. By consistently delivering reliable quality and seamless procedures, this guidewire has become the gold standard in vascular access. Since its introduction in 40 years ago, this wire has been used in the largest number of procedures and saving lives of most patients around the world. Quality is essential for medical devices, which use daily in the medical settings. And we, Terumo, can ensure this through our robust operations and advanced technology. For health care professionals who face countless patients every day, dependable devices give them a confidence to start their procedures. And for patients and their families suffering from illness, treatment with trusted devices brings reassurance. We, Terumo, are committed guided by our mission, contributing to society through health care. Today, we have $7 billion sales worldwide with 3 business segments: Cardiac and Vascular, C&V Company. This company manufactures and sells catheters, artificial vessels or grafts or a vascular therapeutic devices. Terumo Medical Care Solutions, TMCS, company supplies fundamental medical devices such as infusion pumps and syringes necessary for hospitals and including clinics. This company also includes our CDMO business, which actually provides the drug administration devices designed to kind of maximize the drug value. Terumo Blood and Cell Technologies, TBCT company, again, that supplies products and services such as blood collection and the apheresis system for the blood treatment and a cell therapy community. We have grown into a global medtech company, delivering products to over 160 countries and regions and driving innovation through our R&D centers in Japan and across the globe. Let me highlight our strong track record of growth. You can see how we've consistently expanded our revenue year after year. This growth has been powered by 2 engines: first, robust organic growth; and second, strategic acquisitions. And these acquisitions didn't simply add scale, but they actually became a true growth driver by creating synergy with our existing businesses. Regarding profitability, we've delivered significant AOP margin expansion over the last 3 years, and we are on track to hit that 20% this fiscal year. This is a result of our disciplined approach with robust revenue growth, the successful price adjustment and operational excellence. We've also transformed that streamlined our portfolio by divesting businesses outside of our core strength. This is a strong foundation for our continued growth to -- and create a long-term value for our shareholders. So let me briefly walk you through what you can expect from Terumo in 2026. So our fiscal year '25 is progressing as planned with a revenue growth of 8% and a robust operating profit expansion of 24% growth. And this strong foundation sets the stage for FY '26 from April this year. In FY '26, key theme is to that we achieve our kind of a growth strategy '26 financial target of operating profit margin of 20%. And we expect high single-digit kind of revenue growth to continue. And importantly, we are projected to hit 20% OP margin this next fiscal year before adjustments. And this is supported by the strong double-digit growth of profitability growth. So this will mark a significant milestone for Terumo. Our core strength actually lies in developing and maintaining the category-leading products. As I mentioned earlier, we are the market leader in vascular access devices. Beyond that, in each business category, we take pride in offering some category-leading products and then -- and to serve the broad spectrum of medical settings. Now let's look at what drives growth in core businesses. Let me first begin with the Cardio and Vascular Company. This company has a unique portfolio. So the revenue from vascular access-related products account for more than 70%. And these products are essential for vascular interventions, and we have successfully transformed these devices, often seen as commodities into high-value offerings. With a strong presence in the vascular in access segment, our business will continue to grow as the vascular intervention market expands. Our technology enables very seamless procedures. At the same time, our large-scale multiproduct manufacturing ensure price competitiveness and a reliable quality. This gives physicians confidence in Terumo products. Beyond supplying products, we also provide comprehensive solutions for the medical challenges. We pioneered the radial access. And this kind of the technology ensures the safer procedures, less complications and a shorter hemostasis time than the conventional femoral approach, which actually use the kind of lower-limit outcome. So the -- we -- I'm sorry, the patients and health care professionals and hospitals and even society can benefit from the kind of reduced clinical burden. Today, radial approach are widely accepted, and this becomes the kind of gold standard in the vascular intervention. 20 years ago, there are less than 20% of our percutaneous coronary interventions, PCI, used the radial artery. But today, around 80% of the cases are done through radial. Even in the United States, one is considered unlikely to adopt this approach, but now these radial procedures accounts for 60% of total PCI. So this is a prime example how we solve health care challenges at the same time, reinforcing our leadership position in the competitive marketplace. We also actually try to focus on accelerating the field of therapeutic area. Two key innovations representing this effort. The first, the dual sensor system, DSS, for intravascular imaging. This system features a catheter equipped with both IVUS and OFDI sensors, enabling simultaneous acquisition of both images. By combining the strength of IVUS and OFDI, this gives you a better and accurate view on intravascular conditions, which enables physicians in achieving to optimal the treatment strategies. Second, the WEB system for neurovascular interventions. This is an innovative device for treating cerebral aneurysms. This is a truly innovative product and setting a new target, new standard for the treatment. And then ever since its launch that they have replaced the conventional coil market and then experienced a remarkable growth. And we can expect a strong double-digit growth of this kind of the product to continue driven by market share expansion and geographical reach. Moving on to TMCS Medical Care Solutions. One of the focus of this company is CDMO business. Unlike CDMOs that focus on drug substances, our strength actually centers on developing the drug administration devices. The defining feature of our model is its one-stop shopping solution, which actually covers everything from device development and manufacturing to fill and finish. To develop these devices, we typically form alliances with pharmaceutical companies in the early stage of drug development. And this early engagement gives us a very unique positioning in the CDMO market. We also have the capability to develop very unique innovative administration devices. Our expertise spans device development, manufacturing and quality control backed by our strong track record as a device manufacturer. We also have over 50 years of experience handling pharmaceuticals. This unique combination, device know-how and pharmaceutical kind of expertise gives us a very unique position and gives us strong competitive advantage. By combining one-stop -- kind of service, one-stop shop service and world-class development capabilities, we have established a very unique and differentiated business model unrivaled in the industry. CDMO market is highly attractive with a robust growth potential. Among injectable drugs, which make up a large portion of pharmaceutical these days, self-administered drugs are growing twice as fast as in-hospital drugs. And the success of this segment depends on developing creative and innovative devices. And then this is exactly where our kind of strength lies. Since launching our CDMO, we've grown the market business significantly over years. But now we are prepared for the next big leap, aiming to reach $1 billion in 2030. To achieve this goal, we keep expanding our capacity to even accelerate this positive momentum further. And I'm proud to share a major milestone today. We have just begun shipping our auto-injectors for Eisai's anti-Alzheimer's disease drug. And this achievement underscores our commitment to innovation and leadership in the CDMO market. Let's move on to TBCT blood and technology companies. Currently, we are focusing on the source plasma collection business. Our plasma collection system, Rika is a growth driver for TBCT and providing a kind of a more efficient and comfortable plasma collection experience through the advanced technologies. This business has seen the rapid growth in the U.S. market. And we partner with CSL, an industry leader, and then all their kind of plasma collection centers have now adopted machines. So revenue from those collection centers are expected to continue. There is no doubt and alongside the expansion of a plasma-derived therapy market. Beyond CSL, we actively are seeking the additional customers, additional partnerships and are confident that our technology and operational strength would attract some more customers. Our aspiration is very clear to be one of the kind of leading kind of medtech company in the world. We do have kind of a robust sustainable kind of portfolio to grow, but we don't stop there. We actively seek external opportunities. And we are not just thinking about the next few years, but we have a long-term vision to even create greater value and to achieve our aspiration. When it comes to M&A, we are very disciplined. And then we have 5 criteria that guide every decision. First, technological excellence that solutions that truly contributing to society and health care. And two, competitive advantage. So unique strengths that sets the target apart. And third, synergy, the ability to create value alongside with our existing businesses. And fourth, an attractive financial profile. And last but not least, cultural fit, shared dedication and commitment to the health care community. These principles ensure that every acquisition strengthens Terumo and supports our mission. And OrganOx meets those 5 criteria perfectly. And so -- and then -- which is a truly rare case, and we are very proud of that. OrganOx is revolutionizing health care through its advanced perfusion technology. And that company is boldly tackling its mission to maximize the supply of kind of donor organs and -- which is an invaluable kind of medical resource and to try to save as many kind of patient saves as possible. By enabling the collection of those organs from the circulatory guest donors and also increasing the number of usable organs and improving the quality of life for professional, [ seminal ] health care professionals, OrganOx is providing a true benefit to the entire health care ecosystem. As this technology gains widespread adoption in the liver transplant market, the company is experiencing very rapid growth. After establishing normothermic machine perfusion, NMP as a standard in the liver preservation, OrganOx plans to expand into the kidney domain. Significant number of those recovered kidneys are still discard today, and then NMP-based functional assessment has the possibility to make many of those organs viable for organ transplantation. In fact, OrganOx has a huge opportunity through perfusion technology even going beyond transplantation. The extracorporeal liver cross-circulation system or ELC is one example. This treatment temporarily replaces liver function such as detoxification and metabolic regulation and by putting and circulating the patient blood in the auxiliary liver outside the body. This is a truly breakthrough for those kind of acute liver failure patients to provide their life support and treatment. The potential market is significant. The U.S. alone, more than 33,000 patients annually with -- kind of enter hospitals with acute liver failure or acute and chronic liver failure with a survival rate of less than 50%. This is a huge unmet need that OrganOx positions us to address it. The opportunity doesn't stop there. Their technology can help pharmaceutical companies to develop new drugs by kind of enabling the human liver perfusion with the clinical trials, the pharmaceutical companies may accelerate and boost the success rate of new drug development, which is actually a critical challenge in the industry. So OrganOx is not just saving lives today, but it's about shaping the future for the liver care and innovation. This is why we are so excited about OrganOx, and this acquisition perfectly illustrates how Terumo combines innovation and the strategic vision to sustain long-term growth. The heart of everything I've shared today is our unwavering commitment to patients. We listen sincerely to their needs, deepen our understanding of their hopes and aspirations and uncover what truly benefits them. Together with health care professionals and partners, we pursue innovation and solutions and new ways to advance patient care. Keeping patients' thoughts and feelings at the center, we will continue to expand our activities and embrace new challenges. I invite you to look forward to the new value we create. So as I wrap up, I would like to leave you with the long-term outlook. Beyond Growth Strategy '26, our focus is accelerating innovation and sustaining strong growth momentum to become a global top-tier medtech leader. This evolution will be driven by 3 clear pillars: One is maintaining robust sales growth; and two, the margin expansion that outpaces the revenue and then we're reinforcing our leadership position in the -- through R&D and M&A. Powered by innovation, we will deliver new value to patient care worldwide and transform the future of health care. And we really look forward to walking this path together with you. That concludes my presentation. Thank you for your attention.

Thank you so much for the great presentation, Samejima-san. So let me open up the Q&A session. From Terumo, CEO, Mr. Samejima; CFO, Mr. Hagimoto will provide the answers. Does anyone have any questions? Please raise your hand. So let's start with my first question. Terumo has been actively reviewing and reshuffling its portfolio, including low-profit businesses. I think this has contributed to your margin expansion. What are your main criteria when deciding to review or exit the business?

Okay. Well, so first, we definitely look at the kind of financial performance over years. And if they are not growing or they are not contributing to the kind of profitability, yes, that's one of the kind of angles that we look at. But not only financial kind of evaluation, we also investigate whether we are the best owner or not. If there is someone who could possibly do better than us, then that's another criteria that we screen out those kind of, well, let's see, nonperforming kind of businesses.

So actually, Terumo has a strong track record of successfully expanding businesses acquired through M&A. So -- and you mentioned that you have 5 criteria for making an acquisition. So what do you focus on after the acquisition? So why is your track record so great?

Okay. Well, let's -- thank you for the compliment. Again, we are very proud of the very successful tracking record of the cross-border M&As, including MicroVention and the Vascutek and BCT and so forth. Well, usually, the way we do kind of post-merger integration is while we respect their culture of what they do business with because the reason why kind of we acquired those companies are they already established a strong kind of financial kind of a record, and then they have established a good culture and everything. So we try to kind of respect what they do. But at the same time, we try to influence them and by introducing some of the ways that we do business with. But again, it's not the one way. It's always tried to have a mutual communication so that we try to kind of maximize the value that both organizations have. So that's probably the synergy we can create. And so it's not too over kind of controlling or maybe too centralized. But while giving a reasonable autonomy to them, but at the same time, we try to kind of have a close communication with each other to create their mutual kind of synergy opportunities. That's probably the kind of recipe over the PMI process.

Great. So regarding the newly acquired OrganOx liver transplant business, I think your strength compared to the U.S. competitor is your lower price. And on the other hand, the competitor is strong in logistics services. So I imagine hospitals will choose between OrganOx and the competitor depending on transport distance and hospital budget and staff availability. OrganOx, so sales grew 60% Y-o-Y in 2025. So what kind of growth rate do you expect over the medium term? And it was a large acquisition. And how do you view the risk of future impairment?

Okay. Well, before touching kind of a comparison with OrganOx with their competitor, well, NMP alone has a truly breakthrough technology, truly kind of transform the organ transplantation completely compared to the conventional way of doing it. So the market has a huge potential to grow. So we are very confident that OrganOx can maintain a very robust high double-digit kind of growth in coming years. So there's no -- meaning that I don't see any risk of impairment at all with that business.

Does anyone have any questions?

Microphone, right? Yes, because it's...

[indiscernible] for OrganOx you just mentioned. You see the market is burden enough. You don't need to necessarily to compete for market share, let's say, local, U.S. [indiscernible]. So why do you think the market is being given limited supply for organs, especially for liver and [indiscernible] OrganOx [indiscernible]?

Okay. Well, yes, the conventional way -- I mean, the supply side has been always a bottleneck. But again, this NMP system technology actually unlocks that bottleneck. And because they can use those kind of organs from a circulatory guest kind of donors. And also because of their kind of real-time automated kind of perfusion technology can maintain the kind of liver function as healthy as possible so that the kind of a discarded -- the ratio of those livers are actually reduced. So supply side, not perfectly, but they can kind of relax that bottleneck significantly. So that's why we see the huge potential in the liver transplant market.

Two from me. I'm going to do my best sell-side impression here. The first is after the acquisition of OrganOx, has Terumo made any internal investments or adjustments to the product itself, including commercial reach that would kind of accelerate the growth profile from 60% year-over-year? And then the follow-up to that is, are there any expectations to branch out into heart, liver -- sorry, heart, lung, kidney or any other organs?

Okay. Yes. So OrganOx is a highly effective organization in their commercial effort. And then -- okay. Yes. So again, their call points are kind of transplant surgeons, which are not our kind of existing kind of a customer base. So we haven't done any significant investment in their commercial effort. But again, we try to help from the kind of product development kind of wise and some other kind of categories. We've done the kind of thorough kind of a PMI process, I mean, ongoing at the moment. The second question is that -- yes, that's right. Yes. They do have a kind of plan going into the kidney domain, in 2030. So the liver plus kidney and some other applications utilizing their perfusion technology.

I would have a question regarding your blood business. You mentioned you expect to grow in the plasma collection. And what about the whole blood in particular, your Reveos machine, this new technology, what do you expect in the future for that? And how disruptive you think this technology is also in the global whole blood market?