ANNUAL REPORT 2014 VISION PHARMATHEN AT A GLANCE We strive to make a difference in people’s lives though leading innovation in medi- cine and research driven activities. We are firmly committed to continually excel in developing, manufacturing and commercializing advanced pharmaceuti- cal products and services, made effec- tively and affordably available. Fulfilling this quest, we invest heavily in R&D and continue to grow along with our partners. MARKETING AUTHORISATION ΜANUFACTURING R&D CENTRES SITES GROSS MARGIN & EBITDA EMPLOYEES Pharmathen has maintained the highest industries profitability level with EBITDA sustainability over 26% the last five years. 3 PHARMATHEN ANNUAL REPORT 2014 PHARMATHEN Key figures AT A GLANCE (In euro millions) YEAR 2014 2013 SALES 180.7 178.0 SALES GROWTH 1% 10% GROSS PROFIT 87.7 82.7 GROSS MARGIN 49% 46% OPERATING INCOME 26.6 26.4 PROFIT MARGIN (%) 8% 9% EBITDA 47.1 46.2 EBT 19.7 20.7 NET CASH FLOW FROM OPERATING ACTIVITIES 58.9 53.7 INVESTMENTS (EXCLUDING R&D) 10.2 5.9 R&D INVESTMENTS 26.8 23.4 R&D INVESTMENTS / SALES 15% 13% NET DEBT (49.3) (50.8) NET DEBT / EBITDA 1.05 1.1 NUMBERS OF EMPLOYEES 968 867 4 PHARMATHEN ANNUAL REPORT 2014 PHARMATHEN AT A GLANCE Key facts Respiratory new distribution line successfully integrated into the Group Revenue exceeded Long Acting Injectible agreements € 180 million over € 35 millions signed Preservative Free agreements EBITDA exceeded € 47 million over € 20 millions signed Investments amounted to € 37 million, € 25 million long term loan signed increased by € 8 million with European Investment Bank from 2013 Transactions with Actavis and Bausch Initiation of over € 13 million LAI + Lomb completed new production line investment 5 TABLE OF CONTENTS PHARMATHEN AT A GLANCE Key facts & figures 4 OUR STRATEGY Company profile 10 History 12 Message of the board 14 Values 16 Innovation 18 Key technologies 24 Integration 27 Sapes production plant 31 Global presence 32 Sustainable growth 36 CORPORATE GOVERNANCE Key management members 48 Organization structure 50 FINANCE Sales & profitability 59 Investment vs borrowing 61 Net debt vs EBITDA 61 Liquidity 62 Cash flow 63 PEOPLE People development 70 Corporate social responsibility 72 RISKS & OPPORTUNITIES Operational risks 78 Business continuity risk 79 Financial risk 80 Opportunities 81 APPENDICIES Audited financial statements 86 Rankings & highlights 89 7 PHARMATHEN ANNUAL REPORT 2014 OUR STRATEGY IN THIS SECTION Company profile Values History Message of the board Innovation Key technologies Integration Sapes production plant Global presence Sustainable growth 8 PHARMATHEN ANNUAL REPORT 2014 OUR STRATEGY Impressive growth over the last few years has been based on a clear strategy to become a major player in the global pharmaceutical market. This strategy is based on the 3I’s. Innovation – Integration – Internationalization, enabling us to face future challenges and strengthen our presence and position in the global pharma industry. INNOVATION produce API, formulate finished products, register them to regulatory authorities, produce, distribute Investment in innovation is a continuous process and finally market more than 80 countries world- involving multiple aspects of dynamic activities. wide. The implementation of the investment plan Implementing new pharmaceutical products, in both production and R&D activities in Greece and processes and technologies, we have enhanced India provides economy of scales and minimizes our product portfolio, offering an adequate product independency from third parties. range, supporting new market penetration, sustain- ing significant sales growth in local and international markets. INTERNATIONALIZATION Internationalization has been the driving force of the INTEGRATION company since 2000. Today we have a significant presence in more than 80 countries, through a wide Integration has been a strategic element for the com- network of 200 companies, covering all 5 continents. pany’s operations, aiming to become a key player in Moreover, the company has very specific plans to the global pharmaceutical market. Through vertical expand own label operations in international integration we have managed to develop API synthe- markets under an aggressive development plan in sis for the core pharmaceutical trading molecules, the coming years. 9 PHARMATHEN ANNUAL REPORT 2014 COMPANY PROFILE & MISSION STATEMENT PHARMATHEN ANNUAL REPORT 2014 OUR STRATEGY, COMPANY PROFILE Pharmathen is a leading integrated pharmaceutical company, focused on developing, manufacturing and marketing generic, brand and specialty products. Founded in 1969, the company has achieved significant milestones through an immacu- late performance history, always upholding the highest ethical and operational stand- ards, with compliance to regulatory affairs. Strongly dedicated to strategic planning and its vision, Pharmathen soon emerged as one of the largest independent generic development companies in Europe. With a pipe- line of approximately ten generic molecules a year and vigorous export activities in over 80 countries, the company has reached export sales dynamics that amount to 70% of the group’s total annual sales. Pharmathen’s core business is the development of complex generic products, advanced pharmaceutical technologies and platforms, out licensing of their marketing rights to multinationals and local pharmaceutical brands. As of January 2015, the company’s total headcount reached 1000 highly qualified professionals, all dedicated to the company’s vision, as a strong emerging player in the global pharmaceutical market. With 3 state of the art research laboratories in Greece and India, the company is com- mitted to scientific excellence and continuous R&D investments, aiming to enhance its product portfolio, provide innovative solutions and services to customers and patients, whilst maintaining and securing a strong financial performance. Mission Statement We aspire to be one of the best healthcare companies in the world, providing leading pharmaceutical innovations and solutions, sustaining our impressive growth rates and securing customer preference. 11 PHARMATHEN ANNUAL REPORT 2014 OUR HISTORY Establishment of Pharmathen by Leadership passes to Vassilios the pharmacist Nikolaos Katsos. Katsos and Nelly Katsou. Commencement of manufacturing Strategic refocusing on business activities. activities targeting the interna- tional market. First in house development. Launch of Pharmathen’s first product to the E.U. (Fluconazole) 12 PHARMATHEN ANNUAL REPORT 2014 OUR STRATEGY, HISTORY Inauguration of API research facil- The Group exceeds the landmark ity in Thessaloniki, aiming to verti- of €150 million in turnover. cal integration. Initiation of new commecial ac- tivities for pharmacies in Greece, representing renowned interna- tional brands. Acquisition of research facility for API synthesis in India. Global presence extends to 65 countries. First product launch and com- mencement of business activities Commencement of operations at in the United States. our new manufacturing unit in Sapes, North Greece. First Greek Company financed by European Investment Bank Initiation of new R&D activities focused on specialty products. Global front runners in Long Act- ing Injectables (LAI) technologies & Preservative Free Ophthalmics 13 Our goal is to “ evolve Pharmathen to an international pharma organization, with an extended global reach and strong financial results ” MESSAGE FROM THE BOARD was a challenging year for Pharmathen, but also a period of significant pro- 2014 gress, setting strong foundations for further dynamic growth in the following years. During the past year and regardless of the severe economic environment that still persists in Greece, we achieved the targets and forecasts we had set at our Annual Shareholder Meeting the previous year, based on our long standing strategy of the 3 Is: Innovation, Integration, Internationalization. The continuous and meticulous pursuit for innovative products and technologies, the creation of a totally differentiated portfolio of therapeutic choices, and the reinforcement of our integration, consisted the main focal points for the company during 2014. Thanks to the tireless efforts of our management team and our employees, today we can take pride of our strong and diverse portfolio, as well as our extended international reach. The diversity of our business model, our markets, and our products portfolio, combined with our long-term commitment to invest in quality, are integral to our performance and our success. Our recently released technologies on LAI (Long acting Injectables) was a significant milestone in 2014, signaling a new era for the group. I believe that we are now in a position to take a definitive step forward, towards sustainable growth and further development, and to create an even stronger international organization. The company’s strong organic growth is well ensured through our existing portfolio, supported through significant global alliances regarding the distribution of our LAI portfolio worldwide. At the same time, we implemented significant investments to our manufacturing facility in Sapes, essentially establishing Pharmathen as a fully integrated global leader in the fast growing market of the LAI products. Pharmathen’s strong growth results, rest entirely on its flexibility and on its ability to respond positively to challenges, enabling it to continue growing in the face of any adversity. In this way, we have repositioned and strengthened our presence