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TRANSCRIPT
Jefferies Healthcare Conference Presentation
13th November 2012
Tod
ay’s
Pre
sen
ters
Today’s presenters
John Beighton
John Beighton joined Mercury Pharma in May 2010 John has over 29 years of pharmaceutical industry experience Prior to joining Mercury, John spent 14 years at Teva Pharmaceuticals at various
positions including as the Head of Teva UK and Vice President of Global Business Optimisation.
Prior to joining Teva, John spent 14 years with the pharmaceutical sales and marketing department at SmithKline Beecham
Chief Executive
Officer
Guy Clark Guy Clark joined Mercury Pharma in August 2010 Guy has over 20 years of experience in the pharmaceutical industry Prior to joining Mercury Pharma, Guy had been President of Glenmark Europe for
3 years, and Director of Business Development for IVAX Europe for 5 years Guy also has a background in large pharma in sales, marketing and BD roles,
having spent 9 years with GD Searle and Pharmacia
Director, Strategic Business
Development
Merger Plan
Merger Background
Cinven acquired Mercury Pharma in August of 2012 with the ambition of creating a significant
pan-European specialty pharmaceutical company focused on niche products, with an asset-
light business model
Cinven later announced the acquisition of Amdipharm, which specialises in marketing
branded off-patent pharmaceutical products internationally. The transaction closed on
October 31, 2012
Mercury now plans to merge with Amdipharm in a combined operation, run by group CEO
John Beighton.
The transaction creates an exciting enhanced business that:
- Doubles the scale of the business with revenues of over £200m across 200+ molecules
- Significantly expands the geographic foot print of the business in over 100 markets
- Enhances a diversified business by decreasing reliance on any single product or
manufacturer
- Provides growth drivers through exploiting new opportunities across both business models
- Creates cost synergies by combining infrastructure and leveraging Mercury’s bi-national
cost structure 4
Mercury Pharma snapshot
Company Overview
Mercury Pharma is a specialty pharmaceutical company focused on sale of niche prescription off-patent products with limited competition from originators or generics manufacturers or license holders
Operates in the retail and hospital segments with a direct sales presence in the UK, Ireland and the Netherlands with sales and marketing partnerships across 25 countries and distribution partners in 10 countries
Flexible, asset-light business model focused on the sale of niche products with manufacturing outsourced to over 35 partners
Core Processes centre of excellence in Mumbai, employs 2/3rd of the company staff
Mercury Pharma Growth Strategy
1. Driving volume growth of existing portfolio
2. Sustainable price increases in existing portfolio
3. Investment in product development to drive future new product launches
4. Profitable international expansion through insourcing sales and marketing in select territories (e.g. Netherlands)
(1) Historical numbers based on FYE - March 31
Standalone Pharmaceutical Trading Performance (£m)
2007A 2008A 2009A 2010PF 2011PF LTM Sep-12 2012PF0
20
40
60
80
100
120
50.158.5
67.880.9
88.798.9 104.4
18.3 17.4 25.1
36.2 39.9 48.1 49.8
36.6% 29.8%37.0% 44.7% 44.9%
48.6% 47.7%
Revenue EBITDA EBITDA Margin
FYE - 31 December
(1) (1) (1)
5
Amdipharm snapshot
Company Overview Headquartered in Basildon (UK), Amdipharm is a specialty pharmaceutical company that acquires,
markets and sells off-patent specialist pharmaceuticals
Through eighteen significant acquisitions, Amdipharm offers more than 50 molecules which sell in over 80 countries and generated revenue of £107m (2012PF)
Operates a highly flexible, asset-light business model with 26 third party manufacturers and 62 API suppliers to produce its portfolio of 632 finished SKUs
Amdipharm is expected to show a decline in mature products, which is compensated with growth from drugs like Valoid ampules, soluble Prednisolone and Neomercazole, where the company has exclusive / semi-exclusive positions
Founded in 2002 and acquired by Cinven in October 2012
Standalone Amdipharm Trading Performance (£m)
2010PF 2011PF 2012PF0
20
40
60
80
100
120
140
106.2 102.6107.4
42.0 41.2 43.8
39.5% 40.2% 40.8%
Revenue Normalised EBITDA Normalised EBITDA margin
FYE - 31 December
6
Enhanced diversification
MercuryMercury & Amdipharm
by country
UK
by product
Mercury & Amdipharm combined
Rationale for combining Mercury Pharma and Amdipharm
Doubling scale – 2012PF revenue increased from £104m to £212m (104% increase), 2012PF EBITDA increased from £50m to £94m (88% increase)
202 molecules (92% increase) split between 1,383 SKUs (259% increase)
Non-UK sales increased from 24% to 44%
No meaningful overlap in existing molecule or SKU portfolio
UK reduced from 76% to 56% of total group revenue
No individual molecule represents >11% of combined revenue;
No individual CMO represents >10% of combined spend
Both companies operate an asset-light business model
Enhanced position as a leading niche
global pharmaceutica
l company
Clearly identified cost synergies from eliminating overlapping headcount and infrastructure and consolidation of distribution and manufacturing and leveraging Indian operations
Further synergies from reduced wholesaler rebates given increased scale and breadth of product offering
Potential benefit could be £10-12m per annum
Highly complementary businesses
enhancing diversification
Combined management team and infrastructure brings together Mercury Pharma’s UK and Amdipharm’s international expertise to create a best in class operations
Identified and easily achievable value optimisation opportunities to be delivered through a combined business strategy; Amdipharm is an under exploited portfolio but is beginning to apply Mercury Pharma’s proven approach to drive growth
Significant achievable
cost synergies
Provides platform for immediate
further growth
8
Strategy for combined business
Not an operationally transformational acquisition, given asset light model – but easy wins given a similar focus on off-patent niche products:
- Apply Mercury Pharma’s portfolio value optimisation skills to the Amdipharm UK portfolio
- Utilise Mercury Pharma’s scalable, bi-national infrastructure for best-in-class skills at relatively low cost
- Employ Mercury Pharma’s significant business development team to extend pipeline development across the group’s full range of products and markets
- Leverage Amdipharm's strong international experience and network of partners to maximize potential of group portfolio - 14 countries have sales greater than £2m
Apply best practices
across both companies to
drive value and growth
Identified and verified immediate cost savings of at least £6m per annum
Consolidation of overlapping headcount and infrastructure (leveraging existing Indian operations) and enhancing sales terms with wholesalers and distributors
Further operational enhancements from optimising third-party manufacturing base
Cautious and prudent approach will be adopted – Management team have significant experience of amalgamating acquisitions and successfully delivering synergies
Realise synergies to
optimise combined
organisation
Multiple levers to achieve
growth
Significant volume / price optimization opportunities - Mercury Pharma management successfully applied this strategy to the Mercury portfolio over the last two years; Amdipharm started to apply this strategy but portfolio remains underexploited; opportunity to accelerate because Mercury management has a proven track record in executing
Leveraging Mercury Pharma’s development team to develop pipeline across the Group
Enhance opportunities to consolidate international operations into directly managed subsidiaries to drive further growth and enhance profitability (as done in Netherlands)
Robust strategy built upon key strengths and principles of both companies
9
Key Strategic Elements
Highly diversified portfolio
Key Strategic Elements
The combined business has 202 molecules split between 1,383 SKUs Largest drug contributes no more than c.10% to group sales Sales presence in 125 countries, 3 direct and rest through distributors
1
Limited and stable competitive dynamics around key products
Strong barriers to entry due to relatively small size of individual product markets by country, combined with geographic and SKU diversity and requirement for separate marketing authorisations by country
Provides recurring revenues
2
Favourable position in UK regulatory framework
Portfolio comprises low-cost, off-patent products which are not the main focus of healthcare cost reduction initiatives
UK is an attractive market owing to unrestricted pricing on unbranded products
3
Bi-national, outsourced business model supporting strong, sustainable margins and cash generation
Current Mercury Pharma infrastructure in India can be leveraged for operations reducing headcount and generating synergies
Largest CMO supplier is just c.10% of revenue for combined company, down from 21% for Mercury Pharma standalone
4
Multiple organic growth opportunities
Proven track record at executing multiple volume and price initiatives, tailored for each SKU
Low-risk, low-cost pipeline already well progressed Synergies
5
11
Enhanced by merger
12
Highly diversified portfolio1
13
0 7 7 28 28 37 37 57 57 80 80 90 90 95 95 100 1000%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Limited and stable competitive dynamics around key products
2
Difficult to manufacture / API sourcing
Financial unattractiveness (sales <£2m)
Existing competition
Complex manufacturing processes
– Many of these products are old, with out-dated manufacturing processes, and were generally divested because they were difficult to make
Regulatory approvals
– Many of the products will have been on the market for many years and hence will have been approved under “easier” regulatory regimes
– Obtaining a new approval will often require qualifying under newer, tougher approval regimes
Relatively limited sales potential
– Many of these niche products have total sales by presentation in any given country of less than £2m
– Nearly all of these niche products have total global sales of less than £10m
– This makes it harder for other suppliers to find it economically viable to enter the market
United Kingdom
France
Italy
Irela
nd
South
Afr
ica
Sp
ain
Aust
ralia
Port
ug
al
Belg
ium
Neth
erl
an ds
0%
Sales (£m)
-rantoin
£
Oth
er
Mark
ets
14
Favourable position in UK regulatory framework3
Source: IMS, EGA and Mercury Pharma management
UK pharmaceutical reimbursement less at risk from austerity policies
The UK has one of the lowest per capita pharmaceutical spends in Europe…
…and the lowest average cost per prescription…
Unlike many other areas of government expenditure, the DoH currently forecasts the NHS budget (£108.8bn) to continue to rise, at 2.5% CAGR through the year 2014-15
Pharmaceutical reimbursement contributed c.10% to the total NHS budget in 2012, so is not as material to overall healthcare spending as actual service provision, which is the primary focus of healthcare reform
CH FR BE DE SE ES IT GR NO UK€0
€100€200€300€400€500€600
539 465 412 373 358 345 338 315 289 249
IT FR ES DE ROW UK€0.0
€0.1
€0.2
€0.3
€0.4
€0.5
€0.4€0.3 €0.3 €0.3 €0.3
€0.2
UK is an attractive market for Mercury/Amdipharm
…driven by an effective regulatory policy encouraging the use of off-patent products
UK
France
Germany
Japan
USA
0% 25% 50% 75% 100%
18%
59%
51%
68%
14%
71%
28%
40%
7%
51%
11%
13%
9%
25%
35%
Off-Patent Branded Off-Patent Un-Branded
Penetration of off-patent drugs in % (by volume)
15
4
Efficient structure combining UK headquarters with Indian centre of excellence
Note: Global Operations includes Quality, Supply Chain Management, Procurement and Project Management
India
India
High-quality employee base in India
A balanced mix of qualified employees with varied academic backgrounds and strong understanding of regulatory, pricing and competitive aspects of the European pharmaceuticals industry
India-based employees account for 65% of headcount but only 22% of employee costNumber of employees Employee costs
Commercial
2011PF Revenue (£m)
Business Devt
Finance
Legal
Supply Chain
Med, Reg & Quality
40
7
23
2
19
53
16
2
13
0
24
43
HR / IT 29 7
89 103
Significant overlap providing substantial scope for synergies
FTEs
Mercury Pharma’s scalable operating structure Head-to-head comparison
Total FTEs 194 114
0
10
20
30
40
18
912 12
74
19 18
33 3126
41
Nu
mb
er
of
em
plo
yees
41 303846309
Total employeesOthers
Mercury Pharma infrastructure is designed to be scalable and is built for growth
Admin 14 4
Total FTEs 187 109
Senior Management
7 5
Bi-national, outsourced business model supporting strong, sustainable margins and cash generation
16
Top 10 CMOs by net spend (1)
CMORank
Mercury
Mercury Pharma
Standalone% of spend
Rank Amdipharm
AmdipharmStandalone% of spend
Spend (£m) (1)
% of Total Spend (2)
- 1 18% 7.0 10.4%
1 21% 9 2% 6.7 9.9%
- 2 13% 5.3 7.9%
- 3 11% 4.3 6.4%
- 4 8% 3.3 4.9%
- 5 8% 3.0 4.5%
2 10% - 2.8 4.2%
3 9% - 2.7 3.9%
4 9% - 2.6 3.8%
5 9% - 2.4 3.6%
Subtotal
52.6 59.3%
Other 14.8 40.7%Total 67.4 100%
Bi-national, outsourced business model supporting strong, sustainable margins and cash generation
(1) Figures refer to 2011PF for Amdipharm and Mercury Pharma(2) Figures based on CY2011 for Amdipharm and FYE March 2012 for Mercury Pharma
4
Long and closely managed strategic relationships with well established blue-chip CMOs with some approaching 15 years
Combined company has decreased overall reliance on any single CMO
17
Multiple organic growth opportunities5
Volume
Price
Best practice synergies
Low risk, executable pipeline
International consolidation
Mercury/Amdipharm
Multiple levers to drive growth with different strategies for different products and geographies
18
Multiple organic growth opportunities: Low risk pipeline5
FY13 YTD Budget FY13 YTD Achieved
£0.0
£0.5
£1.0
£1.5
£2.0
£2.5
£3.0
£1.1
£2.2
Low risk executable initiatives
New strength version of existing molecules
Launch of existing molecules in new markets
New formulations of existing molecules
New molecules
Solid track record of delivering
PIPELINE SUCCESS CONTINUES:
– 8 product launches YTD – on track vs plan
KEY NEW LAUNCHES:
– Eltroxin Oral Solution launched in May 2012 – on time
– Alfacalcidol capsules launched in May 2012 – on time
– Teromeg (Omega 3) capsules launched in October 2012 – on time
PRIOR YEAR GROWTH DRIVERS:
– Codipar capsules (new formulation of existing product)
– Co-codamol Effervescent (new formulation of existing product)
FUTURE PIPELINE:
– 9 new deals signed YTD, against YTD target of 7
New Company
C. 11% of 2015 revenue comes from low risk executable pipeline initiatives(1)
95% above YTD budget
Superior execution of Mercury Pharma management strategy
Revenue (£m)
(1) Figures based on CY2011 for Amdipharma and FYE March 2012 for Mercury Pharma(2) Figures are YTD Sep-12 (April to September)
FY13 full-year budget of £4.2m
(2)
19
Multiple organic growth opportunities: International consolidation
5
There is significant potential upside from undertaking incremental investment in recruiting sales managers across selected international markets.
Potential front-end strategy in international markets
A natural progression of the Company’s international business as it gains scale is to establish a direct sales presence in selected markets
A direct presence would allow the Company to:
– Capture a greater portion of the pharmaceutical value chain
– Implement a ‘push’ strategy for its products to drive higher sales
– Better identify opportunities for its products already being sold in the UK
– Identify local product / company acquisitions
In FY2012, Mercury Pharma management moved from a distributor model to a direct sales model in the Netherlands (see case study on right hand side)
Management believes there is significant upside potential in replicating the Dutch model across other ‘mature’ generics markets (with no / limited generics detailing) requiring only small sales offices to significantly drive sales
Potential markets for front-ending could include:
Case study – establishing direct sales in the Netherlands
In FY2012, Mercury Pharma recruited a sales manager in the Netherlands and subsequently revised its contract with its partner from a sales and marketing function to a distribution function
The table below shows management’s best estimate of the impact of the new business model in the Netherlands
YE 2011 YE 2013
Revenue (£m) 1.6 2.9
Gross margin 83.0% 79.6%
Cost of sales employees (£m) - 0.1
Illustrative operating profit (£m)
1.0 2.1
Operating margin 65.2% 70.5%
Sales (£m)
12.3 5.1 3.6
9.6 4.2 3.6
9.3 3.9 3.0
6.2 3.7 2.3
5.4 3.6 1.7