sample funding partner board presentation

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

2Confidential property of Rx Logic, LLC

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


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


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


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.


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


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


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.


Illinois Pharma 3PL Competition…


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


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.


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


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


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


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


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.

'16

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…


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


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


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


• 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



Appendix

Transaction / Cash Flow


Funding

Partner

/ Rx Logic

*Capital Expenditures for 25K SF Operation


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


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


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…


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


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.


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.


sample funding partner board presentation

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