PEFF - LBO Proposal OSI Pharmaceuticals March2010

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LBO Proposal – Biopharmaceutical Sector Etienne Montagut Individual Project Developed for the sole Purpose of eMBA Assignment – PEEF March 2010 Executive Summary The Target company is OSI Pharmaceuticals, a US based biopharma company ã A a blockbuster in oncology and strong pipeline with late stage compounds ã A strong culture of partnership and asset optimization OSI Pharmaceuticals position itself between mid- and large-cap biopharmaceutical companies. The business model selected is to not
  LBO Proposal –Biopharmaceutical Sector Etienne MontagutIndividual ProjectDeveloped for the sole Purpose ofeMBAAssignment –PEEFMarch 2010  Executive Summary The Target company is OSI Pharmaceuticals, a US based biopharmacompanyãA a blockbuster in oncology and strong pipeline with late stage compoundsãA strong culture of partnership and asset optimizationOSI Pharmaceuticals position itself between mid-and large-cap biopharmaceutical companies. Thebusiness model selected is to not de focus the company efforts from R+D, which is the most addingvalue stage of the biotech value chain. The commercial presence shall remain focus on theoncology field and in the US only. Collaborations with third parties should help to decrease the riskrelated to late stage R+D programs and leverage the oncology commercial platform in the US. Thisbusiness model offers OSI the capacity to increase the number ofdrug projects and share riskamong a broader portfolio of product and across larger geography, so increase the shareholdervalue.EV 2009: US$ 2,710,515EBITDA (2009): US$ 164.5 millionsDebt financing (see Graph) -3 tranchesof Senior Debt for 54% of the EV-1 trancheof Mezzanine Debt for 10% of the EV Exit Scenario: IPO (fallback: trading)-Year: 2015-Multiple: 6.5x-Expected IRR: +47.6% 17%83%DebtEquity 30%14%10%10%36% Pre-and Post –transaction Capital Structure   Therapeutic focus: Oncology, Diabetes & Obesity  OSI is previously known as OncogeneScience, Inc. and changed its company name in 1997  Notable M&A Acquisitions:  Acquired Eyetech in Nov05 for $935m and subsequently divested Macugen(eye disease business) in 2008  Acquired Cell Pathways in Feb02 for $32m  The diabetes R&D programs are conducted mainly through ProsidionLimited (U.K. subsidiary)  OSI has facilities in Colorado, New Jersey and the UK  Tarceva (Lead product) is approved in 94 countries for advanced NSCLC and 70 countries forpancreatic cancer. It achieved global sales of over $1.2bn in 2009. In Nov09, OSI announces thatTarceva is to be reviewed by the FDA as First-Line Maintenance in advanced NSCL  Co-promotes Tarceva with Roche/Genentech in the US (50/50) and receives royalties (21%) outsidethe US from Roche OSI Pharmaceuticals –Company Snapshot Source: OSIP website, 2009 Annual Report, Yahoo Finance, Thomson One Financial Overview (millions US$) Business OverviewKey Marketed Products Genentech/RocheCo-promotion in USLicensing out outsidethe US$358.7m(include royaltypayments)Pancreatic cancerTarceva(erlotinib)Out licensed to 12companies$69m from royaltiestype II diabetes andrelated indicationsDPIV estateroyaltiesGenentech/RocheCo-promotion in USLicensing out outsidethe US Partner2009 Revenues 2 nd and 3rd LineNCSLC Indication Tarceva(erlotinib) Name Source: Thomson, Broker reports  Sales Breakdown (A2009)   Income StatementRevenue375.70341.03379.39428.15Gross Margin (%)78.9197.8397.5497.95EBIT-21.6099.43133.31152.65Operating Profit-21.6099.43133.31152.65EBITDA5.70109.33146.51170.39Pre-tax Profit-20.90103.30133.14133.28Net Income-21.10100.57129.9776.00Cash FlowCapital Expenditure10.404.334.9832.30Per Share DataCash Flow per ShareNANA2.0803.380Balance SheetNet Asset Value28.95138.96571.55706.81Net Debt54.03102.26142.01-315.36ValuationROA (%)-4.6118.0111.8914.20ROE (%)-72.8972.3822.7426.49 2006A 2008A2007A 2009A -$215mNet Debt1983Year Founded500# of EmployeesMelville, NY, USLocationEVP -PharmDevt& ManufacturingRobert L. SimonChief Financial Officer, EVP TreasurerPierre LegaultChief Executive Officer, DirectorColin GoddardChairman of the BoardRobert A. Ingram TitleName OSI Revenues Breakdown A2009 50%34%16% Net Revenue fom JointBuisness TarcevaRoyaties from Tarceva Salesoutside USDPIV Royalties andmilestones  OSI current Shareholders Top Institutional Shareholders (% Ownership) Wellington Management Company 13.4%Federated Investors 7.2%Sectoral Asset Management 5.4%Price (T.Rowe) Associates 5.4%Westfield Capital Management Company 5.3%Barclays Global Investors 5.0%Janus Capital Management 4.4%Vanguard Group 3.9%FMR 3.8% Source: Yahoo Finance
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