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Investor Presentation
Barry Fishman
Chief Executive Officer
Winter 2017
INVESTOR PRESENTATION 2
Forward Looking Statements and Non-IFRS Measures
1. Forward Looking Statements: This Presentation contains “forward-looking information” within the meaning of applicable Canadian securities legislation, and “forward-looking statements” within the meaning of United States securities legislation. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements in this Presentation include, but are not limited to, statements related to (i) projections regarding Gross Basis Revenue, EBIDTA and Adjusted EBITDA for future financial periods, (ii) the Company’s ability to increase gross margins for its products, (iii) the Company’s ability to expand its business by completing future acquisitions, and (iv) the Company’s ability to expand its business by demand creation. These forward-looking statements are based on management’s reasonable assumptions, estimates, expectations, analyses and opinions, which are based on management’s experience and perception of trends, current conditions and expected developments, and other factors that our management believes relevant and reasonable in the circumstances, but which may prove to be incorrect. Assumptions have been made regarding, among other things: (i) the Company’s ability to increase demand and lower costs for existing products, (ii) the Company’s ability to complete and finance future product acquisitions, (iii) the Company’s ability to maintain sales of current pharmaceutical products within projected volumes, (iv) the cost of servicing debt, (v) product manufacturing costs, and (vi) costs of operations. The Company’s actual results, product acquisitions and financial position could differ materially from those anticipated in such forward-looking statements as a result of numerous factors, risks and uncertainties, many of which are beyond the Company’s control. Management considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which are beyond the control of the Company, may ultimately prove to be incorrect. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following: general economic and business conditions, changes in demand for the Company’s products, changes in competition, the ability of the Company to integrate acquisitions or complete future acquisitions, the Company’s ability to complete any required financing, interest rate fluctuations, the ability to reduce manufacturing costs, currency exchange rate fluctuations, dependence upon and availability of qualified personnel and changes in government regulation. For a further discussion of risks relevant to the Company, see our Annual Information Form for the year ended September 30, 2015 available on SEDAR at www.sedar.com and our Annual Report on Form 40-F for the year ended September 30, 2015 filed with the SEC on the EDGAR filing system at www.sec.gov, as well as the Company’s subsequent ongoing continuous disclosure filings that can be found on SEDAR and EDGAR, including the Company’s Q3 MD&A.
2. Non-IFRS Financial Measures:
• Gross Basis Revenues: For products that are in the transition phase during a reporting period, the Company presents “Gross Basis Revenue” which is a non-IFRS measure that the Company defines as the revenue that the Company would have received had it held title to and sold its products directly to its customers during the transition period. Gross Basis Revenue is calculated from revenue, as reflected in the Company’s financial statements, by adding back the cost of goods sold and selling expenses that are associated with the revenue as reported by the vendor.
• EBIDTA: Earnings before interest expense, taxes, depreciation and amortization.
• Adjusted EBITDA: Earnings before interest expense, taxes, depreciation, amortization, impairment charges, non-cash stock based compensation, foreign exchange and derivative gains or losses, investment income or expense, and acquisition cost.
• Reconciliations: Reconciliations of Gross Basis Revenue to revenue and EBITDA and Adjusted EBITDA to net loss, being the most directly comparable IFRS measures, are included in the Company’s MD&A for the three and nine months ended June 30, 2016, as filed on SEDAR at www.sedar.com. These non-IFRS measures are not recognized under IFRS, do not have a standardized meaning and may not be comparable to similar measures presented by other companies.
INVESTOR PRESENTATION
Merus Labs in
3
40+ country platform
(Europe focus)
12 marketed Rx
legacy products
10+ BD “pipeline”
products
F16 Gross
Basis Revenue
$111M
>25%
cash flow yield per share1,2
Favorable Tax
Structure
>$10M
annual value creation being implemented
F16 Adj.
EBITDA
$43M 2
1, 2
INVESTOR PRESENTATION
The Foundation of our Business
4
VISION To be the Pan-
European and
Canadian leader in
small and mid-sized
specialty medicines by
being nimble and
entrepreneurial.
MISSION We are an international
specialty
pharmaceutical
company focused on
profitable growth,
creating value and
improving health.
VALUES Creativity
Accountability
Respect
Excellence
Speed
INVESTOR PRESENTATION
Business Highlights
5
Summary P&L Key Highlights Near-term Profit Enhancers
Fiscal 2017E Product Sales
Demonstrated ability to
optimize revenue
Sintrom and Emselex
tech transfers
Strong and increasing
profitability levels
New PV/MI partner and RA
capabilities in-house
Efficient tax structure
Sales optimization,
including new market
launches
High EBITDA cash
conversion rate
Nitrates – portfolio
optimization
(medium-term)
Nitrates 37%
Sintrom 24% Emselex
21%
Sanofi 7%
Salagen 6%
Estraderm 3%
Vancocin 2%
By product By geography
27.1
66.1
111.4
2014A 2015A 2016A
Sales (CAD M’s) Adj. EBITDA (CAD M’s)
13.3
32.6 43.2
2014A 2015A 2016A
Rest 32%
Spain 17%
Germany 11%
UK 10%
France 8%
Italy 7%
Netherlands
6%
Canada 5%
Korea 4%
INVESTOR PRESENTATION
Acquired product portfolio
Built platform for growth
First Phase of Growth Plan Achieved
6
2015 2016 2017 2018 2019 2020+ 2011 2012 2013 2014
1 • Pursued low risk strategic acquisitions:
• Grew the portfolio from 2 to 12 products in the past 2.5 years
• Developed a robust business model with diversified, stable cash flow
• Achieved scale, generating over $C111M in F16 net sales
2 • Established a Pan-European platform
• Significantly enlarged the platform to over 40 countries
• Enhanced internal capabilities and capacity
• Developed key relationships with strategic partners
Phase 1 Phase 2
Building the platform Growth and scale
INVESTOR PRESENTATION
Product Brand Date Acquired Acquisition Partner Therapeutic Area Net Sales %
February 2016 Cardiovascular 37%
September 2014 Cardiovascular 24%
July 2012 Urology 21%
February 2016 Women’s Health 7%
May 2015 Oncology Support 6%
May 2015 Women’s Health 3%
May 2011 Infectious Disease 2%
Stable, Profitable Portfolio of 12 Products
Nitrates
Sanofi
7
1
INVESTOR PRESENTATION
Growth Drivers
8
Acquire targeted products
Inject discipline
Proprietary deals
Integrate acquired products
Productive outsourcing
Internal competencies
Optimize product potential
Market expansion
Margin expansion
INVESTOR PRESENTATION
Primed for Next Phase of Growth
9
• Optimize existing portfolio of legacy Rx products
• Cost efficiencies and sales optimization are key focus areas
• Capacity to leverage the platform and realize synergies
• Potential for geographic expansion into new markets
Optimize existing portfolio
• Strong cash flow base from legacy Rx products, to fund new growth Rx products
• Focus will be on demand creation, driving new prescriptions and new launches
• Robust pipeline of potential acquisition opportunities
Pursue growth assets
Legacy Rx
Growth Rx
1
2
A highly
scalable
platform
2015 2016 2017 2018 2019 2020+ 2011 2012 2013 2014
Phase 1 Phase 2
Building the platform Growth and scale
INVESTOR PRESENTATION
Driving Incremental Profit
10
Create Demand
Profit Levers
Optimize Prices
Reduce Costs
Optimize
Pricing
Improve
Access
New
Markets
Cost
Efficiencies
Product
Rationalization
Generic
Defense
Line
Extensions
Selective
Promotion
INVESTOR PRESENTATION
2017 Optimization Initiatives
11
Peak Annualized Profit Impact Optimization Initiative
Initiative #1 Technology Transfers
Initiative #2 Geographic Expansion
Initiative #3 OPEX Efficiencies
Initiative #4 Capital Structure Revisions
Fully realized value: ~ $8M per year
(>40% reduction in Sintrom manufacturing costs)
Fully realized value: ~ $2M per year
(Regulatory & compliance efficiencies)
Fully realized value: ~ $3M per year
(Emselex new market launches – 4 CEE counties)
Fiscal 2017 Adjusted EBITDA Guidance Range: $44 to $48 million
INVESTOR PRESENTATION
Pan-European Focus
Europe is the World’s Second Largest Pharma Region
• Rx market size €200+ billion
• 30+ separate markets require customized strategies
• Available “regional” acquisitions
• Higher brand loyalty vs. North America
Merus Labs is Well-Positioned to Succeed
• Effectively navigates the complexity of the market
• Proven commercial partnerships
• Deep internal expertise in top 5 countries and beyond
• Track record of value-creation and new launches
• Effective tax structure
12
INVESTOR PRESENTATION
13
Internal Expertise, Supported by External Network
Supply Compliance Go-to-Market
Pan-EU Platform
• Strong internal infrastructure
complimented by expert
compliance
Demand Creation Focus
• Internal commercial expertise in
managing a wide-ranging network of
distribution and promotion partners
Proven CMOs
• Internal supply chain expertise
supervising highly reliable CMOs
Selected example partners
INVESTOR PRESENTATION
Two Strategic Business Segments
14
Legacy
Rx
Growth
Rx
Margin Expansion Focus (cost synergy, platform leverage)
Demand Creation Focus (driving new prescriptions, new launches)
Strong Base of Cash Flow Moving Up the Value Chain
INVESTOR PRESENTATION
Target Growth Product Profile
15
S and select markets
$100M+ in revenue
BOTC/BTC
New launches, in-licenses
Promotional sensitivity
Animal health, devices
Submitted/approved in developed market
Valued competitive advantage
Concentrated prescriber base
Leverages existing platform
Acceptable access and price
Strong barriers to entry
bb
Key Criteria
Peak sales above €25 million for Europe
INVESTOR PRESENTATION
Strategic Shift from Legacy to Growth Assets
16
Transforming our approach to drive organic growth
People Support Process
Robust Valuation
Modeling
Enhanced Due
Diligence Network
Strengthened
Asset Hunting
INVESTOR PRESENTATION
Experienced Team, Driven to Succeed
17
Therapeutic Area Successes Cardiovascular, CNS, Dermatology, Gastrointestinal, Immunology, Infectious Disease, Oncology, Nephrology, Neurology, Urology and Women’s Health
Accelerated Path to Profitability Contributed to market leadership positions with Avelox®, Cipro®, Copaxone®, Lantus®, Botox®, Humulin®, Zyprexa® and others
Efficient Product Integration Collectively launched dozens of products; efficiently managed regulatory, market access, pricing, supply, distribution and promotion
Creative Lifecycle Management Multiple initiatives to optimize molecule franchise value, including new formulations, indications, reimbursement schemes and authorized generics
INVESTOR PRESENTATION
Financial Summary
18
Enterprise value ~$263
Net debt (initial rate – 4.5%) ~$140
Market cap ~$123
Shares outstanding Basic: 117
Preferred shares 4.5
Options outstanding 5.6
Average daily trading volume (TSX) ~450K shares
(Canadian Dollars – Millions – FQ1/17)
INVESTOR PRESENTATION
• Strong pipeline of >10 products with >$600M of est. peak sales
• Targeting growth assets to compliment legacy Rx portfolio
Active pipeline
4
• Existing legacy portfolio provides a stable base
• Available capabilities to growth the business
Primed for growth
3
• Pan European platform, present in over 40 countries
• Nimble to adapt and grow inline with business strategy
Scalable platform
2
Key Takeaways
19
• 12 products creating a robust revenue mix
• Strong presence across multiple therapeutic areas
Diverse portfolio
1
• Strong profitability with excellent margins
• Healthy cash flow and high cash conversion rates
Strong financials
7
• Roadmap to improve profitability with legacy Rx portfolio
• Optimization initiatives; volume and profitability improvements
Profit enhancements
6
• Track record of doing deals and turning around products
• Highly experienced across full breadth of the European market
Talented team
5
INVESTOR PRESENTATION 20
Our Real Competitive Advantage
Nimble. Responsive. Focused.
Talented & motivated people
Entrepreneurial spirit & culture
Thank You !