Jefferies Healthcare Conference Presentation
13th November 2012
Today’s presenters
Chief
Executive
Officer

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

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
Guy Clark
Director,
Strategic
Business
Development
Today’s Presenters
John Beighton
Merger Plan
Merger Background

Cinven acquired Mercury Pharma in August of 2012 with the ambition of creating a significant panEuropean 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 2/3 rd 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)
Standalone Pharmaceutical Trading Performance (£m)
FYE - 31 December
120
Revenue
EBITDA
EBITDA Margin
100
60
40
20
67.8
58.5
50.1
29.8%
36.6%
18.3
2007A
(1)
17.4
2008A
(1)
36.2
47.7%
48.6%
44.9%
44.7%
37.0%
0
(1)
88.7
80.9
80
104.4
98.9
39.9
48.1
49.8
25.1
2009A
(1)
2010PF
Historical numbers based on FYE - March 31
5
2011PF
LTM Sep-12
2012PF
Amdipharm snapshot
Company Overview

Headquartered in Basildon (UK), Amdipharm is a specialty pharmaceutical company that acquires, markets and sells offpatent 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)
FYE - 31 December
140
120
Revenue
106.2
Normalised EBITDA
Normalised EBITDA margin
107.4
102.6
100
80
60
40.8%
40.2%
39.5%
42.0
43.8
41.2
40
20
0
2010PF
2011PF
6
2012F
Mercury & Amdipharm combined
Enhanced diversification
Mercury & Amdipharm
by product
by country
UK
Rationale for combining Mercury Pharma and Amdipharm
Enhanced
position as a
leading niche
global
pharmaceutical
company
Highly
complementary
businesses
enhancing
diversification
Significant
achievable cost
synergies
Provides
platform for
immediate
further growth

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

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

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
8
Strategy for combined business
Robust strategy built upon key strengths and principles of both companies

Apply best
practices across
both companies to
drive value and
growth
Multiple levers to
achieve growth
Realise synergies
to optimise
combined
organisation
Not an operationally transformational acquisition, given asset light model – but easy wins given a similar focus on offpatent 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

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)

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
9
Key Strategic Elements
Key Strategic Elements
Enhanced by
merger
1
Highly diversified portfolio
2

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

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

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

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

Proven track record at executing multiple volume and price initiatives, tailored for each SKU

Low-risk, low-cost pipeline already well progressed

Synergies
Limited and stable competitive
dynamics around key products
3
Favourable position in UK regulatory
framework
4
Bi-national, outsourced business
model supporting strong, sustainable
margins and cash generation
5
Multiple organic growth opportunities
11
1
Highly diversified portfolio
12
2
Complex manufacturing processes
–
80%
Regulatory approvals
–
–
70%
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
60%
50%
rantoin
40%
30%
Relatively limited sales potential
10%
0%
10%
20%
30%
40%
United Kingdom
Difficult to manufacture / API sourcing
Financial unattractiveness (sales <£2m)
Existing competition
13
50%
60%
70%
80%
90%
Other
Markets
0%
%
Belgium
Portugal
Netherlands
This makes it harder for other
suppliers to find it economically
viable to enter the market
£
Australia
–
Nearly all of these niche
products have total global sales
of less than £10m
20%
Spain
–
Many of these niche products
have total sales by
presentation in any given
country of less than £2m
South Africa
–
Ireland

90%
Italy

Many of these products are old,
with out-dated manufacturing
processes, and were generally
divested because they were
difficult to make
Sales (£m)
100%
France

Limited and stable competitive dynamics around key products
100%
Favourable position in UK regulatory framework
3
UK is an attractive market for Mercury/Amdipharm
UK pharmaceutical reimbursement less at risk from austerity policies

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
…driven by an effective regulatory policy encouraging the use
of off-patent products
The UK has one of the lowest per
capita pharmaceutical spends in Europe…
€600
Penetration of off-patent drugs in % (by volume)
€400
€200
539
465
412
USA
373
358
345
338
315
289
249
DE
SE
ES
IT
GR
NO
UK
€0
CH
FR
BE
14%
51%
Japan
35%
68%
Germany
7%
51%
25%
40%
9%
…and the lowest average cost per prescription…
France
€0.5
€0.4
UK
€0.3
€0.2
59%
€0.4
€0.1
€0.3
€0.3
€0.3
€0.3
18%
0%
71%
25%
Off-Patent Branded
FR
ES
DE
ROW
50%
13%
11%
75%
€0.2
€0.0
IT
28%
UK
Source: IMS, EGA and Mercury Pharma management
14
Off-Patent Un-Branded
On-Patent
100%
Bi-national, outsourced business model supporting strong, sustainable
margins and cash generation
4
Mercury Pharma’s scalable operating structure
Head-to-head comparison
2011PF Revenue
(£m)
89
FTEs
Efficient structure combining UK headquarters with Indian centre of excellence
41
9
30
Number of
employees
40
30
19
20
10
0
18
46
38
33
31
30
Commercial
40
16
26
Business Devt
7
2
Finance
23
13
Legal
2
0
Supply Chain
19
24
Med, Reg & Quality
53
43
HR / IT
29
7
Admin
14
4
Total FTEs
187
109
7
5
194
114
18
4
12
9
Commercial /
Business
Sales &
Development
Marketing
12
1
103
4
7
Global
Regulatory / Finance / HR / IT / Facilities
Operations Medical Affairs Legal / Admin
Others
Total employees
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 cost
Number of employees
Employee costs
India
Senior
Management
India
Total FTEs
Mercury Pharma infrastructure is designed to be scalable
and is built for growth
Significant overlap providing substantial scope for synergies
Note: Global Operations includes Quality, Supply Chain Management, Procurement and Project Management
15
4
Bi-national, outsourced business model supporting strong, sustainable
margins and cash generation
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
Top 10 CMOs by net spend (1)
CMO
Mercury
Pharma
Standalone
% of spend
Rank
Amdipharm
Amdipharm
Standalone
% of spend
1
18%
7.0
10.4%
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%
Rank Mercury
-
1
21%
% of Total
Spend (2)
2
10%
-
2.8
4.2%
3
9%
-
2.7
3.9%
4
9%
-
2.6
3.8%
5
9%
-
2.4
3.6%
52.6
14.8
67.4
59.3%
40.7%
100%
Subtotal
Other
Total
(1)
(2)
Spend (£m)
(1)
Figures refer to 2011PF for Amdipharm and Mercury Pharma
Figures based on CY2011 for Amdipharm and FYE March 2012 for Mercury Pharma
16
5
Multiple organic growth opportunities
Volume
Price
Mercury/
Amdipharm
Best practice synergies
Low risk, executable pipeline
International consolidation
Multiple levers to drive growth with different strategies for different products and geographies
17
5
Multiple organic growth opportunities: Low risk pipeline
Low risk executable initiatives
Solid track record of delivering
FY13 full-year budget of
£4.2m
New
Company
Revenue (£m)
£3.0
Launch of
existing
molecules in new
markets
£2.5
£2.2

95% above YTD
budget

Superior
execution of
Mercury
Pharma
management
strategy
£2.0
£1.5
£1.1
£1.0
£0.5
New strength
version of
existing
molecules
£0.0
(2)
FY13 YTD Budget

PIPELINE SUCCESS CONTINUES:
–

New formulations
of existing
molecules

New molecules

(1)
(2)
Figures based on CY2011 for Amdipharma and FYE March 2012 for Mercury Pharma
Figures are YTD Sep-12 (April to September)
18
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:
–
C. 11% of 2015 revenue comes from low risk executable
pipeline initiatives(1)
FY13 YTD
Achieved
9 new deals signed YTD, against YTD target of 7
5
Multiple organic growth opportunities: International consolidation
There is significant potential upside from undertaking incremental investment in recruiting sales
managers across selected international markets.
Case study – establishing direct sales in the Netherlands
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:

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
Sales (£m)
12.3
5.1
YE 2011
YE 2013
Revenue (£m)
1.6
2.9
Gross margin
83.0%
79.6%
-
0.1
1.0
2.1
65.2%
70.5%
3.6
Cost of sales employees (£m)
9.6
4.2
3.6
9.3
3.9
3.0
6.2
3.7
2.3
Illustrative operating profit (£m)
Operating margin
5.4
3.6
1.7
19