Fresenius Medical Care

$2.5 Billion ($9.7B total)

KEY EXECUTIVES:

Dr. Ben Lipps, Chairman and CEO
Dr. Emanuele Gatti, CEO, Europe, Latin America, Middle East
   and Africa
Rice Powell, President and CEO, Renal Therapy Group, Fresenius
   Medical Care, North America
Mats Wahlstrom, co-CEO, North America, President and CEO, Fresenius Medical Services

NO. OF EMPLOYEES:

61,406
   

GLOBAL HEADQUARTERS:

Bad Homburg, Germany

Dialysis product and services company Fresenius has continued to build on the impressive sales gains it made in the last few years.

By Fresenius’ estimates, its dialysis products accounted for a market share of around 30% in 2007, which would make the company the market leader, competing against firms such as Baxter. Management’s goal is to reach $11.5 billion in sales by 2010.

And it seems as if the company’s manufacturing facilities are geared up to meet the challenge.

Fresenius medical care’s plant in Ogden, UT, for example, produced more than 77 million miles of hollow polysulfone fiber last year (each fiber is about as thick as a human hair), enough to wrap 3,100 times around the world or more than 160 times back and forth between the earth and the moon. The fibers are used in the manufacture of dialyzers (artificial kidneys). A patient’s blood runs through the fibers, where toxins and waste elements are filtered out.

To keep up with demand, Fresenius increased its capacity for dialyzers at its St. Wendel plant in Germany by 40%. The company also began production at its first plant in China, where bloodline systems and other reusable dialysis products are manufactured in the Jiangsu province to serve the Chinese marketplace.

Looking at fiscal 2007’s results, Fresenius is well positioned to meet its 2010 target. For the year (ended Dec. 31), net revenue increased 14% to $9.7 billion overall, while net earnings climbed an impressive 34% to $717 million, or $2.43 per share, up from $1.82 in fiscal 2006. The company’s key markets are North America and Europe, generating approximately 69% and 22% of sales, respectively. Revenue in North America and international regions grew by double digits to 11% and 24% respectively. (The company’s North American headquarters is located in Waltham, MA.)

Dialysis care accounts for 74% of the total revenue (2006: 75%) and 26% came from dialysis products (2006: 25%). The company’s worldwide dialysis care business grew by 13% to $7.21 billion in 2007. The number of dialysis clinics the company owns (2,200) increased 6%, and the number of patients treated also climbed by 6% (174,000 as of the end of the year).

The revenue achieved with dialysis products rose by 18% (12% in constant currency), totaling $2.51 billion. The company cited higher sales of hemodialysis machines, dialyzers and concentrates as revenue drivers. In North America, revenue with dialysis products grew by 18% to $661 million.

Management said the company experienced strong organic growth with existing business in all regions but that it also remained focused on strategic acquisitions.

One such purchase was Renal Solutions Inc. (RSI), which Fresenius bought in November. The acquisition agreement provided for total consideration of up to $190 million, consisting of $100 million at closing, $60 million after the first year and up to $30 million in milestone payments during the next three years. RSI manufactures dialysis technology that purifies tap water to dialysate (a key fluid used in the dialysis process) quality and allows dialysate to be regenerated. This reduces the water volume requirement for a typical hemodialysis treatment from 37 gallons of reverse osmosis water to just 1.5 gallons of drinking water per treatment.

The combination of the companies’ technology will provide a platform for superior home products and therapies, according to Fresenius. Furthermore, the significant reduction of dialysate helps with miniaturization, a prerequisite for the “wearable kidney” concept that could benefit some patients and complement clinical-based therapy, the company said. Fresenius sees the current market size of the home therapy market (peritoneal dialysis and home hemodialysis) at about $2 billion, representing approximately 11% of the overall worldwide dialysis market. The company estimates the market has the potential to grow to $4 billion within the next 10 years.

“The acquisition of RSI is an important step to advance the technology required for strong future growth in this field. The combination offers us the long-term opportunity to extend our leadership to home and acute dialysis products,” said Ben Lipps, CEO. “With this acquisition, Fresenius Medical Care expects to increase its annual R&D spending by approximately $10 million starting in 2008. Our mid-term financial targets for the years 2007 through 2010 remain unchanged.”

For 2008, Fresenius’ management has set some lofty goals, with a plan to boost revenue by more than 7% to more than $10.4 billion and a 12%-15% increase in net income to between $805 million and $825 million.

For the first quarter of 2008 (ended March 31), overall net revenue increased 8% to $2.5 billion. Organic revenue growth worldwide was 5%. Dialysis services revenue grew by 5% to $1.8 billion, while dialysis product revenue increased by 19% to $667 million. Net income for the first quarter 2008 was $186 million, an increase of 16%.