Diplomat investor presentation january 2018

1Copyright © 2018 by Diplomat Pharmacy Inc. Diplomat is a registered trademark of Diplomat Pharmacy Inc. All rights reserved.

Capturing the Opportunity

JANUARY 2018 BETHANYDIPLOMAT PATIENT

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NON-GAAP INFORMATIONAdjusted EPS adds back, net of income taxes, the impact of all merger and acquisition related expenses, including amortization of intangible assets, the change in fair value of contingent consideration, as well as transaction-related costs. We exclude merger and acquisition-related expenses from Adjusted EPS because we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired intangible assets, or ultimate realization of contingent consideration. Investors should note that acquisitions, once consummated, contribute to revenue in the periods presented as well as future periods and should also note that amortization and contingent consideration expenses may recur in future periods. A reconciliation of Adjusted EPS, a non-GAAP measure, to EPS as prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) can be found below.

We define Adjusted EBITDA as net income (loss) attributable to Diplomat before interest expense, income taxes, depreciation and amortization, share-based compensation, change in fair value of contingent consideration and other merger and acquisition-related expenses, restructuring and impairment charges, and certain other items that we do not consider indicative of our ongoing operating performance (which are itemized below in the reconciliation to net income (loss) attributable to Diplomat). Adjusted EBITDA is not in accordance with, or an alternative to, GAAP. In addition, this non‑GAAP measure is not based on any comprehensive set of accounting rules or principles. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items.

We consider Adjusted EBITDA and Adjusted EPS to be supplemental measures of our operating performance. We present Adjusted EBITDA and Adjusted EPS because they are used by our Board of Directors and management to evaluate our operating performance. Adjusted EBITDA is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends, and for evaluating the effectiveness of our business strategies. Further, we believe they assist us, as well as investors, in comparing performance from period-to-period on a consistent basis. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EPS differently than we do and these calculations may not be comparable to our Adjusted EBITDA and Adjusted EPS metrics. A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income (loss) attributable to Diplomat can be found below

FORWARD-LOOKING STATEMENTSThis presentation contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. The forward-looking statements in this presentation are based on management’s good-faith belief and reasonable judgment based on current information. These statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. For a discussion of such risks and uncertainties, review Diplomat's filings with the Securities and Exchange Commission, including “Risk Factors” in Diplomat’s Annual Report on Form 10-K for the year ended Dec. 31, 2016, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Except as may be required by any applicable laws, Diplomat assumes no obligation to publicly update such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments, or otherwise.

INDUSTRY AND MARKET DATACertain information in this presentation concerning our industry and the markets in which we operate is derived from publicly available information released by third-party sources, including independent industry and research organizations, and management estimates. Management estimates are derived from publicly available information released by independent industry and research analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. We believe the data from these third-party sources is reliable. In addition, projections, assumptions, and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, as discussed in Diplomat’s reports filed with the Securities and Exchange Commission. These and other factors could cause results to differ materially from those expressed in the estimates made by these third-party sources. MEDICAL ADVICEThe information herein is for educational purposes only and may not be construed as medical advice. Diplomat Pharmacy Inc. takes no responsibility for the accuracy or validity of the information herein, nor the claims or statements of any manufacturer.

DISCLAIMERS

Proprietary of Diplomat Pharmacy Inc.

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INVESTMENT HIGHLIGHTS

Diplomat is continuing its planned transition to abroader healthcare company.

● Acquisition of PBM dramatically expands our services to address unmet market needs across the specialty industry

● Continuing strength in growing oncology and infusion markets

● Diversified growth focusing on EBITDA and cash flow

Specialty drug growth is faroutpacing traditional drugs.Extensive access to limited-distributiondrugs creates a competitive advantage

Diplomat is unique in thespecialty pharmacy industry.Expanded manufacturer services andpayer capabilities

Diplomat has an enhanced leadership team with deepindustry expertise.

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DELIVERING SUPERIOR CLIENT SOLUTIONS TO PATIENTS, MEMBERS, & PARTNERS

CUSTOM-FOCUSEDPATIENT-CENTRIC GROWTH-ORIENTED

Customized, client-centric solutions for payers and pharma Management of pharmacy costs through skill and scale

High-touch caregiving

In-house clinicians providing disease state–specific knowledge

Seamless work with providers, payers, and pharmaceutical manufacturers to ease the patient journey

Leader in high-growthspecialty pharmacy

Deep access to limited-distribution drugs

Disciplined, strategic M&A

Customized, fee-for-service offerings to add value for each client type


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POSITIONED TO CAPITALIZE ON MARKET TRENDS

Market Trend Diplomat Position

Growth of specialty pharmacy Decades of experience drive increasing market share in the highest-growth categories

Limited-distribution drugs driving market growth Growing portfolio of more than 100 limited-distribution drugs, including more than 60 orphan drugs

Increasing national healthcare costs Creating efficiencies through technology solutions,home infusion services, and site-of-care management

Rapid expansion of biopharma and increasing demand for hub services

EnvoyHealth provides mission-critical hub solutions while deepening relationships with pharma

Unmet payer drug-management needs Acquisitions and experience allow us to delivercustomized solutions


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Payer ServicesPharmacy Services

▪ Customized industry solutions▪ Fee-for-service▪ Technology

▪ Specialty▪ Infusion▪ Home delivery

▪ Pharmacy benefit management▪ Site-of-care transition▪ Medical benefit management

DIPLOMAT’S CONTINUED EVOLUTIONThree Complementary Focus Areas Providing a Broader Spectrum of Care

Industry Services


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STRONG RATIONALE FOR DIPLOMAT TO EXPAND IN THE PBM SECTOR

Allows Diplomat to expand its specialty product offering using PBM levers

Well-positioned with multiple service lines for evolving market needs in the middle-market space

Strengthens Diplomat’s financial profile and substantially diversifies Diplomat’s EBITDA

LDI and NPS combine to create a robust full-service middle-market PBM offering

Complementary products, services, and solutions offer full platform for future scale and growth

Well-defined integration strategy with early synergies

Expanded capabilities accelerate growth and drive shareholder value.


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Target

Purchase Price

Consideration

Business Overview

Closing

NPS TRANSACTION SUMMARY● Pharmaceutical Technologies, Inc., dba National Pharmaceutical Services (NPS)● Full-service pharmacy benefit manager (PBM) with access to 475,000 member lives● Based in Omaha, Nebraska● Revenue: $32 million (2017E) and Adjusted EBITDA: $5.4 million (2017E)

● $47 million purchase price● Transaction includes real estate valued at ~$10 million

● $31 million in cash using cash on hand and existing credit facility● $16 million in common stock● No contingent earn-out consideration● Expected to be accretive to adjusted EPS in 2018

● Diversified mix of PBM lives● Robust technology platform: In-house proprietary claims-processing system● Captive mail-order pharmacy (Integrated HMO Pharmacy)● Near-term synergy opportunities for specialty Rx volume● Senior management team will remain in place

● Diplomat announced closing of the acquisition of NPS Nov. 29, 2017.


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Target

Purchase Price

Consideration

Closing

LDI TRANSACTION SUMMARY● LDI Integrated Pharmacy Services (“LDI”)● Full-service PBM with 2017E revenue of $388 million and 2017E adjusted EBITDA of $41 million

● $595 million gross purchase price- Represents ~14.5x on gross purchase price

● $540 million adjusted purchase price- ~$94 million tax shield (NPV ~$55 million)- Represents ~13.2x post tax shield benefit

● $4-6 million of synergies in Year 1- Represents ~11.7x post synergies and post tax shield

● $515 million in cash - Committed cash financing from a new $795 million credit facility provided by JPMorgan and Capital One

● ~$80 million in common stock, representing ~4.15 million shares● Pro forma total leverage of ~4.6x LTM adjusted 2017 EBITDA; Expected to be between 2.0x-3.0x by mid 2019 ● Expected to be accretive to adjusted EPS in 2018

● Diplomat announced closing of the acquisition of LDI Dec. 20, 2017.


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Scaled asset in middle market● Serving all key customer types● +855k lives● 700+ customers

Bringing best-in-class specialty pharmacy capabilities to underserved market

Attractive partnership approach to manage formulary and drug costs

High-touch/high-service DNA consistent with Diplomat

Differentiated clinically, leveraging proprietary technology platform

PBM PLATFORM WITH FULL SUITE OF CAPABILITIES

Self-Funded Employers / Unions

Medicare Part D / Managed Medicaid

Workers’ Comp

Transparent Pricing

Traditional Pricing

Owned Adjudication Platform

Comprehensive/Competitive Network

Direct Manufacturer Rebates

High-Touch Services

CU

STO

MER

EXP

ERIE

NC

EK

EY C

APA

BIL

ITIE

S/B

USI

NES

S M

OD

EL E

XPER

TISE

LDI NPS DPLO’s PBM Capabilities


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DIPLOMAT GUIDES THE PATIENT JOURNEY

PROVIDERS Collaborate to gather patient

information

PAYERSCollaborate on

all member services

MANUFACTURERSMonitor adherence

and gather data

PATIENTSAnswer their questions and assist with funding

and onboarding

PATIENTS & PROVIDERSEducate on

therapy

RX INTAKE

ADJUDICATION

MEMBER MANAGEMENT

BENEFIT INVESTIGATION

PRIOR AUTHORIZATION

READJUDICATION

CLINICAL VERIFICATION & INTERVENTIONS

PATIENT ASSISTANCE

QUALIFICATION

PATIENT ONBOARDING

FIRST SHIPMENT SETUP

CLINICAL EDUCATION &

TRAINING

REPORTING

PORTALS

BUSINESS INTELLIGENCE

FULFILLMENT

DATACAPTURE

CLINICAL MANAGEMENT


WH

O W

E SE

RVE

WH

AT

WE

DO

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LEADING NPS REFLECTS PATIENT FOCUS

1. Diplomat Patient Surveys, 2017. Approximate. Data from survey of approximately 4,500 respondents.2. Satmetrix 2016 U.S. Consumer Study.

Net Promoter Score (NPS) measures the net number of customers who recommend a company’s products or services on a scale from -100 to 100.

8480 78

70 69 66


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SPECIALTY DRUGS DRIVE PHARMACYINDUSTRY GROWTH

1. The 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers, Adam Fein, February 2017.

Historical and Projected Growth, 2011–20211

Specialty drugs as % of pharmacy industry revenues 17% 28% 42%

2011 2016 2021

SPECIALTY DRUGS

TRADITIONAL DRUGS

$300

$412

$572

$250$297

$332

$240

$115

$50

(BILLIONS)


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LIMITED-DISTRIBUTION DRUG ACCESS PROVIDES A PATH TO GROWTH

2012DPLO EXCLUSIVE

2013DPLO LARGEST OF 4

2016DPLO 1 of 7

2015DPLO 1 of 6



80%OF FUTURE DRUG LAUNCHES ARE EXPECTED TO BE LIMITED DISTRIBUTION1

100+DIPLOMAT LDD PORTFOLIO

60%+2017E REVENUE FROM LD DRUGS

Specialty Spend UnderPharmacy Benefit to Grow ~5x1

2011A 2021E

$240 BILLION$50 BILLION

DIPLOMAT 2%

1. The 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. February 2017.

$115 BILLION

DIPLOMAT 4%

2016A

2017DPLO 1 OF 8

2017DPLO 1 OF 6



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DEEP ONCOLOGY PIPELINEFUELS FURTHER GROWTH

Rapid Growth in the Oncology Market1

2016A 2021E

$86 BILLION$46 BILLION

DIPLOMAT 5%

1. Barclays Research, EvaluatePharma. January 20172. 2015 Profile Biopharmaceutical Research Industry – April 2015 & 2016 Profile Biopharmaceutical Research Industry 2016 – April 2016


Drugs in Pipeline by Therapeutic Class 2

According to BioWorld, biotech funding has increased 25% year-over-year to $15.8 billion in the third quarter 2017.

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INFUSION CONTINUES TOOUTPERFORM THE MARKET

Alpha-1

$550M

Hemophilia

$4B

Hereditary Angioedema

$1.5B

IVIG & SCIG

$4B

Nutrition &Digestive Disorders

$2.9B


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MANAGED MARKETS STRATEGY

Benefits to DiplomatStrategy Benefits to Clients

Increases our ability to contract directly with health plans

Expands our existing capabilities dramatically to deliver improved financial performance through a differentiated, patient-centric platform

Accelerating our existing push into PBM-like services based on industry dynamics

Targeting small to midsize payers, self-funded employers, and unions

Acquisition expands existing capabilities into highly customized payer services

Builds high-quality, patient-centric services that directly address unmet market needs for drug management


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INDUSTRY SERVICESGENERATE NEW PROFITS

1. $4 billion market size is a management estimate based on total 2016 specialty pharmacy market size.

Hub services are a $4B and growing market.1

We compete in this emerging, high-margin area.

● Affordability and copay support

● Noncommercial pharmacy—PAP and wholesale support

● Market insight and remote monitoring

● Benefit coverage and access support

● Adherence program management

● Nursing/health support

● Customized technology solutions


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M&A: BECOMING BETTER, NOT JUST BIGGER

Acquisition Date Accelerated Current Capabilities New Therapy Expanded

Geography Access to Additional

Payers Manufacturer Relationships New Technology Expanded Service

Offering

Q4 2013

Q2 2014

Q2 2015

Q2 2015

Q2 2016

Q1 2017

Q1 2017

Q2 2017

Q3 2017

Q3 2017

Q4 2017

Q4 2017

Q4 2017


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Financial Profile

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2017 PRELIMINARY GUIDANCE

Diplomat preliminarily expects 2017 revenue will be near the middle of the previously provided range and Adjusted EBITDA will be at the upper end of previously announced range.

This excludes any incremental contribution of LDI (as defined below) for the post-close period in 2017, which was not included in our previous guidance, and provided at Jan. 5, 2018. Please see forward looking statements and disclosures.

REVENUE WILL BE AT A MIDPOINT OF

$4.4B–$4.6BADJUSTED EBITDA WILL BE AT THEUPPER END OF THE RANGE OF

$99M–$102MProprietary of Diplomat Pharmacy Inc.

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2018 PRELIMINARY OUTLOOK

Business OutlookIn 2018, Diplomat preliminarily expects:

REVENUE IN THE RANGE OF

$5.3B–$5.6BADJUSTED EBITDA IN THE RANGE OF

$164M–$170M

~20% INCREASE BASED ON THE MIDPOINT OF THE 2017 RANGE ~66% INCREASE BASED ON THE

MIDPOINT OF THE 2017 RANGE


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FINANCIAL POLICY


LEVERAGE

LIQUIDITY

M&A

STAKEHOLDER RETURNS

● Target deleveraging to 2.0x – 3.0x● Will use free cash flow to reduce debt

● Significant liquidity maintained through $250 million revolver● Stable cash flow generation

● Disciplined M&A framework continues● Focus on LDI integration over next ~6-12 months● Will evaluate strategic bolt-on opportunities

● No plans to initiate an ongoing dividend● No share buybacks anticipated during de-leveraging phase

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MOVING FORWARD,STRONG PATHS FOR GROWTH

Specialty Infusion

Payer Services

EnvoyHealth

M & A

Op

por

tun

ity/

Rev

enu

e/V

alu

e

Time

Traditional Specialty Pharmacy

Scalability through efficiencies—more new benefits than added costs

High-margin fee-for-service opportunities for pharma/payers

High-growth market with unmet drug-management needs

Strategic national coverage and site-of-care cost reduction

Continued high revenue with growing LDD opportunities


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Appendix

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LONG-TERM FINANCIAL PERFORMANCE

Total Revenue

$578

(MILLIONS)

2010A 2011A 2012A 2013A 2014A 2015A 2016A

% Growth 53% 34% 46% 34% 46% 52% 31%

$772

$1,127$1,515

$2,215

$3,367

$4,410

Note: Historical financials are not pro forma for any acquisitions.


3Q16A 3Q17A

$1,181$1,125

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LONG-TERM FINANCIAL PERFORMANCE

Adjusted EBITDA

$8

(MILLIONS)

2010A 2011A 2012A 2013A 2014A 2015A 2016A

% Growth 27% 88% (28%) 75% 85% 170% 13%

% Margin 1.3% 2.0% 1.0% 1.3% 1.6% 2.8% 2.4%

$15$11

$19

$35

$95$107

3Q16A 3Q17A

1.9% 2.1%

$22.6

$23.2

Note: Historical financials are not pro forma for any acquisitions.

Pre-IPO infrastructure investments


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GROWTH IN PROFITABILITY

Gross Profit/Script

$71

2010A 2011A 2012A 2013A 2014A 2015A 2016A

% Growth 12% 31% 4% 20% 44% 68% 16%

% Margin 7.1% 7.3% 6.2% 5.9% 6.3% 7.8% 7.4%

$93$97

$116

$167

$280

$325

3Q16A 3Q17A

6.6% 7.6%

$289

$360

Financials are not pro forma for acquisitions.

Gross profit per script is based on dispensed scripts only.

Percent margin equals gross profit / net sales (i.e., based on dispensed and serviced scripts).


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BALANCE SHEET/CASH FLOW SNAPSHOT

Sept. 2017 Dec. 2016

Cash $27 $8

Total Debt $1601 $150

Shareholders’ equity $647 $614

Net Debt/ProForma TTM EBITDA ~1.3x2 ~1.0x3

Cash Flow From Operations (period ended) $94 $31

1. Includes $11mm in cash-based contingent consideration2. ProForma includes 12 months of Accurate, Affinity, Comfort Infusion, FocusRx, and WRB Communications 3. ProForma includes 12 months of Affinity, Comfort Infusion, and TNH


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Therapeutic Class 2016 % of Total 2015 2014 2013

Oncology $2,102,130 48% $1,432,091 $1,068,751 $736,987

Immunology $644,173 15% $510,708 $438,145 $378,685

Hepatitis $583,751 13% $520,771 <10% <10%

Specialty Infusion $505,240 11% $374,884 <10% <10%

Multiple Sclerosis <10% N/A <10% $226,805 $169,470

Other (none greater than 10% in period) $575,094 13% $528,177 $481,255 $229,997

$4,410,388 $3,366,631 $2,214,956 $1,515,139

Limited-distribution drug % of total 53% 45% 44% 40%

REVENUE BY THERAPEUTIC CLASS ($ IN THOUSANDS)


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RECONCILIATION OF NET INCOME (LOSS) & ADJUSTED EBITDA

For the three months ended September 30, Calendar year ending December 31, ($ in millions) 2017 2016 2016A 2015A 2014A 2013A 2012A 2011A 2010ANet income (loss) attributable to Diplomat $1.0 $5.4 $28.3 $25.8 $4.8 ($26.1) ($2.6) $9.2 ($7.8)

Depreciation & Amortization $16.9 $13.7 $50.0 $30.8 $8.1 $3.9 $3.8 $3.1 $2.2 Interest Expense $2.1 $1.8 $6.6 $5.2 $2.5 $2.0 $1.1 $0.6 $0.5 Income tax expense ($0.7) ($3.2) $11.2 $16.2 $4.7 - - - -EBITDA $19.3 $17.7 $96.1 $78.1 $20.1 ($20.2) $2.3 $12.8 ($5.2)Contingent consideration and other M&A expense $3.0 $0.4 - - - - - - -Share-based compensations expense $1.7 $1.4 $5.4 $4.0 $2.9 $0.9 $0.9 $1.4 $0.8 Change in fair value of redeemable common shares - - - - ($9.1) $34.3 $6.6 - $10.7 Termination of existing stock redemption agreement - - $0.2 - $4.8 - - - -Employer payroll taxes - option repurchases $0.0 $0.1 - $1.6 - - - - -Restructuring and impairment charges - $2.5 $7.1 $0.2 - $1.0 $0.4 $0.4 $1.5 Equity loss of non-consolidated entity - - - - $6.2 $1.1 $0.3 $0.1 -Severance and related fees $0.1 $0.1 $1.1 $0.5 $0.4 $0.2 $0.4 $0.7 -Merger and acquisition related expenses - - ($6.6) $9.2 $7.2 $0.7 - - -Private company expenses - - - - $0.2 $0.2 - - -Tax credits and other - - - - $1.0 - ($0.1) ($0.6) -Other items ($0.9) $0.4 $4.0 $1.5 $1.4 $0.7 $0.1 $0.2 ($0.0)

Adjusted EBITDA $23.2 $22.6 $107.4 $95.0 $35.2 $19.0 $10.9 $15.1 $7.7


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RECONCILIATION OF NET INCOME (LOSS) & ADJUSTED EBITDA(1) Share-based compensation expense relates to director and employee share-based awards.

(2) Restructuring and impairment charges reflect decreases in the fair market value of non-core property and assets, or actual losses on disposal of such assets. The full year 2016 includes both the Q4 2016 impairment to write down our cost method investment in Physician Resource Management, LLC (“PRM”) and the Q3 2016 full impairment of the definite-lived intangible assets associated with Primrose Healthcare LLC. 2013 charges primarily relate to the $932 write-down of our former Swartz Creek, Michigan headquarters facility to its fair value, after we vacated it in favor of our present Flint, Michigan facility. 2012 charges primarily relate to our write-down of an externally purchased software package we no longer utilize, as well as sales of Company-owned vehicles. 2011 charges include expense associated with the closure of our former Cleveland, Ohio facility, the move of our Chicago, Illinois area facility, and sales of Company-owned vehicles.

(3) During the fourth quarter of 2014, we reassessed the recoverability of our investment in our non-consolidated entity, Ageology. Based upon this assessment, we determined that a full impairment of $4,869 was warranted, primarily due to updated projections of continuing losses into the foreseeable future. The remaining amounts in 2014, 2013 and 2012 represents our share of losses recognized by Ageology, using the equity method of accounting. We first invested in Ageology, an anti-aging physician network dedicated to nutrition, fitness and hormones, in October 2011, in connection with its formation.

(4) Employee severance and related fees primarily relates to severance for former management.

(5) Fees and expenses directly related to merger and acquisition activities, and the impact of changes in the fair value of related contingent consideration liabilities.

(6) Primarily includes philanthropic activities performed at the direction of our majority shareholder.

(7) Represents (a) various tax credits received from the state of Michigan for facility improvement and employee hiring initiatives, (b) the one-time costs associated with converting from an S-Corporation to a C-Corporation, and (c) a 2014 charge of $1,825 related to non-income tax obligations.

(8) Q3 2017 excludes $1.0 million of insurance proceeds associated with the 2016 inventory loss due to a cooler failure. 2016 includes a $2.4 million inventory loss due to a cooler failure. Other expense is predominantly IT operating leases. Operating leases were initiated, in lieu of purchases or capital leases for a subset of our IT spend, for a short period of time in 2013 and 2014 for liquidity purposes. We have since discontinued the practice of leasing IT equipment. The cost of purchased IT equipment is reflected in depreciation and amortization.


Diplomat investor presentation january 2018

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Transcript of Diplomat investor presentation january 2018