Risk Financing Script

First Slide -In order to control your cost of risk, it was important to determine how
much risk your company can retain which required an analysis of your fnancials, more
specifcally, geared towards liquidity, cash fow and future strategic initiatives to
determine which fnancing options would be the most benefcial for you.
Second Slide - Overall we believe your liquidity position is extremely advantageous and
will provide much fexibility in regards to design of any potential fnancing plans. More
specifcally, your current ratio, at 2.75, is well above industry average. We believe this
will allow you to retain more risk than industry levels due to the fact that much of these
liquid assets could be converted to cash if an unfavorable claim or ruling were to occur.
Another statistic of interest for us is your quick ratio, which is near 2.0. This not only
shows us the liquidity of your company without factoring in inventory, but also the limited
risk your company will face on your inventory. When compared to other generic drug
manufacturers, it is clear that you hold considerably less inventory which limits the
amount of losses your company can sustain to inventory. It is also important to note that
your liquidity ratios have been steadily increasing by close to 20% over the past 2 years.
This chart shows the substantial increases in net working capital over the past 5 years.
Any additional increases in liquidity in the future can only provide even further fexibility
to your company and will be important to monitor.
Third Slide - One of the largest factors when evaluating how much risk a company can
retain is the amount of actual cash it generates as retained losses are generally paid out
of cash fows. In this respect your company has performed considerably well and has
continued to increase the amount of cash-on-hand. Since 2010, your company has
increased cash fows by over 23% annually which is highlighted in this graph of free
cash fow. This cash fow growth has been mainly driven by operating efciencies as
your operating margins have continued to expand and are on-par with the
pharmaceutical industry average of 20%. Ultimately this increased cash fow has
allowed you to advance your cash on the balance sheet from roughly $300 million to
over $602 million. This increase in cash gives you a large amount of fexibility in
fnancing plans, mainly by allowing us to pursue plans with higher retention limits than
we have assumed you currently have.
Fourth Slide - One area of importance is in your recent acquisitions. We understand
that acquisitions are a vital part of your strategic plans for growth as you have averaged
atleast one acquisition annually. Although these deals generally add value to
shareholders, it is important to acknowledge the cash drain that occurs when you
Risk Financing Script
fnance these acquisitions through cash. Prior acquisitions, like the Paddock and
CanAm acquisitions of 2012, have been fnanced through atleast 70% cash. Although
these deals have been smaller in nature, we have recently become aware that you have
agreed to purchase Rosemont Pharmaceuticals for close to $300 million in an all-cash
transaction. It is important for you to understand that if you elect to retain more risk
through higher deductibles or difering fnancing options, it is necessary to have high
cash amounts to payout claims. It will be important for us to have a frm understanding
of the future strategic planning and any deals in the pipeline to customize a fnancing
plan for you. We also have many connections with investment banks that could
potentially issue debt to pursue future transactions if you believed this would be more
advantageous. Like I said, this is just something to acknowledge, we do not intend to
alter your strategic initiatives but want to inform you of the implications if you elect to
retain more risk exposures.
Fifth Slide - As I have mentioned, we believe a key way for you to control your cost of
risk would be to increase the amount of retention. Some of the ways we can achieve
this is through a high-deductible plan, self-insurance arrangement with excess
insurance, creation of a captive insurer, and the creation of a pharmaceutical risk
retention group. Although these options difer in many characteristics, they all will
increase the amount of retention and allow you to have better control over your cost of
risk. It is quite possible that we can design a comprehensive fnancing option that will
involve an array of these fnancing solutions.