Buying Process and Negociation. from a Group of Pharmacies Point of View

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3 Buying Process and Negociation from a Group of Pharmacies Point of View

4 Agenda: Demographics Sector Analysis Trends Pharmaceutical Market Overview Pharmaceutical Retails Market Overview The Future Business Negociation Process

5 The Share of the Population aged over 80 years old will increase rapidly OCDE World US EU27

6 Western European Pharmaceutical Spending Growth vs Real GDP Growth Source : EIU data Tool & Deloitte GDP Pharma Spend Growth

7 Western European Pharmaceutical Market Evolution CAGR% 300-1,1% +0,9% ,6% Pharma Sales Source : EIU data Tool & Deloitte

8 Mechanisms of Government to reduce drug spend Prescribing Behaviours - Generic substitution whereby a pharmacist must dispense the lowest priced interchargeable drug from a predetermined drug from a predetermined list. Headlineprice cuts - Transparent reductions in headline price of drugs - Ref. Pricing Calculations - Modifying the calculation method e.g. selecting the average price of cheapest three countries rather than the average of all countries Reimbursement controls - Positive drug list where only those drugs included on the positive drug list are reimbursed Distribution margins - Reduction in wholesaler and pharmacist margins Rebates clawbacks - Introduction of rebates from the pharmaceutical industry to the country s health system minimising the in-market effect of price cuts on international reference pricing Patients co-payments - Patient pays the excess above reimbursement price for selecting a more expensive alternative - The reimbursement level is set at the price of cheapest available drug Tendering - Increased tendering for products at a regional level within markets

9 Pharmaceutical Market Overview

10 Pharmaceutical Companies were heavily consolidated. Pfizer Warner Lambert; Pharmacia AB; Agouron; The Upjohn Company; Monsanto (Searle)Esperion Therapeutics Inc. Vicuron Pharmaceuticls Inc. Pfizer GlaxoSmithKline SmithKline Beckman Beecham Group Glaxo Wellcome Diversified Pharmaceutical Services Inc. Sterling Heakth Block Drug Co. ID Biomedical Corp. Merck Sirna Serono Medco Merck Abbott Abbott Knoll AG Thera Sense Inc. Kos Pharmaceuticls Inc. American Cyanamid (Lederle) American Home Products A.H: Robins Co. Genetics Institute Inc. Wyeth AstraZeneca Astra AB Zeneca Group PLC MedImmune Cambridge Antibody Technology Rhone Poulenc Rorer Marion Laboratories Merrel Dow Pharmaceuticls Hoeschst Roussel Uclaf Synthelabo Sanofi Fisons Eli Lilly ICOS Corp. Sanofi-Aventis Eli Lilly Novartis Bristol Meyers Squibb Ciba-Geigy Sandoz Eon Labs Hexal AG Chiron Alcon Bristol Meyer Squibb DuPont Pharmaceuticls

11 The Pharma Industry s Composition has Evolved Considerably Growth Relative to Industry , % BIG PHARMA MIDSIZE PHARMA COMPANIES -1,9-1 HEALTH CARE COMPANIES 1,4 LIFE-SCIENCES SERVICES BIOTECH 4,1 4,9 GENERICS 11, Includes only companies with +$500M in revenues in real 2009 USD. Midsizepharma companies defined as those with $500M to $5B in revenues. Big Pharma as thise with +$5B. Source : S&P Capital IQ unit; McKinsey analysis

12 The number of companies competing for the profit pool has more than doubled Life-Sciences Services Biotech Generics Health care equipments Midsize Pharma Companies Big Pharma Source : S&P Capital IQ unit; McKinsey analysis

13 Pharmaceutical Companies Landscape Future? A Differentiated and high value drugs (BIOTECH) market is shifting towards Hospitals market - linked with DX; Additional low cost drugs will keep reaching the comunity pharmacies market; Big Pharma will keep on acquiring patentes and R&D, in order to mitigate risk; High-tech companies shall be in the near future key players.

14 Pharmaceutical Retail Market Overview

15 Retail Pharmacy has been loosing some of its core roles in the value chain. 50 s 60 s 70 s 90 s 00 s 14 s Production Storage Sell Counseling Storage Sell Counseling Sell Counseling A clear repositioning in this new environment shall be key to survive.

16 European retail pharmacy is made up of relatively small Enterprises highly dependent on price regulated business OTC 9% Other Health & Beauty; 22% Close to 69% of the business cannot be controled Prescriptions 69% Source : James Dudley OTC Distribution in Europe 2012 Edition

17 Players operating in deregulated Markets, are much better Equiped than the other players Operating in regulated markets.

18 In the Us and in the UK there are already global players operating In the market Walgreen Home Depot Costco Shwarz UT Kruger Metro Tesco CVS Caremark Carrefour Wal -Mart Source : James Dudley OTC Distribution in Europe 2012 Edition

19 Walgreens Business Results % -1% +7% +6% Net earnings Gross profit Net Sales Source : Walgreen

20 Walgreens overview WG owns a total of: 8582 Pharmacy Stores 398 Healthcare Clinics 82 infusion and respiratory centres 11 speciality centres 2 mail service facilities Acquisition of Stephen L. LaFrance Inc. (141 drugstores) Acquisition of 80% of the Cystic Fibrosis Foundation Pharmacy LLC. Acquisition of Kerr Drug (76 retail stores) Acquisition of 45% of Alliance Boots and a call option to purchase the remaining 55%, starting Feb 2015.

21 % Alliance Boots Business Results % +13% +10% Net earnings Gross profit Net Sales Source : Alliance Boots

22 Alliance Boots Overview AB owns a total of: 3150 Health & Beauty Retail Stores (3050 have pharmacies) 370 Distribution centres in 20 countries Pan European network for independente pharmacies (4800 in 7 countries) - Alphega Pharmacy network in Germany 950 pharmacies Own brands Almus, Soltan, Alvita, nº7 Boots. Agreement with Walgreens Acquisition of 45% of Alliance Boots and a cal option to purchase the remaining 55%, starting Feb 2015.

23 Alliance Boots & Walgreens Combined $40,6 Billion $73,0 Billion Alliance Boots Retail Wholly owned retail Boots Pharmacies 3,280 (UK, N, Ir, R, L, T) Affilliated Chains stores Alphega (Cz, Fr, It, Esp, R, UK) Vivesco (G) Kring (NI) Associated and JVs Switzerland Italy Middle east Sweden Source : James Dudley Management Alliance Boots Wholesale Wholly owned UK, T, Cz, Fr, L, NI, Esp. Associated and JVs China Switzerland Italy Internet and mail order pharmacy- UK, NI, N Online and In-store Clinics UK Relatively buying power key healthcare distributors Mediq Oriola Sanastera Celesio Alliance Boots / Anzag Phoenix Walgreen/Alliance Nearly 4 x the buying clout of its nearest European Competitor 0 0,5 1 1,5 Wholly owned retail wlagrens stores 8100 USA

24 Expectation on pharmacies to play a stronger role in managing chronic conditions; an increasing number of medicines to be available for retail purchase; latent consumer demand for beauty products with proven pharmaceutical benefits; Ageing population

25 Revenues are capped; Competition is more intense; Risk of becoming obsolete as better resourced players shape the market and capture its value; Combined with local engagment, scale is key in pharmaceutical retail; High share of prescriptions sold; An increasing proportion of prescriptions to be lower cost generic medicines; Continuing price cuts on established branded prescription medicines; Lack of preparation to face a future deregulation of pharmacy ownership.

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27 Retail Pharmacy Landscape Future? Efficiency is Key; Healthcare services (excluding medical services), offering in order to become a key player in the healthcare value chain; pharmacies need to build a strong position: Facing customer; Facing pharma industry; Facing Governments. Pharmacy groups are key; in Portugal 40% of the market is already grouped (16% in Europe).

28 Restructuring the healthcare supply chain will continue to be supported and forced by a globalized pharmacy channel Pharmacy groups will need to follow segmentation strategies, customize services and portfolios to match customer needs in order to increase customer loyalty. Multi format groupings will in the future generate multi-channel shopping experiences through E commerce, home delivery and E value loyalty programs. Develpment of own or exclusive labels as na intrinsic part of each retailer brand building strategy International Manufacturers will transfer brand MKTG technologies across borders including product Codes that can be read in-store by mobile apps and linked to retailer promotions to exploit the holistic nature of the multichannel shopping experience.

29 Business & Negociation Process

30 Buying & Negociation Process - Sell-in vs Sell-out 1. Moving from a Buying Group to a Selling Group; 2. Some brands will be promoted actively while others will be divested Clear portfolio management; 3. Monitoring sell-out will garantee sales targets and a clear alignement; 4. It will garantee a strong position when negociating; 5. It will help clarifying the market positioning facing the customers. CUSTOMER OWNERSHIP

31 Buying & Negociation Process - Grouped vs Aligned Purchases based on historical data No common strategy Each member acts as a separate player Does not generate value Buying Group Sales Group Best practices Best sharing practices sharing Internal Internal standardized standardized procedures procedures Clear Clear portfolio portfolio strategy strategy Pharmacies Pharmacies acting as one acting Increased as one Increased market share market Value share Value generation generation BUILDING A BRAND WITH A MEANING

32 Buying & Negociation Process - Summary Long term partnerships with selected number of third party brand owners to sell their products and services in own stores on an exclusivity basis. Portfolio mngt Products Visibility Differentiation through the portfolio Trust and customer loyalty as key values to preseve Develop own training programs supported by suppliers Suppliers should cofund training programs. Both players need to select customer as their main focus. Shared goals and interests Fully align with MKTG plans The Group needs to gain differentiation within the Pharma company Development and implementatio n of Added Value Services Generate and increase customer volume Joint campaigns focused on users and brand awareness MKTG plan synergies Both MKTG plans need to be taken into account when negociating.

33 Buying & Negociation Process Implementtation to succeed Preparation is KEY Build a strong position over time Customer Ownership

34 Traditional Purchase Pharmacy Negociates Laboratory Communicates Wholesaler Sends Product 1. Pharmacy Defines Product Portfolio and negociates it with the Lab; 2. Lab communicates it to the wholesaler and sends products; 3. Wholesaler sends products to the pharmacy; 4. Pharmacy pays the product. Pharmacy Product Orders

35 Pre Purchase 1. Group Defines Product Portfolio and negociate it with the Lab and purchase it; 2. Lab communicates it to the wholesaler and send products; 3. Wholesaler send products to the pharmacy; 4. In a product shortfall wholesaler communicates it to the Group, and the groupneeds to solve together with the Lab. Group Negociates Purchases Laboratory Communicates product volume sold Communicates Sends Product Wholesaler Pharmacy Orders Product Sends Product

36 Reimbursement Model Pharmacy Group Negociate with Lab 1. Group Defines Product Portfolio and negociate it with the Lab; 2. Group agrees with wholesaler to supply products in conditions negociated with Labs 3. Wholesaler advances products (with discount) to pharmacies 4. At the end of each month the wholesaler communicates it to the group 5. Group orders products (advanced by Wholesaler) to the Lab 6. Lab sends products to Wholesaler Product Sales Wholesaler LAB Communicate product Sales Product Orders

37 Tripartite Agreement 1. Group negociates with Lab and wholesaler; 2. wholasaler gets feedback from Lab, about conditions negociated; 3. wholesaler provides products to pharmacies as any other supplier; 4. at the end of each month wholesaler sends a list of the products sold to each lab; 5. lab credits products sold or sends equal quantitaty of product with correpondent discount to wholesaler. Laboratory Pharmacies Wholesaler Increased focus on sales Increased focus on customers Increased transparency Group Labs Increased Cash-flow Optimized stocks Decreased admin workload

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