Investment Spotlight: Aesthetics, Dermatology and Med Spas

Adrienne Rivlin:
Thank you. Well, good afternoon everyone. I'm acutely aware that we stand between you and lunch. We are hopefully going to have a very entertaining 30 to 35 minutes before we break and let you have something to eat and some refreshments. I'm absolutely delighted to present my impeccably, well-groomed since we're talking about aesthetics panel, but more importantly well-qualified panel today. What we'll do is we'll start with some brief introductions and then I've been tasked by the panelists just to present a few slides, I promise not to do death by PowerPoint. And then we're going to get right into our hopefully very provocative and interesting discussion. Without further ado, I'm going to ask maybe my panelists to introduce themselves. Let's start with, can you see my very diverse panel here? We'll start with a diversity candidate Julius.

Julius Hugelshofer:
Good afternoon. I'm Julius Hugelshofer. I am a director at Verlinvest. We are a global evergreen, family-backed investment company focusing on consumer goods and services including consumer health. In our context we have a number of consumer health investments across Europe and Asia, including one in the aesthetic space in Europe called Faceland, present in five markets starting out at the Benelux, DACH, and Italy.

Johanna Oberg:
My name is Johanna Oberg. I represent Bergman Clinics where I'm the CEO of Bergman Clinics commercial care. That means all our out-of-pocket services currently refractive surgery and aesthetic surgery, and also non-invasive, represented by eight brands in five different markets. Sweden, Norway, Denmark, Germany, and the Netherlands.

Tracy Sayag:
Hello, everyone. My name is Tracy Sayag. I'm the CEO and founder of Clinique des Champs-Élysées Group. It's a group of clinics in aesthetics from invasive to non-invasive treatments and we cover, we have 20 clinics in France. Pretty much specialize in everything that's going to be the session of today, and I'm happy to be here.

Adrienne Rivlin:
Thank you all. Let's see if we can get the slides up. Can we get the slides up? Ah, perfect. All right. As promised, just a few pages just to set the scene for why we're talking about medical aesthetics. Well, I suspect that some of the other segments that have been presenting over the past couple of days would be delighted to see growth rates like we've been seeing in the medical aesthetics including the MedSpa space. I've really just pulled out a couple of key countries here in Europe, UK, Germany and France data. But you can see what phenomenal growth we've seen historically and projected going forwards. That's really being driven I think by four key drivers. I'm just going to step through one by one just to give you a little bit more flavor. The first is of course, consumer interest. Who hasn't heard of course, that way, thank you. Who hasn't heard of course of the zoom boom and the increase in interest in social media more generally in this space.

What's been really interesting I think, is that this has been across multiple demographic segments and I'm sure my panelists will talk about this today. It's not just women, but increasing numbers of men as well and increasing numbers of us taking up these kinds of services across both the injectable sector. For example, the toxin. Botox is of course the brand that you might be most familiar with and indeed fillers as well, but also laser hair removal and other such services. Interestingly, we've also seen a younger demographic picking this up, not just the sort of 40, 50, 60 plus demographics, but increasingly younger consumers as well and right across the disposable income spectrum as well, which is again, I think another key driver of growth. And then perhaps sort of a quick piece of evidence, you can see here the graph on the right-hand side, just the phenomenal increase in interest as demonstrated by online searches for these kinds of services and products. A second key area and driver of growth and one that is near and dear to my heart as a former medical scientist is innovation in products.

What you've really seen, particularly in the pharmaceutical side of things, has been lots of interesting innovations coming to market from the big three. That's Galderma, Allergan and Merz, but also increasingly from the mid-market and the new entrants are primarily Korean players. What have we been seeing? Well, much longer duration types of treatments, pre-filled syringes, that sort of thing, which really make it a lot easier for our clinician colleagues and related services to actually deliver these services. On the energy-based devices side. This is your laser hair removals, similar levels of innovation, both interestingly on the product delivery side but also on the financing side. We're hearing from our insurance colleagues on this panel before this one, but a lot of innovation in how to actually finance the large CapEx requirements for some of these machines. Something that we'll certainly hear about today. Third key driver of growth in this segment is increasing supply. Certainly both Johanna and Tracy will talk about this. This is indeed the fundamental of their business model, but the increasing proliferation of clinics really on every high street.

I'm sure it probably hasn't passed you by that you can walk down any high street in any capital city now and really see a number of brands increasing in prominence. There's been a lot of innovation from the provider side as well, both in terms of affordability and convenience, but also from the customer service perspective. I'm going to ask some questions about that as well. And then one for Julius, I expect from an investor perspective. This segment reminds me a lot of how ophthalmology or dentistry or veterinary services was some years ago when we really saw a very fragmented landscape with lots of opportunity for clinic roll-up. We have got some good examples on this page here of some of the recent acquisition activity. But really I think you're going to see this, and maybe Julius I'll ask you this especially in a moment, but I think you're really going to see this accelerate over the next three to five years, especially as the private equity interest in this space and the strategic interest in this space heats up. Those are my four key drivers of growth.

I'm going to just briefly touch on the regulatory environment because it's a question that we get asked a lot. At present, we have quite a disparate regulatory framework that sits across Europe, but there are plans afoot across multiple dimensions to tighten up the regulatory frameworks. In the UK for example, it is still the case that literally anybody can stick an injection in your face. It's quite terrifying. We certainly don't have that in France where we are today and certainly not in Germany. We absolutely hear from the leading investors in this space and the leading strategists in this space that they are desperate for the regulatory frameworks to become harmonized and indeed more stringent for the benefit of consumers and patients. Right. I'm sure I've taken up quite enough of your time. What I'm going to do is I'm going to throw it open, Julius, for the first question. As a leading investor in the aesthetic space, perhaps you can kick this conversation off. Tell the audience why you're so excited and so interested to invest in aesthetics.

Julius Hugelshofer:
I mean, you mentioned it already, Adrienne. I think the demand dynamics remain fantastic. I think there is growing demand. We see this market going three, four times the rate of big traditional medical specialties. We also see actually astonishingly low price elasticity. We already saw this during the last macroeconomic downturn, but we continue to see possibility to pass through decent price increases and the growth is phenomenal, I think on the supply side. And that's where the investors come in, especially for, if you think about operators. I think there has been a proliferation of smaller groups, but it's an interesting dynamic because investors have seen other healthcare services.

You mentioned dental, you mentioned ophthalmology grow in the last few years. They're approaching this slightly differently. There's a scarcity of assets of scale in Europe. People are building up things from smaller basis and they're already thinking of the next step. How do we differentiate ourselves? Because clearly barriers to entry are slightly lower. It's more consumerized. There are more questions on, do I maybe focus on dermatology? Do I go broader on my treatment spectrum? How do I build a moat? We see very strong investor interest and there've been a number of transactions in this space, but slightly smaller scale already with I would say an eye to differentiation rather than simply buy and build that we've seen in other sectors.

Adrienne Rivlin:
Johanna, maybe a question for you. I think I'm right in saying that Aesthetics represents about a third of the total portfolio. Why is an organization like Bergman interested in Aesthetics given all the other areas that they could be focused in?

Johanna Oberg:
Yeah. First and foremost, even if Aesthetics is new at this conference, it's at the core of Bergman. In 1988, plastic surgeon Robert Bergman started in the Netherlands. That's really at the heart and the core of what we do. Then obviously we've grown into other therapeutical areas and we see now the last few years that growth rates in Aesthetics across our markets is now taking off again. I think it both has to do obviously with all the factors that we just mentioned. But I also really like to think about our market as a push market, which we control and we control demand, and we can create demand and we need to capture demand. Regardless of macroeconomic situations, we see that we can continue to grow that demand, while putting everything together, everything that is out-of-pocket pay because that's a fundamentally different dynamics to out-of-pocket healthcare than insured healthcare. While we have put that under one umbrella, we can see that this is really an area where we can use our geographical footprint to really create synergies, because within private pay and aesthetics, specifically knowledge to travel.

Adrienne Rivlin:
That was actually a question I was going to ask you about international expansion and how do you think about growth and brand permission, brand expansion across multiple countries. I think it's much easier if you understand a single geography, a single patient or consumer cohort or group within a defined geography, but you've obviously been successful at expanding. What are the key things that you think about in this space when you think about expanding across geographies?

Johanna Oberg:
Yeah. If we take clinical excellence as a given because it has to be there of course, and also everybody in the entire healthcare space know that operational excellence do travel. I think the key component which we find as our secret sauce does commercial excellence travel. By that I mean we have to earn our customers every day in the out-of-pocket space. We actually have found a way of making sure that that knowledge does travel. That's everything. That's not only how do we do CINCO, it's much broader than that. It's the entire customer experience. It's the capabilities within marketing tech. It's the capabilities within marketing automation, both when it comes to system and capabilities. I like to think. I think we've also proven it, that people are more similar than different. Even if we obviously have to adopt to certain market peculiarities, we see that with our team of customer acquisition experts, we can easily add an additional brand or an additional geography with not that much additional cost.

Adrienne Rivlin:
Thank you. Tracy, turning now to the French experience, how would you summarize the desires of the French consumers? As you think about the Clinique des Champs-Élysées is quite a high-end clinic, what are consumers really looking for in terms of innovation in the space?

Tracy Sayag:
Yes. It's a very interesting question. I have a lot of alignment about what you say about customer experience. We have been traveling into every country of France and at the end, even if we are premium clinics, we have premium locations and premium patient pathway. Our target is mainly everyone. We target every kind of patient from of course, 20 years old when they come for acne or hair removal to, there is no end actually for the treatments and self-confident need that we see today. What patient looks, I think it's really the council part, the fact that they're listened to and that they have real results when coming into a clinic because there is a lot of new competitors entrance in the segment. Most of them don't really have the know-how of really what's good for the patient. They will sell what they have given into their clinics or into their center of what they need to do regarding their objectives.

But I think it's really the specificity now. They learn more, they know more, they look, they get interest. Before they come to the clinic, they have read a lot. They're much more expert than they were 10 years ago. It's not that easy to sell something to a patient. If you really don't know what your aim is, there going to be a result. I think that what we try to do in Clinique des Champs-Élysées that's really what I've been passionate about this for more than 15 years now is not the first time the patient comes, it's how we are going to maintain the patient loyalty throughout the year. This really what's the value at that creation is going to be in the long term. It's really easy to attract patient for us because we have a big brand of course in the French market.

Making them come for the first time is pretty much something that a lot of new groups, new competitors have easy access to. The difficulty is to make the patient wants to come again and again and to know that he's really in good hands. When I say in good hands, it has to come with a medical DNA. It's really my vision of aesthetics. In France, I talk more about the French market because it's the market that I know best. Most of the competitors that came into the market within the last three years are non-medical competitors. They run the business with very, very few medical DNA. Maybe they get one doctor. It's much more about marketing. It's not really them helping driving the treatment pathway. At the end of the day, this really is going to give the right result for the patient because you can take the same device and that's what we face throughout the year.

The same device with the same name, with good marketing names. Even the devices now sometimes bring patients to the clinic because some industrial invested a lot in their device, but even just one device can bring so much different results to the patient if it's used by an esthetician, a nurse or doctor or even a nurse driven by a doctor. Because of course, protocols are adapted and if you use the devices at 5% of their capacity, the result will not be there. At the end of the day, the patient after one to three sessions will not come back. I think that really what's important. Consumer now is that they have access to a lot of offers, which was not the case few years ago. It's accelerating the growth that we see, but in order to maintain the patient. I think in the long run, that's what will make the difference.

It's important to focus also on the result that we give to the patient in order for them to be trust. The brand to come back and to be able to bring the aesthetic market in the good way because results is needed. Even if it's not insured and it's a treatment that they can afford, it's still a lot of money and it's true that it's non-driven but microeconomics effects. I mean, everyone wants to maintain good health, good self-esteem, wants to age well. It's part of the spirit of today, but at the end of the day they need to get results if we want to maintain their trust within the next few years.

Adrienne Rivlin:
I think this topic of the balancing of being medically led, healthcare, professional led, safety led of course together with the consumerization, it's one of the segments I think it's fair to say where you see probably one of the highest levels of consumerization. Is one of those topics that often comes up in these sorts of discussions. Maybe I can throw it back to Johanna. How does Bergman think about balancing the trade-offs that are required between safety, medically led, patient led with also reacting to the consumer pull and the influence that you get on social media, et cetera. How do you balance those two things as you think about your risk profile as a business?

Johanna Oberg:
I think obviously within any therapeutic area, the ethics of the doctors is extremely important at the core and heart of what we do. But it's specifically true in the plastic surgery or aesthetics area. I think we have lots of conversations with our doctors around patient selection. We typically also, all our markets are price leader. By that I mean we're the most expensive. That's price leadership to me. That means that we select a slightly higher age group because even if we're fully aware at 18 you can do whatever you'd like to do. Our core demography is 25 plus. I think as important for a doctor or a surgeon to accept a client is actually to say no to a client. We educate our doctors as much in that area as in the actual clinical area.

Adrienne Rivlin:
Julius, from an investor perspective, I presume that's one of the things, sort of good governance, good compliance that you are looking for. What are maybe some of the other types of KPIs, if I can put it like that, that you would be looking for in an aesthetics business that you would be seeking to invest in?

Julius Hugelshofer:
I mean, I think a few interesting points we already mentioned. One is clearly that acquisition in this space is not the problem, it's retention that you should be focusing on. That I think is what many of the players, and that's not their fault, it's just that they're of small size. They haven't had to think about it yet, but they will start looking into this. Clearly as an investor looking into capabilities such as a decent CRM, having good understanding of the relationship between price and frequency and price and spending. Understanding who your customer is, I think that's a key thing to look out for in a business. When I share what Johanna said, at Faceland, for example, the core demographic. That's also something that really convinced us as an investor is core demographic is not the under 24-year olds, it's 35 to 55, mainly female patients who come with a very clear desire, which is healthy aging, delaying aging. It's much less fickle in terms of the demand being driven by short-term maybe social media induced trends.

I think that's clearly one thing that investors look out for. And then of course there's the medical component, which in Europe, country by country creates a bit of a moat as well. For example, if you consistently work with doctors instead of just using nurses where it is allowed or if you let's say interplay those well, I think that's also a sign that investors look out for. Medical quality and in-house medical capabilities. Having a training academy. What's often the case is, doctors don't necessarily get trained in their medical education on how to use syringes. Actually having a good academy in this space is not to be undervalued. I think having that capability of producing a decent flow of in-house trained doctors is also something that we value.

Adrienne Rivlin:
I'm going to throw it open to the floor for questions. Perhaps we can get a microphone out. In the meantime just whilst you are thinking of excellent questions to ask, I'll ask you one more question from me, which is that most of the data that I've seen indicates just how sticky these customer groups are. You mentioned retention, but the cohort data that I've seen is very favorable and that's the case even when you look at data through harder economic times. Is that something that you've seen as well? How do you think about and prepare for that as we think through some potentially quite uncertain macroeconomic times in the months and perhaps years ahead? Maybe I'll ask Tracy from a French perspective and then we'll get the microphone around if anyone wants to ask a question.

Tracy Sayag:
Yes. We rely a lot on data to pretty much take, most of our decision been always very data driven in everything that I'm doing. Especially regarding retention patients. Why do they come, if they stay, if they don't stay or if they stop treatments, really understands the reason to be able to rematch. Even with the macroeconomic difficulties that we've seen, we didn't get really a lower attendance of the patients. They still come at the same rate pretty much in every clinic. Sometimes they just don't launch everything that they wanted to launch at first level.

They'll postpone some kind of treatments, but it's still very a focus to continue to maintain self-care because at the end of the day, today is one of the main concerns of every patient to feel good to age well and to continue to maintain a good healthy way of living. It passes through all the possibility that we get today with innovations. Of course the training is important. We talk about it, but innovation is also the core of our business and it makes the possibility to always offer new things to improve the technology that we get from year to year. This is also what's bringing back always the patients because they love of course having to be able to discover new way of helping them feeling better about themselves.

Adrienne Rivlin:
Thank you. Do we have any questions? Thank you.

Daniel:
Hi, my name is Daniel. I'm French, as you will see in my awful accent. I'm more on the vet sector, I'm not in the anesthetic. I had a question in terms of development. From my understanding, a lot of development in terms of growth and new sites has been the Greenfield development, if I'm not mistaken. You opened Greenfield sites. Is it going to be the same in the future or are you switching maybe to more M&A and more acquisition strategies?

Adrienne Rivlin:
Johanna, do you want to answer that one?

Johanna Oberg:
Yeah, I can answer that one. We recently signed a deal that will propel us into the aesthetic markets in Scandinavia because currently that's a wide spot for us. I am really looking forward to use that target as the platform for further growth. For us it's a combination. We need to have a very strong brand that we can further build on. In our case, we within both aesthetics and refractive, we have 75 clinics in five countries. Obviously we can use that geographical footprint for further growth.

Adrienne Rivlin:
Julius, maybe your perspective on that as well.

Julius Hugelshofer:
I mean, I think the simple answer, and again it depends on the market, but it's unlike in other areas of healthcare. You do not have a lot of single site acquisition targets. At least those which suit investors because you do have plastic surgeons running their own practices, that might not be the treatment mix that you're targeting. Changing that treatment mix is costly, it's complicated. In certain markets you just simply don't have the acquisition targets. I mean, what we did is we acquired a mid-sized group in Italy last year to give us market entry. Like Johanna, we pursue both the Greenfield model as the basis, but then we do M&A as a, I'd say tactical move to open up certain markets because the regulation is still a moat where you can leapfrog quite a few years in your business plan by acquiring a mid-sized business. I think you'll see a combination of both, but those large-scale roll-ups that you would've seen in dentistry, I don't see them coming very soon because you don't have that landscape in all markets in Europe.

Adrienne Rivlin:
The substrate isn't there, is it Julius yet? Right. We've still got mom-and-pop shops predominantly apart from some chains that are beginning to emerge. I agree with you. Any other questions? We've got a minute and a half left. Then perhaps I'll just ask a final one from my side for each of the panelists just to give us your thoughts and reflections on what to watch out for forecasts, things that you think are going to be interesting, whether it's different innovations, M&A type of activity. What do you think is going to be the next 12 to 36 months on the agenda for your respective institutions? Tracy.

Tracy Sayag:
The most booming market for us has been the hair part of the treatment. It wasn't mentioned, but it's part of what we cover in all the clinics. This is maybe the first time we'll do actually an acquisitions. I joined what you said there, we prefer building from scratch, but with a very advanced and continues to be very innovative in the hair industry because this is really where we get more and more concerns, more demands of course, and more treatments that are giving us amazing results. The hair, it's not about hair loss, but hair quality, hair prevention, hair treatments is really a focus for us this year. It has been a very booming market. For the next 12 months, this is going to be bigger concerns for us.

Adrienne Rivlin:
Thank you, Johanna.

Johanna Oberg:
That the non-invasive market is growing double-digit we know, but in our case, our surgical part of the business is also growing double-digit. I foresee that that will continue to be the case. As I said shortly, we will also communicate something around the Scandinavian market, which we will use as a platform to further propelling in that area because, again, it's a wide spot and it's a great opportunity for us at Bergman.

Adrienne Rivlin:
Thank you. Last but not least.

Julius Hugelshofer:
I think we're looking forward to accelerating growth across the board in all of our five markets. I mean, I think that there are very interesting competitive dynamics here because you have people coming in from across the pond. You have players from up in the value chain such as beauty and personal care players suddenly taking stakes in other businesses. I think we'll see a diverse set of new entrants in the market. Frankly, I mean, I would call ourselves to a degree, first mover. I think we also appreciate this because it will continue forcing us to focus on medical quality and excellence. Because what we need in this space is setting the bar very high with the newcomers to avoid what we've seen in areas such as laser, but also other healthcare areas where the first generation does not do things correctly all the time. I think for us it's really setting the bar very high in terms of clinical excellence whilst accelerating growth in all of our markets.

Adrienne Rivlin:
Wonderful. Thank you. All thank. Would you join me in thanking Julius, Tracy and Johanna for a fantastic panel.