M3, Inc. Presentation Material

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1 M3, Inc. Presentation Material October 2014 Copyright 2014 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 yproduce 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 2014 M3, Inc. All rights reserved. 1

3 Current Business Situation and Outlook Copyright 2014 M3, Inc. All rights reserved. 2

4 Summary MR kun H1 sales grew at +21% yoy. Continuing expansion pace marked during last H2. M3 Career Evidence Solution Overseas H1 sales grew at +28% yoy totaling 3.2 bn yen, with operating profit of 1.1 bn yen at +48% yoy. The mainstay service for doctors provided traction, growing at 52% yoy. New orders remained strong, totaling 16.7 bn yen. Boosted upfront investment t in headcount to support growing demand. Moving costs for MPI(and others) amounted to 180 mn yen (1Q:40 mn yen, 2Q:140 mn yen) Segment profit was 630 mn yen, continuing its expansion at +49% yoy Membership on China site topped 1mio doctors, increasing coverage to nearly 50%. Marketing business for pharma companies steadily increased, producing surplus. MR-kun service launch in pipeline for 2 pharma companies. Copyright 2014 M3, Inc. All rights reserved. 3

5 Summary continued New Group Firms Established and initiated operations at M3 Marketing, Inc. as a spin-off of CSO segment from MPI. The new company outsources e-savvy and more productive Medical Marketers (compared to traditional MRs) to pharma co s. Provisional Costs Upfront investments in anticipation for future growth, such as office relocation and recruitment fees, amounted to 0.7 ~ 1.1 bn yen in 14 1H. Copyright 2014 M3, Inc. All rights reserved. 4

6 Expand our core business M3 s Growth Develop new businesses Develop overseas businesses Copyright 2014 M3, Inc. All rights reserved. 5

7 Doctors Information Collection Venue vs Pharma s Marketing Cost Allocation Doctors spend the most time collecting information via the Internet. Conversely, pharmaceutical firms spend the majority of their budget on MR related costs. via Other (Conferences, Study Groups, Publications, etc.) Time spent collecting information 44% PR costs for pharma companies ~7% ~100 bn yen via MR 17% 92% MR Related Costs ~1.5 tn yen via Internet 39% Source: M3 research ~1% ~ 20 bn yen Copyright 2014 M3, Inc. All rights reserved. 6

8 Japanese Pharma s Huge Marketing Costs Head Count Annual Cost per Head MRs (pharmaceutical companies) 63, mn = 1.2 tn + MSs (pharmaceutical wholesalers) 30, mn = 300bn Marketing Cost for the industry: ~ 15tn 1.5 Total Marketing Cost for the industry: Source: MIX, Research by M3 Copyright 2014 M3, Inc. All rights reserved. 7

9 MR-kun s Growth Potential in Japan Currently Potential Market MR-kun USERS MR-kun SALES 29 30~35 Companies (approx.) 350 mn per client Companies 800 mn ~ 1 bn per client via increase in: # of products # of member MDs Added value of contents Growth Potential of 3~4 times current levels Major clients are increasing usage of MR-kun: Average revenue from top 10 clients grew approx. +30% YoY Copyright 2014 M3, Inc. All rights reserved. 8

10 Physicians Demand for On-Line Detailing 100% On-line Q. What is the ideal ratio of on-line and off-line promotional information ( details ) from pharma companies? A. 60% On-line 100% 80% 40% 20% 4.7% 14.4% 20.0% 75% 50% 50% 35.9% 40% 60% 12.4% 20% 80% 11.1% 100% 100% 1.5% Off-line According to 400 physicians Off-line Demand for edetails is quite high for busy physicians that require timely information at their convenience, without the limitations imposed by their off-line MRs Source: M3 questionnaire to 1,300 physicians Copyright 2014 M3, Inc. All rights reserved. 9

11 MR-kun: YoY Sales Increase (mn yen) ACT 1Q 2Q 3Q 4Q 13 ACT 1Q 2Q 3Q 4Q 14 FCT The pace of growth marked during last 2H continues, and is expected to remain on track for the this 2H as well. Copyright 2014 M3, Inc. All rights reserved. 10

12 MR-kun Annual Fee Structure MR-kun Base fee Detail fee Contents Production fee Operation fee 100 per detail sent Production of Basic operations customized detail (sending details, replying to contents physicians questions, etc.) Entr ry Level (one product) 70 mn 20 ~ 40 mn Revised as of Oct for new client Prev. fee: 60 mio 30 ~ xxx mn 130~ 150 mn 10 mn nts To op 5 Clie 60 ~ mn 200 mn 10 mn mn The average of top 5 clients: 860 mn Copyright 2014 M3, Inc. All rights reserved. 11

13 Expand our core business M3 s Growth Develop new businesses Develop overseas businesses Copyright 2014 M3, Inc. All rights reserved. 12

14 Consolidated Sales Trend (million yen) 36, FCT 50,000 1,563 2,276 3,854 5,729 7,475 8,534 11,811 19,040 14,646 26,007 24,633 0% 0% 2% 10% 19% 11% 9% 9% 11% 20% 16% 16% 17% 22% 19% 27% 29% 31% 40% 43% 44% 49% Overseas Development 81% 80% 76% 64% 61% 60% 51% 46% 40% 35% 55% 59% 28% 22% New business (domestic) Core business (MR-kun) Q Copyright 2014 M3, Inc. All rights reserved. 13

15 New Business Development on the Platform Pharma CLIENT BASE Hospital, Doctor Consumer Business Size Scale (2014 Forecast) M3 Research QOL-kun AskDoctors 10,000mn m3mt 5,000mn Co onsolidat ted Subsidiar ry 1 Evidence solution 3 Other CSO 2 Career Electronic Medical Record iticket 3,000mn 1,000mn Detailed slides available Total revenue of new businesses in 2014 is expected to exceed 30 billion yen. Current new project pipeline includes10 to 20 new business ideas and plans for overseas development. 14 Copyright 2014 M3, Inc. All rights reserved.

16 Placing Evidence Solution Business in Our Strategy 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. Past Paradigm shifted to online medical 10 years promotion via MR-kun Next Enable the shift to online clinical trials via Chiken-kun Copyright 2014 M3, Inc. All rights reserved. 15

17 Patient Enrollment in a Large-Scale Clinical Trial 1 Evid Sol In the case of study in the Endocrinology and Metabolism area, m3.com doctors enrolled five times more patients compared to other SMOs: Nu umber of pa atient enrollm ment 1,500 1, ,300 1,200 1,100 1, m3.com Case study A 社 B 社 C 社 D 社 E 社 F 社 G 社 H 社 I 社 J 社 K 社 L 社 Other SMOs Expedited enrollment of cases compared to other SMOs Copyright 2014 M3, Inc. All rights reserved. 16

18 Number of CRAs by Company # Company Name Number 1 EPS Cimic 780 M3 Group Quintiles Parexel MEDISCIENCE PLANNING INC MIC Medical ACRONET ASKLEP Linical 170 Mebix 42 <MIC research institute ltd> 1 M3 Group Evid Sol Number of CRAs within M3 is now at top levels of the industry, accelerating the Shift to Online Trials Copyright 2014 M3, Inc. All rights reserved. 17

19 Sales and Profit Trend of Evidence Solution 1 Evid Sol (mn yen) IFRS basis Sales Segment Profit 6,650 6, FCT 14 bn yen (approx) Orders received reached 16.7 bn yen, and have correspondingly increased headcount as upfront investment t 180 mn yen in 4,283 office relocation costs for 2,321 Mediscience 1,860 1,126 Planning (and others) 1Q:40 mn Q:14 mn H 1,370 Copyright 2014 M3, Inc. All rights reserved. 18

20 Sales and Profit Trend of M3 Career 2 Career (mn yen) JGAAP basis Sales Ordinary Profit 1, , ,594 3,235 3, ,070 1, H 14 FCT 6 bn yen (approx) Development of newly-hired staff has improved productivity Continued traction from job search services for doctors (YoY:+52% growth) Expecting growth in sales by +40% and an even larger increase in operating profit for 2014 Copyright 2014 M3, Inc. All rights reserved. 19

21 E-Equipped MR(Medical Marketer)Description 3 CSO 受信トレイ (68) 送信トレイ送信済み削除済み下書き E-Equipped MR Dispatch Client Higher productivity of MRs allows for increased value at less cost compared to traditional MRs. Future growth potential ti estimated to be several tens of billions of yen. Copyright 2014 M3, Inc. All rights reserved. 20

22 Typicial MR vs Medical Marketer 3 CSO Number of Details Typical Contract MR 200~300 times per month (avg.) Medical Marketer 400~600 times per month (avg.) * includes internet meetings Unrestricted meetings and Restrictions on Meetings In-person visitations are difficult exchange of information on m3.com Number of Doctors Covered Information Provision Duration (per day) 80~150 doctors per MR (avg.) 150~ doctors per MM (avg.) 1~2 hour (net) 3~4 hours (net) Transport / Wait Time 6~7 hours per day (avg.) 4~5 hours per day (avg.) Information Exchanged at Initial in-person Meeting General information including basic product details Need-based consultation and final sales pitches (General information relayed via m3.com prior to in-person meeting) Aggressive hiring plan targeting 1000 MMs within 5 yrs. Copyright 2014 M3, Inc. All rights reserved. 21

23 Expand our core business M3 s Growth Develop new businesses Develop overseas businesses Copyright 2014 M3, Inc. All rights reserved. 22

24 Physicians Registered in Our Site or Research Panel (Global) (thousand) 3,500 3,000 2,500 2,000 Over 2.5 million members in total Other Nations (M3 Global Research, MDLinx, Russia) Korea (MEDIGATE) 1,500 China 1,000 U.K. (Doctors.net.uk) Q U.S.A (MDLinx + PDR) ) Japan (m3.com) Copyright 2014 M3, Inc. All rights reserved. 23

25 Development in the US Expanding services in the U.S. via MDLinx, centered around M3 USA (100% subsidiary) Membership has reached over 600,000 US doctors after partnering with PDR, resulting in coverage of 80%+ of US physician population Developed into the #1 player in the U.S. for marketing research targeting physicians, as a result of superior media power Succeeded operations of PracticeMatch Initiating full scale career services. Significant improvement in profit margins from post merger structural improvements. Investigating opportunities to monetize MDLinx s growing database of 500,000 physician members residing outside of the U.S. Copyright 2014 M3, Inc. All rights reserved. 24

26 Physicians Registered on Our Site in China Jan. Jul. in 2014 (thousand) ,003 1, Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Copyright 2014 M3, Inc. All rights reserved. 25

27 China Business Results (mn yen) JGAAP basis Sales Recurring Profit 157 China site membership has exceeded 1 million doctors, covering nearly 50% of physicians in China Q Q Marketing and research services for pharma co s are growing steadily, producing surplus. MR-kun service launch in pipeline for 2 pharma companies. Copyright 2014 M3, Inc. All rights reserved. 26

28 Sales and Profit Trend of Overseas (mn yen) IFRS basis Sales Segment Profit (largely US contribution) 2,983 4,069 6, FCT 8 bn yen Higher performance in line with increasing media power. (approx) More aggressive stance towards e-promotion on part of pharmaceutical 4,784 companies Continued acceleration of growth on a local currency basis. 1,585 M&A due diligence fees 1,105 1,043 amounted to 72 mn 626 yen in 1H in costs Exclusive of fees, 1H operating profit amounted to roughly 7 bn yen. 1H Copyright 2014 M3, Inc. All rights reserved. 27

29 M3 Group s Business Strategy Copyright 2014 M3, Inc. All rights reserved. 28

30 Changing Strategy in New Business Development Business Development in Healthcare-Internet Sector (2000~2010) Internet-Powered Investment Strategy in Healthcare Sector (2011~) Approach Service Coverage Internet Web-based etools Internet + Real-world Operation End-to-End Service Structure Number of Potential Business Domains ~10 Profitability High margin (Mid revenue) 20 ~ 30 (~ 100 incl. overseas) High revenue (Mid margin) M&A Small size Large ~ mid size 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 2014 M3, Inc. All rights reserved. 29

31 Value Creation via M&A Va alue crea ation Synergy Lever 1 Synergy Lever 2 Synergy Lever 3 Short term Mid term Long term Restructuring t cost structures ex. Reviewing indirect cost Topline improvement via m3.com integration ex. Expanding existing pipelines via m3.com Synergy maximization, i creation of new business models ex. Offering new clinical trial services utlizing EMR 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 initially expected, as well as provided accumulation of turnaround expertise We plan to use this PEbased strategy to create value overseas as well. Copyright 2014 M3, Inc. All rights reserved. 30

32 Financial Results Copyright 2014 M3, Inc. All rights reserved. 31

33 2014 1H(2014 Apr-Sep) Consolidated Earnings H H (mn yen) Actual Forecast Actual YoYY Sales 16,692 23,000 24, % Operating Profit Pre-Tax Profit 6,105 6,800 7, % 6,304 6,800 7, % Net Profit 3,979 4,000 4, % Copyright 2014 M3, Inc. All rights reserved. 32

34 Consolidated Sales Analysis (YoY) (mn yen) H Medical Portal MR-kun Research, Others Career Evidence Solution Overseas Clinical Platform Sales Platform Others 16, Continuing growth IFRS basis Expanded Research and 306 marketing support services aside from MR-kun 707 3,223 1, M3 Career expanded Consolidated Medscience Planning US and UK both continued to expand Expanded operations New segment following addition of MPI H 24,630 Steady growth momentum continues across all segments Copyright 2014 M3, Inc. All rights reserved. 33

35 Breakdown by Business Segments IFRS basis (mn yen) Medical Portal Evidence Solution Overseas Clinical Platform Sales Platform Others H H YoY Growth Sales 9,179 11, % Profit 5,028 6, % Sales 3,110 6, % Profit % Sales 2,813 4, % Profit % Sales 1,336 1, % Profit % Sales Profit Sales % Profit % Copyright 2014 M3, Inc. All rights reserved. 34

36 One-Time Upfront Investment Costs(1H) (mn yen) Total ~1.1 bn yen Office Relocation Costs M&A Due Diligence CSO Losses Recruitment & Training Fees Productivity Time Lag of New Staff Upfront investment costs is expected to dampen profits by 0.7 ~ 1.1 bn yen in 1H. Profit contribution from current investments expected sometime next fiscal year. Copyright 2014 M3, Inc. All rights reserved. 35

37 Sales Growth in Relation to Headcount Growth Staff (FTE) Sales Banner Ads, etc H +56% +85% H H H Flow type services show immediate effect of headcount increase on sales increase. kun MR- +42% +21% Sales for stock type services such as MRkun, which account for a majority of revenues, is expected to pick-up further going forward H H H H Copyright 2014 M3, Inc. All rights reserved. 36

38 Annual Results & Forecast for 2014 (mn yen) Sales (mn yen) Ordinary Profit & Net Profit 36,759 50,000 Net Profit Operating profit Extraordinary profit from acquisition of MPI 13,738 12,704* 15, ,534 7,475 5,729 3,854 1,5632,276 14,646 11,811 19,040 26,007 9,294 8,878 9,000 7,648 7,844* 6,031 5,598 4,803 3,990 4,492 3,597 3,486 2,677 1,683 1,609 1,965 2,363 1, (6months) Fore cast (6months) Fore cast * Exclude one time profit from net profit and operating profit (profit from acquisition of MPI: 1,034M yen). Copyright 2014 M3, Inc. All rights reserved. 37

39 Creating New Value in Healthcare M3 Medicine Media Metamorphosis Healthcare sector is enormous Japanese national spending on medical services is approximately 33tn (approx. 50tn if peripheral businesses are included) Equivalent to 10% of Japanese GDP Sector controlled by only 290,000 physicians representing only 0.2% of the national population Aim to create new value Solve the issues and problems of the medical sector With new and unique business models While focusing on areas were we can add high value (e.g., have high profit) to boost our enterprise value Source: Ministry of Health, Labour and Welfare, the Japan Medical Association, M3 Copyright 2014 M3, Inc. All rights reserved. 38