Sartorius: Entrenched Pure Play in Best Business in Life Sciences

Elliot Turner of RGA Investment Advisors presented his in-depth investment thesis on Sartorius (Germany: SRT, SRT3) and Sartorius Stedim (France: DIM) at Best Ideas 2025.

Thesis summary:

Sartorius is a pure play in the bioprocessing space. Key players in bioprocessing include Sartorius, Danaher, Thermo Fisher, Merck Millipore, and Repligen. Sartorius and Repligen are the only two pure-plays, where you are not buying broader industry exposure. Sartorius’ ownership structure is somewhat convoluted, with three distinct publicly listed securities. Sartorius Stedim (DIM) is the pure play. Sartorius (SRT3/SRT) has 20% of revenue exposure to lab products and services.

Bioprocessing may be the best business in life sciences (picks and shovels of biotech). Bioprocessing is the manufacturing process through which a cell or cells are scaled up in number in order to filter out, and then harvest specific pieces or output of the cells themselves. This is the process through which biologics, vaccines, and increasingly cell and gene therapies are made through. It is an oligopolistic market, with a small number of critical players and extremely high barriers to entry — two to four companies compete in any one of the key sub-segments. Critical components are “spec’d in” with the FDA, meaning the actual approval of a drug or therapy requires the same tools and consumables used in the clinical trials preceding approval must be used in the commercial manufacturing of that specific drug or therapy.

Sartorius is a secular share winner. Traditionally, biologics were manufactured in stainless steel bioreactors. That remains the case with blockbuster drugs, but in early stage and newly commercial products, single-use bioreactors are dominant. Single-use bioreactors use changeable plastic bag liners, which are expensive, high-value consumables. These reactors are smaller, more efficient in titer expression and require less downtime (cleaning time, etc). Consumables are 70-80% of the revenue base in the business. Single-use share has risen from 20% in 2018 to ~30% today in biologics. These gains continue. Many blockbusters remain in stainless steel but there are technological breakthroughs driving efficiencies that will drive continued share away from legacy instrumentation.

Perfusion can accelerate share gains. Single-use has gone from 20% share in 2018 to 30% industry share. Today biologics are manufactured in batches. In the future, biologics will be manufactured in a continuous process. This will be more efficient, cost meaningfully less, and have less variance from batch to batch. The biggest barriers to adoption are regulatory and the fact that the industry inherently moves slowly. Despite the barriers, perfusion is inevitable. Biosimilars are leading early adoption, as the razer-thin margins of generic competition in biologics requires the utmost cost efficiency. Key CDMOs building perfusion processes like Evotec and Lonza rely exclusively on Sartorius for perfusion, as their purpose-built bioreactors for perfusion are by far the best in the industry.

Sartorius has highly recurring revenue:

• Single-use drives consumables: 75% of sales at Sartorius Group and 80% of sales at Stedim are recurring in nature.
• Razor/blade business model: Sell the bioreactor and then benefit from the consumable pull through for years. Key consumables are the filters (largest component of recurring revenue) and plastic bags (highest margin and value).
• “Spec’d in”: Industry parlance for being incorporated in the regulatory application and subsequent approval. A supplier is spec’d in during the Investigational New Drug (IND) application. Once a trial proceeds with a key supplier, a change essentially requires restarting the entire process. Upon commercial approval, Sartorius’ position essentially becomes an annuity for that product’s life.
• Mainly commercial today: Over 60% of Sartorius revenue is tied to commercial products. Clinical is essentially a portfolio of diverse bets which will seed the future annuity stream.

Sartorius shares are lowly valued in absolute and relative terms. Sartorius typically trades at a premium to Danaher, given it is a pure-play levered to the fastest growth area in bioprocessing. Recently, however, Sartorius shares have traded at a discount. Sartorius also trades near trough valuations of the past decade, on trough earnings. Consumption is ahead of revenue, and margins have delevered. Both should recover within the next year.