agenda - pages.stern.nyu.edupages.stern.nyu.edu/~iag/presentations/2007-2008/holx.pdf · • more...

Agenda

• Company Overview– Mammography– Osteoporosis & Other– Merger with Cytyc

• Industry Overview

• Outlook

• Q&A

Company Overview

• Leading women’s healthcare company– Developer, manufacturer and supplier of diagnostic and medical

imaging systems– Integrated solutions to meet medical needs throughout a woman’s life– Projected $1.7B+ sales in Fiscal 2008– Over 90% of total revenue from products with #1 market share in the

U.S.

Solutions for Major Women’s Healthcare Issues

HighMediumLowHighMediumHighMarket Growth

$1B+$400M$110M$2.5B+$550M$1BU.S. Market Size

1 in 41 in 2 Pregnancies

1 in 21 in 51 in 1381 in 8U.S. WomenAffected

Permanent Contraception

Preterm LaborOsteoporosisMenorrhagia Cervical

CancerBreast Cancer

NM#1#1#1#1#1U.S. Market Position

Company Overview

5 Yr CAGR: 3

5%

*

* Not Pro Forma for Cytyc Acquisition

- 100,000

100,000

200,000

300,000

400,000

500,000

600,000

700,000

$800,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Revenue Operating Income

Revenue Breakdown

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

$500,000

2005 2006

BREAST CANCER OSTEOPOROSIS OTHER

$462,680

$287,684

Revenue Breakdown

20062005

US72%

Europe17%

Asia7%

Other4%

US67%

Europe19%

Asia10%

Other4%

Other

4%Asia

10%

Europe

19%

US

67%

US

72%

Europe

17%

Asia

7%

Other

4%

$462,680$287,684Total Revenue: Total Revenue:

Global Presence

UK

SpainFrance

Italy

GermanySwitzerlandMA

Australia

Hong Kong

Costa Rica

China

Mexico

Brazil

South Africa

Japan

CanadaBelgium

LegendCompany presenceKey distributors

CAIN

DECT

Mammography

Breast Cancer Key Statistics

• More than 1mm women diagnosed with breast cancer• Chance of developing breast cancer ~ 1 in 7 • Second leading cause of death• When treated early, 5 yr survival rate is 98%

Breast cancer detection = fastest growing opportunity in the market

Mammography/Breast Care

• Mammography - the process of using low- dose X-rays to examine different types of tumors and cysts in the human breast

• Products:– Film-based and digital mammography

systems• Direct-ray digital detector• Selenia Full Field Digital Mammography System• Screen-Film Mammography System• SecurView

– Computer-Aided Detection (CAD) Systems– Breast biopsy systems and tissue

extraction devices • Stereotactic Breast Biopsy Systems• Breast Biopsy Products

CAD (Computer aided detection) System:

• Screening technology with 96.1% detection rate• “Second pair of eyes”• Improves detection rates by 20%• Acquired R2 for its ImageChecker CAD system

Breast Biopsy Products:

• Vacuum assisted collection system• Procures larger tissue sample• Short procedure time• Less painful• Acquired Suros for manufacturing and designing

Photoconductor Coatings:

• Supplier of amorphous selenium photoconductor coating employed in digital mammography

• Also used in other electro photographic applications – printing, copying

• Acquired AEG with plants in Germany and China

SecurView:

• Breast imaging softcopy workstation • Interprets digital mammograms and images from MRI,

PET, Ultrasound

Screen-film system:

• Indirect or two stage imaging• 2001- Frost and Sullivan technology innovation award• LORAD M-IV• LORAD Affinity

• Direct Ray Digital Systems: • Industry’s first FDA approved digital mammography system using

direct conversion technology• Easily upgradeable• Uses less radiation• Increased patient throughput

• Benefits women with dense breasts• 10% to 20% of breast cancers not visible on film mammograms

– Mostly because of dense breast tissue– 40% of all women have dense breast tissue

• Integrates information system with radiology

Breast Care Product Overview

2001 2002 2005 2006

• Conversion to digital– More than 5x cost of film-based– Improves cancer detection in 65% of women– Less than 25% market penetration– Easier to transport to rural areas

Key Drivers in Mammography

Osteoporosis

Osteoporosis Key Statistics

• Osteoporosis - bone-weakening disease

• Affects:– More than 200mm women worldwide– More than 44mm Americans– 1 out of 3 women over 50 has osteoporosis– 1 out of 2 Americans over age of 50 will be at risk for fractures from osteoporosis

by 2020

• Drivers: – Number of bone density tests could double in the next five years– Under 25% of high-risk patients have been tested

Osteoporosis

• Impact of age on osteoporosis

Other

• Mini C-arm Imaging• Extremity MRI

Cytyc Merger

Merger with Cytyc

• Cytyc's strengths include:– Cervical cancer screening – Preterm birth screening

• Products: – ThinPrep system Cervical cancer screening– NovaSure Menorrhagia– Mammosite Radiation for breast cancer– FullTerm Predictor of preterm birth risk

Revenue Mix

Revenue = $1.44BCombined Entity

Gyncology Diagnostics

33%

Gynecology Interventional

16%

Osteoporosis & Other 11%

Breast Health 40%

HologicRevenue = $724M

Digital Mammography

68%

Osteoporosis11%

Breast Biopsy

9%

Other12%

CytycRevenue = $720M

Pap56%NovaSure

30%

MammoSite5%

Other1%

Adeza8%

Merger Overview

• Shares Outstanding (record date):– Acquirer 53.9 million shares– Target 117.6 million shares

• Consideration: Cash and Stock• Transaction Terms:

– 0.52 shares of Hologic common stock– $0.52 cash per Cytyc share

• Offer Price at Announcement: $46.46 per share• Transaction

– Equity Value: $5.5 billion– Enterprise Value: $5.4 billion

• Premium at Announcement– 1-Day Premium: 32.5 percent– 60-Day Premium: 39.0 percent

• Market Reaction (Acquirer):– Initial 1-Day: -6.3 percent– From Initial to Date: 11.8 percent

Synergies

• Annual cost savings – ~$ 20-35mm cost savings– Enhanced efficiency of sales and marketing efforts– Increased purchasing scale– Sourcing and logistics efficiencies– Shared administrative services

• Expected to be $0.10 accretive to EPS in the first year • Expected to enable the combined company to generate

significant cash flows– Enable the combined company to rapidly repay debt– Debt ~ $2.55 billion for cash portion of the merger consideration

Merger Rationale

• Enhanced strategic position of the combined company– Complementary products and technologies– Comprehensive sales and service organization– Broader channel coverage– Significant cross-selling opportunities across the organization – Enhanced operational and financial flexibility – Increased opportunities for growth– Greater scale and scope of operations– Expanded international reach– Strong platform for further expanding operations

Industry Overview

Industry Trends

• Hospitals migrating towards digital– Digital images are saved on the computer– Easy to integrate with hospital information system

– Market penetration• Scandinavia - 90% of hospitals migrated within past 5 years• Spain and Italy have begun to accelerate the move • North America - 14% • Estimated to be above 80% by 2011

Industry Trends

• Growing women’s awareness– Every woman over 40 years old should get screening once a

year

• Demographic trends– Baby boomers

• 55+ age group – growing steadily at average rate of 2.5% each year from 2000 to 2005

– Aging populations in Japan and the EU – Increasing life expectancy

Competitor Overview

Company Product

•Selenia•Sahara

•Premier brand•61% of digital market•Portable and cheaper

•Senographe 2000•Lunar IDXA

•Major competitor•Big and slow

Fuji CRM •Low cost

MAMMOMAT 3000Nova

•Accused of bribery!

Outlook

Growth

• Acquisition based– 2006 – R2, AEG & Suros– Sept 2007 – acquired BioLucent– Oct 2007 – acquired Cytyc Corporation

• Low market penetration rates

• Record breaking revenue and backlogs- 240m backlog- Sales of Selenia up 84%

282328

351

3735

228193

15411197

716454504427273 11 16

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Selenia Highlights:

555 sold in FY06

1,189 sold in FY07

Approximately 44% of estimated 5,000 + worldwide FFDM installed market

FFDM: Number of Selenia’s Sold

2003 2004 2005 2006 2007

• 900 U.S. Sales Reps • 300 International • Target Market

– 30,000 OB/Gyn’s– 40,000 Radiologists – 10,000 Hospitals & Imaging

centers

Sales Force Breakdown

Product Pipeline

• Tomosynthesis– 3d images – Slices– Increasing detection rate– Decrease # of false positives: 93% accuracy– FDA Panel in next couple of months– Two prototypes in field already– Expected to sell for about $150,000-$200,000 more than current

digital mammo systems– Substantial lead over its competitors in the commercialization of

Tomosynthesis and is set to launch in 2Q/3Q FY08

Product Pipeline

• R2– Direct digital algorithm– New platform technology to analyze images and

measure breast density

• Suros– Next generation handpiece and site maker

technologies

Risks

• Completion of recent acquisitions• Replacement of current technology • Reliance on Medicare• Reliance on key suppliers• Success depends on new product development• Rapidly changing environment

Hologic Remains a Technology Leader in an Expanding Market

Technology Leading innovator

Current Market Share Strong position with 50% share in core markets

DistributionExpanded reach and contact with customers/prospects through increased sales and service coverage

Market Growth Positioned to take advantage of markets in the formative stages of growth

Future Drivers 3D imaging, guidance and broader adoption of digital techniques

Thesis

Q&A

Valuation

Valuation Assumptions

30 Year T-bond 4.60%

Risk Premium 5.50%

Beta 1.3-2.3

Weighted Average Cost of Capital 12%-16%

Tax Rate 38%

Relative Valuation

EV/LTM Total Revenue

EV/NTM Total

Revenue

EV/LTM EBITDA

EV/NTM EBITDA

EV/LTM EBIT

EV/NTM EBIT

P/LTM EPS P/NTM EPS P/LTM Normalized

EPS

P/BV P/Tangible BV

ISRG 20.50x 14.11x 60.13x 44.30x 64.71x 44.70x 98.10x 67.94x 95.05x 13.85x 16.41xBCR 3.90x 3.57x 13.66x 12.43x 15.76x - 28.69x 20.53x 26.78x 4.64x 7.78xHSP 2.86x 2.42x 13.72x 9.90x 19.80x 14.70x 61.80x 18.08x 28.58x 4.30x NMVAR 3.26x 2.89x 15.88x 13.06x 17.41x 14.53x 24.83x 22.54x 29.21x 7.13x 9.29xSTJ 4.36x 3.95x 15.13x 13.04x 18.53x 15.85x 25.84x 21.01x 29.56x 5.44x 37.42x

HOLX 7.71x 5.22x 33.79x 21.25x 41.90x 20.80x 53.63x 34.45x 44.68x 4.91x 17.33x

Average 7.10x 5.36x 25.39x 19.00x 29.69x 22.12x 48.82x 30.76x 42.31x 6.71x 17.65xMedian 4.13x 3.76x 15.51x 13.05x 19.17x 15.85x 41.16x 21.78x 29.39x 5.18x 16.41xHigh 20.50x 14.11x 60.13x 44.30x 64.71x 44.70x 98.10x 67.94x 95.05x 13.85x 37.42xLow 2.86x 2.42x 13.66x 9.90x 15.76x 14.53x 24.83x 18.08x 26.78x 4.30x 7.78x

Mid-Cap Peer Valuation

• Wall Street Analysts’ Opinions

• Price Targets: Next 12 months– Lehman: $75– Citi: $74– JP Morgan: $74– CIBC: $77

Equity Research

Buys Buy/Holds Holds Hold/Sells Sells5 6 2 0 0

Appendix

R&D Expenditures

2003 2004 2005 2006 2007

REVENUE 204,035 228,705 287,684 462,680 341,212

R & D EXPENDITURES 18,381 16,659 18,617 28,294 44,483

R&D Margin 9.01% 7.28% 6.47% 6.12% 6.02%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

$800,000

2003 2004 2005 2006 2007

Revenue R & D EXPENDITURES

Mammography Facilities

Converstion to Digital

Conversion to Digital

U.S. Digital Mammography Market

Selenia Sales Summary

Mammography Revenue

Mammography

Osteoporosis

• Impact of gender on osteoporosis