EFTA01077699.pdf

0 Ixonardo &Co. EFTA01077699  1. Investment rationale 2. Overview of Farmabios 3. Overview of PharmaZell 4. Combined Case financials 5. Combined Case financial structure & return tables 6. Co-investor proposed terms Appendix: A Key financials Farmabios & PharmaZell B Ergon Capital Partners Overview Leonardo &Co. EFTA01077700 Project Zermatt - Introduction Project Zermatt ■ Ergon Capital Partners II SA ("Ergon") signed in September 2011 the acquisition of Pharmazell GmbH, in order to combine it with its portfolio company Farmabios SpA and create a leading player in the niche APIs sector with sales and EBITDA in excess of E100m and E20m respectively (the "Combined Company"). The transaction is subject to regulatory approvals and is expected to close in October 2011 ■ PharmaZell and Farmabios will operate under a common holding, Zellbios SA (currently named Farmabios International SA), controlled by Ergon and headquartered in Luxembourg ■ Ergon seeks to syndicate a minority stake of the equity in the combined transaction, out of a total equity commitment of E60m ■ Ergon is a mid-market private equity investment company with E775m under management backed by Groupe Bruxelles Lambert (GBL) and Parcom Capital/ING, which targets equity investments from E20m up to E75m in companies located in Benelux, France, Italy, Spain, Germany and Switzerland. Headquartered in Brussels, Ergon has offices in Paris, Milan and Madrid. Ergon's investment philosophy is one of value creation in partnership with management. following an industrial strategy to generate long-term capital gains. Ergon deploys the industrial and conservative long-term vision of a successful family-controlled group (GBL) ■ Ergon has asked Leonardo & Co. to support this process, all inquiries should be made to: Ulrich Graebner Volkmar Hellmich Managing Director Executive Director Leonardo & Co. GmbH & Co. KG Bockenheimer LandstraBe 2-4 60306 Frankfurt am Main Germany Tel.: + Fax: Confidential Leonardo & Co. September 2011 EFTA01077701  Investment rationale a Leonardo &Co. Confidential September 2011 EFTA01077702 Investment rationale The combination of Farmabios and PharmaZell creates a leading player in specific API niches with superior profitability 1 I Leading European API player in specific and The combination of Farmabios and PharmaZell creates a leading player in specific API niches, namely steroids, HPS (high potency less competed niches substances), antineoplastics, 5-ASA and cysteines with significant/dominant market share in each of these segments, providing for important barriers to entry 2i broad Critical mass and products The combination of Farmabios and PharmaZell creates a company of E100 m sales, giving it sufficient critical mass to maintain a strong portfolio position with innovators and large generic pharma companies; cross-selling opportunities with further scope for business expansion 3 Optimised production The combination of Farmabios and PharmaZell leverages on four different production plants in diversified regions (Italy, Germany, I footprint India), ensuring multi-site production to its key customers. Furthermore, the combined entity benefits from a mix of sites in Europe, with significant know-how and strong regulatory position, and its position in India with access to a lower cost base for its R&D and early production steps or simple/high-volume business 4I Strong commercial platform with The combination of Farmabios and PharmaZell has privileged access to numerous blue chip customers with cross-fertilisation potential. Furthermore, the Combined Company leverages the strengths of its respective S&Ms team in most markets, has sufficient critical mass intimate relationships to establish a direct approach in most key markets (e.g., US), thereby rationalising the use of distributors/agents and increasing to key customers intimacy with customers 5 I Strong R&D position Farmabios and PharmaZell enjoy a significant combined knowhow/IP basis that can be leveraged to drive future growth, with interesting pipeline (antineoplastics at Farmabios, UDCA at PharmaZell) With sales of €100 m plus and EBITDA of €20 m plus Farmabios-PharmaZell is a significant player in the European API market focusing quasi exclusively on selected niches where it holds a dominant market position Confidential I tintardu & (.0. September 2011 EFTA01077703 Investment rationale Farmabios-PharmaZell synergies Although both companies will retain sufficient operational freedom under the helm of a common holding company, the combination of Farmabios and PharmaZell will generate synergies at multiple levels Commercial Both companies have intimate and long-term relationships with large generics and big-pharma companies. Sharing the client bases will 1 I certainly lead to cross-selling opportunities for both companies. Furthermore, the Combined Company will have sufficient critical mass to enter some markets directly (e.g.. US) 2 I Purchasing PharmaZell, through its Indian operations, has facilitated cheaper access to LCCs (i.e., India and China) where most of PharmaZell and Farmabios raw materials are sourced. The responsibility for purchasing of the Combined Company will be centralised at PharmaZell 3 I R&D Farmabios has a limited R&D team in a high cost environment, while PharmaZell has a large R&D department in India with proven development capabilities. By giving Farmabios access to the Indian development platform, Farmabios will significantly accelerate its R&D yield in steroids, HPS and antineoplastics 4 I Operations Sharing of operational best practices or technologies between both companies (e.g., PharmaZell know-how in production cycle optimisation, Farmabios experience in low volume/difficult handling molecules). However limited amount of hard cost synergies is anticipated due to the complementary nature of Farmabios and PharmaZell and the relatively thin/lean structure of both companies 5 I Central functions Cost synergies due to planned centralisation of certain corporate functions (finance, administration, regulatory, health, environment & safety, GMP & certifications, ...) Confidential I _collard° & Co. September 2011 EFTA01077704  Overview of Farmabios 0 Leonanio &Co. Confidential September 2011 EFTA01077705 Overview of Farmabios Farmabios at a glance Business description Key facts ■ Leading manufacturer of active pharmaceutical ingredients (APIs), mostly Turnover E 48.5m off-patent serving the Italian and export markets (FY 12/2010) ■ Amongst the top players worldwide in its niches: #2 independent Employees 140 people producer/convertor of steroids (-1O% market share) and #1 on specific Headquarters Gropello Cairoli (Pavia - Italy), sterile cephalosporins 40 km south of Milan ■ Additional franchise in High Potent Substances (HPS) focusing on muscular Plant 1 production site in Groppello relaxant molecules and newly built plant for antineoplastics with high growth potential Sales breakdown by product (FY 12/2010) Steroids Italy ■ Cephalosporins ■ Singapore HPS and others 13% ■ Japan ■ Europe L Germany ■ USA ■ Canada ■ China ■ India Others Confidential Leman& & Co. September 2011 EFTA01077706 Overview of Farmabios Farmabios' business model Products' philosophy Business model ■ Focus on APIs characterised by low volumes, high prices and relatively complex ■ Farmabios markets APIs for three market segments Industrial activities, requiring dedicated plants. containments and strong specialisation ■ Product categories offered are 1 I Generics Drugs whose original patents have expired. Customers are generic manufacturers Steroids Different pharmacological applications depending on 1 I the sub-class: anti-inflammatory, anti-asthmatic, dermatological, anti-allergic, fertility control, contraception 2i Outsourcing Manufacturing of mature or new/patent protected products on behalf of the originators, mostly big 2i Cephalosporins Niche type of antibiotics (low volumes and relatively pharma companies high prices), mostly sterile form 3i Custom Originators outsourcing the synthesis of original synthesis molecules at a very early stage. High risk/high 3 Highly potent APIs administered at very low dosages requiring reward type of business I substances strict handling precautions and specific ("HPS") manufacturing authorizations ■ Farmabios addresses the three market segments to balance its business risk. The most important market segment is still that of generics (8O% of total sales) 4I Antineoptastics Most specialized HPS products, with extreme toxicity and requiring strict handling precautions and specific (anticancer) manufacturing authorizations High growth potential Confidential I Al man & CAL September 2011 EFTA01077707 Overview of Farmabios Farmabios' customers base consists of over 300 global and regional generics companies and big pharma innovators C+ Chiesi V Chile cian vo A SANDOZ GlaxoSmithKline PRR PH AR IA ACILts TICAL CO IA PANTES RECORDATI Ifl 0 sigma-tau Cipla alfresa Caring fur lift sanoFi aventis ••0 Bristol-Myers Squibb 555 FRESENIUS KABI Final customers are served both directly or through distributors Farmabios' customers base is highly fragmented (top 10 customers representing 64% of sales) Excluding distributors, Farmabios' major client is Sankyo (Japan), which accounts for 9% of sales and its second second major customer is Chiesi (Italy), contributing 8% of sales Confidential I ronank &Co. September 2011 EFTA01077708  Overview of PharmaZell Confidential Leonanlo &Co. September 2011 EFTA01077709 Overview of PharmaZell PharmaZell at a glance Business description Key facts ■ Atypical player in the API space, focusing on specific molecules in relatively Turnover E 52.4m small niche markets, where PharmaZell holds a leading market position, (FY 03/2011) thereby limiting the attractiveness to new competitors due to market size Employees 490 people (of which 2/3 located in India) and PharmaZell's economies of scale Headquarters Raubling (Germany), ■ Focus on niche molecules for which the total market size is limited (E4 to 66 km east of Munich E15 m) Plants 1 production plant in Raubling, 2 production plants in ■ For its 6 main products, PharmaZell is either the #1 or the #2 largest India (Chennai and Vizag) and 1 R&D specialised unit manufacturer worldwide and has a cost and/or technology leadership in India (Vizag) Sales breakdown by product (FY 03/2011) Sales breakdown by region (Ft 03/2011) 5-ASA Europe ■ NAC ■ North America ■ Cysteines ■ Latin America ■ SCC ■ RoW 34% Propafenone ■ Other 77% - 12 - Confidential Leonardo & C.U. September 2011 EFTA01077710 Overview of PharmaZell PharmaZell focuses on differentiated generics and formulation protected originator niche products - APIs and intermediates in lab to large quantities (from KGs to MTs) Product group Main product Comments ■ Standard APIs ■ 5-ASA, Propafenone, Balsalzide, Carbamazepine ■ Substances available in various physical forms or particle sizes tailored to meet the formulation requirements of customers ■ Amino Acids & ■ NAC, SCC, L-Cysteine, EAC ■ Wide range of amino acids tailored to fit the requirements of numerous Intermediates applications in the pharmaceutical, neutraceutical and personal care industry Focus on APIs with limited annual sales volumes (of C4-C15 m) and oligopoly market structure, limiting attractiveness for new competitors Leading position in such API niches Confidential I 2onarclo & Co. September 2011 EFTA01077711 Overview of PharmaZell PharmaZell is positioned in four segments Development of generic products ■ API manufacturing ■ API process and analytical development ■ Dedicated manufacturing units for large volume products ■ Scale up facilities PharmaZel l ■ Multipurpose reactor trains covering a large volume range ■ Controlled substances ■ Products ■ Process and analytical development o NAC/SCC o Carbamazepine/Clopidogrel Originator API production Development of originator products ■ API manufacturing ■ API process and analytical development ■ Dedicated manufacturing units for large volume products ■ Scale up for clinical trials ■ Multipurpose reactor trains covering a large volume range ■ Cost effective development using dual approach India-Europe for multi step synthesis ■ Products ■ Process and analytical development o Balsalazide o 5-ASA Confidential Leonardo) &Ca September 2011 EFTA01077712 Overview of PharmaZell PharmaZell combines leadership in niches with sustainable competitive advantages - stable market niches with limited market competition (oligopoly) Product Direct Competitors Competitive Advantages of PharmaZell NAC • Nr. 1, Largest producer worldwide Wambon 5-ASA C 2I nn4 AIMPEAr ovarson Expenonoe Pedormance C HEMI Nutra Eb • Nr. 1, Cost and quality advantages SCC • Nr. 2, Cost advantages Propafenone • Nr. 1, Cost advantages Balsalazide • Nr. 1 with OmniChem, easier to formulate cus on APIs with limited annual sales volumes (of C4-C15 m) and oligopoly market structure, Fo limiting attractiveness for new competitors Leading position in such API niches Note: Market position assessment of PharmaZell Confidential 1A11111.IrdO & Cu. September 2011 EFTA01077713 Overview of PharmaZell PharmaZell's customers base consists of over 80 global and regional pharmaceutical and fine chemicals companies SANDOZ WACKER WARNER CHILCOTT (ijAlmirall (Shire HERMES Abbott ARZNEIMITTEL Pierre Fabre LINDO PHARM Boehringer Monza UNITED LABORATORIES. INC. VIII Ingelheim GERARD C re DKSH A V. LOMAS IAMITEI) Top five customers include Shire (5-ASA), Falk (5-ASA), Wacker (Cysteine), Sandoz (NAC), and Abbott (Propafenone), representing 45.5% of sales Multi-year supply agreements with key customers provide the business with base line planning confidence Confidential .eonzirclo L~ CAA September 2011 EFTA01077714 Overview of PharmaZell PharmaZell operates on three continents with manufacturing facilities in Germany and India PharmaZell, Inc., USA Raubling, Germany Vizag, India Employees: 2 Employees: 150 Employees: 112 (R&D center and SASA plant) Sales and business Fac. area: 33,780m2 Fac. area: 67,708m2 development for North Key products: Key products: American customers ■ 5-AM ■ 5-AM (2008) ■ Acetylcysteine (NAC) ■ Sodium Residronate ■ Carbamazepine ■ Celecoxib ■ Propafenone ■ Balsalazide ■ Clodronate Channel, India Employees: 214 Fac. area: 21,115m2 Key products: ■ SCC ■ Orotates ■ Clopidogrel ■ Amino Acids ■ Quetiapine Note: Number of employees as per January 2011 Confidential Leonardo & Ca September 2011 EFTA01077715  Combined Case financials - 18 - Confidential Leonardo & Ca September 2011 EFTA01077716 Combined case financials Underlying assumptions to Farmabios business plan Sales and gross margin assumptions Costs, capex and working capital assumptions The business plan prepared by management is based on a bottom-up approach, ■ Wages & salaries - Driven by salary increases with expected average yearly forecasting volumes, sales prices and gross margins per product growth rates of 4.0% The growth of Farmabios in the business plan is based on the following ■ Maintenance / Global services - Driven by inflation with expected inflation assumptions: rate of 1.5% ■ Cephatosporins - the Company expects to maintain the current ■ Other variable costs - Expected stable percentage of sales from 2010 to contribution level from cephaiosporins, by focusing on niche products that 2015 yield high margins and that are not exposed to the competition from LCC players. In the business plan, the growth of cephalosporins over the 2010- ■ General & admin expenses - Driven by cost increase with expected average 2015 period is expected to be moderate at +1.5% CAGR, due to the yearly growth rates of 1.5% maturity of the product line ■ Capital expenditure • Steroids - Farmabios' management expects to consolidate this business, by ■ Replacement and extraordinary maintenance capex equal to EUR 1.5 maintaining its current customer base and by trying to enter new product million in 2011 increasing to EUR 2.1 million in 2015 niches. In addition, the Company expects to develop further lines of products through the new sterile steroids facility. The business plan ■ Security and environmental & health capex: stable investment of EUR foresees a yearly average growth rate of 5.0% for steroids in the 2010-2015 0.1 million per year period ■ New anticancer plant: in addition to the EUR 3.1 million already spent ■ HPS - Farmabios will leverage on its HPS production facility in order to in the 2010-2011 period, it is envisaged an additional investment of further develop this line of activity, which represents a logical extension to EUR 1.3 million in 2012 in order to install a second line in the plant the other products of the Company, through the launch of a new molecule (tirofiban). The business plan foresees sales increase from EUR 0.7 million ■ New finishing room capex of EUR 1.6 million between 2013 and 2014 in 2010 to EUR 1.8 million in 2015 ■ Working capital - Development based on inventory days, DSOs, and DPOs. ■ Anticancers - following a EUR 3.1 million investment in a new anticancer The business plan foresees a slight improvement of the working capital as plant completed in July 2011, Farmabios is currently launching new percentage of sales which is expected to decrease from 27.1% in 2010 to products in the generic anti-cancer APIs' niche which has favourable 26.7% in 2015 growth outlook. The project will start generating revenue in 2011 and it is expected to reach sales of EUR 8.0 million in 2015 The Company's gross margin is conservatively expected to decrease from 51.3% in 2010 to 47.6% in 2015, mainly driven by expected increase of raw materials prices Confidential I AI)11Z111.1) 4S:CAL September 2011 EFTA01077717 Combined case financials Underlying assumptions to PharmaZell Management Case business plan Assumptions for price/volume parameters in Management case Assumptions for profitability and capex in Management case ■ 5-ASA - Price for 5-ASA is expected to decrease slightly over time while • Utilities -Decrease of percentage of sales from 9% in 11/12 to 8.2% of sales volumes are planned to be more than doubled compared to 11/12. Sales in 15/16 volume to reach EUR 34.3m in 15/16. Expected mark-ups amount to EUR 1.0 ■ Other variable costs - Decrease of percentage of sales from 2.3% in 10/11 million in each 11/12 and EUR 1.6 in 12/13 instead of decrease to 1.8% of sales in 15/16 ■ NAC - Revenues from 12/13 onwards are expected to remain flat at EUR 12.9 ■ Wages & salaries - Driven by salary increases on entity basis with expected million p.a. slightly below 11/12 level growth rates of 3.0% in Raubling, 10.0% in Chennai and 14.0% in Vizag ■ Wacker Cystelne - Prices excl. mark-ups in 11/12 expected to decrease ■ Maintenance I Global services - Driven by inflation per entity with expected sharply compared to 10/11 and then remain stable; volumes increase from inflation rates of 1.5% in Raubling. Growth rates for maintenance of 5.5% for 790t in 10/11 to 1,400t in 13/14 due to expansion project. Mark-ups on Chennai and 5.0% for Vizag cysteine prices of EUR 0.4 million in 11/12, EUR 1.5 million in 12/13 and EUR 0.6 million in 13/14 are expected by PZ mgmt ■ General & admin expenses - Driven by cost increase per entity with expected growth rates of 1.5% in Raubling. Growth rates of 6.5% for Chennai and 7.0% for ■ UDCA - Revenues are expected to increase linearly from EUR 0.8 million in Vizag equal to PZ mgmt case 11/12 to EUR 10.0 million in 15/16 • Other fixed costs - Decrease from 4.5% in percentage of sales in 11/12 to 3.3% ■ SCC - While prices are expected to remain stable, volumes are planned to of sales in 15/16 increase cumulatively by 25%; revenue is expected to reach EUR 4.8 million ■ Sales & marketing - Decrease of 3.7% in 11/12 to 3.1% of sales in 15/16 ■ Propafenone - Management expects volumes to grow by a CAGR of 14% over ■ Capital expenditure the business plan period, while prices are expected to decrease slightly. Sales will amount to EUR 5.9 million in 15/16 ■ Maintenance capex is expected to increase from EUR 3.2 million in 11/12 to EUR 5.0 million in 15/16 ■ Balsalazide - Prices and volumes are expected to remain on the level of 10/11, revenues are planned to stay flat at EUR 1.3 million ■ Total capex for 5-ASA debottlenecking of EUR 8.9 million from 11/12 to 14/15 ■ Carbamezepine - Revenues are expected to remain flat slightly below 10/11 ■ Total cysteine expansion capex of EUR 1.5 million from 11/12 to 13/14 level for the business plan period at EUR 1.1 million ■ UDCA capex of EUR 3.0 million from 11/12 to 13/14 ■ Cysteine/Aminoacids - Prices are expected to decrease by 7 percent in 11/12 and 12/13, volumes are planned to increase by 15%, revenue will amount to ■ Working capital EUR 2.6 million in 12/13 and will stay flat ■ Inventory is based on inventory days for each entity and assumed to be constant from 11/12 onwards at entity level ■ Trade receivables are mainly driven by Raubling and reduced by factoring agreements, which PZ mgmt assumes to be constant at EUR 2.7 million ■ Trade payables are assumed to have constant DPO per entity Confidential Leonardo & Ca September 2011 EFTA01077718 Combined case financials Management Case - PZ + FB combined revenue evolution by major products Combined revenue split by major products (in en) 180 155.4 160 145.1 134.6 140 123.2 41.0 CAGR 08-IS 39.6 Farmabios: 120 109.1 6.0% 38.1 100.8 36.2 16.1 100 89.7 88.0 r 16.0 34.1 8.0 151 32.1 80 15.2i 10.0 29.4 28.0 . 5.11 7.5 16.3 CAGR 08-IS 16.0 PharmaZell 60 16.2 16.7 w/o UDCA: 15.6 15.0 0 7.5% 12.3 MINN 17.7 40 11.9 MN= 17.7 17.7 10.3 Mal 17.7 17.3 17.5 CAGR 08-IS 20 14.9 PhannaZell 31.5 34.3 all-in: 24.6 28.5 17.7 20.0 9.5% 10.2 14.3 0 2008 2039 2010 2011 2012 2013 2014 2015 5 ASA • NAC/SCC ■ Propafenone Other PZ ^ UDCA ■ Other pipeline PZ ■ Anticancers ■ HPS • Cephabsporins ■ Steroids ■ Other FB Note: PZ figures are not calendarized: PZ management case is adjusted for latest forecasts and evidence Other pipeline PZ includes products which do not generate revenues before 12/13. such as Clopidogrel. NAT. Olanzapine. Pregabalin, 6-MU. Other generics 2' Confidential Leonardo & Ca September 2011 EFTA01077719 Combined case financials Management Case - PZ 4" FB combined EBITDA evolution Combined EBITDA / EBITDA-margin evolution EBITDA (in EURm) EBITDA•margin (In %) 60 30.0% 24.8% 25.0% ................ ..... 25.0% 50 5:" . .• 22.9% 23,1% 23 21.6% 21.8% 21.2% , ................. • ' -- - - . 20.9% ... 21.8% 2127................ .... .............. ..... . 20.7% 20.7% ..... • . ......... •