M3, Inc. Presentation Material. April Copyright 2017 M3, Inc. All rights reserved.

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1 M3, Inc. Presentation Material April 2017 Copyright 2017 M3, Inc. All rights reserved.

2 The following presentation contains forecasts, future plans, management targets and other forward-looking projections relating to M3, Inc. and/or its group. These statements are drawn from assumptions of future events based on data currently available to us, and there exist possibilities that such assumptions are objectively incorrect and/or may produce differing actual results from those mentioned in the statements. Furthermore, information and data other than those concerning the Company and its subsidiaries/affiliates are quoted from public information, and the Company has not verified and will not warrant its accuracy or dependency. M3, Inc. Copyright 2017 M3, Inc. All rights reserved. 1

3 FY 2016 Overview Copyright 2017 M3, Inc. All rights reserved. 2

4 FY2016 Consolidated Results (million yen) Forecast Actual YoY IFRS basis Sales 75,000 < 78, % Operating Profit Pre-tax Profit 23,000 < 25, % 23,000 < 24, % Net Profit 15,300 < 16, % FY16-end dividend: 10 yen Copyright 2017 M3, Inc. All rights reserved. 3

5 FY2016 Consolidated Results by Segment (million yen) FY2015 FY2016 YoY IFRS basis Medical Portal Sales 25,234 30, % Profit 14,844 16,709 * +13% Evidence Sales 19,992 22, % Solution Profit 3,908 5, % Overseas Sales 13,810 16, % *** Profit 1,614 1,582 ** -2% *** Clinical Platform Sales 2,902 2,823-3% Profit % Sales 1,283 1, % Sales Platform Turned Profit (5) 105 profitable Others Sales 2,574 5, % Profit 532 1, % * M&A fees for Anestation totaled 42 million yen ** M&A fees from India and Vidal deals totaled 266 million yen ***Overseas segment results in local currency Copyright basis: 2017 Sales M3, Inc. +35% All rights yoy, reserved. Profit:+27% yoy 4

6 Upfront Investment Costs for Future Growth (million yen) Total 1.7 ~ 2.5 bn yen 339 M&A Fees m3.com Revitalization Investment Others Recruiting& Training Fees Productivity Time Lag of New Staff Special costs incurred in anticipation of future growth dampened profits by 1.7 ~ 2.5 bn yen. Aggressive upfront investment to continue. Copyright 2017 M3, Inc. All rights reserved. 5

7 OP Growth Contributors (FY2009 FY 2016) Operating Profit (billion yen) Over 2/3 of incremental OP contributed by businesses aside from MR-kun Family. 5 3 FY 2009 MR-kun Family Platform Linked Overseas FY 2016 MR-kun family will continue to grow, while profit growth contribution will be exceeded by other businesses Copyright 2017 M3, Inc. All rights reserved. 6

8 Current Business Situation and Outlook Copyright 2017 M3, Inc. All rights reserved. 7

9 Overview Platform MR-kun Family Career Evidence Solution Overseas The m3.com platform continues to expand. Physician access increased +94% (mobile access also increased) from 5 years ago, and platform sales increased +132% Full year sales were strong at +19% yoy with further penetration of various services Orders are off to a healthy start for FY17 Establishing an invincible No.1 position in the industry for job placement of physicians and pharmacists Sales: 8.6 bn yen, +25% yoy; Op Profit: 2.5 bn yen, +11% yoy Strength in orders received, and profitability of Neues acquired last year continues to improve Full year OP grew +36% yoy, OP margins improved to 24%. Local ccy basis sales increased 35% yoy, and profits excluding M&A due diligence fees increased +27% yoy. Profit contribution from the completed Vidal acquisition totaled 379 million jpy (4 months worth, after amortization of intangible fixed assets) Copyright 2017 M3, Inc. All rights reserved. 8

10 Continued Expansion of m3.com Number of Physician Members Number of Physician Logins Medical Portal Sales +39% < +94% < +132% FY11 FY16 FY11 FY16 FY11 FY16 Platform expansion exceeds membership growth, with diversification of revenue sources Copyright 2017 M3, Inc. All rights reserved. 9

11 MR-kun Family M3 s Growth Platform Linked Business Copyright 2017 M3, Inc. All rights reserved. 10

12 Doctor Demand for On-Line Detailing What is the ideal ratio of online and offline product information ( details ) from drug companies? 100% On-line 60% 80% 100% 40% 20% 4.7% 14.4% 20.0% 75% 50% 50% 35.9% 40% 60% 12.4% 100% Off-line 20% 100% 80% 1.5% 11.1% According to 400 physicians High demand for e-detailing from busy physicians that prefer on-demand and relevant information, without the limitations imposed by offline sales reps. Source: M3 questionnaire to 400 physicians Copyright 2017 M3, Inc. All rights reserved. 11

13 Doctor s Time Allocation vs Pharma s Budget Allocation Doctors spend the most time collecting information via the Internet. However, pharmaceutical firms operating in Japan spend the majority of their marketing budget on off-line sales rep related costs. Time Allocation of doctors collecting info Marketing Budget Allocation of drug companies in Japan Other (conferences, publications, etc.) 44% 7% Other: ~100 bn yen Sales Reps: Sales Reps 17% 92% ~1.5 tril yen Internet 39% Internet: ~ 20 bn yen Source: M3 research, percentages are approximate Copyright 2017 M3, Inc. All rights reserved. 12 1%

14 MR-kun Family s Growth Potential in Japan Currently Full Potential Pharma CLIENTS SALES per CLIENT (approx.) 30 Companies (approx.) 500 mn 30~35 Companies 1 bn ~ 1.5 bn per client drivers: # of products # of opt-in MDs Added value of contents Growth Potential of 3~4x current levels Broadening of usage across entire service line-up: Average revenues from top 20 clients grew at approx. 14% YoY Copyright 2017 M3, Inc. All rights reserved. 13

15 MR-kun Family Fee Structure (annual) MR-kun Base & Operation fee Delivery fee Contents Production fee Other MR-kun Family Services 100 per message sent MR-kun, One Point edetail, Web Symposium Production of customized detail contents Others Entry Level (one product) 60 ~ 70 mn 20 ~ 40 mn 30 ~ mn around 150 mn 10 ~ mn Top 5 Clients (multiple products) 60 ~ 70 mn 700mn 100 mn 100 mn The average of top 5 clients: around 1 billion Copyright 2017 M3, Inc. All rights reserved. 14

16 MR-kun Family: YoY Incremental Sales Comparison (million yen) 737 1, FY16 YoY +19% FY14 Total H1 YoY FY15 H2 YoY FY15 Total H1 YoY FY16 H2 YoY FY16 H2 sales growth accelerated (+24% yoy). Full fiscal year sales grew at +19% yoy. Copyright 2017 M3, Inc. All rights reserved. 15

17 MR-kun Family M3 s Growth Platform Linked Business Copyright 2017 M3, Inc. All rights reserved. 16

18 Consolidated Sales Trend (million yen) 1,563 2,276 3,854 5,729 7,475 8,534 36,759 26,007 19,040 11,81114,646 51,346 64,660 78,143 FY17 FCT 90,000 95% 90% 83% 73% 68% 65% 54% 49% 43% 38% 30% 25% 19% 19% 19% 36% 40% 41% 46% 52% 54% 59% 60% 57% 17% 21% 26% 5% 10% 15% 2% 10% 11% 9% 9% 11% 16% 16% 18% 21% 22% 21% 24% FY FCT MR-kun Family Platform Linked Business Overseas Copyright 2017 M3, Inc. All rights reserved. 17

19 Business Segment Breakdown and Type Business Segments Services FY16 Sales Business Type MR-kun Family 15 bn yen MR-kun Family Medical Portal Career Research 9 bn yen 3 bn yen Evidence Solution Clinical Platform Other (Mr. Finder, AskDoctors, others) 3 bn yen 22 bn yen 3 bn yen Platform Linked Business Sales Platform 1 bn yen Other (iticket, hospital support, others) Overseas 5 bn yen 16 bn yen Overseas Copyright 2017 M3, Inc. All rights reserved. 18

20 Platform Linked Business Development Pharma CLIENT BASE Hospitals, Doctors Consumers Business Size Scale (FY2017 Forecast) M3 Research QOL-kun, etc. 3 AskDoctors, others 20 bn Group Companies CSO 1 Evidence Solution Others 2 Career EMR iticket 5 bn 3 bn 1 bn Total revenue of platform-linked businesses in FY2017 is expected to exceed 50 billion yen. New projects pipeline includes 20 to 30 business ideas with plans including overseas development. Detailed slides follow Copyright 2017 M3, Inc. All rights reserved. 19

21 Power of Mr. Finder in Drug Development 1 Evid Sol Making use of the Internet to increase, as much as possible, the number of people who can live longer and healthier lives, and to reduce as much as possible, the amount of unnecessary medical costs. ~ ~ Evolution via MR-kun for pharmaceutical e-marketing - Engine #1 Plus Evolution via Mr. Finder for pharmaceutical e-r&d - Engine #2 Copyright 2017 M3, Inc. All rights reserved. 20

22 Patient Enrollment in Large-Scale Trials Case study 1 Evid Sol Mr. Finder dramatically outpaced competitors both by number and speed in enrolling cases for a particular Endocrinology trial Number of Patients Enrolled 1,500 1,400 1,300 1,200 1,100 1, m3.com A B C D E F G H I J K L Other SMOs Expedited enrollment of motivated physicians and patients compared to other SMOs Copyright 2017 M3, Inc. All rights reserved. 21

23 Shift to e-clinical Trials 1 Evid Sol Theme Operation M&A Timing Site Selection Feasibility Study, etc /4 Group-wide approach to promoting and accelerating internet based drug development Monitoring EDC, etc Utilization of electronic medical records, etc 2012 Copyright 2017 M3, Inc. All rights reserved. 22

24 Sales and Profit Trend of Evidence Solution 1 Evid Sol (million yen) IFRS basis Sales Segment Profit 13,195 19,992 22,313 FY17 FCT 24 bn yen Orders backlog at 29bn yen, with corresponding increases in headcount as upfront investment 1,370 1,860 2,321 4, ,554 1,126 1,799 3,908 5, FY FCT OP margin rose to 24% with backdrop of healthy orders expansion Neues, an SMO acquired in April 2015, posted 600 million yen in profits Copyright 2017 M3, Inc. All rights reserved. 23

25 Sales and Profit Trend of M3 Career 2 Career (million yen) JGAAP basis Sales Ordinary Profit 8,630 FY17 FCT 10.5 bn yen 4,594 5,712 6,925 Sales and profit expansion from increase in staff and productivity 3,235 2,191 1, ,070 1,714 2,292 2,554 * FY2017 should see continued traction from job placement for physicians. FY FCT *Excludes Anestation M&A fees Copyright 2017 M3, Inc. All rights reserved. 24

26 Potential for AskDoctors.com 3 Ask Doctors 200,000 paid members 15,000 consultations per month 5.6 doctors respond to each question 99.9% response rate 2,400,000 archived consultation results Yahoo! Japan affiliation Already Japan s largest remote medical consultation platform (numbers are approximate) Rapid AskDoctors based business development opportunities exist on the stroke of advancement in legislation surrounding remote medicine Copyright 2017 M3, Inc. All rights reserved. 25

27 Established M3 AI Labo Development Stages Accumulation of Medical Big Data Clinical Study, Application Approval M3 Value Addition Medical data accumulation from the 250 thousand local and 4+ million global physician members Clinical study execution via group CROs, SMOs Rapid patient recruitment utilizing Mr. Finder Regulatory strategy consulting Marketing MR-kun family marketing support services Financing Financing support based on venture capital expertise Medical device and service development utilizing artificial intelligence and M3 group s aggregate support services. Copyright 2017 M3, Inc. All rights reserved. 26

28 MR-kun Family M3 s Growth Platform Linked Business Copyright 2017 M3, Inc. All rights reserved. 27

29 Number of Physician Members and Panelists (Global) (thousand) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, million members worldwide FY Other Nations (M3 Global Research, MDLinx, Russia) Korea (Medigate) India (Health Impetus) China (Medlive) France, Germany, Spain (VidalGroup) U.K. (Doctors.net.uk) U.S.A (MDLinx + PDR) Japan (m3.com) Over 4 million physicians utilize M3 s global platforms Copyright 2017 M3, Inc. All rights reserved. 28

30 Expansion of U.S. Career Services Sales (million yen) 2,432 3, % Operation size grew +63% yoy due to expansion of existing businesses as well as contribution from M&As Synergies with MDLinx, the U.S. web portal designed for physicians, is expected to improve sales and profitability FY15 FY16 Steady growth for FY17 is expected A new US driver with a faster initial growth rate than M3 Career in Japan, and a much larger addressable jobs market overall. Copyright 2017 M3, Inc. All rights reserved. 29

31 China: Membership Expansion Number of Physician Members in China (thousands) 953 1,0191,096 FY14 1Q 2Q 3Q 4Q 1,362 1,250 1,154 1,490 1,5611,617 FY15 1Q 2Q 3Q 4Q 1,680 1,753 1,838 FY16 1Q 2Q 3Q 4Q Marketing services for drug companies starting with MRkun, and marketing research services showed steady growth MR-kun is now being utilized for 30 drugs across 10 pharmaceutical companies On the brink of 2 million physicians members, covering the majority of doctors in China Copyright 2017 M3, Inc. All rights reserved. 30

32 RotaMaster Overview Corporate Name:IQUS Limited Established: 2000 Location: West Yorkshire, U.K. Employees: approx. 20 Trademark: <Market Share > across institutions operating outside of normal hours Synergies Developed and sells the RotaMaster software designed for workforce management at healthcare institutions Utilized at 75 medical institutions, and holds 63% market share across institutions operating outside of normal hours Transparency of open shifts provided by RotaMaster allows maximization of temporary staff placements 63% Unscheduled healthcare provider market (locum) is sized at roughly 60 billion yen. Considering expansion into this market by matching of DNUK members with open shifts found via RotaMaster Official entry into the UK career business with RotaMaster Copyright 2017 M3, Inc. All rights reserved. 31

33 Sales and Profit Trend of Overseas (million yen) IFRS basis Sales Segment Profit FY17 FCT 22 bn yen 10,980 13,810 16,338 Broader business scope in US, UK, France, and China 6,661 Local currency basis yoy growth ex M&A fees: 1,105 1,585 2, , ,043 1,430 1,614 1,582 FY FCT - Sales: +35% - Profit: +27% Copyright 2017 M3, Inc. All rights reserved. 32

34 M3 Group s Business Strategy Copyright 2017 M3, Inc. All rights reserved. 33

35 Strategy Change in Business Development Internet-Powered PE Style New Service Development in Business Expansion in the Medical Internet Sector Healthcare Industry (2000~2010) (2011~) Approach Internet Internet + Real Operations Service Coverage Web-based etools Entire Value-Chain Potential Business Domains ~10 30 ~ 50 (~ 200 including overseas) Profitability High profitability (Mid absolute profit) High absolute profit (Mid profitability) M&A Small Medium ~ Large M3 is uniquely positioned to transform the health care industry via its 1) Platform 2) Industry Expertise and 3) Human Resources (management and engineering) Copyright 2017 M3, Inc. All rights reserved. 34

36 M3 s Investment Spectrum Domestic: 2 companies Domestic: 3 companies Listed Human Metabolome Technologies Honyaku Center Mebix MIC Medical Mediscience Planning Ventures: 20 companies Domestic: 1 company Domestic: 16 companies Unlisted Mid-sized medical institution: 1 company M3 Career Overseas: 2 companies Kingyee (China) HIPL (India) Overseas: 10 companies Minority Over 50% 100% M3 Investment Share Consolidation remains the core strategy, along with a wide spectrum of investment styles in all high potential companies. Copyright 2017 M3, Inc. All rights reserved. 35

37 Value Creation via M&A Value creation Synergy Lever 1 Short term Synergy Lever 2 Mid term Synergy Lever 3 Long term We aim to create value across 3 successive terms after execution of M&A. Execution of 10+ M&As in the past 3 years have created more synergistic effects than expected and has provided accumulation of turnaround expertise PE type Cost Restructuring ex. Reviewing indirect cost Topline improvement via m3.com integration ex. Expanding product pipelines that utilize m3.com Cross-business synergy maximization, new business model creation ex. Offering new clinical trial services utilizing e-medical Charts PE-style investment will be applied to create value overseas as well going forward. Copyright 2017 M3, Inc. All rights reserved. 36

38 Powerful Execution Team Specialized team of approx. 10 experts with IBD backgrounds from top banks such as JPMorgan, UBS, Mizuho Securities, as well as KPMG, Innovation Network Corporation of Japan, and VC firms Internalized capabilities from sourcing to execution, leading post merger integrations to back up levers 1, 2, and 3 Members from firms such as GS and MS situated in other business units are assigned to projects on an interim basis multi-skill development 10 years since team formation, with zero retirees -- Voices from the Team: It s an environment where you can work towards a unified objective, with colleagues of expertise in all areas. The satisfaction and sense of accomplishment were newly felt rewards, separate from monetary merit. End-to-end involvement in projects allowed me to gain various expertise regarding management, operations, and best practices. My work is exciting! Copyright 2017 M3, Inc. All rights reserved. 37

39 M3 is Just Getting Started Copyright 2017 M3, Inc. All rights reserved. 38

40 Annual Results & Forecast for FY2017 Sales Operating Profit & Net Profit (mn yen) 90,000 78,143 (mn yen) Operating Profit Net Profit 25,050 29,000 19,040 14,646 11, ,5632,276 3,854 5,729 7,4758,534 26,007 36,759 51,346 64,660 13,738 16,061 20,022 9,294 12,704* 10,428 8,878 7,648 6,031 4,803 3,597 3,990 2,677 1, ,609 1,965 2,363 3,486 4,492 5,598 7,844* 1,938 13,493 19,500 16, (6m) FCT 00 (6m) FCT * Extraordinary profit from acquisition of MPI: 1,034 mn yen Copyright 2017 M3, Inc. All rights reserved. 39

41 FY2017 Budget Guideline Topline Opportunities are partially and conservatively incorporated Pending new businesses and M&As are excluded Cost Continued aggressive hiring, planning increase of 400 headcounts over the fiscal year: Medical Portal 150 CRO, SMO: 150 Others: 100 Allocation for M&A related costs such as advisory fees: 400 million jpy Copyright 2017 M3, Inc. All rights reserved. 40

42 FY 2017 Budget Guidance (By business) MR-kun Family Double digit growth from increase in number of products using MR-kun family services Career Healthy growth led by job placement for physicians. Evidence Solution Overseas Others Continued growth form strong orders and projects progress US: Continued growth surrounding the career business UK: Full consolidation of Vidal. Healthy growth including the UK. China: Healthy growth led by MR-kun Steady growth from Clinical Platform and Sales Platform Various businesses in the other segments to expand in both scope and content Copyright 2017 M3, Inc. All rights reserved. 41

43 Creating New Value in Healthcare M3 Medicine Media Metamorphosis Healthcare sector is enormous Japanese national spending on medical services is approximately 33tn ( 50tn including peripheral businesses) Equivalent to 10% of Japanese GDP Sector controlled by only 290,000 physicians (0.2% of the national population) Aim to create new value Provide solutions within the healthcare sector Provide new and unique business models Specialize in niches areas that provide opportunity for high value creation and high profits in order to boost enterprise value Copyright 2017 M3, Inc. All rights reserved. 42