Overview of the Pharmaceutical Distribution Market September 2015: Market Analysis Team Pharmaceutical Distribution Market Analysis Domestic and international expansion spurs acquisitions as the pharmacy market continues to vie Gregg Blake Managing Partner for growth [email protected] 917.374.4533 Industry Multiples and Index Recent Trends Over the past three years, revenue multiples in the Domestic expansion has been a key method of growth Daniel Fagan, Ph.D. public markets have remained consistent at a median within the industry. In 2014, PharMerica’s acquisitions Managing Director of 0.5x while EBITDA multiples have increased to a of Rx Advantage and Millennium Pharmacy increased [email protected] 314.954.6554 median of 10.5x. Since 2012, mean EBITDA multiples its geographic reach in the United States. In January have increased by approximately 62%. 2015, ICA Gruppen AB’s acquisition of Apotek Hjartat AB, the largest private pharmacy retailer in Sweden, Transaction multiples are in a similar range with median revenue multiples of 0.6x and median EBITDA made it the second largest Swedish pharmacy. multiples of 11.4x over the past two years. In the past two years, Diplomat Pharmacy has made Brocair Partners, founded in Our pharmacy index has largely outperformed the S&P three acquisitions within the United States. Its $350 2004, is a financial advisor to million purchase of BioRx increased its presence within businesses serving the 500 index over the past three years. The recent spike healthcare, wellness, and in the number of transactions within the industry has the infusion services industry. pharmaceutical industries. We fueled the unprecedented growth. In an effort to gain A second major trend in the industry has been the provide mergers & acquisitions, market share, the top players in the industry continue increase in the number of international acquisitions. corporate finance, and strategic to acquire smaller companies. The competition After a three decade hiatus, Walgreens entered the advisory services to companies worldwide. between these market leaders has led to the inflation Latin American drugstore business by acquiring of both public and private multiples. Farmacias Ahumada S.A. for $808 million. Continuing this trend, Walgreens acquired Germany-based Alliance Boots GmbH for approximately $25 billion in December 2014. The merger positions the new Brocair Partners LLC Healthcare Investment Banking company, Walgreens Boots Alliance, Inc., as the 757 Third Avenue world’s largest buyer of generic drugs. 20th Floor The acquisition of valuable brands and programs has New York, NY 10017 Main: 212.500.5015 become an alternative way to achieve growth. In order Fax: 917.591.3200 to grow its Hispanic customer base, CVS Health acquired Navarro Discount Pharmacy, the largest Hispanic-owned drugstore chain in the U.S. In April 2015, the Fred’s Inc. acquisition of Reeves-Sain Drug Store gave it exclusive access to EntrustRx, a lucrative specialty pharmacy operation with a strong regional presence in the Southeast U.S. 757 Third Avenue | 20th Floor | New York, NY 10017 | Phone: 212.500.5015 | www.brocair.com 1 Overview of the Pharmaceutical Distribution Market September 2015: Market Analysis Pharmaceutical Distribution Index Below is an index of selected pharmacies and wholesalers compared to the S&P 500 over the past five years. 280% 230% Pharmacy Index 180% 130% 80% S&P 500 Index 30% -20% Jul-12 Jul-14 Jan-11 Oct-11 Apr-11 Jun-11 Dec-11 Jan-12 Jan-15 Jan-13 Oct-13 Apr-15 Apr-13 Mar-11 Jan-14 Jun-15 Aug-11 Jun-13 Feb-15 Feb-13 Sep-12 Dec-13 Mar-12 Sep-14 Aug-15 Nov-12 Aug-13 Mar-14 Sep-10 Nov-14 Nov-10 May-12 May-14 *Pharmacy Index includes: Alfresa Holdings Corporation, Brasil Pharma S.A., Cachet Pharmaceutical Co., Ltd., Cardinal Health, Inc., Celesio AG, China Nepstar Chain Drugstore Ltd., China Pioneer Pharma Holdings Limited, cocokara fine Inc., CVS Health Corporation, Diplomat Pharmacy, Inc., Fagron NV, Jointown Pharmaceutical Group Co., Ltd., Kirindo Holdings Co., Ltd., McKesson Corporation, Medika, d.d., Nihon Chouzai Co.,Ltd., Oriola-KD Corporation, Pharmarise Holdings Corporation, PharMerica Corporation, Profarma Distribuidora de Produtos , Farmacêuticos S.A., Rite Aid Corporation, Sundrug Co., Ltd., The Jean Coutu Group (PJC) Inc., Toho Holdings Co., Ltd., Tsuruha Holdings Inc., Vital KSK Holdings Inc., Walgreens Boots Alliance, Inc., Welcia Holdings Co., Ltd.; Source: Capital IQ Comparable Company Analysis Below is a snapshot of selected companies in the pharmacy market. 52-Week EV/Sales EV/EBITDA Company Price EV* Net Debt Market Cap High Low 2013 2014 LTM 2013 2014 LTM Alfresa Holdings Corporation $ 17.98 $ 20.57 $ 10.59 $ 328,240.8 $ (156,572.0) $ 482,402.8 0.1x 0.1x 0.1x 3.7x 4.1x 8.3x Brasil Pharma S.A. $ 0.18 $ 1.09 $ 0.15 $ 1,109.4 $ 855.3 $ 254.1 0.7x 0.4x 0.3x 34.2x N/A N/A Cachet Pharmaceutical Co., Ltd. $ 5.47 $ 13.49 $ 3.36 $ 9,843.1 $ 995.5 $ 8,373.6 0.9x 1.2x 1.4x 22.0x 21.1x 22.0x Cardinal Health, Inc. $ 81.24 $ 91.91 $ 71.72 $ 27,471.7 $ 877.0 $ 26,594.7 0.2x 0.3x 0.3x 9.9x 11.6x 10.2x Celesio AG $ 27.74 $ 31.23 $ 27.36 $ 5,969.9 $ 897.0 $ 5,054.1 0.3x 0.3x 0.3x 10.3x 12.6x 15.1x China Nepstar Chain Drugstore Ltd. $ 2.11 $ 3.30 $ 1.31 $ (104.2) $ (312.5) $ 208.3 N/A N/A N/A 1.2x 2.6x N/A China Pioneer Pharma Holdings Limited $ 0.45 $ 1.00 $ 0.38 $ 5,362.3 $ 636.1 $ 4,693.3 3.9x 5.3x 3.3x 19.4x 28.0x 17.9x cocokara fine Inc. $ 36.78 $ 51.41 $ 20.75 $ 104,813.5 $ (7,048.0) $ 111,861.5 0.2x 0.2x 0.3x 8.4x 6.1x 10.3x CVS Health Corporation $ 100.23 $ 113.58 $ 77.40 $ 123,804.1 $ 11,741.0 $ 112,057.1 0.7x 0.9x 0.9x 9.6x 11.5x 11.3x Diplomat Pharmacy, Inc. $ 38.85 $ 52.33 $ 15.45 $ 2,650.4 $ 173.7 $ 2,472.6 N/A 0.7x 1.0x N/A N/A N/A Fagron NV $ 20.98 $ 48.99 $ 20.86 $ 1,058.0 $ 457.9 $ 597.4 3.4x 3.3x 2.2x 15.8x 14.1x 9.1x Jointown Pharmaceutical Group Co., Ltd. $ 3.03 $ 5.52 $ 2.36 $ 38,936.3 $ 6,789.6 $ 31,793.5 0.8x 0.8x 0.9x 27.9x 30.0x 29.2x Kirindo Holdings Co., Ltd. $ 10.10 $ 14.65 $ 5.34 $ 15,833.6 $ 1,824.0 $ 13,846.6 N/A 0.1x 0.1x N/A 4.4x 6.1x McKesson Corporation $ 192.85 $ 243.61 $ 160.10 $ 50,496.0 $ 4,161.0 $ 44,819.0 0.3x 0.3x 0.3x 11.9x 14.1x 11.9x Medika, d.d. $ 1,841.27 $ 2,135.87 $ 1,340.44 $ 641.4 $ 278.4 $ 363.0 0.2x 0.3x 0.3x 6.0x 8.1x 7.5x Nihon Chouzai Co.,Ltd. $ 66.45 $ 106.21 $ 22.99 $ 102,803.3 $ 46,434.0 $ 56,369.3 0.4x 0.4x 0.5x 6.8x 7.3x 8.7x Oriola-KD Corporation $ 4.71 $ 5.13 $ 2.34 $ 802.2 $ 44.3 $ 757.9 0.4x 0.4x 0.5x 12.5x 9.3x 10.5x Pharmarise Holdings Corporation $ 4.55 $ 5.45 $ 3.98 $ 11,381.5 $ 6,261.0 $ 4,952.5 0.4x 0.3x 0.3x 5.3x 4.8x 4.9x PharMerica Corporation $ 32.07 $ 36.96 $ 19.42 $ 1,304.5 $ 328.5 $ 976.0 0.5x 0.5x 0.7x 6.8x 8.4x 9.7x Profarma Distribuidora de Produtos Farmacêuticos S.A.$ 2.04 $ 3.56 $ 1.38 $ 643.7 $ 332.5 $ 311.2 0.3x 0.2x 0.2x 11.8x 8.8x 9.5x Rite Aid Corporation $ 8.44 $ 9.36 $ 4.42 $ 14,051.2 $ 5,312.7 $ 8,738.5 0.4x 0.5x 0.5x 7.8x 10.6x 10.8x Sundrug Co., Ltd. $ 51.85 $ 66.29 $ 36.71 $ 337,922.1 $ (39,842.0) $ 377,764.1 0.6x 0.6x 0.7x 8.1x 8.4x 9.7x The Jean Coutu Group (PJC) Inc. $ 15.42 $ 21.89 $ 14.38 $ 3,714.6 $ (98.2) $ 3,812.8 1.1x 1.9x 1.4x 9.5x 16.1x 11.6x Toho Holdings Co., Ltd. $ 22.07 $ 26.28 $ 11.46 $ 176,170.2 $ (7,402.0) $ 183,572.2 0.1x 0.1x 0.1x 6.5x 8.2x 10.6x Tsuruha Holdings Inc. $ 76.37 $ 98.28 $ 45.29 $ 402,941.3 $ (35,509.0) $ 438,450.3 0.5x 0.7x 0.9x 7.3x 9.3x 12.4x Vital KSK Holdings Inc. $ 6.93 $ 8.26 $ 6.54 $ 32,648.4 $ (14,658.0) $ 46,856.4 N/A 0.1x 0.1x 4.3x 9.3x 9.4x Walgreens Boots Alliance, Inc. $ 90.28 $ 97.30 $ 58.39 $ 110,822.4 $ 11,714.0 $ 98,742.4 0.8x 1.0x 1.2x 11.8x 14.1x 17.3x Welcia Holdings Co., Ltd. $ 44.30 $ 55.96 $ 24.78 $ 279,563.4 $ (1,296.0) $ 280,695.4 0.4x 0.4x 0.7x 5.9x 7.6x 13.7x EV/Sales EV/EBITDA 2013 2014 LTM 2013 2014 LTM *Enterprise Value (EV) = market capitalization + net debt + noncontrolling interest High 3.9x 5.3x 3.3x 34.2x 30.0x 29.2x All currency figures in USD.