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Transcript of STRENGTH - ir.diplomat.isir.diplomat.is/files/doc_presentations/DPLO... · Credit Suisse Healthcare...
August 2014
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Confidential
Diplomat Pharmacy, Inc.Credit Suisse Healthcare Conference
November 2014
STRENGTH
I am a mother.I am a long distance swimmer.I have Multiple Sclerosis.I am not defined by my illness.I know The Diplomat Difference.
VickiBellingham, Washington
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Industry and Market Data
Certain information contained in this presentation concerning our industry and the markets in which we operate is based on information from publicly available independent industry and research organizations and other third-party sources, and management estimates.Management estimates are derived from publicly available information released by independent industry and research analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. We believe the data from these third-party sources is reliable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our futureperformance are necessarily subject to uncertainty and risk due to a variety of factors, as discussed in Diplomat’s reports filed with the Securities and Exchange Commission. These and other factors could cause results to differ materially from those expressed in theestimates made by these third-party sources.
Forward-Looking Statements
This presentation contains forward-looking statements. The 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 risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks are set forth in Diplomat’s reports filed with the Securities and Exchange Commission. Diplomat assumes no obligation to publicly update such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.
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.
Legal Disclosure
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Diplomat: Largest independent specialty pharmacy
Founded: 1975; Headquarters: Flint, MI
Employees: ~1,000
LTM 9/30/14 revenue: ~$2.0 billion
Diversified base of marquee partners
Diplomat at a glance
Express Scripts
28%
CVS Health
25%Walgreens
10%
>2%
Omnicare
<2%
Avella
1%
Others
32%
FY 2013A market share ($63 billion total market size) (1)
Exceptional above market revenue growth
$27 $58$167
$271$377
$578
$772
$1,127
$1,515
2005 2006 2007 2008 2009 2010 2011 2012 2013
Scaled business: National footprint
National Distribution Center
Diplomat locations
Corporate Office
Ontario, CA
Ft. Lauderdale, FL
Enfield, CT
Springfield, MA
GLDC
Flint, MI
Chicago, IL
Grand Rapids, MI
Raleigh, NC
($ in millions)
(1) Source: 2013 – 2014 Economic Report on Retail, Mail and Specialty Pharmacies, Drug Channel Institute.
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• Management has an average of over 25 years of pharmacy and specialty pharmacy experience
• Diplomat team includes 70+ licensed pharmacists
Highly experienced and incentivized management team with proven track record
Name Title
Years of
experience Prior experience
Phil Hagerman, R.Ph. Co-Founder and CEO 39
Sean Whelan, CPA Chief Financial Officer 20
Gary Kadlec, R.Ph. President 42
Bill Wallace, MD EVP of Strategy 30
Jeff Rowe, R.Ph. EVP of Operations 35
Atheer Kaddis, Pharm.D SVP of Sales / Business Development 22
4
Recent Developments
September 15: Appointed David Dreyer to Board of Directors
October: New drug distribution agreements
Harvoni (ledipasvir/sofosbuvir) – hepatitis C
Esbriet (pirfenidone) – idiopathic pulmonary fibrosis (IPF)– limited distribution
Otezla (apremilast) – psoriasis – limited distribution
October 9: Completed initial public offering
Issued 15.33 million shares at $13 per share, including 11 million primary shares and 4.3 million secondary shares
November 10: Reported strong third quarter results
Revenues of $595.5 million increased 49% compared to a year ago
Adjusted EBITDA of $10.6 million increased 94% compared to a year ago
Journey of a specialty patient
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Patient
Physician
Payor
Patient
Patient visits physician
Payorapproves
script
Diplomat monitors adherence and collects data for manufacturers
Diplomat dispenses drug
Diplomat provides:
Benefit verification
Prior authorization
Clinical intervention
Physician writes script
Patient receives
drugs
6
Key investment highlights
Unique competitive position with differentiated business model
Outstanding financial profile
Highly experienced and incentivized management team
Taking share in high growth specialty pharmacy sector
Multiple avenues to drive strong long term growth
7
Diplomat is well-positioned in high growth specialty pharmacy industry
Industry growth of 15% per year
Strong pipeline ensures new drug launches each year
New opportunities emerging to treat orphan disease states
Limited distribution drugs are a growing trend
Small biotech companies emerging as a major growth driver
Drugs are increasingly moving from medical benefit to pharmacy benefit
High growth Specialty Pharmacy industry Diplomat's leading market position
65%+ CAGR 2005-2013
Diplomat well diversified across multiple specialty therapeutic categories
Diplomat’s high touch model ideal for serving unique patient populations
Diplomat has access to many limited distribution drugs; 10 of our top 25 drugs are in limited distribution
Diplomat works closely, and early in the drug development process, with emerging biotech
Represents additional revenue opportunity for Diplomat to accelerate growth
Diplomat is the only pure-play publicly traded specialty pharmacy
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Specialty spend under pharmacy benefit to more than double(2)
Specialty pharmacy industry is poised for exceptional growth
Specialty share of spend growing dramatically(1)
Specialty continues to dominate top 10 drug spend(3)
Source:(1) Specialty Drug Trend Across the Pharmacy and Medical Benefit” – artemetrx a PSG Company January 2013.(2) 2013-2014 Economic Report on Retail, Mail and Specialty Pharmacies.(3) Pembroke Consulting analysis of World Preview 2014, Outlook to 2020, EvaluatePharma.
6 out of top 10 9 out of top 10
2013A 2020E
70%
30%42%58% 50%50%
Traditional
58%
Diplomat 2%
$51 million
$118 billion
2012A 2018E
Traditional
2012A 2015E 2018E
$51 billion
Specialty
Limited distribution a central and growing theme in Specialty
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Benefits to DiplomatBenefits to biotech / pharma
Completely eliminate or reduce reliance on wholesaler
Real-time clinical data
Commercialization assistance
Improves appropriate utilization
Barrier to entry
Deeper, and earlier, partnerships with pharma / biotech
Increased value proposition to payors
Market share opportunity
Other key limited distribution drugs
Oncology
®
MS
Portfolio of 70+ limited distribution drugs and well positioned for disproportionate growth from future drug approvals
Recent unique oncology limited panels…Diplomat exclusive or semi-exclusive
Oncology expertise
Launched April 2011 2012
What is limited distribution?
Targeted channel strategy
Provides certain specialty pharmacies with exclusive or preferred dispensing rights to certain drugs
Fast-growing trend
(2013) (2014)(2012) (2014)
Diplomat has exposure to the pharma / biotech drug pipeline, without the binary risk
10
Unique competitive position
LARGE PBM / RETAILPHARMACY
SMALLER SPECIALTYPHARMACIES
Diversification distracts from specialty pharmacy
Less flexible / less nimble
Limited scale
Most focused on one or a few disease states
Fragmented market
Singularly focused on specialty
High-touch model
Flexible and nimble
Entrepreneurial culture
National reach
Scalable infrastructure
11
Diplomat is unmatched in its relationships with all key constituents
PAYORS
PHYSICIANS +HEALTH SYSTEMS
RETAILERS +HOSPITALS
BIOTECHNOLOGY +PHARMACEUTICALMANUFACTURERS
PATIENTS
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Multiple avenues to drive strong long-term growth
Selectively pursue strategic acquisitions
Continue to gain share in core therapeutic areas
Expand exclusive / preferred managed lives under contract
Grow high margin businesses
Drive operational efficiencies
$32
$44
2011 2013
$54
$63
2011 2013
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Oncology and Immunology drugs currently comprise over 40% of the biologics pipeline
Over 3,000 oncology and immunology drugs in global drug development
Oncology / Immunology drugs accounted for over 70% of Diplomat’s revenues in 2013
Continue to gain share in high-growth Oncology and Immunology markets
Source: Evaluate Pharma and company presentations.(1) Includes all indications as defined by EvaluatePharma under Immunology excluding Multiple Sclerosis.
($ in billions)
US Oncology revenue
US Immunology revenue(1)
Diplomat ’11-’13 CAGR
44%
32%
Large and high growth Oncology and Immunology are Diplomat's power alley
Significant growth expected to continue in the future
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Growing payor relationships
Higher patient enrollment
Increased incidence of chronic disease
Personalized medicine
Health exchanges
Improved management of drugs under medical benefit
Pay for performance
STAR ratings
Population health management
Health Plans
PBMs
Employers
Unions
Diplomat addresses growing unmet customer needs
ACOs
Payor / provider coordination
Clinical data exchange
Opportunity to expand the medical benefit
Case study: Priority Health
Background
Priority Health is a 600K member health plan in Michigan
One of the 8 specialty pharmacies working with Priority 8 years back
Diplomat Difference
High-touch customized programs
Proprietary access to limited distribution drugs
High patient adherence rates (over 90%)
Cost containment programs (e.g., channel management, formulary management and waste minimization)
Results
Diplomat named Priority’s sole specialty pharmacy partner
− Displaced previous specialty pharmacies
Strong historical growth in exclusive / preferred managed lives from 5 million to 13 million (20%+ CAGR) and our payor pipeline has never been stronger
State of Michigan
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Grow high margin businesses
Continued expansion into specialty infusion market
Recent acquisitions (MedPro and AHF) had significantly higher margins
− 20%+ gross margins
Overall market expected to grow at over 10%(1)
New generics finally coming to specialty
− Temodar and Xeloda have come to market
− Copaxone is coming off patent soon
Biosimilars are around the corner
(1) Source: CVS Health investor presentation dated 12/8/13.
Grow high margin specialty infusion business
Specialty generics and biosimilars
New drug launches creating product preferencing
Competition in specialty space expected to create discount and rebate opportunities
Creates new data and service fees with pharma for high margin revenue
Hepatitis C
Oncology
Unique strategic partnerships with leading retailers and health systems
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Benefits to DiplomatNeeds / benefits for retail /
health systems
Diplomat’s retail and health system partners
Traditional drug trend low to mid single digit growth
Participate in high growth specialty without having to build expensive infrastructure internally
One stop shop for patients / consumers
Improve portfolio of wellness solutions
High margin business
Leverage infrastructure
Improved value proposition with pharma
Pharmacy of choice for limited distribution drugs
How does Diplomat support retail and health system partners?
Fee-for-service offering
− Clinical and administrative support services
− Patient engagement
− Adherence programs
− Integrated with retailers’ dispensing platforms
− Private label programs
Recent wins
Strong pipeline of future opportunities
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Strategic investments creating operational efficiencies
550,000 square foot facility in Flint, MI
− Currently at ~40% capacity
Minimal incremental capital expenditures needed to execute growth initiatives
− Significant capital and infrastructure investments completed
Centralized infrastructure to efficiently dispense across all 50 states
Advanced distribution center allows for nationwide shipment
Centralized clinical call center helps deliver localized services on a national scale
National footprint
Significant operating leverage
Substantial capacity and technology-focused infrastructure creates significant operating leverage and profitability per script upside
18
Selectively pursue strategic acquisitions
Enhance our competitive position through disciplined strategic acquisitions
Build upon recent experience of two strategically important acquisitions (MedPro and AHF)
Focus on higher margin opportunities:
− Specialty infusion
− New therapeutic categories
− Services / technology businesses
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Outstanding financial profile
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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
Positive pricing trends
Specialty
Specialty Specialty Specialty Drug C
Traditional Drug Drug A Drug B Drug C (10% price incr.)
Revenue $100 $2,000 $10,000 $20,000 $22,000
Gross Profit ($) $10 $100 $400 $600 $660
Gross Margin (%) 10% 5% 4% 3% 3%
Diplomat mix shift movement over time
Our core focus
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Third Quarter Results
(1) Based on dispensed scripts only.(2) Gross profit / net sales (i.e., based on dispensed and serviced scripts).
$399
$596
3Q13A 3Q14A
Revenue
EBITDAmargin
1.4%
$5.5
$10.6
3Q13A 3Q14A
Adjusted EBITDA
$118
$185
3Q13A 3Q14A
Gross Profit /Script($ in millions) ($ in millions)
1.8% 6.7%5.8%
(1)
Grossmargin
(2)
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Strong historical financial performance
Gross Profit / Script (1)
2009 – First Nine Months Of 2014
(1) Based on dispensed scripts only.(2) Gross profit / net sales (i.e., based on dispensed and serviced scripts).
$63 $71
$93 $97$115
2009A 2010A 2011A 2012A 2013A
% growth 12% 19%32% 4%
First Nine
Months of
2013
First Nine
Months of
2014
% margin 7.1% 5.9%7.3% 6.2%8.1% 5.8% 6.2%
Several factors drive growth in our Gross Profit / Script(1):
Continued mix shift towards higher price, higher profit drugs
Favorable pricing trends
(2)
$112
$161
Gross margin expansion opportunities:
Recent acquisitions with higher gross margins (%)
Specialty generics
Grow retail / health systems platform
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Strong historical financial performance (cont’d)
Adjusted EBITDA2009 –First Nine Months Of 2014
Total Revenue2009 –First Nine Months Of 2014
$6 $8
$15$11
$19
27% 96% (28%) 75%
1.6% 1.3% 2.0% 1.0% 1.3%
2009A 2010A 2011A 2012A 2013A
% margin
% growth
($ in millions)
$377$578
$772$1,127
$1,515
53% 34% 46% 34%
2009A 2010A 2011A 2012A 2013A
% growth
($ in millions)
First Nine
Months of
2013
First Nine
Months of
2014
$1,603
$13
$25
First Nine
Months of
2013
First Nine
Months of
2014
1.2% 1.5%
Infrastructure investments including IT, facilities and personnel
Volume, price and mix all driving superior revenue growth
Key investments driving operating leverage
$1,103
24
Significant financial flexibility
Actual($ in millions)
Note: Assumes $200 million IPO with split of 75% primary / 25% secondary and a 6.75% gross spread.
Cash $16
Total debt $20
Drawn revolver
($120 capacity)
$77
Pro forma for IPO proceeds
$50
–
–
As of September 30, 2014
Premier asset in healthcare’s fastest growing segment
Unique competitive position with sole focus on Specialty
Well-positioned to capitalize on multiple industry tailwinds
Powerful momentum and plenty of runway
Proven leadership team aligned with shareholders
Key takeaways
25
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Appendix
27
Balanced payor mix and diversified therapeutic mix
Government,
41%
Exclusive /
Preferred,
34%
Patient pay,
3%
Commercial,
22%
(FY 2013A)
(13mm managed
lives)
Open network
Open network
Revenue mix by payor type
(FY 2013A)
Revenue mix by therapeutic category
Oncology
49%
Immunology
25%
Multiple
Sclerosis
11%
Other
15%
28
Summary historical financials
Calendar year ending December 31, 9 months ended,
($ in millions) 2009A 2010A 2011A 2012A 2013A 9/30/2013 9/30/2014
Total Revenue $377 $578 $772 $1,127 $1,515 $1,103 $1,603
% growth 53% 34% 46% 34% 45%
Gross Profit $31 $41 $57 $69 $89 $64 $99
% growth 34% 38% 23% 28% 56%
% margin 8.1% 7.1% 7.3% 6.2% 5.9% 5.8% 6.2%
Adjusted EBITDA $6 $8 $15 $11 $19 $13 $25
% growth 27% 96% (28%) 75% 87%
% margin 1.6% 1.3% 2.0% 1.0% 1.3% 1.2% 1.5%
Reconciliation of Net income and Adjusted EBITDA
29
9 months ended September 30, Calendar year ending December 31,
($ in millions) 2014A 2013A 2013A 2012A 2011A 2010A 2009A
Net income $7.9 $6.5 ($26.1) ($2.6) $9.2 ($7.8) ($4.2)
Depreciation & Amortization 5.3 2.8 3.9 3.8 3.1 2.2 1.9
Interest Expense 1.6 1.5 2.0 1.1 0.6 0.5 0.8
Tax Expense 7.0 - - - - - -
EBITDA $21.8 $10.8 ($20.2) $2.3 $12.8 ($5.2) ($1.5)
Stock Option Comp Expense 1.8 0.7 0.9 0.9 1.4 0.8 0.4
Change in fair value of redeemable common shares (7.9) - 34.3 6.6 - 10.7 7.0
Restructring and impairment charges - 0.1 1.0 0.4 0.4 1.5 -
Equity Loss of non-consolidated entity 1.1 0.6 1.1 0.3 0.1 - -
Severance and related fees 0.4 0.1 0.2 0.4 0.7 - -
Merger & acquisition related fees 1.8 0.3 0.7 - - - -
Private company expenses 0.2 0.1 0.2 - - - -
Tax credits (0.4) - - (0.1) (0.6) - -
Other Items 5.9 0.5 0.7 0.1 0.2 (0.0) 0.1
Adjusted EBITDA $24.7 $13.2 $19.0 $10.9 $15.1 $7.7 $6.1
Note: Detailed footnotes on the following page.