Kerecis was acquired for $1.2b USD to $1.3b (there were hurdles for the extra $100m) in July 2023.
I'd say with inflation this is around $2.2B AUD today.
Their sales and growth then weren't too different to us today.
I think BTM must be a lot cheaper to manufacture.
True, Coloplast acquired Kerecis for US$1.2bn (with a US$100m earnout) in July 2023.
Which is ~ A$1.9 -2bn.
Although inflation has certainly been high in the 2 years since, both biotech and healthcare company valuations have not risen since mid-2023, as reflected in the relevant indices. If anything, valuations have slightly declined.
When comparing the sales and growth rate of Kerecis at the time of acquisition compared with where PolyNovo is now, I would argue we are not yet there.
Kerecis had ~A$116m sales in FY 21/22 and was acquired towards the end of FY 22/23.
Reported sales growth for FY 22/23 was 50%, suggesting annual sales of ~ A$174m at the time of acquisition.
In comparison, PNV is likely to have sales of A$115-120m this FY and the most recently reported sales growth rate was 28%.
A further factor to consider is that Kerecis received funding of US$100m in H2 2022. After that US$100m funding was received, the privately-held company was independently valued at US$620m (A$963m). While that valuation would have risen by mid-2023, it is nonetheless clear that a sizeable premium was paid.
It was guided that Kerecis would then settle to ~30% growth rate for the following 3 years. The most recently reported sales growth rate was just over 30%.
With its higher growth rate, Kerecis has now pulled further away from PolyNovo. In H2 CY24, Coloplast reported Kerecis sales of ~A$145m, compared with PolyNovo sales of A$54.1m.
With implementation of the Local Coverage Determination (LCD) in the US, which was recently delayed, yet again, until January 2026, Kerecis further stands to benefit as one of just 17 out of 206 products that Medicare has agreed to cover for DFUs and VLUs (Novosorb was denied). Kerecis has estimated that demand for Kerecis products could increase by 50-500% following the implementation of the LCD.
Kerecis gross margin had been reported to be ~85% prior to acquisition, which compares with a reported 68% gross margin for the overall Coloplast enterprise.
Why was the CEO of Coloplast fired earlier this month?
He may have successfully acquired Kerecis and met the sales growth guidance for Kerecis of 30%, but Coloplast’s CEO, Kristian Villumsen, was fired earlier this month.
Unfortunately, growth in the rest of the company didn’t meet the expectations of the Board.
Below are some excerpts from the Coloplast Earnings Call on 5 May which I think provide some interesting insights (my highlighting in red).
There have been a number of very important decisions in Kristian's tenure, and among them, the acquisition of Atos and Kerecis that we are super happy with. However, we have not seen the value creation that we have invested for and we have not seen the top line growth that we have invested for either over the period. And that is why the board of directors, they have decided that this is a good time to part with Kristian. And I would like to underpin that there's no wrongdoing on Kristian's side, but we think that what we need at this point in time will be more decision power, more execution power, and more energy in leading the company…
We delivered 6% organic growth and a reported EBIT margin before special items of 27% in the second quarter. Adjusted return on invested capital after tax and before special items was 15%, on par with last year. The organic growth in Q2 was below our expectations…
…what we are looking for now is more decisiveness in the management team. So, we need to make decisions that benefits the top line growth of the company. If you look at the numbers that has been presented in this deck, we have a pretty good control on the costs side, but we are missing out on the top line growth. And that has, of course, a significant impact also on the bottom line. So, what we have invested for? Also with the acquisitions of Kerecis and Atos. And also, what we are investing for in new product development and then the professionalization of our whole go-to-market process is more top line growth, and that have not materialized. That is our focus. That is what we are going for. And I'd also like to reiterate, it's not something to do with Atos and Kerecis, it's more broad based. Actually, both Atos and Kerecis are delivering on the business case that we had of putting in when we were acquiring those companies. So, it's more broad based, but it's all about execution in the company. It's focusing on top line growth….
Martin Parkhøi from SEB
The first question is going back to the organic growth rate. Do you ever consider that maybe your ambitions for the organic growth is just too high?
Yes, I think it's tough targets. It was also tough targets back in the days, we – it's like we have never had anything else but tough targets. Of course, they don't come out of nothing, out of the blue. So, the most important thing is that we – for us, is that we have an offering to our customers that is seen as superior when it's – when we are looking at product quality and service levels, because that is what it takes to grow above the market. Then you can always discuss how much above the market, but we think it needs to be convincingly. So, therefore, the growth targets that we are having will always be pointing to something which is above the markets. When we look at the products that we are bringing to the market, when we look at the difference that we have compared to the companies that we are competing with and they are great companies also, of course, then we think that we deserve more growth than what we have, at least in this quarter. So, yes, we have tough targets, but they are not going to go away.
Anchal Verma from JP Morgan Securities
… is there any risk that the strategy target set or put out by yourself and the board might need to be revised when the new CEO takes over as the new CEO may have a vision of their own?
… if we were to wait until we have a new CEO and that new CEO would be somebody from outside, then that would also be reasonable that a person like that would have to spend at least half a year, maybe nine months to form his or her own opinion of the company and then craft the strategy. It could mean that we would be two years without a solid strategic direction. We can't have that. So, it will be like this. We are creating a strategy. And that will be created, of course, in the executive management team. And I will do the utmost to make sure that there's buy-in, and it's not a dictate, and that a new CEO that comes on board will have to have a personality where that person can live with taking over a strategy with the goals and direction that we have and all that we have decided. That will have to be the terms. And I can't see that we can do it in any other ways, because as I said at the beginning, that the board has – that the first task any board has is to make sure that there is an ambitious strategy and that it is being implemented and executed on, that is the task that the board has, we cannot be without it.
https://www.coloplast.com/investor-relations/latest-results/
(20min delay)