PRIVATE EQUITY AND THE GLOBAL HEALTHCARE SECTOR: IMPACTS AND

OPPORTUNITIES

A tale of private equity in healthcare…

Nick Ibery, Kunal Sinha, Rishabh Mehreia

Professor Eli Talmor

THE ANNUAL COLLER PRIZE IN PRIVATE EQUITY AWARDS EVENING AND

PANEL DISCUSSION 29 OCTOBER 2013

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The diverse healthcare industry

Services

Telemedicine

Electronic medical records (EMRs)

Data analysis

Hospital/practice management

Healthcare IT (hardware & software)

Healthcare Providers/Payors

Ancillary providers (e.g. clinical laboratory, radiology, pharmacy)

Outpatient surgery centers

Physician groups Managed care

Long-term care facilities

Hospitals/health systems

Pharmaceuticals /Biotechnology

Drug Manufacturers

Drug Suppliers

Biotechnology R&D

Medical device Manufacturers/Suppliers

Consumer medical products (e.g. testing supplies, monitors, first aid)

Medical device manufacturers

Practice services (e.g. services of physicians / mid-level practitioners)

Medical device suppliers

Positives of investments in healthcare

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Source: “Is Your Healthcare Company a Fit for Private Equity?”, by Richard Jackim, Midcap Advisors – Blog entry

Recession

Proof

Stable Cash

Flow

High

Growth

High

Margin

Platform for

Buy & Build

Highly

Fragmented

Favorable

Demo-

graphics

Positives creates opportunities

to generate returns

through efficiency

From niches within a

very diverse sector

through well managed and well

operated companies in a

fragmented sector

due to non-cyclical

nature of health-care

spending

ageing population,

western lifestyles

due to predictable

spending on and

consumption of

services and products

Macro Market

Industry

Value Adding

Risks of investments in pharmaceuticals

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Long

Product

Cycle

Post-

Launch

Liability

Risk

Power of

Strategic

Buyers

Post-

Launch

Regulatory

Burden

No Cash

Flow pre-

Launch

Regulatory

Hurdles

Possible

Risks

~10 years for drug

discovery, development,

and commercialization

many filing and

approval stages with

very low success rates

need to wait until

commercialization (10

years)

long history of M&A

and strategic buyers

beating financial ones

significant

repercussions for

post-launch issues

significant reporting and

disclosure requirements once

products are in the market

Pre-launch

Post-launch

Drug development process – the view from Pharma companies

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Source: “Drug Discovery and Development”, by the Pharmaceutical Research and Manufacturers of America published in 2007

Nordic Capital Background

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Founded in 1989 by Robert Andreen and Morgan Olsson in 1989

Raised first fund in 1990

By now (2013), Nordic Capital a leading PE firm in the world

Committed regional focus through a strong physical presence – Offices and portfolio primarily across the Nordic and German speaking regions – deep roots within the Nordic region

Office Locations as of 2012 Portfolio Company Locations as of 2012

Jersey

Switzerland

United States

Nycomed Pharma before Takeda acquisition in 2010

Leading European and Emerging Markets co.

Prescription (87%) & OTC products (13%)

Present in more than 70 countries

€2.8bn revenue & €765mm EBITDA

Approx. 11,800 employees worldwide

Blockbuster products: – Pantoprazole: 2006 sales of $2.6bn

– Daxas: newly launched but most effective

product for the $10-20bn COPD market

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Note: Takeda did not acquire Nycomed’s US Dermatology Unit (Fougera) – the above figures exclude this entity

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3 distinct phases of transformation for Nycomed

A pan-nordic specialty pharma co.

• Pharma focus; sold off non-pharma activities

• Focus on In-licensing for product sourcing

• Streamlined operations

Expansion to a pan-EU co.

• Global operations

• Substantial synergies (~EUR 300 mn)

• R&D pipeline

An Emerging Markets co.

• Emerging markets focus

• Leverage key products

• Daxas – approval and partnering with Forest (US) and Merck (EU)

Sale to Takeda

• €9.6bn trade sale

• Largest in Europe and 3rd largest in the world

• Joint company jumps to # 12 in the world by revenue

• Excludes Fougera

Sale of Fougera to Sandoz

• $1.5bn trade sale

• Closing H2 2012

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Nordic Capital DLJ et. al. Nordic Capital

Nordic Capital

acquires Nycomed

Nycomed

acquires Altana

Nycomed expands

aggressively into EMs

Nordic Capital

exits ex-US US exit

1st deal: Nordic Capital acquires Nycomed Pharma

Nycomed’s profile: – Strong market position in Norway and Denmark – Well diversified product portfolio – Orphan company being divested by parent (Nycomed Amersham) – Auction to strategic investors already failed

Nordic Capital’s post-investment goals for Nycomed:

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Targets during holding period

Reduce operational costs

Divest non-core businesses

Re-position as a

pan-Nordic co. by

acquiring companies

in-licensing products

Drive revenue and EBITDA growth

Replace management

1999-2002

Transaction details – May 1999

EV $548mm

Nordic Capital stake 69%

Nycomed Amersham

stake 29%

Management stake 2%

Nodic Capital Funds III, IV

Planned Exit IPO, Trade Sale

Note: In September 2001, Nordic Capital purchased Nycomed Amersham’s 29% ownership interest using fund IV

1st deal exit to Credit Suisse, Blackstone et. al.

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Transaction details – May 1999

EV €1,114mm

Sales multiple 2.1x

EBITDA multiple 8.9x

EBITA multiple 11.5x

Buyer Credit Suisse, Blackstone et. al.

Exit Secondary sale

Return for Fund III 6.3x / ~65% IRR

Return for Fund IV 1.9x / ~70% IRR

2nd Deal: Nordic Capital reacquires Nycomed Pharma

Strong belief in management team’s ability to execute a well-defined growth strategy Investment Thesis: Strengthen product portfolio by in-licensing/acquiring late-stage products with clinical

proof of concept (CPoC):

– Enter rapidly growing therapeutic segments – Strengthen current offerings

Become the “Preferred partner” in Europe of research based companies

Scale down internal and early-stage projects

Increasing operational, cost and capital efficiencies

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2005-2012

Takeda-Nycomed Deal Rationale

Geographic Synergies: Complementary geographical businesses / ease of integration:

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Source: Takeda Investor Presentation from May 2011

2011

Takeda-Nycomed Deal Rationale

Transaction transforms Takeda’s commercial infrastructure – Deepens presence in Europe – Establishes Takeda in high growth Emerging Markets

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Europe

Emerging Markets

Source: Takeda Investor Presentation from May 2011

2011

Nordic Capital: Value creation

Structural transformation

Operational improvement

Buy-and-build

Growth in emerging market

Strategic repositioning

Growth acceleration

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Thank you!

Open floor Q&A session

Turning a disaster into an opportunity ... and a big success

• Coinciding with Nycomed’s acquisition

• Russian business sizeable – but unprofitable

• Nordic Capital negotiates significant discount for taking on the risk

• Many Western MNCs which had entered Russia recently, exit the market (e.g. Merck)

The Russian ruble crisis hits in August

1998

• Initial plans from Nordic Capital call for closing down Russia

• CEO of Russian business makes a case for turning around in 6 months – gets board approval and backing

• New plans call for leveraging presence in the region since Soviet era, strong brand recognition, and strong relationships with customers and suppliers

Nycomed Russia CEO spots an opportunity

• Receivables are recovered with minimal writeoffs

• Co. is restructured (~50% layoffs)

• Exiting MNCs lower competitiveness in the Russian market

• Some (e.g. Merck) out-license all their products to Nycomed to sell in the region

Russia drives growth and provides the appetite for Ems

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The Russian business grew from $11mm in 1999 to more than $600mm in 2011

Altana acquisition numbers

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Transaction details – Dec 2006

EV of Altana €4,215mm

EV/EBITDA 6.3x

EV/EBITA 7.4x

Wt. EV/EBITDA 7.6x

Wt. EV/EBITA 10.3x

New Nordic Capital Equity €350mm

New Debt for the group €5,000mm

New Debt/EBITDA 4.9x 2006E pro forma

EBITDA

Dec 2006

Note: In connection with closing Blackstone and other Credit Suisse co-investors

sold their remaining ownership in Nycomed to Nordic Capital and other investors

Altana acquisition – a big bet or a calculated risk?

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Benefits Risks

Significant leverage to support the deal

Sun/Teva Launch “at-risk”

Target 3x size of acquirer

Pantoprazole LoE

Few bidders

Strategic geographic fit

Cost saving through synergy and restructuring

Favorable Cash Flow profile

Dec 2006

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