23
Specialty pharma meets M&A competence INVESTOR PRESENTATION OCTOBER 2018
Specialty pharma meets M&A competence
INVESTOR PRESENTATION
OCTOBER 2018
CHEPLAPHARM AT A GLANCE
Company Snapshot Strong Historic Growth
Recent Acquisitions Brand Diversification by Area
% EBITDA margin
2
Family-owned company with over 25 years of pharma sector expertise
Buy-and-build strategy
M&A know-how and track record with > 80 products acquired
Branded specialty pharma / niche products in over 120 countries
Value creation via scalable platform and Life-Cycle-Management
Asset light business model with strong scientific backbone
Revenue growth from < € 1m in 1998 to c.€ 310m in 2018
21%
20%
11%11%
8%
8%
6%
6%6% 3%
Obesity
Cardiology
Virology
Other indications
Ophthalmic
Gastroenterology
Haematology
Emergency Medicine/ Sleeping disorder
Haematooncology
Addiction medicine
80
122
226
3868
134
2015A 2016A 2017A
Sales EBITDA
56% 59%47%
01/2018
08/2018
01/2018
08/2018
02/2018
08/2018 07/2018
04/2018
47%
7%
31%
6%5% 4% Europe ex Germany
Germany
Asia and Oceania
Latin America and Caribbean
North America
Africa
PORTFOLIO OVERVIEW
Sales by Products
2018P
21%
17%
11%8%
8%
6%
5%
3%3%2%
16%
XenicalDilatrendCymeveneVisudyneDeursil / UrsolvanKonakion MMVesanoidAnexateHeminevrin / DistraneurinRohypnolOther
Cheplapharm is well diversified across products and geographies providing global reach to Big Pharma
3
Sales by Geography
Niche vs. Legacy
41%
38%
21%Branded Products with
competition
Branded Products with
unique position
Branded Products with
limited/partial competition
Business Footprint
• Business in over
120 countries
• Vast network of
distribution
partners globally
è Valuable business
partner to big
pharmaNiche
Legacy
ORGANISATIONAL STRUCTURE
100%
4
Glenwood LLCCheplapharm
France SAS
Helm
Medical GmbH
RubiePharm
Arzneimittel GmbHSanavita GmbH
Cheplapharm Arzneimittel GmbHMoody´s B1 / S&P B
both stable outlook
Walter Ritter
GmbH & Co KG
RubiePharm
Vertriebs GmbH
WR Pharmaceuticals
Vertriebs GmbH
COMMENTS FROM THE RATING AGENCIES
5
…. successful track record and established relationships with leading
global pharma companies
…. good therapeutic and geographic diversity
Cheplapharm runs a profitable and cash flow generative
business model
Cheplapharm will be able maintain its profitability metrics, supported
by management's focus on lifecycle management activities
The main strengths of the company is its established track
record of careful product selection ….
…. the company has been able to generate average EBITDA margins
of about 55%
Deal Sourcing &
Due Diligence
Life-Cycle Management
Key value levers: (i) overhead cost and complexity reduction, (ii) optimization of production costs, (iii) active pricing strategy and
(iv) well-established partners for production / D&M
Production
CHEPLAPHARM’S BUSINESS MODEL
No R&D activities & associated
risks
Research &
Development
BUY – INTEGRATE – BUILD / OPTIMIZE
Disciplined identification of right acquisition targets, integration into outsourced supply chain and optimization via professional Life-Cycle Management
6
Focus on inorganic growth acquiring branded original off-
patented niche or legacy products from big pharma
Cheplapharm is in principal shifting distribution & marketing to its own external exclusive distribution network or taking over agreements by assignment
Cheplapharm’s clear focus and key competence is Life-Cycle Management creating added value vs big pharma
Distribution
& Marketing
Lean set-up given outsourced manufacturing and distribution activities to trusted, qualified and long-standing 3rd parties
UNIQUE, LOW RISK BUSINESS MODEL
Acquisition of “tried and tested” pharmaceuticals with sticky customer base, long-phase out periods and high
brand awareness requiring no / less marketing
7
Post-Patent Phase Management of
product Life-Cycle
Optimization of
cost structure
• Limited competition, no
relevant generics
• Unlikely to be replaced by
new treatment guidelines
• Stable to little growing sales
and cash flows
TimeCa
sh
Development Phase Patent Phase
Cheplapharm’s Business
Model
Niche product - Lower volume – typically no or limited competition (solid and stable sales)
Legacy product - Higher volume – generic competition (price competitive)
Cheplapharm advantages:
• Limited or no competition
• 10+ years out of patent
• Stable sales
• Low risk due to “tried &
tested” pharmaceuticals
• Stable market share following
generics competition
• High brand loyalty being able
to retain customers
• Stable to slightly declining
sales and cash flows
1
2
Key characteristics
Niche
products
Legacy
products
2
1
MARKET POSITION VERSUS COMPETITORS
Patent
Protected
Generic
products
Patent phasePatent
ongoing
Patent
expired
No
patent
Niche products
Higher volume products/
Legacy
• Cheplapharm sets itself apart from big pharma and generics providers due to its unique business model
• Faces only few competitors with similar business models and a global setup
• Regularly approached by Big Pharma in search of reliable partners for additional disposals
8
DISCIPLINED M&A STRATEGY -INVESTMENT CRITERIA (EXCERPT)
Track record of carefully adding new products to the portfolio based on
stringent selection criteria that have been successful for 15 years
Remaining
economic life• > 10 years
Presence of “Pull effect”• Secures survival as cash cow
• Brands should be established in the market and should have a high degree of familiarity
Track record • Established products with proven track record (at least 15-20 years history)
Market position• Either niche position (USP of API and/or indication) with growth opportunity or
extremely cheap and offer attractive ROI (legacy deal)
Production • Production must be ensured in the long-term
9
Balanced product
portfolio• Incremental sales contribution from a single acquired product of max. €100m
DIVERSIFIED SALES BASE AND HIGH
REVENUE VISIBILITY
10
Products’ pull effect
PUSH
Distributor/
Pre-
Wholeseller
End-userDoctor/
Hospital/
Pharmacy
PULL
• Pull-effect reflects active demand by doctors / hospitals and / or end-users due to familarity and brand loyalty
• Limited or no marketing activity required in contrast to “push”products
• Ensures stability of demand resulting in stable and predictable sales and cash flow
Cheplapharm’s requirement
0
200
400
600
800
1000
1200
1 2 3 4 5 6 7
CREATING VALUE FROM LIFE CYCLE
MANAGEMENT
Life Cycle
Value of
Big Pharma
Life Cycle
Value of
Cheplapharm
Overhead
Reduction
Reduction of
Production Costs
Active Price
Strategy
Reduction of
complexity
Others
Schematic presentation for illustration purposes only
11
Life-Cycle Management comprises several measures with regular optimization
of production costs being the most important value lever
Life-Cycle Management provides additional upside,
i.e. neither included in investment decision nor in
Cheplapharm’s business plan
Basis for investment decision
(ROI calculation)
LEAN BUSINESS MODEL RESULTING IN
SIGNIFICANT CASH GENERATION
12
€m, unless otherwise specified FY15A FY16A FY17A
EBITDA 37.6 68.0 134.1
∆ Net working capital (8.4) (13.1) (36.7)
Other (0.2) (4.3) 1.4
Operating Cash Flow 29.0 50.6 98.8
Maintenance capex - - -
Unlevered FCF pre taxes & acquisitions 29.0 50.6 98.8
Cash taxes 0.6 (2.8) (0.6)
Cash Flow available for debt service and growth 29.6 47.8 98.2
Acquisitions (22.6) (222.2) (132.7)
Unlevered FCF 7.0 (174.4) (34.5)
Net total debt 66.1 248.1 299.6
Pro Forma LTM EBITDA 38.7 102.6 135.0
Net total leverage 1.7x 2.4x 2.2x
STRONG AND SUSTAINABLE EBITDA MARGINS REFLECTING INVESTMENT POLICY
ü Strong operational track record proven by stable EBITDA margins across the cycle
ü Fluctuation in EBITDA margin mostly driven by M&A activity and related Transitional Service Agreements
(TSA´s), i.e. in years of stronger M&A activity such as 2013, 2016 and 2017, margins are slightly overstated
due to TSA accounting effects
ü However, through the cycle, EBITDA margins have been fairly stable around 50%
13
7 811 12
26 27
38
68
134
57%
48% 50% 52%
61%
48% 46%
56%59%
0%
20%
40%
60%
80%
100%
0
30
60
90
120
150
2009 2010 2011 2012 2013 2014 2015 2016 2017
€m
EBITDA EBITDA margin
Average
CAPITAL MARKETS DEBUT
TRANSACTION SUMMARY
14
ü CHEPLAPHARM was able to agree a total of € 840m new lending facilities in July and repaid all outstanding debt using a € 530m Term Loan B
ü The company had a mix of different financing instruments in place. These included syndicated and bilateral bank loans, Senior and Junior SSD (Mezzanine) as well as a shareholder loan
ü The new financing is structured as a cov-lite TLB plus a RCF that is available for acquisitions
ü The new term loan refinanced all existing debt, repaid €5m of shareholder loans and the RCF provided liquidity to fund €310m acquisitions planned for H2 2018
ü The new financing structure offers a significant increase in flexibility and ensures that the group´s long-tem financing is sustainably secured
ü If market conditions should allow, CHEPLAPHARM will tap the TLB market again in H2 2018 with the aim to refinance the RCF in full with a second term loan
Sources (€m) Uses (€m)
Term loan B1 530 Repayment of existing debt 530
(including transaction costs)
RCF 310 Planned acquisitions 310
840 840
SUMMARY - KEY CREDIT HIGHLIGHTS
15
Unique, low risk business model with easy scalability
Strong acquisition track record and global distribution
Limited competition market segment
Diversified sales base and high revenue visibility
Limited capex requirements resulting in significant cash generation
Highly qualified management with proven operational and M&A track record
1
2
3
4
5
6
Specialty pharma meets M&A competence
APPENDIX
BALANCE SHEET REFLECTS M&A ACTIVITY
Balance Sheet
17
• Intangible assets: Mainly concessions, trademarks and
licenses for pharmaceutical products
• Addition of Dilatrend® intangibles in 2016 (€123m) mostly
offset by regular amortisation. Intangible assets are
expected to be reduced to nearly zero by 2022 assuming
no further acquisition activity
• Working Capital: Inventory and receivable levels increase
in line with revenue development and are also influenced
by the acquisitions of new products
• Payment terms vary widely by country (e.g. 30 days in
Germany and up to 150 days in Italy) – no major default
on payments for years
• Debt increase due to acquisition financings
• Intangibles grow as a result of acquisition activity, but are also materially amortised
• Growth of financial liabilities reflects acquisition activity
• Book equity held back by amortisation – significant hidden reserves versus high implied equity
€m, unless otherwise specified FY15A FY16A FY17A
Tangible assets 3.7 3.8 4.0
Intangible assets 79.8 246.7 273.1
Other non-current assets 3.5 0.7 4.9
Fixed assets 87.1 251.1 282.0
Inventory 11.8 19.0 35.6
Trade receivables and
other current assets16.4 26.1 50.6
Trade payables, prepayments
received and other liabilities(3.2) (8.1) (12.6)
Net working capital (NWC) 25.1 37.0 73.6
Total debt 84.5 283.2 343.3
Cash and cash equivalents (18.4) (35.1) (43.6)
Net total debt 66.1 248.1 299.8
Notes: Cash and cash equivalents include cash, bank balances and securities
HIGHLY PROFITABLE BUSINESS MODEL
Profit & Loss
• Revenues: driven by acquisitions of Xenical® in Sep16 (net sales of
€64.8m in FY17) and Dilatrend® in Jan17 (net sales of €52.6m in FY17)
• Gross Margin: A significant proportion net sales from acquisitions are
recognised as TSA profits (no underlying cost of materials). As a
result, gross profit margin increased from 60.3% in FY15 to 73.7% in
FY17
• Other operating expenses mainly comprise expenses for TSA service
fees, fees for distributors and other sales related expenses
• Intangibles amortisation: Amortisation of intangibles over about five
years in past periods - significant increase of amortisation over last
three years
• Low taxable income and net profit: Low taxable income as result of
high intangibles amortisation
18
• P&L significantly influenced by acquisitions as well as intangibles amortisation
• IFRS statements are based on a longer amortisation period, leading to significantly higher net income and
equity
• However, Cheplapharm believes that the actual economic life is significantly longer representing additional
hidden reserves
€m, unless otherwise specified FY15A FY16A FY17A
Sales 80.4 122.5 226.4
Growth % n.a. 52.4% 84.8%
Cost of materials (31.9) (35.9) (59.5)
Gross profit 48.4 86.6 166.9
Margin % 60.3% 70.7% 73.7%
Personnel costs (3.1) (4.5) (7.4)
Other operating expenses/income (7.6) (14.2) (25.4)
EBITDA 38.2 68.0 134.1
Margin % 47.5% 55.5% 59.2%
Growth % n.a. 81.0% 97.2%
Depreciation and amortization (31.1) (58.1) (101.8)
EBIT 7.1 9.9 32.3
Margin % 8.8% 8.1% 14.3%
Konakion®
Roche
Lariam®
Roche
Inhibace®
Roche
Cymevene®
Roche
Visudyne®
Novartis
Streptosil®
Boehringer Italia
UCB Package
UCB
Aldactone®
Sanofi
Reisegold®
Teva
Halbmond®
Teva
Sanofi Package
Sanofi
Rohypnol®
Roche
Vesanoid®
Roche
Distraneurin® / Heminevrin®
AstraZeneca
Baldrian Dispert®
Vemedia
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0
30
60
90
120
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CORPORATE DEVELOPMENT
Klosterfrau Package
Klosterfrau
Anexate®
Roche
Calcivit®
Hexal
Building the platform Acceleration of growth
Xenical®
Roche
Dilatrend®
Roche
Product acquired
Seller
Legend:Vesanoid Japan®
Roche
Questran®
BMS
Nu
mb
er
of
cou
ntr
ies
cove
red
19
Atacand®
AstraZeneca
Fungizone®
BMS
Sotalex®
BMS
VePesid®
BMS
Etopophos®
BMS
VERY BROADLY DIVERSIFIED ACROSS
PRODUCTS AND MARKETS (% OF SALES)
20
Xenical 20.6% Dilatrend 16.6% Cymevene 10.6% Visudyne 8.2% Deursil / Ursolvan 7.7%
Australia 2.3% Italy 2.6% Japan 3.3% China 1.6% Italy 5.9%
USA 2.1% Austria 1.2% France 0.8% Japan 1.5% France 1.1%
Russia 1.4% Spain 1.2% South Korea 0.7% France 0.8% Switzerland 0.6%
Canada 1.3% Turkey 1.1% USA 0.6% Italy 0.4% Tunisia 0.1%
UK 0.9% Mexico 0.9% Turkey 0.4% Hong Kong 0.4% Others 0.0%
Spain 0.8% Japan 0.8% Russia 0.3% Spain 0.3%
Malaysia 0.8% South Korea 0.8% Taiwan 0.3% UK 0.3%
China 0.7% Taiwan 0.5% Italy 0.3% Taiwan 0.3%
Saudi Arabia 0.7% Thailand 0.4% Thailand 0.3% Canada 0.2%
Philippines 0.7% Belgium 0.4% UK 0.3% Netherlands 0.2%
Others 8.8% Others 6.6% Others 3.3% Others 2.1%
Konakion 6.1% Vesanoid 4.5% Anexate 3.5%
Heminevrin /
Distraneurin 3.3% Rohypnol 2.3%
France 1.2% Canada 0.4% Japan 1.1% Spain 1.2% Nigeria 1.1%
Germany 0.6% Germany 0.3% Brazil 0.3% Germany 0.8% Brazil 0.5%
Italy 0.4% Italy 0.3% South Korea 0.3% Switzerland 0.4% Austria 0.3%
UK 0.4% France 0.3% Germany 0.2% Sweden 0.3% Argentina 0.1%
Spain 0.3% Spain 0.3% Italy 0.2% Norway 0.2% Germany 0.1%
South Africa 0.3% Brazil 0.3% Australia 0.2% Slovenia 0.1% Kenya 0.1%
Morocco 0.3% South Korea 0.2% South Africa 0.1% Greece 0.1% Switzerland 0.1%
Belgium 0.2% United Kingdom 0.2% Switzerland 0.1% UK 0.1% Others 0.1%
Turkey 0.2% Argentina 0.2% Taiwan 0.1% Others 0.2%
Algeria 0.2% Australia 0.1% Spain 0.1%
Others 2.0% Others 2.0% Others 0.8%
Highly diversified portfolio as a result of always acquiring global rights to products
OVERVIEW TOP 10 PRODUCTS
Xenical® Dilatrend® Cymevene® Visudyne®Konakion
MM®
Deursil® /
Ursolvan®Anexate® Vesanoid®
Heminevrin®/
Distraneurin®Rohypnol®
2018B
Sales22% 21% 10% 8% 7% 5% 3% 3% 3% 2%
Segment Obesity Cardiology VirologyOphthal-
mologyHaematology
Gastro-
enterology
Emergency
MedicineOncology
Addiction
Medicine
Sleeping
disorder
Application Obesity
Heart failure,
hypertension,
stable angina
pectoris
Treatment and
prophylaxis of
cytomegalo-
virus (CMV)
disease
Retinal
disease: age-
related
macular
degeneration
(AMD)
Haemorrhage;
Vit K
Deficiency
Bleeding in
new-born
Dissolution of
small
gallstones
Post-
anaesthetic
recovery
period
Acute
leukemia
Treatment of
withdrawal
symptoms
Tranquilizer
Rx / OTC Rx Rx Rx Rx Rx/OTC Rx Rx Rx Rx Rx
Intro 1997 1990 1994 1999 1955 (1998)2) 1980 1987 1994 1959 1975
Patent
Expiry2009 1999 2002 20091) 20083) 2002 2008 20024) n/a n/a
Key
Countries
Australia, USA,
UK, Canada
Japan, Austria,
Italy, Korea
Japan, Korea,
Hongkong,
Italy, Russia
Japan, China,
France, Italy,
Spain
France,
Germany,
Italy, UK
Italy, France
Japan, Brazil,
Germany,
Korea
Canada,
Germany,
Italy, Korea,
Brazil
Spain,
Switzerland,
Sweden,
Slovenia
Nigeria, Brazil,
USP
Strong brand,
first line
therapy
according to
several
national
clinical
practice
guidelines
API is listed in
the WHO list
of essential
medicines;
first line
therapy
according to
several
guidelines
First Line
therapy in
major medical
guidelines
Stable since
many years as
the second
line therapy
with niche-
position, no
generic
competition
Strong brand
for routine life
saving Vit K
prophylaxis in
neonates, with
limited
competition
Strong brand,
leading market
position
(especially in
Italy);
dominant
therapeutic
strategy in
guidelines
Strong brand
with long
history and
quality „made
in Europe“
Strong brand
in a niche
market with
limited
competition
Strong brand;
unique with its
active
substance;
frontline-
treatment in
acute alcohol
withdrawal
and delirium
tremens
Strong brand
in a niche
market with
limited
competition
Notes: 1) Estimate is based on assumption introduction plus 10 years;
2) Current manufactured mixed micelle (MM) solution has been introduced in 1998 in order to replace older, castor oil containing formulations;
3) According to new formulation in 1998 patent expiration could be in 2008. Exact information is not available;
4) Expiration of orphan drug designation 21
CONTACT
22
Chief Financial Officer
Jens Rothstein +49 3834 8539 122
CHEPLAPHARM Arzneimittel GmbH
Headquarters: Bahnhofstr. 1a 17498 Mesekenhagen
Office: Ziegelhof 24 17489 Greifswald
Investor Relations
Jens Remmers +49 3834 8539 145
DISCLAIMER
These materials (the “Document”) contains confidential information regarding Cheplapharm Arzneimittel GmbH (the "Company"). This Document is subject to the
terms of the Confidentiality Agreement entered into between the Company and the recipient. Therefore, by accepting this Document, the recipient agrees that
recipient will return this Document together with any copies thereof to the Company upon request.
The information contained in this Document does not purport to be all-inclusive or to contain all information that is required to properly evaluate a potential
transaction. Any recipient of this Document should therefore conduct its own independent analysis of the Company and the data contained or referred to in this
Document. The Company, does not expect to update or otherwise revise this Document or other materials supplied herewith.
The Company does not make any representation or warranty as to the accuracy or completeness of any of the information contained herein or with regard to
other written or verbal information submitted or made available to the recipient. The Company accepts no liability for possible errors or omissions in this
Document. In particular, the Company makes no representation or warranty with respect to any financials (including without limitation management projections)
that may be contained in this Document. Where this Document contains forward-looking statements, these statements involve risks and uncertainties, and the
Company's actual results may differ significantly. Such information should therefore not be construed as a representation or prediction that the Company will
achieve or is likely to achieve any particular results.
The recipient of this Document must not construe any of the contents of this Document as legal, business, or tax advice. Each recipient should therefore consult
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