Managing a family business as a non-family member CEO · Western countries of Latin America (LatAm)...

GRÜNENTHAL Name der Präsentation DatumGRÜNENTHAL

Managing a family business as a non-family member CEOHarald F. Stock, CEO GrünenthalThe Americas families in business conference│Miami│April 25, 2012


1. Introduction to Grünenthal


Grünenthal at a glanceA leader in pain therapy innovation

$ 1,240 mnRevenues in 2011 (vs. 2010: € 910 mn)

~24%of Global Pain sales from products on the market less than 5 years

155Countries where our products are sold

>60% Equity Ratio in 2011

> $ 650 mnGroup Liquidity end of Feb. 2012

90% International Business

26Consolidated affiliates in 26 countries worldwide

5Production sites

~4,200Employees

175

118

230

31

89

Active Substances Indication

Market Launch

Tramadol Hydrochloride

Paracetamol+ Tramadol

Buprenorphine

Lidocaine

Buprenorphine

Tapentadol

moderate to severe pain

moderate to severe pain

moderate to severe cancer pain and severe pain

post-herpetic neuralgia

moderate, chronic pain

severe pain

2003

2001

1977

2007

2007

2010

(USA: 2009)

Sales(2011, $ mn1)

41

1calculalted with euro exchange rate from April 16, 2012: 1.30923 USD/EUR2commercialized by Johnson&Johnson in North America

The Americas families in business conference │ Miami April 25, 2012

(Nucynta IR/ER)2

Tamper resistant formulation technology for the protection of intended drug action

652010

(146)


Global presencePain leadership in established EU-markets and historically strong position in Western countries of Latin America (LatAm)

Partner countriesGrünenthal countriesHeadquarters Production Development Unit

Step-wise Internationalization


Mexico City, MX

Quito, EC

Bedminster (NJ), USA

Mitlödi, CH Milan, IT

Aachen, DE Further expansion in LatAmthrough founding of affiliates in Ecuador (1972), Columbia and Chile (1979), Venezuela (1995), Mexico (1998)

1946 Foundation of the Company in Stolberg, Germany

1968 Foundation of the first affiliate in Lima, Peru

2011 Acquisition of affiliate in São Paolo, Brazil

1977 First affiliate in Europe in Vienna, Austria

Mainly by acquisition new affiliates e.g. in Spain (1979), Italy (1996), France (1997)

Today Consolidated affiliates in 26 countries worldwide

Latin America

Europe & Australia

2010 Foundation of affiliate in Melbourne, Australia


Our Vision We aspire to be the

most patient-centric

company.

Core of our successGiving patient needs our highest priority …

Providing new answers to unmet medical needs in pain and beyond

… we win with SUPERIOR OUTCOME

Sustaining value growth by focusing on our core strengths and matching R&D pipeline and geographic footprint

… we win through FOCUS

Excelling with flexible and responsive market approaches both in mature and emerging markets

… we win by being MARKET-ORIENTED

Creating a patient-centric innovation culture, being resilient and staying focused – all based on strong corporate values, fostering a culture where people enjoy being successful

… we win by building a POSITIVE IMAGE and by being a GREAT PLACE TO WORK



2. Corporate Governance


“When you decide to have professionals run your company, you better put professionals in place to ensure adequate supervision.”

- Shareholder, Board Observer


Smooth, swift transitionFrom a family-run to a family-owned company in two years

1Shareholders represented in the supervisory board by non-voting board observers


Hermann Wirtzfoundation of Grünenthal

2009 2010200519671946

Michael Wirtz joins the company

Michael Wirtzassumes executive management position

1969

Michael Wirtz changes into supervisory board

Sebastian Wirtz assumes executive management position

Harald F. Stock assumes CEO position, For the first time: executive management all professional non-family managers

2008

Sebastian Wirtz resigns from management position

Hasso KämpfeChairman of the supervisory board,For the first time: board members all professional non-family members1

1st generation

2nd generation

3rd generation


Corporate governanceTwo-tiered corporate governance – mandatory in Germany, but useful in particular


100% Share-holders

Share-holder

100%

Grünenthal Pharma GmbH & Co. KG Aachen

Grünenthal GmbHAachen

Wirtz Familiy (19 shareholders)

GrünenthalVerwaltungs GmbH

elects

appoints

Affiliates46 consolidated legal entities in 26 countries in

Europe, Latin America and Australia

Supervisory Board� 1 external chairman of the supervisory board:

elected by all family branches � 4 external members of the supervisory board:

based on recommendation of the individual family branches

� 4 shareholders (family-members) : non-voting board observers representing each family branch

Group Executive Management

100%


3. Transformation Model


Transformation modelTransformation is based on two key strategic objectives of Grünenthal: growth and sustainability

sustainable growth

organicexternaloperational excellence

diversification

Aspiration

Profitable growthIncome before tax

SustainabilityRisk reduction

Objectives

Drivers



Investment into innovationValue driver innovation as basis for sustainable growth and thus ensuring independence as family-owned company


R&D investment

138173

200 212 212 206

305325 340

361

15%17%

19% 19% 19% 18%

23%25% 26% 27% 26%

2004 2005 2006 2007 2008 2009 2010 2011 Budget2012

Plan2013

Plan2014

271

$ mn % of sales

ObjectiveLaunch one innovation every five years (NCE) by

� almost double R&D investment (2015 vs. 2009)

� build on international licensing and partnering opportunities

competitors


Organizational transformationAdaptation of management model to meet strategic objectives of the transformation process

� Strong headquarters is steering affiliates

� Affiliates are fully responsible for their local business

Headquarters manages funtionally defined divisions:

� Marketing & Sales

� Research & Development

� Production

� Administration

Corporate Centre

� Defines group strategy

� Optimizes profit-orientedStrategic Business Units, (SBUs) from a group perspective

� Ensures compliance and quality standards

� Ensures centralized, optimized funding

“Traditional model“ Divisional model SBU-model



SBU modelBalanced business model based on establishing of three value drivers to ensure future success

� Key market for Centrally Acting Analgesics

� New product segments (e.g. “disease management“, e-health)

� Patent protection� Generating new growth

opportunities

� High growth dynamics of economy as well as the health care and pharmamarkets

� Increasingly aging population by strong “young basis”

� Growing demand for innovative products

� Converging health care systems in the long-term

SBU Grünenthal Europe & Australia

SBU Grünenthal Latin America

SBU Grünenthal Innovation

� Strong pipeline in place� Strong know-how,

concentrated on one location

� R&D alliances– broadening innovation

capacities and know-how

– contributing to R&D financing

– Reducing risks� Partnering allows to exploit

full potential of our products on markets without own sales structures

� Minor market growth, esp. due to pricing

� Generics� Cost measures of health

care systems � Expensive late-stage

phases in development are limiting earning potential

� Political risks� Currency risks� Different market structures

require differentiated product portfolio � Requires continous high

R&D expenditures and investment

� Pharma-typical high R&D risks



4. Three transformation phases


1 2 3

TransformationImplementation in three steps

Efficiencies Focus Growth

� Production &supply chain

� Administration

� Other areas

� … on high margin products (categories)

� … on geographic core markets

� Accelerate organic growth

� Accelerate external growth by mergers & acquisitions



Phase 1: EfficienciesSustainably increase efficiency potentials in production and administration

� Reduction of sites from 8 to 5

� Uniform standards, processes and systems

� Increase sustainable cash flow by approx. $ 33 mn p.a.

� Significantly increased flexibility with regard to fluctuation in demand

Transformation in production and supply chain


Transformation in administration

� Focus on value-added core processes

� Reduction of process complexity

� Out-sourcing of standard processes

� Reduction of management levels and organizational complexity

� +$ 35 mn cash-improvement p.a. by 2012

� Competitive admin cost ratio of 6.7% reached in 2012

� Retention of high potentials successful

� Continuous search for excellence and synergies as ongoing task


Phase 2: Focus Focus on high-margin products and geographic core markets

Focussing decisions are based on market growth potential and Grünenthal'scompetitive position

Pain Therapy

Therapeutic areas

Gynecology

Cystic fibrosis

Dermatology

Antibiotics

Central / Eastern Europe

Middle East

Europe

Latin America

USA

Geographies

Core business

Non-core



Phase 2: FocusDivestment of non-core business significantly increases liquidity for investments in phase 3

Divestment Income(Sales Multiple)

1Net Sales 2009 2 without Medinsa 3 without Dermatics, Antibiotics and Gynecology

3.7 x

2.4 x

3.3 x

Realized BusinessNet Sales

($ mn)

Gynecology

Antibiotics

Cystic Fibrosis (CF)

Medinsa & Iberia Products

84

71

27

82

Riemser

Gedeon Richter

Forest

Lindopharm

Buyer

803 5.1 x

2.0 x

3.7 xHalibut 5Medinfar

2.4 xRx Dermatics 5Teofarma

CEE & ME

2010

2010

2010

2011

Time

2009

2009

4The Americas families in business conference │ Miami April 25, 2012

STADA 2011


Phase 2: Focus Focusing on core products and markets accelerates growth and drive profitability


Latin America

+18%1

+12%²

Europe & Australiacore business

(vs. +0.3% retail market)

(vs. +10.6% retail market)

+8.2%

-2.6%

Grünenthal Group revenue growth 2011 (in %)

IMS regional revenue growth 2011 (in %)

2011 vs. 2010 w/o milestone payments & divestments

2011 vs. 2010incl. milestone payments (also in 2010)

1 Growth pain business in Europe without partner business, YTD December 2011, Source: IMS² Growth Grünenthal in Latin America (entire portfolio: i.e. pain, gyn, local products) without partner business YTD Q3_2011, Source: IMS


Expected revenues ($ mn)

Phase 3: Growth Sustainable internal and external growth drives required earning potential

1,200

~2,000

EBITDA

~x2!

2010 Patent expiry Europe: Divestments

Focus on strategic products

Growth, primarily driven

through M&A

2015

EBITDA

R&D

R&D



Partner countriesGrünenthal affiliates

Revenues 2011$ 202 mn

Objectives for Latin America

� ExpansionFor many years Grünenthal has held a strong position in the Western countries of Latin America, which will further be strengthened

� Market entryParticipate at growth dynamics of the Brazilian pharmaceutical market

� Corporate diversificationbetween payor driven markets in Europe and end-customer driven markets in Latin America

� Attractive partnerComplete coverage of the Latin American market is a strategic prerequisite for being an attractive partner to other pharmaceutical companies


Share of Grünenthalrevenues16%Regional marketranking#27

Regional Grünenthal profile

Phase 3: External growth in Latin AmericaFurther accessing market potential through acquisitions and partnership models


6. Family business specifics


Benefits and challenges of a family-owned companyThe long-term view of a family business allows us to pursue a different path than big pharma


+ -Benefits Challenges

� Sustainable : desire to build a business for future generations

� Long-term view in decision making is key to our strategy (high R&D investment vs. maximizing payout)

� Commitment of shareholders

� Aligning increasing number of shareholders with different interests

� Maintain identification with business also in the third and fourth generation

� Decision making between family and business perspective


Think innovation. Feel life.

Managing a family business as a non-family member CEO · Western countries of Latin America (LatAm)...

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