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trademark of Diplomat Pharmacy Inc. All rights reserved.
Raymond James Institutional Conference
March 2016
Confidential
1
This presentation may contain “forward-looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any projections of financial information; any statements about historical results that may suggest trends for our business and results of operations; any statements of the plans, strategies and objectives of management for future operations; any statements of expectation or belief regarding future events, health care developments, or specialty pharmaceutical industry market sizes, shares, trends or growth; and any statements of assumptions underlying any of the foregoing.
Any forward-looking statements contained in this presentation are based on management's good-faith belief and reasonable judgment based on current information, and these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, including but not limited to the following risks related to our business: our ability to adapt to changes or trends within the specialty pharmacy industry; significant and increasing pricing pressure from third-party payors, our relationships with key pharmaceutical manufacturers; our limited history with integrating acquisitions; and the effects of competition. These and other risks and uncertainties associated with our business are described in the prospectus for our proposed follow-on offering, including under the heading “Risk Factors.” We assume no obligation and do not intend to update these forward-looking statements.
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These historical and forward-looking non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP measures is included in the appendix to this presentation.
Diplomat is a registered trademark of Diplomat Pharmacy, Inc. This presentation also contains additional trademarks and service marks of ours and of other companies. We do not intend our use or display of other companies’ trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
Important note
Confidential
Investment Highlights
• Specialty Pharmacy industry is a high growth market • Drug development pipeline remains robust• Limited distribution growing in importance
• Diplomat is unique within the specialty pharmacy industry• Taking market share as the largest independent specialty
pharmacy• Access to broad range of limited distribution drugs
• Strong financial performance• Five-year revenue CAGR of 42% & EBITDA CAGR of 65%• Diversified revenue and profitability streams• Modest balance sheet leverage – ample dry powder
• Experienced senior management team • CEO founded Diplomat 40+ years ago• Leadership team has broad ranging experience across the industry
Recent acquisitions of Burman’s Specialty Pharmacy and BioRX have created significant revenue synergies
BioRXAcquired by Diplomat on April 1, 2015
Burman’s Specialty PharmacyAcquired by Diplomat on June 19, 2015
• Strengthens Diplomat’s relationships with
Neurologists
• Provides BioRX sales force a broader portfolio
of drugs including Multiple Sclerosis services
• Cross selling infusion services to existing
managed market clients
Synergies
• Roll out software technology across our national
platform to drive patient adherence and
physician transparency
• Increased access to Gastroenterology thought
leaders
• Provides Burman’s sales force Diplomat’s full
therapeutic mix (incl. Crohn’s disease)
Synergies
Confidential
12
Future M&A criteria
When considering acquisitions, we look for targets that will potentially benefit Diplomat in one or more of the following ways:
Expand into new therapeutic areas and/or geographic regions
Enhance clinical capabilities to improve competitive advantage
Access to Limited Distribution drugs
Accelerate our higher margin business opportunities
Bring new services and technologies under our umbrella
Makes DPLO better, not just bigger
Confidential
13
Outstanding financial profile
Confidential
Traditional Drug Specialty Drug A Specialty Drug B Specialty Drug C Specialty Drug B
(10% price incr.)
Revenue $100 $3,700 $10,000 $27,000 $11,000
Gross Profit ($) $10 $185 $400 $810 $440
Gross Margin (%) 10% 5% 4% 3% 4%
14
RevenuePayors
Distributors / pharmaceutical manufacturers
Patient
DiplomatCOGS
Physical drug movement
$ flows
How we make money and grow profitability(Illustrative example)
How we make money
Drug mix and positive pricing trends are tremendous profit tailwinds for Diplomat
Inflation Impact
Diplomat mix shift movement over time
Our core focus
$312
Diplomat’s 4Q’15 Average
(AWP – Y%)(WAC – X%)
Note AWP = WAC x 1.20
(1)
(1)
Example:
AWP $11,905 - 16% = $10,000 Revenue
WAC $9,921 - 3% = $9,600 COGS
$400 Gross Profit
4% Gross Margin
Confidential
$187
$312
4Q14A 4Q15A
$10.5
$28.1
4Q14A 4Q15A
$612
$987
4Q14A 4Q15A
15
Recent quarterly highlights
(1) Based on dispensed scripts only.(2) Gross profit / net sales (i.e., based on dispensed and serviced scripts).
Revenue
EBITDAmargin
1.7%
Adjusted EBITDAGross Profit /Script($ in millions) ($ in millions)
2.8%7.8%6.7%
(1)
Grossmargin
(2)
110 bps expansion 110 bps expansion
Confidential
$8
$15$11
$19
$35
96% (28%) 75% 85% 170%
1.3% 2.0% 1.0% 1.3% 2.8%
2010A 2011A 2012A 2013A 2014A 2015A
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Strong long-term financial performance…
Adjusted EBITDA2010 – 2015
Total Revenue2010 – 2015
% margin
% growth
($ in millions)
$578$772
$1,127$1,515
$2,215
34% 46% 34% 46% 52%
2010A 2011A 2012A 2013A 2014A 2015A
% growth
($ in millions)
Pre-IPO infrastructure investments
Volume, price and mix all driving superior revenue growth
Natural operating leverage and acquisitions driving EBITDA growth and margin expansion
53%
27%
Note: Historical financials are not pro forma for any acquisitions.
1.6%
$3,367
$95
Confidential
17
… with continued growth in profitability
Gross Profit / Script (1)
2010 – 2015
Note: Financials are not pro forma for BioRx acquisition.(1) Based on dispensed scripts only.(2) Gross profit / net sales (i.e., based on dispensed and serviced scripts).
$71
$93 $97$116
$167
2010A 2011A 2012A 2013A 2014A 2015A
% growth 12% 20%31% 4%
% margin 7.1% 5.9%7.3% 6.2%
Several factors drive growth in our Gross Profit / Script(1):
Continued mix shift towards higher price, higher profit drugs (including acquisitions)
Favorable pricing trends
(2)
Gross margin expansion opportunities:
Recent acquisitions with higher gross margins (%)
Pharma $$ opportunities
Specialty generics and biosimilars (longer term)
44%
6.3%
68%
7.8%
$280
Confidential
18
Components of Quarterly Revenue Growth($ in millions)
$-
$200
$400
$600
$800
$1,000
$1,200
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Prior Year Revenue YOY Growth from Existing Drugs (excluding price inflation) New Drugs (< 12 months) Misc (< 1%) Impact of Price Inflation Acquired Revenue
$808
$625$612
67%75%67%
1%
7%
16%
11%
9%3%
7%
5%8%
13%
4%5%
34% YOYGrowth
(29% organic)
49% YOYGrowth
(41% organic)
$947
63%
2%
13%
5%
17%
62%
10%
6%
6%
16%
$987
$808
$625$612
67%75%67%
1%
7%
16%
11%
9%3%
7%
5%8%
13%
4%5%
$947
63%
2%
13%
5%
17%
62%
10%
6%
6%
16%
$98749% YOYGrowth
(29% organic)
59% YOYGrowth
(31% organic)
61% YOYGrowth
(35% organic)
Quart
erly
Reve
nue
• Price inflation has comprised only 5-
8% of revenue over the last 5
quarters
Political pressure on price
inflation, if successful, will
have limited impact on
Diplomat
Value added services to
pharma manufacturers are an
opportunity to offset
• Chronic disease expertise provides
a stable and growing annuity-like
revenue base
Limited distribution
leadership and rich drug
pipeline driving considerable
revenue growth from new
drugs
• Diplomat remains an organic growth
story
Strategic M&A has
complemented growth
Confidential
19
Annual Revenue by Drug Year Launch
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2013 2014 2015
2015
2014
2013
2012
2011
2006 - 2010
2001 - 2005
1996 - 2000
1995 and Prior
$1.5B
$2.2B
$3.3B
5%
21%
2%
18%
3%
16%
95%$1.4B
77%$1.7B
63%$2.1B
• Drugs across all launch years
continue to grow substantially
over time
2012 and prior drugs have
grown ~50% from 2013
to 2015
• 2015 a record year for FDA
approval of specialty drugs, yet
2015 launch drugs contributed
less than 3% of 2015 revenue
Will ramp up dramatically
in 2016 and beyond
• Pipeline remains an important
element of near-term and long-
term growth; existing drugs will
also contribute meaningfully
Confidential
20
Balance Sheet / Cash Flow snapshot
($ in millions)
(1) Includes $12mm in cash-based contingent consideration
(2) Includes $6mm in cash-based contingent consideration
December 31,
2014 2015
Cash $18 $28
Total Debt $12(1)
$123 (2)
Shareholders’ equity $169 $516
Net Debt/ProForma EBITDA -- ~.8x
Cash Flow From Operations (year ended) ($10) $29
Confidential
2016 Guidance
21
2015 Results 2016 Guidance
Implied
Midpoint
Growth
Revenue $3,367m $4.3b - $4.6b +32%
Adjusted
EBITDA$95.0m $116m - $123m +26%
Adjusted EPS $0.75 $0.84 - $0.89 +15%
• 2016 guidance does not assume any incremental acquisitions
• 2016 assumes 67,500,000 shares outstanding throughout the year
Reconciliation of Net income (loss) and Adjusted EBITDA
26
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Note: Financials are not pro forma for acquisitions.Detailed footnotes on the following page.
Confidential
Reconciliation of Net income (loss) and Adjusted EBITDA
27
1) Share-based compensation expense relates to director and employee share-based awards.
(2) Restructuring and impairment charges reflect decreases in the fair market value of non-core property and assets, or actual losses on disposal of such assets. 2013 charges primarily relate to the $932 write-down of our former Swartz Creek, Michigan headquarters facility to its fair value, after we vacated it in favor of our present Flint, Michigan facility. 2012 charges primarily relate to our write-down of an externally purchased software package we no longer utilize, as well as sales of Company-owned vehicles. 2011 charges include expense associated with the closure of our former Cleveland, Ohio facility, the move of our Chicago, Illinois area facility, and sales of Company-owned vehicles.
(3) During the fourth quarter of 2014, we reassessed the recoverability of our investment in our non-consolidated entity, Ageology. Based upon this assessment, we determined that a full impairment of $4,869 was warranted, primarily due to updated projections of continuing losses into the foreseeable future. The remaining amounts in 2014, 2013 and 2012 represents our share of losses recognized by Ageology, using the equity method of accounting. We first invested in Ageology, an anti-aging physician network dedicated to nutrition, fitness and hormones, in October 2011, in connection with its formation.
(4) Employee severance and related fees primarily relates to severance for former management.
(5) Fees and expenses directly related to merger and acquisition activities, and the impact of changes in the fair value of related contingent consideration liabilities.
(6) Primarily includes philanthropic activities performed at the direction of our majority shareholder.
(7) Represents (a) various tax credits received from the state of Michigan for facility improvement and employee hiring initiatives, (b) the one-time costs associated with converting from an S-Corporation to a C-Corporation, and (c) a 2014 charge of $1,825 related to non-income tax obligations.
(8) Includes other expenses, predominantly option redemption payroll taxes and IT operating leases. Operating leases were initiated, in lieu of purchases or capital leases for a subset of our IT spend, for a short period of time in 2013 and 2014 for liquidity purposes. We have since discontinued the practice of leasing IT equipment. The cost of purchased IT equipment is reflected in depreciation and amortization.