Business Plan 2011- 2013 Edition, May 2011

Key Issue




The current document represents an updated and extended version of the previous “Business Plan 2010-12” unveiled to the financial community on past March 23rd, 2010;




This document contains the results reached in 2010 and an updated overview of the expected targets for the period 2011- 2013;




Details regarding the strategic and operating targets for the medium term are reported in the “Business Plan 2010-12” published on past March 23rd, 2010.

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Pierrel Group – Current Organizational Chart

Pierrel S.p.A. CMO Division (*)

Pierrel Research Int. AG

Contract

Contract Research Organization

Manufacturing Organization

Pierrel Research Germany GmbH

Pierrel Pharma srl Drugs & Formulations Licensing

Pierrel Research Polska Sp z.o.o

Pierrel Research Austria GmbH

Pierrel Research HP Romania S.r.l.

Pierrel Research Romania S.r.l.

Pierrel Research Balkan Doo

Pierrel Research Hungary Kft

Pierrel Research Russia O.O.O.

Pierrel Research Baltic States UAB

Pierrel Research IMP S.r.l.

Pierrel Research Slovakia S.r.o.

Pierrel Research Bulgaria EOOP

Pierrel Research Italy S.p.A.

Pierrel Research UK Ltd

Pierrel Research Europe GmbH

Pierrel Research Onco-Immunology GmbH

Pierrel Research USA, Inc.

(*) The CMO Division is a business of the holding company Pierrel Spa

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Pierrel Research – Summary Report As described in 2010 Business Plan, the main objective of the Pierrel Research, over the last 12 months, has been to consolidate its leading position in Italy and to become one of the most important players in Europe and to expand the operations in the USA, through an increased penetration of the international clinical research market .
On January 2011 Pierrel Research has completed its operational and administrative reorganization. All the local CRO subsidiaries have been contributed in kind into the Swiss sub-holding, Pierrel Research International AG, based in Thalwil (Zurich), which ended up with an equity of about CHF 60.0 mln. Luigi Visani, MD, has been appointed Chairman and CEO of Pierrel Research International AG.

• Presence of Pierrel Research Worldwide 4

Pierrel Research – Summary Report
Business Development Strategy - The completed reorganization of the Company has created the second European listed Clinical CRO. The new strategic business development approach of Pierrel Research, based on the “Partnership Model “ has generated a first alliance with Siena Biotech, one of the major Italian biotech, to co-develop new onco-immunology products up to the “Proof of Concept ” Phase II studies.
2010 results – In 2010 Pierrel Research has generated gross sales for over Euro 32.0 mln and an EBITDA of Euro 2.4 mln, lower than the planned target of over Euro 4.0 mnl. EBITDA. The main reasons for that reduced performance are attributable to both the sluggish recovery of the international outsourcing market and to the prolonged completion of the company reorganization process that required more steps and interventions than originally planned.


Backlog and commitment – The new operational and administrative model of the company has already started to generate positive results. The acquisition rate of global clinical trial contracts is increasing. The Company has recently announced multi-million contracts signed both in Europe and US: Contract 1: 8.9mln (a phase III study in oncology area, with 41 sites in Europe and USA, 350 patients involved); Contract 2: 4.2mln (a phase IV study in urology area, with 100 sites in Europe, 1000 patients involved); Contract 3: 1.5mln (phase III study in immunology area, with 84 sites in Italy, 600 patients involved); Contract 4: 1.3mln (phase III study in immunology area, 30 sites in Europe, 150 patients involved); Contract 5: 1.3mln (non-interventional study in immunology area, with 40 sites in Italy, 800 patients involved). As of December 2010, the backlog net value was about Euro 43.0 mln (incl. pass through costs). At the end of March 2011, the backlog was in the range of Euro 48 mln; the growth is due to increase of the conversion ratio of the pending offers. The company historical success ratio is around 30%.
Target Fundamentals – For the current year, Pierrel Research expects to generate around Euro 36.5 mln gross revenues, with an EBITDA of Euro 4.0 mln. The 2011-Q1 results (sales at Euro 7,5mln and EBITDA of Euro 0.8mln) confirm the target. The visibility is high, and about 70% of 2011 results are under execution. Based of the planned internal growth, Pierrel Research, in the period 2011-2013, will generate gross revenues of about Euro 119.0 mln and Euro 15.0 mln EBITDA. 5

Pierrel Research – Key Performance Indicators Pipeline +30.1%

(updated March 2011)

Net Revenues/headcount & EBITDA ratio

113.2

70.8

68.1

92.4 64.8 49.8

RFPs

+13.4%

13.4

9.1

Backlog 48.4

42.6

31.12.10 31.12.10

31.03.11

Revenues / headcount (€/k)

31.03.11 EBITDA / Net Revenues ratio (%)

International / National contract ratio

Net Book-to-Bill ratio 1.6

+60%

100% 80%

1.0

45%

37%

55%

63%

31.12.10

31.03.11

60% 40% 20% 0%

31.12.10

31.03.11

International Contracts

6

National Contracts

Pierrel Research - Targets for 2011-2013

INCOME STATEMENT (€/k)

2011R

2012R

2013R

GROSS REVENUES

36,538

38,730

43,378

11.0%

6.0%

12.0%

29,230

30,984

34,702

6.3%

6.0%

12.0%

7,308

7,746

8,676

20.0%

20.0%

20.0%

Total operating costs

32,519

33,743

37,261

EBITDA

4,019

4,987

6,116

11.0% 13.7%

12.9% 16.1%

14.1% 17.6%

YoY growth

NET REVENUES YoY growth

Pass-Through Costs % on Gr.Rvn

% on Gr.Rvn % on Net.Rvn

7

Pierrel Pharma - Summary Report As described in 2010 Business Plan, the mission of Pierrel Pharma is to develop new drugs or formulations to be licensed out to industrial or distributor partners


The Company - In July 2010 Pierrel Spa established Pierrel Pharma Srl to which it has transferred its international marketing licenses (NDAs) of “Articaina Pierrel” and “Orabloc” for a consideration of Euro 10 mln (based on an independent assessment);
Orabloc ® - It will be the new “global brand” of Pierrel Artiacaine;

Orabloc Markets Presence Overview Orabloc Current Presence (2011) Orabloc Registration in 2012 Orabloc Registration post 2012 8

Pierrel Pharma - Summary Report
The Patterson Agreement - In November 2010 Pierrel Pharma singed a 10 years distribution agreement Patterson Dental, an US leading distributor for dental products. The agreement has a minimum value of US$ 80mln.


Orabloc® to be launch in the US on May 12nd 2011. The CMO division of the Group will responsible for its manufacturing.


The company strategy represented in the “Business Plan 2010-12” is confirmed and it is under execution.
The Management – A new Business Development Manager, has been recently appointed in order to identify and select the appropriate distributors in those European countries where Orabloc® is, at present, under registration and whose approval is expected early next year.


Targets Fundamentals -The company expects a cumulated EBITDA of Euro 7.7 mln in the period 2011-13, based on about 70 mln of cartridges sold. More in details, in addition to volume currently under contract (32mln in the period 2011-13), Pierrel Pharma expects further 38mln of volume to be sold in USA, Canada, EU and Russia between 2012 and 2013, thanks to further registrations under approval and new contracts to be signed.

9

Pierrel Pharma - Targets for 2011-2013 Costs internally

executed

The price of € 0.14 per unit does not include what is paid for the manufacturing of € 0.2 per unit

10

Pierrel Manufacturing - Summary Report As described in 2010 Business Plan, the mission of the CMO Division is to exploit its high level production standards and processes through the finalization of long term manufacturing agreements, for a stable and predictable cash flow generation.
The recovery of efficiency - Following the conclusion of the investments aimed to obtain the FDA approval, in 2010, the Capua plant has been mainly involved in the recovery of its efficiency. The process has been very challenging and starting from the end of 2010, first results were visible. A new controlling procedure has been implemented to closely monitor any production phase.


Increased production volumes – The reported recovery of efficiency has been followed by a gradual increase of production volumes. In 2010 the CMO division has posted a turnover of around Euro 13mln sales, compared with Euro 8mln sales of the previous year.


Unmet 2010 results – The Business Plan presented in 2010 reported an expected sales of Euro 14mln and Euro 0.6mln EBITDA. These results have not been reached due to more intensive than expected activities, needed to recovery the efficiency problems of the Capua plant.

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Pierrel Manufacturing - Summary Report
Backlog with > 10 Years Visibility – The plant FDA approval, combined with the support coming from the development of Pierrel Pharma, generated a strong increase in the backlog, currently above of Euro 140 mln, most of which has more than 10 years visibility;  Dentsply (Value of the contract: Euro 70mln): dental anesthetics-cartridges, all EU + UK + Australia + MEA, expiring date 2021, revenues per year c.a. Euro 7mln;  Hereaus (Value of the contracts: Euro 22mln): dental anesthetics-cartridges, Germany, expiring date 2022, revenues per year c.a. Euro 2mln;  Patterson (Value of the contract for CMO Division: Euro 32mln): dental anesthetics, USA + Canada, expiring date 2020, revenues per year up to Euro 4mln;  Curaden (Value of the contract Euro 8mln): dental anesthetics, Italy, expiring date 2021, revenues per year Euro 0.8mln;  Astrazeneca (Value o the contract Euro 3.6mln); local anesthetics and packaging of oral tablets, Italy, expiring date 2013, revenue per year Euro 1.2mln;  Provenpharm (Value of the contract Euro 4mln): orphan drug Provenblue ®, 30 countries (EMEA), exclusivity production, expiring date 2015, revenues per year Euro 1mln (expected up to Euro 4-5mln per year);  Others – The CMO Division has also other minor contracts THESE FIGURES DOES NOT TAKE INTO ACCOUNT THE DEVELOPMENT OF PRODUCTION COMING FROM THE EXPANSION OF PIERREL PHARMA (ORABLOC) 12

Pierrel Manufacturing - Targets for 2011-2013
Targets Fundamentals – The CMO Divisions expects in 2011 around Euro 16.4mln sales with an EBITDA in the range of Euro 1.8mln. The results reached in Q1 (sales at Euro 3.6mln and EBITDA Euro 0.337mln) support our 2011 targets. Assuming the expectations in terms of backlog and expansion coming from Pierrel Pharma, which production will be served by the CMO Division, in the period 2011-13 we expects sales of Euro 71 mln and an EBITDA of about Euro 15.5mln. Data in K€ Dentsply Hereaus Curaden Hansamed Pierrel Patterson Varie

2011 40.0 9.0 3.0 1.0 6.0 6.0 8.0

2012 45.0 10.0 3.5 1.0 6.0 8.0 6.0

2013 45.0 10.0 4.0 1.0 6.0 11.5 6.0

Total Volume (Cartridges) Average price per unit (Euro) Revenues Cartridges Revenues Other Products

73 0.20 14,473 2,064

80 0.20 15,900 3,000

84 0.20 16,700 4,000

Total Revenues Variable Costs

16,537 9,410

18,900 10,250

20,700 10,978

% of Tot Rev

57%

54%

53%

Fixed Costs

5,272

5,300

5,530

% of Tot Rev

EBITDA % of Tot Rev

D&A Ebit ROS

Data in K€ Capex (Euro mln) Additional Volume Cartridges (mln) Revenues per unit (Euro) Additional Sales Additional Fixed Costs Variable Costs (on Add Volumme) Total Addiotnal Costs Additionsl EBITDA (B) TOTAL EBITDA (A+B)

32%

28%

27%

1,855

3,350

4,192

11%

18%

20%

2,969 (1,114)

2,900 450

2,850 1,342

na

2%

6%

2011

2012

0 0.20 0 0 0 0 0 1,855

15 0.20 3,000 244 1,627 1,871 1,129 4,479

2013 4.5 23 0.20 4,600 366 2,439 2,805 1,795 5,987 13

The management has already under studying a detailed project regarding a new line for the manufacturing of cartridges amounting up to 60mln per year with a capex of Euro 4.5mln. Investments is planned to start in 2012 to cover the increase of sales from 2014

The increase of volume is due to the expansion of the proprietary Orabloc ® in US, Canada, Russia, Germany, France, Poland, UK and Austria

Order backlog and drivers of the economics 2011-13 Drivers of the economics

Order backlog overview - historical trend value (€m)

Strong order backlog increase mainly due to the FDA approval of Capua plant

The value of the contract with Dentsply expiring in 2021 is estimated to be equal to c. €60-70m1 200 180 146 160 140 120 76 100 80 60 43 40 20 27 0

Sales 187

CRO 70 48

CMO

Start to benefit from 2011 of the new CRO international platform (over 20 countries) to access to projects on a international basis



New CEO appointed in the USA in H2 2010 to facilitate the integration and to boost the activity in USA



Step up in backlog due to FDA approval



Strong demand of FDA approved plant’s capacity that will allow Pierrel to exploit the “duopolistic market structure” (only 2 plans FDA authorized for the production of local dental anesthetics)



NDA approval obtained in 2010 (Articaine) Implementation of the distribution agreement for the USA and Canadian markets. New agreements to be signed in Russia and other countries The development of new molecules will also contribute to boost revenues of the CRO and CMO divisions

69

Dec 09

Dentsply



Mar 11

CRO

Pharma

CMO

 

Order backlog - % of revenues secured by contracts Standard contract with 1-1.5 years tenor

EBITDA Order backlog (€m) Years CRO

Long term contracts (up to 2020/21) guarantee high visibility on cash flow

CMO

2

2011

2012

> 60-65%

> 25-30%

100%



Benefits related to the introduction of the new CRO international platform – Possibility to be awarded international sizable contracts with higher margin – Significant cost synergies expected (€1-1.2m per year)



Shortage of FDA authorized plant capacity are expecting to allow Pierrel to re-price the production increasing company’s marginality Exploitation of a significant operating leverage

CRO

CMO

82%





Royalties scheme and distribution contract already signed Inelastic cost structure will allow Pierrel to benefit from a strong cash flow generation



Efficiency improvements due to the completion of the start up phase



Pharma Centr. costs

Note 1 The value is estimated on the basis of the historical trend (the contract has geographical limitation but not includes a minimum production) 2 Pending offers value as of March 2011 equal to c. €65m (excluding Pass Through).

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Preliminary targets 2011-13 at the current stage (1) Key financials Consolidated (2008A-2013E) Significant cash conversion thanks to limited capex required and tax shield of c.€25m

2010-2013 estimates impacted by: -The reorganization process of the CRO division -Appointment of new CEO of Pierrel Research USA (June 2010)

€m Revenues Growth (%) EBITDA Margin (%) EBIT Margin (%) Net Income / Loss Margin (%) Equity Net debt / (cash)

2008A

2009A

2010A

2011E

2012E

2013E

46.2 (3.2) (6.9%) (8.3) (18.0%) (10.0) (21.6%)

44.4 (3.9%) (4.0) (8.9%) (10.9) (24.5%) (12.8) (28.8%)

44.7 0.7% (2.3) (5.1%) (7.6) (17.0%) (7.7) (17.2%)

53.9 20.6% 4.3 7.9%

63.9 18.4% 10.3 16.1%

74.3 16.4% 15.4 20.7%

29.2 22.8

18.5 27.1

10.6 34.3

2010A revenues breakdown

0%

2010A total revenues: €45m

28%

72%

CMO

CRO 15

Other

Preliminary targets 2011-13 at the current stage (2) Revenues breakdown by division (€m) CRO passthrough 3 :

80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -

20%

20%

20%

3.2 0.4 -

0.8 -

0.2 -

-

-

38.7

36.5

5.7 43.4

36.9

36.1

32.3

16.5

25.3

8.0

12.5

21.9

8.9 2008

2009

2010

2011

2012

2013

EBITDA excluding centralized costs1 by division CMO (€m)

CRO

Pharma

Other

20.0 5.0

15.0 2.5 10.0

0.3

5.0 -

2

2

2.1 (1.9) 2008A

2.3 (2.2) 2009A

4.0

2.5 (0.9) 2010A

1.9 2011A

6.1 5.0 4.5

6.0

2012A

2013A

(5.0) CMO CRO Pharma Notes 1 Recurring centralized costs of the Group in 2010 to be equal to €3.4m, then €1.9m in 2011 and €1.7m in 2012 and 2013 2 Combined EBITDA of CMO and CRO divisions. CMO division reported negative EBITDA equal to €1.9m in 2008 and €2.2m in 2009. The CRO division reported a positive EBITDA equal to €2.1m in 2008 and €2.3m in 2009 3 Pass-through cost: costs for provision of services requested to third parties and charged by Pierrel Group to its customers

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First Quarter 2011 and Full Year Targets REVENUES ANALYSIS

EBITDA ANALYSIS

17