sample funding partner board presentation
TRANSCRIPT
Confidential property of Rx Logic, LLC
March 2016
Service • Execution • Compliance
Funding Partner
Strong revenue opportunities at higher
margins…pharmaceutical logistics…a better
3PL model
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The Pitch…
Combining Rx Logic’s pharma industry and 3PL experience
with Funding Partner’s infrastructure and capital
capabilities we want to join forces to buildout and operate a
pharmaceutical logistics business
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The Background…
Pharmaceutical logistics was traditionally performed by the drug
manufacturers themselves.
There was always reluctance to outsource to others, citing…
inability to meet stringent regulatory requirements
insufficient focus on quality and training systems
lacking cold chain infrastructure and chain of custody
experience
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Pharma Industry…a late adopter
“Pharmaceutical logistics is such a specialized discipline that
drug manufacturers have long been reluctant to outsource to
3PLs, but some recent industry trends are making drug
manufacturers rethink their strategies.”1
Pharma manufacturers are starting to see value in traditional
3PL services as well as other services like order processing, A/R
collection and chargeback management
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1 Cathy Roberson, senior analyst at UK-based Transportation Intelligence Ltd., and author of Global Pharmaceutical Logistics Report
2012
The Opportunity…
By 2014, it’s estimated that 7 out of 10 of the leading
pharmaceutical products will require temperature-controlled
transportation2
“The total size of the healthcare cold chain logistic services
market is expected to expand from its current figures
of US$ 8.5 billion to nearly US$ 13.4 billion by 2020”.3
With the addition of incubators and small to mid-market
players, more than 600 pharma related companies have a
Chicago Metro presence.
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2 Merrill Douglas, Navigating Pharma Logistics, August 20123 Global Healthcare Cold Chain Logistics Market Report & Forecast (2016-2020), IMARC Group, DUBLIN, April 15, 2015
Pharma 3PL Capacity is Lacking
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4 Illinois Department of Financial & Professional Regulation website (https://www.idfpr.com/LicenseLookUp/LegacyLookup.asp),
February 2016
Active Wholesale Drug Distributor License…4
Chicago
MetroIllinois US
Companies 145 195 942
Locations 213 316 1,403
Distributor Locations ~195 ~298
3PL Locations ~18 ~18
Note:
IL makes up 22.5% of all national wholesale drug distributor licensing.
The top 5 states of IL, CA, PA, NJ & IN comprise 43.4% of all licensing.
Wholesale Drug Distributor Licensing
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Requirements:
Conditioned space and secured access required to initiate
licensing application.
*Midwest region licenses usually obtained in 3 – 6 months with
all states normally secured within 12 months.
An annual licensing application of $25K and annual licensing
maintenance fee of ~$25K.
Shipping origin license is address specific and resides with an
on-site representative that possesses at least 3 years
pharmaceutical operations experience.
* Indiana licensing typically takes longer
Pharma logistics operations require a wholesale drug distributor
license for the origin location and each shipping destination state.
The Motivation…
The small to mid-market pharma clients that do not meet large
3PL company revenue and / or volume thresholds lack
options…leaving a substantial market of unserved clients.
Organizations with the expertise to handle the quality,
regulatory and compliance aspects of pharmaceutical
distribution have a competitive advantage.
Strong performance coupled with lack of capacity drives
customer stickiness.
Pharma clients are driven by process, performance and
compliance, not cost. And because their business margins
are typically very good, they are willing and able to pay for the
3PL services.
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Illinois Pharma 3PL Competition…
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Large (> $1B revenue)
AmerisourceBergen Drug Corporation
Cardinal Health (2)
Catalent Pharma Solutions
Kuehne + Nagel, Inc. (2)
McKesson Corporation (2)
Medline Industries, Inc.
Owens and Minor Distribution, Inc.
Ozburn-Hessey Logistics LLC
Smith Medical Partners, LLC
Mid-Market (>$50MM X < $1B revenue)
Packaging Coordinators LLC (Frazier Healthcare)
Diamond Marketing Solutions Group, Inc.
Small (<$50MM revenue)
Lion Logistics, Inc.
Pharma Logistics Ltd
Qualanex LLC
Time Definite Services, Inc.
*Regional / National Pharma 3PL Players Not Licensed in Illinois
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Large (> $1B revenue)
Exel Inc. (17)
UPS Supply Chain Solutions, Inc. (16)
Patterson Logistics Services, Inc. (7)
Genco, Inc. (3)
Genentech USA, Inc. (2)
Mid-Market (>$50MM X < $1B revenue)
Dohmen Life Science Services, Inc. (DDN) (3)
DSC logistics (2)
Kenco Logistics Services, Inc. (Kenco Group) (2)
Small (<$50MM revenue)
MD Logistics, Inc. (2)
* Entity having at least two active licensed US locations. (#) refers to the number of licensed locations. Not
all licensed locations operate as a 3PL facility.
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Profile:
• Newer entrant
• Limited resources
• Customized needs
• Illinois based
Client Sales: $5MM - $200MM
Business potential:
• “Hot” industry (ie. biosimilar products)
Client Targets…
Manufacturers:
• Thera Proteins Intl. (TPI)
(biosimilars)
• Akorn (niche pharmaceuticals)
• Tagi (specialty pharmaceuticals)
Distributors:
• Hauser Pharmaceuticals
Other:
• Pharma / healthcare Incubators
like MATTER & Healthbox
• Government
Target Small to Mid-sized Companies (clients)…
Sales Channels
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Existing client relationships
Pharma sales representatives
– Identify opportunities and drive business
– Incented via a commission structure
– Establish a “Rep Bench”
Pharma consultant relationships
– Influencers that steer pharma manufacturers to service
providers
Healthcare / Pharma Incubators
Fuel further growth by performance and reputation
5 Year Plan Mile Stone Tasks
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The first 6 months…
Funding Partner / Rx Logic agreement negotiated & signed
Client #1 conditional SLA signed
Pharma sales representatives contracts drafted, submitted &
signed
Procure and install HVAC and thermal wall for 25K SF
Wholesale drug distributor license initiated for IL and all states
The second 6 months…
Client #1 final SLA and SOW signed
Market pharma operations and services to pharmaceutical
consultants
Engage biopharma and healthcare incubators / participants
Actively pursue other clients through all sales channels
Client #1, program #1 started.
5 Year Plan Mile Stone Tasks cont’d
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Year 2…
Client #1, program #2 implemented and started.
Actively pursue other clients through all sales channels.
Year 3…
Research / consider implementation of additional services
Plan, design, layout expansion to 50K SF
Year 4…
Procure & install HVAC and thermal wall for additional 25K SF
Implement additional services / systems / programs
Market additional services across all sales channels.
Year 5…
Market and sell, sell, sell
5 Year Plan Time Line
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Task
Armada / Rx Logic agreement negotiated & signed
Client #1 conditional SLA signed
Design, Layout, SOPs
Comm. Pharma Sales Rep contract drafted, submitted & signed
Procure & install HVAC and thermal wall for 25K SF
Wholesale drug distributor Illinois license
Wholesale drug distributor license (all states) and VAWD cert.
Market pharma operation and services to Pharma Consultants
Actively pursue additional clients through all sales channels
Engage Biopharma and healthcare incubators / participants
Client #1 final SLA and SOW signed
Client #1, Prog. #1 set-up, implementation & program training
Client #1, Prog. #1 project start (limited to licensed states)
Client #1, Prog. #2 set-up, implementation & program training
Client #1, Prog. #2 project start
Research / consider implementation of additional services
Plan, Design, Layout expansion to 50K SF
Procure & install HVAC and thermal wall for additional 25K SF
Implement additional services / systems / programs
Market additional services
Square Footage
Space Utilization
Customer Count
Rx Logic FTE Count
Projected OB orders
Revenue / FTE
17,605
500,301$
Fiscal
Year 5
50,000
60%
8
7.0
22,004
574,703$
7
7,126
427,320$
25,000
75%
5
6.0
13,979
482,630$
3
25,000
40%
50,000
45%
4.0 7.0
75,795$
650
1
2.83
Fiscal Year 1
25,000
10%
Nov.
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Dec.
'16
Jan.
'17
Feb
'17
March
'17
April
'16
May
'16
June
'16
July
'16
Aug.
'16
Sept
'16
Oct.
'16
Fiscal
Year 2
Fiscal
Year 3
Fiscal
Year 4
Funding Partner / Rx Logic agreement negotiated & signed
*Financial Performance over time…
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Year 1 Year 2 Year 3 Year 4 Year 5
Projected Annual Gross Revenue 162,500$ 1,709,282$ 2,895,782$ 3,502,106$ 4,022,919$
Total CapEx (5 yr. amortization where applicable) 165,100$ 261,600$ 261,600$ 315,850$ 315,850$
Total Operating Expense 715,616$ 877,739$ 984,594$ 1,123,962$ 1,152,676$
Total Expenses 880,716$ 1,139,339$ 1,246,194$ 1,439,812$ 1,468,526$
Projected Annual Gross Profit (Loss) (718,216)$ 569,943$ 1,649,588$ 2,062,294$ 2,554,393$
Projected Annual Gross Margin -442.0% 33.3% 57.0% 58.9% 63.5%
Projected Annual Sales Commissions -$ 72,223$ 129,958$ 167,526$ 194,636$
Proj. Ann. Gross Profit (Loss) less Sales Commissions (718,216)$ 497,720$ 1,519,630$ 1,894,768$ 2,359,757$
Rx Logic share of gross profit -$ 164,248$ 501,478$ 625,273$ 778,720$
Projected Armada Net Profit (718,216)$ 333,472$ 1,018,152$ 1,269,494$ 1,581,037$
Projected Armada Net Profit Margin - 19.5% 35.2% 36.2% 39.3%
Rx Logic FTEs 2.83 4.00 6.00 7.00 7.00
* Assumptions:
1.Based on 25,000 SF (receipt, storage, shipping & office) years 1 -3. Grown to 50K SF year 4.
2.Costs and rates used to generate the projected performance summary reflect in use, currently active operating numbers.
3. 5% sales commission paid quarterly in arrears.
4. 33% gross profit split after sales commissions paid to Rx Logic.
5. No transportation revenue included
Projected Funding Partner Net Profit
Projected Funding Partner Net Profit Margin
Projected Cash Flows
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Year 1 Year 2 Year 3 Year 4 Year 5
CASH RECEIPTS
Cash Sales 162,500$ 1,709,282$ 2,895,782$ 3,502,106$ 4,022,919$
TOTAL CASH RECEIPTS 162,500$ 1,709,282$ 2,895,782$ 3,502,106$ 4,022,919$
CASH PAID OUT
Purchases (equipment & systems) 1,120,000$ 50,000$ 50,000$ 50,000$ 50,000$
Operating expenses, supplies & services 287,175$ 403,239$ 445,094$ 714,462$ 743,176$
Payroll expenses 428,441$ 474,500$ 539,500$ 409,500$ 409,500$
Sales Commissions -$ 72,223$ 129,958$ 167,526$ 194,636$
Profit split to Rx Logic -$ 164,248$ 501,478$ 625,273$ 778,720$
TOTAL CASH PAID OUT 1,835,616$ 1,164,209$ 1,666,030$ 1,966,761$ 2,176,032$
CASH POSITION (1,673,116)$ 545,073$ 1,229,752$ 1,535,344$ 1,846,887$
Possible Future Service Offering Opportunities…
Logistics
Transportation Solutions
Controlled Substance Cage and Vault
Medical Device Distribution
Literature Distribution
System Solutions
Online Web Portal / Customized reporting
Inventory and Data Management
Manufacturer Prescription Drug Supply Chain Track and Trace
Miscellaneous Services
Client A/R Collection
Client Contract Management
Client Chargeback Management
Packaging Programs
Finished Goods Testing Programs
Reverse Logistics
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SWOT Analysis
20
Buildout and operate a pharmaceutical logistics business in metro Chicago
3. The critical first customer is not yet signed.
Exte
rnal
Opportunities Threats
2. Pursue clients with good credit that typically
lack good logistics solutions / options.
4. Critical first customer could be on-board by
month 9. Client #1 could yield $200K+ year 1 and
$2.3MM by year 3.
2. New entrant to the market.
1. Current need exceeds capacity. Provide a
collabrative, customized client solution with
relaxed revenue threshold requirements.
3. Pursue and poach clients of large 3PLs requiring
more than a cookie cutter logistics solution.
1. Client and cold chain requirents continue to
grow. Logistics capacity is currently lacking. At
some point competition will substantially
increase. 2. Regulation / rule requirement changes for
standard 3PLs and 3PLs with wholesale drug
distirbutor licensing can change the competitor
landscape.
Objective:
Positive Negative
Inte
rnal
Strenghts Weaknesses
1. Much of the local client base is north and west
of Chicago. Selling a Romeoville location may
require extra effort.
1. Rx Logic has sucessful, documented
pharmaceutical, 3PL and pharma 3PL industry start-
up and operating experience.
3. Establsihed industry and sales channel contacts
and connections
2. Funding Partner has available funds,
infrastructure, systems and space that would allow
fast ramp up to licensed pharma forward logistics
Business Pursuit Risks and Threats
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• The large 3PLs relax their revenue and volume thresholds and more
aggressively pursue the small and mid-market clients.
• The large 3PLs actually adopt and implement a customized and
collaborative client solution approach.
• Client #1 does not sign and we have to seek that elusive first client
elsewhere.
• Client and cold chain requirements retreat from current trends and
cease to exceed existing capacity.
• Regulation / rule changes that allow competitors to more easily
overcome entry barriers.
• The Romeoville facility viewed to be too far south and west from the
perceived hub of pharma activity
Recommendation
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Appendix
Transaction / Cash Flow
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Funding
Partner
/ Rx Logic
*Capital Expenditures for 25K SF Operation
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Category Expense Description Value Allocation Resultant
Cost
HVAC Controlled Room Temperatures (20-25 C / 68-77 F) 140,000$ 100% 140,000$
Generator Natural Gas, Automatic Start 120,000$ 100% 120,000$
Refrigerator 360 Refer (2-8 C / 35-46 F) Pallets Positions (~4000 SF) 200,000$ 100% 200,000$
Freezer Gel Pack Freezer Storage (~120 SF) 35,000$ 100% 35,000$
Vault Controlled Substance Storage (~100 SF) 100,000$ 100% 100,000$
Cage Controlled Substance Storage (~100 SF) 10,000$ 100% 10,000$
Security 24/7 monitoring, motion detectors, cameras 100,000$ 100% 100,000$
IT/Phone Infrastructure 120,000$ 100% 120,000$
Furniture/Office Equip 20,000$ 100% 20,000$
Pallet Racking 1240 Pallet Positions (~15000 SF) 90,000$ 100% 90,000$
ERP Selection Consultant 10,000$ 100% 10,000$
ERP 50,000$ 100% 50,000$
ERP Maintenance 12,000$ 100% 12,000$
License Fees FDA Pharmaceutical Distributor Licence 25,000$ 100% 25,000$
Outsourced Licensing Service License Mainttenance Service 25,000$ 100% 25,000$
**Total Capital Expense & Licensing Cost 1,057,000$ 1,057,000$
Buildout
ERP
Licensing
* Existing Funding Partner usable equipment / infrastructure reduces required capital spend
** Excludes thermal wall buildout to create conditioned space (68F – 77F). Budget $20 / SF installed.
*Annual Operational Expense Range for 25K SF Operation
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Low High
Rent $4.50 / SF + 1.50 Cams + 1.50 Taxes x 25,000 SF 75,000$ 187,500$
Utilities 30,000$ 60,000$
Trash / dunnage removal 6,000$ 12,000$
Insurance 25,000$ 50,000$
Equipment Maintenance 2,475$ 4,950$
Fork Lifts $700 / month lease 8,400$ 16,800$
Pallets 2,000$ 2,500$
Corrugated Shipping Boxes Ambient, Cage & Vault shipments 400$ 2,200$
Shipping Coolers / Gel Packs Containers for cold chain parcel shipments 17,820$ 50,500$
Supplies 8,000$ 25,000$
T & E Selling expense, travel & entertainment Selling and BD expense 5,000$ 10,000$
Pro. Services Outsourced Professional Services HR, Finance, IT & Legal 15,000$ 50,000$
Total Operating Expense 195,095$ 471,450$
Material
Handling
Annual Range
Operating
Expenses
* Excludes any Rx Logic management fee
Pharma 3PL System requirements
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Receive, store, pick / pack and ship to the serial number
level
EDI capability to receive and send Lot and expiration
tracking
FEFO capability (first expiration date out first)
Billing interface
Reporting capability
Order to Cash functionality (desirable)
In the Pipe line…
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Client #1, 2 programs (prior client):
Program #1
– Estimated revenue $1.3MM
– CA, FL, IL, & NJ comprise 54% of the shipping volume.
– Can obtain 50% of the total program volume year 1 and
all volume inside of year 3.
Program #2
– Estimated revenue $1.0MM
– Require licensing in all 50 states prior to start-up
– Once licensed, can obtain 30% of the total program
volume year 1, all volume inside of year 3
Possible Operating Agreement Structure
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5 year initial contract, evergreen thereafter
“Joint operating” type arrangement…possibly establish a DBA
Mutual protection for…
– proprietary services, processes, documents, etc.
– prior Customer and Partner relationships
Reach agreement on the numbers:
– Fee structure and profit split
– Facility, equipment, system, staff, etc. utilization and
costing
Shared liability
– Client contracts
Establish milestone expectations for the contract period.
Rx Logic Principal Biographies
Scott Hopper
(https://www.linkedin.com/in/scottjhopper)
Principal and founding member with over 25 years of experience in the logistics
arena, he has held various supply chain, operations and engineering roles. He
is a degreed Industrial Engineer with an M.B.A. in Operations Management and
holds certifications in Supply Chain Management, Lean and Six Sigma.
He has designed, operated and improved facilities and functional departments
and has substantial experience sourcing, procuring, improving processes and
reducing cost.
He has worked for and in various industries including CPG, wholesale
hardware, automotive, telecommunications and consulting. He has almost 10
years 3PL specific experience.
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Rx Logic Principal Biographies cont’d
The other Principal and founding member provides Rx Logic with more than 25
years of experience in pharmaceutical distribution, logistics and transportation. He
served in a senior operations role for a large pharmaceutical company. In this role,
he was heavily involved in the selection, design, start-up and day-to-day operation
of a state of the art, 300K SF distribution center.
He has spent several years in the 3PL industry in business development,
procurement and operations functions.
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