CHEPLAPHARM Arzneimittel Gmbh Greifswald Operating and Financial

CHEPLAPHARM Arzneimittel GmbH Greifswald

Operating and Financial Review for

Full Financial Year 2019

The purpose of this Operational and Financial Review is to show the development of the financial results of the operating business for the twelve-months period ended December 31, 2019 in comparison to the twelve-months period ended December 31, 2018.

The following discussion should be read in conjunction with the information contained in our condensed consolidated financial statements for the twelve-months period ended December 31, 2019 including the notes thereto.

The figures in this review are presented in Euro. The amounts are in millions of Euros (EUR m). All amounts are rounded using standard commercial principles. In some cases, adding single values to the total values may therefore lead to differences. Due to rounding differences, figures in tables and cross- references may differ slightly from the actual figures (units of currency, percentages, etc.).

Table of Content 1. Key Figures ...... 4 2. Business Overview ...... 4 Summary ...... 4 Our Strengths ...... 6 Our Strategy ...... 9 3. Product Portfolio ...... 11 4. Key Factors Affecting Results of Operations and Financial Condition ...... 13 Scope of consolidation & change of group entities ...... 13 Shares in associated companies ...... 13 consolidated financial statements according to the equity method: ...... 13 Acquired Products during the LTM period ...... 13 5. Results of Operations ...... 15 Revenue ...... 15 Other Operating Income ...... 16 Cost of materials and Gross Profit ...... 16 Personnel expenses ...... 17 Amortization, depreciation and impairments ...... 17 Other operating expenses ...... 17 Net finance costs ...... 18 Tax on income ...... 18 Earnings after income taxes ...... 18 6. Financial Condition, Liquidity and Capital Resources ...... 19 7. Adjusted EBITDA and Net Leverage ...... 19 8. Cash Flow Statement ...... 20 9. Status of Marketing Authorizations Transfer ...... 21 10. Employees ...... 21 11. Critical Accounting Policies and Significant Accounting Estimates ...... 21 12. Recent Developments ...... 21 Corona (SARS-COV-2 / COVID-19) ...... 21 Changes in the group of consolidated entities ...... 22 13. Risk Factors ...... 23

1. Key Figures

2. Business Overview

Summary

We are a leading specialty pharmaceuticals company headquartered in Greifswald, Germany, with an international footprint and a broad portfolio of more than 90 products across more than ten therapeutic areas, including cardiology, oncology and infectious diseases. We focus on acquiring well established, off-patent, branded legacy and niche originator pharmaceutical products with predictable cash flows from large pharmaceutical companies. Pharmaceutical companies regularly seek to dispose of these products to reduce the complexity of their product portfolio and because these products no longer fit their business model, even if still profitable. They seek reliable and experienced buyers, such as us, to dispose of these products given that maintaining market supply is paramount to mitigate potential reputational risk. We have a strong track record of ensuring uninterrupted supply and are typically able to generate additional value from these well-established, off-patent branded legacy and niche originator products by reducing complexity and costs throughout the value chain. We achieve that due to our lean setup, including outsourced manufacturing, as well as through our outsourced global 4

distribution capabilities. Since our inception in 1998, we have established relationships with more than ten different pharmaceutical companies by acquiring their products. We believe that our track record of successful acquisitions and our proven ability to integrate new products into our business in a timely and seamless manner make us a preferred partner for many large pharmaceutical companies, such as AstraZeneca, Bristol-Myers Squibb and Roche.

We operate a lean business model focused on (i) selecting and acquiring suitable off-patent, branded niche or legacy originator products or product portfolios that fit our disciplined acquisition criteria, (ii) managing the transfer of the required approvals to market them across various countries and (iii) integrating them into our established value chain of contract manufacturing organizations (‘‘CMOs’’) and distributors. With no own manufacturing facilities or sales force, our asset light business model typically enables us to reduce production as well as sales and marketing costs by outsourcing production and distribution of our products to third parties. Our large network of CMOs allows us to choose the partner which is able to offer the lowest production costs and best quality for a specific product or pharmaceutical form. In addition, we may be able to achieve economies of scale and negotiate favorable terms with CMOs by bundling the production of various products with the same CMO.

We distribute our products in more than 120 countries across six continents, predominantly through our extensive network of distribution partners, with many of whom we have long-standing relationships. Not maintaining our own distribution capabilities in the majority of countries we operate in, allows us to choose local distribution partners who we believe are best suited for a specific product and to focus on the most efficient distribution channel. At the same time, we may be able to realize efficiencies by bundling the distribution of various products with the same distribution partner.

Given our business model and the off-patent status of our products, we do not develop products and have no research and development (‘‘R&D’’) activities of our own. Therefore, we are not exposed to the significant risks and upfront investments that are associated with the development of new pharmaceutical products. In addition, given that our products have typically been on the market and off- patent for a prolonged time, there is a very limited need to invest in product improvements, line extensions or similar measures.

As a result of this diversification, we are not dependent on a single product or geography. Our products are used by a diverse customer base including consumers, doctors, pharmacies, hospitals, mail-order companies, buying groups, wholesalers and other service providers in the healthcare market, as well as public or private health insurance organizations. We estimate that our primary customer groups are physicians, hospitals and patients paying for their products ‘out-of-pocket’. Our products typically also benefit from a loyal customer base which has used or prescribed the product for many years and, therefore, is less likely to switch to a different product. We believe that these ‘‘pull factors’’ are particularly characteristic of prescription drugs, sales of which represented approximately 94% of our sales with approximately 5% being generated from the sale of OTC products. Finally, competition for our products is often limited or well-known. Our products have typically been off-patent for several years and the competitive landscape has settled by the time we acquire the products. This is because generic products are typically launched immediately after patent protection for the originator product expired. Accordingly, the sales decline for an originator product is most severe immediately following expiry of patent protection and hence, by the time we acquire a branded originator product, the risk of

new products entering the market is relatively low, driven by non-compelling economics for new entrants given the niche or legacy nature of the sub-segment of the pharmaceutical industry in which we operate.

Our business has grown significantly in recent years. We have increased our revenues and EBITDA before non-recurring items from €132.5 million and €69.7 million, respectively, for the year ended December 31, 2016 to €524.8 million and €277.6 million, respectively, for the twelve months ended December 31, 2019.

We believe that the future growth of our business is supported by a number of favorable long-term trends. We expect that there will continue to be attractive acquisition candidates available to us as a result of large pharmaceutical companies reducing the complexity of their portfolio and focusing on newer patented products. This expectation is underpinned by a substantial proportion of currently marketed pharmaceutical products for which patent protection will expire by 2024, a trend expected to continue in later years as ‘‘blockbuster’’ and other drugs lose patent protection, as well as the continuing trend toward mergers & acquisitions in the pharmaceutical industry, which we expect will result in the realignment of product portfolios. At the same time, we expect that the broader pharmaceutical industry will continue to grow in the future as a result of rising medical needs driven by a growing and ageing population, the availability of new and innovative products addressing previously unmet medical needs, the expansion in the awareness and availability of healthcare and increasing national income in emerging markets.

Our Strengths

Differentiated and low-risk business model given proven and mature products with a stable competitive environment and an established customer base.

We focus on acquiring original, well established, off-patent branded legacy and niche originator pharmaceutical products which have been on the market for many years and for which patent protection expired several years ago. We believe such products offer attractive opportunities with limited risk, given the long prescription track record, well understood side effects and lower litigation risk. Such products are also characterized by stable customer bases and visibility on revenue streams, long phase-out periods and a strong ‘‘pull effect’’ (i.e., limited to no marketing required as brands are well established and have a high degree of loyalty or familiarity with the prescriber or end user). We believe that these factors also reduce the risk of new competitors entering the market for our products, given the non-compelling economics for a new entrant, as the competitive landscape has settled and introducing a new product would entail significant costs.

Our product portfolio comprises well established, off-patent branded ‘‘legacy’’ originator products and ‘‘niche’’ originator products, each representing approximately half of our sales for the twelve months ended December 31, 2019. Niche products benefit from limited or no competition due to the overall limited market size and scale constraints for generic companies and are unlikely to be replaced by new treatment alternatives. Legacy products are frequently higher volume drugs covering broader market segments and diseases, face more competition from generic products, as compared to the competition faced by niche products, given larger market size and earnings potential, but benefit from a strong ‘‘pull effect’’ due to the long track record in the market as the originator product. Our products are also 6

predominantly prescription drugs and we believe that the ‘‘pull effect’’ is more prevalent for prescription drugs.

Given our products’ long time in market and safety history, combined with sticky customer bases, high brand awareness and long phase-out periods, such branded niche and legacy originator products generate more predictable revenue and cash flows compared to new pharmaceutical products, while having limited drug-specific downside risks, such as litigation. As we do not engage in R&D, we are neither exposed to R&D risk nor to the upfront investments associated with R&D activities.

Leading position in most relevant markets and a preferred partner for global pharmaceutical companies with the ability to execute and integrate complex product acquisitions.

With our extensive track record of acquisitions, ability to swiftly negotiate and execute acquisitions, global distribution partner network and knowledge of regulatory and pharmacovigilance matters. We believe we are a preferred partner for leading global pharmaceutical companies seeking to divest off- patent pharmaceutical products. Since 2003, when we were acquired by the Braun family and our current Chief Executive Officer and Chief Scientific Officer joined the Group, we have established relationships with more than ten different pharmaceutical companies by acquiring their products, including AstraZeneca, GlaxoSmithKline, Novartis, Teva, Roche and Bristol-Myers Squibb. We believe that we have particularly strong relationships with Roche and, more recently, AstraZeneca as we have acquired multiple products or products bundles from each of them during the last years.

These relationships are further strengthened by our ability to swiftly negotiate and execute acquisitions due to fast decision-making processes, our dedicated team of experts and our long track record. We follow a disciplined, standardized and proven acquisition process with acquisition criteria that have been largely unchanged for more than 15 years. Given our lean structures and the fact that our Chief Executive Officer and Chief Scientific Officer are also our shareholders, we are in a position to evaluate and agree acquisition opportunities quickly. Large pharmaceutical companies are increasingly focused on divesting product bundles—across product types, therapeutic areas and geographies—instead of single product divestments. We believe that we are one of only a few companies with the knowhow and experience necessary to execute such complex product portfolio acquisitions in a timely and efficient manner. In addition, our global distribution network helps to ensure ongoing product availability in existing markets, which is a central decision-making factor for sellers seeking to minimize reputational risk from stock-out situations.

Due to these relationships and our track record of acquisitions, we believe we have been able to acquire products with strong positions in relatively large markets. In particular we acquired Xenical (2016), Dilatrend (2017), Atacand (2018), Lexotan (2019). We estimate to have market shares in the countries in which we distribute the relevant product of approximately 33%, 40%, 20% and 56%, respectively in the territory in which we market the respective product.

Ability to integrate new products into global network and create value

With over 80 acquisitions spanning a time period of more than 20 years, we have an extensive track record of integrating acquired products into our network thereby optimizing product potential and contribution margins. We have a large team of scientific and regulatory experts, which we have continued to expand in recent years in line with our growth. As of September 30, 2019, over 60% of our fulltime equivalent employees were active in our core functions regulatory, pharmacovigilance and quality control. This team of inhouse experts manages the transfer of required marketing authorizations in a timely manner and enables us to integrate newly acquired products into our existing network of CMOs and distributors efficiently. We believe that this track record, combined with our strong in-house capabilities in critical core areas, make it relatively difficult for new entrants to replicate our business model.

We generate additional value from newly acquired products through a number of key levers, typically including reduced overhead costs (such as sales and marketing expenses) and complexity (for example through centralized marketing authorization management), lower production costs (by outsourcing production to CMOs), optimized manufacturing arrangements and active pricing strategies. Product cost optimization through outsourced production by CMOs and, in turn, reduced production costs is the most important value lever and typically accounts for most of the cost savings we are able to achieve. Our distribution platform comprises global partners with distribution capabilities in more than 120 countries, which allows us to ensure product availability across existing markets. We are also able to realize additional potential from our products by choosing a distributor who is best suited for a given product or bundling the distribution of several products with the same distributor.

Asset light business model with limited capital expenditure requirements and strong cash flow generation

We operate an asset light business model characterized by no own manufacturing operations and no involvement in R&D activities. In addition, we outsource a significant portion of our distribution to third parties under long-term contracts, which allows us to maintain a low fixed cost base with limited capital expenditure requirements beyond investments in selective acquisitions of new products.

The combination of our low fixed cost base and limited capital expenditure requirements support a scalable business model and high EBITDA margins and cash conversion rates. In the financial years ended December 31, 2016, 2017, 2018 and 2019, our EBITDA margin amounted to 53%, 56%, 58% and 53%, respectively.

We also believe that our business model is scalable and able to generate significant economies of scale. The complexity of integrating and managing new products is primarily driven by the number of marketing authorizations that are required to be transferred in each country that the product is sold in and the need to ensure uninterrupted supply rather than the sales volume of the acquired product. Our expertise, experience and knowhow in the transfer of marketing authorizations as well as our existing global distribution network therefore allows us to efficiently integrate new products at relatively low additional fixed costs. Since 2016, we have successfully transferred approximately 527 different marketing authorizations.

Highly qualified and committed management team with excellent track record

Our senior management team has been instrumental in the success of our buy-and-build strategy, with a track record of more than 90 successful acquisitions with a cumulative acquisition value exceeding €1.8 billion since the acquisition of Cheplapharm by the Braun family in 2003. Our senior management team is supported by dedicated managers who have significant experience in regulatory and pharmacovigilance affairs and a team of highly-qualified personnel, approximately 55% with an academic degree.

We are also a family-owned company and benefit from the long-term commitment of our shareholder, the Braun family, which include our Chief Executive Officer, Sebastian Braun, and Chief Scientific Officer, Bianca Juha, who have consistently supported our growth through the reinvestment of retained earnings in the business in lieu of dividends. They are complemented by our Chief Operating Officer, Edeltraud Lafer, who has nearly 30 years of experience in the pharmaceutical industry, and our Chief Financial Officer, Jens Rothstein, who has served in that role since 2012.

Our Strategy

Pursue selective growth opportunities through disciplined acquisitions and continue to strengthen our existing integration platform

We intend to continue to grow our business through disciplined and selective acquisitions of well established, off-patent branded niche and legacy originator pharmaceutical products in line with our time- tested acquisition strategy. As a result of upcoming patent expiries for a considerable amount of products, we expect to continue to find ample opportunities for acquisitions of new products in the medium term. We will continue to leverage our regulatory and pharmacovigilance expertise to identify new products with predictable revenues as well as limited risks and competition. In addition, we remain focused on products with potential for production cost optimization and contribution margin improvement.

Our acquisition strategy is based on stringent investment-criteria.

In line with our expected growth, we plan to continue to enhance our product integration capabilities, in particular by expanding our regulatory, pharmacovigilance and quality control functions. In order to manage our expected growth more efficiently, we intend to outsource certain functions for which third parties are better suited or utilize freelance work, as deemed appropriate.

Further strengthen market position and remain a partner of choice to leading pharmaceutical companies for the acquisition of off-patent, branded legacy and niche originator products

We seek to maintain and strengthen our relationships with the leading global pharmaceutical companies as we focus on expanding our market position as a leading specialty pharmaceutical company. We believe our longstanding experience and proven track record in the industry, together with our extensive global distribution network, make us a preferred partner to pharmaceutical companies seeking to divest well- established, off-patent branded legacy or niche originator products. We aim to further strengthen those relationships by maintaining our global distribution channels to ensure continued product availability in existing markets.

In addition, our background as a family-owned business with flat hierarchies and fast decision-making processes provides us with a competitive advantage when bidding for products and we intend to leverage this advantage further going forward. Moreover, we will continue to build on our expertise and track record in marketing authorization transfers across the world to become the clear partner of choice for pharmaceutical companies focused on a global divestment of bundles of products rather than individual products. By strengthening our relationships with the leading global pharmaceutical companies, we believe we will be able to ensure a continuous, strong acquisition pipeline of potential product candidates and further improve our global market position.

Maintain a prudent financial policy based on high cash conversion rates and supported by our shareholders long-term commitment

We intend to maintain a prudent financial policy based on high cash conversion rates and selective acquisitions and supported by the long-term commitment of our shareholders. We target a ratio of EBITDA after non-recurring items to Net Financial Indebtedness of 3.75x to 4.25x. We believe that our high Cash Conversion Rate, combined with the discretionary nature of our acquisition activities, would allow us to de- lever the Group swiftly, if these leverage ratios would temporarily be exceeded.

Our financial policy is further underpinned by the long-term commitments of our shareholders. Since its acquisition by the Braun family in 2003, the Company has never paid a dividend to its shareholders and we currently do not expect to pay dividends for the foreseeable future. We aim to maintain adequate liquidity at all times through our Revolving Credit Facility and significantly cash generative business model.

3. Product Portfolio

We offer a diversified product portfolio covering a range of therapeutic areas and indications, with a focus on selected pharmaceutical brands and niche products. We marketed more than 100 products with more than 1,460 SKUs under approximately 763 marketing authorizations as of December 31, 2019.

The breadth of our product portfolio helps to limit our dependence on the success of any individual therapeutic area or product. In the twelve months ended December 31, 2019, sales of our top ten products, accounted for 66% of our total revenues. The following graph shows revenue by product for the twelve months ended December 31, 2019:

for the twelve months Ended December 31, 2019 (in EURm) Revenue by TOP 10 products Atacand® 69.4 Lexotan® 55.1 Dilatrend® 50.5 Xenical® 45.8 Cymevene® 29.5 Visudyne® 25.6 Fungizone® 23.4 Konakion® 22.4 Losec® 14.3 Dormicum® 10.2 Seroquel® ROW 9.7 All other products 168.9 Total revenue 524.8

Our geographic diversity limits the exposure to price reductions for individual products in a specific market. We have a broad geographical footprint, with the majority of our revenues being generated in Europe, followed by Asia. Sales are well diversified within Europe and Asia.

Our product portfolio is well diversified across a range of therapeutic areas. The primary therapeutic areas (and indications) of our product portfolio are: cardiology (cardiovascular diseases), obesity (adiposity), infection medicine, gastroenterology (hepatobiliary disorders), ophthalmology (retinal vascular disorder), oncology (malignant diseases), haematology (vitamin K deficiency bleeding), addiction medicine (alcohol withdrawal), emergency medicine (antidote) and sleeping disorders (insomnia).

4. Key Factors Affecting Results of Operations and Financial Condition

Scope of consolidation & change of group entities

The group of consolidated entities changed as follows compared to 31. December 2018:

 The companies Walter Ritter GmbH & Co KG, W.R. Pharmaceuticals Vertriebs-GmbH, Sanavita Pharmaceuticals GmbH and RubiePharm Arzneimittel GmbH were deconsolidated on July 27, 2019.  Glenwood LLC was liquidated as of September 30, 2019 and thus also deconsolidated.

Further details on the subsidiaries included in the consolidated financial statements as at the reporting date are provided below:

Shares in associated companies

The shares in associated companies relate to the following company, which is included in the consolidated financial statements according to the equity method: zr pharma& GmbH - Vienna/Austria - Sale of "Speciality Pharma" - 50.00%

Since 31 December 2019, CHEPLAPHARM has been holding 50.00% in zr pharma& GmbH and exercised significant influence on this entity. As of this date, the investment was initially measured according to the equity method.

Acquired Products during the LTM period

In October 2018, we agreed to acquire Lexotan, including in the therapeutic areas of mental & sleeping disorders, from Roche for an aggregate purchase price of €200 million. The acquisition includes marketing authorizations in certain European countries, Brazil, Mexico, Argentina and Switzerland. Closing of the acquisition occurred on January 4, 2019 and we are in the process of integrating the new product into our product portfolio. The acquisition of the product from Roche was financed from cash-in-hand as well as a drawdown under the Revolving Credit Facility. 13

In October 2018, we agreed to acquire Dormicum, including in the therapeutic areas of mental & sleeping disorders, from Roche for an aggregate purchase price of €23.5 million. The acquisition includes marketing authorizations in South Africa, Switzerland, Taiwan, HongKong and certain European countries. Closing of the acquisition occurred on January 4, 2019 and we are in the process of integrating the new product into our product portfolio. The acquisition of the product from Roche was financed from cash-in-hand as well as a drawdown under the Revolving Credit Facility.

In September 2019, we agreed to acquire various marketing authorizations of Losec, including in the therapeutic area digestive disorders, from AstraZeneca for an aggregate purchase price of €223 million. The acquisition includes marketing authorizations in certain European countries. Closing of the acquisition occurred on September 30, 2019. However, AstraZeneca has agreed to fully service Losec for two years following closing. Transfer of the relevant marketing authorizations and the integration of Losec into our manufacturing and distribution network is therefore not expected to commence prior to two years after closing. The acquisition of the product portfolio from Sanofi was financed from cash-in-hand as well as a drawdown under the Revolving Credit Facility.

In June 2019, we agreed to acquire a portfolio of four products (the ‘‘Gold Portfolio’’), including in the therapeutic area mental & sleeping disorders, from Sanofi for an aggregate purchase price of €66.5 million. The acquisition includes marketing authorizations in certain European countries, Argentina, Canada, Japan and South Africa. Closing of the acquisition occurred on October 30, 2019 and we are in the process of integrating the new products into our product portfolio. The acquisition of the product portfolio from Sanofi was financed from cash-in-hand as well as a drawdown under the Revolving Credit Facility.

In October and November 2019, respectively, we entered into two agreements to acquire Seroquel, a product used to treat various mental disorders, from AstraZeneca for an aggregate purchase price of USD 213 million plus sales-contingent payments of up to USD 67 million until 2026. The acquisitions include marketing authorizations for Seroquel in the United States, Europe, Canada and Russia. Closing of the acquisitions occurred in December 2019. However, AstraZeneca has agreed to fully service Seroquel for three years following closing. Transfer of the relevant marketing authorizations and the integration of Seroquel_ into our manufacturing and distribution network is therefore not expected to commence prior to three years after closing. The acquisition of Seroquel was financed from cash-in-hand as well as a drawdown under the USD 124 million Bridge Facility entered into in November 2019.

In December 2019, we agreed to acquire the marketing authorization and related trademarks for Lexotan, one of our existing products, in Japan. The acquisition of Lexotan Japan was financed from cash-in-hand.

The following provides an overview of the EBITDA contribution of each acquired Product during the last twelve months period Ended December 31, 2019.

Contribution to Adjusted EBITDA for the twelve months Ended December 31, 2019 (in EURm) Project name Closing date

Dormicum® January 4, 2019 0 Lexotan® January 4, 2019 0 Losec® September 30, 2019 41.3 Gold Portfolio October 30, 2019 12.2 Seroquel® December 2/13, 2019 60.8 Lexotan® JPN December 16, 2019 5.2 Total contribution 119.5

5. Results of Operations

The following table sets forth amounts from our income statement along with the percentage change for the twelve months period ended December 31, 2019 compared to the twelve-month period ended December 31, 2018. All figures are in EUR million, as reported.

Twelve months Ended December 31, 2019 2018 Change (in EURm) (%)

Revenue 524.8 314.7 67% Change in inventories 35.9 3.9 >100% Other operating income 1.2 15.9 -92% Operating income 562.0 334.5 68% Cost of materials -195.7 -95.6 105% Personnel expenses -19.3 -15.7 23% Amortisation, depreciation and impairments -155.9 -103.7 50% Other operating expenses -69.4 -39.4 76% Result of operating activities 121.7 80.1 52% Net income from investments 0.8 3.4 -76% Interest income affiliated companies 0.0 0.0 0% Interest income 17.9 0.0 >100% Interest expenses -66.1 -67.2 -2% Net finance costs -47.4 -63.8 -26% Earnings before income taxes 74.3 16.3 >100% Taxes on income -26.0 -6.5 >100% Earnings after income taxes 48.3 9.8 >100%

Revenue

The following table provides a breakdown of our revenue for the twelve months ended December 31, 2019, compared to the twelve months ended December 31, 2018.

Twelve months Ended December 31, 2019 2018 Change (in EURm) (%)

Operational revenue 1 282.9 219.5 29% TSA-related revenue 241.1 88.0 >100% Royalties 2 0.8 7.2 -89% Total revenue 524.8 314.7 67%

Total revenue for the twelve months ended December 31, 2019 was €524.8 million, an increase of €210.1 million or 67%, as compared to €314.7 million for the twelve months ended December 31, 2018.

Operational revenue was €282.9 million for the twelve months ended December 31, 2019, an increase of €63.4 million or 29%, as compared to €219.5 million for the twelve months ended December 31, 2018. This increase was mainly due to various transfers of marketing authorizations and the recent acquired products during the last twelve-months period.

TSA-related revenue was €241.1 million for the twelve months ended December 31, 2019, an increase of €153.1 million or 174%, as compared to €88.0 million for the twelve months ended December 31, 2018. This increase was mainly due to the recent acquired products during the last twelve-months period.

Other Operating Income

Other Operating Income were €1.2 million for the twelve months ended December 31, 2019, a decrease of €14.6 million or 92%, as compared to €15.9 million for the twelve months ended December 31, 2018.

The decrease was primarily due to the one-off gain on disposal of intangible assets related to the disposal of the Japanese license for the product Anexate and of the Turkish license for the product Dilatrend, in 2018.

Cost of materials and Gross Profit

The following table provides a breakdown of our cost of sales for the twelve months ended December 31, 2019, compared to the twelve months ended December 31, 2018.

Twelve months Ended December 31, 2019 2018 Change (in EURm) (%)

Procurement of goods and contract manufacturing 191.4 94.2 >100% Services provided by third parties 2.9 1.2 >100% Freight charger 0.0 0.0 0% Other 1.4 0.2 >100% Total cost of materials -195.7 -95.6 >100%

Total cost of materials was €195.7 million (37% of revenue) for the twelve months ended December 31, 2019, an increase of €100.1 million or 105%, compared to €95.6 million (30% of revenue) for the twelve months ended December 31, 2018. The increase was primarily due to an increase in Procurement of goods and contract manufacturing from €94.2 million for the twelve months ended December 31, 2018 to €191.4 million for the twelve months ended December 31, 2019, which is directly connected with the acquisition of further products and therewith connected increase in revenue.

Personnel expenses

Personal costs were €19.3 million for the twelve months ended December 31, 2019, an increase of €3.6 million or 23%, as compared to €15.7 million for the twelve months ended December 31, 2018. As of December 31, 2019 2018

Regulatory 66 60 Chemistry, Manufacturing and Controls 24 21 Pharmacovigilance 60 45 Quality 47 34 Supply Chain 38 27 Global Sales 39 28 Finance & Law 13 9 IT 11 6 All other 22 21 Total headcount 320.0 251.0

The increase was primarily due to increase in salaries and wages, from €3,4 million for the twelve months ended December 31, 2018 to €4.6 million for the twelve months ended December 31, 2019, as well as increases in social security costs resulting from the increase in headcount from 279 as of December 31, 2018 to 292 as of December 31, 2019 to support the regulatory and pharmacovigilance functions for our new products.

Amortization, depreciation and impairments

Amortization, depreciation and impairments were € 155.9 million for the twelve months ended December 31, 2019, an increase of €52.2 million or 50%, as compared to €103.7 million for the twelve months ended December 31, 2018. The increase was primarily due to the acquisitions of Lexotan and Dormicum(from Roche), Losec and Seroquel (from AstraZeneca), and the Gold Portfolio (from Sanofi), for which the marketing authorizations and trademarks were capitalized as part of the transactions, as well as the revenue contributions of our acquisitions during financial year 2019. No impairment was recorded during financial year 2019.

Other operating expenses

Other operating expenses were €69.4 millions or the twelve months ended December 31, 2019, an increase of €30.0 million or 76%, as compared to €39.4 million for the twelve months ended December 31, 2018. 17

The increase was primarily due to higher selling, distribution and licenses costs, resulting from our additional acquisitions of products. The increase was also due, in part, to increases in our scientific costs (e.g. cost of drug safety and quality assurance) related to the expansion of our product portfolio as well as the corresponding increase in the number of products under TSA arrangements. The increase was also due to one off costs related to the demerger of the Walter Ritter Group and the liquidation of our subsidiary Glennwood LLC.

Net finance costs

Net income from investments was €0.8 million for the twelve months ended December 31, 2019, a decrease of €2.6 million as compared to the net income from investments of €3.4 million for the twelve months ended December 31, 2018. This decrease was mainly due to a one-off gain on disposal of investments relate to the shares in Clearum GmbH during the prior year and disclosed dividend income and impairments on securities.

Net finance income was €48.2 million for the twelve months ended December 31, 2019, a decrease of €19.0 million as compared to the net finance costs of €67.2 million for the twelve months ended December 31, 2018. The decrease was mainly due to a one-off revaluation gain of financial liabilities.

Financial expenses were €66.1 million for the twelve months ended December 31, 2019, a decrease of €1.1 million as compared to €67.2 million for the twelve months ended December 31, 2018. The decrease is due to lower interest rates.

Tax on income

Income tax expenses were €26.0 million for the twelve months ended December 31, 2019, an increase of €19.5 million as compared to €6.5 million expenses for the twelve months ended December 31, 2018. This increase was mainly due to higher municipal trade and corporate income tax expenses as well as deferred tax expenses mainly resulting from the revaluation of useful live of the intangible assets.

Earnings after income taxes

As a result of the developments described above, net profit for the period was €48.3 million for the twelve months ended December 31, 2019, compared to a net profit of €9.8 million for the twelve months ended December 31, 2018.

6. Financial Condition, Liquidity and Capital Resources

As of December 31, 2019, and of December 31, 2018, the gross financial debt, the cash balance as well as the undrawn Revolving Credit Facility were as follows:

7. Adjusted EBITDA and Net Leverage

Adjusted EBITDA for the last twelve months ended December 31, 2019 was €397.1 million leading to the net debt leverage ratio of 3.34x, compared to the adjusted EBITDA for the last twelve months ended December 31, 2018 of €231.9 million and the net debt leverage ratio of 3.17x, respectively.

Twelve months Ended December 31, 2019 2018 (in EURm)

Revenue 524.8 314.7 Change in inventories 35.9 3.9 Other operating income 1.2 15.9 Cost of materials -195.7 -95.6 Personnel expenses -19.3 -15.7 Other operating expenses -69.4 -39.4 EBITDA 277.6 183.9

Contribution of the recently acquired products (LTM) 119.5 48.0

Adjusted EBITDA 397.1 231.9

Net Financial Indebtedness 1,324.7 736.0

Ratio of Net Financial Indebtedness to Adjusted EBITDA 3.34x 3.17x

8. Cash Flow Statement

The following table shows the cash flow statement for the twelve months period ended December 31, 2019 and 2018.

Cash flows from operating activities increased from €98.7 million for the twelve months ended December 31, 2018 to €185.4 million for the twelve months ended December 31, 2019. The increase is driven by a higher overall profit.

Cash flows used in investing activities increased from €446.9 million for the twelve months ended December 31, 2018 to €737.9 million for the twelve months ended December 31, 2019. The higher investment spending in the twelve months ended December 31, 2019 was mainly due to the completion of six acquisitions and the payments of the purchase prices of around € 721.7 million. For further information, please refer to section 4. Acquired Products during the LTM period.

Cash flows from financing activities increased from €412.6 million for the twelve months ended December 31, 2018 to €493.5 million for the twelve months ended December 31, 2019.

9. Status of Marketing Authorizations Transfer

186 transfers of Marketing Authorizations have been processes in the twelve months ended December 31, 2019 according to plan.

Based on the agreed asset purchase agreements with Astra Zeneca, the transfer of Marketing Authorizations for the project Atacand would likely start by end of 2020. Transfer of the marketing authorizations of project Seroquel is not expected to commence prior to 2023.

The whole transfer process per product can take on average between 0.5 years and 3 years, depending on the individual authorities in each country.

10. Employees

As of December 31, 2019, Cheplapharm employed a workforce of 351 people, an increase of 25% compared to the previous year.

As of December 31, 2019 2018

11. Critical Accounting Policies and Significant Accounting Estimates

Please refer to notes to our consolidated financial statements for a detailed description.

12. Recent Developments

Corona (SARS-COV-2 / COVID-19)

The pandemic that has been worldwide spreading since end 2019 is also affecting CHEPLAPHARM.

Other than many other businesses, we do, however, not see any threat of the business model or of the current results. Nevertheless, we are not fully unaffected by the consequences. The following facts are (as particularity) to be considered at CHEPLAPHARM: 21

So far, we have not seen any impacts on the revenue or earnings.

We have no considerable suppliers in Asia, neither in China, nor in India.

Although many CMOs (Contract Manufacturing Organisation) of CHEPLAPHARM are resident in Italy and France, we are currently not aware of any negative impacts on our procurement. On the hand, we have practically always established a second source and, on the other hand, our suppliers have so far not been forced to stop their work.

Depending on the complexity of the product, CHEPLAPHARM always keeps stock for balancing supply and production delays. These inventories cover a period of about three to six months, depending on the product.

Only with regard to the logistics, we are aware of temporary changes, since the border controls that are now performed at many countries result in delays.

Thanks to the slim business model and the strict technical orientation, we were able to rapidly react and could send 60 to 70% of our employees to work at home within one week, aiming to avoid infections amongst the employees and workers.

In order to early and comprehensively inform our stakeholders, we established a weekly bulletin, dealing with the risks of purchase in times of Corona.

At some products, our experts even expect higher sales since many countries search for drugs the reduce the consequences of COVID 19.

Since CHEPLAPHARM has many special drugs in its portfolio, we plan to be prepared for an increased demand.

Being due to the long-term financing of CHEPLAPHARM by means of the high yield bond issued in 2020 and the Term Loan B, also short-term distortions on the financial markets being due to the Corona crisis do not affect CHEPLAPHARM. Like the securities of many other companies, also the high yield bond of CHEPLAPHARM lost in value, but without any impact on the issuer. Only the investors are possibly under pressure.

Shareholders and finance team of CHEPLAPHARM unanimously resolved to invest only so many funds in new acquisitions in the year 2020 as are available from already granted credit facilities and from the free cash flow. We will not raise new funds at the capital markets until the situation there will show a sustainable improvement. We will consciously avoid burdens through prices that are not in line with the markets.

Changes in the group of consolidated entities

The group of consolidated entities changed as follows compared to 31 December 2018:

 The companies Walter Ritter GmbH & Co.KG, W. R. Pharmaceuticals Vertriebs-GmbH, Sanavita Pharmaceuticals GmbH and RubiePharm Arzneimittel GmbH were deconsolidated on 27 July 2019.  Glenwood LLC was liquidated as of 30 September 2019 and thus also deconsolidated.

13. Risk Factors

a) We operate in a competitive industry. The sale and distribution of pharmaceutical products is a highly competitive industry which is driven by a variety of factors, including price, local market expertise, reliability of product quality, efficiency of distribution channels, breadth of product portfolio, our ability to meet and manage applicable regulation and marketing authorizations, product purchase prices and sale prices, efficacy of marketing, quality of packaging and levels of brand loyalty. Many of our competitors are well-known pharmaceutical companies with substantial financial and other resources. Companies with more resources may have a greater ability to conduct the development work necessary to obtain marketing authorizations. Our products could, for example, be rendered obsolete or uneconomical through the development of new products or technological advances in manufacturing or production by our competitors. Our competitors’ products may also be, or be perceived as being, more effective or more efficiently marketed and sold than our products. Our competitors may also be able to sustain a deliberate substantial reduction in the price of their products or services for longer periods. This is likely to result in significant price pressure in an increasingly commoditized market, which, in turn, may reduce our sales and market share. In addition, competition in certain of our markets is particularly intense due to the use of public tenders. Tender systems for pharmaceutical products have been implemented (by both public and private entities) in a number of significant markets in which we operate in an effort to lower prices. Under such tender systems, governments or private entities do not directly set the prices of pharmaceutical products, rather pharmaceutical companies submit bids that establish prices for pharmaceutical products and governments or private entities select a winning bidder. These measures affect competition, marketing practices and reimbursement of drugs. The pharmaceutical industry is also characterized by continuous product development and technological change. The introduction of a new pharmaceutical product in any of our product markets may make it difficult for us to increase our market share, retain existing competitive positions. If we fail to maintain our competitive position or if any of our competitors engage in pricing competition with us, there could be a material adverse effect on our business, financial condition, results of operations and on our ability to perform our obligations under the Notes.

b) We face risks associated with our strategy of acquiring new products. Our growth strategy is dependent on our continued ability to acquire new products or product portfolios. In the years ended December 31, 2016, 2017 and 2018 we agreed acquisitions of three, five and nine products, respectively. In the year ended December 31, 2019, we agreed the acquisition of an additional 14 products (twelve thereof through two portfolio acquisitions from Sanofi). 23

The success of our strategy is dependent upon our ability to identify suitable acquisition targets, conduct appropriate due diligence, negotiate transactions on terms that are favorable for us and complete such transactions. Our objective of acquiring further products in the future depends on the existence of suitable acquisition targets and our ability to finance their acquisition which are in turn dependent on a number of factors, many of which are beyond our control. These factors include the following:

 the willingness of pharmaceutical companies to sell legacy or niche products;  our reputation as a reliable partner for pharmaceutical companies;  the level of competition for the acquisition of such products and higher prices for such products that may result from increased competition; and  our ability to raise the funds required for such acquisitions either in the private or public market.

In particular, since January 1, 2016, we have entered into agreements for the acquisition of 31 different products from seven different pharmaceutical companies. During the same period, the significant majority of our product acquisitions has been from Roche. If our reputation as a reliable partner for any of these large pharmaceutical companies were to be negatively affected, for example as a result of our failure to close an agreed acquisition or other reasons, our ability to acquire further products may be impaired. Our competitors, such as Atnahs Pharma UK Limited, Recordati S.p.A., Zentiva Group, a.s., Theo Pharma PVT LTD and Riemser Pharma AG, are following similar acquisition strategies to ours. In addition, new competitors may choose to enter the market in which we are active and such competitors may have greater financial resources than us or may be willing to accept less favorable terms than we can accept, which may prevent us from acquiring the products that we target and reduce the number of potential acquisition targets. If we complete acquisitions, there can be no assurance that we will be able to retain all the customers and patients, generate expected margins or cash flows, or realize the anticipated benefits of such acquisitions, including expected performance improvements or cost savings. Although we analyze acquisition targets on an ongoing basis, those assessments are subject to several assumptions concerning profitability, future development of sales, interest rates, return on investment and the potential for cost savings. There can be no assurance that our assessments and assumptions regarding acquisition targets will prove to be correct, and actual developments may differ significantly from our expectations. The products we acquire are often characterized by a declining revenue profile and we may underestimate the degree or pace of future revenue decline due to factors including, without limitation, lower sales prices, competition from generic product or product substitution. For example, the products Seroquel and Seroquel XR, which we recently acquired, experienced significant declines in sale during the years preceding the acquisition, partly due to a second generation of generics entering the market. According to IMS, between 2015 and 2018 sales of Seroquel and Seroquel XR declined at a CAGR of 28.0% and 55.9% in Europe and the United States and Canada, respectively and we expect such decline to continue. Also, patent protection for Seroquel XR only expired in 2017, and therefore competition from generic products has not settled to the same extent as for other, more mature products in our portfolio. Furthermore, Xenical, which we acquired in 2017, has generated lower 24

than expected sales due to various unconnected reasons, including temporary stock- outs in the U.S. and China and lower sales in Australia, which previously served as a platform for sales into China. Moreover, the products we acquire may be subject to risks or problems which we may not be aware of, which we may not detect or which have not been disclosed to us in the due diligence process. We may learn about such risks or problems only after consummation of the acquisitions, in particular with respect to unknown side effects and issues relating to compliance with applicable laws and regulations. If we fail to successfully identify and assess risks related to acquisitions, we may be exposed to legal, market or other risks related to the products that we acquire, which could, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations and on our ability to perform our obligations under the Notes.

c) We rely on third parties to manufacture and distribute our products, which increases the risk that we will not have sufficient quantities of our products available at an acceptable cost or quality, on time or at all. We strive to deliver high quality pharmaceutical products to our customers in a timely and cost-effective manner. The manufacture and distribution of our products is highly exacting and complex due, in part, to strict regulatory requirements governing their manufacture. We outsource all manufacturing, packaging, storage and distribution of our products to third parties, over whom we have no or very limited control. We do not own or operate manufacturing or distribution facilities for the commercial production of our products. We have limited personnel with experience in pharmaceutical manufacturing and we lack the resources and the capabilities to manufacture any pharmaceutical products. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production and in maintaining required quality control. These problems include difficulties with production costs and yields and quality control, including stability of the product. For example, we recently had to stop the planned transfer of a specific SKU for Aldactone to a new CMO as the CMO was unable to manufacture a product that met all required specifications. In addition, we have in the past experienced supply constraints in relation to Deursil due to shortages of raw materials as well as various manufacturing issues at the site of our CMO for Deursil. If our third-party manufacturers, or other third parties, or other parties on whom these third parties rely, fail to perform their obligations in a timely, cost-effective manner or at satisfactory quality levels, our ability to bring products to market could be limited and our reputation and results of operations could suffer as a result. For example, during a market upturn, our third-party manufacturers may be unable to meet our demand requirements, which may preclude us from fulfilling our distributors’ orders on a timely basis. Likewise, we could be materially disadvantaged if our products were not stored correctly or if they were not distributed in a proper, timely fashion. Furthermore, the failure of any of our third-party manufacturers to maintain high manufacturing standards could result in injury to or death of patients using our products. Such failure could also result in, among other things, warning letters, sanctions, including fines, injunctions, civil penalties, suspension or withdrawal of marketing authorizations and other necessary approvals, delays or failures in delivery of our products, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could 25

seriously harm our reputation, business or profitability. In addition, we depend on the pharmaceutical companies from which we acquire new products for certain services during a transition phase. Until the transfer of the marketing authorization for a newly acquired product in a country is complete, we are not permitted to market or distribute such product in our own name. We therefore enter into TSAs with the seller of a product pursuant to which the relevant pharmaceutical company will distribute and market the product in its own name but on our account until the transfer of the required marketing authorization is complete. A failure of the selling pharmaceutical company to comply with its obligations under the TSA could for example result in lower sales or regulatory sanctions which could in turn have a negative impact on our business. For example, when entering into a TSA, we agree the amount of ‘bridging stock’ (i.e., the amount of inventory that the selling pharmaceutical company must make available to meet demand during the transition phase). If demand is significantly higher than foreseen or the transition phase until completion of the MAT takes significantly longer than expected, this could lead to a stock-out situation in which the product is no longer available. In some cases, the bridging stock is defined on a local level and we may be unable to use excess stock available in other local markets if a stock-out situation occurs in another local market. Our reliance on third-party manufacturers, distributors and, during a transition phase, the sellers from whom we acquired a new product may disadvantage us in regards to certain products as compared to our principle competitors, many of whom manufacture their own products. For example, certain competitors that have control over their manufacturing operations may be able to provide a more reliable supply of specific products to customers and avoid stock-outs, which pharmacies cite as one of the main causes behind a decision to switch suppliers. Without such control over our supply chain, we may need to increase our inventory in order to avoid shortages, resulting in a higher net working capital. As a result, our current and anticipated future dependence upon others for the manufacture and distribution of our products may adversely affect our future results of operation or profitability.

d) Product liability claims, contamination issues or product recalls involving our products could damage our brand and reputation among customers and patients. Although we are engaged in the commercialization, but not the research and development, production or manufacturing, of pharmaceutical products, and although the active ingredients in those products are thoroughly vetted and often have been in the market for ten or more years, there is a risk that we may be liable for, or incur costs related to, liability claims if any of our products cause injury or are found to be unsuitable for patient use. This risk exists even with respect to products that have received, or may receive in the future, regulatory approval for commercial use. In some instances, adverse reactions to medicinal products may become apparent only years after market introduction. Our products could also be defective or contain contaminated substances that were not identified during our manufacturers’ production process, and adverse reactions resulting from human consumption of these products could occur. Product liability lawsuits are often costly to defend and can result in substantial monetary awards to customers, and, regardless of merit or eventual outcome, can result in reduced sales, harm to our brand and reputation, the inability to commercialize our products and 26

diversion of management’s time, attention and resources. Considerable sums in damages have been awarded against pharmaceutical companies due to physical harm allegedly caused by the use of certain products. Regardless of merit or eventual outcome, liability claims could result in negative publicity, decreased demand for our products and damage to our reputation and require us to incur significant legal fees. Product liability claims may also force us to withdraw some of our products from the market, thus creating potential for further claims. As of the date of this Offering Memorandum, we are not involved in any material product liability litigation. However, some of our products are the subject of product liability litigation in markets in which we have either not acquired the marketing authorization to distribute such product or in relation to the time period prior to us acquiring the product. In relation to Losec, numerous product liability claims against AstraZeneca pending in the United States and Canada alleging that the use of Losec causes kidney failure. While we are not a defendant in such litigation as AstraZeneca holds the marketing authorizations for Losec in the United States, there can be no assurance that similar claims may be raised in the future in other jurisdictions in which we have acquired the marketing authorizations for Losec. This risk is likely to increase should the litigation in the United States or Canada be successful. In addition, in 2018, we acquired Lariam, a product used to prevent malaria. There are currently multiple lawsuits pending, including mass tort actions, alleging that Lariam caused neurological and psychiatric side effects such as depression and suicidal tendencies. While the defendants in these lawsuits are primarily governmental agencies and armed forces of several countries, including Canada, Ireland, the United Kingdom and the United States, due to the fact that Lariam was frequently used by military personnel on deployment in areas affected by malaria, there are also lawsuits pending against Roche as the previous owner of the marketing authorization for Lariam. In addition, we also market and distribute Rohypnol, a drug used for the treatment of sleeping problems. Rohypnol has been associated with substance abuse as well as drug- facilitated sexual assault and is a controlled drug in many jurisdictions. In the United States, it is considered an illegal drug and not approved. Negative publicity in connection with, or any investigation in, the abuse of Rohypnol may negatively affect our ability to continue to commercialize Rohypnol or our reputation. While we have in the past recalled specific batches of certain of our products due to impurities or other production defects and as a precautionary measure to address potential risks to patients, and expect such recalls to continue to occur from time to time in the future, none of these recalls resulted in sanctions being imposed by competent authorities. However, we may be unable to successfully defend ourselves in product liability claims in the future. We carry insurance coverage for product liability claims. See ‘‘Business—Insurance’’. However, such insurance may not be sufficient to cover all or even a material part of any significant product liability claim. Furthermore, at any time, insurance coverage may not be available on commercially reasonable terms or at all. If we are unable to guard against product liability claims, contamination, product recalls or other quality control issues, we could experience a material adverse effect on our business, financial condition, results of operations and on our ability to perform our obligations under the Notes.

e) Our products may cause undesirable side effects or have other properties that could limit their commercial potential. 27

Undesirable side effects caused by any of our products could require us to initiate product recalls or result in the revocation of regulatory approvals of such product, which could in turn lead to potential product liability claims, reduced patient demand, lower rates of prescription of our products by physicians and reluctance by pharmacists to dispense our products. Any of these events could prevent us from achieving or maintaining the commercial success of our products, could substantially increase our commercialization costs and, in general, could have a material adverse effect on our reputation, financial condition, results of operations and our ability to perform our obligations under the Notes.

f) Any significant increase in the cost of active ingredients or auxiliary materials used in manufacturing our products or their availability could adversely affect our profit margins and operating results. Affordable, high-quality active ingredients and auxiliary materials are essential to our business due to the nature of the products we sell. Even though we rely on third parties to manufacture our products, the CMOs regularly have a right to pass on price increases for ingredients or materials to us under the relevant manufacturing agreements. In other cases, we are directly responsible for supplying the CMO with the ingredients and materials required for the manufacture of our products and our contracts with suppliers often provide for the supplier’s right to increase prices annually. In addition, rationing or shortages, as well as fluctuations in the price of the ingredients or materials required for the manufacture of our products can occur and our third-party manufacturers may pass these costs onto us or distribution of our products may be delayed or made impossible due to price changes or shortages of such ingredients and materials. In some cases, we try to manage these risks through mechanisms aimed at reducing our financial exposure, such as pricing clauses that link procurement prices to current selling prices. However, there can be no assurance that rapid cost increases or extended supply shortages of these ingredients and materials will not occur, which could have a material adverse effect on our financial condition, results of operations and our ability to perform our obligations under the Notes.

g) We are subject to risks associated with cross border sales and purchases. We market our products in more than 120 countries globally. Due to differing regulatory regimes, certain of our products may be classified differently in some jurisdictions. Different classifications could also result in pricing differences, which may be material. Cross border operations are subject to risks, including but not limited to:

 inadequate protection of intellectual property and unregistered know how;  difficulties and costs associated with complying with a wide variety of complex domestic and foreign laws, regulations and treaties, some of which are subject to change;  legal uncertainties regarding, and timing delays associated with, customs procedures, tariffs, import or export licensing requirements and other trade barriers;  legal and practical obstacles in efficiently enforcing contractual rights;  differing local product preferences and product requirements;  increased difficulty in collecting delinquent or unpaid accounts; 28

 risk of loss at sea or other delays in the delivery of products caused by transportation problems;  differing tax regimes; and  economic sanctions and restrictions on exports and other transfers of goods.

Any of these factors, individually or in the aggregate, could adversely affect our business, financial condition, results of operations and on our ability to perform our obligations under the Notes.

h) Fluctuations in exchange rates may adversely affect our business and results of operations. We market our products in more than 120 countries and, accordingly, a significant portion of our sales are in currencies other than the euro, our reporting currency, which gives rise to translation risks. As our operations are concentrated in Germany and most of our manufacturing agreements, which represent a significant portion of our costs, are with European CMOs, our results are subject to foreign exchange transaction risks. Our primary foreign exchange rate risks relate to the exchange rate of the euro to the U.S. dollar and of the euro to the Swiss franc. Transactional risk arises when we and our subsidiaries execute transactions in a currency other than our and their respective functional currency. To the extent that we incur expenses in one currency but generate sales in another, any change in the values of those currencies could cause our profits to decrease or our products to be less competitive than those of our competitors. To the extent that cash and receivables that are denominated in currencies other than the respective functional currency are greater or less than our liabilities denominated in a different currency, we will be exposed to the risk of fluctuations and movements in the foreign exchange markets. Where we are unable to match sales and receivables denominated in foreign currencies with expenses and liabilities denominated in the same currency, our results of operations are affected by currency exchange rate fluctuations. We currently hedge against a portion of the foreign exchange risks associated with anticipated future cash flows denominated in foreign currency. Although we plan to enter into additional hedging agreements in the future, there can be no assurance that hedging will be available or continue to be available on commercially reasonable terms. In addition, if we were to use any hedging transactions in the future in the form of derivative financial instruments, such transactions may result in mark-to-market losses. Such financial instruments could also not be sufficient or not effective and expose us to a default risk of the relevant counterparty. The realization of any of these risks could have a material adverse impact on our financial condition, results of operations and our ability to perform our obligations under the Notes.

i) We are subject to the risk of litigation and other claims. While we are currently not party to any material litigation, such as product liability claims, warranty obligations claims, alleged violations of trade confidentiality and others, there can be no assurance that we will not become in such litigation matters in the future. When we determine that a significant risk of a future claim against us exists, we will have to record provisions in an amount equal to our estimated liability. There can be also no 29

assurance that such provisions, if made in the future, will be sufficient to cover our actual litigation costs. In addition, third-party litigation, including litigation related to competition law, anti-trust law, tax law, patent law and to the implementation of individual regulatory requirements in the provision of healthcare at a national or supranational level, could have an indirect, materially adverse impact on us and the market environment in which we operate. In the ordinary course of our business we are from time to time involved in legal and arbitration proceedings and could become involved in additional legal and arbitration proceedings in the future. There can be no assurance that we will be successful in defending ourselves in pending or future litigation claims or similar matters under various laws or that product-specific provisions will be sufficient to cover litigation costs. Moreover, it may be difficult for us to obtain and enforce claims related to existing litigation under the laws of certain countries in which we operate at affordable costs and without any materially adverse effects on our business in such country.

j) Our Adjusted EBITDA is presented for informational purposes only, and the actual results of operations and respective EBITDA contributions attributable to the relevant Recently Acquired Products for periods prior to their acquisition may differ materially. The Adjusted EBITDA information for the twelve months ended December 31, 2019 included in this Offering Memorandum is illustrative and presented for informational purposes only. This information does not represent the results the Recently Acquired Products would have achieved had each of the acquisitions occurred on January 1, 2019. The calculations of Adjusted EBITDA for each of the Recently Acquired Products are based on information provided by the seller of the relevant Recently Acquired Product, due diligence and management estimates. The actual EBITDA contribution of each of the Recently Acquired Products will be different from the respective Adjusted EBITDA contribution indicated due to, among other things, the declining revenue profile of the Recently Acquired Products, which will result in lower EBITDA, and other circumstances, including, in particular, the length of the TSA phase for the Recently Acquired Product. The Adjusted EBITDA information and the relevant EBITDA contributions have not been audited, reviewed or verified by any independent accounting firm. Therefore, the Adjusted EBITDA information is inherently subject to risks and uncertainties and may not give an accurate or complete picture of the results of operations attributable to the relevant Recently Acquired Products for periods prior to their acquisition, may not be comparable to our Consolidated Financial Statements or the other financial information included in this Offering Memorandum and should not be relied upon when making an investment decision. The amount of Adjusted EBITDA for each of the Recently Acquired Products is based on a number of assumptions. These assumptions could prove to be inaccurate since they relate to factors over which we have limited or, in some cases, no control or influence. Accordingly, such assumptions may change or may not materialize at all. Should one or more of the assumptions underlying the amount of Adjusted EBITDA for each of the Recently Acquired Products prove to be incorrect, the actual EBITDA contribution of each of the Recently Acquired Products could differ materially from the amounts presented in this Offering Memorandum. As a result, investors should not place undue reliance on them.

Greifswald, 25th of May 2020

CHEPLAPHARM Arzneimittel GmbH

Jens Rothstein, CFO