Olympus Corp

TSE:7733

Earnings Call Transcript 2021-Q2

[Chikashi Takeda, executive]

[Interpreted]

Greetings to you. I am Chikashi Takeda, Chief Financial Officer at Olympus. I would like to thank you all for participating in this conference call for the consolidated financial results for the second quarter fiscal 2021. So I am going to ask you to follow the presentation materials, and I'm going to do the same myself. Please turn to Slide 3.

First, I would like to explain the changes in our reporting structure. On September 30, Olympus signed a definitive agreement regarding the divestiture of the Imaging Business. Based on IFRS, the Imaging Business will be classified as a discontinued operation from this fiscal year. For that reason, today, I will focus on continuing operations excluding the discontinued operation. Please feel free to refer to the appendix, which includes information about the discontinued operation.

Let me now provide an overview of our financial results. Please turn to Slide 4. This slide highlights our financial results for the second quarter fiscal 2021. Although consolidated revenue declined in the first half of the year due to COVID-19, in the second quarter, we saw a recovery trend and year-on-year decline in revenues slowed compared with the first quarter. Operating profit improved significantly, driven by improved revenue and also the lower SG&A expenses owing to activity constraints and strict cost control. The operating from margin was approximately 10% in the first half, improving to approximately 15% in the second quarter alone.

Moving to 4-year forecast. We expect revenue to continue its gradual recovery towards the end of the fiscal year with an eventual annual decline of only approximately 8%. Operating profit is expected to reach about approximately JPY 60 billion.

Regarding SG&A expenses and investments, we are forecasting on the premise that business activities will become more active based on the ongoing recovery trend. Currently, COVID-19 is resurging mainly in Europe and the United States. So we will continue to monitor the situation.

Depending on changes in the situation, we will further strengthen cost control and aim to achieve the 4-year forecast. In terms of the bottom line, although we expect to record a loss for the current fiscal year due in part to expenses related to divestiture of the Imaging business, in the interest of maintaining stable shareholder return, we expect an annual dividend of JPY 10.

I will now explain the consolidated financial results and provide a business review for the second quarter. Please turn to Slide 6. This is an overview of the consolidated financial results. First, I would like to explain the changes in the reporting structure in the profit and loss statement. As shown on the left side, revenue down to profit from continuing operations only list figures for continuing operation and excludes the discontinued operation. These changes have also been presented virtual actively for the results for FY 2020. Consolidated revenue in the first half amounted to the JPY 316.5 billion, marking a decline due to COVID-19. After FX adjustment, the decline was 13%.

In the middle of the presentation, we show our calculations on the impact. This is based on the assumption that we would have achieved the same level of performance as the previous year, if not for the COVID-19, excluding FX impact, other income and expenses and one-off item. Gross profit, JPY 196 billion, and the cost ratio rose due mainly to a decline in factory operation owing to COVID-19, combined with JPY 6.0 billion expenses recorded for the voluntary record of endoscopic products, which was disclosed in August.

SG&A expenses totaled JPY 161.5 billion. In addition to the strict controls we implemented, T&E, sales promotion and other expenses decreased because of inability to do normal activities owing to COVID-19.

Operating profit, JPY 30.3 billion. While this represents a decline, we managed to achieve an operating margin of approximately 10% in the first half amid a challenging business environment. Looking only at the second quarter, the operating margin was approximately 15%. Profit from continuing operation was JPY 25.9 billion, a decline of JPY 15.1 billion. Total losses for the first half, including both continuing and discontinued operations was JPY 22.7 billion due mainly to a JPY 47 billion losses recorded in connection with signing of the definitive agreement on the divestiture of the Imaging Business.

Slide 7. The status of monthly revenue. This graph shows the revenue trend by division from January to September 2020, in comparison with previous years as a baseline at 100%. All divisions have continued to recover after hitting the bottom in May. Medical revenue recovered to the previous year's level in September. As for October, according to preliminary data for your reference, both Endoscopic Solutions division and Therapeutic Solutions division returned to growth year-on-year. Meanwhile, in the Scientific Solutions division, year-on-year decline in revenue shrank slightly.

Please turn to Slide 8. Now we will go into details about each business segment. First, the Endoscopic Solutions division. Revenue, JPY 182 billion, down 10%, excluding FX impact. In the first half, COVID-19 caused restrictions on business activities, such as sales, promotion and training as well as a decrease in the number of procedures and a reduced willingness to invest in CapEx in hospitals. However, year-on-year decline in revenue improved from the first to the second quarters. In particular, Europe grew 2% in the first half and 6% in the second quarter, excluding FX impact, driven by the U.K., where the government has been strengthening its health care system, and Eastern Europe, where we were able to win bids for some large projects.

Operating profit was JPY 42.1 billion due to SG&A streamlining. Despite recording costs for the voluntary recall of endoscopic products, and this resulted in an operating margin of 24.3%, excluding FX impact.

Slide 9. Please turn to this page to see the results from the Therapeutic Solutions division. Revenue, JPY 90.9 billion, down 15%, excluding the FX impact. In the first half, COVID-19 caused a decline in the number of procedures and restrictions on sales promotion activities. In response to a recovery in the number of procedures in the second quarter, year-on-year decline in revenue improved markedly from the first quarter to 6%. Performance was particularly strong in Europe, where the growth was 9% in the second quarter.

Operating profit was JPY 10.2 billion due to a smaller decline in revenue and cost reductions, resulting in an operating margin of 12.3%, excluding FX impact. The operating margin of the second quarter was 18%, excluding FX impact, exceeding the previous year's level.

Slide 10. Please take a look at this page for the Scientific Solutions division's revenue, JPY 40.3 billion, down 17% excluding FX. In China, sales of industrial microscopes increased, driven in part by demand for 5G-related electronic components and semiconductor markets, resulting in positive growth. However, total revenue declined due to COVID-19. Operating profit was JPY 200 million due primarily to declined revenue. Operating margin in the second quarter saw a significant improvement, ending at 10%, excluding FX impact.

Next slide, Slide 11. Here, you can see the financial position as of September 30, 2020. Please note that we distinguish line items regarding assets and liabilities for the discontinued operation. Namely assets held for sale and liabilities directly associated with assets held for sale. To ensure a stable business operation in light of the COVID-19 impact and enhanced liquidity in hand, we increased cash and deposits and bonds and loans payable. The equity ratio was 30.4%, down 6.1 percentage points from the end of previous fiscal year due to an increase in liabilities and loans of the first half or the loss of the first half.

Slide 12, status of cash flows. Cash flow from operating activities decreased by JPY 29.9 billion to JPY 37.4 billion, against the backdrop of decline in operating profit, due to COVID-19. Cash flow from investing activities may appear to have decreased considerably but include time deposits of JPY 40 billion. Purchase of property, plant and equipment and the capitalization of R&D expenditures both declined, leading to real fresh free cash flow of positive JPY 7.2 billion. Cash flow from financing activities rose by JPY 91.8 billion to JPY 81.2 billion due to funds raised through long-term loans and corporate bonds. As a result, cash and cash equivalents as of September 30 stood at JPY 210.5 billion.

Next, forecast for the full year fiscal 2021. Please turn to Slide 14, our forecast for the full year. The exchange rates assumed for the forecasts in light of the recent trends in foreign exchange market are JPY 106 to the U.S. dollar and JPY 122 to the euro. The COVID-19 impact is expected to continue to improve gradually toward the end of the fiscal year. And we forecast that year-on-year decline in revenue for the full year will be limited to approximately 8%. We expect S&G expenses to decrease year-on-year. But looking only at the second half, the expenses are expected to rise. Remote activities and work from home have been established amid continued restrictions on business activities and we will continue to strengthen control of SG&A expenses. However, we assume that activities will become more active in the second half and beyond. In addition, we expect expenses for strengthening our IT infrastructure and QA RA functions in the second half, as well as reduced capitalization of R&D expenditures compared to the previous year. As a result, operating profit is expected to reach approximately JPY 60 billion with operating margin of approximately 9%.

Total loss of JPY 5.5 billion is expected due to the loss associated with the divestiture of the Imaging Business. Despite these difficult forecasts, we expect year-end dividends for fiscal 2021 to be JPY 10 per share unchanged from the previous year from the viewpoint of maintaining stable dividends. While we have prepared these forecasts based on circumstances as they stand now, as COVID-19 infections are on the rise, particularly in Europe and the U.S., outlook remains uncertain. We will continue to monitor the COVID-19 impact closely and make appropriate course corrections so that we can respond to changes as they arise.

Please turn to Slide 15 for our forecast by business segment. Despite some regional differences, the number of procedures is on a recovery trend in both ESD and TSD, and we expect revenue to decrease approximately 7% for the full year. We expect active operating -- we expect to achieve operating margins of approximately 22% and 11% in ESD and TSD, respectively. With regard to SSD, although we expect business activities to gradually recover from the second half, we believe the recovery will lag behind the Medical Business. For the full year, both revenue and profit will decline, but we still expect to remain in the black.

In terms of elimination and corporate, we expect to incur costs to strengthen IT infrastructure and enhance QA/RA functions in the second half and currently forecast around the same level as in the previous year.

Lastly, some highlights of the initiatives we are pursuing to transform Olympus into a truly global tech company. Slide 17. In the first half of the year, we steadily implemented corporate reform initiatives. We will continue to move forward with these corporate reform efforts in the second half with executive officers taking a leading role.

On the following slides, I will explain our progress in the second quarter. Slide 18. We launched ENDO-AID, an endoscopic CAD platform powered by artificial intelligence that can be equipped in our EVIS X1 next-generation endoscopy system in Europe and some parts of Asia in early November. The platform enables real-time display of automatically detected suspicious regions such as polyps and cancers. This aids in the discovery of lesions and contributes to enhanced quality in endoscopic diagnosis. It is expected to further strengthen our leadership in the GI endoscopy system with over 70% market share by enhancing added value of EVIS X1.

Slide 19. We have made progress with 2 initiatives aimed at achieving sustainable growth in the medical business. First, we acquired FH Ortho, a medical device manufacturer in the field of orthopedics. In addition to expanding our product portfolio in this field, the acquisition is aimed at stimulating business growth by distributing our current products via FH ORTHO's existing global distribution channels. We have also developed the first ultrasound device indicated for arthroscopic surgery. Combined with the portfolio gained through this acquisition, we are now better positioned to provide products and solutions in the field of orthopedic minimally invasive surgery.

Next, as disclosed today, we started deliberation on reorganizing Olympus Group's sales functions in Japan. To realize sustainable business growth, the reform of our sales distribution structures has become a pressing issue. Moving forward, we aim to reinforce our sales capabilities through flexible rescores assignments and retention of highly capable talent by integrating the domestic sales functions of Olympus Corporation and Olympus Medical Science Sales Corporation for Medical and Scientific Solutions businesses.

Slide 20. Starting with this briefing, we will disclose key product catalysts that will drive our future growth in the medical field. First, ESD. This year, we launched the long-awaited EVIS X1 next-generation GI endoscopy system in Europe and some parts of Asia, and an endoscopic CAD platform that can be combined with it in Europe and some parts of Asia. These new products are expected to drive our future growth. Looking further ahead, we are aiming for greater growth with launches in the U.S., the world's largest market and in fast-growing Chinese market.

In the U.S., it has been proposed that the recommended age for colonoscopies be lowered to 45, and we believe this will provide a tailwind for Olympus. In the area of surgical endoscopy system, we will launch our flagship VISERA ELITE II endoscopy system in the fast-growing Chinese market. Additionally, with an eye on sustained growth, we are developing a next-generation surgical endoscopy system that is expected to become one of our future growth drivers.

Slide 21, TSD. Various therapeutic devices, including ERCP and ESD-related products have contributed to revenue. In the future, we plan to introduce single-use endoscopes as announced in our corporate strategy. Adding single-use endoscopes to our lineup will enable us to build an outstanding product portfolio catering to every scenario in endoscopic medicine and to further bolster our competitive advantages. In the GI endotherapy area, we will continue to expand our lineup in the existing product area to achieve business growth. In the urology area, we are introducing strategic products in keeping with the corporate strategy. Both iTind and SOLTIVE SuperPulsed Laser System are equipped with innovative technologies and have strong growth potential.

Additionally, as announced in a recent news release, we have developed protective equipment for endoscopic examinations designed to reduce risks of COVID-19 and other infections. We believe this solution will provide an environment, enable linked medical professionals to carry out endoscopic examination and treatment safely, and will help create an environment in which patients can undergo procedures with peace of mind. Moving forward, we will continue to develop products that provide solutions to address unmet medical needs.

Thank you for your attention. Now let us have questions and answers session.

[Chikashi Takeda, executive]

[Interpreted]

So we have the first person to raise questions. Please, go ahead. Thank you.

[Unknown Analyst]

[Interpreted]

So my first question, it's a very simple question, straightforward. What do you think of the July-September performance? Your view of it? How would you assess it, evaluate it? You must have had some sort of expectation for the July-September period. So vis-à-vis your expectations 3 months goal, 3 months prior year. For the actual performance, be it revenue, operating profit, what did you think? Was it better than your expectation? And that's all, or if it varied by segment, would you give you some color?

[Chikashi Takeda, executive]

[Interpreted]

Thank you for that question. Okay. So I will try to give it big stroke in this sort of description. Be it revenue and your operating profit, the actuals, exceeded our own scenario. So the actuals performed and actual numbers reported exceed our internal expectation. Well, after all, market recovery, we had a certain view and expectation within the company. And we were, may I say, positively surprised with the actual recovery of the markets. And also, under the curtailed income expenses, we were able to do more than we had anticipated. So looking at the 3 months actual results, those are the net prevailing -- the impressions that we have within the company. But it is varied by region. For instance, China, in the beginning of the period because of the backlog of orders from the previous period, some momentum was there. However, it seems that of late, maybe there's a little bit of the quoted, not as engaged and actively discharged as they were some months ago. We understand that the situation is changing globally and maybe having to do in tandem with the approach that hospitals are taking in China to allocate budget. Maybe getting kind of more severe.

[Unknown Analyst]

[Interpreted]

Okay. That's enough. So you are saying it varies by region. So you did book JPY 6 billion for expenses -- as expenses relating to the voluntary record of scopes. Excluding that, how would have been the actual or made the operating profit otherwise?

[Chikashi Takeda, executive]

[Interpreted]

Well, thank you for the question, but I do not have any data that I can refer to at hand. But qualitatively, may I say that the actual was better than our internal anticipation, expectation. Enough said.

[Unknown Analyst]

[Interpreted]

So question number two, about divestiture-related expenses. In the first half of JPY 47 billion, for the year, JPY 50.5 billion. So that means JPY 3.5 billion in the second half. Now as to the JPY 47 billion in the first half, IMD booked JPY 43.7 billion. And what I would like to know the breakout of that, what sort of from the items, the inventory, the valuation losses or some sort of cash or money associated with the establishment of the new company and also there's that JPY 3.3 billion, which is booked other than in IMD. So where did it go? And what happened?

[Chikashi Takeda, executive]

[Interpreted]

Thank you very much for the question. For the discontinued operation. Their assets, property, plant and equipment as well as inventory and valuation losses, that's 1 big category and working capital. The arrangement is to inject cash into the new co. So that's another big category. And also, we have so-called 1 shot costs to add into the severance pay to be made or various one-off sort of costs accompanying the establishment of the new co.

On the continuing operations side, please be aware that this project is turning out to be quite complex, spanning over multiple regions. So what I'm trying to say is that we really needed outside professional help and that resulted from the -- in the payment of advisory fees. That's on the continuing operations side.

[Unknown Analyst]

[Interpreted]

I see. Within that JPY 43.7 billion booked at IMD, what is the cash portion of that to be given to the new co? It doesn't have to be under the absolute amount, maybe the rough sense percentage. And also, professional services or the legal, the consultancy fees, are those in the corporate expenses?

[Chikashi Takeda, executive]

[Interpreted]

Let me answer the latter part of that question. Yes, those are in the corporate expenses. The composition or the split between cash and others of the JPY 43.7 billion, roughly speaking, may I just say 6 to 4 for cash to asset. I'm not even adhering to my calculations, calculators, but the rough composition. So let's move on to the next question. So we have a second person to ask the set of new questions.

[Unknown Analyst]

[Interpreted]

So I am going to -- toward with rather the busy question, sorry about this. This JPY 6 billion expenses associated with the voluntary recall of endoscopes. Is that the second quarter SG&A? The answer is that it's part of the COGS? Okay. So SG&A percentage in the first half, for the continuing operations did not or does not seem to have improved over the percentage and the SG&A expenses did not come down that much. Is that because the revenue has declined?

[Chikashi Takeda, executive]

[Interpreted]

The answer is that, yes, the revenue has been dying down. The absolute amount of SG&A expenses was reduced by JPY 23.5 billion, but the calculating percentages, it looks a little bit differently. Because the first half, 1 year prior, 50.2% SG&A on the ratio. And the first half of the current fiscal year was 51%.

[Unknown Analyst]

[Interpreted]

Okay. So I'm going to dare to ask you a rather awkward question. So what's the portion attributable to the constrained activities? And to what other portion is relating to your own voluntary efforts, namely the Transform Olympus activities and initiatives.

[Chikashi Takeda, executive]

[Interpreted]

My answer to you is that it's so difficult to be precise, but after all, the activities have been much constrained. So that's one. And for another, the Transform Olympus initiatives, and yet another item. These are not Transform Olympus initiatives, but before the start-up of the current fiscal year, anticipating some challenge, which may be ahead of us, namely COVID-19, we decided to have a special control, the rigorous control over the spendings. So that's part of it.

[Unknown Analyst]

[Interpreted]

My second question has to do with China. You were talking about it a little bit, but the TSD. In the first quarter, there seemed to be a sign of recovery, but into the second half, the erosion from that once again. TSD in the second quarter, and not so good either. So I'm just wondering what that would tell about the situations in China in the second half of this year into the next fiscal year? I wonder whether the current trend is likely to carry forward into the next fiscal year, which may cause the pattern changes in the allocation of budget at hospitals?

[Chikashi Takeda, executive]

[Interpreted]

Well, my answer is that, broadly speaking, the macro view in China will be such that there should be the trend of recovery. However, as to how the hospitals in China are likely to spend budget next year, we should pay attention closely.

[Unknown Analyst]

[Interpreted]

Okay. So my follow-on question is that I understand that in China, you have been trying to expand the coverage from the EU sales to Tier 2 or even beneath that, and you'll be making some special arrangements. Is that continuing?

[Chikashi Takeda, executive]

[Interpreted]

My answer is yes, a rollout from -- to the Tier 3 in the hospitals. That, the plan has not changed. So it's still going on. The next person, please?

[Unknown Analyst]

[Interpreted]

Can you hear me?

[Chikashi Takeda, executive]

[Interpreted]

Yes.

[Unknown Analyst]

[Interpreted]

I have a question on SG&A expenses. For continued operation, SG&A expenses for first half, down by JPY 23.5 billion, whereas for the second half, you are projecting an increase of JPY 8.3 billion. So it seems rather lopsided between the first half and second half. Now the first half, JPY 23.5 billion reduction. Can you give us the breakdown, ForEx, transportation, depreciation and other factors? And for the second half, I have a feeling that maybe you are including some buffer, so compared to the first half, are there any items where you expect a big increase? Can you give us the numbers as well, if possible?

[Chikashi Takeda, executive]

[Interpreted]

Thank you for the question. Increase of JPY 23.5 billion for the first half, the breakdown would be as follows, very roughly put: foreign exchange, about JPY 2 billion; and labor costs, JPY 3 billion; advertising, JPY 6 billion; travel expenses, JPY 5 billion; R&D, JPY 4 billion; and depreciation, JPY 4 billion, more or less. I'm just reading off the list in front of me.

[Unknown Analyst]

[Interpreted]

I see. So about the second half, the impact of foreign exchange, R&D expenses and depreciation, I think they are going to stay at that level. So this projected increase of JPY 8.3 billion. It seems it's rather large. Am I correct to understand that the buffer portion is included?

[Chikashi Takeda, executive]

[Interpreted]

Well, it is assumed that during the second half, activities will return to the normal level towards the end of the fiscal year. That's our assumption, which would be reflected in our revenue as well. So we expect the expenses, especially the sales and marketing expenses, to go up. We will be raising those expenses. As for R&D, during the first half, there were some delays. And so attempts will be made to catch up. And that's also included in our projection. So that's the big picture that account for the big difference between the first half and second half.

Now any specific special items during the second half? Well, this being business, it's rather arguable what's really special. But for the second half, the capitalization of R&D expenditures would have some impact to the tune of about JPY 4 billion. And also, there are some efforts that are proving to be extremely -- or particularly effective and meaningful under the current situation. And that is the project's efforts to enhance our IT infrastructure starting this year. And this particular theme, we expect further expenses during the second half.

And also, there is an initiative of GBS. This is a concept, the global business service concept, which is aimed at improving the efficiency going forward to integrate relevant activities, and this is going to go live next year. So in preparation for that, there are various expenses incurred. During the second half, the cost necessary for transition, advisory fees, et cetera. So it's not really the buffer. Actually, we have identified the factors for this increase.

[Unknown Analyst]

[Interpreted]

I see. So you're saying that during the second half, there will be some specific investments scheduled for the second half?

[Chikashi Takeda, executive]

[Interpreted]

That is correct. In addition, we are continuing our efforts to enhance our QA/RA functions. And this is a very basic portion as a health care company, and we need to make sure that this is properly addressed. So that is accounting for an increase in cost.

[Unknown Analyst]

[Interpreted]

What is QA/RA?

[Chikashi Takeda, executive]

[Interpreted]

The quality assurance and regulatory affairs. The expenses related are to increase in the second half.

[Unknown Analyst]

[Interpreted]

I see. My second question pertains to fixed costs. And your CEO has been indicating that that's compared to your competitors. Olympus' fixed cost ratio is quite high, and it is considered to be a management challenge. And in fact, fixed cost structure reform has been mentioned several times for June, April as well. But you have yet to publicize any effect or events. Can I expect that there will be some events that will become apparent during this fiscal year?

[Chikashi Takeda, executive]

[Interpreted]

Yes, there are various measures being implemented for that, including some smaller ones that don't need to be mentioned. The GBS concept that I mentioned earlier would be part of that. So they are small ones, they are bigger ones, all being considered.

[Unknown Analyst]

[Interpreted]

Can you share with us when we can expect the outcome? What's the time line?

[Chikashi Takeda, executive]

[Interpreted]

Well, as I said, there are various initiatives, and there are various things that are being considered, various alternatives. So once they are fixed or finalized, we will share the plan with you. Next person, please. Thank you.

[Unknown Analyst]

[Interpreted]

Our first question is on acquisitions. Back in November 2019, it was mentioned in your presentation that in the TSE business, through mergers and acquisitions, you are going to enhance the product portfolio, which would mean that your discerning capability and selection are going to be very important. During this period, there have been 2 acquisitions. One is Arc Medical Design, whose core product, ENDOCUFF is attached on the tip of the endoscopy, and this will contribute to increased anomaly detection rate. So there's 100% sales synergy there. The other acquisition, FH ORTHO. The French news media report that, that company is going into the U.S. market because of the limited opportunities in France. Now artificial joint Japan or rather, the U.S. market is a very competitive market. So I'm wondering what the reason for the acquisition of that is?

[Chikashi Takeda, executive]

[Interpreted]

Thank you for your question. I'm going to give you the high level response, and I'm going to ask Nacho Abia to give you a more detailed answer as a follow-up. As you're aware, we have a joint venture with Terumo, Olympus, Terumo Biomaterials on the artificial bones, joints and some metal implants, selling those products. But to expand the market, we want to expand the business in this area. So in terms of the product portfolio and the sales channels, we were looking for a company that would complement what we have. And this company was on our radar, and we decided to acquire this. For your information, there is a new technology that we are developing using the ultrasound, the new device. Once this is launched, I can't give you the details yet, but once this is launched, it will be sold through our sales channel as well as the sales channel of this French company that we acquired, so as to promote sales. So that is the strategy that we have in mind.

So that will be the high level response to your question. And I now give the floor to Nacho.

Take this one, please.

[Nacho Abia, executive]

Yes. Thank you very much. [indiscernible], can you hear me well?

[Unknown Analyst]

Yes.

[Nacho Abia, executive]

Yes. Well, Olympus has been in the -- in, playing in the field of orthopedics for a number of years, mostly in the Japanese market. But always, we have had in mind that there is a possibility for us to contribute in the minimal invasive treatment of certain orthopedic diseases. And by that, contributing to the quality of life of patients all over the world. This has been our consideration regarding the Orthopedics field for a number of years.

We were considering to go -- we understand this is a large market, but it's also a very complicated market and is dominated by a few giants. So we want to be cautious, and we want to go step by step. And definitely, well, we believe we can do a contribution in this market for the benefit of the patient. We have to go step-by-step and in a profitable way. So our idea is that with existing products and market only in domestic Japan, we couldn't expand that philosophy. So we needed a company that had some more international presence, and at the same time, was within our reasonable reach in terms of the expenses and the size of the business, so we can manage in a cautious and an appropriate way.

And this company, after searching for -- all over the world for possibilities, we found this company, FH ORTHO. And I think it match well, our strategy of going step-by-step into this market to complement the products that we have in Japan and will allow us to expand in France, and from France, in the European market. And then now we are developing a strategy about how can we penetrate the U.S. market as well. It will be a step-by-step process and properly managed. But FH ORTHO have some unique technologies that definitely are needed by the orthopedic solutions, and we believe that step-by-step we can expand this market.

And through this, also take -- pay attention to the long-term growth of the company, in that we also have to not only consider the current strategic areas to grow, that obviously are going to deliver most of the growth in the coming year, but if we think in the long, long term, we believe that there is an opportunity for us to play in the orthopedics market.

I hope I am answering your question. Thank you.

[Unknown Analyst]

[Interpreted]

So Mr. Takeda, so in summary, the purpose of -- or the objective of this acquisition was the sales channel, not the artificial joint, the product itself, correct?

[Chikashi Takeda, executive]

[Interpreted]

Well, the obvious benefit would be the sales channel. That is correct.

[Unknown Analyst]

[Interpreted]

I see. My second question, my last question. You are presenting the development pipeline for the very first time. So I'm going to ask a question that global medtech companies are often asked. The items shown on Page 28, it already has the de novo classification order issued in the U.S. in April, so you can launch this. And there is a euro less, by tariff flex in this field, which already has $300 million in 2018. So iTind and UroLift and your existing thulium laser. What roles would each play? And how much expectation do you have of iTind? That's a question for Nacho.

[Chikashi Takeda, executive]

[Interpreted]

Thank you. I'm going to ask Nacho to respond, but you are correct. If I could repeat what you just said, UroLift, $300 million. That market is already there, and we want to enter into that market, but there are some differentiating factors, and including this, I give the floor to Nacho.

[Nacho Abia, executive]

Thank you very much, Chikashi, and I'm happy to take this question. We are very excited about iTind technology. And definitely, the treatment from BPH, the primary treatment, and this is a multibillionaire market, is still mostly done through medication. And for severe cases, is surgery. And we are the market leader for the surgery treatment, through tourist and tour procedures, as has been mentioned. But obviously, the next step is definitely to get this procedure into the office so we can trade less serious cases and avoid medication in many patients and provide better quality of life. So that's the fundamental base of iTind. And I think that in that sense, 2 things. One, the market, which is currently dominated by UroLift, but there is also the other competitors is yes, above $300 million, but this market is going to grow significantly over the next years. On -- clearly on the double-digit growth as the expansion to the office treatment for BPH will happen.

So we recently launched iTind, but iTind is still -- so we are under de novo. So the sales have started, but this is a new procedure. So we have to teach and we have to educate our physicians in the use and utilization of iTind. And this is a process that we have started right now. And also at the same time, especially in the U.S., we are working with payers in order to obtain reimbursement for this procedure. And all that is progressing very well, and I am very optimistic.

It's difficult to predict at this point also because of COVID-19, is delaying a little bit our education efforts, and this obviously needs to be done face-to-face, and the current situation is not easy. But definitely, we are progressing with that, and we expect iTind to really deliver significant sales and growth for us in the next years. And definitely, this is a market we expect to be, as we mentioned, I mean, growing continuously and bringing significant value for our urology portfolio. This is really one of the most exciting progress we have to contribute to our corporate strategy and specifically to the growth we expect in urology market. We clearly aim to be on the #1 or #2 in this market in the years to come. Thank you very much.

[Unknown Analyst]

[Interpreted]

I apologize for taking so much time, but the first generation iTind. I think the IPS score, the BPH score goes down in 3 years. And I think what you're selling or what is being sold is first generation. And I'm afraid it would not be very competitive regarding UroLift. So should we wait until the second-generation to be launched?

[Nacho Abia, executive]

Yes, I can take that question, but there is -- I don't know what is the source of that information. But iTind, the current generation is the first generation of iTind, and the current generation is the one which is now being launched, and we expect great success. I think you might refer maybe to 1 new feature that has been announced by [indiscernible] and me regarding the treatment of slightly larger [indiscernible] . But this is -- this has been recently announced. So there is no first or second generation.

Of course, we will continue to evolve in the iTind product. As we speak, I mean, always trying to make it better. But at this point, we are launching the first generation, which is the one that has proven very clinical, very strong and powerful clinical value. So we do believe that for a number of reasons, iTind can be most competitive than even UroLift. I mean fundamental -- and the fundamental reason for that is that iTind is not leaving any material inside the body, while UroLift is kind of leaving some implant inside the body, which is always -- can drive difficulties in the long run, while iTind is a completely minimal invasive procedure. And we believe that this can be beneficial. But at this point, we are working with the first generation, and this is what is driving the expectations that we have right now.

[Chikashi Takeda, executive]

[Interpreted]

Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]