Capturing the Opportunity

Transcription

1 Capturing the Opportunity NOVEMBER 2017 BETHANY DIPLOMAT PATIENT Copyright 2017 by Diplomat Pharmacy Inc. Diplomat is a registered trademark of Diplomat Pharmacy Inc. All rights reserved. 1

2 DISCLAIMERS NON-GAAP INFORMATION Adjusted EPS adds back, net of income taxes, the impact of all merger and acquisition related expenses, including amortization of intangible assets, the change in fair value of contingent consideration, as well as transaction-related costs. We exclude merger and acquisition-related expenses from Adjusted EPS because we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired intangible assets, or ultimate realization of contingent consideration. Investors should note that acquisitions, once consummated, contribute to revenue in the periods presented as well as future periods and should also note that amortization and contingent consideration expenses may recur in future periods. A reconciliation of Adjusted EPS, a non-gaap measure, to EPS as prepared in accordance with accounting principles generally accepted in the United States ( GAAP ) can be found below. We define Adjusted EBITDA as net income (loss) attributable to Diplomat before interest expense, income taxes, depreciation and amortization, share-based compensation, change in fair value of contingent consideration and other merger and acquisition-related expenses, restructuring and impairment charges, and certain other items that we do not consider indicative of our ongoing operating performance (which are itemized below in the reconciliation to net income (loss) attributable to Diplomat). Adjusted EBITDA is not in accordance with, or an alternative to, GAAP. In addition, this non-gaap measure is not based on any comprehensive set of accounting rules or principles. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items. We consider Adjusted EBITDA and Adjusted EPS to be supplemental measures of our operating performance. We present Adjusted EBITDA and Adjusted EPS because they are used by our Board of Directors and management to evaluate our operating performance. Adjusted EBITDA is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends, and for evaluating the effectiveness of our business strategies. Further, we believe they assist us, as well as investors, in comparing performance from period-to-period on a consistent basis. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EPS differently than we do and these calculations may not be comparable to our Adjusted EBITDA and Adjusted EPS metrics. A reconciliation of Adjusted EBITDA, a non-gaap measure, to net income (loss) attributable to Diplomat can be found below FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. The forward-looking statements in this presentation are based on management s good-faith belief and reasonable judgment based on current information. 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. For a discussion of such risks and uncertainties, review Diplomat's filings with the Securities and Exchange Commission, including Risk Factors in Diplomat s Annual Report on Form 10-K for the year ended Dec. 31, 2016, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Except as may be required by any applicable laws, 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. INDUSTRY AND MARKET DATA Certain information in this presentation concerning our industry and the markets in which we operate is derived from publicly available information released by third-party sources, including independent industry and research organizations, and management estimates. Management estimates are derived from publicly available information released by independent industry and research analysts and other 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 future performance 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 the estimates made by these third-party sources. MEDICAL ADVICE The information herein is for educational purposes only and may not be construed as medical advice. Diplomat Pharmacy Inc. takes no responsibility for the accuracy or validity of the information herein, nor the claims or statements of any manufacturer. Proprietary and Confidential of Diplomat Pharmacy Inc. 2

3 INVESTMENT HIGHLIGHTS Diplomat is continuing its planned transition to a broader health care company. Acquisition of PBM dramatically expands our services to address unmet market needs across the specialty industry Continuing strength in growing oncology and infusion markets Diversified growth focusing on EBITDA and cash flow Specialty drug growth is far outpacing traditional drugs. Extensive access to limited-distribution drugs creates a competitive advantage Diplomat is unique in the specialty pharmacy industry. Expanded manufacturer services and payor capabilities Diplomat has an enhanced leadership team with deep industry expertise. 3

4 DELIVERING SUPERIOR CLIENT SOLUTIONS TO PATIENTS, MEMBERS, & PARTNERS PATIENT-CENTRIC GROWTH-ORIENTED CUSTOM-FOCUSED High-touch caregiving In-house clinicians providing disease state specific knowledge Seamless work with providers, payors, and pharmaceutical manufacturers to ease the patient journey Leader in high-growth specialty pharmacy Deep access to limiteddistribution drugs Disciplined, strategic M&A Customized, fee-for-service offerings to add value for each client type Customized, client-centric solutions for payors and pharma Management of pharmacy costs through skill and scale 4

5 POSITIONED TO CAPITALIZE ON MARKET TRENDS Market Trend Growth of specialty pharmacy Limited-distribution drugs driving market growth Increasing national healthcare costs Rapid expansion of biopharma and increasing demand for hub services Unmet payor drug-management needs Diplomat Position Decades of experience drive increasing market share in the highest-growth categories Growing portfolio of more than 100 limited-distribution drugs, including more than 60 orphan drugs Creating efficiencies through technology solutions, home infusion services, and site-of-care management EnvoyHealth provides mission-critical hub solutions while deepening relationships with pharma Acquisitions and experience allow us to deliver customized solutions 5

6 Founding Traditional pharmacy Paradigm shift Transition to specialty Growth & Expansion Health care services

7 DIPLOMAT S CONTINUED EVOLUTION Three Complementary Focus Areas Providing a Broader Spectrum of Care Pharmacy Services Payor Services Industry Services Specialty Pharmacy benefit management Customized industry solutions Infusion Site-of-care transition Fee-for-service Home delivery Medical benefit management Technology Proprietary and Confidential of Diplomat Pharmacy Inc. 7

8 STRONG RATIONALE FOR DIPLOMAT TO EXPAND IN THE PBM SECTOR Allows Diplomat to expand its specialty product offering using PBM levers Well-positioned with multiple service lines for evolving market needs in the middle-market space Strengthens Diplomat s financial profile and substantially diversifies Diplomat s EBITDA LDI and NPS combine to create a robust full-service middle-market PBM offering Complementary products, services, and solutions offer full platform for future scale and growth Well-defined integration strategy with early synergies Expanded capabilities accelerate growth and drive shareholder value. Proprietary and Confidential of Diplomat Pharmacy Inc. 8

9 LDI TRANSACTION SUMMARY Target LDI Integrated Pharmacy Services ( LDI ) Full-service PBM with 2017E revenue of $388 million and 2017E adjusted EBITDA of $41 million Based in St. Louis, Missouri Purchase Price $595 million gross purchase price - Represents ~14.5x on gross purchase price $540 million adjusted purchase price - ~$94 million tax shield (NPV ~$55 million) - Represents ~13.2x post tax shield benefit $4-6 million of synergies in Year 1 - Represents ~11.7x post synergies and post tax shield Consideration $515 million in cash - Committed cash financing from a new $795 million credit facility provided by JPMorgan and Capital One ~$80 million in common stock, representing ~4.15 million shares Pro forma total leverage of ~4.6x LTM adjusted 2017 EBITDA; Expected to be between 2.0x-3.0x by mid 2019 Expected to be accretive to adjusted EPS in 2018 Anticipated Closing Transaction expected to close in days Subject to regulatory approval and other customary closing conditions 9

10 NPS TRANSACTION SUMMARY Target Pharmaceutical Technologies, Inc., dba National Pharmaceutical Services ( NPS ) Full-service PBM with 2017E revenue of $32 million and 2017E adjusted EBITDA of $5.4 million Based in Omaha, Nebraska Purchase Price $47 million purchase price Transaction includes real estate valued at ~$10 million Consideration $31 million in cash using cash on hand and existing credit facility $16 million in common stock No contingent earn-out consideration Expected to be accretive to adjusted EPS in 2018 Business Overview Diversified mix of PBM lives Robust technology platform: In-house proprietary claims-processing system Captive mail-order pharmacy (Integrated HMO Pharmacy) Near-term synergy opportunities for specialty Rx volume Senior management team will remain in place Anticipated Closing Transaction expected to close in 30 days Subject to customary closing conditions 10

11 KEY CAPABILITIES/ BUSINESS MODEL EXPERTISE CUSTOMER EXPERIENCE PBM PLATFORM WITH FULL SUITE OF CAPABILITIES Self-Funded Employers / Unions Medicare Part D / Managed Medicaid LDI NPS DPLO s PBM Capabilities Scaled asset in middle market Serving all key customer types +855k lives 700+ customers Workers Comp Bringing best-in-class specialty pharmacy capabilities to underserved market Transparent Pricing Traditional Pricing Owned Adjudication Platform Comprehensive/Competitive Network Direct Manufacturer Rebates High-Touch Services Attractive partnership approach to manage formulary and drug costs High-touch/high-service DNA consistent with Diplomat Differentiated clinically, leveraging proprietary technology platform Proprietary and Confidential of Diplomat Pharmacy Inc. 11

12 WHAT WE DO WHO WE SERVE DIPLOMAT GUIDES THE PATIENT JOURNEY PROVIDERS Collaborate to gather patient information PAYORS Collaborate on all member services PATIENTS Answer their questions and assist with funding and onboarding PATIENTS & PROVIDERS Educate on therapy FULFILLMENT MANUFACTURERS Monitor adherence and gather data RX INTAKE ADJUDICATION MEMBER MANAGEMENT BENEFIT INVESTIGATION PRIOR AUTHORIZATION READJUDICATION CLINICAL VERIFICATION & INTERVENTIONS PATIENT ASSISTANCE QUALIFICATION PATIENT ONBOARDING FIRST SHIPMENT SETUP CLINICAL EDUCATION & TRAINING DATA CAPTURE CLINICAL MANAGEMENT REPORTING PORTALS BUSINESS INTELLIGENCE 12

13 LEADING NPS REFLECTS PATIENT FOCUS Net Promoter Score (NPS) measures the net number of customers who recommend a company s products or services on a scale from -100 to Diplomat Patient Surveys, Approximate. Data from survey of approximately 4,500 respondents. 2. Satmetrix 2016 U.S. Consumer Study. 13

14 SPECIALTY DRUGS DRIVE PHARMACY INDUSTRY GROWTH Historical and Projected Growth, (BILLIONS) $572 $412 $240 SPECIALTY DRUGS $300 $50 $250 $115 $297 $332 TRADITIONAL DRUGS Specialty drugs as % of pharmacy industry revenues 17% 28% 42% 1. The 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers, Adam Fein, February

15 LIMITED-DISTRIBUTION DRUG ACCESS PROVIDES A PATH TO GROWTH Specialty Spend Under Pharmacy Benefit to Grow ~5x A 2016A 2021E 80% OF FUTURE DRUG LAUNCHES ARE EXPECTED TO BE LIMITED DISTRIBUTION DPLO EXCLUSIVE 2015 DPLO 1 of DPLO LARGEST OF DPLO 1 of 7 $50 BILLION DIPLOMAT 2% $115 BILLION DIPLOMAT 5% $240 BILLION 60%+ 2017E REVENUE FROM LD DRUGS 100+ DIPLOMAT LDD PORTFOLIO 2017 DPLO LARGEST OF DPLO 1 OF DPLO LARGEST OF DPLO LARGEST OF DPLO 1 OF 8 1. The 2017 Economic Report on Retail, Mail, and Specialty Pharmacies. February Property of Diplomat Pharmacy Inc. 15

16 DEEP ONCOLOGY PIPELINE FUELS FURTHER GROWTH Rapid Growth in the Oncology Market 1 Drugs in Pipeline by Therapeutic Class A 2021E $46 BILLION $86 BILLION DIPLOMAT 5% 1. Barclays Research, EvaluatePharma. January Profile Biopharmaceutical Research Industry April 2015 & 2016 Profile Biopharmaceutical Research Industry 2016 April 2016 According to BioWorld, biotech funding has increased 25% year-over-year to $15.8 billion in the third quarter

17 INFUSION CONTINUES TO OUTPERFORM THE MARKET Alpha-1 Hemophilia Hereditary Angioedema IVIG & SCIG Nutrition & Digestive Disorders $550M $4B $1.5B $4B $2.9B 17

18 INDUSTRY SERVICES GENERATE NEW PROFITS Hub services are a $4B and growing market. 1 We compete in this emerging, high-margin area. Affordability and copay support Noncommercial pharmacy PAP and wholesale support Market insight and remote monitoring Benefit coverage and access support Adherence program management Nursing/health support Customized technology solutions 1. $1 billion market size is a management estimate based on total 2016 specialty pharmacy market size. 18

19 M&A: BECOMING BETTER, NOT JUST BIGGER Acquisition Date Accelerated Current Capabilities New Therapy Expanded Geography Access to Additional Payors Manufacturer Relationships New Technology Expanded Service Offering Q Q Q Q Q Q Q Q Q Q Q Q Q

20 Financial Profile 20

21 THIRD-QUARTER 2017 RESULTS Revenue (MILLIONS) Gross Profit/Script 1 $1,181 $1,125 $289 $360 Gross margin 2 : 6.6% (3Q16A) to 7.6% (3Q17A) 3Q16A 3Q17A 3Q16A 3Q17A Net Income (MILLIONS) $5.4 Adjusted EBITDA (MILLIONS) $23.2 $22.6 $1.0 Adjusted EBITDA margin: 1.9% (3Q16A) to 2.1% (3Q17A) 3Q16A 3Q17A 3Q16A 3Q17A 1. Based on dispensed scripts only. 2. Gross profit / net sales (i.e., based on dispensed and serviced scripts). 21

22 LONG-TERM FINANCIAL PERFORMANCE Total Revenue (MILLIONS) $4,410 $3,367 $1,127 $1,515 $2,215 $1,181 $1,125 $578 $ A 2011A 2012A 2013A 2014A 2015A 2016A 3Q16A 3Q17A % Growth 53% 34% 46% 34% 46% 52% 31% Note: Historical financials are not pro forma for any acquisitions. 22

23 LONG-TERM FINANCIAL PERFORMANCE Adjusted EBITDA $95 $107 (MILLIONS) $8 $15 Pre-IPO infrastructure investments $11 $19 $35 $22.6 $ A 2011A 2012A 2013A 2014A 2015A 2016A 3Q16A 3Q17A % Growth 27% 88% (28%) 75% 85% 170% 13% % Margin 1.3% 2.0% 1.0% 1.3% 1.6% 2.8% 2.4% 1.9% 2.1% Note: Historical financials are not pro forma for any acquisitions. 23

24 GROWTH IN PROFITABILITY Financials are not pro forma for acquisitions. Gross profit per script is based on dispensed scripts only. Percent margin equals gross profit / net sales (i.e., based on dispensed and serviced scripts). Gross Profit/Script $280 $325 $289 $360 (MILLIONS) $167 $116 $71 $93 $ A 2011A 2012A 2013A 2014A 2015A 2016A 3Q16A 3Q17A % Growth 12% 31% 4% 20% 44% 68% 16% % Margin 7.1% 7.3% 6.2% 5.9% 6.3% 7.8% 7.4% 6.6% 7.6% 24

25 BALANCE SHEET/CASH FLOW SNAPSHOT Sept Dec Cash $27 $8 Total Debt $160 1 $150 Shareholders equity $647 $614 Net Debt/ProForma TTM EBITDA ~1.3x 2 ~1.0x 3 Cash Flow From Operations (period ended) $94 $31 1. Includes $11mm in cash-based contingent consideration 2. ProForma includes 12 months of Accurate, Affinity, Comfort Infusion, FocusRx, and WRB Communications 3. ProForma includes 12 months of Affinity, Comfort Infusion, and TNH 25

26 Opportunity/Revenue/Value MOVING FORWARD, STRONG PATHS FOR GROWTH Scalability through efficiencies more new benefits than added costs High-margin fee-for-service opportunities for pharma/payors High-growth market with unmet drugmanagement needs Strategic national coverage and siteof-care cost reduction Continued high revenue with growing LDD opportunities Time 26

27 Appendix 27

28 REVENUE BY THERAPEUTIC CLASS ($ IN THOUSANDS) Therapeutic Class 2016 % of Total Oncology $2,102,130 48% $1,432,091 $1,068,751 $736,987 Immunology $644,173 15% $510,708 $438,145 $378,685 Hepatitis $583,751 13% $520,771 <10% <10% Specialty Infusion $505,240 11% $374,884 <10% <10% Multiple Sclerosis <10% N/A <10% $226,805 $169,470 Other (none greater than 10% in period) $575,094 13% $528,177 $481,255 $229,997 $4,410,388 $3,366,631 $2,214,956 $1,515,139 Limited-distribution drug % of total 53% 45% 44% 40% 28

29 RECONCILIATION OF NET INCOME (LOSS) & ADJUSTED EBITDA For the three months ended September 30, Calendar year ending December 31, ($ in millions) A 2015A 2014A 2013A 2012A 2011A 2010A Net income (loss) attributable to Diplomat $1.0 $5.4 $28.3 $25.8 $4.8 ($26.1) ($2.6) $9.2 ($7.8) Depreciation & Amortization $16.9 $13.7 $50.0 $30.8 $8.1 $3.9 $3.8 $3.1 $2.2 Interest Expense $2.1 $1.8 $6.6 $5.2 $2.5 $2.0 $1.1 $0.6 $0.5 Income tax expense ($0.7) ($3.2) $11.2 $16.2 $ EBITDA $19.3 $17.7 $96.1 $78.1 $20.1 ($20.2) $2.3 $12.8 ($5.2) Contingent consideration and other M&A expense $3.0 $ Share-based compensations expense $1.7 $1.4 $5.4 $4.0 $2.9 $0.9 $0.9 $1.4 $0.8 Change in fair value of redeemable common shares ($9.1) $34.3 $6.6 - $10.7 Termination of existing stock redemption agreement - - $0.2 - $ Employer payroll taxes - option repurchases $0.0 $0.1 - $ Restructuring and impairment charges - $2.5 $7.1 $0.2 - $1.0 $0.4 $0.4 $1.5 Equity loss of non-consolidated entity $6.2 $1.1 $0.3 $0.1 - Severance and related fees $0.1 $0.1 $1.1 $0.5 $0.4 $0.2 $0.4 $0.7 - Merger and acquisition related expenses - - ($6.6) $9.2 $7.2 $ Private company expenses $0.2 $ Tax credits and other $1.0 - ($0.1) ($0.6) - Other items ($0.9) $0.4 $4.0 $1.5 $1.4 $0.7 $0.1 $0.2 ($0.0) Adjusted EBITDA $23.2 $22.6 $107.4 $95.0 $35.2 $19.0 $10.9 $15.1 $7.7 29

30 RECONCILIATION OF NET INCOME (LOSS) & ADJUSTED EBITDA (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. The full year 2016 includes both the Q impairment to write down our cost method investment in Physician Resource Management, LLC ( PRM ) and the Q full impairment of the definite-lived intangible assets associated with Primrose Healthcare LLC 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 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 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) Q excludes $1.0 million of insurance proceeds associated with the 2016 inventory loss due to a cooler failure includes a $2.4 million inventory loss due to a cooler failure. Other expense is predominantly 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. 30

31 Copyright 2017 by Diplomat Pharmacy Inc. Diplomat is a registered trademark of Diplomat Pharmacy Inc. All rights reserved. 31