Gerresheimer AG
XETRA:GXI
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Gerresheimer AG
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Welcome to the conference call regarding the publication of Gerresheimer AG's Q2 results 2018. [Operator Instructions] Now I hand over to Ms. Severine Camp, Corporate Senior Director Investor Relations at Gerresheimer AG.
Thank you. Good afternoon. Thank you very much, everybody for joining us to review today's numerous announcements. With me today is Rainer Beaujean, Speaker of the Management Board and CFO. As we did in the past, we are presenting a set of slides to accompany our remarks on this conference call. The interim report, the slide presentation and the press release are posted on the Investor Relations page of our website at gerresheimer.com/investorrelations. And as always, this call is being webcast live and will also be archived on our website. So before we start, I would like to remind you that the presentations and the discussions are conducted subject to the disclaimer. We will not read the disclaimer, but we propose we take it as read into the records for the purpose of this call. And I'm now handing over to Rainer for the presentation.
Thank you, Severine. Good afternoon, a good morning, ladies and gentlemen. And thank you for joining us on this call. Obviously, we have a lot of ground to cover today. So we might overrun from a timing perspective but we'll make sure we have all the time to ask questions at the end. It all comes down to one message. Gerresheimer is accelerating the pace of its operation and strategic journey. Today, we are announcing that we are returning to organic growth in 2018, and that we have also secured project opportunities to deliver superior growth in the midterm. Additionally, we are fundamentally enhancing our business model with the acquisition of Sensile Medical. We can access to further growth areas, which obviously we have another relay of growth in the future. Value creation remains at the center of all of our decisions. Including the Sensile Medical acquisition and including the new projects, that I will describe in a minute, we nonetheless maintain our Gerresheimer return on capital employed target of 15% to be achieved latest in the next 4 to 5 years, which will combine as more growth as well as more absolute adjusted earnings per share as someone wouldn't have expected before. That is one of the reasons why we announced this news as an ad hoc yesterday night. And by the way, our business plans foresee that the Sensile acquisition price of EUR 350 million would be repaid in less than 10 years, which is less than what was it for our Centor acquisition. Let's move to the next slide to review the main blocks of our announcements today. For many years, our vision has been to become the global leading partner for enabling solutions that improve health and well-being. Today, in particular, with the acquisition of Sensile Medical, we continue to realize this vision and empower patients to take a more active role in managing their health. With Sensile, we are now positioning the company as a platform partner for pharma and biotech biosimilar customers with an established technology. This provides us with electronic and digital competencies and makes us, in particular, through a specific project with Sanofi, corporation part of Verily, which is an Alphabet company like Google. Strategically, this considerably enhances our business model. This enables us also to get even closer to some of our competitors and hence close some gaps in our customer value proposition. From an organic standpoint, our track record in Inhalation and the systematic execution of our Syringe strategy has been rewarded. We are announcing today that we won 2 meaningful contracts with large Inhalation and Heparine/Vaccine customers. 2021 and 2022, this will translate into superior organic growth profitability. In the short term, these new projects are requiring immediate capacity extension and this will necessitate higher CapEx for 2019 and 2020. Finally, for 2018, we confirm that we are expecting a higher revenues growth at constant currency for the second part of the year compared to, say the, second half 2017. Based on these expectations, we are narrowing our revenue guidance to upper-end parameter, which means currency-neutral between EUR 1.38 billion to EUR 1.4 billion. All other guidance parameters for 2018 remain unchanged. So let's cover those blocks as just described, starting with the Sensile Medical acquisition on Slide #7. Sensile is an essence of technology and development company. Sensile was founded in 2004 to develop a micro pump based on a rotary piston technology. This pump's technology is highly accurate, scalable and its IP position is very strong. Another unique selling position of this technology is that the pump consists of 2 components only. This allows to create efficiency in the deliver process but also leads to drug delivery solutions, which are very cost efficient and safe. The attributes I just mentioned are part of the key unique selling position of Sensile and represent clear competitive advantage. This technology itself is then used in 3 different platforms which can be customized in terms of products, as you can see on the slide. Small volume patch pump on on-body injector for volumes up to 3 ml, it has an extended delivery time over several hours up to 3 days. The large volume patch pump, same principle here, but for volumes of up to 20 ml, the delivery time is between minutes up to several hours. And finally, available on solution, which also includes an infusion set for the administration of liquids. Some of you might have checked the website of Sensile this morning, so will have seen that the company is based in Switzerland and has approximately 120 people. You will also have seen that it also offers a pen injector for [indiscernible] solutions. We have not shown it here as it is not linked to any of the currently existing contracted project and hence not in our business plan. But it is a valid solution which is available to customers. So basically, the know-how of Sensile resides in their technology and R&D capabilities. Also, I would insist here more on the development aspect than the research one as the pump is developed and is patented already. Indeed, the company has over 140 patents in 34 patent families. The beauty of Sensile model is that it is asset-light. The company has no material tangible assets and has no product manufacturing of its own. We will look into the customer base in a minute, but right now they are basically 5 contracted project under development. Here project areas are various. Out of these 5, 2 have been made public by the customers, which are Sanofi, for a small volume patch pump for Type-2 diabetes; and the other one with scPharmaceuticals for Large volume patch pump for injectable diuretics which are used to treat chronic heart failure. We have built our business plan conservatively as it is only based on these 5 projects. Let's look a bit more into the product itself and why patch pumps represent a great opportunity currently when you look at how medication is being administered currently. It is all about accurate and precise delivery of drugs. What we and all the experts are convinced about is that biotech and biologic drugs will first and foremost be administrated as injectables. This is why we have worked so much in our Syringe strategy and see a lot of growth coming in the business from biologics. While syringes and other type of devices, however, cannot manage easily since the administration of larger volumes over the longer cycle as shown on this slide. In fact, disposal delivery systems balancing requirements for viscosity and volumes are still considered today as unmet needs in the industry. The most developed systems are wearable injectors, such as portable devices in the form of infusion sets or patch pumps that are attached at the patient's body for a specific period. This allows the subcutaneous administration of large doses as well as viscous biologics, and this is exactly what Sensile Medical does. So in essence, we are buying today a technology which allows us to come up with innovative solutions, also therapies that either need to be administered in large quantity, such as insulin or our sensitive formulation biologics such as oncologic drugs. And last but not least, as you will see in the next slide -- on the next slide offers a real cost advantage to other solutions. It also enables us to considerable step-up from a value proposition of business model perspective as it also falls into the recent trends towards more digitization in healthcare. Let's look at the advantages of the Sensile patch pump on the Slide #9. As you can see on this chart, the SenseCore pump technology consists of only 2 main components. This allows to minimize the effect of tolerance change and the resulting influence on dosing accuracy. Additionally, fewer plastic parts lead to very cost efficient drug delivery solution. In essence, when you use the Sensile pump, you will buy a reusable part which commands the needle insertion and drug administration. As shown on the slide in the Components 5 and 6. Beside the battery, also where the electronic component would go if, for example, your doctor in the future would need to program the device. The reusable part is kept longer. For example, in the case of an insulin patch pump, you use only 1 reusable part per year. And then you have the disposable part of the device, which has all the other elements including the drug container which can be a vial or a cartridge, the needle, the patch to put it on the skin and of course the pump technology itself. Here, for example, in the case of insulin, you would need to change your disposable part every 3 days which means that you would need more than 100 disposable unit parts per year. The beauty of the Sensile device as well is that it does not require the drug to be filled in a specialized container, but it uses standard vials and cartridges, which is much easier from a regulatory standpoint. The rate of utilization varies greatly dependent on the therapeutic area. I have just given you the example of insulin, but for example, in the case of the administration of furosemide or chronic -- for chronic heart failure, here you are using the pump to avoid hospitalization. So here the treatment includes the use of the pump 3x to 4x a year. And every time, you will need 1 reusable and 3 disposables. Here for example, we are talking about the Large volume pump of 20 ml. By the way, the solution envisioned by scPharmaceuticals would mean that this treatment would allow for reduction of hospitalization of approximately 1 days through shifting away from IV injections to patch pumps for the majority of the patients. It will also allow for maybe a 1/4 of the patients to fully avoid hospitalization and provide an outpatient Diuretics treatment with patch pumps at home. So you can imagine the total potential savings provided with this new delivery system just alone saving 1 day in hospital when reimbursement lump sums do not cover that. In terms of price per part, this also varies, it's greatly dependent on the therapeutic area. Assuming large volumes, the range for reusable units can be between EUR 60 to EUR 120 per unit, and for a disposable unit between EUR 3 and EUR 10 per unit. Patch pumps are not only extremely precise drug delivery services, but they also allow for great patient comfort and treatment discretion, which plays an increasing role in particular with self-medication. This patient convenience is even further enhanced by the functionality of the device which is simple and intuitive. The cost element should not be forgotten either both in terms of competitive positioning towards other similar patch pumps as well as the real advantage, in some cases, to avoid hospitalization as just mentioned. Moreover, it is about preventing healthcare risk and on -- or avoiding relapse risk. The connectivity enhancement it offers, for example, in diabetes could offer an option for data download, which can in turn be extracted and managed for better health or disease management. So it is really about empowering the patients to better manage its health. As part of our due diligence on the deal, we have conducted a deep discussion with Sensile's customers, which are partly also existing customers of us. We had very open discussions in the sense that all customers have shared with us also their own due diligence so to speak on the product with regard to its functionalities, efficiencies and how it compares with other solutions on the market. Sometimes they also use external experts to benchmark it as we did as well and then the outcome was the confirmation that Sensile Medical does bring the best solution on the market. Moving on to the business model itself. So here is the role of Sensile enhance its business model. On the left, we have the pharma customer, which is responsible for the drug, the approval of the drug itself, the definition of the device requirements and of course, once the device is registered in combination with the drug as one product, the marketing and commercialization of the new product. Sensile is bringing its IP and technology and working together with the customer in the early device development phase to adapt it to the customer's requirement. It also brings its knowledge to support the customer fulfilling the registration application and addressing any question from the regulatory authorities. It is also trading the device, which means that it coordinates the production and quality assurance of the device. But as I said it earlier, Sensile does not produce the device itself, it coordinates the production with the contract manufacturer operator such as Gerresheimer is our Medical Plastic Systems business. So here are the 3 main ideas to remember: first, Sensile does cooperate with the pharma companies for the registration of the device and the drug device combination except much earlier in design development than we do as normal contract manufacture operator; second, it derives essentially 3 different revenue streams depending on the maturity of the product, development fees, part revenues; this is the trading of devices based on fixed margins and for royalty fees, which appear once the product is commercialized; and third, Medical Plastic Systems can become the natural contract manufacturer of Sensile but does not have to. Several synergies are possible which we have not yet priced into our model. Additional opportunities are also derived from the fact that we bring in our expertise in project management and industrialization which helps Sensile, but ultimately also our customer and getting the best price and quality for the manufacturing of the devices. In this respect, we are not only diversifying our Medical Plastic Systems model, but just also developing it further. So we are buying an asset-light business model with the focus on revenues generation also through licenses and royalties. Let us have a look on the contracts in place and the product and therapeutic areas they relate to. There are currently 5 main projects in a more advanced state and these are outlined on the slide. Of these 5 -- out of these 5, 2 have been disclosed by the customers already, the first one with Sanofi for Small volume patch pump of Type 2 diabetes. Here I would like to refer to the media information released by Sanofi on June 26 announcing their cooperation with Sensile and Verily Alphabet's healthcare arm. The second one is scPharmaceuticals for a Large volume pump for injectable diuretics, which are used to treat chronic heart failure. Here I would also like to point out scPharma's communication on this topic, which is archived on their website. The third project shown on this slide, the Belt-worn pump, is addressing Parkinson whilst the 2 last one are dealing with Immunodeficiency drugs and oncology or more precisely Immunostimulants. As you can see, a few projects are well-advanced and request for approval by the drug authorities have been submitted. It also show the broad range of usage of this Sensile Medical solution. Just to be clear, the drugs have already been approved. What is meant here on the chart with registration and approval is the combination of patch pump with the drug. One thing I would like to say already is that we will not be able to give you any indication as to when we think given project will get regulatory approval. The reason for that is simple, that's because we do not control and manage this. Of course, this is an important element of our business plan. And for each project, we have taken certain assumptions, but there is an element of client confidentiality as well. Our business plan is based on thesis regarding the launch of commercialization of the products which of course assumes regulator's approval beforehand. The successive payments of purchase price tranches, which I will cover later, however are themselves based on certain milestones being reached for given products, and here this is essentially regulatory approval. This means we are protected in the deal structure should a regulatory approval not come to fruition. The last element I would like to point out on this slide are the markets and their size, and the fact that Sensile is addressing a number of large and promising key therapeutic areas today. So how does it translate into revenue stream? Moving on to Slide #12. On this slide, we have outlined the positioning of both Gerresheimer and Sensile into the customer values. In our classical CMO model, the IP of the device lies entirely in the ownership of the pharma customers and we typically get involved around 3 years before the device is commercialized with the drug. I think you know how it works for us. For Sensile, we will get involved with our customers much early on, which means that we will also generate other revenue streams. First, the IP is owned by Sensile and what Sensile does is to work together with the customer to customize the device to their requirement. It means that Sensile, in general, gets involved more or less 6 years ahead of commercialization date. It therefore means that during this time, it generates development revenues but more importantly the cooperation with the customer become more strategic. This is why Sensile can also be rewarded later on through royalties when the product reaches certain volume threshold. Additionally, it trades the device on behalf of the contracted device manufacturer. At the end, Sensile gets the fixed margin and records the part revenues. So we are entering with Sensile a new revenue model, which is multi-facet, and based on development fees, the sale of disposable and reusable devices and ultimately royalty fee. There is a possibility for our Medical Plastic Systems business unit to establish the future device production in-house and increase capacity utilization and contract manufacturing, but it is not a must. As we showed earlier, Medical Plastic Systems will be the producer of the Sanofi disposables and for one other Large volume patch pump. But this early exposure to the drug pipeline also implies a greater reliability on registration and commercialization successes, hence a higher variability of revenues. Having said that, let's go through our targets and our modeling assumptions for Sensile on a stand-alone basis. On the left part of this chart, you will find our preliminary targets. These are only relating to the current ongoing projects I have described earlier on, basis for our models, our regulatory approvals and commercial launches of these given projects. That is why you are seeing a phasing and acceleration of revenues from 2020 and 2022 onwards as this assumes we will be beyond the development phase and in the commercial one. Part revenues have fixed margins while royalties entirely fall through the bottom line. As said, these numbers are only based on the 5 projects currently signed off, but there are many other leads in the pipeline. Should those leads materialize into signed off projects, then this will also start to feed the revenue streams starting with, as always, with development revenues. These numbers are ballpark, based on the Gerresheimer business case, which has taken some additional downside adjustments compared to the management business case. The reason why we guide at adjusted EBITA level and not at adjusted EBITDA is that there is no material assets on the balance sheet, which means practically no depreciation, or at maximum EUR 2 million to EUR 3 million. Other modeling considerations include, as chart says, almost no CapEx and thus depreciation; net working capital roughly around 5% of sales long term; he tax rate estimated around 10% for the next 8 years; and almost no goodwill, which shows again the quality of the assets which we are buying. The pre-deal purchase price allocation estimates that the purchase price will be more or less entirely classified as technology and thus amortized as part of the purchase price allocation at a rate of EUR 25 million per year over a period of 15 years starting 2018. If you make the math correctly, you come up basically with 2 important outcomes: first, the deal is earnings accretive quite rapidly; second, from a cash generation perspectives, the deal will be repaid in less than 10 years and even with our downwards adjusted business plan. Just a few words on earn out and financing structure. The maximum consideration of EUR 350 million for 100% of the company. As outlined on the slide, at closing, we will pay EUR 175 million followed by a fixed payment in December 2018 of EUR 25 million and up to 6 tranches depending on the achievement of certain milestones we'll follow. Here we have built in downside protection as the majority of the tranches are subject to the achievement of specific milestones regarding the main customer's projects. To be clear, here we do not mean commercial milestones like in our business plan on the following slides, but we mean regulatory approvals such as FDA or EMA approval as being the triggering event. The clauses are built in such a way that if the milestones are not met in contractually defined timetable or timeline then we do not have the obligation to pay the corresponding tranche. With regard to the financing, it is entirely cash and debt funded. We would use drawings on our revolving credit facility to finance the debt portion of it.A few word on the transaction itself before we finish by outlining how it's inscribed itself into a perfect strategy match for us, and a real enhancement of our business model towards more value add. We expect to close the transaction in a couple of days, means July 17 to be precise, and there are no pending regulatory approvals necessary for us to go ahead. As just said, the acquisition will be fully cash and debt funded out of our existing revolving credit facility in first step. This means that we will, as with any sizable deals, see a temporary increase in our leverage above 3x at closing. But essentially, we are committed to an investment-grade profile of 2.5x in the long term. And as you could see with Sensile, we have a track record in post-acquisition deleverage. What I want to stress here is that given the nature of the company and its business model, we have gone through an extensive due diligence process. It has, among others, included separate market research including competitive positioning together with a strategy consulting firm. Andreas Schutte and I have personally met with Sensile's customers, which are also for a large parts ours, to directly sends check our business case assumption. We have worked with a patent law firm here in Düsseldorf, not only to confirm the patent protection beyond 2025 as well as pending patent protection beyond 2030, but we have also verified Sensile's freedom to operate, which means that there are no infringement risks either. And I just mentioned that we also benchmarked our own valuation work against the fairness opinion established by renowned independent auditors. Finally, the key management team, in particular Derek Brandt, the CEO of Sensile has committed to stay on board until 2023. Then we will report it as a separate division, which should be the hub in the future for all our projects related to medical technology. Within our management board, my colleague Andreas Schutte will assume responsibility for Sensile assuring its smooth integration into our company and securing expected synergies. So why do we insist so much on this acquisition being such a strategic move, not only in items -- not only in terms of new therapeutic areas we cover, but also with regards to the way healthcare has evolved. Let's look at the Slide #16 for that. The healthcare industry is not immune to digital transformation. As a matter of fact, and as outlined on this chart, which is not from us but from IQVIA, the ex-IMS Health, one can say that digital health now impacts the entire patient's journey. Like in many industries, technology comes here as an answer to the requirements dictated by, on the one hand global macro economical changes as well as on the other hand healthcare mega trends. One could say that's a digital journey as IQVIA see starts and ends with predictive analytics, which identifies certain patents on the basis of your electronic medical records and helps either prevent certain diseases or helps predict the risk of relapse. IQVIA sees 5 main stations within this journey, which are namely: pre-diagnosis, diagnosis, treatment, monitoring and remission. From a helicopter view, Sensile fits exactly both with the treatment and the monitoring fields. Treatment, because Sensile allows indeed to bring treatment to the patient and not patient to the treatment. In plain English it means, for example, avoiding cost for hospitalization, and monitoring, because Sensile provides patients with wearables and connected devices which can measure the accuracy of the treatment delivered and later on transmitted further. So we have here an acquisition that responds perfectly to some of the new needs and practices created by digitization in healthcare. Now what I want to cover on the next slide is why the acquisition of Sensile fits within our strategic vision. When we presented our strategic framework back in February 2018, we said that improving value proposition had been identified as 1 of our 4 growth levers. Very specifically, we said that we wanted to extend our capabilities in design, pharmaceutical assembly, services and technology towards our customers. We also wrote that it could include the development of an own-device platform, including connected features. This chart on Slide #17 explains why it makes sense in connection with Sensile. Through its device business, which we call Medical Plastic Systems, Gerresheimer operates today as contract manufacturer for the large pharma company. The development and therefore the IP of the device remains within the pharma companies and Gerresheimer helps mass industrialize the device. Sometimes you also help the design of the device through our subsidiary called item. But in essence, we are usually working with the pharma company 3 years before product is being commercialized. Now if you fast-forward 5 to 10 years from now and link it to the evolution within the healthcare industry, we know that biotech and biosimilars will have a bigger share in overall medication. And we also know that electronics and digital components will need to be embedded in the devices. Here what plays the crucial role is to have the solutions, which are suited for precision injections, and of course includes the features we have seen in the earlier slides; that is measurement through electronics as well as in a later stage connectivity, for example, transmit information directly to third parties. So you want to play in this value-enhancing game, you're dealing with new customers or therapeutic areas and you are dealing with unavoidable necessary technology add-ons. This can only be done through another model which we here call, on this chart, OEM or ODM. So original equipment manufacturer or original design manufacturer, which means that you are here providing your customers with your own technology and together work on the design of the device with the view to get a registration and approval of the drug technology or device combination. Gerresheimer on its own does not have the complete know-how. So to further enhance our business model here, essentially 2 ways: acquiring licenses on families of patents, which we are basically doing with the Sensile or cooperating with research and development organization or universities, which is something we are also working on currently. The Sensile acquisition is a first step into that direction and the intent to continue to progress from here. And here as you can see on this chart, we are either getting even closer or over ruling some of our competitors. Let's move to the second block we are announcing today, which are our recent operational developments and the implications for the short and midterm. Please move with me to Slide #19. The triggering events behind our multiple operational announcements today is that we have won 2 large customer contracts. One is in Inhalation in Europe, that is for our Medical Plastic Systems Contract Manufacturing business. Our track record in Inhalation and our leading position have played a crucial role for obtaining this contract. The other one is a Syringe business where our strategy to improve our position in Heparine and vaccine and further strengthen our presence in biotech and biosimilars continues to deliver. Here we are becoming, for the first time ever, the main supplier in Heparine and vaccines to a large global pharma company. These new gains mean that we will deliver superior growth and profitability in the midterm. Please move with me to Slide #20. Just to be clear, all information and computations that we are discussing now are excluding Sensile. As some of you may know, we are entering this phase of the year where we start our budget process for the next year but also update our 5-year strategic planning. Our current ideas let us expect to derive from these 2 new products approximately plus 2 percentage points of organic revenue growth delta in 2021 and 2022. In turn, we expect these volumes to improve our contribution margin and operating leverage. This means an adjusted EBITDA margin delta of plus 2 percentage points in 2021 and 2022. These deltas confirm with what we have -- will have achieved in 2019 and 2020. The growth will be facilitated by additional CapEx and ramp-up investment in the short term, that is for the period 2019 and 2021. Please move with me to Slide #21 -- the additional CapEx is for the period 2019 and 2020, sorry. Please move with me to Slide #21. These new projects combined with the planned closure of the Küssnacht facility, which I will cover in a minute, but I am sure you have already read about it in our ad-hoc release, of forcing us, if I may say so, to think about our current footprint and planned strategy going forward in order to accommodate future growth in a more efficient way. For sure we know that the 2 new projects will require immediate capacity expansion. Here we definitely expect to increase our current CapEx spend by an additional 2 percentage points for 2019 and 2020, always measured as a percentage of currency-neutral revenues. This is what has resulted from our project-base calculation. What is pending and to be refined alongside our strategic planning is specifically linked to 2 other main topics which are whether we need to build another medical plastic and syringe plant somewhere in Eastern Europe, and also the level of automation upgrades we want to drive in our plants to also secure a more efficient production in the future. We expect this to result into additional 2 percentage points of CapEx spend for the same period, that is 2019 and 2020. As said on the slide, this will be finalized at the end of the year alongside our next strategic plan and communicated to the market in February 2019 as a part of the release of the full year 2018 earnings and the 2019 guidance. From a profitability side, as we always said, the ramp-up of new projects always trigger some inefficiencies in the first instance before it start to operate in a steady-state mode. The new Inhalation project will also require more tooling in the short term. And as you know, these are low margin revenues. Finally, with any new project of this size, you need to start hiring people and train them before you generate your first part revenues, which is also weighting on margins. So overall, we expect a negative short-term margin impact in the magnitude of 1 percentage point for the adjusted EBITDA margin for 2019 and 2020. The comparison is based on our last nonpublished full-year adjusted EBITDA margin of 2017, which excluding the Triveni put option, was 22.8% as you might remember. As you will see on the next slide, in particular for the Inhalation project, we will need to operate under very tight timing constraint as the customer expect us to deliver the first part already in Q4 2020. As just mentioned in the Sensile part of the presentation, and I talked about our classical Contract Manufacturing business, we usually need 3 years before we can mass industrialize the product. Here it may be less, it was surely also one of the USPs from our ends to gain the contract, but this means that we are starting at full speed now with this project. It also means that if we find the right people we won't let them go and hence hire them straightaway even if still in 2018. So the sooner we start, the better as it maximizes our chance to deliver sooner. That's to summarize our current thoughts on medical devices and Syringe systems in the current customer setup. Move with me to Slide #22. First a few additional indications with regards to the growth project. The Inhalation project will be realized in our plan in Czech Republic. We expect part revenues at their peak to be about EUR 30 million. And as just said, we expect to derive the first part revenues as early as Q4 2020. Let me reiterate, that is a crucial project. It has a very tight deadline. So this requires immediate capacity expansion, hiring and training of personnel and extra tooling revenues. For the Syringe business, this is going to be accommodated for in Bünde, Germany. Here we are talking about peak revenues of EUR 20 million and the first revenues will be achieved in 2019. We will need a capacity increase to be able to produce the required volumes. We are currently evaluating when and where further RTF lines are required. So on the one hand, we need immediate capacity increase, but on the other hand we are also assessing the opportunity to build a new device plant which would accommodate both devices and syringes in a low-cost environment in Eastern Europe. With regard to further footprint reorganization, it is essentially dictated by the planned closure of our Küssnacht facility in Switzerland. Here in the course of Q2, a customer has simply stopped to place any further orders. This is entirely motivated by the client and has to do with its internal decision on how they want to drive the particular project further. So as far as we are concerned, we have immediately requested compensation and specified in our contract terms. As illustrated by the way, what I've always said, we operate in long-term cycles and with over 40% market share in Inhalation, we both have the winning ticket, but also have customers managing other life cycles. This is part of it, but overall we are still able to grow. With regards to this customer, it was a midsize contract approximately EUR 15 million on a full-year basis and we expect to recoup the lost contribution for 2018 by the compensation we have claimed. We have also recorded EUR 4.8 million but expect more. The partial restructuring of the facility has already been initiated. And we foresee a full closure by the end of full-year 2019, once all other projects have been relocated to other plants. This is also the reason for us to rethink about our total footprint in Europe. We expect approximately EUR 8 million of restructuring cost in full-year 2018 and about EUR 7 million in full-year 2019. All will be booked as exceptional and should be more or less all cash charges. Once we have closed the plant, we intend to sell the land and building and should be able to compensate a large portion of the cash charges. Hope this provides some clarity on this front.Let us try to briefly cover the main highlights of the second quarter in the next section starting with Page 24. On balance, I would like to say that our assessment on the overall environment has not changed both on the macro and market side. From an operational standpoint, we have seen a modest organic growth in Q2 2018, which was driven by what seems to be a recovery trend in the U.S. injectables. The other trends are outlined on the charts, but I will comment on them on the next page. Essentially, what our current forecast confirms is the phasing of our growth throughout the year as we had initially budgeted. We therefore confirm today that there will be more growth in the second half of the year. This leads us as well to tighten the revenues guidance range corridor as always on a currency-neutral basis, which is now between EUR 1.38 billion and EUR 1.4 billion. The other guidance parameters remain unchanged. Moving on to the revenue trends for Q2. So here we are comparing the revenues in Q2 2018 versus Q2 2017 on a currency-neutral basis. Group-wise, we recorded an increase of 2.1% year-on-year. In Plastics & Devices, revenues increased by EUR 2.4 million or 1.3% year-on-year. Performance in Plastic Packaging and syringes are satisfactory, but performance in the Medical Device business was impacted by various trends in Inhalation. Peachtree continues to perform well on track, but we are still experiencing lower demand from our customers in Europe where we are single source supplier. Obviously, we have the contract termination in Küssnacht. And tooling revenues was lower year-on-year. Here as usual, it is purely timing and this is one of the reasons also for the greater weighting of revenues in the second half. Revenues increase in Primary Packaging Glass was encouraging, spread across all geographies, but the most satisfactory trend was the good performance in the U.S. In Q2, for this division, we recorded an increase of 3.1% or EUR 4.8 million. Please move on with me to Slide #26 to review the main drivers behind the decrease in our adjusted EBITDA. This quarter, and for the last time we are recording once again an import from the fair value evaluation of the Triveni put option. This time it is an expense in the amount of EUR 1.1 million. This means there is more value in the company and therefore proof why it was good, why it was a good timing to exercise the -- to call the call option during the last quarter. We are showing on this slide the numbers excluding the impact from Triveni put option. On a currency-neutral basis, the adjusted EBITDA remained more or less stable at group level at around EUR 75 million. Let us start with the profitability revenue of Plastics & Devices on a currency-neutral basis and excluding Triveni. The adjusted EBITDA decreased by EUR 2.2 million year-on-year. It is basically still down to Inhalation and tooling. The margin in an event like Peachtree is not at its optimum, as we are still in the ramp-up phase. You have to imagine that you have, for example the cost for the people but not necessarily all the volumes to absorb these costs. Tooling, we have seen very lower in terms of revenues and contributed less to the adjusted EBITDA. And the capacity utilization in some of our plans is also negatively impacted by the lower demand stemming from a few of these customers we are single source suppliers. With regards to the terminated contract in Küssnacht, we have recorded a compensation. As mentioned before, we expect to receive more in the next quarters to compensate for the lost revenues and hence loss contribution margin, at least for this year. With regard to Primary Packaging Glass, the adjusted EBITDA amounted to EUR 33.4 million in Q2 2018 compared to EUR 31.1 million in Q2 2017 or 7.3% on a currency-neutral basis. Here we are seeing the operational leverage effect which comes in particular from a greater capacity utilization in the U.S. As mentioned previously, we are investing in our sales and marketing operations in the first half, and in particular within Gx solutions. We are not talking about a lot of hires and operation expenses, but these are additional costs compared to the last year in both divisions. By the way, it is true for OpEx in general as well. We are continuously investing in training people, ramping up operations in Peachtree, Brazil, Poland, India, you name it, which is of course affecting our margin, but it's necessary to prepare to future expansion and growth. Briefly on currency on the next slide. Very quickly, as it is the same mechanism as in Q1. In terms of revenues, between the reported Q2 2017 and reported Q2 2018, we have alone a total of EUR 14.1 million of currency effect, which explain the reported revenues decreased by 2%. We have, by the way, provided a revenue bridge in the appendix section of this presentation. On the adjusted EBITDA basis, the impact was EUR 3.7 million. Moving to the changes in the profit and loss on the next slide. To only outline the key variations, the slight increase in depreciation, which is for a part driven by some of the depreciation at our Küssnacht plant, initiated by the contractor termination. In total, we have EUR 1.8 million of impairment losses. Net finance expense, we're approximately EUR 1 million higher year-over-year at EUR 9.4 million, mainly due to the early refinancing of the bond in September 2017. As a whole, the adjusted net income, after noncontrolling interest, amounted to EUR 26 million, which per share amounted to $0.83 after $0.97 in Q2 2017. Let me, however, point out that for the full year, we will benefit of the positive one-off recorded in Q1. As of May 31, 2018, our adjusted EPS for the half year was EUR 2.68 compared to EUR 1.56 for the same period last year, an increase already of over 71% versus last year. Moving onto the balance sheet and cash flow items for quarter on the next slide. A couple of comments here on this slide. First, you can see that the balance sheet has been improved in the sense that the repayment of the bonds through use of cash and drawings of the revolving credit facility has driven the decrease in current assets and liabilities. This explains the decrease in total assets by 8.2%, and the fact that our equity ratio is now close to 37%. At the same time, from a net financial debt perspective, the increase is solely driven by the payment of the dividend and the last interest payment on the bonds. In total, this was close to EUR 50 million. From a cash perspective, the decrease in operating cash flow reflect, as of May 31, to reduce EBITDA year-on-year as well as the increase in net working capital. From a net working capital standpoint however, we measure ourselves always on the average last 12-month basis, and we -- here we are at 16.9% of sales in Q2 2018 compared to 16.4% for the same period last year. There is, for sure a bit of preproduction that goes ahead of the second half of the year. Leverage was slightly up at 2.6x as a consequence of the trends in net debt and adjusted EBITDA I just outlined. We have enclosed, as our last slide, our updated guidance. I think this should be clear by now, that we are tightening the revenues guidance to the upper end. We are not changing the other guidance parameters for 2018. And said earlier in conjunction with the start of the growth project, and particularly the Inhalation one, if we find good people today, we will not wait until next year to hire them, we need to manage this tightly. Let me finish with what I started with. Value creation remains important for us and our Gerresheimer return on capital employed is maintained at around 15% for the midterm, including Sensile. Other metrics stay unchanged even if leverage will go above 3x at closing. So to recap extremely briefly. Our current business, performing well and we see a stronger base. With today's announcement, we expect a noticeable acceleration of our growth profile for the midterm organically and inorganically. Additionally, and whilst keeping our packaging expertise, we are now creating the Sensile in new division, which will be the hub for all future developments in the direction of electronics and connectivity and with a view of improve patient care in the healthcare ecosystem. And with no further delay, we are now opening the Q&A. Thanks for your patience on a very long call. So I give it get back to Severine.
Thank, Rainer. [Operator Instructions] So the first questions comes from Scott Bardo from Berenberg. Scott?
So the first question please, relates to the Sensile acquisition. And I just wondered if you could help explain a little better, the notion of turning this business into a full OEM business. You mentioned before that the business has a lot of IP and you've invested in IP. Yet I think, if I understood correctly, you see a model in the next 5 to 10 years where IP is less relevant. So I'm just trying to understand, will you continue to invest in IP here or will you like to give it away as part of your deal structure, similar, if you like, to what you do in other medical devices? Just following on please, I'd like to understand a little bit better your confidence levels in some of the revenue projections. Obviously, they seem quite high from a revenue perspective and also from a profitability progression over the next 10 years as you lay them out. So what levels of diligence have you done surrounding this? And can you please share some thoughts about what it encapsulates in your forecast for one of those customers that is public and registered with the regulatory bodies, SF Pharma (sic) [ scPharmaceuticals ], which is now at a complete response letter, what is your expectation then for that product within this financial forecast? And is that, if you like, concerning about the future progression of the technology. So I'll pause there, if I may. And then I have a follow up.
Let's start with the first one. Yes, we also will continue to invest in IP and we also will protect our IP. This is the reason why we have bought Sensile. And this is our, you can say, development arm of Gerresheimer for the future, research and development arm. We only have outlined in our modeling assumption the current existing contracts. And the basis, and that also comes with your second question, the level of confidence which we have. We have done the big due diligence. We also engaged a strategic, yes, consultants company, where I don't have the allowance to name them, but it's one of the big 4, I would say. And we also -- and this is even more important, Andreas and myself, we had the customer interviews. And we went over for our oldest projects and had the discussion with the customers. And here we have seen a lot of confidence. So I would say -- and that's a little bit, when I look on the business plan -- when they see our numbers in the business plan, they will be scared because the numbers which we have put into this business plan which we provide to you, for sure have some postponements in it. That's the reason why we call it conservative. The customers are more optimistic, that if we work together with the management team in Sensile, and for sure we have no doubt that it can work, but we also don't want to be too aggressive at the beginning. I can't tell you exactly when the product would start or commercialize. But also when you look on the numbers on our Page #13, for sure you can have the assumption that, for instance, development would stop somewhere in 2020. But again, that only has to do with the situation that it looks like a peak, that we are not putting in other and new products on top. So there is, in our opinion, a lot of potential on top, based on further developments and other projects, but we haven't priced them in. So scPharmaceuticals, it is difficult for me to comment on that. But for sure, as you can imagine, that was also part of our due diligence. And for sure we also had a discussion with them. And that's the reason why in our milestone payments, we also have introduced and included also some protection if this or that is not happening. That's the reason why the minimum which we will pay are the EUR 200 million based on EUR 175 million as the first payment, which we have to pay directly, means next week. And then the EUR 25 million we have to pay at the 1st of December. And thereafter is based on regulatory approvals up to a certain period, not forever. And there is for sure some protection against also not getting approvals here or there. But again, when you talk to the customers, we are very, very confident that it will happen. And we are -- we believe that the numbers which we have provided here are not too aggressive. Hopefully, that answers your question.
Okay. And just to understand about the 2 contract -- large contracts that you announced, both in medical syringes and Plastic Devices. Could you confirm whether these were new business to the market or were these competitive wins? And if this was the latter, can you help explain why you think you were successful in winning those? And I'd also like to understand a little bit more of the profitability guidance that you give, which is I understand, 100 basis points margin contraction on 2017, so implying then around 22% margin. Does that encapsulate, if you like, the lost profitability from Küssnacht into next year as well, that guidance? Obviously, that is being reported as straight profits today, which is arguably flattering near-term margins. But I'm trying to understand this 22% or so guidance that you give in next year and the year after encapsulates the loss of that business.
So syringes is a competitive win. Inhalation is new business for us. But Inhalation is based on a contract where we are -- where the customer is very happy with us. And yes, I can't say more about it because we can't disclose customers. But again, it's a huge project and some of you perhaps will have an assumption, what we are talking about. So the guidance for sure, includes effects from Küssnacht restructuring. So and come back, how do the numbers work for next year, you are totally right. As I said, when we are investing in CapEx in the year 2019 and 2020 for this new project, the starting point is the 2017 EBITDA margin, excluding Triveni of 22.8%. And then you have to deduct 1%. And for sure Küssnacht is also included -- also the performance, which perhaps will be weak next year too, is also included in that guidance.
Very good. Lastly for me, if I may. You mentioned the ambitions to return to your capital structure of 2.5x net debt to adjusted EBITDA. It seems to me, given the heightened CapEx of the business that your free cash flow generation is going to be, well, not optimal or -- and somewhat poor over the next couple of years. So can you confirm, do you see abilities for absolute debt paydown over the next couple of years? Or did you rely on EBITDA growth? And when do you foresee a return to under 3x leverage for Gerresheimer?
Yes, we believe, when you look on our cash generation, and also you are totally right. For sure, we also have on top CapEx. We think we will need, like in the last time, the last time and if you believe in our plan and take the old assumptions as they are 2 to 3 years approximately, and then we should be back to 2.5x. Similar by the way, like we guided for the Centor acquisition. Have in mind that we are very strong in this situation. [indiscernible]Severine is helping me here a little bit. And Severine, you also can answer that.
And just to answer it, it's basically within that time line. It's exactly what you say, Scott. It's exposed to the increasing debt as also through improvement in, obviously, operating leverage. So we're going to take the next questions from Oliver Reinberg from Kepler Cheuvreux.
Four quick questions, or 3 quick questions on Sensile, please. First, can you talk about, was this is a kind of competitive bidding process? Secondly, can you just help us understand the class service? So in the revenue projections you have for 2022 and 2027, I mean I understand that you can't talk about individual clients, but can you help us to understand what is this share of [indiscernible] that comes from the biggest project? Is there any kind of project that accounts for more than, let's say, 1/3 of these kind of revenues, just to understand the class service tier? And then the third question, can you just talk about the contract structures that you have in place. So if you have this kind of 5 signed accounts, does it mean that these clients actually commit to any kind of minimum volume? And if that is the case, what percentage of the sales projection is actually guaranteed revenues, if we can look that it this way? And is there, in theory, if a better platform comes along, the client allowed to move on if they are tempted?
So for the first question, this was an exclusive process with Sensile Medical. We have the opportunity to be the only one in the process, which was good. Second, sorry, but I can't disclose the portion of individual projects which we have put into our forecast. Because that really would disclose in some areas, also customer forecasts, and I'm not allowed to do that. Third one was contract structure, minimum volume of guaranteed sales. No, there is no minimum volume or commitment of -- in that situation. But perhaps you look again on the announcement, for instance, of Sanofi, together with Verily. And when you put a company like Sensile Medical, which is pretty small, beside you, and you see the situation in the insulin market overall and you listen to the relevant people, you would figure out how important these kinds of projects are for the customers and they have committed themselves to this solution. And I only would like to repeat, we have done for sure a huge technical analysis, what is the best product in the market. And the customers does that, too. And so if they then say at the end, this is our product, that's then exactly what you have to do. And when you see the team up of the other, for instance, insulin producers with some of our competitors, you see that the market is already then, for patch pumps, closed because you have the big names and they have 1 partner. And that's, in our case, Sanofi on Sensile, which is a team together with Verily, and then you have others. So we have a lot of confidence as our customers have that there is, as I said, a very strong relationship. In CRE for sure, customers always can go away to someone else. But also to give you one idea, the discussion of the inhaler, which we lost in Küssnacht, this is a contract which was existing 15 years or even more than 15 years. And in device business, together with drugs, it is always very difficult and very, very complicated to change. But in this case for sure you can do it. But we don't believe that this is a realistic scenario.
Right. If I may, just to briefly follow up on that. On -- just on the cluster risk, would you say that 2022 revenue projects have a cluster risk or not? And then an additional question, what do you think are the largest risks in terms of getting this kind of product approved?
Oliver, what do you mean exactly by cluster risk? I'm not sure we understand.
With clusters, it basically means that of the EUR 200 million revenues that you're guiding for 2022, that there is 1 project that accounts for, let's say, 35% or 40% of those revenues?
Okay, understood.
Yes, there are projects which are more important out of the 5, and there are projects which are less important. But it's not only 1 product which is important. Coming back also to my answer before, you have in mind, when you're developing a patch pump together with the [ dark ], normally you invest 6 years. Have that in mind, too. So you know to move away, to go with someone takes you really in a different direction. That means you're really connected with your partner who you are working with.
Okay, understood. And in terms of the risk of getting approval, what is the biggest challenge there?
The challenge is, at the end of the day, only that you can prove that the device works with the drug. Because the drug is already approved and the device, in some cases also is from the functionality there. So it's more or less a question that the drug works together. So it's a combined registration. So it's only the combination between getting the drug combined with the device. That's what we are talking about. We're not talking about getting a new drug into the market.
Next questions comes from Falko Friedrichs from Deutsche Bank.
I would have 3, please. First one on Sensile, and congrats on that acquisition. I'm a bit surprised though that the projected margin levels are not higher, especially given the anticipated royalty component. Would that be an issue of scale over the next few years, or are there other reasons for that? Then secondly, also on Sensile and their 120 employees, from a development capacity perspective, how many additional projects do you think can they theoretically take on over the, let's say, next 2 to 3 years? And then also, how many people do you typically have working on such projects? And then my third question would be on the Inhalation business in Europe. Could you share some of the indications that you might have for the second half of the year? And specifically, do you think that the situation is slowly improving?
So let's start with the first one. When you look on this business model, you have 3 revenue streams. First, development revenues, parts revenues and the third one is royalties. So the royalties is the most profitable one. And the royalties are based on the combined device, plus the drug. So if the commercialization starts, theoretically in 2020, the royalties can't be as high. And the royalties are the high-margin business because they really fall down to the profit and loss. The development is more or less a low-margin business where you normally work together with your customer and at the end help together. You define -- you build out of the platform a product which fits to the drug as well as to the delivery the customer has in mind. And the parts revenues, what we show here in the Sensile business is only parts revenues, which is a commission, you can say, on top of the produced, already produced product. For instance, in Medical Plastic Systems, which is then the contractor manufacturer for instance, for Sensile. For sure for the past we do have a lot higher margin, yes. But here in Sensile, you only make -- you only get a certain percentage on top. So the most important factor here is for sure the highest profitable one is the royalties. And therefore, if the commercialization is starting later, for sure, you don't have up to the year 2000 -- and I am not going any further than 2022. You don't have such a high margin coming out of this business. Hopefully, that explains a little bit how it works. So 120 people, how many of them are working on different projects? I would say, approximately 20 have to work on different projects. And at the end, like always, in a development stage of a project, it can be little bit more or less dependent on -- in which phase you are currently, with the 5 products which we have. We are pretty well utilized. So but in that situation, when a product gets to the market, for sure then, we have extra capacity which we can use. And our commitment also is -- and that's also the commitment going on further that we also will increase and get more people into our facility in Switzerland to make Sensile more successful. So Inhalation business, especially in the second half, will increase. This is our assumption, which also have to do with the further uptake of our Peachtree facility. And especially in the second half, I also said before that the tooling revenues will be stronger. And for sure in the second half of this year, we are also expecting, especially the U.S. business to be stronger. And have in mind, especially Q3 last year, was very weak. And therefore -- and there we got our hits. And therefore, especially in Q3, we should see a very important part of the improvement, which I can say, which will perhaps happen, or where we are pretty optimistic. Q3, Q4 we will be pretty strong. And that's the reasons why we have upgraded to the higher end of the range, from the EUR 1.348 billion up to EUR 1.4 billion and tightened our guidance to EUR 1.38 billion up to EUR 1.4 billion this year.
Okay, perfect. But it is probably a fair assumption that the Inhalation business in Europe will remain a bit difficult, correct?
Yes. Correct. That's what we have said, also in our presentation, also in our reports. Again, that's the advantage or disadvantage when you have more than 40% market share. In a business, you have the winners and you have the others.
And we'll take from Veronika from Goldman Sachs, as next, for the next set of questions.
I'm going to start with Sensile as well, please, if I can. Reiner, can you just comment, if I look at that EUR 400 million of revenues by 2027, is the small insulin pump that's most significant driver of that? Or would that be pretty evenly split between the 5 different projects that you have going on?
In the year 2027, I also am not allowed to give you numbers. But for sure when you look on the markets, insulin, for sure, plays an important role. And when you look on the market and would see certain market effects you have then, for sure you have projects there which can be more -- which can have a bigger part. But it also -- and when you look on revenues, you also have to have in mind it also depends on the overall pricing which you have, and how many parts you deliver. And for instance, for insulin, you have 1 reusable piece, and then approximately 100 disposable pieces. The reusable costs between EUR 60 and EUR 120, dependent on how many -- what kind of electronics and connectivity you have in it. And the parts, reusable costs you between EUR 2 to EUR 5, whatever. So therefore the overall pricing is totally different than, for instance, for a large volume patch pump, for a different usage. Here in this case, the heart failure, the chronic heart failure usage. Because here you have to use several times a year, as well as the disposable as a smaller part of 1 -- and more reusable. So therefore, it's a combination between, on one side what is the treatment and what generates on revenues then the overall volume. So it's volume as well as single price for the different device which makes the overall revenue. So therefore, again, we have projects herein, which are -- which will play the more important role up to the year 2027 than others, as I've said before. But I can't disclose more. But it's not only 1 project which takes it to the EUR 400 million in the year 2027. There are several ones which we need to get to this number.
Okay, okay. And obviously, part of your success here will depend on your partner's ability to successfully commercialize this product. And I just wonder, did you make different risk adjustments to the different projects as you build up this EUR 400 million? Or have you assumed that the partners will be equally as successful, because you quite a broad range of companies that you are working with here?
Exactly, we have done huge risk assessments in all areas, and also we looked on the different partners, yes.
Okay, okay. And then switching text to the rest of the business very briefly. Any thoughts on, broadly, the glass segment of the market? And how you think about, is that they key part of the acceleration that you anticipate in the second half of the year in your organic revenue growth, or is that coming from plastics and glass? And that's my last question.
Glass is the most important part. Because last year we lost in glass, the major part. And therefore to get it back, and to also grow in that business is most important for us.
So we're going to take first Aliaksandr from Hauck & Aufhauser.
I'd like to ask 1 or maybe 2 on the Sensile acquisition. If you could talk a little bit why do you think it's Gerresheimer who was able to snap up this, yes, seemingly attractive asset and not any from your competitors? And maybe the other one would be, if you could put this micro pump technology that you have acquired into the context of your overall kind of product portfolio, to what portion of your group revenue would you potentially see this technology being applicable? I mean, in terms of how much revenue do you make with this type of devices that can accommodate this technology?
It's always difficult to say why a company has decided after several people tried to acquire it, or to discuss it during the last years. For Gerresheimer, to have an exclusive discussion. But perhaps it has to do also, in the relationship and the commitment of the Board Members. I'm talking to them, and for sure I know -- for instance, for me I know the seller also from other deals out of [ my pot ]. And on the other side, for sure, for the target, why are we a good buyer? Because we have a situation that we don't have a research and development team. So one of our clear expectations to Sensile Medical is that they stay intact as a company, that they stay there where they are, and that they further work on with us. And you know that we don't have the idea to take their patents and put it to a different place. And our clear commitment is that we let them grow and that we help them, and that we work together. And for sure Gerresheimer is -- when you look at us as a company, a quality provider in the industry, and that's also the output. And when you talk to the customers of Sensile Medical, because we know a lot of them out of our current delivery process. So I can tell you that the customers of Sensile are very happy that Gerresheimer takes over, because we are also, in some, cases already in industrialization part in other areas. So therefore, it's a perfect fit for both for us. And perhaps that's the reason why it made a lot of sense that we are able to do that. So and the second question, honestly, I haven't really got. Is the question more or less on cannibalization with other businesses or what is the question?
No, what I meant is basically that the technology is primarily being applied for self-administrative injection devices, if I understood that correctly. And what I'm basically trying to figure out, how -- to what portion of your portfolio this technology can theoretically be applied to, if that makes any sense.
Yes, for us, for sure -- and after the analysis out of the technical department, I also have 1 Board member who is also a customer in some areas of us, he already said to us, you can use this technique in -- also in other areas. But our first step is for sure, let's start with that, that what we have bought it for, for the patch pump. And then we will see what we can do with it. But at the end of the day, our clear commitment here is, and that's for sure a superior technique. And that's also something which we have to further utilize, but first step, we have to deliver this project, because if we are able to do that, I'm already pretty happy about it. Severine, do you want to add?
So the only thing I wanted to add is obviously this deals with therapeutic areas that we don't cover, right. When you think about Parkinson’s, when you think about oncologies. And we talked about leads earlier on, and there are obviously leads will also lead with other type of disease, such as HIV, et cetera. So that are things that are obviously not covered right now in our portfolio. So that's where the new opportunity lie.
Okay. And maybe just the last one. I know you already referred to this, to your projections, that you can't really disclose much of it in detail. But if we look at the 2022 forecast, how -- if you are able to disclose kind of the applied assumptions, how many new drug applications do you expect to be kind of on the market already by 2022, generating revenues that will eventually allow you to get to this EUR 200 million without disclosing the -- what project accounts for how much?
I am going to step in because I think Rainer is looking at some numbers. Again, I'm not sure I understand, because everything we're disclosing right now deals with those 5 contracted projects. So anything that would be derived, for example, that leads, that would have been transformed into contracted kind of relationship, would come on top, and would be first shooting through development revenues.
Yes. Yes, I understand that. I just kind of trying to figure out, so we have EUR 200 million used, from how to derive the number. And I'm just wondering how many -- there are 5 projects in the pipeline and kind of by that time, because you obviously have here already in royalties and parts, but if you have parts I would assume that means you already have the product on the market, correct?
Correct, correct. 2022, you see, and you can see it, for instance, on the development revenues because these are also only the development revenues for this kind of business. You can see here that the peak of the development revenues for these kind of products is in 2020, which normally should give you an indication, and you then thereafter see and also in this you see that the part revenues are pretty high. And the year after, in 2022, the part revenues are even higher as well as the royalties step in, that somewhere around 2022 -- 2020, you already have a lot of projects in the market. And in 2022, only a very low number of project is in development. So therefore, it should give you an indication that within the next 2 years, normally our assumption is that several very important projects gets to the market.
We're going to take a last question from [ Rutger Sarfur ] from Equinet.
.I have two questions. My first question is regarding your CapEx. In the past, there are rule of thumb for CapEx enclose, and for 1% revenue growth in future. You have to invest roughly 1% in CapEx. I'm just wondering, if this will changing now with the 2 major orders since you are targeting to invest up to 4% of revenues? And my second question is related to R&D. Following the acquisition, you have to invest more in R&D in the future, I guess. And is there any target for your future R&D ratio which you can share with us?
So for the CapEx question, good question by the way. That's the reason why I've outlined in my speech several times that the biggest challenge which we have is that we already have to deliver for the Inhalation project in Q4 2020 already product, which is the reason why we are currently already engaging people, ramping up our Horšovský Týn facility, to get all things are done in parallel because it's really like very, very fast that we're able to do it. And for the -- this is the Inhalation project, for sure. For the syringe project, we can use the capacity which we have in Bünde. We only have to figure out pretty fast where and how fast we also can build up a new facility in more Eastern Europe, to get the extra capacity which we need also out of the closure of Küssnacht, to find places for the next years, which is not as critical. And therefore, the standard rules stays intact for a normal year and for a normal revenue growth. But for this project, I can say that due to the fact that we will deliver very, very fast. So for your second question, R&D following Sensile. Do we have to invest more? Sensile, overall, has a low single-digit EUR 1 million amount of R&D cost. What they are doing mostly is development work. And this is normally paid by the customer. So we are not going the path, really having research and R&D cost as being a major part. So that's the reason why I also said in my speech, here we will work together with universities. Here we will work together with outsized partners. In that case, that Gerresheimer should also be the place where people with new ideas come to, because we don't want to go in competition to them. And therefore, we don't have the situation that there is already an existing R&D team, which directly after we have presented something, tells them, the people who have developed something new, that they are already on this path, so nobody has to be afraid that we take away the patent. Because here we want to work together as partners. And we are ready also to do these things in this area, which is a very low number we are talking about in these kind of businesses, because here we are talking about new developments, which perhaps will get into the game in 5, 6, perhaps 10 years. What I mean with that, you will perhaps see when we are little bit further down the road.
Well, that would conclude us for the Q&A session. And if there are any more questions, obviously, Phillip and myself are available after the call. We're going to be road showing as well in Europe at the end of August and beginning of September. So please get in touch as well, if you want to basically meet with us. Thank you very much, and have a good afternoon.