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Institutional Presentation Hypera Pharma

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Institutional Presentation Hypera Pharma

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Institutional Presentation Hypera Pharma

  1. 1. Institutional Presentation November/2017
  2. 2. Disclaimer This release contains forward-looking statements that are exclusively related to the prospects of the business, its operating and financial results, and prospects for growth. These data are merely projections and, as such, based exclusively on our management's expectations for the future of the business and its continued access to capital to fund its business plan. These forward-looking statements substantially depend on changing market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors, as well as the risks shown in our filed disclosure documents, and are therefore subject to change without prior notice. As a goal to maintain a correlation with the Financial Statements prepared by its external auditors, the considerations and comments contained herein are prepared on a consolidated viewpoint of the economic group Hypermarcas, and not necessarily individualized by the various legal entities that compose the group. In addition, unaudited information herein reflects management's interpretation of information taken from its financial statements and their respective adjustments, which were prepared in accordance with market practices and for the sole purpose of a more detailed and specific analysis of our results. Therefore, these additional points and data must also be analyzed and interpreted independently by shareholders and market agents, who should carry out their own analysis and draw their own conclusions from the results reported herein. No data or interpretative analysis provided by our management should be treated as a guarantee of future performance or results and are merely illustrative of our directors' vision of our results. Our management is not responsible for compliance or accuracy of the management financial data discussed in this report. which must be considered as for informational purposes only, and should not override the analysis of our audited consolidated financial statements for purposes of a decision to invest in our stock, or for any other purpose. 2
  3. 3. 3 Agenda Business Overview Market Characteristics Our Business and Strategy Financials
  4. 4. 39% 30% 31% Net Rev: R$3.3 bn Gross Margin: 74.6% #1 Hypera Aché NC Farma #2 Sanofi Eurofarma Hypera #3 Takeda Sanofi Cimed #4 GSK Novartis Sanofi #5 Pfizer Hypera Eurofarma Business overview RankingKeyFacts 2016 Revenue Breakdown Branded Prescription² Consumer Health Branded Generics³ Focus in Brazil Long experience Fast growing/ resilient market Diversified portfolio SOURCE: Company financials; IMS Health Sept 17; Hypermarcas. ² Ex-patents. ³ Branded Generics includes Generics and Branded Generics. 4 Branded Prescription Branded Generics Consumer Health
  5. 5. 5 Agenda Business Overview Brazilian Pharma Market Our Business and Strategy Financials
  6. 6. Pharma market SOURCE: IMS Health (May 2016) 2014 2019 1st United States 2nd China 3rd Japan 4th Germany 5th France 6th USD24 bn 7th Italy 1st United States 2nd China 3rd Japan 4th Germany 5th USD36 bn 6th France 7th Italy • Aging • Underdeveloped health system • Treatments’ low levels • Generics low penetration of generics (25% of market) • Peak in economically active population 6 Trends
  7. 7. Main markets growth SOURCE: IMS Health (Average Expected Growth) 1% 1% 3% 3% 4% 5% 6% 6% 7% 7% 8% 8% 9% 12% France Japan Italy Spain Germany RoW UK Global China Russia USA EM Brazil India Forecasted 2016-21 CAGR 7
  8. 8. Local players gain market share Multinationals Value (R$) Volume (Units) SOURCE: IMS Health 2016 8 58% 61% 64% 65% 67% 42% 39% 36% 35% 33% 2012 2013 2014 2015 2016 50% 52% 54% 56% 58% 50% 48% 46% 44% 42% 2012 2013 2014 2015 2016
  9. 9. Low levels of per capita consumption SOURCE: Organization for Economic Co-operation and Development (OECD), 2012 3,484 1,109 1,577 3,289 3,649 4,288 4,811 8,745 OECD Brazil Chile UK Japan France Germany USA Healthcare Expenditure per Country (USD/year) 7.9x 9
  10. 10. Brazil 24.3 bn 53% Mexico 9.7 bn 21% Argentina 3.8 bn 8% Colombia 3.8 bn 8% Chile 2.2 bn 5% Others 2.3 bn 5% Latin American Market SOURCE: Latin American Markets IMS Health (2014) The largest market in Latin America Locals are dominant and focused in their markets Absence of strong regional leaders 10
  11. 11. Fast ageing of population SOURCE: IBGE (2010) Population 60+ (MM people) CAGR 2.8% 14 20 29 42 54 66 74 8% 10% 14% 19% 24% 29% 34% 0% 5% 10% 15% 20% 25% 30% 35% 0 10 20 30 40 50 60 70 80 90 2000 2010 2020 2030 2040 2050 2060 1mm p.y. 11
  12. 12. Potential for higher drug consumption SOURCE: IBGE (Consumer Expenditure Survey 2008-09); Values readjusted by inflation (IPCA) to February 2017. Prescription Drugs Expenditure (R$ per month / family) 200.4 193.6 130.9 97.4 71.4 58.6 45.4 70+ 60-69 50-59 40-49 30-39 20-29 10-19 4.4x 12
  13. 13. Retail pharma market Business Segment Product Category Demand Driver Market Size Patents Branded Prescription Trade Direct to Consumer 5.9% 55.3% 16.1% 22.8% • RX with/without prescription retention • OTX • Dermocosmetics R$30.5BPhysicians • Over-the-counter • Nutritionals • Related products R$8.0BConsumer • Innovative patent protected R$3.0BPhysicians • Generics (API) • Similars R$12.5BPharmacist SOURCE: IMS Health PPP Sept 2017 ,Market Size PPP LTM 13
  14. 14. High entry barriers • Strict Regulator • Long approval process (3-5 years) • Strict control of manufacturers, products and retailers Fragmented Distribution • Continental country (27 states; >200mm people) • ~70k point of sales • 28 larger chains • ~230 distributors Powerful Local Brands • All generics are branded at retail as in most of the World (ex-US & Canada) 1960 2016 14
  15. 15. 42%58% Retail pharma market # Companies to reach 42% of market share Pharma Retail (% Sales) Larger Retail Chain Smaller Retail Chain & Independent SOURCE: IMS Health World Review Conference 2016 (May 5, 2016; Dinâmicas e Perspectivas do Mercado Farmacêutico da América Latina e do Brasil); IMS PMB-PPP February 2016; Hypermarcas. Larger retail chains are the Abrafarma members. 75 K Point of Sales (POS) 67 K POS 6 K POS Larger Retailers (28) * Manufacturer (6) 15
  16. 16. Resilient growth 2.0 2.3 2.5 2.8 2.9 3.3 2011 2012 2013 2014 2015 2016 CAGR 2011-16: 11.2% CAGR 2011-16: 10.6% 28.1 30.9 34.0 37.1 42.1 47.7 2011 2012 2013 2014 2015 2016 SOURCE: IMS Health – PMB-PPP (December 2016) 16
  17. 17. 17 Agenda Business Overview Market Characteristics Our Business and Strategy Financials
  18. 18. Business overview Rank Market Share Growth Opportunities #1 #2 #5 17.9% 12.6% 4.6% • Launch new product concepts through brand extensions • Improve retail space • Increase market presence, especially at retails chains • Improve portfolio coverage especially at high value products • Leverage on physicians visit network • Launch new products with untapped demand 18 Revenue Breakdown 39% 30% 31% Branded Prescription Branded Generics Consumer Health Consumer Health Branded Generics Branded Prescription* * Excluding patents SOURCE: IMS Health – PMB Sept 17 LTM; Hypermarcas – 2016
  19. 19. Hypermarcas strategic development 2007 - 2010 2012 - 2015 2017 - 2020 Shareholder Value Industry Consolidation Business Restructuring Pharma Focus Cycle 1 Cycle 2 Cycle 3 19
  20. 20. Key objectives of strategic phases Industry Consolidation Business Restructuring Pharma Focus 2007 - 2011 2012 - 2016 2016 - 2020 • Acquisition of outstanding assets (brands/companies) at attractive valuations 1970s 1953 1959 1943 1970 20
  21. 21. Key objectives of strategic phases Industry Consolidation Business Restructuring Pharma Focus 2007 - 2011 2012 - 2016 2016 - 2020 • Developed “outstanding” Go-to-Market platform • Operations • Marketing • Distribution • Implemented successful product / market strategies with continuous market share gains • Successfully executed business portfolio “Churn” 21
  22. 22. 45% 59% 100% 55% 41% 2010 2013 2016 Successfully executed business portfolio “churn” • Materially improved capital structure • Concentrated on the most attractive Pharma business HPC Pharma Sale of Home Care & Food Sale of Cosmetics, Condoms & Diapers SOURCE: Hypermarcas (Net Revenue breakdown) 22
  23. 23. Developed the best Go-to-Market platform • Largest and most productive Brazilian manufacturing site • Highest production volume • Lowest cost producer • Most horizontal distribution - Mom&Pops - Regional - Chains • Largest field force at store level (>70% direct access) • Most productive sales force at physicians • Lowest cost media buying Distribution Operations Marketing Most Productive Lowest Cost Best Distribution 23
  24. 24. 4.1 3.1 3.0 2.9 1.9 Aché Teuto Medley EMS Hypermarcas Brazilian peers 1.5x 1.6x 1.6x 2.1x COGS per Unit (R$) SOURCE: Companies’ Financials 2016; IMS Health PMB – Units 24 Player 1 Player 2 Player 3 Player 4
  25. 25. 0.8 0.9 1.2 1.9 Brazilian peers Productivity R$ MM/Rep per Year SOURCE: IMS Health – PMB-PPP Oct 16 25 Player 1 Player 2 Player 3
  26. 26. EBIT Margin Brazilian peers SOURCE: Companies' Financials 2016. 26 12.5% 14.1% 15.8% 28.7% 32.5% União Química Eurofarma EMS Aché Hypermarcas
  27. 27. Key objectives of strategic phases Industry Consolidation Business Restructuring Pharma Focus 2007 - 2011 2012 - 2016 2016 - 2020 • Focus on most attractive Pharma sector, leveraging on superior competitive advantage • Accelerate organic growth through more assertive “business innovation” • Further improve sales & marketing execution capabilities 27
  28. 28. Concentrated on most attractive Pharma business HighLow Low High Pharma Business Attractiveness • Aging of population • Resiliency • Untapped demand Competitive Position • #1 with leadership in many markets • Diversified portfolio • Most productive Go-to-Market platform Accelerate growth • Leverage on “outstanding” platform • Explore underpenetrated markets • Widen product offering 28
  29. 29. Diversified revenue base SOURCE: Company data, 2017 SeptemberLTM Other products (Branded Presc.) (Branded Generic) (Branded Presc.) (Branded Presc.) (Branded Presc.) (Consumer Health) (Branded Presc.) (Consumer Health) (Consumer Health) Top 10 Brands: ~40% sales (Consumer Health) 29 7.9% 5.8% 4.2% 4.1% 3.5% 3.3% 3.2% 2.7% 2.7% 2.4% 60.2%
  30. 30. Transfer Order 30% Diversified distribution • Continental country (27 states; 204mm people) • 28 larger chains • ~230 distributors Fragmented distribution 36% Direct Channel Indirect Channel 34% DistributorRetailer Warehouse Distributor invoices&delivers Hypermarcas takesorders 75,300 Stores Hypermarcas reaches 100% of POS in Brazil SOURCE: Company Data, 2016 (Set 17) 30
  31. 31. Large scale production facility 323,000 m2 land 120,000 m2 constructed area 3,700 employees Distribution Center Solids/ Raw Materials Quality Control Aerosol Efervecent Dermo Liquids Semisolids Injectables R&D PenicilinSolids Semisolids Liquids R&D 31
  32. 32. High production capacity SOURCE: Hypermarcas, per year Tablets, capsules, coated tablets, pills and effervescent 10 billion Injectable and ophthalmic 45 million Aerosols 11 million Liquids, creams, oils, ointments, lotions and jellies 276 million 32
  33. 33. Segment the business in “Strategic Business Units” (SBUs) Segment Name Market Size “Direct to Consumer” #1 14.8% share • Brand portfolio • Merchandising capabilities • Media Buying Success Factor “Medical Community” “Trade” #5 4.6% share • Product innovation • Sales Force Productivity #2 14.7% share Consumer Health Branded Prescription Branded Generics Hyper Position R$8.0 B R$30.5 B R$12.5 B • Commercial policy flexibility • “Fast copier” • Distribution network SOURCE: IMS PMB Sept 17 LTM 33
  34. 34. New organizational structure 34 • Offer opportunities based on deep knowledge of global technology • Efficient innovation process and execution • Vertical integration of sales More focused field teams • Define innovation needs based on market insights and business strategy Innovation Capabilities Business Development Innovation Center (Hynova) Consumer Health Branded Prescription Branded Generics
  35. 35. Launch extensions of leading brands SOURCE: IMS Health – PMB Sept 17 35 Sell-out (R$ million) 150 164 159 197 8 23 44 2014 2015 2016 LTM Set 17 Benegrip Benegrip Multi 39 36 37 42 21 37 40 2014 2015 2016 LTM Set 17 Doril Doril Enxaqueca 79 80 84 87 17 17 27 26 13 2014 2015 2016 LTM Set 17 Liquid Pills Gel Caps CAGR 18.9% 183 172 240 111 97 126 96 74 57 82 15039 CAGR 31.3% CAGR 16.1%
  36. 36. 36 Expand to existing markets in Brazil 37% 48% 22% 40% 10% 13% 5% 18% Consumer Health² Branded Prescription² Branded Generics³ Coverage1 Total 27% 21% 27% 26% Total Share Share covered Ranking #1 #1 #1 #1 Covered Market Share NOTES: (1) Disregarding markets with less than 3% of share; ( 2) IMS Health PPP (3) Average presentation price basis
  37. 37. 37 SOURCE: Dunhhumby Anti-flu + Decongestant - YTD Sept 16vs17 Value Example: OTC Category Management Improve POS distribution/execution
  38. 38. Significant R&D activity in the world 38 Nanotechnology Transdermal Patches ODT Oral Films Fixed-dose combinations Extended release Inhalers Quick Release Sublingual Others
  39. 39. R&D – Current structure 39 Capacity 4 x higher • Maintenance of existing structure • Focus on improving and adapting the portfolio • Pharmaceuticals R&D - Anápolis • Launched in 2017 • 190 chemists and pharmacists, 26 Ph.D. professionals • Laboratories for Medicines, Dermo and Nutraceuticals • State-of-the-art equipment R&D - Hynova Center for Consumer Studies • In process of expansion • Lots in semi- industrial size Pilot plant • Evaluation of the performance of products and packaging based on consumer acceptance and preference.
  40. 40. R&D Pharmaceuticals 40 Hynova - Barueri
  41. 41. Packaging with exclusive design R&D Dermo & Nutraceuticals 41 Types of products and technologies Profile Projector - 3D Printer FPS in vitro Labspheres Reactors Sprays and AerosolsGels, Lotions and Séruns Powder and compact powder Capsules
  42. 42. R&D Pharmaceuticals – development process 42 Product Design Lab Validation Concept Validation Pilot Tests Dossier NOTE: (1) Excluding the period of prospecting and acquisition of materials and regulatory deadline 18 to 30 months(1)
  43. 43. Business development pipeline 43 # projects Acquisition 7 2nd Brand 22 Co development 10 License-in 34 Short-term Mid- and Long-Term
  44. 44. P&D Current pipeline status 44 Release ANVISA Queue Develop- ment Waiting List R$ mm 52 316 31 301 91 1,112 48 970 222 2,700 R$ mm 15 126 10 235 11 266 20 297 BD 56 923 NOTE: (1) Risk and project phase weighted potential revenue Projects Quantity Projects Quantity Potential Revenue Potential Revenue Release ANVISA Queue Contract Negotiation
  45. 45. Case study: OFOLATO (Methylfolate) - RX product • Active form of Folic Acid (7x more bioavailable) • Partnership with Local development company • 1st product promoted to the doctors • 2nd generation being developed in house Mar/17 Relevance of strategic partnerships Business case Negotiation Manufacture Apr/17 May17 – Jun/17 Jul/16 – Sep/16 Oct/17 Diligence / Contract Ready to Market Jan/17 Found a partner
  46. 46. Partnership pipeline by therapeutic area 46 14 13 11 11 8 6 3 2 2 2 1 Gastro CSN OTC Pain/Analgesics Cardiology Respiratory Women's health Dermatology Anti-infectives VMS Ophthalmology # Projects
  47. 47. Increasing importance of innovation 17.2% 16.0% 18.8% 23.0% 24.3% 28.0% 2012 2013 2014 2015 2016 Sept 17 LTM Innovation Index (% Net Revenue) Target: 35% SOURCE: Hypermarcas Sell-in (% Net Revenues; products launched over the past 5 years) Sept 17 47
  48. 48. Idea Generation Creation Order Innovation process 48 Executive Directors Innovation Committee Business Committee CEO Process Leader Innovation Manager Innovation Management D.O.: R&D Negociation Order (N.O): Business Development Product Manager and Project Manager Development Order (D.O.) Priorization of Orders (D.O. / N.O.) Launch Order Product Strategy Review Approvers/Committee Executive Committee Follow-up Committee Launch Preparation Development and/or Negotiation Business Case Construction Sell – in
  49. 49. 6.2 10.4 11.90 12.5 14.0 15.3 16.3 19.8 21.6 21.0 23.8 0.8% 1.4% 1.6% 1.7% 1.7% 1.9% 2.0% 2.3% 2.3% 2.5% 2.5% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 R&D R&D (% of Net Revenues) SOURCE: Hypera 49 CAGR 14.4% Sustained commitment to R&D
  50. 50. Availability of new active substances by country NOTE: New molecules launched between 2010 and 2014. Availability of molecules in 2015. SOURCE: IMS Institute for Healthcare Informatics, Dec 2015 128 108 102 88 83 79 73 67 61 60 58 41 USA Germany Great Britain Italy Japan Spain Canada France South Korea Mexico Polonia Brazil 170 new substances (2010-14) Business development - sourcing R&D Availability in December/2015 50
  51. 51. 1,651 439 1,212 High potential for partnering in innovative products Late stage development or recently launched products Yes No Presence in Brazil • Fixed dose combinations • Extended release • Inhalation devices • Transdermal patches • Nano-tech • Quick release • Sub-lingual • ODT • Oral films • Others 73% SOURCE: Thomson Reuters (Cortellis) and Hypermarcas 51 Availability of new active substances by country
  52. 52. NOTE: ¹ Adjusted by inflation. ² Considers products launched before 2008. ³ Considers products launched between 2008-2015 SOURCE: IMS Health - PMB Retail • Negative performance of legacy portfolio • Growth comes from new products -0.8% 7.9% 1 CAGR 11.9 -0.3 3.0 14.6 2012 Legacy New products 2015 2 3 52 Growth source of Brazilian companies
  53. 53. Branded Prescription Products Strategy Demand Driver • Drugs promoted to Physicians (OTC / RX) • Intensify therapeutic classes expansion • Physician prescription Revenue Breakdown 53 39% 30% 31% Branded Prescription Branded Generics Consumer Health
  54. 54. Ranking #1 #2 #3 #4 #5 4.6% 5.3% 6.4% 6.9% 10.0% Market Share Growth YoY Total Market Company Branded Prescription Ranking SOURCE: IMS Health – PMB-PPP Sept 17 LTM 54 12.3% 15.4% 11.3% 10.0% 16.0% 16.8%
  55. 55. 1.9 0.8 0.9 1.2 750 1,300 1,900 2,300 NC - Farma Eurofarma Aché Team size # representatives Productivity R$ MM/Rep per Year Branded Prescription Productivity of medical reps team SOURCE: IMS Health – PMB-PPP Oct 16 55 Player 1 Player 2 Player 3
  56. 56. • Antihypertensive • Antidepressants • Antibiotics • Analgesics • Anti-inflammatory • Photoprotection • Moisturizing • Anti-aging Skincare 11% Skincare 19% Chronic 63% Chronic 31% Acute 26% Acute 50% MARKET HYPERA R$30.5bn R$1.4bn Growth YoY Growth YoY +20% +12% +19% +28% +11% +28% Market Relevance Relevance +13% Acute Chronic Skincare +18% Therapeutic class examples Branded Prescription Portfolio composition SOURCE: IMS Health – PMB Sept17 56
  57. 57. 1% 11% 1% 10% 12% 1% 3% 5% Ophthalmics Orthopaedics Psychiatry Dermatology Peadiatrics Cardiology Gynecology General Practice Market share (% R$ PF) 93% 87% 74% 85% 74% 78% 55% 69% SOURCE: IMS Health (Oct/2016); Hypermarcas Main visited specialties Current portfolio Future pipeline opportunities Branded Prescription Portfolio optimization by therapeutic classes Visitation coverage (% of prescriptions – R$ PF) 57
  58. 58. Success case: Addera 58 SOURCE: IMS Health – PMB Sept 17 Developing new treatments Sell-out (MM R$) 36 29 29 29 36 122 169 173 26 80 2014 2015 2016 2017 LTM Drops Pills Gel Caps CAGR 64.3% 224 151 282 72 New pharmaceutical forms/packaging: – Family 10,000 UI – Economic presentations 7,000UI 10 Pills – 10 weeks treatment 30 Pills – 30 weeks treatment • Strong efforts with Physician and Pharmacy • Exclusive gel caps
  59. 59. -7% -2% 5% 0% 16% 17% 13% 26% 25% 18.6 19.8 19.6 21.7 20.1 21.8 20.9 23.2 21.1 4.2 4.2 4.3 5.1 6.5 6.1 6.1 5.4 4.0 5.0 8.1 22.9 23.9 23.8 26.8 26.6 27.9 27.0 33.7 33.2 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Liquid Pills Gel Caps Success case: Alivium SOURCE : IMS Health – PMB Sept 17 59 Alivium demand evolution – Sell-out (MM R$) Growth YoY Recovery Plan Media Media and Gel Caps Doctors POS Media • Increased investment in POS • Dedicated Sell-out team – 2H17 • Radio and TV Advertisements
  60. 60. Branded Prescription 2017 launches 60 Lisador Dip Colflex Vit Glycare Ommax UrbyVelunid Starting in Nutracosmetics Market 2nd half 2017 Anti-aging Glycolic Acid in Nanoparticles 2nd half 2017 New Concept: Omega 3 in pediatrics 2nd half 2017Pain & Fever 2nd half 2017 Anti-aging Mask 2nd half 2017 $ MM 300 Market – Cardio Portfolio 2nd half 2017
  61. 61. Products Strategy Demand Driver • OTC • Sweeteners • Intensify brand extensions • Mass media Consumer Health 61 Revenue Breakdown 39% 30% 31% Branded Prescription Branded Generics Consumer Health
  62. 62. 62 Ranking Company Market Share Growth YoY #1 #2 #3 #4 #5 Total CH Sell-out SOURCE: IMS Health – PMB-PPP Sept 17 YTD 17.9% 14.9% 6.5% 6.4% 6.3% Consumer Health Ranking 13.3% 7.3% 12.6% 2.9% -0.3% 10.5%
  63. 63. 63 CosmeticsFood Dermo- cosmetics Nutra- ceuticals Nutri- tionals Pharmaceuticals • Safe and well tolerated • Simple dosages • Fast relief of minor symptoms • Ease of access • Good distribution • Wide range of options • Affordable prices Self Care Universe Characteristics POSCommunication Education & Knowledge Consumer Health Business scope
  64. 64. New solutions for consumers 64 SOURCE: IQVIA PMB - YTD Sept’17 YTD +22% Tamarine Fibras Estomazil FrascoBenegrip Multi YTD +34% YTD +17% 14,5 16,5 17,4 2,8 9,6 YTD Sept'15 YTD Sept'16 YTD Sept'17 22 22,9 25,9 2,3 7,1 YTD Sept'15 YTD Sept'16 YTD Sept'17 57,4 69,7 72,4 98,5 5,1 15,9 31,1 YTD Sept'14 YTD Sept'15 YTD Sept'16 YTD Sept'17
  65. 65. Specialist Team CH Focus on execution Resources Optimization Grow Weighted Distrib. Verticalization of the Sales & Merchandising Teams Convert Market Share in POS space via block exposure of brands Consumer Health Distribution 65
  66. 66. Increased distribution 66 8,600 PDVs 45% of market 13% Growth SOURCE: IQVIA – PMB Sept’17 HyperaMercado Large chains 4,900 PDVs 70% Coverage 15% Growth 27% of market 16% Growth 76% Coverage 23% Growth Mid- sized chains 13,600 PDVs 7,100 POS
  67. 67. Category Management - 2017 67 Whole North region 8 stores Already implemented Pilot stores 9 stores All pharmacies in chain 2 stores
  68. 68. Roll-Out Drogasil Extrafarma Brasil Category Management - future 68 Roll-Out chains with pilot stores
  69. 69. Probiotics Underdeveloped markets in Brazil SOURCE: IMS PMB – Sept’17 – PPP / Mintel – Vitamins, Minerals and Suplements – US – Sept’ 17 69 Niche market, underdeveloped in the Pharma channel Great potential market: US$2.2 Billion Supplements R$440 Million in Brazil: Diarrhea and colic only Weight Loss Flavored for kids Chocolate w / Antioxidants Probiotics Chewable for kids Cholesterol
  70. 70. Mid-sized chains & independent stores – Challenge: OTC exposure Initiatives – OTC self-service exposure NOTE:(2) High / Very High> 30% POS Value; Average / Low / Very Low: <30% POS Value SOURCES: Close Up Outlook 2017; Quintiles IMS World Review 2017 70 • 56% of stores with behind-the-counter exposure • OTC accounts for 41% of self-service and only 12% of space • High presence of OTC in POS means greater growth • High presence: + 15% Growth(2) • Average/Low presence: + 6% Growth(2) Current situation
  71. 71. Initiatives – Increased media coverage: Globo package SOURCE: Internal data 71 Vignettes and Commercials throughout the 2018 program Reapplication bonus throughout programming Increased coverage and frequency
  72. 72. Maracugina Merthiolate Clean Tamarine Kids 72 Biotônico (New Flavours) Zero-Cal Flavours Adocyl Consumer Health 2017 Launches
  73. 73. Products Strategy Demand Driver • Generics (Large Chains) • Similars (Independent) • Defend & grow selectively • Pharmacist recommendation Branded Generics 73 Revenue Breakdown 39% 30% 31% Branded Prescription Branded Generics Consumer Health
  74. 74. #1 #2 #3 #4 #5 SOURCE: IMS Health – PMB - PPP LTM Sept/17 Similars & Generics Companies Market Share CAGR 2012-16 24.9% 6.2% 7.7% 7.9% 12.6% Branded Generics Outstanding position with solid evolution 74 17.7% 21.3% -7.3% 13.1% 8.1%
  75. 75. 75 Micro-Marketing: opportunities by region/channel SOURCE: IMS Health - PMB Sep / 17; Value = Average PF of presentation 75 Region Channel Market share in value/covered markets, Branded Generics and Generics 20.2% 26.5% 28.4% 33.8% 37.2% South Midwest Southeast Northeast North 26.0% 31.8% 28.5% Large chains Mid-sized chains Independent Highest growth 2017: South
  76. 76. 76 SOURCE: IMS Health - PMB Sept/17; Value = Average price of presentation Performance evolution in large chains Market share in value/covered markets, Generics 19.6% 21.6% LTM Sept/16 LTM Sept/17
  77. 77. Opportunity to "modernize" the portfolio 77 1 2 – 5 6 – 10 > 10 Weight of the portfolio, in value SOURCE: IMS Health - IMS PMB Sep / 17 # of competitors (Branded and Generics) 55% 25% 17% 2% Neo Química Profitability Focus: 1st to market and markets with high entry barriers
  78. 78. Key strategic initiatives – Branded Generics 78 • Improve distribution performance (~ 50% of the market) • Improve commercial execution • Strengthen brand and sub-brands • Accelerate of launches through R&D and BD (+ 20 SKUs in 2018)
  79. 79. SOURCE: IMS Health - PMB 1st Sildenafil 3rd generics market Orlistat 5th generics market Torsilax 4th biggest market Neosoro 1st product by units Doralgina 5th OTC market Losartan 1st generics market GenericsSimilars Branded Generics Leadership in main molecules 79
  80. 80. Market Relevance 53% 25% 23% 46% 21% 33% SOURCE: IMS Health - ED Large chains Mid-sized chains Independent retail Branded Generics Channel opportunities 80
  81. 81. 21.5% 17.5% 14.4%14.0% 9.3% NORTHNORTHEASTSOUTHEASTMIDWESTSOUTH SOURCE: IMS Health – PMB-PPP LTM Jun/16 Market Share 14.5% Branded Generics Regional opportunities 81
  82. 82. Brand awareness and use 27% 54% 80% 96%Knows Tried Uses Regularly Uses frequently Brand with lowest level of rejection ¹ Average of 5 largest competitors SOURCE: Nationwide quantitative survey 87% 44% 68% 24% AVG leaders¹ Branded Generics Well-known brand with loyal consumers 82
  83. 83. Branded Generics 2017 Launches 83 2nd generic version of the market Launched in 2016 Reference: Lasix Line extension 1st half 2017 Reference: Sotacor Escitalopram Furosemide Sotalol 2nd generic version of the market Launched in 2016 Reference: Selozok 2nd generic version of the market 1st half 2017 Reference: Nebilet Metoprolol Succinate Neolefrin Biggest “controlled drugs” market Launched in 2016 Reference: Lexapro Nebivolol Biggest OTC-Similar market Launched in 2017 Reference: Naldecon
  84. 84. 84 Business Overview Market Characteristics Our Business Agenda Financials
  85. 85. 2.8 3.0 3.3 3.6 2014 2015 2016 LTM Sept 17 912 950 1,131 1,222 2014 2015 2016 LTM Sept 17 Financial highlights 85 Net Revenues R$ bn EBITDA R$ mm Net Income R$ mm 338 346 675 907 2014 2015 2016 LTM Sept 17 CAGR 9% CAGR 11% CAGR 41%
  86. 86. Net Revenue 811.0. 100.0% 954.6. 100.0% 17.7% - . Gross Profit 608.7. 75.0% 712.6. 74.6% 17.1% -0.4 p.p. Marketing Expenses (227.1) -28.0% (254.6) -26.7% 12.1% 1.3 p.p. Selling Expenses (101.3) -12.5% (121.6) -12.7% 20.0% -0.2 p.p. G&A (35.4) -4.4% (47.2) -4.9% 33.4% -0.5 p.p. Other Revenues and Expenses (5.1) -0.6% (15.5) -1.6% 203.1% -1.0 p.p. EBITDA 255.5. 31.5% 292.0. 30.6% 14.3% -0.9 p.p. Financial Result 0.7 0.1% 9.4. 1.0% - 0.9 p.p. Taxes (57.2) -7.1% (63.8) -6.7% 11.4% 0.4 p.p. Net Income (Continuing Op.) 183.9. 22.7% 219.4. 23.0% 19.3% 0.3 p.p. Discontinued Operations 18.7. 2.3% (42.0) -4.4% - -6.7 p.p. Net Income 202.5 . 25.0% 177.3. 18.6% -12.4% -6.4 p.p. 3Q16R$ million ∆3Q17 3Q17 P&L 86
  87. 87. Net Revenue 2,445.4. 100.0% 2,734.8. 100.0% 11.8% - . Gross Profit 1,826.9. 74.7% 2,042.9. 74.7% 11.8% 0.0 p.p. Marketing Expenses (591.0) -24.2% (660.9) -24.2% 11.8% 0.0 p.p. Selling Expenses (300.8) -12.3% (338.7) -12.4% 12.6% -0.1 p.p. G&A (115.0) -4.7% (138.8) -5.1% 20.8% -0.4 p.p. Other Revenues and Expenses 3.9 0.2% 1.8 0.1% -54.4% -0.1 p.p. EBITDA 870.7. 35.6% 960.3. 35.1% 10.3% -0.4 p.p. Financial Result (199.2) -8.1% 49.4. 1.8% - 9.9 p.p. Taxes (148.6) -6.1% (245.9) -9.0% 65.5% -2.9 p.p. Net Income (Continuing Op.) 477.8. 19.5% 710.3. 26.0% 48.6% 6.5 p.p. Discontinued Operations 909.2. 37.2% (154.5) -5.6% - -42.8 p.p. Net Income 1,387.0 . 56.7% 555.8. 20.3% -59.9% 36.4 p.p. 87 R$ million ∆9M16 9M17 9M17 P&L
  88. 88. Net Revenues 2,956.6. 100.0% 3,288.7. 100.0% 11.2% - . Gross Profit 2,210.1. 74.8% 2,442.0. 74.3% 10.5% -0.5 p.p. Marketing Expenses (766.0) -25.9% (810.1) -24.6% 5.8% 1.3 p.p. Selling Expenses (383.5) -13.0% (413.5) -12.6% 7.8% . 0.4 p.p. G&A Expenses (157.9) -5.3% (153.8) -4.7% -2.6% 0.6 p.p. Other Expenses* (16.0) -0.5% (25.0) -0.7% 56,3% -0.2 p.p. Depreciation & Amortization 66.4. 2.2% 64.2. 2.0% -3.4% 0.2 p.p. EBITDA* 950.3. 32.1% 1,106.4. 33.6% 19.2% 1.5 p.p. Financial Result (515.9) -17.4% (192.1) -5.8% -62.8% -11.6 p.p. Taxes (22.5) -0.8% (202.4) -6.2% 798.9% -5.4 p.p. Net Income 345.5. 11.7% 674.5. 20.5% 95.2% 8.8 p.p. 88 2016 PnL * It excludes reimbursement agreement signed with the Company’s former Corporate Relations officer88 ∆2015 2016R$ million
  89. 89. 3.9x 3.1x 2.9x 2.6x 1.5x -0.7x -0.6x 2011 2012 2013 2014 2015 2016 LTM Sept 17 Debt Profile Net Debt Reduction (R$ million) Net Debt / EBITDA 3T15 Gross Debt (664.0) Cash 2,115.3 Net Cash 1,451.3 2Q17 89 (658.3) 1,400.6 742.3 3Q17
  90. 90. R$ 0.50 R$ 0.65 R$1.30 Paid in 2016 Paid in 2017 Dividends & Capital Reduction 2017 ¹ Paid in Feb 24, 2017. ² Paid in July 3, 2017. Capital Reduction Dividends 30% R$1.95 90 R$ per share Dividend Paid: Capital Reduction: R$409.8 mnR$316.2 mn R$821.9 mn
  91. 91. R$0.50 R$0.60² R$0.92 R$0.05¹ Paid in 2016 Paid in 2017 To be Paid in 2018 R$0.65 R$0.50 R$0.92 Ps.: 2017 YTD. Dividend Yield calculated with average stock price; 2017 refers to Feb 16, 2017 YTD. ¹ Paid in Feb 24, 2017. ² Paid by the end of June 2017. Dividend Yield: 1.9% 2.4% 91 R$ per share Dividends/IOC CAGR 36% 2.7%
  92. 92. Company’s Main Tax Shields (1/4) EV/EBITDAP/E Cash flowReturns Net income Possible analysis impacts Tax Shield Summary Source: Hypermarcas ¹ Federal tax credits are usable to pay any federal tax payment R$ Million Expense for Tax only Tax Rate Cash Value* Origin Goodwill 714 34% 242 - Acquisitions; Amortizable for tax purporses only - It does NOT impact the P&L, only the Cash Flow Income Losses 937 - Negative pretax due to Goodwill amortization Recoverable Taxes 258 - Withholding tax from Financial Income - Credits from Acquisitions Total 1,437 * Cash impact sum of tax shields 92
  93. 93. Company’s Main Tax Shields (2/4) EV/EBITDAP/E Cash flowReturns Source: Hypermarcas Net income Possible analysis impacts Goodwill Amortization • Acquisitions • Reduces Pretax for Tax Purposes only (i.e. an extra expense for tax calculation) • Difference between P&L and Fiscal Authorities calculation is deffered • Earnings Release (Table with Remaining Goodwill Amortization for Tax Purposes) (R$ million) 4Q17 121 2018 447 2019 145 Total 714 Expense for Tax Purposes only It does NOT impact P&L Tax Rate 34% Tax Shield 242 Reason Information source Effect 3Q17 93
  94. 94. Tax Credits from Income tax losses carry-forward Company’s Main Tax Shields (3/4) Source: Hypermarcas • Explanatory Note 23(a) – Quarterly Financial Statements EV/EBITDAP/E Cash flowReturns Net income Possible analysis impacts • Lower pretax due to goodwill amortization • It is actually an Tax credit (not another expense as goodwill amortization) • It pays up to 30% of Federal taxes due in a given year Tax Credit Reason Information source Effect 94 (R$ Thousand) September 30 , 2017 937,394 62,708 36,233 61,758 18,659 100,477 1,217,358
  95. 95. Company’s Main Tax Shields (4/4) Recoverable Taxes EV/EBITDAP/E Cash flowReturns Net income Possible analysis impacts • Withholding tax from financial investments • Tax credits from acquisitions • It is actually a Tax credit (not another expense as Goodwill Amortization) • Can be used to offset Federal tax payments • Balance sheet (Recoverable Taxes) • Explanatory Note 13 – Quarterly Financial Statements Reason Information source Effect Tax Credit September 30, 2017 Federal Taxes¹ 258,837 181,904 165,217 76,933 424,054 Source: Hypermarcas; it includes continuing and discontinued operations 95
  96. 96. Ownership and listings ¹ August 01, 2017 LTM ² August 01, 2017 ³ August 01, 2017 SOURCE: B3; Hypermarcas Listings • Sao Paulo Stock Exchange: - HYPE3 - BRHYPEACNOR0 • Indexes with Hypermarcas: • Ibovespa Index Ranking³: 30/58 • Trade volume¹: 2.8 MM shares/day • ADR (HYPMY)²: 6.4 MM shares outstanding • Market Cap³: R$17.82 B (USD5.7 B) Ownership structure Controlling Group 35% 96 20% 15% 65% Founder Free Float Maiorem

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