Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex
Thanks John. Turning now to our value creation framework, we have four pillars that support our corporate strategy. These include a focus on driving sustainable revenue growth and achieving earnings and margin expansion.
Today we are excited to announce that Teleflect has entered into a definitive agreement with to acquire substantially all of the vascular intervention business of privately held Biotronic SE & Co. KG for an estimated cash payment at closing of approximately 760 million euros. That certain adjustments as provided in the purchase agreement, including certain working capital, net transferring and other customary adjustments.
The Teleflex interventional portfolio has long been a cornerstone of growth and innovation within our diversified product portfolio with the opportunity to drive sustainable revenue growth and improve margins. The vascular intervention acquisition is a key part of the value creation strategy that will allow us to further build upon this strong foundation. With the acquisition of biotronic products, we believe Califlex will gain meaningful scale, expand its presence in the Cath lab and be positioned for continued healthy growth.
The product portfolio expected to be acquired includes a broad suite of vascular intervention devices such as drug coated balloons, drug eluting stents, covered stents, balloon and self expanding bare metal stents and balloon catheters. Turning to the strategic rationale for the acquisition of the vascular intervention business similar to the vascular Solutions acquisition in 2017, the acquisition of the Basilar intervention business will once again allow Teleflex to increase its scale in the Cath lab. In this case, we are acquiring a broad portfolio of interventional therapeutic devices that will complement the company's well established complex percutaneous coronary intervention access products while building upon and enhancing the legacy interventional sales force.
The vascular intervention acquisition significantly expands Teleflex's market presence with a combined coronary and peripheral interventional business. Investment in internal R and D will remain a priority with opportunities for expansion given the increased scale of the combined businesses. The peripheral intervention market is growing rapidly with global growth estimated to be in the high single digit range.
We believe the addition of the vascular intervention business will allow Teleflex to establish a footprint in the adjacent peripheral market and complement our growing position in coronary interventions. Our existing complex PCI portfolio has products that are utilized in difficult coronary interventions and by adding the portfolio of innovative products that we expect to acquire, we will be able to advance our technology offering with relevant coronary and peripheral interventions. The ability to participate in combined coronary strategies with drug coated balloons, drug eluting stents and the emerging potential of resorbable scaffold technologies will expand our current available procedure base.
We have a range of products in our current portfolio which have peripheral indications. This acquisition will provide a sales channel to sell these products. In addition, the expansion of our product portfolio will enable our sales force to leverage their clinical knowledge and increase clinician interactions.
We see opportunities to expand the presence of the products anticipated to be acquired in in the US through our commercial initiatives and investment in new product registrations. Likewise, we see the ability to expand our complex PCI franchise in Europe given the strong market presence of the bachelor intervention business. In this geography, robust research and development, clinical expertise and global manufacturing capabilities are key elements of the vascular intervention business that we expect to acquire, all of which are expected to further strengthen Teleflex's innovation pipeline and enable the company to bring new products to market and improve the care of patients.
We will continue to invest in developing highly competitive interventional products including differentiated new technologies including the resolvable metallic scaffold. Coupled with our extensive global reach, we aim to deliver innovative technologies to interventionalists advancing clinical benefits and safety for both physicians and patients. The acquisition of the vascular intervention business will also allow Teleflex the opportunity to invest in and expand the clinical trial program for Biotronics Freezol, a psoralamus eluting resorbable metallic scaffold technology including possible pursuit of the US market.
Freesolve has the potential to advance the trend in interventional coronary and endovascular procedures to leave less permanent hardware behind. We believe freesoft shows early potential to address the limitations of previous polymeric resorbable scaffolds achieving more rapid absorption, thinner struts and metallic mechanical performance. Freesolve has already demonstrated compelling clinical Data in the Biomag1 study, a first in human study at 14 European centers pre SALVE received CE Mark for treatment of de novo coronary stenosis in February 2024.
Based substantially on the safety and efficacy of its predecessor Magmaris, The European Pivotal Biomag 2 study is now enrolling with initial results expected in 2027. Turning to the financial profile for the business expected to be acquired, we expect to close the acquisition by the end of the third quarter of 2025, subject to customary closing conditions including receipt of certain regulatory approvals. Assuming this timeline, we intend to update our guidance on the third quarter 2025 earnings conference call.
The biotronic products that we expect to acquire delivered a constant currency revenue CAGR of 5.4% since 2022. Based on the expected timeline for closing, the biotronic products are expected to generate approximately 91 million euros in revenues in the fourth quarter of 2025.
Beginning in 2026, the biotronic acquisition is expected to deliver constant currency revenue growth of 6% or better. Adjusted gross margin for the products expected to be acquired is is comparable to the Teleflex corporate average. The acquisition is expected to be dilutive to Teleflex adjusted operating margins driven by continued robust investment to advance the pipeline and freesolve.
As revenues associated with the Biotronic acquisition grow, we expect operating margin leverage over time. On the bottom line, we expect the transaction to be approximately $0.10 accretive to our adjusted earnings per share in the first year of ownership from the date of close and to be increasingly accretive thereafter.
The acquisition of the vascular intervention business is expected to drive double digit ROIC early in year four. Following the close of the transaction, we plan to initially finance the acquisition through a new term loan and revolving borrowings under our existing senior credit facility and cash on hand. Additionally, we entered into foreign exchange derivative contracts to economically hedge against the foreign currency exposure associated with the cash consideration needed to complete the acquisition.
In parallel with the process to acquire the biotronic vascular intervention business, we have conducted a comprehensive business portfolio evaluation. Following our review, we are announcing today that the Teleflex Board of Directors has authorized management to pursue a plan to separate the company into two independent publicly traded companies remain CO and NewCo. The separation of the company is consistent with our stated corporate strategy to optimize our product portfolio and drive adjusted margins and adjusted earnings per share expansion.
The separation is designed to deliver greater value for all Teleflex shareholders. Creating two independent publicly traded companies will position each to accelerate growth with a simplified operating model and enable increased management focus. The separation will allow for improved allocation of resources to the unique strengths and opportunities of each business which will offer investors a more targeted investment opportunity.
This structure will also facilitate distinct capital allocation strategies that better align with the specific growth philosophies and objectives of each independent company. I will now provide an overview of the transaction. Teleflex will create a new independent publicly traded company with urology, acute care and OEM businesses.
The transaction is intended to be a distribution of newly issued shares of Newco to shareholders that is tax free for US Tax purposes. As mentioned, the separation will position each company to accelerate growth with a simplified operating model and increased management focus. Each of RemainCo and NewCo are expected to be appropriately capitalized with distinct and disciplined capital allocation priorities.
At the time of separation. Remain Co is expected to deliver 6% plus revenue growth on a constant currency basis and be accretive to Teleflex's adjusted gross margin. Initially neutral to Teleflex's adjusted operating margin was partially as a result of higher anticipated investment in R and D.
In the first full year post separation, we expect to drive double digit adjusted earnings per share growth. I will continue to lead RemainCo as its chairman, president and CEO. NewCo leadership will be announced in the coming months and we expect to complete the transaction in mid-2026 subject to market, regulatory and certain other conditions.
Moving to a deeper dive into the benefits of establishing two leading focused independent companies for RemainCo, the separation will create a streamlined portfolio focused on highly complementary business units vascular access, interventional and surgical upnot the acquisition of substantially all of the biotronic battler intervention business is an important element of the strategy to build a business with meaningful global presence in the catheterization lab. With enhanced investment to drive the new technology pipeline, this focused portfolio will better position remainco to capitalize on high growth high acuity hospital focused end markets. We believe this more nimble operating model and simplified manufacturing footprint will unlock margin expansion opportunities over time and create capacity for increased and highly focused R and D investments.
Finally, Remain Co will be able to fully align its capital allocation philosophy with its growth strategy, increasing its ability to pursue business development opportunities to more effectively compete in high innovation end markets. Moving to Newco the operational structure will allow management to have an undivided focus on unlocking Newco's potential through a simplified operating model NewCo will participate in attractive end markets in urology, acute care and OEM and will be positioned to leverage its established market positions in its respective markets. The company will be able to identify, invest in and capitalize on opportunities that are unique to the urology, acute care and OEM end markets through its tailored capital allocation and investment strategy to drive innovation and growth.
There remain significant growth opportunities in the urology markets, while the OEM will have flexibility to further expand its customer base and enhance its capabilities that were not available while part of Teleflex. The separation will position both RemainCo and NewCo for greater corporate clarity and enhanced strategic focus. RemainCo, with approximately $2.1
Billion in 2024 revenue pro forma for the acquisition of the vascular intervention products from Biotronic, will be better positioned to capitalize on attractive high growth end markets addressing emerging procedures performed primarily in the hospital setting across the intensive care unit, emergency department, cath lab and operating room. The RemainCo product portfolio will be highly complementary with significant breadth across the hospital with leading market positions and opportunities for growth across three distinct business units. Vascular, interventional and surgical.
Vascular access will include products primarily consisting of our arrow branded catheters, catheter navigation and tip positioning systems and our intraosseous access systems. Post separation vascular access will also include our emergency medicine portfolio including our hemostatic products branded under our quick clot trade name. Interventional will primarily consist of a variety of coronary catheters, structural heart support devices used by interventional cardiologists, interventional radiologists and vascular surgeons.
The interventional product category will also include the biotronic vascular intervention business, the agreed upon acquisition of which we announced today and expect to close by the end of the third quarter of 2025, significantly expanding our portfolio in both coronary and peripheral cath lab procedures. Surgical will include single use and reusable devices designed for use in a variety of surgical procedures primarily consisting of metal and polymer ligation clips, facial closure surgical system used in laparoscopic surgical procedures, hercutaneous surgical systems, a power bariatric stapler and other surgical instruments used in ear, nose and throat and cardiovascular and thoracic procedures. NewCo, with approximately 1.4
Billion in 2024 revenue, will have enhanced ability to, to identify, invest in and capitalize on opportunities unique to the company's business units and end markets. NewCo will be a diversified acute and extended care company with a focus on urology, acute care and OEM markets. Urology will include the company's interventional urology and bladder management portfolios.
Key products and brands will include the Urolift system for the treatment of bph, Baragel rectal spacer for use in radiation therapy for prostate cancer and the Rouge brand of catheters and bladder management products. Acute care will include the majority of Teleflex's anesthesia product category as well as our respiratory product category portfolio of intraorphic balloon pumps and select other products. OEM will remain focused on the design, manufacture and supply of devices and instruments for other medical device manufacturers.
The OEM business specializes in custom extrusions, microcatheters and specialized sutures. RemainCo and UCO will benefit from more nimble operating models and simplified manufacturing footprint. The operating model will be simplified from seven product categories today to three product categories in each company post separation.
From a manufacturing footprint perspective, the separation results in significantly streamlined operations for both companies. Remain Co will have a simplified and nimble operating model with a streamlined manufacturing footprint transitioning from 19 anticipated manufacturing facilities at Teleflex inclusive of the Biotronic Bacillus interventions business as of year end 2025-7 facilities at RemainCo post separation with the remaining 12 to transfer to Nucle. Importantly, the structure and locations of the newcoal businesses and manufacturing footprint will help to ease the separation process.
Moving now to additional information on RemainCo, RemainCo will be focused on highly complementary business product categories within hospital focused end markets. The market serves including vascular access, interventional and surgical. Approximate $32 billion in size and are growing in the mid single digit plus range.
Following the separation, Remainco is expected to generate constant currency revenue growth of 6% plus be immediately accretive to Teleflex adjusted gross margin with a mid 60% profile and is initially expected to be neutral to Teleflex adjusted operating margin partially as a result of higher anticipated investment in R and D. The simplified operating model will provide opportunities for margin improvement over time and will create capacity for additional focused R and D investment. The transaction is also expected to deliver double digit adjusted earnings per share growth in the first full year post separation, turning to Remain Co's capital allocation strategy with an enhanced financial profile following the separation, RemainCo will have an increased flexibility to better align its capital allocation philosophy and growth strategy.
The company will remain disciplined planning to prioritize allocating capital to internal investment into high ROI growth drivers, growth accretive acquisitions to help the company more effectively compete in highly innovative end markets, repaying debt as appropriate to optimize the leverage profile and continuing to return capital to shareholders via quarterly dividends and opportunistic share repurchase. As part of this capital allocation strategy, Teleflex is targeting a net leverage ratio below three times through 2026. Moving to NewCo Newco will have a strong portfolio in established end markets that are expected to grow in the low to mid single digit range and total over $40 billion.
The company will have strong call points in the hospital, ASC and office sites of service. Additionally, through Newco's OEM business, the company is anticipated to have strong relationships with other medical device manufacturers that use its strong design and manufacturing competencies. Following the separation, Newco is expected to generate low single digit constant currency revenue growth with a mid 50% gross margin profile.
Over the medium term, Newco will have the potential to accelerate growth to low to mid single digits as the Eurolift business recovers. Para gel momentum remains strong with the opportunities to expand the addressable market through new FDA cleared indications and the OEM business seeks to return to historical growth empowered by greater flexibility to further expand the customer base and enhanced capabilities. The company will benefit from a simplified operating model that will enable targeted investment for growth drivers and capital allocation for its investors.
As mentioned, Nucle has the potential to improve growth to low single digit to mid single digit from the low single digit at the time of separation. With urology and OEM as key drivers in urology, the focus will be on stabilizing UroLift beyond 2025. This year marks the final year of the phase reimbursement reduction in the United States office site of service.
The team is focused on driving usage through site of service specific strategies and continued development of Eurlift3, which we believe will drive improved economics and maintaining the base of strong scientific evidence that supports the use of the technology pellet. Revenue modestly exceeded the high end of the 2024 guidance of 73 to 75 million dollars implying growth over 30%. Looking forward, we continue to expect healthy double digit growth in OEM.
We expect the dynamics impacting revenue growth in 2025 to be transitory following a long period of revenue increases with a 9.5% CAGR from 2014 to 2023. The impact from the customer vertical integration will anniversary in the middle of 2025 and customer inventory management should largely run its course during the year post separation.
OEM will have the flexibility to further expand the customer base and enhance capabilities. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q and A.
