Terumo launches its Injection Filter Needle under INFINO

Terumo announced the global launch of the Terumo Injection Filter Needle on January 15, 2025. This marks an initial step of the INFINO? development program. Indicated for hypodermic as well as for intravitreal injections, the Injection Filter Needle features an integrated polyamide 5-micrometer mesh filter to prevent particles from being injected.

Developed to extend the options for its partners in the pharmaceutical industry working towards greater safety in injected drug delivery, particularly concerning injection into sensitive areas such as the vitreous humor in the eye, the Terumo Injection Filter Needle features an extra thin-walled cannula.

Terumo Corporation, incorporated in 1921 and headquartered in Tokyo, Japan, engages in the manufacture and sale of medical products and equipment in Japan, Europe, China, the United States, Asia, and internationally. The company, with over 30,000 associates, operates through three segments: Cardiac and Vascular, Medical Care Solutions, and Blood and Cell Technologies.

At the end of 2QFY24, the Cardiac and Vascular segment accounted for approximately 60% of total revenue, Medical Care Solutions for 21%, and Blood and Cell Technologies for 19%. Overseas sales account for ~78.4% of total sales, and the company's revenue sources are diversified across different geographic regions. The company was formerly known as Sekisen Ken-onki Corporation and changed its name to Terumo Corporation in October 1974.

Solid gross margin performance in 1HFY24

Terumo reported a decent revenue CAGR of 9% over the period FY18-23 to reach JPY922bn. However, operating income grew at a slower pace of 6.5% CAGR during the same time to reach JPY141bn in FY23, impacted by over 190 bps decline in margins to 15.3%. On the other hand, the company’s peer, Hoya Corporation, delivered a revenue CAGR of 6.2% over the period FY19-24 to reach JPY763bn. The operating income performance fared marginally better, growing at a CAGR of 7.8% to JPY213bn.

Terumo reported strong 1HFY24 results, with sales at JPY508.7bn, reporting highest-ever first-half revenues. While operating profit were slightly below consensus, profits were solid at JPY87.7bn mainly on an improvement in the gross margin front, which increased by 300bps to 54.5%, thanks to improved business mix and production efficiency. Adjusted operating profit was JPY104bn, higher than 1HFY23 by 37.6%. Reflecting strong 1H results, Terumo raised full-year sales guidance from JPY980bn to JPY1,010bn and adjusted operating profit guidance from JPY185bn to JPY200bn.

In the new plasma innovations business, the adoption of the Rika plasma donation system progressed steadily as planned, with the system already adopted at 150 of CSL Plasma’s 330 US plasma donation centers, with plans to complete full adoption by spring-summer of 2025. While Terumo is cautious about gross margins in 2H, given the risk of freight and other costs rising, it expects fundamentals for the TIS and other businesses to remain solid. With the plasma innovations and business profitability improving faster than expected, the gross margin performance should continue to sustain from 2H onwards.

Terumo and Medis enter a partnership

On December 10, 2024, Terumo Health Outcomes (THO), a division of Terumo Interventional Systems (TIS), and Medis Medical Imaging, a leading cardiac imaging software company, announced that they have entered into a strategic partnership, in the United States, to enhance cardiovascular care through the utilization of both ePRISM – Terumo's proprietary clinical decision support platform – and Medis' Quantitative Flow Ratio (QFR) technology, a non-invasive software solution designed to assess angiography-derived coronary physiology. The use of ePRISM and Medis QFR will be piloted at selected clinical sites, leveraging real-time data from electronic health records to provide prospective insights to help enhance patient care.

Premium valuation driven by fundamentals

Terumo is currently trading at a P/E of 34.6x, based on an estimated FY24 EPS of JPY87.8, which is slightly higher compared to the 10-year historical average of 31.1x. The valuation is also on the higher side compared to global MedTech peers average of 33.5x. However, the valuation is trending lower compared to its local peer, Hoya Corporation, which is trading at a P/E of 35.4x.

The stock price climbed over 23% in the last twelve months and is currently trading at JPY3,056 after reaching a high of JPY3,182 in November 2024. Out of the 15 analysts covering the company, 9 have a ‘Buy’ recommendation, and 1 analyst has given an 'Outperform' rating for an average target price of JPY3,364. This indicates an upside potential of approximately 11% from the current market price.

Overall, Terumo’s 2Q earnings reflect strong momentum, which is expected to continue into 3Q. In addition to robust earnings in the Cardiac and Vascular, Terumo has potential new earnings drivers, including the CDMO business for pharmaceutical companies in the Medical Care Solutions unit and the plasma collection platform business in the Blood and Cell Technologies Company. There is also the possibility of growth accelerating through business development, including acquisitions. Key risks include more drastic healthcare cost-cutting measures than expected deviation in core product sales due to competition and changing needs of medical care providers, the number of procedures being affected by the spread of infectious diseases or a shortage of personnel at medical facilities, inflation impact, and greater-than-expected yen appreciation/depreciation.