1. Triumph Pharmaceuticals – Supply Chain Strategy (Part B) University of Michigan - Tauber Institute 12/7/2015

2. - 2 -  Context  Critical Factors  Proposed Strategy  Analysis  Approach  Triumph's Alternatives  Optimized Scenarios  Recommendations  Risk and Mitigations Presentation Summary

3. - 3 - source: IBISWorld Industry Report: Global Pharmaceuticals & Medicine Manufacturing, September 2015 Context: Pharma Industry Challenges and the TPP  R&D, materials: more than 50% of costs  10-15 yr, multi-billion dollar NPD process  IP law creates small window for recouping costs under protection  IP protection window diminishes under the TPP  IP protection: ownership of formulation  Data protection: ownership of clinical results

4. - 4 - Critical Factors affecting success  Cost: Drives margins  IP Protection: drives cost by protecting market share for limited time period  SC Disruption: increases cost, required inventory, delays market delivery  Competitors:  Pharma companies: use IP to develop competing products  Generics: Use data to develop competing biosimilars at lower costs Cost IP Protection SC Disruption Market Share Competition

5. - 5 - source: “New product development process and time-to-market in the generic pharmaceutical industry” Janez Prasnikar, Tina Skerlj Market Share Competition is a Critical Issue for Big Pharma Companies A prudent strategy for maximizing profits in the pharmaceutical industry under the TPP includes measures to delay the entry of competitors into the market

6. - 6 - Supply Chain Analysis Approach Our team analyzed each of the four factors to determine the appropriate weights for each factor taking into consideration the dynamics of the pharmaceutical industry Cost 46% Factors & Weights Matter Patent 29% Supply Chain Disruption 10% ▪Cost of purchased materials represents 34% of the total unit price ▪This is 1.7x greater (34/20) than the profitability of branded pharmaceuticals ▪A challenge in a patent reduces cash flows. If patent loss probability is uniformly distributed. Patent loss can account for a 44% loss in profit NPV. ▪Process patent’s are more respected in foreign countries thus have less of a weight on the factors ▪High gross margins in the pharmaceuticals industry show a relatively low COGS ▪Industry leaders tend to account for supply chain disruption probabilities with high levels of inventory given the relatively low cost -inventory turns range from 1.6- 2.8 for comparable firms Based on the industry dynamics in the pharmaceuticals industry, we placed more weight on cost and IP loss than supply chain disruption Process Patent 15%

7. - 7 - Supply Chain Analysis Approach– Developing a Framework Our team modified the variables into consistent factors and then utilized the factor weightings to determine our optimal supply chain structure Factoring Adjustment The consistent framework applying the factor weights enabled us to consistently evaluate a variety of sourcing alternatives Cost (Factor) Product Patent loss (%) SC Disruption (%) Process Patent loss (%) Cost: Adjusted the cost factors based on the relative cost of each step - example USA before by step (2,2,2,2) after (0.2, 0.5, 2.4, 4.8) SC Disruption: Adjusted the SC disruption to become a factor – example USA & Malaysia step 1 before (20%, 6%) after (3.3, 1) Patent Loss: Adjusted IP probability by SC stage and then factored the percentage – example Mexico before (40%) Mexico after by step (0,40,60,80) Framework Process Step Country

8. - 8 - Our team attempted to optimize each scenario by variable, optimize the network, and then make our final recommendations based on other qualifying factors Determining Triumph’s Alternatives Scenario 1Scenario 2Scenario 3Scenario 4 Keep API patent Obtain process patent Develop unique intermediate APIs Abandon API patent Obtain process patent Develop unique intermediate APIs Maintain IP ownership ✓✓ Expanded data protection ✓✓ 33% decrease IP loss probability (10% cost incr.) ✓✓ 50% cost decrease per intermediate API (costs 25% annual rev) ✓✓

9. - 9 - After running each protection option on the supply chain we got the following optimal supply chains Optimizing Each Scenario Process StepScenario 1Scenario 2Scenario 3Scenario 4 Starting MaterialUSAMalaysiaUSAMalaysia Reaction Intermediate USA API Starting Material USAAustralia API IntermediateUSANew Zealand

10. - 10 - Effects of data protection & additional process patents Profitability improvements (per $100 investment) Data protection increases expected cash flows by 1.5 years, making NPV value higher

11. - 11 - It is worth forgoing the API patent protection for data protection. We recommend securing Malaysia as our Starting Material supplier. We recommend investing in process patents and new intermediate API patents Recommended Network After considering all variables and supply chain complexity, our recommendation is to use four different TPP countries in the network 2 1 3 4 MalaysiaUSAAustralia New Zealand MalaysiaSingaporeAustralia New Zealand Scenario 4 Recommended Network Supply Chain Factor Scenario 4 Recommended Network Cost$2,640$2,558 Process Patent Loss(%) 0.76%2% Supply Chain Disruption (%) 46%

12. - 12 - Risks & Mitigation Steps Potential RisksMitigation Steps Supply Chain DisruptionHigher inventory levels Exclusive Contract with Raw Material Supplier from Malaysia Price increase/ hindrance of supply by suppliersLong term contracts Building stronger relationships with suppliers Competition from genericsDelay generic entry into the market by forming exclusive contracts with alpha material suppliers(Malaysia) Competition from rival pharma companiesSecure supply chain with long term contracts Patent intermediate APIs Force competitor to invest in development of new supply chain and process IP LeakageSource intermediates and final steps from countries with the low probability of IP loss Currency fluctuation risks in South-East Asia and Australia/New Zealand Financial Hedging

13. APPENDIX

14. - 14 - Cash Flows Scenario 1Scenario 2Scenario 3Scenario 4 Investment0 25Investment0 25 Price Increase0 -40%Price Increase0%Price Increase-40% Quantity100Quantity100Quantity100Quantity100 Purchases34%Purchases21%Purchases34%Purchases21% R&D19%R&D11%R&D19%R&D11% Wages10%Wages6%Wages10%Wages6% Rent & Utilities5%Rent & Utilities3%Rent & Utilities5%Rent & Utilities3% Depreciation3%Depreciation2%Depreciation3%Depreciation2% Marketing2%Marketing1%Marketing2%Marketing1% Other10%Other6%Other10%Other6% Profit17%Profit50%Profit17%Profit50% Total100%Total100%Total100%Total100% Sales100Sales100Sales100Sales100 Profit17.2Profit50.32Profit17.2Profit50.32 Patent Protection Min5 Data Protection Min5 5 5 Patent Protection Max7 Data Protection Max7 10 Data Protection Max10 Average6 6 7.5Average7.5 source: IBISWorld Industry Report: Global Pharmaceuticals & Medicine Manufacturing, September 2015

15. - 15 - Cash Flows Cont. Discount Rate8% Free Cash Flow Year12345678910 Scenario 1 $17.2 0 $0.00 Scenario 2 $25.3 2$50.32 $0.00 Scenario 3 $17.2 0 $8.60$0.00 scenario 4 $25.3 2$50.32 $25.16$0.00 Discounted Cash Flow Year12345678910Total Scenario 1 $15.9 7$14.82$13.76$12.77$11.86$11.01$0.00 $80.19 Scenario 2 $23.5 1$43.37$40.26$37.37$34.69$32.21$0.00 $211.40 Scenario 3 $15.9 7$14.82$13.76$12.77$11.86$11.01$10.22$4.74$0.00 $95.16 Scenario 4 $23.5 1$43.37$40.26$37.37$34.69$32.21$29.90$13.88$0.00 $255.18

16. - 16 - Comparable Companies – Inventory Turns Company Cost of RevenueInventoryInventory Turns Pfizer894056631.6 Merck1483355712.7 Novartis1727160932.8 Sanofi1162965621.8 Bristol-Myers392315602.5 Source: Morningstar Financial Reports

17. - 17 - Cost Factoring Details Cost Table Process StepUSAAustraliaNew Zealand Singapo re Malaysia Vietna m MexicoPeru Base Price (%)Average Starting Material20001.250001000.12825 Reaction Intermediate 2001.51.251012000.24825 API starting material 21.7501.25 01010001.21825 API Intermediate21.2510000020002.42825 Process StepUSAAustraliaNew Zealand Singapo re Malaysia Vietna m MexicoPeru Base Price Starting Material0.20.0 0.20.0 100 Reaction Intermediate 0.50.0 0.40.30.20.00.2200 API starting material 2.42.10.01.5 0.01.20.01000 API Intermediate4.83.02.40.0 2000

18. - 18 - IP Factoring Details IP Loss USAAustraliaNew ZealandSingaporeMalaysiaVietnamMexicoPeruMin IP Loss (Total)0.0050.01 0.030.20.30.4 0.005 IP Loss (Matter Loss)0.0010.005 0.010.050.01 0.001 IP Loss (Process Patent Loss)0.0040.005 0.020.150.290.39 0.004 IP Loss (Process Patent Loss) Process StepUSAAustraliaNew ZealandSingaporeMalaysiaVietnamMexicoPeruProbability Starting Material0.330.4125 1.6512.37523.92532.175 0.33 Reaction Intermediate11.25 537.572.597.5 1 API starting material11.25 537.572.597.5 1 API Intermediate0.660.825 3.324.7547.8564.35 0.66 IP Loss (Matter Loss) Process StepUSAAustraliaNew ZealandSingaporeMalaysiaVietnamMexicoPeruProbability Starting Material000000000 Reaction Intermediate0.331.65 3.316.53.3 0.33 API starting material0.663.3 6.6336.6 0.66 API Intermediate155105010 1

19. - 19 - Supply Chain Disruption Details Disruption Table Process StepUSAAustralia New Zealand SingaporeMalaysiaVietnamMexicoPeruMin Starting Material0.20000.06000 Reaction Intermediate 0.300 0.040.200.30.04 API starting material 0.40.060 0.200.100.06 API Intermediate0.10.20.12000000.1 Disruption Table Factor Process StepUSAAustralia New Zealand SingaporeMalaysiaVietnamMexicoPeru Starting Material3.30001.0000 Reaction Intermediate 7.500 1.0507.5 API starting material 6.71013.301.70 API Intermediate1.021.200000

20. - 20 - Supply Chain Factor Percentages FactorsCostSC Disruption Process Patent Loss Product Patent Loss Total (%)0.460.10.150.29.1

21. - 21 - Summary Allocation Table Process StepUSAAustralia New Zealand SingaporeMalaysiaVietnamMexicoPeru Optimal Route Starting Material 1.50.0 0.80.0 Malaysia Reaction Intermediate 2.10.0 2.67.411.00.014.5USA API starting material 2.11.60.02.310.90.020.50.0Australia API Intermediate 1.6 1.40.0 New Zealand

22. - 22 - Summary Scenario Table ScenarioCost Disruption Probability Process Patent Loss Product Patent Loss 1 $6,60070%1.19%0.2% 2 $2,64046%0.76%0.5% 3 $4,35054%1.36%0.0% 4 $2,64046%0.76%0.0% Recommended $2,55846%2%0.0%